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PRIME MINISTER
EMBARGOED UNTIL DELIVERY CHECK AGAINST DELIVERY
CONFEDERATION OF AUSTRALIAN INDUSTRY
CANBERRA 27 NOVEMBER 1986
Ladies and gentlemen.
I must start by thanking you, Ken, for your words of welcome
tonight. Since this is your last official function before
handing over the presidency, it's appropriate that I place
on record my Government's profound respect for and
appreciation of your work for the CAI. Under your
, presidency, the Confederation of Australian Industry has
made a significant contribution to the economic debate in
this country.
And let me add a personal note, since Ken and I go back a
long way. In fact we shared a memorable Duke of Edinburgh
award which took us to Canada in 1962. So, Ken, 24 years
on: thank you and good luck.
Ladies and gentlemen,
We're now in the last week of November, and with the end of
the year in sight this seemed a good time and an excellent
audience for a review of the economy and a look forward to
the prospects awaiting us in 1987.
This is no ordinary end-of-year stocktake because 1986 has
been no ordinary year.
For all of us, those of us in industry, those of us in
business, those of us in government, it has been a year of
very great difficulty certainly, in terms of economic
management, in terms of international adversity, in terms of
adjustment to changed circumstances, perhaps the most
difficult and turbulent for many years.
And to the ordinary Australian citizen in the workplace, in
the home, on the farm, some of the events of the year must
have seemed strange and even threatening because so much
of what has been happening has no recent precedent in
Australian experience.
Unfamiliar forces have flowed in from overseas one after the
other in a turbulent procession which dramatically speeded
up the.-process of economic change in Australia.
1986 was the year in which the trans-Atlantic agricultural
trade war turned white-hot at the expense of Australian
farmers. It was the year in which OPEC's discipline finally cracked
and oil prices plummeted to their lowest levels in 13 years
bringing prices of related commodities important to
Australia down with them.
It was the year in which the great international currency
battle being waged between the United States and Japan moved
sharply further against Japanese producers turning the
screws still tighter on our exporters of coal and iron ore.
These, and other international forces together produced a
sharp fall in Australia's terms of trade, after an already
bad year in 1985.
It has to be conceded too that the ability of the community
to grasp the nature of the changes we were undergoing was
probably hampered by the unfamiliar nature of the technical
language used to explain it.
Complex economic notions like current account deficits and
terms of trade and J-curves hardly come trippingly off the
tongue. But the result of all these external factors was all too
clear: our nation's real income dropped by about $ 6
billion. No economy could emerge unscathed from such a battering.
And no responsible government could step aside and avoid the
need for tough decisions imposed upon a country and an
economy such as ours by so massive a loss of national
income.
As a Government we accepted the unpalatable but necessary
disciplines in wage fixing, monetary policy and in the
Budget. Most importantly of all, with a determination unmatched in
Australia's peace-time history, we set about the task of
reorienting the nation's economic institutions and fostering
the growth of dynamic, outward-looking industries which can
take on the world's best and win.
But let me emphasise that this has not been a task we set
about, only in 1986.
From Day One from March 1983 we recognised that the only
path which could guarantee the future prosperity, stability
and competitiveness of the Australian economy was to open
ourselves to the opportunities and the pressures of a
deregulated trading and financial environment.
So over the past three and a half years we have set
ourselves the task of reforming and restructuring
Australia's economic institutions and the framework within
which they operate.
As we draw near to the close of 1986, we have real cause for
pride that these great tasks of reform we set ourselves have
begun to bear fruit.
We had our difficulties in 1986, but we also recorded
something of a triumph.
We had our economic problems, but the Australian people
responded magnificently to them.
In short, the sacrifices that were forced on the nation have
not been in vain. I believe there is a new spirit abroad in
Australia. A new determination to look critically at the way we
have done things in the past, so as to find ways of
doing them better;
A new willingness to seize opportunities and make the
most of them for Australia; and
Most hearteningly, a new recognition that all of us
business, governments, wage earners have to do with
less for a time in order to spread fairly the burden of
adjustment now and to set the best basis for secure
economic growth.
And that is why I say tonight that we can enter 1987 with
cautious optimism.
The foundations have been laid over the past three and a
half years. Now with the sharp realignment of the currency,
we are able to emerge from a period of turbulence into a
period of renewed competitiveness. Barring unforeseen
external factors, and, I must stress, given continued
restraint, Australia can restore its long term economic
stability and prosperity.
