PRIME MINISTER]
CHECKC A( AINAT flrLTVERY FMBAROOFE UNI
FINANCIAL REVIEW DINNER
ADDRESS BY THE PRIME MINISTER
SYDNEY 21 AUGUST 1991
These Financial Review Post Budget dinners have become as
much a fixture in the calendar as the Budget itself. My
Government has brought down nine Budgets, and I have taken
the opportunity to address the business community at this
gathering nine times.
I don't suppose any of those addresses has been delivered in
so dramatic an inter-national context as this one. The coup
against President Gorbachev has profound implications for
the whole world, not least in its potential to halt the
process of restructuring the Soviet economy.
This is not the occasion to go into the deep problems that
the Soviet Union faces, or the threat to the profound hopes
which we all had invested in President Gorbachev's
liberating achievements through perestroika and glasnost.
The situation is extraordinarily volatile. But I believe
that the forces unleashed by President Gorbachev in favour
of a more democratic Soviet Union are too far down the track
to be turned around permanently.
The totally discredited system of the central command
economy has collapsed. It can never be rebuilt. Should
those forces which seek to turn the clock back to the 1950s
triumph, the result could only be a catastrophe.
Ladies and gentlemen,
One thing I did notice in the coverage of the serious
newspapers of the events in the Soviet Union was that on
every front page the reaction of " the markets" was noted.
I mention this, because it is evidence of the profound
change in the way that We Australians look at the world and
our place in it. And that change in attitudes is equally
reflected in the way we now look at the annual Budget and
its place in the economic and social policy of our nation.
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The emphasis the media gave to the impact of the Soviet
crisis on the markets is an example of the day-to-day
interest the whole community has developed in economic
affairs. Every night on the television news, right up there with the
old reliables, sport and the weather, we now see the
exchange rate. We have, reports on the behaviour of the All
Ordinaries, the Nikkei, the Dow Jones and the FT. Selected
stocks rise and fall in our living rooms.
And, of course, this new level of community interest this
level of economic sophistication is reflected in the
response to the Budget..
in the old days, Budgets were treated rather like one of
those Bruce Petty econtmy machines. The Budget was the
single engine of economic management, which was supposed to
prime the pump, push thne buttons, pull the levers and patch
the cables in the one document at the one time.
Those were the days where Australians waited with their
hearts in their mouths and their hands on their wallets for
the great Budget headline: Beer, Cigs, Petrol Up. ( but not,
of course, in a distinguished tabloid like the Financial
Review.) The Budget is no longer seen as the single engine of
economic management. Economic management is a continuing
process, and it is in that context that the ninth Labor
Budget, the first Kerin Budget, must be placed.
May I say in this respect that I am amazed at the
mindlessness or plain stupidity of some commentators that
this Budget demonstrat~ es a lack of planning or doesn't have
vision for the future.
They either suffer from selective amnesia or are being
deliberately perverse.
This Budget is the third instalment of policy decisions
which have made 1991 the year of the most substantial and
far-reaching reforms, not just in the life of this
Government, but in the entire post-war era.
The Budget must be seen in the context of the continuing and
comprehensive process of reform on which we have embarked.
It must be assessed in the context of the pivotal programs
we have placed on the national agenda, including those which
we are seeing working through this year, such as the
abolition of the two airlines policy and telecommunications
reform. 813
But in this year of 1991 alone we have:
The program Bet in train through my March Statement
the acceleration of unprecedented tariff reform; the
refocussing of Australia's trade promotion to the Asia-
Pacific region; waterfront reform; taxation reform,
notably the simplification of the depreciation
provisions and the widening of sales tax exemptions;
resource security; the advance towards ' the Clever
Country, with the opening of the f irst 15 cooperative
research centres, and extra funding for higher
education and training.
