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SPEECH BY THE PRIME MINISTER
AUSTRALIAN FINANCE CONFERENCE
SYDNEY 25 SEPTEMBER 1991
Next month marks some notable anniversaries. One, very much
in my mind, will be 7 October the fiftieth anniversary of
the formation of the wartime Labor Government of Australia,
under the leadership of the great John Curtin. Perhaps
engraved more sharply on the memories of you here will be
October the fourth anniversary of the stockmarket crash.
And I put to you, ladies and gentlemen, what might seem at
first an ast~ onishing proposition, but one which encapsulates
the epic nat~ ure of the times through which we are living.
My proposition is this: those four years, 1941 to 1945, were
the most crucial in changing world history and shaping the
future of humanity until the last four years, the four
years since 1987.
They have indeed been remarkable years. For a few months in
1987 we feared that the world's economies and in
particular its market economies would slide into a
profound recession.
We feared that we would see again the sort of ' crisis of
capitalism' that brought the international economy to its
knees in the early 1930s, and which had such a grave effect
on Australia and on so many of her people amongst our
parents' gerierat ion.
And we were mindful too of the wider consequences of that
earlier stockmarket crash; the flight to protectionism, the
rise of fascism and the terrible trends that led to war.
But of course, none of that happened.
In fact over these past four years international events have
been dominated by two much happier trends.
First, markets have not been discredited, as they were by
the crash of' 1929.
World markets and the world economy recovered surprisingly
quickly from the crash. And the role of markets, including
international markets, in satisfying the economic
aspirations of ordinary men and women everywhere has been
increasingly recognised in every corner of the globe.
Economies which for decades have been ruled by diktat are
now starting to be ruled by choice.
Second, we have seen the political equivalent of these
trends in economic thinking. Within nations, the last few
years have seen an extraordinary surge towards democratic
government. And between nations, there has been a
remarkable reduction in tension and growth in cooperation.
Strategically, these years mark the end of the cold war.
The end of the era that began in 1941 with the German
invasion of the Soviet Union and the Japanese attack on
Pearl Harbour. Those attacks drew the two great powers into
World War 2 and led them, through victory, to superpower
status and relentless antagonism.
Politically the last four years mark the end of an even
longer era. For the death of communism in its first home,
the Soviet Union, marks the eclipse of a conception of the
State and its role in society, and indeed the end of an
ideology about human society itself, which goes back even
before 1917.
These great events unquestionably among the decisive
sequences of modern history will be symbolised in history
by the fall of the Berlin Wall and Russia's three-day
revolution. But their effects have been felt, and will
continue to be felt, all over the world.
So my theme today is change, in these times of immense
change, and the challenge it brings inescapably in its wake.
And, in attempting to understand this experience of the
recent past and, just as important, in planning for the
future, October 1987 is an appropriate place to begin.
The falls in share prices in those tumultuous days, almost
four years ago, surpassed anything seen since the Great
Crash of 1929. It was a natural response, then, for the
world's policy makers to look back to that earlier time. It
was natural, also, that their predominant concern should be
to avoid the collapse of the banking system and prolonged
depression of the 1930s.
But that experience lay almost 60 years in the past. The
world economy had changed enormously. The world financial
system proved much more resilient than in 1929. The
flexibility brought by deregulation, coupled with greater
international integration of world capital markets, gave it
a much greater capacity to absorb shocks.
We can now see, with hindsight, that the easy monetary
policies, pursued in much of the developed world, designed
to avoid a repeat of 1929, were an over-reaction. Their
effect was to stimulate demand beyond the capacity of the
world economy to produce. Amongst other things, it gave
rise to a boom in asset prices.
We, in Australia, shared in this experience. Here, growth
in demand outstripped growth in output by a factor of two.
It was a situation we could not and did not allow to
persist. The international events I have described overlaid a range
of fundamental changes we ourselves were making, to achieve
greater competitiveness. C ' onsequently, the impact of those
events was greater here than in most other national
economies. The structural changes were imperative to the pursuit of
competitiveness. Yet they made Australia particularly
susceptible! to these wider, international influences.
