THE STAN KELLY MEMORIAL LECTURE 1985
REGENT HOTEL, MELBOURNE
September, 1985
SUSTAINING ECONOMIC
GROWTH
THE PRIME MINISTER HON. R. J. L. HAWKE AC, MP
c
4'
ECONOMIC SOCIETY OF AUSTRALIA
VICTORIAN BRANCH
I
FOREWORD
The Stan Kelly Memorial Lecture has been generously endowed by Mr. Bert Kelly,
modest member and modest farmer, in memory of his father William Stanley Kelly.
It is customary in this introduction to run through the distinguished career of Stan
Kelly South Australian farmer, member of the Tariff Board through the 1930' s,
member in some cases chairman of many government and other committees,
and most importantly champion of free international trade. But I prefer to refer to a
newspaper which, I must confess, I have read only once Stock and Land". Along
with other better known publications, this carries the modest farmer column but,
unlike others, doesn't prune it. So I quote from the August 15 issue:
" When my father, Stan Kelly, died in 1969, Sir John Crawford, who
knew him well, told me that I should endow a biennial lecture in my
father's memory. My father had been through the tariff mangle in no
mean manner. Sir John knew something of the pressures that Stan Kelly
had to withstand and without any economic training. This is why he said
I should endow the Kelly lecture. Unfortunately I did not do this
immediately. I was a minister at the time and I kidded myself that I was
too busy.
But in 1975, when I was lying in my swag on the Birdsville Track,
looking up at the stars and thinking about the transient nature of human
affairs, I suddenly decided to do my belated duty and endow the lecture.
My main motive was to do my best to see that Stan Kelly's work trying to
reduce trade barriers did not falter for lack of understanding in the
future. So the lecture was endowed with the stated aim of striving for the
reduction of trade barriers."
The agreement with the Economic Society states that the lecturer need not be well
known. Indeed one of the purposes of the series is to give a voice to someone not so
well known. We have had some difficulty in meeting this criterion. Past lecturers
have been Sir John Crawford and Mr. John Uhrig they spoke in Canberra and,
since the lecture moved to Victoria, the Secretary to the Treasury and the Governor
of the Reserve Bank. And this year we have Mr. Hawke, whom one could hardly call
an unknown.
In his column Bert Kelly said how proud he was when he heard that the Prime
Minister was to deliver this year's lecture. We, in the Economic Society, are also
proud and delighted to be presenting the address. R. H. Snape
President
Economic Society of Australia
( Victorian Branch)
2
INTRODUCTION
I know of Stan Kelly from a mutual friend between our two generations, John
Crawford. Sir John's Inaugural Stan Kelly Memorial Lecture in 1977 laid out some
ideas on which we later worked together in the Study Group on Structural
Adjustment. I like what I know of Kelly a farmer who gave much of his life to public
administration, including on the Tariff Board in those terrible years from 1929 to
1940, and as an adviser to the Commonwealth Prices Commissioner during and
immediately after the war. I like the way that Stan Kelly recognised the dangers of
excessive protection in a protectionist era, but sought the moderate and gradual
curbing of excesses rather than impractical, radical changes.
There are many ways in which the steady progress we are making today in building
a more dynamic Australian economy through increasing its international orientation
is indebted to the work of Kelly and a small number of others, who questioned the
role of high protection when its tide was still rising in Australian political
thought. One of Stan Kelly's legacies to Australia was, of course his son Bert. Bert Kelly
occupied the tragic place in Australian history of a farmer who understood the
economic effects of protection, from 1958 sitting on the back bench of aconservative
Government whose trade and industry policies were run by Jack McEwen. That he
stuck to his guns through all those years wvith rarely a ray of hope says a great deal for
his strength of character or, as Mavis would probably say, for his sheer farmbred
obstinancy! SUSTAINING ECONOMIC GROWTH
A gathering like this, organised by the Victorian Branch of the Economic Society,
is not an occasion for partisan comment. The only political comment that I will make
will be of a scientific kind involving, for example, the testing of political
forecasts. Five weeks ago I presented the annual forecasting prizes to the New South Wales
Branch of the Economic Society. The New South Wales Branch was discreet enough
to withhold information on the content of forecasts, but from conversations with
participants it seems that the best exchange rate predictions a year ago were those
which had our dollar rising by the smallest amounts.
