CHIECK AGAINST DELIVERY U I, 1_ EMBARGOED UNTIL 10 P. M.
SPEECH BY THE PRIME MINISTER
CONFEDERATION OF AUSTRALIAN INDUSTRY
SYDNEY 30 AUGUST 1984
Ladies and gentlemen
I very much appreciate this opportunity to address
tonight..
Your Forum's theme " Business Competitiveness The
of Recovery" is both timely and apt. you Challenge
In this context it is appropriate to focus on the
Government's macro-economic policies and performance, and on
more specific policies that affect industry.
On both fronts I believe we have already made considerable
progress. Every indication suggests that the recovery is now well
underway. Our policies give every reason for confidence
that we can consolidate it and secure it for the medium and
longer-term.
This is the Labor Government's highest priority.
It is an integral part of the program launched in March 1983
to secure sustained non-inflationary growth, to bring
Australians toge-ther and t5 build a more equitable
Australia. The record to date has been an impr~ ssive one:
In the year between the June quarters of 1983 and 1984
economic growth was over 10 per cent, making ours the
fastest growing economy in the Western world, with the
fastest recorded growth in the 2-5 years3 since quarterly
national accounts have been compiled. r
2.
This has been accompanied by strong growth in employment
with some 230,000 Australians finding new jobs. This
pattern will be sustained during tYe coming year. With
employment forecast to expand by 22 per cent through the
year, we shall by. next June have seen 400,000 new jobs
created since the Summit comfortably within reach of our
election promise to create half a million new jobs over
three years.
The rapid turnaround in economic activity has also been
accompanied by a marked reduction in inflation. Contrary to
the school of economic thought that dominiated Australian
policy thinking before the Labor Government took office, we
are succeeding in fighting unemployment and inflation at the
same time.
This achievement has been made possible by the historically
unique Prices and Incomes Accord struck between the
Australian Labor Party and the With the Accord in
place, we have an agreed basis for wage and price restraint
in a sustained economic recovery.
The progress of the past year will be continu the year
ahead. Non-farm GDP is forecast to rise by 5 per cent this
year a second year of extremely strong expansion by the
standards of the past decade, and in line with our long-term
requirements. Consumer prices are also expected to rise by only 5 per cent
through the current financial year, without any 1Medicare
effect. This is down to the expected average of OECD
countries after being twic tthe OECD average when we took
office. Reflecting these improvements in growth performance and
inflation, real unit labour costs have fallen dramatically
and the profit share is now higher than at any time for a
decade. Interest rates have also fallen appreciably. During the
past year they have-dropped a percentage point for most home
loans and more for other lending activities. The bond
tender announced on Budget night and closing earlier this
week generated interest rates a percentage point below those
of the last tender, and two and a half Dercentage points
below those of a year ago. Lower interest rates contribute
to lower costs directly, and also indirectly through their
effect on the exchange rate.
It is not at all surprising, in these circumstances of
continued strong growth, restraint in wages and prices, very
strong productivity growth, declinnc interest rates, and
real unit labour costs back to the levels of the late
1960' s, that surveys of business intentions are now
suggesting that business investment will return to growth
year on year in 1984-85.
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The immediate outlook then is for a strono, balanced and
sustainable level of domestic economic activity. This is a
basic precondition for resurgence in the business sector.
But what of the prospects for the medium and longer-term?
Here the key is to be found in the theme of this Forum in
greatly strengthened and continually strengthening business
competitiveness. There are many dimensions to the enhancement of our
competitiveness. Fundamental to the achievement of such an outcome is the
maintenance of the stable macro-economic environment that we
have established over the past year. By sustaining the
benefits resulting from lower real unit labour costs,
falling interest rates and a market-related exchange rate,
we contribute directly to the competitiveness of Australian
business. We know that the maintenance of a favourable macro-economic
outlook will require restraint in the growth of Government
outlays. We expect to continue to reduce the budget deficit
in the course of economic growth and revival of private
investment over the next few years. This is consistent with
the Government's continued focus on the economic outlook for
Australia in the medium to long-term, and with statements
made by the Treasurer and myself around the time of last
year's Budget.
