EMBARGOED UNTIL DELIVERY CHECK AGAINST DELIVERY
CEDA LUNCHEON
MELBOURNE 15 MAY 1987
Mr Chairman, CEDA members and guests,
The May Statement provides further proof that this
Government is determined to carry through the vital task of
economic reconstruction which, as the revival of the steel
industry dramatically proves, has been the central task of
this Government since its first day in office.
It demonstrated again our capacity to take the hard
decisions which are necessary to restore economic
prosperity. It underlined again our commitment to scrutinise our
spending priorities constantly and to ensure our budget
continues to meet real needs.
Before I turn to the May Statement specifically I want to
trace briefly the economic circumstances which required us
to bring it down.
The roots of Australia's economic problem lie in its failure
in the l96Cs and 70s to participate in the dramatic
expansion of world trade in manufactures and services.
Inward looking economic policies and a systematically
overvalued exchange rate resulted in a largely uncompetitive
manufacturing sector focused on domestic demand and an
export sector overreliant on farming and mining.
The consequences of that failure have become suddenly and
dramatically apparent since late 1984 with the collapse in
world prices of primary commodities. Our terms of trade
have declined by 17.6 per cent, wiping $ 9 billion off our
national economic capacity, blowing out our current account
deficit to an unsustainable 6 per cent of GDP in 1985-86,
and pumping up our external indebtedness at an untenable
rate.
In the four years since we came to office we have
consistently worked to create the new attitudes and new
approaches we need to solve these problems.
In my first campaign as Leader of the Labor Party in March
1983 1 spoke of the need for a three-part program of
national recovery, national reconciliation and national
reconstruction. If you like, these 3 Rs can be boiled down to one the
single need for us all to accept our national responsibility
to achieve sustainable economic growth and a fair
distribution of the benefits of that growth.
As the newly elected Labor Government we accepted that
responsibility and committed ourselves to ensuring the
prosperity of the whole Australian community and not, as our
predecessors had done, working to divide the community and
punish the weaker members of it.
The new attitudes which we brought to Government have struck
a responsive chord in the wider community.
Today we can say there is a new acceptance of the need to
reduce our dependence on our primary industries.
There is a new and widespread rejection of that addictive
drug of dependence called protectionism, which has cramped
our industries at home and which is crushing our export
opportunities abroad.
There is a new acceptance on the part of Australian workers
of the need for restraint in the growth of labour costs to
preserve our national competitiveness and to keep inflation
down. There is a new acceptance of the fact that Governments have
to conserve their limited welfare resources for people who
most need it.
There is a new and widespread acceptance that there should
be no free ridee at the taxpayer's expense for the
privileged at tho expense of the community as a whole.
In short, there is a new acceptance that all of us must take
up the challenge of rescuing Australia from its economic
difficulties. All of us have to bear part of the burden and
work together. That way we can ensure that all of us will
benefit in the future from the prosperity our sacrifices now
will bring about.
The external crisis facing Australia has required a tough
Government response in all areas of general economic policy:
monetary, fiscal and wages. Each has had to be held tight,
in a co-ordinated fashion. Each has brought its temporary
costs but each is absolutely essential to building our
long-term future.
But the speed with which we achieve that goal also depends
fundamentally on how adaptable our industries are.
It is a matter of record that in 1983 our industrial base
was anything but adaptable.
Recognition of that fact was the driving force behind the
initiatives which we have progressively implemented:
to open up the Australian economy to competition;
to encourage industrial research and development;
S to foster co-operation between employers and workers
aimed at boosting productivity;
S to get the dead weight of bureaucracy off the back of
Australian business;
S to reinvlgorate our education and training systems; and
S to promote Australian interests in world trade.
I want to come back to aspects of this theme a little later
because it is a theme which is also prominent in the May
Statement. There can be little doubt that those policies are working.
The principal domestic indicators have turned for the
better: S inflation is on its way down, gradually but certainly;
S the December quarter National Accounts show the
resumption of significant economic growth;
interest rates have begun to decline, a trend which I
believe the May Statement will help to confirm;
S real unit labour costs have fallen by 6 per cent;
most encouraging of all, over 780,000 new jobs have been
created under my Government, and 100,000 new jobs in the
past six months alone; and
S investment has begun to increase, including in
manufacturing.