Political forecasting is a bit more accurate. Early this year I predicted that the
ideological tensions within the Liberal Party would soon erupt into open disputation
about the Leadership. As we all know that prediction, which I shared with others, has
been dramatically proven correct today.
It will be of immense interest now to those of us concerned with economic policy to
see how the ideological forces which gave rise to today's events manifest themselves
in the Opposition's approach to fundamental economic issues.
Over the past few months we have seen the current Opposition support needsbased
welfare then oppose the Assets Test; support the introduction of more
international market discipline into highly protect~ ed Australian industry and then use
its numbers in the Senate to defeat the Kerin Dairy Plan; support the free play of
market forces and then block legislation designed to take the allocation of petroleum
exploration licences out of the hands of bureaucrats into a competitive market; and
support lower deficits but oppose attempts to reduce expenditure where it has no
strong justification in economic efficiency or equity, such as with the Senate's
rejection of our amendments to some more-than-intended Veterans' entitlements
resulting from judicial decisions.
These are the sorts of issues which will test the rhetoric of the new Opposition
leadership. No doubt we will all watch to see how it acts. Whatever happens in these
matters, it has been the policies of this Government which have turned around the
economy and restored economic growth. I believe that I am entitled to claim on this
record that Australia's hopes of building a new era of sustained economic growth
depend on the present Labor Government.
This is a heavy responsibility, and one that we accept as the core of our mandate
from the Australian people. Australia can be a successful society only in the context
of sustained economic growth. The Labor Government is committed to progress
towards ideals that can be broadly described as social democratic -ideals that
include equality of opportunity, the removal of poverty, the raising of living standards
for ordinary Australian families, all within a political framework of individual
freedom and parliamentary democracy.
None of this can be advanced far without sustained economic growth.
Only sustained, strong economic growth can reduce unemployment to
acceptable levels.
Only sustained economic growth can support adequate provision for Australians
who, but for the intervention of govermecnt in directing community resources to
them, would live in intolerable poverty.
And only sustained economic growth can deliver rising living standards over time
for ordinary Australian families whether through higher pay, or the provision of
the better education, health and social infrastructure that are essential ingredients of
genuine equality of opportunity.
While growth is essential for progress towards the goals of Australian social
democrats, it is not a goal that divides Australians politically. Our common interest
in growth allows us to seek consensus on many issues of economic policy, through
analysis of the effectiveness of policies in promoting growth.
While economic growth is a platform upon which we can all stand, in a democratic
society like Australia, many interest groups, and coalitions within the electorate,
have the power to determine what is possible in the way of policy innovation
legitimately, if often inconveniently, and sometimes outrageously, to the detriment of
economic growth.
I believe that a social democratic government in Australia, a Labor
Government is better able to appeal to the broad national interest in fairness, as
well as the national interest in economic growth, to defeat vested interests and other
barriers to progress. Various groups in society will use their democratic powers and
rights to veto change that is essential for growth unless there is widespread
acceptance and understanding that the benefits of growth are distributed
equitably. For this condition to be met, there must be mechanisms often fiscal and other
mechanisms directed by government to distribute. equ it ably the benefits of growth.
And there must also be mechanisms for community discussion and consultation
within which widespread community support if you like, consensus can be built
for growth-oriented policies.
So far, the Government's record stands up pretty well. We have so far been
responsible for three budgets. In 1983-84 non-farm output expanded by 7.9 per cent
over the course of the year and by 3.4 per cent on a year-on-year basis. Last year,
non-farm growth exceeded 5 per cent on both bases. Current forecasts indicate that
non-farm growth will again reach 5 per cent in 1985-86. Non-farm growth did not
reach 5 per cent year-on-year and only once reached 5 per cent in the course of the
year, during our Liberal-National Party predecessors' seven years in office. By the
end of this year, the economy will have expanded more in three years than in seven
and a half years under our predecessors.
So far so good.
