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PRIME MINISTER
CHECK AGAINST DELIVERY EMBARGOED UNTIL DELIVERY
SPEECH BY THE PRIME MINISTER
ANNUAL GENERAL MEETING OF
BUSINESS COUNCIL OF AUSTRALIA
CANBERRA 18 OCTOBER 1990
I have to congratulate you on your sense of timing. I was
invited to this AGM by Dean Wills in the first half of July.
Anyone who could correctly anticipate then that this week
would see a major announcement on interest rates, as well as
further progress towards one of the most significant
Premiers Conferences held in Australia, obviously has a very
effective crystal ball.
I've enjoyed very much the discussions I have just held with
your Council members on the subject of the Premiers
Conference and I shall make some further comments about
this important topic shortly.
Let me first spend some time reviewing the Government's
economic policies, which I know are of interest to you all
particularly in the light of the further one per cent cut in
interest rates announced on Monday.
The basic point that needs to be made of course is that this
announcement was just the latest instalment albeit a
significant instalment in the continuing economic strategy
we have pursued since we came to office.
Because for all the variety of economic circumstances that
have been presented to us by domestic or external sources,
both when we came to office and in the following seven
years, this Government has essentially been tackling the
same fundamental problem: the need to rectify the nation's
long standing structural weakness our incapacity to pay
our way in the world with a sufficiently diverse range of
exports. The policies the Government has brought to bear to address
that weakness have been comprehensive, consistent and
continued unprecedentedly tight fiscal, wages and, of
late, monetary policies coupled with micro-economic reform
of a magnitude unparalleled in Australian experience.
The excessive growth in domestic demand that we saw in 1987
and 1988 only exposed this underlying structural failure
more starkly to view.
Australia wasn't producing enough to pay for what we were
consuming. So the difference was being made up by borrowing
overseas which showed up as unsustainable increases in the
current account deficit.
The inability of the supply side of the economy to respond
to this growth in demand also placed upward pressure on
prices giving us stubbornly high inflation.
As I said last Sunday in a speech to my electorate, we have
had to slow things down. That has meant making things
tougher than they had been for some time and this Labor
Prime Minister certainly took no pleasure in that.
But our action has delivered two undeniable and massive
benefits. First, in a negative sense, the hardship caused, for
example, by real wage restraint and temporarily high
interest rates, is as nothing compared to what would have
ultimately occurred in the absence of such policies. By
acting promptly we have contained the economic adjustment
required to something that though uncomfortable, is
manageable, compared to the catastrophic and traumatic
correction that would, eventually, have been imposed on us
by the rest of the world.
And second, in a far more positive sense, the adjustment
that we have sought in the economy is in fact taking place
successfully. The signs are all there that domestic demand has now slowed
significantly, providing increased opportunities for exports
and import substitution.
Net exports contributed some 3.2. percentage points to GDP
growth through the year to the June quarter 1990.
Imports fell 10 percent in the June quarter.
Inflation as measured by the Consumer Price Index has slowed
for the last four quarters to 1.6 percent in the June
quarter. The current account deficits in July and August are
consistent with the Budget forecast of a reduction from 5.6
percent of GDP in 1989-90 to 4.5 percent this year.
These welcome responses to the tightening we initiated in
1988 explain why, since the start of the year, we have been
able to ease monetary policy five times, bringing down cash
rates by about five percentage points.
I contend I~ t would now be difficult to categorise the
current stance of monetary policy as unusually tight. The
relationship between long term and short term the socalled
" yield curve" has assumed a more usual
configuration, following a period, associated with monetary
tightness, when short rates were well above long rates.
The genera. level of rates is certainly above what we would
like to sees in the medium term, but here we must have regard
to international developments and particularly to the reemergence
of concerns about inflation in the US, Europe and
Japan concerns that have been heightened by the Gulf
crisis. The key to achieving sustainable reductions in
interest rates in the medium term is to achieve significant
reductions in our inflation rate.
Having made these points, let me acknowledge at once that
much of the benefit of the monetary easing we have been able
to achieve is still flowing through to borrowers.
There has been some concern about bank interest margins.
As my colleague the Treasurer has said, following his
receipt of the report from the Treasury and the Reserve
Bank, these are moving back into line with normal practice.
This means, I believe, that banks should now be able quite
rapidly to translate the lower rates into relief for their
home loan and business customers.
But I make this vital point. The other elements of our
policy approach remain in place: a tight fiscal policy with
a budget surplus that for the third successive year is
ensuring the public sector makes no net call on national
savings; a tight wages policy that has cut non-farm real
unit labour costs by 10 per cent and that has lifted the
profit share to near record levels; and a continuing program
of micro-economic reform that is seeing historic changes in
telecommunications, the waterfront, land transport, and in
the very structures of the Federal system of Government
itself. It is this combination of policies that will ensure that,
through 1991 and 1992, we will see significant economic
recovery and the creation of a climate for strong and
sustainable growth.
This prediLction is a sound one, whatever may be the
technical parameters of any recessionary conditions later
this year or in the early part of 1991.
In fact, -the economy is in much better shape than is
indicated by the gloomy findings of the various surveys of
business and consumer confidence.
We are certainly not in any situation comparable to 1982-83
which was, with its double digit inflation and double digit
unemployment, the worst recession Australia had seen in
years.
And it is critical to understand that whatever may be
immediately around the corner, we can already see past it to)
the sound recovery that will occur in 1991-92.
