CHECK AGAIZMS DELIVERY EMBARGOED UNTIL DELIVERY
SPEECH BY THB PRBE MINISTER
CONFERENCE OF CONOMISTS
auF3RS PARADISE 26 AUGUST 1987
John racLood, Federal PrecAdent of the
Economie Soicety of Australiag
Jon Stanford, Quoensland Presidcntl
Ladies and goatle2en.
Your invitP~ i to addross the 16th annual Conference of
Economirsto ivec me ay first opportunity since the July 11
election to crticulate publicly the Government's thinking on
issues of oconomic management.
By nominating as your conference thcmo the issue of
" Economic Towards 2000", you rightly direct our attention
to the long-torm challenges Australia faces.
The dozen yocs which separate us from the end of the 1990s
must sec fund~ mental changes in the Australian economy and
society ig tc are to meet those challenges.
Quite simply, if we do not make those changes we will not be
a prosporous nation by the year 2000.
That is why over the first two terms of my Government we
have focuced our efforts on encouraging those changes
through a strategy of economic reconstruction.
At the outset of this speech in effect, at the outset of
my third tern as Prime Minister of Australia I want to
affirm in the clearest possible terms that this strategy,
begun over the first two terms, will be continued in the
third term.
We in the Government and, I believe, the majority of
economic professionals have long recognised that
thorough-going economic reconstruction is the essential
response to the challenges the nation faces.
What is different since the election on July 11 is that our
strategy hac now received a resounding confirmation from the
Australian people. U00' 77?
I Jle~ h
2.
In fulfill~ rc3 our imndate we will carry through a full and
tecting agonda of change & n agenda which I wish to address
today.
And lot ne npproach that taok by saying something of the
achievemeato of the two reel ' pients of your Distinguished
Fellow L~ wagb( 13, Colin Clark and Trevor Swan.
Colin Clark hmo attained eminence in both academia and
policy maLhinS. it is no secret that he and I hava had some
fairly p~~ un6 Cifferoncas, 62ating back to days at Oxford.
However I . nheoitatingly pay him tribute as one whose work
first el. uc-tntcd many profound questions about the
Australian~ economy.
Trevor wa-too, is a giant of the pxofession. His
pathbreak:' sng paper on " Lon.~ er-Run Problems of the salance of
Payacntr,' lr-as relavant to the economic challen es facing
policy U8: zoL's in Australia today as it was when it wan first
penned in 2935.
We are all 3amiliar w& ith the Swan diagram and ito analysis
of policy 9, yescriptions needed to secure simultaneously
internal 3-A extornal balance proscriptions which vary
wiith tho L'titial economic conditionc.
Auotralia, as you all know, has received a massive external
shock. Th2-it chock coincided with a strong economic upturn,
which coor z-unded the inevitable balance of payments crisis.
in Swan C~ rmterms, the shock precipitated a massive
external ii . balance and poli-cy makers had to find the correct
adjustme.-. t path. The correct path was one which would both
restore cnl2-ornal balance and c * ontinue the progress which had
been mado to eliminate the internal imbalance originating In
the high waga/ low growth era of our predecessors.
The polic~ y choices available to the Government in such a
situation are far from sinple.
Some adjuzItment paths would restore external balance
rapidly, ;) at at the cost of prolonged high levels of
unemploymon~ t.
Other patas would press on with domestic growth but at a
pace which would so prolong the task of external adjustment
as to pccipitate an external crisis of another kind one
born of an inability to fund the current account except at
ruinous interest rates, which in turn, would jeopardise the
attainmunt of internal balance.
The pol~ tcy choices need also to pay heed to the varying
speeds wiih which policy instruments can take effect.
Having freed up the exchange rate, the quickest response to
the external shock was a large depreciation of the
Austral~ en dollar. 0 00ii' 13
That unlosNo the MOst powerful force or change known in
economiCG cmassive, not a marginal, chango in relative
prices. tla:: oover the deterioration in our terms of trade
directly roeuced the world ptirchcsing power oZ Australians,
which of itof will contribato to the rectoiration of
external bnlcxace.