The Government believes that continued reduction of the
deficit on the pattern of this year's budget is consistent
with continued implementation of reforms and new programs,
which strengthen the Australian economy and society, and
improve our provision for Australians in need.
It is consistent with this continued program of reform,
because we are prepared to contain and reduce expenditure in
areas which do not have the-highest priority for the
Government. In this context, the real growth in outlays of 6.1 per cent
in this year's Budget represents much more substantial
overall restraint than is immediately apparent.
If we exclude the once-for-all increases associated with the
Medicare reforms, this year's real growth in outlays is
about 4 per cent compared with 6.7 per cent in 1983-84 and
6.3 per cent in 1982-83.
This 4 per cent itself is inflated by two considerations
which are important this year, but which will be much less
significant in future.
The drastic reductions in expectations about inflation as
measured by the GDP deflator, Of about two and a half
percentage points between February this year when the
forward estimates were prepared and the completion of work
on the Budget, meant that a number of commitments entered in
money terms early in the year were larger than would be
necessary in more normal circumstances. Similarly, debt
servicing commitments are set in the short: term in nominal
terms, and thus real terms equivalEnts are raised for a
while by sudden and large reductions in inflation.
Further, the strong growth in outlays through 1982-83 and
1983-84 would have carried through into significant growth
in real outlays in 1984-85, even if there were no growth in
expenditures from the level of June 1984.
Thus it will be clear that a very substantial degree of
expenditure restraint is reflected in this year's
appropriations. Following the experience of two Budgets, I am firmly of the
view that wie must review our traditional procedures of
Budget formation with a view to utilising fully the
opportunities for financing any new programs while
continuing substantially to reduce the Budget deficit.
When Budget decisions are taken on the eve of or even after
the commencement of a new financial year, a Government's
options for securing major savings without disruption and
waste are severely truncated. In future Budgets, we Must
seek to extend the lead times both in preparation of the
expenditure side of the Budget, and in implementing
expenditure decisions.
As regards the size of future deficits it should also be
recognised that it is possible to make substantial
reductions by holding the growth in Governmnent expenditure
below the growth trend of the economy in the years ahead.
At the same time it is widely recognised including by the
Government that reform is necessary to promote the equity
and efficiency of the taxab-ion system. The Government will
be receptive to the views which emerge from community
discussion of these-issues.
But let me put one issue to rest. Vie do not believe that
taxation reform will be to Australia's advantage if it
involves overall increases in taxation as distinct from
greater efficiency aind equity in the system. The Labor
Government does not believe that higher overall levels of
taxation are necessary for substantial reductions in the
deficit, for improved equity, or for enhanced efficiency of
our economic system.
The changes announced in the Budget reflect this assumption
and will, I believe, be helpful to the maintenance of
business competitiveness: the extension of the time allowed
for installation of equipment qualifying for the investment
allowance; the opportunities for company groups to
consolidate their accounts for taxation purposes; the faster
depreciation of income-earning non-residential buildings;
and the capacity-to write off expenditure on mineral
exploration against income from any source.
The Government knows that there are still weaknesses in the
old Australian corporate income tax arrangements. We are
aware of some business views that even faster depreciation
than under the arrangements introduced in 1982 would be
conducive to high levels of investment and economic growth.
But the Government is also aware of the budgetary costs of
further mneasures along these lines. We believe that further
community analysis and discussion is required before we are
in a position finally to settle our view on appropriate
long-term corporate income taxation arrangements to support
high levels of sustained growth.
Sound macro-economic policies are fundamental to improved
Australian competitiveness and sustained growth but they
must be supplemented in other ways.
Ultimately our success will also depend on the employment of
our human and natural resources in their most productive
uses; on our application of the best technology, sometimes
by developing new technology ourselves, and sometimes by
absorbing it from abroad; on high levels of investment from
home and abroad; on our making effective use of
opportunities for profitable international trade, especially
in our Western Pacific region where economies are expanding
more rapidly than any in the world; and above all by working
together Commonweath and State Governments, unions, and
business to find solutions to the problems which
inevitably arise in the pursuit of growth.