But the real test is whether strong growth can be sustained over the long period
necessary permanently to cut the evil of unemployment down to manageable
proportions, and to give all Australians the higher living standards that our resources
and skills have placed within our reach.
Tonight I will describe some of our thinking about policies for growth; where we
have got to in implementing new policies; and something of the agenda for future
action. But first I would like to say something about where we have come from.
Past Performance
Even during what now seem to have been halcyon days of economic prosperity
between the end of the Second World War and the early 1 970s, Australia's growth in
real GDP per capita was unimpressive on a world scale.
During the 1 970s, Australia's economic performance deteriorated markedly.
Growth in real GDP per capita averaged only 1.3 per cent for the period 1973 to
1979 and then a bare 0.1 per cent per annum between 1979 and 1982.
Simultaneously our inflation and unemployment rose sharply, proportionately more
than in most OECD countries.
The economic environment in Australia in the post-war period, and particularly
since the early 1970s, has not been conducive to strong and sustained growth in our
capital stock, employment and productivity.
It is now clear that even the relatively modest growth performance of the 1 950s
and 1960s was purchased partly at the expense of future growth potential. A
significant part of our growth in the early post-war decades derived from investment
to supply protected domestic markets. The adverse consequences of this were not
evident while the investment itself was taking place. But it locked much of Australian
industry into fragmented production, high costs, and insulation from competitive
pressures. In other industrial countries, liberalisation of manufactured goods trade in the
1 960s made these industries more sensitive to opportunities for expansion based on
exports, for application of superior technology, and for managerial improvement
more generally.
We can all now see that the inward-looking post-war development strategies were
a mistake. One of the lessons of the past decade is that we can no longer carry the costs of
mistakes of this kind. iI
The era of steady strong expansion of total world demand for the output of our
most productive industries, for example in agriculture and mining, is long past.
There are still opportunities for us in the international economy which, if utilised
effectively, can support sustained strong growth at home.
But we cannot rely on a rapidly growing world economy or the discovery of new
natural resources to lift our performance sufficiently to make concerted inroads into
unemployment while, at the same time, maintaining the living standards of the
employed. If ever we were " The Lucky Country", we cannot afford to remain the
Happy-go-Lucky Country that Donald Home described two decades ago. We must
work to create our own success.
Improving Australia's Performance
Sustiined strong growth requires consistent and mutually supportive macroeconomic
and resource allocation policies. Both are essential. Weakness in one can
destroy any achievements in the other.
Macro-economic Environment
The Labor Government set out to lift Australia's long-term performance at a time
when there were major macro-economic imbalances in the economy.
We deliberately turned our backs on prescriptions that depended on first
correcting these imbalances. We deliberately rejected fightling inflation first..
As the Treasurer likes to say, we set our sails for growth, believing that we could
best address the structural imbalances in the process of on-going growth.
But we never did kid ourselves that the structural imbalances were
unimportant. First, there was the huge prospective budget deficit amounting to about 5 per cent
of prospective GDP for 1983-84.
Second, there was a lack of international competitiveness across large parts of our
export and import-competing industries, reflecting the combined effects of
entrenched high inflation, deliberate over-valuation of the Australian dollar ( as
acknowledged by former Prime Minister Malcolm Fraser), and mediocre
productivity performance. And reflecting all of these factors, there was a huge
current account deficit, at 3.9 per cent of GDP in 1982-83, one of the highest in the
OECD, even when demand was exceptionally weak in the depths of recession. The
large current account deficit was associated with increases in foreign debt which
threatened sooner or later to become unsustainable.
Closely related to these structural weaknesses were high interest rates and high
real unit labour costs, contributing to historically low rates of investment.
All of these factors were in the minds of Paul Keating and myself, alongside the
short-term foreign exchange crisis, when the dollar was devalued by 10 per cent two
days after our election to office. Starting with a large current account deficit, our
competitiveness had to improve if we were to get the economy moving with
expansionary policies.
Under the managed exchange rate system that we inherited, the initial
depreciation did not hold. That pointed to a weakness in that system, which was
removed decisively with the floating of the dollar in December 1983.
The floating dollar has facilitated the adjustments in competitiveness that were
necessary to support sustained growth in the Australian economy at rates faster than
in the rest of the world.