But those Cœ' ucs were not thcsioelvoc oufficient to reduce
domestic cM'. GMPtlon and r* IGU dornCi~ tiC caving to tho extent
required to awer Gubstantiailly our dopeitdence on goreign
saving. The magnt o! the conternal blow~-out cind the cassociated
explosion o~ our nominal irdebI4odnocs Curthnr coxap , catod
the probIer2
The longer I~ t takes us to achtove the necessary domesoticadjustmentG,
tho higher will bi Luaralia's overseas
indebtedne~ c as a chore of GDPI and the more vs will hiave to
export in -turo just to sustoin today's living standaxds.
That fact hr'o addod an important timu dimensioa to policy
choices.
Labor's chal-co have struck tho balance botween promotIng
steady balanoe of payments adju tment while proserving jobs
growth and solliag back inE'atton.
Of course 2 ha initial policy zconoes relied heavily on the
most floxib of the macro instrunents, monetary policy.
However, cvo-.-roliance on tljht monetary policy~ ic not a
feasible unlaum-term adjustmient otrategy, not neast because
of its dai-poning effects on eciployment and investment.
An essentinI element of the Gtrategy, therefore, has been a
medium-teria assault on fiscal policy.
The externol shocks of 1985 and 1986 gave added urgency to
that took.
Labor began in 1983 to wind back~ the extravagant fiscal
inheritanco 9! rom our predecessors. Labor inherited a
prospectiva budget deficit of 5 per cent of GDP. This year
it will bo lestG than 1 per cent and real outlays growth
will bo snbatantially negative.
We will m~ intain our efforto to contain the growth of public
consumption and reduce the call on total savings for as long
as economic conditions require it.
There are zome in the economics profession who believe that
we have adJlisted fiscal policy to Australia's external
imbalance too slowly. They are advocating a balanced Budget
or a surpluG in 1987-88.
1 believe this view seriously misinterprets the nature of
the policy choices which lie before Australia. () qU)
Pursuit o external balance is vital in the long run.
However no country should pursue external balance to the
exclusion of everything e2se. Indeed, looking around the
world thiao days, one might be pardoned for believing that
none of the majors takes the achievement of external balance
as a serAios policy objective at alll owever that may be a
subject geK another time.
Recent work within the Office of BPAC nicely illustrates the
policy chcices. They have extended the analysis presented
in their poper entitled " Extornal Balance and Economic
Growth" to show that it is possible to accelerate balance of
payments adjuatment by almost 2 per cent of GDP over the
next 4 yacss, compared with the adjustment paths of that
paper. To do so, however, at a constant real exchange rate, would
require Eh. ding GDP growth back to a rate which would be
insufficen'. o to prevent significant increases in
unemploynrnt unemployment which could only be avoided by
furtheor ou! etantial real wage cuts. Those are not policy
alternat'voc which I believe the Australian people are
prepaeod to accept.
That judoa'. nt was vindicated by the community's response to
the May Statement the toughest expenditure cutting
exercise in 30 yearc and most resoundingly, as I have
already said, in its decision on July 11 to ronew our
mandate to govern.
As Paul scating and I have said, there will be no horror
Budget in Uaptember: this year's expenditure cutting task
was largely completed with the May Statement and the
Premiers' Conference.
We said that the 1987-88 Budget deficit would be well under
$ 2 billion.
We will kco? those promises, and for three reasons.
First, it would be politically irresponsible to break such
commitments in the absence of any intervening fundamental
change in economic circumstances.
Second, we : ecognise that part of the reason for the success
of our econunic policy making lies in its consistency and
credibility. Third, it io our judgement that the fiscal adjustment path
upon which we have embarked is appropriate to our
circumstances and a much faster pace would put at risk
community acceptance of the broader economic reconstruction
which is necessary in the longer term.
