PRIME MINISTER
EMBARGOED UNTIL DELIVERY CHECK AGAINST DELIVERY
AUSTRALIAN FINANCIAL REVIEW POST-BUDGET DINNER
SYDNEY 16 SEPTEMBER 1987
Alan Kohler
Ladies and gentlemen
The Budget which Paul Keating delivered last night on behalf
of the Government was the culmination of five years of hard
work; five years of assiduous reordering of spending
priorities; five years of cutting out waste and
inefficiency; five years of tax reform.
The Budget is another step down the path we have followed in
our economic policy making since we were first elected in
1983. This path leads towards an economy which is more
competitive, productive and efficient and a society which is
more compassionate and equitable.
Since our re-election in July to a third term in office we
have worked to maintain our momentum towards those goals.
We have taken decisive action towards creating a leaner,
more efficient public service.
We have initiated an important debate on the role of the
public sector.
The most immediate task, however, has been to complete the
formjplation of the 1987-88 Budget.
It completes the three stage process begun with the May
Statement and the Premiers' Conference.
Most of the early attention of commentators has focussed on
the stark outlines of the Budget:
the fact that we have now eliminated the Budget deficit;
the fact that we have cut real outlays for the second
year in a row the first time that this has occurred in
years; 001100
the fact that tax will be a significantly lower
proportion of GDP this year than last;
the fact that our decisions on recurrent outlays will
produce cuts next year which are at least as large as
this year;
the fact that for the first time in 35 years the
Commonwealth will be retiring both overseas debt and
domestic Treasury bonds a total in each case of $ 1
billion; the fact that, based on the groundwork laid over five
years to repair the revenue base and pare back
Government spending, we have been able to deliver an
economically responsible Budget without new or increased
taxes, without major further spending cuts but with the
major weTlfare initiatives promised in the electlon
campaign.
Those are remarkable achievements, ones which deserve the
accolades accorded them by commentators and the financial
markets. But tonight I want to comment on the contribution the Budget
makes to our longer term task of economic reconstruction, an
aspect which can too easily become lost in the initial
post-Budget euphoria.
The first, and most obvious, point to be made is that we
have again created the necessary fiscal environment an
environment which will permit interest rates to decline
without leading to an excessive expansion of domestic
demand. The point of our strategy is to secure steady improvement in
our balance of payments while progressively shifting the
policy mix towards fiscal policy.
There should be no suggestion that this task be put at risk
by an inappropriate easing of monetary policy.
We have consistently worked to reduce the public sector's
call on the available savings which will in turn reduce
the need to borrow abroad.
However, we have quite deliberately rejected the extremist's
solution of seeking to make all of the adjustment required
in one or two years.
Too rapid a fiscal contraction would have risked putting the
economy into a deep recession.
Labor could not accept the associated blow out in
unemployment nor, I believe, would the Australian people.
But, just as importantly, a deep or prolonged recession
would not assist longer term economic reconstruction. 001101
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The reasons are compelling.
First, too sharp a contraction of economic activity would
undermine the business confidence and thus the investment
needed to give effect to the industrial reconstruction which
Australia requires.
Second, too sharp a contraction would undermine the
community support which is essential in changing attitudes
and workplace practices as part of that reconstruction.
So we sought to strike the balance: moderating domestic
demand to reduce the current account deficit in the short
term, while also securing longer term adjustment.
of course, in the end, contraction in demand cannot be
relied upon to produce permanent reductions in the current
account deficit. That can only be achieved if the economy
is restructured to boost investment in the tradeable goods
sector. However I do not have to argue this analysis in a vacuum.
The ultimate test of the Government's strategy is
performance and the indicators to date are very encouraging.
interest rates have declined substantially since their
peak in mid 1986
and last night's announcement by the ANZ Bank that
it will cut its mortgage rate by 0.75 per cent and
its prime rate by 1 per cent is further
confirmation of the trend
westpac and the Commonwealth have since matched the
new rates.
investment has begun to pick up, especially in those
areas most relevant to boosting exports of manufactures
and services the latest survey of manufacturing investment
intentions by the Metal Trades Industry Association
shows a 15 per cent real increase in plant and
equipment investment in the year ahead.
while the Budget papers forecast a real increase in
business investment overall of 5 per cent
the whole of economic growth in 1986-87, and a
substantial element of expected growth next year, is
attributable to net exports
exports have picked up strongly and real imports have
fallen, reflecting both modest domestic demand growth
and the improved competitiveness of our manufacturing
and service sectors 0011[ 02
most importantly, about half of our export growth last
year came from the manufacturing sector and the MTIA
survey shows a-growing awareness of export markets by
that sector.