Let me share with you some of our specific assessments for
the future which underlie this cautious optimism.
High interest rates and budgetary restraint have been
necessary for some 18 months now to slow the pace of
domestic demand and thus the demand for imports and to
support the currency.
As a consequence we have throttled back what was the main
engine for economic growth in our first three years
domestic investment and, particularly, consumption.
Although it will pick up as time passes, domestic demand
overall is likely to remain subdued until well into 1987.
In its place the external sector is likely to take over as
the main generator of growth in the coming year.
It is widely anticipated in financial markets that, barring
a further and unforeseen collapse in commodity prices or
world trade, our monthly balance of payments deficit has
peaked at the $ 1.7 billion October figure.
of course that is not to say that a dramatic improvement is
expected overnight. Indeed, a major reduction in the
external deficit is likely to require a prolonged period
possibly some years if commodity prices remain adverse.
And, of course, there will be the usual monthly variations
for seasonal and other transient reasons.
The important thing, however, is that the process of
adjustment has certainly begun and definite progress is
expected by mid-1987.
one symptom is the balance of payments statistics. I won't
burden you with a mass of numbers but some of the indicators
are instructive. For example:
excluding imports of civil aircraft which will fall
substantially in 1987 and fuel, there has been a
significant fall in the volume of imported goods in the
September quarter for the third quarter in a row; a
further fall seems to have occurred in October;
Total manufacturing exports in th~ e September quarter
were 7.2 per cent higher than last quarter;
Tourist visas to Australia issued in the September
quarter were 27 per cent up on a year earlier. No
wonder, therefore, that our deficit on tourism so far
this financial year is some 30 per cent less than a year
earlier.
Just as powerful a pointer to the future, however, is the
anecdotal evidence which is starting to accumulate.
Surveys of manufacturers in both NSW and Victoria report
significantly improved prospects for exports and for import
replacement. And I can confirm from my own experience in
talking to a wide range of business people in large and
small concerns alike that there is a growing recognition
of those prospects and a growing willingness to take
advantage of them.
The Financial Review carried a front page story two weeks
ago reporting an upsurge in inquiries in both Sydney and
Melbourne for industrial sites to be used not for
warehousing, as has so often been the case in the past, but
for new manufacturing activity including, it is said, by
enterprises which had previously located their production
offshore.
Other reports have attested to the unprecedented
competitiveness of Australian consultancy services and
computer software industry, among others.
Investment by the manufacturing sector rose by almost one
third in real terms over the last two financial years and,
according to survey data, seems likely to be broadly
maintained in real terms this financial year and I note
that MTIA members in particular are quite optimistic about
the investment outlook.
That upsurge, together with the use of previously excess
capacity, is underpinning manufacturing exports for the
immediate future.
Beyond that, however, Australia will need more entrepreneurs
willing to chance their arm on investment to produce and
market quality products. The Australian economy has attained
an unprecedented competitiveness; investors have thus been
presented with an unprecedented incentive to convert these
favourable circumstances into sales contracts.
I know that many businesses, including a significant number
represented here tonight, are planning increased investment.
You must of course evaluate those plans responsibly. But let
me say simply that the times demand, and will reward, a
little risk-taking and flair and confidence in the economic
future of Australia.
Of course interest rates are an important element of the
investment calculus especially for smaller firms.
For some time now monetary policy has had to remain tight so
as to support the currency and keep the lid on domestic
demand. A firm monetary policy will remain a central element of our
policy stance for as long as it takes to achieve the
necessary adjustments. A premature easing of monetary policy
which would bring renewed pressure on the currency and all
that that entails for business confidence, inflation and,
ultimately, interest rates cannot responsibly be
entertained. But, nonetheless, our overall policy has been pitched so as
to allow interest rates to decline, over time, from their
recent high levels.
There are three central reasons for that.
First, the 1986-87 Budget dramatically continues the
consistent efforts by this government, realised in each of
our four Budgets, progressively to cut the deficit as a
proportion of GDP.
In this Budget it is 1.4 per cent, compared with the 5 per
cent inherited from our predecessors and the OECD's
projection of 3.4 per cent for the United States.
This is an indispensable element in our strategy to reduce
Australia's need to supplement domestic saving with funds
from abroad.