The second area in which there is some disagreement in the
economics profession over the appropriate pace of adjustment
is in the wages area. ( OOOi3
There is one certainty in the deobate over uacjeG policy and
that is th& A, the best way of ensuring that theze is no wage
freeze is to call for one. Our political oppon3at elevated
this to cn Lrt form with their incistonce on both a wnge
freeze and ' ecentralised wage fixation.
Trevor Swan and Colin Clark havo lived through periods In
Australi& 2~ ha have been eharactorisod at ono ond of tho
spectrum b-7 fullty contralined w'agc fixation nnd nt the other
by a compleozoaly decontrali' 3ed Gystem, & a well as variouc
combinatica3 through the rance.
During the :, oried of my Government the wago fixing cVfotcm
has evolved co-operatively to incorporate within a highl~ y
centra. iatA system a cignif c. nnt dogrea of enterprise level
This cvoLtittion haG been no accfldent: it has bcen in
respoaso tQ tCie changing economic circumstances gocing this
country. Et has the potential to become a ioajor new~
instrument in our endeavours to progress towardn
simultcnoctr, weotoration o2 Intornal and external balance.
No Labor PLrmc Minister can take pleasure from preoidiaV
over cuto . n the real wages of Auc~ tralian workern.
But ouch reductions have been recognised as necessesry by
both the Covernment and the union movement in creating worh
opportun Ules for the unenployed and in adjusting to
Austrtiia large external imbalznce.
Only cno cot of statictica is needed to demolish the
argument 2~ tAustralia's response to our external imbalance
would be oore effective if a decentralised wage fixing
system wore installed in place of the present syotem.
Since 1S33 real wages in Australia have fallen by around
six per cont. This was despite a period, from mid-1l982 to
mid-1906, when a year of week economic growth was followed
by throo Vaars of strong oenomic growth. There have been
four other such occasions since 1950. only in the most
recent Vcriod have real wages fallen. It is our
cooperative, centralised wage fixing processes that have
made thia unique outcome poesible.
in setting the timetable for, and in designing the policies
to achievc, external and internal balance, my Government has
rejected the short-term perspective so characteristic of
post-was Australian macro policy.
Worldwido conditions clearly indicate that it is a forlorn
hope to ortppose that anotheE: commodities boom is around the
corner wiating to revive tho Australian economy.
Accordingay, we have to loo. 4 to long term reforms as well as
adjuotment to macro policy. These reforms, essential to
provide the basis for viable long term growth, will assume
greater co'gnificance in our third term. O0OW'~ 8
This iG not sinply a matter of awakening a previously
comatose Danufacturing sector so that it can play a pivotal
role In tli reconstruction of the Australian economy. That
is chali1-engo enough.
But the cillenge goes deeper -and it will continue to
confront uno for decado to come.
AustrlinDe manufacturers workers and management alike
m~ ust fri pepared to take on and beat the most nimble and
most lnvciiva of our highly efficient competitors,
especill those in our region.
our manv ,--. turinj and our services sectors must also
recognioe 1 hat It will be some time bafore Australia's
depend~ ence on commodity exporto has diminished sufficiently
to inaula-:, o our exchange L'Sto from fluctuations in commodity
prices. in these c", rcum~ tancez, our ranageoent and work practices
have to 1; o sufficiently flexiblo over time to custain our
compotit~\ vonos.
Our cozpol ,. tors have developed this shill. so must we.
This is nV_ a now imperative for our major commcdity
exporters. AG a group they tend to benefit from high
commodityl L) ricOG the conveirse being that in a depressed
market sucti as now exists, they too must be flexible enough
to remain (, oct competitive while maximising employment.
in casec ke the coal industry there is an additional
danger tViaL~ inflexibility can translate temporary losses of
competitivoness into permanent mine closures. This is a
procpect thiat both workers and m~ anagement must recognise and
seek to aivort.
However ~ cneed for reform goes beyond one or two
inductric30 All sectors need to be efficient and adaptable
lest the imperfections in one area handicap the performance
of the okhcxs. moreover, successful micro-economic reform
can acce-crato the pace at which external and internal
balance ccen be re-established.
