Jj> AUSTRAL IA t
EMBARGOED AGAINST DELIVERY CHECK AGAINST DELIVERY
SPEECH BY THE PRIME MINISTER
FINANCIAL REVIEW DINNER SYDNEY 21 AUGUST 1985
This is the third year in which I have had the pleasure
to address the Financial Review's Post-Budget dinner.
The pleasure is twofold. First, of course, is the
opportunity which it presents to renew acquaintances
with so many friends.
But just as important is the fact that on each occasion
I have had the privilege to report steady progress in
achieving the Government's policy aims, due in no small
part to a consistently applied budgetary strategy to
promote a more prosperous, fairer Australia.
The Budget which Paul Keating presented last night on
behalf of the Government continues in that proud
tradition.
Like our first two Budgets, it is a Budget for jobs and
growth jobs for today and jobs for the long term.
It is a Budget with a clear direction, consistent with
our overall economic strategy.
This is a Budget of reform in particular, but not
exclusively, reform of our programs for young people so
as to address the m~ ajor economic and social issue of our
time youth unemployment and disillusionment.
And the Budget achieves this result while fulfilling
handsomely the stringent trilogy of fiscal commitments
made in the last election campaign.
Commitments which no other Government has ever had the
confidence to make; commitments which the sceptics said
could not be fulfilled.
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In pledging that we would not increase tax revenue, and
would reduce spending and the deficit, in proportion to
GDP, we set ourselves conditions which have only been
met twice before in the past quarter century but we
met them.
In adding to these commitments the further undertaking
to reduce the deficit in money terms for 1985-86, we set
ourselves conditions which had not been met for sixteen
years but we met them.
It is worth recalling the rationale for that
unprecedented set of commitments and the economic policy
context in which they are set.
Cast your mind back ot the early months on 1983.
Australia had endured seven long years of Government
based on confrontation and division which reaped a
whirlwind of industrial dislocation and a debilitating
wage-price spiral, culminating in a combination of
double-digit inflation and double-digit unemployment
unprecedented in Australian history.
Real unit labour costs rose sharply and drove the profit
share, in the second half of 1982, down to a record low
of less than 12 per cent.
Over the 7 years before the Labor Government took
office, non-farm GDP averaged growth of only 2.4 per
cent per annum. Employment crept up at an average rate
well below the growth in the labour force. As a result,
unemployment rose inexorably. In early 1983, most
commentators thought that there was little prospect of
achieving sustained growth at a pace fast enough to stop
the rise of unemployment, let alone to reduce the dole
queues.
We promised in 1983 to seek reconciliation and consensus
to get Australians working together again.
We set ourselves several inter-related goals to create
half a million jobs in our first three years; to reduce
unemployment and inflation simultaneously; permanently
to improve our long-term growth performance by
correcting structural weaknesses; and progressively to
achieve a more just, more equitable society.
Our approach and in particular the emphasis which we
placed on the Prices and Incomes Accord was framed in
recognition of the environment within which any
Australian Government would have to work.
And I believe that Australians can be proud of the fact
that, together, we have made so much progress towards
achieving these goals.
Australia has experienced one of the strongest
recoveries of all the OECD countries already 10 per
cent growth in two years.
And we are looking to a further five per cent real
non-farm growth in 1985-86 five per cent growth in
Australia while the OECD is only expecting about 3 per
cent for the world's major industrial countries.
Over three years we will have achieved more real growth
than our conservative predecessors achieved over their
full seven years in office.
The strong growth has been the key to the 410,000 new
jobs that have been created in Australia since the
National Economic Summit in April, 1983.
We -have created 70,000 more jobs in 27 months since the
Summit than our predecessors managed in 88 months. Our
three year target of 500,000 is now comfortably within
reach.
And the unemployment rate, which has already fallen by 2
percentage points, is expected to fall further this year
to 7-1/ 2 or, at worst, 8 per cent.
We recognise that, while fiscal pump priming was
appropriate while economic activity in the private
sector was weak, it is no longer necessary or
appropriate for the public sector to shoulder so much
responsibility.
Consistent with our fiscal trilogy we have, in this
Budget, reduced the share of Commonwealth outlays in GDP
by a full percentage point. As the May measures amply
demonstrate, this is the result of rigorous expenditure
pruning and firm control over new programs.
There has been no lower growth in nominal outlays this
side of 1968-69. In this Budget we have reduced the
growth of real outlays to 1.3 per cent, the lowest in 6
years.
On this same occasion a year ago at the Financial
Review Budget Dinner, last year in Melbourne, I
foreshadowed changes in our procedures for formulating
the annual budget, to allow more effective control of
expenditure within Government priorities. I said then:
" Following the experience of two Budgets, I am
firmly of the view that we must review our
traditional procedures of Budget formation with a
view to utilisinig fully the opportunities for
financing new and expanded programs while
continuing substantially to reduce the Budget
deficit.
When Budget decisons 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 in preparation of the
expenditure side of the Budget, and in implementing
expenditure decisions, and to improve on the
traditional practice which we have inherited."