Of course, dollar depreciation only converts a balance of payments problem into
both a balance of payments and an inflation problem, without any sustained
improvement in competitiveness, unless it is supported by moderate wages
growth. The agreement announced yesterday between the A. C. T. U. and the Government
provides the basis for the necessary wage moderation, including through discounting
the 1985 C. P. I. increases for indexation purposes by two percentage points, and
delaying and moderating the claims made in the riational productivity case.
Moderate wages growth along these lines is absolutely necessary to the
maintenance of strong growth in our current circumstances.
Moderate wages growth along these lines is good for all Australians, but especially
those who benefit directly from the creation of half a million jobs in three years and
continued strong employment growth after that an economic benefit unrivalled in
our history.
Moderate wage growth along these lines at a time of strong expansion of output
and employment, represents an outcome that would be impossible under any
alternative approach to economic policy in Australia, without the Prices and
Incomes Accord.
The improvements in competitiveness resulting from depreciation and wage
moderation should allow continued strengthening of the current account of the
balance of payments in the course of strong growth.
It was oair confidence in the Accord that permitted us to embark on expansionary,
growth-oriented fiscal and monetary policies when we came to office.
But from the beginning, it was recognised that the large fiscal stimulus would need
to be hauled in as recovery strengthened and broadened to the private sector. This is
reflected in the progress we have made in reducing the budget deficit, by over half to
little more than 2 per cent of GDP in the two years to 1985-86.
This progress on the Commonwealth deficit has been supported by co-operation
with the States in the Premiers' Conference and Loan Council, to reduce the total
public sector borrowing requirement as a proportion of GDP by over two and a half
percentage points in two years.
Monetary policy has been designed consistently to support strong growth but not
any acceleration of inflation. The floating dollar has greatly assisted the
implementation of monetary policy towards these objectives.
Some doubts were expressed earlier this year about whether monetary policy
really was consistent with our anti-inflationary objectives. The doubts derived
mainly from the distortions that financial deregulation has introduced into
measurement of the monetary aggregates. The Treasurer and I have put some effort
into explaining our firm monetary policy in recent times, and the doubts have
diminished. Events are vindicating our decision to address structural imbalances in the course
of growth rather than as a pre-condition for expansionary policies.
This is evident in the gains that have already been made on the Budget deficit and
competitiveness. Real unit labour costs are back to the levels of one and a half
decades ago. Interest rates remain high, but at least the pressures exerted by
Government borrowing are diminishing.
The framework of macro-economic policy that has been established, incorporating
the Accord, the floating dollar and the Trilogy of fiscal commitments, are delivering
settings of wages, monetary and fiscal policy that are consistent with sustained
It has also removed major areas of uncertainty and arbitrariness from crucial areas
of macro-economic policy, and thus contributed to a more stable environment for
investment and production decisions.
Private investment remains too low, but is responding to the improved
business environment.
Micro-economic Environment
In addition to the more stable macro-economic conditions to which I have already
referred, there is no doubt that the low levels of disputation in the context of the
Prices and Incomes Accord have allowed underlying economic realities to play their
proper role in investment and production decisions.
Most importantly of all, the dramatic recent improvements in international
competitiveness provide Australia with a unique historical opportunity to lift its
manufacturing and service sectors out of inward-looking production into the
international economy.
Beyond these ways in which macro-economic outcomes affect micro-economic
performances, we are taking steps to:
improve the environment for productivity growth;
improve the efficiency and effectiveness of the public sector, and
develop a more outward looking industry policy.
While each of these may be examined separately there are a number of str'ong
linkages between them. In the past the productivity performance of Australian
industry has been substantially conditioned by an excessively inward orientation.
The effect of this has been to mute the incentives to find and exploit world markets
which have the greatest growth potential. It has impeded productivity growth and led
to a decline in competitiveness. It has also discouraged the development of new
products, new production techniques and new work practices.
Finally it has discouraged flexibility and adaptation in the organisation of many of
our industries. Introduction of these innovative and dynamic qualities will provide an
impetus to productivity growth.