We havo Io extend and build upon the more general reform of
the micro-economy begun during our first two terms. The
objective 16 simple: to boost national productivity and to
create the flexibility to respond to external shocks and
opportunities both quickly and decisively. we want, through
nationol reconstruction, to build a more adaptable and a
more res~ tient economy.
our agend~ a will undoubtedly grow as the task proceeds. But
as our third term begins, I see the following broad areas
deserving cur early attention: transport including
aviation, communications and the information industries,
government-owned business enterprises, education, industrial
relationo and industry assistance. 0 0!)' 3 I
I
Transport and aviation services account for a high
proportion f costs in many Aurotralian industries. Past
transport and practice have not kept costs down, and
this haG outcerbated the disadvanta( 3cs of Australia's
isolation nd our'disparsed population.
Accordingl'y one of the major itema on the agenda of this
term of govoznmont is.& sweepig reform of the nation's
transport iInfrSatructure.
An infe. c~ tLon referenco has gone to the IAC on coastal
shipping; c joint Australia/ New Zealand study hac been
conducted trans-Tasman chipping; the Interstate
Commissian overseeing efforts to improve waterfront
product iv: j.
we have az: tounced our intention to terminate the two-airlIne
agreement. we will complete the national highway. And we
will seek 1. Improve performance on the waterfront aad in
tho rail e.-oight network, fncluding grain handling.
in the cominications field, we are currently seeing the
meorgin~ g c c-ommunications technology and the information
industry to such an extent that communications ia both a
significe,,, input cost to Australian industry and
potentlal" j' a major growth sector.
Legislation, and the dominance of Government business
enterprisoo, mean that Government decisions, or the lack of
them, will have a major influence on the future of this
sector. 2vi question is how do we ennure that It operates
at peak 0$ 01ciency.
This raitvna the wider issues associated with public
ownership Gf business enterprises issues which were
canvasse6 aa the Government's Green Paper on Statutory
Authoritic3 and Government BusineCs Enterprises.
We will necl to examine ways to improve the performance of
these enterprises. Options include improved performance
criteria, oxposure to greater competition, and the
considerc~ tion of sales to the private sector.
As you know; I recently called for a comprehensive debate
within tLe forums of my Party on those parts of its Platform
which exprcss opposition to the sale of Government business
enterprirces I Guggcste6I two tests must be applied.
First, doer; public ownership of a given enterprise mean that
significant functions are undertaken that would not be if
the privactc sector had the responsibility for funding,
owning an~ d operating the enterprise?
If the an-suer is then, second, what are the
disadvantagjos and advantages of retaining public ownership
of that enterprise, as opposed to transferring it to the
private oector? 0 00! 38
ThiG In oC--ect reverses t~ e onuc oZ proof: the question
should bo not ' Why should we cell a given enterprioc' but
' Why shoufldt we continue to tic up our resourcen in it?,
What E~ uct (, merge from~ this debate ic the formulation ofN
relevant nad contemporary criteria describing how the
totality ol Government renourcee and instruments can most
officiert. Y. y bo applied to tlhe achioveuaont of our broad
national o;, Jcctivos.
I baliava sone of the paramotars of the dobate havo already
esomr qod
For cna-7Ac, it will be apparent from what I have already
caid thmD_ the covernmant zojocts tho dogmatic vlow that*
public o'ietrehip of businos onterpriseG Is inappropriate by
Si~ i~ irl ti c reject the proposition that the current
pattorn ol public ownurship in by definition the nacessary.
and rcosl daoizable one.
Efficie~ c-7 in the2 achievemant of national goals is the key,
not GOZIO '!" oological Cabato about appropriate aggregate
levels cC-public ownechip.
of pazticzalar relevance to the broader themes I have been
presontAivj today is the asosscment of whether publicly owned
enter-rico An the late 1980s and into the 1990s may
actullyjX hmpered in the efffective delivery of their
cervicer oy the fact of their public ownership.
we must, õ or example, examine whether the need to further
reduce Dufget outlays and the Public Sector Borrowing
Rcquie.-icnt is itcelf constraining the ability of the
Govornmenit to provide the capital which come publicly owned
enterpr~ s need to perforia their tasks efficiently and
effectivel~ y.
