CHECK AGAINST DELIVERY EMBARGOED UNTIL DELITVERY
SPEECH BY THE PRIME MINISTER
ANNUAL DINNER OF THE
CONFEDERATION OF AUSTRALIAN INDUSTRY
CANBERRA 29 NOVEMBER 1989
Tonight's annual dinner of the CAI occurs at a truly
significant time for the debate about the future of the
Australian economy.
It is a time requiring renewed efforts by the Government to
explain to the community the necessity and effectiveness of
the strategy we are following.
And it is a time that is flushing out the opportunism of the
Coalition parties who are making a bid for power that is
fundamentally and, I believe, fatally flawed.
It a significant time when some respected business and media
commentators are preoccupied with doom-saying while many
basic characteristics of the economy are fundamentally
bright. So I welcome this opportunity to talk to you, and through
you to ask the Australian business community about the sort
of Australia in which it wants to operate.
That is neither a frivolous question nor an academic one.
It is a question you will have to contemplate seriously in
the coming months.
Because the answer the Australian community gives will
profoundly affect the prospects for Australian business'and
the Australian economy at large.
There are two alternative Australias facing business: an
Australia of confrontation, an Australia shaken by a wages
explosion and industrial warfare, an Australia of recession
and of introspection; or an Australia of co-operation and
industrial order, of sensible wage determination, and of
deliberate pursuit of a clear strategy of internationalising
the economy.
Then, of course, there is also the fantasy world of
Professor Hewson who talks in terms of no inflation, no rise
in unemployment, minimal interest rates the world whose
creation Ross Gittens says would win the Nobel Prize.
I ask you to take a hard-nosed look at the two Australias
that, realistically, are open to you.
In doing so I make no apology for these direct
politically-relevant comments.
Indeed, in making these points, I am returning to the theme
to which I have devoted considerable attention over the last
few weeks in Parliament, press conferences and speeches
namely, the vast chasm that separates this Government from
the Opposition in every aspect of Government policy making.
When I addressed the Evatt Foundation recently I focussed on
the deep ideological divide between us and the conservatives
on social justice; when I spoke to the National Farmers'
Federation and when I launched the Garnaut report I
addressed the profoundly different approaches we have
brought to the task of micro-economic reform and its
relationship to our future in the Asia-Pacific region.
Today I want to address issues of macro-economic policy.
Do you remember Hanrahan, the farmer in John O'Brien's poem
whose incessant prediction was: " We'll all be rooned"?
If it wasn't a drought Hanrahan was lamenting, it was a
flood or the threat of bushfires the only thing certain
was that one way or another " we'll all be rooned, before
the year is out."
Hanrahan could easily get a job today as an economic
commentator with some of the newspapers or financial
institutions or as an advisor to the Coalition.
This week, for example, he would have been bemoaning the
current dip in house prices just a few months after
lamenting increases in house prices. We'll all be rooned if
house prices rise; we'll all be rooned if they fall.
Don't misinterpret me. I welcome the current debate about
interest rates, foreign debt and the balance of payments.
And I'll address each of these tonight.
But what I find disappointing and, more than that, what I
find damaging to the community and to the economy itself
is the Hanrahan-style refusal to take a balanced or
comprehensive view about the economy.
Hanrahan reckons things are pretty crook in today's business
world.
3.
The profit share is 23 per cent higher than the average of
the last 15 years and 50 per cent higher than it was when
the Labor Government came to office.
The company tax rate is down to 39 per cent.
Real unit labour costs have fallen more than 11 per cent
since 1983.
Business investment is at its highest level in 40 years.
Manufacturing investment has been growing at 13 per cent in
real terms per annum over the last five years compared
with a rate of minus 1.6 per cent over the previous five
years. And Access Economics has documented $ 90 billion in new
investment projects in the pipeline or at an advanced stage
of planning.
Now I'm not saying there are no problems. There are real
problems and the Government is by no means complacent
about them.
The build-up of Australia's international debt is a real
problem. The Government has never sought to deny that. But
we do not accept the Hanrahans of the Macquarie Bank who
predict a cataclysmic explosion in our overseas debt by the
turn of the century. Nor for that matter does
Sir Roderick Carnegie, orthe former Governor of the Reserve
Bank, or EPAC whose conclusion earlier this year was that
stabilisation of Australia's foreign debt at around the
existing level could occur in the mid-1990s.