Nowhere ca. this be seen more clearly and starkly than in
the financial sector.
In many respects, the financial sector has been a pioneer of
structural change in Australia. The floating of the dollar
and the dismantling of foreign exchange controls opened the
sector to the influence of international capital markets.
Deregulation and the entry of the foreign banks brought a
sharp increase in competitive pressure.
This new environment made immense demands on management
within financial institutions.
But in the period following October 1987, these demands were
not immediately obvious. Money and credit were easy.
Aggressive lending was seen as essential to survival.
With the tightening of credit and the associated deflation
of asset prices, the pressures on management were
simultaneously revealed and redoubled. Regrettably, this
proved too : much for some institutions and has left its marks
on the balance sheets of all of them.
Unlike the crash of 1987, these developments are genuinely
testing the resilience of the financial system. And not
just in Australia. There are serious concerns about the
fragility of the financial systems of both the US and Japan.
If this account were all there was to be said about the last
four years -then the only remedy would be one drawn from the
post-1929 experience. Perhaps some would be looking for the
nearest window.
But, in spite of the pronouncements of the dismal johnnies
who seek oul: the doom and gloom in every situation, this is
manifestly not the case. The reform effort that predates
1987, and has continued and intensified since, has brought
about real and lasting change.
In the financial sector, there have been real benefits to
consumers. A much richer menu of financial products and
services has become available, and competition for savings
has enhanced the returns on the accounts available, and
increased their range.
And this is a motif repeated across many sectors of our
economy: real and lasting benefit on the one hand, coupled
with particular difficulties flowing from the extremely
disruptive, but essentially transitory, experience of the
last couple of years.
I think it is of profound importance that we draw the
appropriate conclusions from this observation. We must not
allow ourselves to be overwhelmed by the difficulties of the
moment as disturbing as they might be. We should take heart
from the massive change we have already secured, draw
strength from the achievements we have already posted and
move to tackle the problems that now confront us with the
same determination that has brought us this far.
Make no mistake, this is not an idle and empty clarion call
to attempt some impossible feat, nor will you respond
adequately by feeling committed for the next twenty four
hours. What has brought us the achievements we have secured
and what promises further gains is continued application of
effort by each of us in our own area to perform our
functions better.
My Government, in this year of recession, has sought to
redouble its own efforts. I made the claim, at the
post-Budget AFR dinner, that in no year in the post-war era
had so much reform been achieved.
The challenge I issued then to refute that claim remains
unanswered. Let me take you through some of the main elements that
substantiate this claim, not to convince you of our virtue,
but to demonstrate that, in urging you to help work ourway
through the current problems, this Government is leading by
example. The reforms we are implementing have an overriding
objective: to make our economy more competitive
internationally. Nowhere are these reforms more striking than in the area of
Commonwealth-State relations. Through the Special Premiers
Conference process, we are redefining the relationship
between Federal, State and Local Governments in a way
unmatched in over ninety years of Federation and to a degree
considered impossible by many, even as recently as last
year.
The impact of these reforms has yet to be felt in the
Community at: large. But, as they come on stream in the
years ahead, Australia will be free, at last, to operate and
compete as a, single, efficient unit, free of inefficiencies
flowing from the accumulated mass of uncoordinated and
contradictory rules and regulations.
The establishment of the National Rail Corporation, at a
cost of over $ 260 million over the next four years, will
mean that business will no longer have to deal with five
separate rail systems, uniform only in their capacity to
make losses. Instead, there will be a single, commercially
oriented company responsible for interstate rail freight
with a network extending from Brisbane to Perth.
The National Road Transport Commission will regulate heavy
vehicles on a nationally uniform basis.
The National Grid Management Council will deliver a more
rational use of energy resources. It will, over time,
provide electricity cheaper than it would otherwise have
been available to household consumers and industry alike.
From the beginning of 1993, regulations and standards
covering goods and occupations in each of the States and
Territories will be recognised in each of the others a
simple reform in itself, but one with far-reaching
implications. Yet this simple reform was put in the too
hard tray by a succession of Governments during the first
ninety years of Federation.