At the same time industry policy has provided incentives to pursue profit
opportunities by seeking to obtain the benefits of Government assistance, at the
expense of the creation of new wealth through economically productive
activities. IMPROVING THE ENVIRONMENT FOR
PRODUCTIVITY GROWTH
Human Capital Formation and Application
The formation and application of human capital are vital elements in any strategy to
improve and enhance our economic growth performance. Advances in these areas
are intimately linked to the quality and flexibility of the labour which is available for
use by industry: a workforce which is highly educated and trained will facilitate the
development, adaptation and diffusion of more productive techniques and the more
flexible and efficient utilisation of labour and capital by industry.
Changes to our educational and vocational training systems are necessary. Major
reforms initially will focus on the school sector.
The Karmel Report has emphasised that changes in curricula, course content,
progression and certification processes are needed if schools are adequately to fulfill
their critical role in the nation's social and economic development.
The report acknowledges that a much greater proportion of young Australians
have to complete full secondary schooling and receive a broad general education, if
young people are to realise their potential and fulfill their key role in the further
social, cultural and economic development of Australia. A broader school based
education is essential.
The implementation of Karmel's recommendations for the school system will
complement our traineeship initiative, announceol'in the Budget. To complement
both these measures my Government has taken action to reduce the chances that
young people will be precluded for financial reasons from participating in post
compulsory schooling or training.
Supporting these initiatives, the Government has taken steps to increase the
number of places and improve and increase the relevance of training within the
TAFE sector and across the range of tertiary institutions.
Innovation, Research and Development
Innovation, technical progress and the development of export markets depends in
large measure on Research and Development and technology transfer.
Aggregate spending on R& D in Australia is low. While the Government
contribution is commensurate with other developed countries, industry fuinding and
performance of R& D is low. The proportion of research funds devoted to
experimental development is low.
Australia has some important advantages in research and development activity.
The education system produces capable research workers. The cost of R& D in
Australia is not high.
To break down longstanding weaknesses in our applied research effort, for five
years from 1 July this year, 150 per cent of expenditure on research and development
within Australia will be deductible for taxation purposes.
We are seeking to improve the manner in which some of the direct public
assistance is provided. Efforts are being made to increase interaction between
industry and the public research institutions, such as CSHI. O and universities.
Remaining weaknesses in our applied technological effort have much to do with
the past development of an inward looking industrial structure. This has dulled
competitive pressures for adoption of superior technology.
Labour Market
We all agree that adaptable labour markets can assist in promoting efficient use of
capital and labour resources and their more rapid accommodation to economic
change. The setting of wage differentials has the potential to influence the efficiency and
adaptability of the labour market. But flexibility in these differentials is less
important the more mobile and flexible is the labour force itself.
In contemplating labour market reform, we are wise to recognise that increased
wage flexibility contains a risk of destabilising aggregate wages and the conduct of
macro-economic policy. If necessary, we are prepared to give away small advantages
of marginally increased relative wage flexibility to preserve the greater benefit of
overall wage moderation.
Taxation and Growth
In the first of my trifecta of Economic Society speeches this year, to the Canberra
Branch in March, I said that tax reform directed towards improvement in our growth
performance must come to grips with four flaws in the current taxation system.
To quote from that speech, which was published in the Economic Record in
June: ,, IThe tax review] must address the widespread avoidance and evasion,
especially by people with income well above the Australian average It must
address poverty traps. The tax review must address the unfairness and the
associated effects on work effort of workers on average incomes paying the
current 46 per cent marginal tax rate on incomes above $ 19,500.
And . the review must address the powerfiul distortions to resource
allocation inherent in a 60 per cent marginal tax rate cutting in at less than
twice average weekly earnings, within a system that provides ways for turning
taxable income into untaxed benefits."
While the Government's preferred option did not survive the Tax Summit, the tax
package to be announced soon will make substantial progress towards these
objectives. It will significantly improve the environment for economic growth in
Australia.
IMPROVING THE EFFICIENCY AND EFFECTIVENESS
OF THE PUBLIC SECTOR
Quite apart from its role in establishing the macro-economic and regulatory
environment, the public sector is such an important feature of the Australian
economy that the efficiency of its own operations has large implications for our
overall economic performance.