In building a more dynamic, outward-looking and competitive
industrial base, we are particularly fortunate in
Australia's geographic location in the most dynamic region
of the world economy. This proximinity makes it much easier
to establish an appropiate trading role for ourselves, based
on our resource endowments and competitive advantages.
The success we are having in developing the China Iron and
Steel Initiative is a case in point. In spite of
considerable public scepticism at the time 3f the
announcement, and prounccments that it would cone to
nothing, runs are already on boird and many more are in
prospect. Already this year w.-e have secured an agreement on
economic and technical co-operation in this field.
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We have also secured a number of most useful contracts for
the delivery to China of Australian iron ore, manganese and
steel products. And all this, as 1 say, is just the
beginning. What is already a valuable trade, is going to
become vastly more important.
My regional trade initiative has also produced valuable
results. The round of consultations it has engendered on
issues likely to be involved in any new round of
multilateral trade negotiations, has been greatly
appreciated by all countries concerned.
For Australia, access to world markets is not a luxury to be
pursued as an afterthought to domestic economic policy. We
need such access if our industries are to offset the
disadvantages of small local markets.
I should. like to think such a proposition was simply stating
the obvious. Historically, however, the approaches adopted
to industry development in Australia would seem to suggest
otherwise. Preoccupied with the notion and accepting the
limitations of the small Australian market, most Australian
Governments have, at the behest of both industry and labour,
moved to create conditions of self-sufficiency in the local
market place. They have sought to shield those within it
from external competitive pressures.
The protective measures they adopted wrought large costs in
our society in terms of higher prices, severe misallocation
of resources, and a loss of dynamism and potential for
growth. Importantly they also deflected attention from the
possibilities emerging in the world around us, and reduced
what capacity we may have had to pursue such possibilites.
The preconditions for the emergence of truly competitive
Australian industries were being stifled.
The Labor Government has sought to redress this situation.
Already we have shifted the-terms of the debate away from an
unproductive emphasis on the free trade vs. protection
issue, and instead focussed attention where it belongs
namely on the conditions of competitiveness of Australian
industry. The best means of coming to terms with competition is to
improve Australian industry's own competitiveness by
restructuring and investing and retraining to reduce costs.
Import replacement, like export expansion, is a thoroughly
good thing if it is the result of improved competitiviness.
But import replacement which requires increased protection
because it is not supoorted by improved co petitiviness,
imposes costs on other industries and the , ihole economy,
slows growth, and costs us jobs that we desperately need.
7.
Iam an optimist about our capacity to lower costs, replace
imports and expand exports in a wide range of industries,
including manufacturing, through improved competitiveness
and without increased protection.
I am heartened, for example, by the strong, positive
response of workers and business to the Steel Industry Plan.
The Plan involved a major liberalisation of trade with the
removal of a range of temporary import quotas imposed by the
Fraser Government.
Through co-operation between Commonwealth and State
Governments, unions and business in this sector we have been
able greatly to lower costs, strengthen competitiveness, and
improve the position in domestic markets, alongside the
reductions in protection.
Jobs and. investments in the steel industry are infinitely
more secure now than they were when we came to office. The
industry is moving towards a position in which it can
realistically look to expansion through exports. And the
steel-using industries of Australia, which themselves
provide so many jobs, have been provided with relatively
lower cost steel, arid with better service -in a more
competitive environment.
The approach the Government took to restructuring of the
Australian steel industry was one manifestation of a growing
recognition that the achievement Of a competitive Australian
industry base is going to require a recognition by all
concerned of the need for quite thorough-going structural
adjustment in many parts of Australian induistry.
Industry needs to be more outward looking, actively
seeking out new products and markets;
Industry needs to be more willing to adopt new, more
efficient means of production, often characterised by
new technology;
Industry also n~ eds to be aware of opportunities
provided by our indigenous research and development, and
by the use of better trained and skilled workforce.
These desirable features are relatively easy to describe;
what is more difficult is to put in place policies which
will bring them about.