Remember that our net external debt stood at 34% of GDP in
September 1986, and it now stands at 31.9 per cent.
In other words, substantial stabilisation of our
indebtedness has already occurred.
The modern day Hanrahans seem to think that all debt is bad.
Some of those people are running our larger companies.
Presumably debt was not a dirty word when their boards of
directors considered the financing of their new investments.
Yet when commenting on the national accumulation of all
those investment decisions 89 per cent of Australia's debt
is business related the verdict is, " we'll all be rooned".
Of course the nation must service that net debt of which,
as you know, the Commonwealth owes not a cent but most of
that indebtedness would not have been incurred had
businesses not had the expectation and the confidence it
could be repaid with interest.
The Government could, of course, slash Australia's overseas
debt and break the balance of payments problem by banning
the importation of planes by Qantas and the domestic
airlines. We could prohibit the importation of factory
equipment, computers, construction materials which are
being used to re-tool and reconstruct the Australian
economy. But those policies, while reducing debt, would not
be in the nation's economic interests.
And I add this observation: our foreign debt would have
been up to $ 42 billion, or nearly 40 per cent, lower if my
Government had not freed up opportunities for Australian
investment abroad. For that has been the growth in
Australian equity investment overseas from $ 7 billion in
1983 to $ 49 billion now. That investment will yield future
income for Australia: it is already yielding $ 3 billion a
year, more than double the inflow of only three years ago.
Hanrahan would no doubt point out that Australian foreign
investment abroad is smaller than foreign investment in
Australia. But there has always been foreign investment in
Australia; it has only been in recent years that such
spectacular growth in Australian investment abroad has
occurred. It is income-earning investment; investment that
is integrating Australia into the global economy; investment
which is generating markets, technology, ideas, skills.
Obviously if national savings were higher Australia could
finance this Australian overseas investment and reduce its
dependence on foreign debt.
For our part, the Government is making a substantial
contribution to the national savings effort. Since coming
to office we have, by turning around the Public Sector
Borrowing Requirement by 8 per cent of GDP, increased public
sector savings by around $ 30 billion per annum. This year
is the fourth year of real reductions in Commonwealth
outlays. As a proportion of GDP they will reach their
lowest level since the mid-1970s: lower than in any of the
seven years of the previous Government.
This is the tightest fiscal policy Australia has ever seen.
These figures provide a firm basis for the future. Indeed,
by 1992-93, we expect Government outlays to be at their
lowest level since the early 1960s.
So on fiscal policy, the Government's record, our current
performance, and our future determination are matters not of
speculation or of rhetoric but of fact.
And so it is with the second instrument of macro-economic
management: wages policy. You have heard me often enough
speaking of the benefits to Australian workers and
businesses of the Prices and Incomes Accord the creation
of more than one and a half million new jobs, the 11 per
cent reduction in real unit labour costs, the 60 per cent
reduction in industrial disputation and, I repeat, a higher
profit share and record investment.
But let me cite fresh, independent evidence just released by
Drs Chapman, Dowrick and Junakar in a paper presented to an
economic policy conference at the Australian National
University. Their study concludes that the Accord has
contributed massively to job growth, to an associated fall
in unemployment and to an increase in the profit share.
This is the Accord that our political opponents have from
day one written of f as a doomed experiment. Hanrahan has
predicted its demise more often than I can recall. But it
still survives and adapts providing now a comprehensive
basis for the establishment of responsible wage outcomes in
concert with improvements in the social wage.
The current process of award restructuring presents an
opportunity to tackle some of the barriers to improved
industry efficiency and productivity.
I stress the word ' opportunity'.
Sustainable increases in productivity will not come from
unilateral Government action. They depend upon business and
employee willingness to change, and on an environment
conducive to change.
My Government is creating that environment. A clear
strategy of internationalising the Australian economy has
changed the economic debate in Australia.
We have now widespread acceptance of the need for micro
reform, particularly the idea of exposing Australians to
competition, both domestic and overseas.
This promotes change.
And ~ it will encourage use of the opportunities available
through the current wage fixing system for increased
productivity. Such opportunities are not static.
Broader mechanisms are in place to bring about a move away
from occupational awards and fragmented, craft based unions
to arrangements which better reflect the needs of industries
and enterprises.