Freed oP? these constraints, these enterprises may become
more efP.. zient and more viablo an outcome which could only
benefit consumers, taxpayers and the employees of the
enterpricc itself.
Turning 1b-riefly to education and training, the depth and
breadth oi labour force Gskills will also have a strong
bearing on our capacity to boost competitiveness and enhance
the flei: ihility of the Australian economy. Indeed the, need
for continuing education and retraining throughout the
working life has never been greater.
In Labor0I3 third term we will build upon our very
considei: able achievements, which include and increase in
school retention rates from around one-third to over
per cent; the removal of financial disincentives to stay
longer -In education and training; a 37,000 increase in
tertiary places; and a doubling of funds provided for 0 0 0L ) 34
I 9.
There iG ac'o furthar room to improve our industrial
relations unv2 productivity performance although Laboz's
policies have already yielded a* 6O per cent reduction in
working dayis 1out through industrial disputes.
A basic gactcT in this achievemenft has been the increasing ly
sophistica: Q(] understanding by the trade union movement of
the challenge of cosapotitiveness.
The most rocent meaaure of tuis; awarenecn is the JLCTU'S
report oR Alc onotructed". While I do not
necesaaril~ l ondor~ e evory single proposal in that report, I
welcomeo it L5i a valuable contribution to the debaf-e about
the key Lis,, es tho nation must rosolve. As such I bolieve
it desoe: vco-fhe very close attention of industry and of the
economicG p ofesaiono
I haVO GPC' 103 already about the two-t1, ier wages system and
the removcT. ' If outmoded workc and managenent practicea. But
there iG cmo.-to do. vie will encourage the gradual
zmalgamit of trade uniono rind m~ ake necessary reforms to
the indu tif~ l rclations system without changing existing
sanction ; OraVioians in the Conciliation and Arbyt ration Act
and other -6clevant legiolation.
Finally oi, this list of mnicro roforms the next three yearc
will scoa L continuation of Labor's efforts to lower
gradually tU. e 1lvels oO industry protection.
We cannot, DG a nation, hope to ba internationally
competitivo if wo persist in insulating key industries
against ipurt competition.
We are aski~ ng Australian industry to stand on its own two
feet afteg ci period of adjustment.
Sectoral plann are already in place for our most heavily
Srotected J~ adustries, designed to phase down protection
evele whilea easing the burden of adjustment on those
directly al~ lected.
our R& D inc3ntives and our industry extension services are
designed 111f-a cilitate this Industry restructuring process.
These iteno on Labor's agenda of micro-economic reform are
not unre~ cited. Progress on some will make progress on
others eaoicr. To take an example, if transport and
communications costs are lowered and our education system
better meets industry needs, the need for industry
assistance will lessen.
In working through this agenda, my Government will of course
be seekincg to enlist the support of the States, for in many
areas it is they which have the immediate regulatory or
administrative responsibility. 0 0 8~
Ladies and gentlemen.
The past fow year have servcd to highlight the structural
weaknesseG Ln the Australian economy and its vulnerability
and inflouebility in rcsponding to egternal shocks. Fron
day one L y overnment has cot about tackling those
woaknesoii0 through both m= c: o-econoic and micro-oconomic
policy tGaUC.
FundameWLElty the task demand attitudinal change. As ouch
it is a (; auk which govornment cannot succeasfully perform
alone. % t is one which requires the understanding and
applicaV.-1 of the whole comsunity.
Lot ce finz,. th by calling on you, thon, ar an audioce with a
matchcs3o undorstanding of the challenge we faco, to help
mako ce~ ez to our fellow Auctralians the urgent necessity of
the stra -, zc of structural reform I have outlined teday.
Q~ QC* 9** 0 0 i