Just as importantly, however there is substantial evidence
that fundamental restructuring is occurring.
S net exports are likely to account for all of the growth
of the economy in 1986-87;
particularly pleasing have been the strong performance
of manufacturing exports up 32 per cent so far this
financial year and also the 28 per cent decline in the
services deficit covering tourism, freight and the like;
although seasonal factors helped to inflate the April
deficit to just under $ 1 billion, the current account
deficit has fallen, with the 1986-87 outcome likely to
be more than $ 1 billion less than the Budget forecast of
$ 14 3/ 4 billion.
and, while the monthly figures will continue to be
inflated in coming months by seasonal factors, the
underlying improvement in the current account
deficit is expected to continue in 1987-88.
The task is a large and difficult one, however, and there is
still a long, hard haul ahead.
This week's Statement represents a further major step
towards our goal.
The reason is not just the more obvious one that we need to
stop the government sector gobbling up domestic saving so
that the pri-vate sector's appetite can be satisfied, leading
to new investment, without running up an excessive external
debt. It is also because the May Statement is a further step in
our continuing endeavour to rebuild Australia's economic
infrastructure.
The May Statement provides for a combination of spending
cuts, asset sales and receipts measures which will slice a
massive.$ 4 billion from the prospective 1987-88 Budget
deficit. Real outlays growth has been cut from a positive 2 1/ 2 per
cent in the forward estimates to a negative 2 per cent, the
lowest in 30 years. The measures woud consistent with a
deficit of less than 1 per cent of GDP in the August Budget
compared with 1 1/ 2 per cent in 1986-87 and lest it ever
be forgotten, the scandalous 5 per cent which we inherited.
The spending cuts include $ 1 billion from general purpose
payments to the States and $ 1.6 billion from the
Commonwealth's own spending, including major savingg in the
defence and welfare areas.
In the welfare area, this Government has been determined to
accept its responsibility to subject its welfare budget to
the most searching review ever undertaken.
Our motives have not simply been inspired by a recognition
of the economic exigencies. They also recognise the
desirability of overhauling poorly directed programs.
We have not fallen into the trap of assuming that all
welfare recipients were by definition needy and deserving of
automatic, full, and permanent government support regardless
of whatever capacities they may have to support themselves.
Our decisions mean that savings will flow from an all-out
assault on fraud and abuse, from further sharpening the
focus of benefits to those most in need, and from
redesigning programs to better meet the need of young
people, and other welfare recipients to become more self
supporting. Let me make a specific comment about welfare abuse. Welfare
abuse is not only an attack on the taxpayers who fund the
social security system it is also an assault on the
genuine welfare recipients whose circumstances fully entitle
them to community support.
The Government introduced a series of measures in last
year's Budget to detect and stop abuse which have already
removed thousands from the unemployment benefit rolls; these
measures will reduce the average number of unemployment
benefit recipients by some 25,000 in 1987-88.
As a result of the May Statement we will be introducing
additional deterrents to fraud in this area. The original
five teams set up to review unemployment benefit
entitlements will be increased to 19 one for each social
security region.
Earlier this year, we announced that we would establish a
Child Support Agency and strengthen the child maintenance
provisions of the Family Law Act.
These w. ill be the first steps towards ensuring parents who
can afford it will meet their obligations to their children.
The May Statement includes administrative changes to support
these moves, including:
regular reviews of sole parents' eligibility for
income support;
the introduction of 6 new regional review teams
which will operate similarly to those reviewing
unemployment benefits;
a requirement for greater proof of separation and
stricter co-habitation rules.
A central principle in the May Statement's approach to the
welfare budget is our belief that the best help it can give
to many of those relying on social security is to help them
become self-supporting individuals.
However the rationale for this approach is not simply a wish
to conserve the welfare dollar or to encourage individuals
to seek personal fulfillment through work though they are
both important goals.
It is also a fundamental reform designed to help Australia
trade out of its difficulties by making best use of its best
resource its people.
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This is why the May Statement initiates new measures
designed to help young people stay at school or in training
rather than go on the dole.
we have virtually eliminated the financial incentive that
existed to leave school by abolishing the dole for 16 and 17
year olds.
This is consistent with the thrust of Government policy to
encourage the completion of secondary education which will
have lifted school retention rates from 36 per cent in 1983
to over 50 per cent by the end of this year.