Importantly also, the Budget has sharply reduced the
Commonwealth's need to borrow and can thus ease interest
rate pressures directly.
Second, these policies, overall, will give a breathing space
for the current account deficit to improve. The less we
need to borrow abroad, each month, to fund this deficit, the
smaller the premium above world interest rates we will need
to offer potential lenders.
Third is the outlook for inflation. The increase in the CPI
in the September quarter, at 2.6 per cent, was the highest
in the history of this Government. It reflected the
conjunction of a number of disparate events: the lagged
impact on the prices of imports following earlier
depreciations; unseasonally higher fresh food prices related
to floods and other disasters; and the irregular impact of
higher government charges.
Similar forces will be at work in the December quarter to
keep the CPI increase again at an above average level. But,
with the currency stronger, and with continued wage
moderation, inflation is likely to moderate in 1987.
While the Government has created the conditions conducive to
lower interest rates, the timing of these movements will
depend on a complex of market forces, expectations and
sentiment and, particularly, on the pace at which the
current account improves. Some downward adjustments have
occurred already. But it would be irresponsible and
possibly counterproductive for me to speculate in any
detail on when further falls might happen.
Let me turn now to wages, which will also will be an
important determinant of how quickly inflation moderates.
The Government remains committed to seeking labor cost
outcomes for 1986-87 which are in line with our budgetary
forecast and which are broadly comparable to those of our
trading partners subsequently.
Crucial to the delivery of such outcomes will be a realistic
system of industrial relations and wage fixing one which
is fair, flexible, predictable and capable of respecting
both the public interest and the private interest of the
parties to any dispute.
In this context we have this week argued before the
Conciliation and Arbitration Commission that the system of
wage fixing determined in the last national wage case should
be revamped.
We believe the two-tiered framework will provide scope for
protection for lower income groups, incentives for skills
and training, restructuring for improved efficiency and a
degree of enterprise or industry bargaining.
But, most importantly, it will also give Australia its best
chance both to preserve its new competitiveness by continued
wage restraint and to bring inflation gradually back down in
line with our trading partners.
of course the Commonwealth is insisting the Commission's
procedures ensure the new system works as intended. In
particular the Commonwealth wants a commitment by unions to
no extra claims. The Commission must also ensure that
access to the second tier is governed by clearly defined
principles and is subject to Commission oversight.
we have also made it clear to the Commission that the
arrangements laid down by the last National Wage Case
decision on superannuation have not worked well. We argue
in this case for the superannuation campaign to cease. In
its place we believe superannuation should be gradually
phased-in under an award, consistent with the capacity of
the economy to pay. The likely impact of the progress of
superannuation should also be taken into account by the
Commission in determining the total labour costs outcome
under the new system.
The overall package we believe offers new life to
centralised wage fixing.
We are pleased that the Government and the Confederation of
Australian Industry see eye to eye on the role of the
centralised system.
I heartily endorse the recent remarks of David Nolan,
Director of the CAI Industrial Council, when he castigated
those critics of the industrial relations system who
" believe that the mere existence of industrial tribunals
makes things worse rather than improves them"
The CAI's comment, tellingly entitled " Escapist Fantasies",
said it was a positive danger for these critics to conjure
up imaginary industrial relations systems that have little
resemblance to reality but that are promoted to employers as
solutions to their problems.
According to the CAI, these critics of our industrial
relations system
" advocate massive change with its commensurate risk of
massive dislocation, without providing any clear idea as
to how this change will be brought about nor any
evidence that it will in the end be better for
employers" " The likelihood" the CAI says is that to attempt the
changes our would-be reformers would plunge employers
into an industrial morass of unknown depth."
That is not the path chosen by this Government. We accept
that our present system can do with improvement and we
will be announcing refinements to the legislative structure
early in the New Year in response to the recommendations of
the Hancock Report. These will be positive and constructive
reforms which will win widespread community support.
That is a far cry from suggesting that the entire framework
should be dismantled immediately, which is what our
political opponents claim they will do. They say they will
' unshackle' Australia's workers a policy which would in
fact destabilise the partners to Australia's tried and true
system of industrial relations, and would have dire
consequences for the entire economy.
But what can you expect from inflexible ideologues who lack
the practical experience of the real world of industrial
relations? Our approach, by contrast, seeks the co-operation of all the
industrial relations partners. It was in this spirit that
last September I called a special meeting of the CAI, the
BCA and the ACTU to discuss ways to give greater momentum to
the search to improve work and management practices.