I believe that this Government has gone further than any of its predecessors in
scrutinising public expenditures, with a view to testing their contribution to improved
efficiency in the economy, and improved equity.
The issue of efficiency in public expenditure is separate from the issue of size.
Nevertheless, as a Government which believes that public expenditure is necessary
for progress towards its key objectives, we have found the constraints that the trilogy
commitments have imposed on size useful in concentrating attention on
efficiency. Finance Minister Peter Walsh has made several detailed statements on our
approach so far, and I do not have time tonight to traverse that ground.
But I believe that I can assert that this year's budget, with the lowest growth in real
outlays for six years, and reducing the share of Commonwealth expenditure by a full
percentage point, has contributed more to genuine equity than many more expansive
budgets in past years.
The efficiency of public enterprises is also a major factor in the overall
performance of the Australian economy.
Significant progress has been made in rationalising activities and reducing costs in
several major Commonwealth commercial enterprises. This is the real task. The
issue of " privatisation"' is a diversion from this task.
Commonwealth public enterprises are quantitatively less important than those of
the States.
In recent years the Australian community has been more critical of charges for
electricity, rail and other services provided by the States, as well as by the
Commonwealth. This is a promising development.
I believe that the Commonwealth Government has contributed to this change in
the climate of community opinion. We have also made direct representations to the
States on these issues.
One result is a substantially lower rate of increase in charges, through containment
of costs, without increases in the deficits of State enterprises.
TOWARDS A MORE DYNAMIC AND OUTWARD
LOOKING ECONOMY
It will be clear from what I have already said that I attach prime importance to
increasing the international orientation of the Australian economy.
Major progress has been made in these last two years, and the continuation of
progress will be a major focus of our efforts in the years ahead.
Our work in this area has many inter-related strands.
One strand is the re-orientation of Australian business, trade union and
community attitudes towards greater awareness of international opportunities.
I have seen this as one of my special responsibilities as Prime Minister, and have
pursued it in every possible forum at home and abroad.
It has been assisted by discussion within the Economic Planning Advisory
Council and the Australian Manufacturing Council.
Community attitudes began to change in favourable ways some years ago, but
there has been a major acceleration under this Government.
A second strand has been the reform of the regulatory environment which had
placed so many inhibitions on international transactions in the past.
The abolition of exchange controls at the time we floated the dollar had farreaching
implications for trade, the full extent of which is poorly understood.
It facilitated the development of new hedging arrangements, which reduced the risk
of specialisation in production for export.
The floating of the dollar itself reduced uncertainty in production for export, by providing
greater confidence that any movements in Australian costs that were out of line
with international developments would be counteracted by currency depreciation.
The entry of new banks with foreign equity, and the internationalisation of the
operations of established Australian banks, are widening the channels through which
Australian producers are informed of export opportunities.
We have also taken significant steps towards liberalisation of import trade. Our
approach so far has been to address issues industry by industry.
The plans for the passenger motor vehicle, textile, clothing, footwear and steel
industries all involve substantial liberalisation.
The decisions to use bounties, rather than tariffs, to protect the production of steel,
agricultural harvesters, machine tools and computers improve the form and visibility
of assistance to those activities.
The deregulation, proposed or underway, of the marketing arrangements for milk
and dairy products, eggs and dried vine fruit will reduce assistance to industries
which have been very highly protected in the past. The voluntary restraints on the
exports of colour television sets to this country were abolished last year.
In the service sector, our new guidelines for the provision of education services to
overseas students on a fee-paying basis open the way for the development of a new
export industry.
The progress in some of these areas has been considerable.
The removal, on 1 January 1984, of the temporary import quotas imposed on a
range of steel products in 1982, was a major break from the earlier Australian
experience with temporary quotas becoming permanent Together with other elements
of the industry plan, it has helped to make steel production in Australia internationally
competitive, and has opened prospects for expansion through exports.
Since the mid-i 970s, the greatest problems of high protection in Australia have
been in the textiles, clothing, fcotwear and passenger motor vehicle industries.
In these industries, improvements in Australia's general competitive position through
depreciation, gradual liberalisation of imports, and major rationalisation and increased
productivity at home have substantially reduced protection over the last year.