1, for one, certainly do not subscribe to the view that
increased Government involvement in the running of all
aspects of the economy will necessarily lead to a better
run, miore dynamic industry; nor do I beliec that the
provision of additicna' sssista~ ice is nec~ ssarily the
answer. But neither is an unfettered free imarket approach
likely in today's complex world to provide effective,
equitable solutions to all problems.
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In an economy such as Australia's, the best solution will be
a mix of Government involvement and the forces of
competition. Government's concern should be with the
broader community and social consequences of change, while
the forces of competition should provide the signals to
which industry, in the free play of the market place, will
adapt. The Labor Government has made very clear its view that
changes in this area, while desirable and inevitable, should
be gradual. As a community we need to cushion the impact on
those who will be adversely affected by change.
But it is not as if wie are now faced with an entirely novel
situation. In the post-war period Australian industry has
undergone a massive transformation.
With this experience behind us, and an economic recovery
which is now providing additional job opportunities for
Australians, we can be more confident of our ability to
address the structural changes required to make our economy
more open and more competitive.
The Australian Labor Government has advocat~ ed an approach to
industry policy based on consultation and discussion with
those involved in a particular industry. Vie have formalised
this process by establishing industry councils under the
aegis of the Australian Manufacturing Council.
This enables all parties to share information about a
particular industry, including its prospects and the
problems it faces. It also enables the marshalling of
support for any structural changes deemed necessary.
Policy decisions taken in such circumstances should be
well-informed of the circumstances facing a particular
industry. An approach of this kind is in no way arbitary;
nor does it carry any risk of alien solutions being
superimposed from-above. It is also an approach likely to
produce soundly-based rather than lowest common denominator
responses to an ind~ stry's contemporary needs.
This approach has been reinforced through the establishment
of more general consultative mechanisms such as EPAC. In
that forum, information on economic ' policy and longer term
industry trends can be exchanged. Such information is
important, contributing as it does to decisions by
employers, employees and Government that will draw on a
common understanding of the future and of the likely
implications of alternative approaches.
I have already referred to the Steel Indusitry Plan. The
Government's motor vehicle policy is aniothe7 good example of
our approach.
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For decades the motor vehicle industry was plagued by
Government reactions to short-term crises. In spite of
rising levels of protection that industry's performance
continued to deteriorate. This was costly not only to the
consumer, but also to the industry since continually
changing Government policies did not promote an environment
for appropriate planning and investment.
It was against this background that the Labor Government
established a Car Industry Council comprising
representatives from the various sectors of the industry.
The work of the council and its report provided the
Government much needed information about the nature and
extent of the ills affecting the industry.
Almost as importantly, it also provided a forum for
discussion between participants from industry, unions and
Government. I believe that this laid the foundation for a
greater understanding of the industry's problems than had
hitherto been achieved.
As a result of this process of consultation the Government
was able to introduce an industry plan which will promote
the development of a more efficient car industry with
long-term job security as a consequence.
The industry has been given a period of time to adjust to
phased reductions in the level of protection currently
provided. Incentives to develop export markets and for
research and design activity have also been provided.
At the same time, the Government has designated the motor
vehicle industry for the purposes of the labour adjustment
training arrangements scheme. This will provide re-training
assistance for retrenched workers.
Although it is too early to claim success for the plan,
there have already been some early indications that the plan
has provided the requisite Onvironment for investment in the
industry.
Ford has indicated that it will spend more than $ 4B million
to install an aluminium casting machinery centre in Geelong.
Toyota has announced its intention to invest some $ 250
million over the next five years. The announcement by GMH
to re-badge the Nissan Pulsar is also encouraging and
represents a movement towards the called-for reduction in
the number of models.
While it is a practical, and indeed the only sensible way of
proceeding, to deal with structural chanqe on an
industry-by-industry ba is, it remains ! eq itinmate to
consider where wee rree hhedrei nq ih th emphasis w place on
ensuring the conditions of Australian competitiveness.
There are indeed views put to the Government from time to
time about what would be a desirable pattern for the future
growith of Australian industry. But we as a Government are
not in the business of " picking winners". Our concern is
rather with seeking improvements in Australia's long-term
economic growth performance through improved competitiveness
and greater use of opportunities for international trade.