Again in this year of 1991 alone there are the commitments
undertaken through the Special Premiers Conference process:
The National Rail Corporation; the National Road
Transport Commission; the Electricity Grid Management
Council; business deregulation which will sweep away
the stupidity of having six sets of regulations around
our nation; and the major reforms of Commonwealth-State
financial relations, set down for the November 13991
Special Premiers Conference.
And' Tuesday's Budget must be seen as part of this
unprecedented program of reform, in this yz=. of
unprecedented reform.
Ladies and gentlemen,
The budget aims to consolidate the work of its predecessors.
Its aim is sustainable growth with low inflation. It is
part of a continuing process toward structural reform and
social justice. It continues the work the task of the
past eight years of building an internationally
competitive Australian economy.
It is a Budget designed to contribute to economic recovery,
but I emphasise immediately the point I made at the Labor
Centenary Conference in June:
We are determined that this recovery will be different
in character and quality from any merely cyclical
recovery this country has seen in the past. We are
determined that this recovery will unambiguously repay
the pain of the recession with substantial and lasting
gain.
That means, in the first place, we must ensure that we hold
the historic gains against inflation an inflation rate now
lower than the average of our major trading partners. But
it means much more than that.
It means: a recovery which will see the resumption of secure
employment growth;
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a recovery in which thet competitiveness Of Australia's
manufacturing industry will continue to improve;
a recovery in which Australian workers will gain access
to improved superannuation and,* through the
continuation of award r: estructuring and the
introduction of the flexibility provided by enterprise
bargaining, will achieve higher levels of productivity,
greater job satisfaction and better remuneration;
and a recovery in which we will see further
improvements in efficiency, through effective microeconomic
reform.
The fundamental thing about this Budget is that it is
fiscally responsible. That may not be a very exciting
concept to sell but it is: vital to achieving a recovery
that will provide continuing employment growth and
improvements in living standards.
We were not persuaded by ar~ guments calling for us to spend
our way out of the recession, nor by those who would have
had us destroy the social welfare system in an ill-judged
quest for savings at precis~ ely the time it is providing
greatest assistance to Australians in need.
While the Budget is the first in five years to provide for a
deficit, all spending initiatives are fully offset by
savings. We have protected the structural integrity of the Budget,
while at the same time directing major new resources to
families and disadvantaged groups, the cities and the
environment. We have fully offset all these new policy decisions with
savings through a careful reassessment of priorities,
rationalisation of existing programs, and making them more
efficient. The deficit is largely accounted for by rising income
support payments and by falling tax revenues. Higher
unemployment benefits alone account for around 80% of the
real growth in outlays thiLs year.
In 1991-92 outlays, boosted by the recession, will be 25.7
per cent of GDP, considerably lower than the 28.8 per cent
of GDP we inherited in 19132-83.
And the forward estimates show expenditure falling as a
share of GDP over the next few years.
Because we were determined not to fiddle with the basic
structure of the Budget, determined not to compromise its
integrity, it means that as the economy recovers, so too
will the surplus, and the Commonwealth's position as a net
saver. 815
I have said, and I Bay again, that signs of the recovery are
there. We will see it actually happening this year.
The Budget forecasts a three per cent inflation figure and a
drop in the current account deficit of around $ 14 billion to
percent of GDP. Those are very encouraging numbers.
If we turn to exports, we see that the figures for last
year, and the forecasts for this year, are proof of the
structural changes we have brought about in the economy of
this country.
Firstly, the balance of goods and services is forecast to be
in surplus in 1991-92 for the first time since 1979-80.
Secondly, net exports are expected to contribute 1.25% to
the 1.5t year average growth of GDP in 1991-92.
Thirdly, we can see results of investment in the 1980s
ref lected in expert growth, particularly manufactured
experts. The volume of experts ( goads and services) rose by 13% in
1990-91, with manufactured exports rising by 25.5%.
Those are the realities. It is on that basis that we I; ay
confidently: the 1991-92 Budget is appropriate for the
times. It provides the foundation for a sustainable
economic recovery through lower inflation.