This is reflected in large reductions in the premium paid on quota sold by tender.
The third strand in our efforts to increase the international orientation of Australian
industry has been our active trade policy, designed to build a climate of confidence
in which Australian and overseas enterprises can interact with each other.
Some of our activities have been defensive, as we have sought to minimise the
damage that the trade policies the European Economic Community has imposed on
our efficient rural industries, and to ward off United States' pressures upon Japan to
divert imports from efficient Australian suppliers.
The representations that John Kerin and I made in Brussels early this year were
successful in holding the line against subsidised European beef in our established
Western Pacific markets. We can be reasonably satisfied with the way Japan has
maintained the international trade rules against bilaterial pressures, although we
would like to have done better with beef.
More positively, we have invested considerable effort in building confidence in trading
relationships within our own region. I myself have been closely involved in discussions
on trade with heads of government in all major countries in our region.
There has been special progress in our relationship with China. We have been
working to build new layers to our trading relationship with Japan as Japanese
industry's appetite for raw materials has become less voracious. Significant steps
have been taken to build closer economic ties with the ASEAN countries, the
Republic of Korea, and the developing countries of the South Pacific Forum, Like
A1,4-( 3) t he ASEAN countries, we have had to think about possible responses to suggestions
for new free trade areas that have emanated from the office of the Special Trade
Repregentative in the United States..
We have established a firm base from which to use effectively the new
competitiveness conferred by the depreciation of the dollar and the associated
commitment to wage moderation.
The circumstances have come together for us to make a permanent break over these
next few years with the inward-looking policies that have been holding us back.
With a new round of Multilateral Trade Negotiations ( MTN) on the horizon, we
need to prepare ourselves to contribute to its successful progression. Admittedly the
benefits we have obtained from previous MTN rounds have not been encouraging.
But this was due in considerable measure to our lack of credibility in arguing for
general trade liberalisation while seeking to maintain our own trade barriers.
One of the ways in which we have been preparing for a new round of negotiations is
through the regional consultations amongst Western Pacific countries which
followed suggestions that I made in a speech in Bangkok in November 1983. The
third regional meeting of senior trade officials will take place in Seoul next week.
There is general agreement within the region that these consultations have been
helpful in identifying regional interests and opportunities for co-operation.
A demonstrated commitment to continue steadily with domestic liberalisation will
greatly add to our credibility and negotiating position in any MTN round. Such an
approach could be complemented by a preparedness to pursue trade policy initiatives
involving particular countries or products.
The continuation of domestic liberalisation is in any case fully justified by the domestic
benefits, independently of the trade policy rewards which it makes possible.
Consistently with our established approach, further liberalisation, whether it were
within a program of general reductions in assistance or industry by industry, would be
gradual, would be complemented by appropriate adjustment measures, and might need
to be supported by positive measures to encourage expansion of productive activities.
Conclusions We have come a long way in these last two and a half years, but we do not delude
ourselves that we are near the end of our journey.
A new approach to macro-economic policy, based on fighting inflation and unemployment
at the same time within the framework of the Prices and Incomes Accord, has
brought back strong growth after a decade of stagnation and decline.
The return of growth has given Australians the heart to tackle longstanding
structural impediments to growth.
We have begun the huge task of reform, guided by our recognition of the reality
that if change is to be substantial and permanent, it must be gradual, its consequences
must be well understood in the community, and the whole structure of social and
economic policy must care for Australians who are unable to defend themselves in
the market place.
As I have said, by the end of this year the Australian economy will have expanded
more in three years than in the preceding eight years.
Our current forecasts suggest that by the time the Labor Government has been in
office half as long as its predecessor, it will have presided over the creation of almost
twice as many jobs.
But we must go further yet.
The Labor Government, and this generation of Australians, must expect to be
judged in history not by our success in promoting three or five years of economic
growth stronger than the rest of the world.
The final test of our worth is whether we succeed, gradually but inexorably, in so
transforming the environment of economic life in Australia, that sustained growth
becomes entrenched, even in these difficult times for the world economy.
On our performance so far, I reckon that Stan Kelly would expect us to pass
this test.