For ultimately we need not just wage restraint but better
productivity if we are to preserve the improvement in our
competitive position made possible by the substantial real
depreciation of the currency.
The CAI was a willing and effective participant at that
meeting, which was notable for the co-operative spirit in
which all parties addressed the issues. Let me take this
opportunity to thank you, Ken, and your organisation, for
the substantial contribution you made.
The work begun at that meeting is being carried forward by a
working party of the Advisory Committee on Prices and
Incomes. But of course, the success of the initiative will
be determined at the work place and industry levels.
All Australians will be the poorer if these opportunities
are lost.
On a related matter let me also commend CAI for the very
practical support it has given to the Australian Traineeship
Scheme. Progress so far has been slower than expected,
principally because we want to get it right before it is
finally implemented.
But this scheme presents the exciting possibility that the
young of this country will at last begin to receive,
systematically, the kind of training they so richly deserve
and so sorely need if we are fully to realise our national
potential.
The CAI has also made valuable contributions of its wisdom
and resources to the Business Regulation Review Unit, which
we set up as part of our continuing effort to eliminate
unnecessary red tape.
Finally, on a night on which I have again outlined both the
need for and the community's acceptance of restraint, I must
also remind price setters of their corresponding obligation
to exercise restraint.
The Government's approach to prices surveillance to date has
been selective, focusing on areas where effective
competitive disciplines are absent or where pricing
behaviour has pervasive effects. In these cases the PSA Act
requires it to bear in mind profitability, investment and
employment. But, more generally, business needs to consider carefully
its pricing behaviour. Workers, quite legitimately, find it
difficult to accept the need for wage restraint if prices
increase faster than costs. I repeat my call for all firms
to adhere to the PSA's voluntary pricing guidelines.
Blatant breaches carry with them the risk that such
behaviour will become the subject of public scrutiny.
In the same context I repeat the Government's earlier call,
in response to the real wage cuts accepted by employees, for
restraint in executive remuneration.
Ladies and Gentlemen
The essence of this Government's approach has been to engage
all sections of the Australian community in a co-operative
venture to set this country on the road to prosperity.
That approach proved invaluable in our first three years and
has now steered us through the turbulence of 1986.
As a Government we are confident that we have the means to
achieve stability, to restore economic growth, to enhance
incentive and to share the burdens and the benefits of
restructuring.
We are confident too that our approach stands in the
sharpest contrast to that of our political opponents. Their
policies or at least those that they have agreed to share
with the rest of the nation promise a return to the
instability and disharmony which characterised their years
in office before 1983.
Their best offer seems to be self-interested tax policies,
short-sighted industrial doctrines, and another round of
massive unemployment increases which the community simply
cannot afford.
I have a deep conviction that the Australian people will
refuse to squander the achievements which we have made
together, by returning to the instability and disruption
offered by our opponents.
And I especially invite this business audience to consider
carefully the real consequences of their proposals.
Ladies and Gentlemen,
The resolution of the tremendous difficulties imposed on us
by the eVents of 1986 will be a slow and at times
painful process. We will be hampered by the continuing slow
deterioration of some commodity prices and the natural lags
as an economy gears up to meet a radically different set of
business circumstances.
And I stress that the cautiously optimistic assessment I
have given tonight still involves further sacrifices and
further effort from the entire Australian community.
We are determined as I have said to restrict our growth
in labour costs in line with our diminished economic
capacity. Interest rates and unemployment, though they are likely
to improve in time, are still likely to remain a matter
of concern for the Government.
The process of restructuring, wherein lies Australia's
ultimate hope for economic prosperity and stability,
will be a task for our nation well into the next decade.
In my address to you at your last annual dinner, I concluded
with these words:
" Let there be no doubt of this Government's determination to
continue to manage the Australian economy to enable all
Australians to prosper and realise their aspirations in the
1980s, the 1990s and beyond."
I re-affirm that determination tonight.
For the events of 1986 have served only to reinforce my
conviction that Australia will attain the prosperity we
seek.
Australians have worked hard in 1986 for the cause of
economic reconstruction.
They made sacrifices in the interests of building secure
economic growth.
In short they displayed their maturity and their willingness
to readjust, and it is those qualities which provide the
firmest possible foundations for my confidence tonight in
reaffirming to you that we will prevail in our task.