However, after September, for those who do opt to leave
school, we will now provide a new allowance after three
months, to be called the Job Search Allowance. This is
designed to help defray the costs associated with finding
employment. The new allowance will be fixed at $ 25 per week
half the existing junior rate for unemployment benefit.
An additional payment of up to a further $ 25 a week will be
available subject to a strict test on parental income.
To clear up any misconceptions, let me point out that
existing junior recipients of unemployment benefit will not
be affected by these changes while they remain on the
benefit. Moreover, for genuinely needy homeless young people, the
existing provisions of the Young Homeless Allowance will
apply.
The new job search all. owance does not offer a free ride
for young people.
But it does give them a strong incentive to take up a job
quickly. If they cannot find work, then we offer structured
help to improve their future employment prospects by
directing them to relevant training including training in
job search skills.
This initiative has been reported by some ill informed
commentators as " hitting at" the 16 and 17 year olds. The
opposite is true. These measures will positively benefit
young people by helping them get proper training and more
fulfilling work rather than drifting towards the dead-end
represented by the dole.
Consistent with that approach we have increased our budget
for job training programs by $ 32 million in 1987-88 ($ 63
million in a full year. On top of the strong rise in
training funds already incorporated into the forward
estimates that implies a 50 per cent increase in 1987-88.
It has been one of my Government's very significant
achievements to have imposed an assets test on pensions.
This assets test has had the beneficial effect of removing
from millionaires the right to draw a pension from the
I __ J
public purse without, I stress, damaging the entitlements
of the majority of elderly people to a secure retirement.
This has made the welfare system fairer although it is one
of the Labor Government reforms which the Liberal Opposition
is pledged to reverse.
The May Statement has extended this fairness principle to
other areas of the welfare budget.
Henceforth, the same assets test that applies to aged
pensions will also apply to adults receiving unemployment
and sickness benefits.
Curiously the Opposition Leader supports this assets test,
but not the one on pensions. I have asked him in Parliament
to reveal the chain of logic that leads to that position.
The Government has also decided to impose a means test on
family allowances.
We believe our decision to withdraw family allowance from
families with combined incomes of $ 50,000 or more with
higher limits for larger families strikes a fair balance
between a needs-based social security system and the
acknowledged greater expenses incurred by families with
children. It will be clear I think that the necessary cuts in spending
which we have imposed have been shared across the whole
community. The Government has made certain that its own areas of
spending especially the administration of the public
service have not escaped the knife.
The Government will be closely examining staff requirements
in the course of finalising the August Budget but we are
committed to holding staff numbers down in 1987-88 to less
than those budgeted for this year.
We have also established the Efficiency Scrutiny Unit to
review all sectors of the public service. We have accepted
a number of the Unit's recommendations, providing savings
worth $ 70 million in a full year, ensuring that the public
service becomes at least as lean, efficient and productive
as the private sector's bureaucracy.
Another round of scrutiny reviews will begin shortly. One
of them will examine the workings of the Public Service
Board, which will be restructured to maximise efficiency
while preserving the independence of public sector staffing
decisions. The Commonwealth will also set an example for private
employers in dealing with wage claims under the new
second-tier arrangements.
Before agreeing to any second-tier claim, we will require
the removal of restrictive work and management practices
which will produce efficiency gains commensurate with the
costs of any wage increase granted.
I urge the private sector to adopt a similar approach.
Finally let me comment briefly on pensions.
Having last year imposed a six weeks deferral of payment on
pensioners, we thought it only fair that full indexation of
pension rates should continue. There were no cuts or
deferrals in the May Statement and there will be none in the
August budget.
In addition, the measures previously announced to ease
pensioner means tests, including for rent assistance will go
ahead from 1 July.
Pensioners were asked to share part of the national economic
burden and their response was magnificent. They have made
their contribution!
Ladies and gentlemen,
I want to leave you with some thoughts and some evidence
about the comparative ability of Labor and our conservative
predecessors to manage the nation's economic challenge.
As you would remember, the previous Government had to manage
a significant decline in the terms of trade between the June
quarter of 1976 and the December quarter of 1977.
Though some improvement took place in the following
quarters, the previous government over their first four
years had to fashion economic policies to cope with a net
decline of 7.3 per cent in the terms of trade.