The current account deficit has declined from 6 per cent of
GDP in 1985-86, to 5 per cent last year and we expect a
further fall to 4 per cent in 1987-88.
But it is necessary to look beyond those figures to assess
the real extent of adjustment which has occurred.
in 1984-85 Australia had a goods and services deficit,
in constant prices, of 2.6 per cent of GDP. Last year we
turned that to a surplus amounting to 2.4 per cent of GDP.
The forecast in 1987-88 is for a surplus of 4 per cent.
In other words, in three years, our position has improved by
some 6 per cent of GDP.
Ladies and Gentlemen,
Let me turn to a number of specific areas of importance.
The Government in its third term is increasingly turning its
focus to micro-economic efficiency improvements.
I want to refer to three of them today: education and
training, taxation reform, and the role of the public.
sector. In successive Budgets, beginning in 1985-86 we have
virtually eliminated the financial incentive that existed to
leave school by abolishing the dole for 16 and 17 year olds.
School retention rates have risen from 36 per cent in 1983
to over 50 per cent, this year. Our objective is to boost
the proportion of students completing secondary education to
per cent by the first half of the next decade.
In the May Statement we announced new measures designed to
help young people stay at school or in training rather than
go on the dole.
Our strategy aims to help young people get proper training
and more fulfilling work not only to open up their life
opportunities but also to develop a more skilled, more
flexible labour force. To that end this Budget foreshadows
far-reaching reform of the vocational education and training
systems to make them more responsive to evolving economic
conditions and to requirements for new skills.
we have in mind a medium-term strategy which will aim to:
increase the community's effort both in terms of quantity
and quality of training; promote greater industry
involvement in and relevance to that effort; and expand
training and retraining opportunities for the unemployed. 0011". I
These objectives will not be achieved quickly or easily.
Nevertheless, the creation of a single Employment, Education
and Training portfolio was a crucial first step.
The Budget paper on Skills Formation published last night by
John Dawkins, the Minister for Employment, Education and
Training, clearly indicates the direction of the
Government's strategy. I commend this document to you for
close study.
The strategy it outlines will be refined in consultation
with interested parties but the main elements are clear.
The arrangements whereby Commonwealth funding is provided to
TAFEs is to be reformed to achieve greater flexibility and
better value for money.
Priority in TAFE funding will be given to meeting skill
shortages in areas of importance to future economic
development, such as computing, tourism and hospitality,
while at the same time maintaining the Government's
commitment to improving the economic position of those
disadvantaged in the labour market.
The Budget honours our commitment in the May Statement to
upgrade substantially our funding for training programs and
to make training systems more responsive.
In particular a new Youth Training program is to be
introduced, assisting 13,000 young people in 1987-88 at a
cost of $ 30.7 million, with a further significant expansion
planned for 1988-89.
Apprenticeship training is also to become more broadly based
and multi-skilled in character, with more emphasis on
acquiring competence and on continuous skills development.
States and unions each have a special responsibility to
promote long overdue change. But the business sector, too,
needs to recognise the importance of the national training
effort and to be prepared to play its part.
Adequate priority has to be given to training and retraining
within the business environment and also to assisting the
development of courses and innovative and relevant training
methods.
with this in mind, the Government will be examining a range
of measures to encourage an increased industry contribution
to the national training effort.
In taxation, this Budget completes the most far reaching
reform ever attempted in this country. We have already
introduced dividend imputation, cut personal tax rates
substantially and restored fairness to the tax system by
ensuring that all forms of income bear reasonable tax. 001104
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we are now ready to look more closely at company tax.
Business tax rates in some of the major economies are being
reduced, funded in large part by the removal of business tax
shelters. The Budget contains the commitment to review the
business tax system in Australia to see what more can be
done to eliminate any competitive disadvantage which
Australian companies may be suffering.