We are seeing union amalgamations, an acceptance of
significantly fewer bargaining units on the factory floor
indeed, the desirable goal is one such bargaining unit and
widespread acknowledgement that craft-based awards need
redrafting. And we will take these developments much further through the
Accord and within nationally accepted wage fixing
principles. But, and this is vital, at the same time as the objectives
of increased flexibility and decentralisation are being
achieved, we are maintaining an institutional structure that
produces responsible aggregate wage outcomes.
This is fundamental to assessing the desirable path for
future change.
So you should not simply listen to political promises about
wage and productivity outcomes you must look carefully at
the proposed policy actions.
The increases in productivity flowing from award
restructuring will in some cases be immediate, and in other
cases take longer. But in all cases they are being achieved
through sensible and constructive negotiations in which
everyone can play a part.
Look at the recent airline upheavals.
As a result of the actions of the AFAP very large
productivity increases will occur in the airline industry.
But they have not been achieved in a way desired by my
Government. There has been massive disruption and pain for tourism; an
expensive program of training new pilots; and inevitably an
aftertaste of bitterness.
This is the espoused method of Coalition reform.
But is the bull in the china shop approach the desirable
method of achieving micro reform? It produces a lot of
broken china.
And would will the Coalition have the guts to follow it
through? They would have given into the AFAP. What chance
would they stand with the Waterside Workers?
With continued responsible wage setting practices and with
continued fiscal restraint, we will, in time, be able to
ease the pressure on the third instrument of macro-economic
policy monetary policy.
I know high interest rates give no pleasure to the business
community. I certainly know home buyers hate high interest
rates. And as a politician, I'm not thrilled about them
either. But it would be economically irresponsible to bring down
interest rates prematurely.
I will not do that.
The Government's three-pronged attack on the unsustainable
growth in domestic demand accompanied by our continued
program of micro-economic reform is beginning to show the
desired results. Signs of a slowdown are becoming more
widespread. But the Government will not ease monetary policy until it is
confident that the slowdown in demand is broadly based.
Ladies and gentlemen
Contrast all this with the other world in which you as
business men and women could live. That is the world
offered by the conservatives. I don't have to traverse the
full terrain with you, because most of you have been there
before. Remember 1980, 1981, 19827 An 18 per cent wage
explosion. Industrial chaos. Factories closing down.
Double digit inflation. Double digit unemployment. The
lowest profit share in more than 20 years. High marginal
tax rates. Ninety day bank bills at 22 per cent.
That's the other world. The conservatives are caught in a
time warp: the Economic Action Plan promises to take you
back in the time tunnel to 1982. It took business
investment five years to recover from that battering. Their
policies promise a new belting for business.
No-one who cares about the future of the economy can take
comfort from the fact that after seven years in Opposition,
the would-be Government has produced only a woefully thin
document, full of policy contradictions, a prescription that
would take us back to the past.
If we are to address our serious economic problems, we won't
do it with a plan whose philosophy John Elliott describes as
taking from the bludgers and giving to the workers.
Lest I be accused of sounding like Hanrahan, I want to
substantiate those claims with three facts.
Fact One: the Economic Action Plan involves a very
substantial relaxation of fiscal policy. By the Coalition's
own stated figuring it involves no tightening. But there is
an $ 800 million over-estimate of savings on unemployment
benefit identified by the Department of Finance. Add to
that the multi-billion dollar handback of capital gains tax
revenue and you have a significantly relaxed fiscal policy.
I ask you, as representatives of the Australian business
community, to consider the full economic ramifications of
the Liberals' promise to abolish Labor's capital gains tax:
S the consequent relaxation of fiscal policy must
inevitably increase the pressure on interest rates;
S there would be highly distorting behaviour in relation
to asset disposals driven by a desire to minimise or
avoid tax on capital gains;
S a sell-off would occur on stock markets as shareholders
sought to realise their capital gains before the
following Federal election;
S capital would be diverted once again away from
economically productive, job creating investments and
into schemes yielding tax-free capital gains.
I put it to you in the strongest possible terms that
Australia's economic difficulties will be worsened by
abolishing Labor's capital gains tax returning us to the
days when the fastest growing industry, indeed the only
thriving industry, was tax avoidance.
Fact Two: the conservatives' industrial relations policy
would return Australian business to the industrial jungle.
Their policy is no different from what it was in 1981 and
1982. And if you need any evidence of that, just look at
their explicit and still continuing support for the
Australian Federation of Air Pilots.
The strong are allowed to opt out and exercise their
industrial muscle just as they did in 1981; just as the
AFAP sought to do.