There can be no Jfoubt that Australia should be seeking to
reap the benefits of specialisation in those areas wherein
we have a marked comparative advantage.
Alongside expansion of industries based on our natural
resources, we should be prepared to take advantage of the
opportunities provided by our trading partners as they
gradually upgrade their import needs towards more
skill-intensive products and services
Our. industry must adopt an aggresive, competitive stance
to capture these new markets as they dEvelop.
Trade in services should be of particular interest
although we have scarcely yet begun to scratch the surface
of the possibilities.
The Government is particularly mindful that the pursuit of
such possibilities indeed the whole proccss of structural
change will have consequences for the distribution of
incomes. This makes especially important the adoption of fair
taxation and social security arrangements, and strong growth
in employment.
Above all, as recognised clearly by the Labor Government,
there is a continuing need for labour market programs both
to provide additional Job opportunities for those who are
disadvantaged, and to ensure that Australiani workers are
equipped with the experience and skills to mnatch the new
opportunities. Total expenditure ohi labour market and related employment
and training programs will be $ 1.1 billion this year, double
the provision for 1982-83. We also have the Kirby Committee
currently reviewing the whole gamut of Gove: nment training
programs and, side by side with this, hove recently
announced a long-term funding program involving substantial
increases in Commonwealth assistance for schools, and made
provisions for an additional 30,000 places at universities,
colleges and TAFE's by 1987.
E quilly imoortantly the S\' crnrnmt has aL1SO initiated
-ev1iv's of the a u-31itv of duc-3tiori jt all levels. We are
mos concerned to iriurrove-the ru levarce of the education
process to employment opportunities and to the future needs
of industry.
Indeed we regard the recussitation of our education
institutions as a sound and vital investment in our future,
complementing our policies to restructure Australia's
industrial base.
The Government ha* s been heartened by the growing acceptance
of what it is trying to achieve through its industry
policies. That support is now widespread, among both
employers and employees.
The awareness this implies contributes importantly to the
climate among decision-makers at the industry level which
will make possible the improvement in conditions so
necessary for competitive Australian industry structures.
This awareness hinges on a recognition of the benefits of
the consultative process; through such a process wie avoid
the risk, of a directionless and confusing policy vacuum.
Any such vacuum would mean an inevitable return to the
futile and debilitating patterns of confrontation of the
past. None of us want that.
Indeed the historically low levels of industrial disputation
registered over the last year have given our nation a real
chance to realise its full productive potential. This is
the visible demonstration of the benefits of a true
" consensus" appruach.
Consultation also allows all parties to share information
and reach agreement on a course of action -it is an
integral part of a purposeful, co-operative approach to
industrial change.
The consulative mechanisms wqe have established are also a
fundamental part of the Accord. As such they make a major
contribution to continuing recovery and to the maintenance
of price and wage stability. None of us can afford a return
to the divisive patterns of-the past.
Instead, what we ne~ id to do is to build on the consensus
approach to national economic development issues commenced
at the National Economic Summit Conference last year.
In this regard, a sound approach to the framework for future
industry development is crucial. Rather than playing King
Canute, we should all recognise and accept the need for
adaptability in industrial structures and policies so that
industry can withstand changes in its circumstances, and
respond positively to these.
Importantly, this means moving to integrate manufacturing
policy with external Poic~ s, ospecially trade.
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To the extent we succeed in this, in creating the conditions
for an expanding, export-oriented manufacturing and service
sector, vie shall have a basis for providing employment
growith and satisfying career opportunities for future
generations. We look to the Confederation of Australian Industry to help
in the task of addressing these issues.
I thank the CAI,-and particularly its President Mr Don
Hughes, for the very constructive and fort~ hcoming support
they gave at the Economic Summit arid since then in EPAC.
While of course we would not expect. always to asqree on all
issues, nevertheless it has been a matter of great
satisfaction to me and the Labor Government that you have
been prepared to co-operate so consistently and so
constructively to the greater good of our country.
With the support of bodies such as the CAI*, I am sure wie
shall not only secure the necessary community understanding
of the issues involved, but will also successfully meet the
great challenge they present.
The task is not an easy one, but, for Australia, we must
succeed together.