As promised in the election campaign, the Budget does not
contain new or increased taxes on the national level. Tax
revenue as a percentage of GDP is lower this year than last
year reflecting in part the full year effect on PAYE
receipts of the two tax cuts.
For current tax rates to be maintained or lowered we must
ensure that every possible dollar owing from the existing
tax base is collected. The Commissioner of Taxation has the
Government's full support in achieving such an outcome. He
has been provided with the staffing, the equipment and the
laws to discharge his tasks.
Honest taxpayers, both corporate and individuals, should
support these efforts. I am therefore somewhat bemused by
the attitude of some in business and the accounting
profession towards the Commissioner's proposals on audits of
large companies.
To argue, as some have done, that tax audits should be
totally random is to suggest that the Tax Office should
apply methods that no business would ever consider applying
to its own operations.
Reduced interest rates flowing from a balanced budget should
provide a major stimulus to both business investment and
housing construction.
Clearly this Budget will bring the prospect of home
ownership more easily within the reach of young families.
First home buyers will obviously'benefit from lower mortgage
rates. In addition the Budget increased income limits for
applicants to the First Home Owners Scheme with dependent
children. Renters also gain substantially from the Budget. Lower
interest rates, restoration of negative gearing, and
retention of a still generous depreciation allowance should
combine to provide a powerful boost to the supply of rental
accommodation, thus pushing rents down in real terms over
time. Moreover, the Budget provides low income families renting in
the private market with extra direct assistance of up to
per week. This complements the new Family Allowance
Supplement, the most far reaching social reform in memory. 001105
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I take particular pride in this new scheme in this Budget,
as it demonstrates once more our capacity to protect and
enhance the welfare of the least well-off members of the
community while also delivering a responsible balanced
budget. On a related matter, no Government which has struggled so
long and so successfully with the budget deficit, as we have
done, could afford not to implement the Australia Card.
None of the critics of the Australia Card has effectively
questioned the estimate that it could raise nearly $ 1
billion of extra revenue.
And no Government which has taken such pains to ensure that
reductions in Government spending do not unfairly hurt the
interests of the least well off in the community, as we have
done, could refuse to raise that revenue from those who are
not paying their way in the community the tax cheats and
the welfare frauds.
The critics of the card have made it all too clear that they
believe they hold the high moral ground in this debate,
while we are said to be motivated by allegedly base
considerations of revenue raising.
I certainly do not underestimate the material benefits of
the Card. Nearly one billion dollars in extra revenue will
substantially improve the Government's ability to provide
better services to the whole community.
But increased fairness is a desirable goal in itself.
Nor should we underestimate the value of the increased
confidence in the integrity of the tax and welfare systems
that the majority of Australians will have as a result of
the introduction of the Australia Card.
I cannot leave unchallenged the comment on this subject by
the Financial Review itself in an editorial on 28 August.
Your editorials are normally a highly respected voice. This
was a regrettably ill-informed exception, with its colourful
but utterly wrong references to " the machinery of
totalitarianism" and " authoritiarian impositions". The
editorial claimed that the Government was seeking to
" improve the scope and depth of security surveillance over
the Australian nation"
None of that language validly applies to the Australia Card
or to this Government. It is a blatant nonsense.
I recognise and respect the legitimate concern of some of
the Card's critics that civil liberties not be eroded. 0 01106
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The extensive provisions in the Australia Card Bill designed
to protect the privacy of individuals should have dispelled
those fears. My Ministers and I have made it clear that we
are prepared to amend the legislation where necessary to
strengthen these provisions further.
Your editorial did not acknowledge the facts clearly set
out in the legislation that it would be a serious offence
for police to require production of the Card.
You did not recognise that sophisticated security software
will be in place to prevent unauthorised access to the Card
register and that no other computers will be linked to the
register.
You failed to mention the Data Protection Agency, which is
to be set up as an independent watchdog body with a sweeping
mandate to protect privacy in the Australia Card program.
In short you have done yourself and your readers a
* disservice by providing an incomplete, and indeed fanciful,
commentary on the Card.
I referred earlier to the debate I have initiated on the
role of the public sector.