While low inflation is not sufficient in itself for
sustainable growth it is a necessary pre-requisite.
It allows us to have lower nominal interest rates. it
encourages those with spare cash to invest it wisely rather
than chasing speculative capital gains from rising pric: es.
It helps business to compete in overseas markets.
We have now joined the league of low-inflation nations for
the first time in two decades.
That will bring enduring benefits to Australia better
investment, lower interest rates, improved competitiveness.
Ladies and gentlemen,
Wages policy is, of course, an integral part of the fight to
make low inflation a permanent feature of the Australian
economy. With my colleagues, the Treasurer, the Minister for Finance,
and the Minister for Industrial Relations, I met the ACTU
leadership last week. We discussed a range of issues, and
reached a specific understanding on wages outcomes.
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The Government and the Trade Union movement are commited to
achieving greater flexibilty and decentralisation in the
wages system through the introduction of productivity based,
enterprise bargaining.
This is an essential part of making Australia an
internationally competitive economy.
We agreed to work together towards an aggregate wage outcome
in the order of 5% for 1991-92. The Government's view,
published in the Budget papers, is that the actual figure
will come out closer to
If it is higher, it will be because enterprise bargaining,
based on achieved productivity, has moved faster and further
than we have anticipated, making our industries more
competitive, helping cement in lower inflation by providing
a productivity dividend to fund higher wages, and lowering
the Budget deficit through increased tax revenues.
We also reached an understanding on superannuation.
In the Budget we announced that as part of our retirement
incomes policy, the Goverrnent would legislate for the
phased implementation of a. minimum level of employer
superannuation support of 9% by the year 2000.
From July 1 1992, subject to a threshold, the minimum level
will be 5% of ordinary time earnings for employees where the
payroll is more than S500,000, and 3% for other employees.
We are determined to ensure retirement income security for
all Australians. It is art axiom of the Government's Social
Justice strategy that we manage the long term effects of our
ageing population, that wet start paying now so that we can
preserve our standard of living in the future.
Ladies and Gentlemen,
Not the least striking achievement of this Budget is the way
in which it serves the wider social purposes of this
Government, firmly in the tradition of its eight
predecessors. There could be no better testimony to the
fundamental strength of our achievements over the past eight
years than the fact that we are able to do this in a time of
recession. Again, I emphasise that new spending has been
fully offset by savings.
The Budget advances our Social Justice Strategy in a number
of very practical ways.
First, we are increasing expenditure on labour market and
training programs by 50 per cent in real terms. in addition
about $ 420 million has been allocated to TAFE including
million in 1991-92 for extra TAFE places. 817
As well as providing a safety net for people directly
affected by the downturn, these measures are designed to
strengthen the skills of job-seekers and workers and to
ensure that skill shortages do not emerge during the
recovery. Improvement of skill levels is of direct benef it to business
as we embark on the recovery. We must, and we will., avoid
the serious shortages of skills that were evident following
the 1982-83 recession.
Second, we are adjusting Medicare to make absolutely sure
that this great reform in the Australian health care system
is irreversibly established as part of the Australitan way of
life. The measures being introduced are based on the findings of
the National Health Strategy. They adjust Medicare
arrangements to promote better use of medical services,
higher quality of care and more efficient use of health
resources. At the sane time, we have improved protection
for families from high out of pocket costs for private
medical services.
Third, this Budget builds upon the Government's landmark
reform in assistance to low income families the Family
Allowance Supplement.
This Budget extends that achievement by making the family
support system much simpler and more consistent; by
increasing assistance to low and moderate income families;
and delivering greater assistance to the primary carer who
is, in most cases, of course, the mother.
And we have moved to change the assets test arrangements to
help those families, particularly in rural Australia, who
are asset rich but cash poor.