Further, through the process of the Special Premiers
Conference, proposals are being developed for adequate and
uniform prudeantial standards for State-based non-bank
financial institutions. While I know these reforms will not
affect directly the institutions represented here today, it
will provide a more efficient and predictable operating
environment fEor those in the building society and credit
union sector.
But, of course, the achievement of micro-economic reform
extends well beyond Commonwealth-State relations. I list:
the tariLff cuts and further taxation reforms announced
in the March Economic Statement
the Waterfront reforms which are already giving rise to
productivity gains of 60-70 per cent in some ports and,
in so doing, providing direct benefits to all
Australian exporters
deregulation of the civil aviation industry, which is
providin~ g cheaper fares for all air travellers
reform of the telecommunications sector and in the
management and operation of government-owned
enterprises, at both the Commonwealth and State levels.
The Government's micro-economic reform initiatives are being
pursued within a coherent and forward-looking overall policy
framework designed to get the fundamentals right.
The 1991-92 budget brought down by John Kerin was integral
to this strategy.
If Australia is to develop an internationally competitive
economy, the skills level of its workforce must be upgraded.
That is why the Budget saw expenditure on labour market and
training programs increase by 50 per cent in real terms.
Also, it is why $ 420 million was allocated to TAFE.
Similarly, if we are to plan properly for the future, we
cannot ignore the problems associated with the ageing of our
population. We cannot wish away such problems or pretend
they do not exist. If we are to have sensible policies for
the future, we have to make basic decisions now. That is
the approach behind the superannuation initiative announced
in the Budget. It might have been expedient to put of f the
decision, but that would have simply imposed a greater cost
on business, and the commnunity as a whole, further down the
track. I come now to the prospects ahead.
Over the course of this financial year, our inflation rate
is forecast to drop to 3 per cent. At 3.4 per cent,
Australia's inflation rate is already below the 4.3 per cent
average of our major trading partners in the OECD.
Inflation expectations are being lowered and, for the first
time in a generation, Australia has the opportunity to make
permanent its status as a low-inflation country. My
Government intends to grasp that opportunity. We intend to
lock in permanently the advantages which low inflation
brings to our international competitiveness.
Central to the maintenance of low inflation is an effective
wages policy. It is to its great credit that the Australian
union movement shares the commitment to keeping inflation
low. Through the Accord process one of the great success
stories in economic management over the past decade the
union movement has committed itself to the achievement of a
wages outcome in the order of 5 per cent this year. Beyond
that, the union movement has agreed to work with the
Government towards a wages outcome consistent with keeping
Australia's inflation rate at levels comparable with those
of our major trading partners.
Australia's current account deficit is forecast to be around
$ 14 billion or 3.5 per cent of GDP in 1991-92, a very
significant improvement on the $ 22.3 billion or 6 per cent
of GDP in 1989-90.
And especially pleasing about this trend is the fact that so
much of it is due to a growth in net exports. That is a
clear sign that the changes we have been working for, are
beginning to take hold. In particular, manufacturing
exports have shown a consistently high growth over the past
eight years 26 per cent in 1990-91 alone. In fact, in
1990-91 the share of manufacturing exports in total exports
was 18 per cent, compared with 12 per cent in 1982-83.
Largely as a result of the growth in exports, the balance on
goods and ser-vices is forecast to be in surplus in 1991-92,
the first such surplus in over a decade.
The Budget forecasts are for recovery at a moderate pace
over the course of this financial year, with GDP growing at
three and three quarter percent through the year.
While I do ncot underestimate the difficulties still being
faced by businesses all the signs point to the beginnings of
a steady improvement in economic activity
despite a slight fall-back in the past two months, the
index of consumer confidence has risen by 30 per cent
since February
housing starts and retail trade statistics have picked
up new manufacturing orders are expected to increase over
the coming quarter.
Ladies and gentlemen,
The thrust of this Government's policy effort has been to
take the right decisions for the future of Australia. We
are about getting the framework and structures right. Such
an approach is, we believe, the one which will be of most
benefit to Australian industry and to the Australian people.