But they failed to see the writing on the wall. They failed
to set in train the necessary policies to restructure the
Australian economy and revitalise Australian industry.
The fruits of their economic management over that period
were real GDP growth of 13.4 per cent and employment growth
of 4 per cent about a quarter of a million jobs.
By contrast the decline in the terms of trade during Labor's
period has been much sharper and more protracted. The net
fall over the first four years of this government is
expected to be of the order of 17 or 18 per cent more than
twice that of our predecessors over the same period of time.
How has Labor managed? Real GDP seems set to rise by some
19 or 20 per cent over our four years in office 40 to
per cent more than in their first four years and
employment growth under my Government has been three times
what it was under them.
So this Government has produced more growth and more jobs in
the first four years despite more than double the fall in
the terms of trade.
Even more conclusively we have achieved it in a world
environment which has been less conducive to export sales.
Real GDP growth in OECD countries rose 16.2 per cent over
those Fraser/ Howard years but, on current forecasts, only
13.4 per cent during our first four years.
Ladies and gentlemen
For three decades out of the four since the end of the
Second World War, Australia was ruled by conservative
governments which adopted short--sighted, insular and ad hoc
approaches to the task of national economic decision-making.
They practiced an outdated style of politics, which failed
in the task of equipping the nation for the challenges it
would face in the future.
In particular, they succumbed to the pressures of sectional
interest groups, gaining political support by further
feather-bedding what were usually the more privileged groups
in the community to begin with.
That was a failure of political leadership it put the
political self-interest of the government ahead of the
national interest.
We have turned that chronic political failure on its head.
For example, last month I announced that I would not
exercise my right to call an early election. At the time I
was confident we would have won an early election and this
week's public opinion poll and the continuing disarray among
the Opposition factions fully confirms that judgement.
But I decided to forego the short-term political gain for
this reason: because at that time an early election would
have been inconsistent with our long-term strategy to
restructure the Australian economy.
As I said last June, and repeated on many occasions since, I
would rather lose Government than go soft on the difficult
economic decisions that have to be taken.
So we are putting the nation first and that practice is
winning the respect of the Australian community.
Last night, Mr Howard had the perfect opportunity to close
his $ 16 billion credibility gap. He squibbed it.
In our May Statement, we sat the test. And we passed with
flying colours. I I
Mr Howard sat the test in his reply last night, and he
failed. He did not repudiate any of his tax or spending
commitments. Instead he repeated his expensive tax promises
repeal of the fringe benefits tax and the capital gains
tax, and cuts in income tax for the rich.
Mr Howard's credibility gap is fast becoming a yawning
chasm.
My Government will not engage in the pseudo-macho displays
which have characterised the opposition's and the New
Right's contributions to the national economic debate.
our achievement bears no resemblance to their simpleminded
espousal of indiscriminate slashing of Government spending.
Sure, the May Statement is tough.
And sure, its achievements are unprecedented.
But the cuts are, above all, fair and purposeful.
They are designed to improve the effectiveness with which we
spend taxpayers' money, be it on welfare or defence on
public service salaries or job training.
And they are consistent with our strategy, stretching now
over 4 years, to rebuild the Australian economy.
Taken together with the Opposition Leader's reply last
night, the may Statement dramatically reveals that
Australian politics is now divided along a new and profound
fault line.
on one side of this fault line stands the Government, with
its proven commitment to implement national policies which
are both fair dinkum and fair.
Fair dinkum: because they are directed to resolving in a
responsible fashion the real economic challenge facing the
nation.
And fair: because they meet that challenge without
threatening Labor's tradition of compassionate help for the
underprivileged. on the other side of the fault line of Australian politics
stand the various factions which make up the conservative
forces today.
Where our policies add up, theirs do not. Where our
policies spread the burden fairly, theirs are tilted towards
helping the privileged few. where our policies look forward
to a productive prosperous Australia, theirs look backwards
to the days of tax rorting and free rides.
The May Statement and Mr Howard's reply show how deep is
that political fault line.
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As the benefits of the May Statement are increasingly felt
and as the Australian economy grows increasingly strong as
we enter the 1990s the fault line will become even more
clear cut.
And I have no doubt which side of the divide will be
recognised by the Australian people as providing the best
future for this country.