It is a policy that the Opposition Leader has failed to
articulate because he does not understand it. It is, in
reality, a complete abrogation of responsibility in the
critically important area of wage fixation.
Fact three follows from the previous two.
In the end the only weapon the conservatives really have to
contain their wages explosion would be to depress the
economy through high interest rates. It is a theory that
was practised with disastrous results when they were last in
office. While ninety day bank bills are currently around
18 per cent, in April 1982, I repeat, they reached
22 per cent.
In the final analysis they would have no choice a looser
fiscal policy and a wages break-out would leave them totally
reliant on the swing instrument, interest rates, to bring
the economy to heel at massive economic cost and social
dislocation.
That is why I have made it quite clear that while interest
rates are high now, they would certainly be very much higher
under a hypothetical Peacock Government.
Ladies and gentlemen
Members of the CAI and all those concerned about the
economic future of this country have a fundamental
question to answer: what kind of Australia do they wish to
live in and invest in?
Would they rather it be an Australia whose immediate
economic problems high interest rates, debt and current
account imbalances reflect buoyant employment growth and
record private investment.
Or an Australia where the economic levers are pulled by
would-be Nobel Prize winners trying to demonstrate the
impossible notion that interest rates and inflation can
be eliminated without job loss an experiment with
architecture as much as with economics, because it
would drive interest rates through the ceiling, the
dollar through the floor and all our hopes of recovery
out the window?
Would they prefer 1989 where families that need second
incomes can find an additional job?
Or a return to 1982-83 where families found their sole
breadwinners had lost their jobs because the dole queue
was being used as an instrument of economic policy
making?
Would they rather live and invest in an Australia that has
started down the road of economic reconstruction, shaking
off the bad habits of protectionism and introspection, and
building a thriving, diverse export culture?
Or an Australia back in the hands of those whose
slavish subservience to the agrarian socialists meant
the taxpayers forked out subsidy after tariff after
bounty for sectional interest groups?
Would they rather have an Australia where wages are set in a
predictable, stable fashion, where aggregate wage outcomes
reflect national priorities of international competitiveness
and domestic social justice?
Or an Australia where the strong can extract massive
wage increases and there is thought to be no need to
control aggregate wage outcomes?
Would they rather see an Australia where personal and
corporate rates of taxation are set so as to create an
efficient and fair system of taxation, that directs
investment to productive job creating activity?
Or would they rather see public revenue undermined and
public confidence eroded by the ingenuity of the sharp
paper shufflers aided and abetted by the smart tax
accountants and lawyers whose sole activity is to find
and exploit loopholes?
You should have no doubt about the kind of Australia that we
are trying to build.
Australia is in the middle of an historic transition from a
narrow, inward-looking, uncompetitive economy to a broadly
based, export-oriented economy that can proudly take its
place in the world.
The nation has its economic problems, but the Government's
macro-and micro-economic reforms are delivering
demonstrable improvement.
There is no time for looking back to the easy comfort of
mediocrity, relying on a good harvest or wool clip, or a
mineral commodity boom then dragging ourselves through the
next rural bust, blaming the rest of the world for not
paying us a living.
Now is a time of hope, not despair a time for keeping our
eyes on the long-term goal of an internationally competitive
economy. In a few short years we have travelled a very
great distance along the national road of economic
reconstruction. And through co-operation, consensus and a
shared commitment to see the job through we will take into
the 21st Century a re-invigorated, modern and cohesive
nation, one truly able to stand up and make a full
contribution to global prosperity.
The Australian economy is fundamentally strong.
We are experiencing an investment boom unparalleled in
Australia in the period that records have been kept an
investment boom spanning the entire economy and with
enormous potential for new jobs and new exports.
Employment growth is twice the rate of the Western world.
Participation in employment is at record levels, as is
participation in the education system.
We have a stable yet flexible wages system that has survived
the intense pressures placed on it by buoyant economic
conditions one that through its inherent adaptability will
be a key instrument for continued economic reform.
The public sector is in long-term surplus and the
Commonwealth is reducing the national debt.
Today's national accounts support our Budget predictions
that the current account deficit will improve significantly
in the first half of next year. Demand growth is slowing
and net exports are contributing once again to growth.
11.
Our foreign debt must be brought down. There is clearly no
room for complacency. But most certainly it is not a time
for heeding the Hanrahans among us.