Following those comments a year ago, the Government
brought forward the timetable for consideration of the
1985-86 Budget, culminating in this year's May Statement
and the results that were unveiled last night.
With no increase in tax revenues as a proportion of GDP
we have, in this Budget, reduced the deficit to $ 4.9
billion a cut of $ 1.8 billion. If the Government's
position on wages is accepted by the Arbitration
Commission, the deficit could be $ 350 million higher.
With the lower deficit, the gross bond sales to the
private sector this year are expected to amount to only
billion, compared to $ 7.6 billion last year. And
that $ 5 billion includes $ 3 billion of refinancing of
matur ing securities.
In conjunction with the cutback in State Authorities'
borrowing programs negotiated with the Premiers in May,
this Budget will permit a sharp reduction in the public
sector borrowing requirement in 1985-86.
Such a reduction will help to reduce pressures on real
interest rates from this source and help to bring
monetary and fiscal policy into better balance.
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This reduction will help to underpin domestic investment
and credit-sensitive consumption expenditures, within
the context of monetary policy firmly directed to
supporting strong growth but not any resurgence of
inflation. ( I said more about our firm monetary policy
in a speech to the New South Wales Economic Society on
July).
Let me expand upon the strength of recovery in the last
year, and the factors which will shape our growth
prospects through this year and beyond.
A pleasing feature of the economic outcome in 1984-85
was the consistent growth in private sector activity
achieved through the course of the year.
Real private consumption expenditure grew at an annual
rate of 5.5 per cent in the second half of 1984-5, up
from 3.7 per cent in the first half. Business
investment grew steadily at an annual rate of 4 per
cent.
Most pleasing of all was the huge private sector
contribution to employment growth.
Some 90 per cent of the growth in employment which
occurred in the year to the March quarter ( the latest
for which the disaggregated data are available) was
private sector employment.
1985-86 is forecast to be another buoyant year for the
private sector, underpinned by solid growth in private
consumption and faster growth in business investment.
Partly reflecting the strength of sales, the official
forecasts assume that business inventories do not make
much contribution to growth in 1985-86. But stocks are
now very low relative to sales, in historical terms, and
there is a chance that we will do better than the
forecasts on this point.
A significant factor in the outlook for 1985-86 and
beyond is the recent depreciation of the Australian
dollar. we, as a community, have a real chance to make
a decisive break with the consequences of past poor
competitiveness. Our manufacturing industries now have a real chance
substantially to increase their shares of domestic
demand.
And our manufacturing, rural, mining and service
industries now are well placed to do much better on
export markets.
I have suggested before that we could create 100,000 new
jobs for Australians if we retain and utilise our newly
strengthened competitiveness.
But the same increases in the prices of imported goods
which have already strengthened the competitiveness of
domestic producers are raising consumer prices. If
these increases flow right through to all our costs we
will have lost our advantage.
For this and related reasons, the Government will be
arguing for discounting of the CPI for the price effects
of depreciation at the next two national wage hearings.
We will be meeting employers and unions before the next
case to discuss the Government's approach. As the
Treasurer ' indicated last night, we will be exploring
with the ACTU, within the framework of the Accord, means
by which any temporary loss in real income can be fully
restored, over time, without damaging the economy.
As a further indication of the scale of benefits which
can be achieved if only the real depreciation can be
preserved, the OECD has estimated that net exports could
contribute 1.4 percentage points to growth in 1985-86.
The Budget forecasts incorporate a slightly more
conservative estimate of one and a quarter points.
And while circumstances may vary, across industries,
much of Australian manufacturing certainly has the
capacity to respond to the business opportunities which
are emerging.
But whether those opportunities will be present in 1986-
87 and beyond depends very much on how successful we are
at containing inflationary pressures in the aftermath of
depreciation. In addition to strengthening the foundations of economic
growth, our third Budget, like its two predecessors, is
a Budget of reform in an even wider sense.
We have focused strongly on the major economic and
social concern of our time the position of young
people.
As I said in my address on Sunday night, we must nurture
the talents of young Australians. Their enthusiasm,
their brains, their vision can lift this country to the
front line of the world's industrial powers.
But so often when we have spoken to young people we have
detected a sense of frustration and anger because a
disturbing number feel that they have not been given a
chance. In this Budget my Government has given effect to a
co-ordinated strategy to give young people that chance.
Especially young people from financially poor or
otherwise disadvantaged backgrounds.
A better trained and motivated workforce means a
workforce which is more flexible and better able to
respond to the challenges which lie ahead of us.
With this in mind we have revitalised arrangements for
youth income support and put in place an imaginative new
approach to youth training programs an approach
modelled closely on the recommendations of the Kirby
Report, involving a mix of both on and off-the-job
structured training and education.
We will be devoting substantial additional budgetary
resources to this task. Resources to provide an
adequate level of income support; to provide 20,500
additional tertiary places over the current triennium;
to sponsor training places in the public sector: and to
ensure the success of traineeships in the private
sector.
The consultations which we have had while formulating
our proposals were both fruitful and encouraging. They
show considerable goodwill to improve the prospects of
our young people, especially those who for whatever
reason leave school earlier than year 12. These people
are frequently from financially poor backgrounds and
frequently are condemned to prolonged unemployment, or
locked in forever to low skill jobs.