These new arrangements are a further gain to the social wage
which is the other side of the coin to the wage restraint
demonstrated by the union movement over the past eight
years. Fourth, the Budget starts to deliver on one of th~ e most
urgent social and economic challenges of the 1990s to make
our cities work better. In co-operation with the States, we
must start to improve people's access to work, services and
education through better transport links, more affordable
and appropriate housing, and a cleaner urban env~ ronnent.
Assistance of up to S812 million over five years will be
provided to State and Territory Governments to help them
undertake a range of programs to improve the quality of life
in urban areas. I must emphasise that the ultimate success
of the Better Cities Program will depend on the cooperation
of all levels of government. The involvement of the private
sector is crucial to its success. That co-operation, in
itself, is a tremendous challenge for us all.
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In addition to Better Cities, t: he establishment in this
Budget of the Commonwealth EnviLronment Protection Agency
rep rsnts another big step forward in this Governmn'
cocr for the whole environment the urban as well as the
natural environment.
Initially, the $ 8.5 million allocation in 1991-92 will
improve Commonwealth environment protection activities.
However, by early next year we hope to have agreement on
Commonwealth-State administrative arrangements, through the
Intergovernmental Agreement on. the Environment. In this
way, truly nAtñ nnal standards for air, water and land
pollution can be established.
I know that business is anxious that there should be more
certainty, simplicity and uniformity in the areas of
environmental assessment and pollution standards. National
action is the only way to achiLeve them.
Ladies and Gentlemen
I welcome the opportunity this occasion affords to place the
Budget in the context of the agenda for the nation set out
in the Financial Review articles of last week.
I believe the Budget, as part. of the wide-ranging process of
reform and renewal we have undertaken, makes a valuable
contribution towards meeting the challenges those articles
posed, above all the challencle of making the Australian
economy more open and more competitive.
There is, however, one matter of fundamental importance on
which I must take issue with the Financial Review.
It is about the future of the Accord.
The Review said:
" The accord process has been a remarkably long-lived
experiment, given the fate of similar social contracts
elsewhere. But just as its time had come in the early
1980s, its demise as a formal structure is close, and
it should be buried with due honour."-
Now, Ladies and Gentlemen, the Financial Review is
absolutely correct in describing the accord as a pnaes.
It is precisely because it has been an evolving process a
process of consultation and agreement between Government and
unions that it has endured, with such unique success. 819
The Financial Review acknowledged:
" The accord's gradualism delivered commitment to a
number of important changes in Australia an attack
from within on Australia's moribund awards, a break
with the wage indexation fixation of the past, a
reinvigorated assessment of the importance of
productivity, and the elevation of retirement incomes
and training as factors which will see the country cope
better into the next century."
Nevertheless, the Financial Review, having come to praise
the Accord, proceeded to bury it.
Specifically, it asserted that as we move towards wage
decentralisation, the Accord will become irrelevant.
On the contrary, I maintain that a smooth transition
absolutely requires the Accord, if we are to avoid needless
confrontation and disruption, and the re-emergence of
inflationary pressures.
As part of the agreement finalised last week, the ACTiJ
committed itself, in 1992-93 and future years, to work
towards wages outcomes consistent with keeping Australia's
inflation at levels comparable with those of our major
trading partners.
I believe the Agreement reached with the ACTU last Thursday,
as part * of the Accord process, meets the challenges we face
today. In doing so it demonstrates the continuing
relevance, the importance, and the vigour of the Accord, and
the constructive, cooperative, attitudes it embodies. The
Accord process is as vital as ever. Its vitality is as
strong as ever.
Mr Chairman, Ladies and Gentlemen
Let me sum up. The 1991-92 Budget is a Budget for recovery,
for responsibility, for reform. It is a vital part of the
whole process of national reconstruction and renewal which
we have undertaken in this first year of the last decade of'
the 20th Century, to equip Australia to enter the
21st Century with a strong, competitive economy as the
essential foundation for our national goals of a
progressive, enlightened, just society, uniquely diverse.
but unshakably united. It is both a Budget for the times
and a Budget for the future.
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