As we move through 1991, the easing in monetary policy will
be fuelling a recovery, with personal tax cuts and the flow
through of Accord Mark VI wage increases boosting household
incomes. The inventory and housing cycles can be expected
to run their course and contribute to growth. The recent
fall in the Australian dollar if sustained would improve
the outlook for exporters and manufacturers competing with
imports. And under the Accord we can expect a resumption of the
employment growth that has been the hallmark of my
Government. It remains true that the Accord processes have been central
to the economic achievements of my Government. So in the
light of this week's remarks by the Governor of the Reserve
Bank, let me underline the fact that the capacity to trade
off wages for taxes has added a new dimension of flexibility
to fiscal and wages policy making.
But, as my colleague Paul Keating told Parliament this week,
it is simply too early, with Accord Mark VI still in the
pipeline, to entertain any real consideration of what may
succeed it. Such trade-of fs require extensive and careful
deliberation about the state of prevailing economic
conditions and I would not want to lock the Federal
Government into any premature understandings.
My friends,
Of more immediate importance is the effort the Commonwealth
Government is making, with the States, to improve the
efficiency of our Federal policy-making, administrative and
financial machinery.
I have discussed this at length already with your Council
members. But let me briefly express here my gratitude to
the Council for its strong support for the Conference and
my confidence that concrete and significant outcomes will be
achieved in five areas:
Commonwealth-State financial relations;
improving the arrangements for the delivery of services
in pursuit of social justice;
micro-economic reform;
industrial relations;
the environment.
I take this opportunity to draw attention in particular to
the initiatives that will be discussed in relation to road
and rail transport. Inevitably I suppose the attention that
has been focussed recently on telecommunications and civil
aviation has overshadowed the significance of land transport
reform; but I can assure you that road and rail occupy a
very significant place in our agenda for micro-economic
reform. Hand in hand with these processes, but necessarily with a
longer gestation period, are the renewed efforts we want to
make to achieve constitutional reform.
A Steering Committee, under the Chairmanship of the former
Governor-General Sir Ninian Stephen, is to develop
arrangements and an agenda for a Constitutional Conference
in 1991.
This is a task which should not be left solely to the
politicians. I have said, for example, that I would be
prepared to see a constitutional amendment to achieve fouryear
terms for the Federal Parliament if there is
bipartisan support for the proposal.
If the corporate sector genuinely believes, as I think you
do, that three-year terms are a handicap to efficient
business, then it is up to you to make your views known, to
exert pressure on politicians to see that the referendum
does take place, and to give it your vocal support when it
does. My friends,
I want you to know and understand that the kind of analysis
I have made of the Australian economy this evening has a
powerfully important international aspect.
Increasingly, our overseas trading partners and, of
critical importance, our trading partners in the Asia
Pacific region are recognising the significance of the
changes that are being wrought in the Australian economy.
It is certainly a central element of the diplomacy I conduct
on my overseas visits. On my recent visit to Japan
Australia's largest trading partner I told my audiences
that Australia was prepared and equipped to engage Japan,
the region, and the world, on new and more competitive
terms. And I pointed out that the pace of change in Australia has
rendered completely out of date the stereotypes that, once
accurately, portrayed Australia as a frequently unreliable,
usually complacent and essentially inward looking kind of
economy.
I consider this kind of commercial diplomacy to be
absolutely integral to the overall face that Australia
presents to the world. Part of my job overseas should be to
help open doors for Australian business. We are all the
winners when Australian companies can attract new work
overseas. But my friends all this requires one critical factor. Are
Australian companies prepared to exploit the opportunities
being created, and are they equipped to compete fully on
regional and global markets?
Of course there have been some very significant successes,
and many of the companies represented here are actively
marketing Australian products overseas.
But the fact remains that much more needs to be done by
Australian companies if we are fully to exploit the
opportunities that await this country in the region's
markets. We need to see a greater research and development effort; we
need to see greater managerial competence with longer
corporate planning horizons and more determined marketing;
we need to see greater effort to master the unfamiliar
markets of Asia as well as the more familiar ones in Europe
and North America.
And let me not omit from this list the need for a greater
commitment by Australian business to training.
That is why the book you have asked me to launch, " Training
Australians A Better Way of Working" is such an important
signpost to the future.
It comes as no surprise to me that many Australian
businesses as the case-studies in this survey show
attribute their success to their commitment to training and
developing human resources.
The Training Guarantee, along with our increased support for
apprentices, our expansion of places in higher education,
and the dramatic increase in retention rates at secondary
school level, show the Federal Government's active
commitment to improve Australia's skills base.
As you know, further recommendations have been made by Ivan
Deveson in his report that we received this week.
I don't want to preempt the Government's precise response to
his report. But this much can be said with certainty: we
accept that much more needs to be done to ensure the
Australian work force is equipped with the skills it needs
to enable our companies to compete internationally.
This is a responsibility we have shouldered in the past.
Most importantly it is also a responsibility that must be
shouldered to a greater extent by business.
C r. L 7.
Your report is a very welcome one and you are to be
congratulated for it. I have pleasure in launching it.
I don't think however that anyone believes this represents
other than an early staging post on a long road towards a
more substantial Australian business role in training.
It is consistent with everything I have said today that
business must adopt a more dynamic. response, in training and
more generally, to the great process of national economic
revitalisation that is taking place in Australia.
It's a tough process, and a slow one. But it is taking
place. And it must: continue to take place if we are to emerge a
stronger and more competitive nation.
That is why we can't afford any failure by business to play
its part. As a nation we depend on businesses as the
immediate agents of economic prosperity.
Government can and must create conditions broadly conducive
to a more outward looking, competitive economy.
We can, we must and we are doing that.
But ultima: ely it comes down to the skills and willingness
of individual managers in individual enterprises to take up
the challenge.
The current account deficit will only be reduced by the
accumulated results of hundreds and thousands of managerial
decisions : o export and to replace imports.
You are the front line troops.
Ultimately, winning this battle is up to you and I cannot
urge on you too strongly your responsibilities in this truly
vital task.