The major initial focus will be on training in the
finance, retail and hospitality industries: industries
well represented at this gathering. I ask, on behalf of
the young, that all concerned with industry bear their
social responsibilities in mind in applying the
traineeships proposal to their organisations.
Froin the first days of this Government, we have worked
to remove structural impediments to improvement of
Australia's long-term growth performance, alongside
macro-economic policies for recovery and reforms to
promote equity. We have seen policies in these three
areas as being mutually reinforcing. The youth
policies, with their focus on education and training,
are important both to long-term growth and to social
justice.
But the Budget makes provision for substantial reform in
other areas as well: the increased deductions for
research and development expenditure in Australia;
expanded support for research and development within the
motor vehicle plan; and restructuring of our
international trade promotion and marketing efforts.
There are substantial initiatives to reduce farm costs
in ways that promote economic efficiency. These include
the complete removal of the excise on fuel for eligible
primary producers and the replacement of the tariff on
grain harvesters by bounties on local production.
In relation to social security, we have built upon the
substantial real improvements in benefits provided in
previous Budgets to provide more adequately for our most
needy fellow Australians.
In our first two budgets we introduced Medicare, the
highly successful Community Employment Program, and the
widely acclaimed first home owners' scheme.
We renegotiated the Commonwealth State Housing Agreement
and provided over 60 per cent more funding.
We reordered welfare programs as necessary to target
substantial real improvements in pensions and benefits
for those most in need of assistance.
This year, we have introduced a supplementary payment of
per week for long term unemployment beneficiaries
who rent privately, and we have further increased the
additional benefits paid to certain low income families
with children.
As it is necessary for all of our social and economic
objectives, this is above all a Budget to underwrite a
third year of strong growth
A third year of growth which further defies and, I
trust, shall defeat the pessimism about growth that
descended upon Australia in the mid-seventies.
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A third year of growth for Australians to learn
again the huge rewards for all Australians, to be
won by community co-operation within a well-crafted
strategy for national recovery and reconstruction.
In his speech last night Paul Keating described this
Budget as " Historic" and he was certainly entitled to
do so.
Specifically, he drew attention to the Budget's central
achievement the honouring in full of the commitment I
made on behalf of the Government at the last elections
the trilogy of budgetary commitments.
No previous Prime Minister and no previous Australian
Government had ever given so clear and firm a commitment
on budgetary policy.
There were, as usual, the sceptics and the knockers.
I even seem to remember some comments by a former
Secretary to the Treasury who compared the feasibility
of the trilogy to the likelihood of what he called " airborne
pigs".
Yet the requirements of the trilogy this historic
commitment have been met; and more than met; and, as
Mr Keating said last night, have been met by achieving a
budgetary discipline unmatched in any budget for at
least the last sixteen years.
The fulfilment of the trilogy would of itself justify
the description of the Budget as " Historic"
But there is much more to it than that.
I profoundly believe that if the Australian people and
in particular, Australian business and Australian trade
unions respond to the opportunities this budget
offers, then the 1985-86 budget can be a watershed in
our history.
And I say that for this reason:
For too long, the budget-making process in
Australia lacked consistency, purpose, and
direction. Until 1983, Budget after Budget failed
to provide any coherent framework within which
business could plan or in which the trade union
movement could fulfil its responsibilities or in
which the Australian community as a whole could see
with confidence the future directions of Australian
economic and social policy.
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This Budget, even more than its two immediate
predecessors, and certainly in a way never attempted in
the Budgets of the sixties and seventies, does establish
that framework a framework of confidence and
consistency, of direction and purpose that will serve
and strengthen the Australian economy and the Australian
society not merely this financial year, but for many
years to come.
And let me conclude in this way. I mentioned before the
scepticism from certain quarters about the feasibility
of our Government's commitment to the trilogy.
But the economic debate in Australia since the mid
seventies has been marked by a wider scepticism.
For example, scepticism about the workability of a
policy designed to attack unemployment and inflation
simultaneously... scepticism about the achievement of a
workable Prices and Incomes Accord about the capacity
of the trade union movement to exercise restraint and
responsibility.., about the ability of a Labor
Government to achieve co-operation from the business
community and scepticism about Australia's capacity
to achieve sustained economic growth without its
benefits being aborted by a new bout of high inflation.
Yet all these things have in fact been achieved.
But underlying much of that scepticism was not just
doubt about the ability of the Government the Labor
Government to achieve these results.
In a deeper sense, the scepticism expressed a kind of
doubt about Australia's own capacity, as a community, as
a society, as a nation, as a people.
I would be very unwilling that this Budget, this
document, should be made to bear more than it properly
can. But may I say at least this much: this Budget, I
believe, does give us the opportunity an opportunity
given by the combined efforts of Government and people
to break the chain of scepticism about our capacity
not just of this or any other Australian Government but
of the Australian nation to succeed, to grow, to
maintain Australia's historic commitment to a fairer and
better society and to succeed in a way and to an
extent unexcelled by any nation on earth.