And, on industry policy, let me restate very clearly that
the Government's objective is to build a more competitive
Australia. As I stated in Melbourne last week to the
Australian Chamber of Manufactures, there is an obvious
distinction between policies that stimulate and facilitate
the growth of self-sustaining new industries, that
rejuvenate old ones, and policies that bring into existence
industries whose viability is dependent on special treatment
by Government.
While in Government we have put in place various policies of
the former kind, policies of the latter kind have not only
failed to bring about worthwhile change but have actually
held back the development of competitive industries.
Obviously, thiLs government wants to see development wherever
possible. And we also have a responsibility to ourselves
and to future generations to ensure that development does
not do irretriLevable damage to the environment. That is the
very reason we established the Ecologically Sustainable
Development process; to bring business, environment groups,
Commonwealth and State Governments together to develop a
rational way of resolving sensibly the frequently recurring
conflict between development and the environment.
As with so many other things, it would be easy to pretend
this problem does not exist, but that would be irresponsible
and represent a massive betrayal of the trust placed in
those elected to government. But I do also contend that
there are ways of reconciling in most instances the need for
economic growth with the responsibility for protecting the
environment. Ladies and gentlemen,
Let me turn briefly to your own situation. There has been a
tendency through the period ' of turmoil I have described for
the banks to increase their share of activity in the
financial sector. Nevertheless, with assets in excess of
billion and employing around 20,000 people, finance
companies in Australia continue to be a major presence in
the sector, particularly in the provision of financial
services to small and medium sized businesses.
Many in your sector have been criticised for your behaviour
through the recent period. Beyond pursuing the normal
processes of the law in punishing demonstrable cases of
wrong-doing, I think little purpose is served in raking over
the ashes of past mistakes better to look forward and ask
what positive contribution can be made to the future.
In looking to that future there are two particular goals
towards which I would ask you to aim.
First, to secure and maintain the strength and stability of
your own institutions. A financial sector that is itself
unstable cannot contribute to restructuring elsewhere in the
economy. It is, on the face of it, presumptuous for me to be drawing
your attention to what, according to all conventional
wisdom, must be the prime aim of a financial institution.
But I believe I am justified in doing so, not only by the
manifest damage to your balance sheets many of you have
sustained; but because I make the deeper observation that
the damage has been caused, not by some extraneous
combination of circumstances, but by a failure of management
within institutions to keep this goal uppermost in their
minds. The sober virtues of a balanced portfolio, avoiding
excessive exposure to one sector or one borrower, of careful
analysis and management of risk and of matching assets and
liabilities were forgotten in the heady days of the late
1980s. They must be reinstated.
Second, I would ask that your pay closer attention to your
customers. They must be seen as more than an immediate
source of revenue; more than another point in a battle for
market share.
Their future prosperity is your future prosperity, and you
must ask yourselves what more you can do to help secure it.
I believe we must see much closer relationships between
lenders and their customers. And I believe the
responsibility for developing this closeness lies
principally with lenders for they will cultivate many such
relationships whereas borrowers may maintain only one.
This closeness will give greater insight into customer needs
and enable you to develop and offer products targeted to
those needs. It will also allow you, the lender, greater
insight into the capacity of your borrower to carry debt and
allow you to manage risk prudently without unnecessarily
penalising your customers.
It was with the interests of consumers in mind that the
Minister for Justice and Consumer Affairs, Senator Tate,
announced recently that from yesterday, 24 September, people
would be guaranteed access, free of charge, to any credit
information held on them by a credit reporting agency.
Also, the credit reporting industry will be under an
obligation to ensure that the records it holds are accurate
and up to date.
Likewise, the Government is now moving to address the issue
of consumer credit insurance, with the objective of
providing greater protection to the consumer and, in so
doing, to improve the standing of the industry as a whole.
In a period of restructuring aimed at building a more
competitive Australia, the financial sector has a key role
to play. I urge you not to be discouraged by the difficult
times through which you have passed, but to learn the
lessons it offers and move to play your essential part in
our great national enterprise.