In May we announced our intention to sell, by open tender,
long term leases on Commonwealth owned international
aviation terminals.
We have reviewed that decision and concluded that extensive
regulations would be needed to prevent exploitation of a
monopoly regulation so extensive, indeed, that the
disadvantages of sale outweighed the advantages.
Accordingly we have decided not to proceed with the sale
because it has failed the second of the two tests which I
have set.
We are confident nevertheless of raising the $ 1 billion from
asset sales estimated in the May Statement. In addition to
the sales already announced we have decided to sell the
Commonwealth Accommodation and Catering Services Limited.
On the basis of the two tests, public ownership of CACS is
not necessary to ensure that its functions continue to be
performed. Moreover the advantages of sale outweigh the
disadvantages. We therefore intend to sell the
Commonwealth's 100 per cent interest.
This Budget also provides examples of where the Government
has sought to boost public sector efficiency, while
retaining public ownership.
Government departments will now generally have a choice
whether they obtain transport and storage services from the
Department of Administrative Services or direct from
alternative private sector suppliers. The Department's
charging will be required to met all costs, including a
return on capital. 0 1.107
Just two months on, implementation of the new administrative
arrangements is proceeding well. Although the primary
imperative behind the changes is efficiency and the better
delivery of government services, there will be substantial
savings in staffing and running costs. In a full year
savings will involve about 3000 staff years and $ 100
million. Public staff numbers peaked in 1985-86, fell in 1986-87 and
are expected to fall slightly further in 1987-88. We expect
the underlying downward trend to continue into 1988-89 and
be further intensified through 1989-90 as the full effect of
the Government's efficiency dividend, administrative
arrangements and other savings measures take effect.
In closing, I ask you to contemplate how different last
night's budget could have been if in Paul Keating's place
stood Jim Carlton or whoever else would have served as
Treasurer in a Howard government.
We would not be looking at a balanced budget, a stable
dollar, declining interest rates, or further export growth
as part of the essential strategy of reconstruction.
For the Liberals' tax policy which John Howard has
reaffirmed since the election gave priority to tax cuts
ahead of deficit reduction. In addition they would have
eliminated the very base broadening measures, most notably
Capital Gains Tax and Fringe Benefits Tax, which have
contributed $ 2 billion to revenue this year.
This would have threatened the dollar, and ensured high and
higher interest rates for Australia's home buyers.
It is hard to see how such a result could have pleased the
Liberal Party's Treasurer, John Elliott, for example.
Mr Elliott was interviewed yesterday morning on where
he said " a balanced budget will be regarded by the business
community as a good step from the Government".
He also called for reductions in corporate taxes a matter
which, as I have said, we have under active review.
It remains to be seen whether Mr Elliott recognises these
achievements or, as is more likely, he continues the removal
off-shore of his investments away from what he called " one
of the worst managed economies in the Western world".
I am sure you recall the famous confusion among the
conservative parties about whether tax cuts would be first
cab off the rank or third behind deficit reduction and
redistribution of the tax burden. 1 108
I only need point out that my Government has in fact sent
all three cabs off the rank. We have reduced the deficit to
near zero; we have progressively redistributed the tax
burden through means such as the capital gains and fringe
benefits taxes and the assets test; and we have lowered the
top rate of personal income tax from the level John Howard
left as Treasurer of 60 cents in the dollar to 49.
In summarising the budget, I would say: We have delivered.
We have delivered in full measure on our election
commitments.
We have delivered consistently now, over five budgets
the right mix of policies to restore economic health.
There has been no deviation from the clearly established and
clearly successful course we have steered since 1983 and
there has been no deception in setting that course or in
explaining its difficulties to the Australian people.
We have delivered a balanced budget, which will remove the
Commonwealth as a net borrower from financial markets.
We have delivered lower interest rates and we are delivering
lower inflation.
We are delivering new jobs by the hundreds of thousands
and by the end of 1988 we will have delivered one million
new jobs since we came to office.
We have delivered on our election promise to introduce a new
and generous source of assistance to the least well-off
families in our community.
We have worked at what's right and what's necessary, and we
have taken the long perspective, and that is the only way to
manage the economy.
All Australians are reaping the rewards. 0 0UI 0
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