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TRANSCRIPT OF QUESTION AND ANSWER SESSION WITH THE PRIME
MINISTER, THE HON. P. J. KEATING, FOLLOWING ADDRESS TO
THE ASIA SOCIETY, NEW YORK, U. S. A.
SEPTEMBER, 1993
J: Sir, the Australian dollar has been taking quite a beating lately against other major
currencies and the RBA has continued to come in to prop it up. Do you plan to
continue with this policy or do you just want to let it float downward? I didn't
mean that as an insult at all because a lot of currencies float up and down.
PM: Well, there was a time when I took the questions of screen jockeys seriously but
fortunately for me that time has passed. And I can say that seeking from any
Government definitive statements about its currency is rather expecting too much.
The Australian dollar has been, for a long period of time, governed by the market's
view about commodity prices and our dependency on commodities. I might say
that that dependency is now weakening substantially as the pattern of Australian
exports has changed to elaborately transformed manufactures, manufactures in
general and services.
So as a country we are much less dependent today on commodities than in the
past. But the currency has always been commodity driven. Now you will know
that commodity prices are now down to the levels that we last saw in 1986, which
was a very low level by historical standards and gold prices have been down
recently, too. And] I think that is what's probably brought the attention of the
market -as indeed the United States dollar has strengthened somewvhat.-Now,
these things run along but the notion that the Government is trying to make a rate
is. I think, wrong. We've never sought to do that. But we don't want to see our
currency unnecessarily knocked about by individual transactions and we take
appropriate steps to deal wvith that. But that's all the world of difference than
trying to make a rate, which I don't think we've ever sought to do.
At any rate, that fact is that there is a lot of movement in currencies these days.
It's the way economics equilibrate to the changes in the terms of trade. It's one of
the values in floating exchange rates and you can see by the fixed exchange rate
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systems of Europe how unreal they become when the strains and stresses really
start. So, I'm afraid if you want to be r4, king guesses about the A dollar you're
going to have to use your professional judgement rather than rely on me, at lunch.
3: Mr Prime Minister you mentioned earlier that Australia's competitive position has
improved considerably and that it is equal to mnany in your region. How do you
see this reflected in the external balance in the merchandise trade, picture and so
forth? Could you elaborate? Has this been reflected in shifts in your external trade
balances?
PM: It certainly has. And I think it is reflected most obviously in our general trade
performance and our capacity to service our debt. Not so many years ago, three
or four years ago we needed about 22 or 23 percent of our export proceeds to
service our debt. That's now down to about fourteen percent. And that's in part
because of a better export performance on our part. And we are very competitive;
we're about 25 percent more competitive than just a couple of years ago. We're
vastly more competitive than a decade ago.
We now have very low inflation, with underlying inflation running at around 2
percent. and we have a competitive exchange rate. We have a high profit share in
the ec6nomy the profit share in GD-P is around about the peak of the late 1980s
already. And all of this, I think, is good for investment, good for production, good
for exports and good for employment and good for jobs. So, we've now got very
competitive macro-economics settings. And in our tax system, for instance, welve
now got a corporate rate competitive with Asia, at 33 percent. We've got no,
there is no double taxation of dividends in Australia. We've got very large tax
concessions for research and development, for accelerated depreciation of plant
and equipment.
So, wherever you look whether it's the tax systemn or it is inflation or it is interest
rates or exchange rates or profits, we are now very, very competitive. And I think
that's showing in our exports and particularly in the changed culture towards Asia
which has taken place across the sectors of Australian manufacturing and
Australian commerce where there's a real sea change in the view of Australian
executives on how they approach export markets and with what fervour and
commitment they approach theni,
J1: Mr Prime Minister, unemployment levels in the world have been getting a 8reat
deal of attention. As you mentioned during the presentation, the Australian
unemployment level is what you would consider very high. Do you view this as a
structural problem and what are some of thc specific steps that the Government is
taking to alleviate the problem and can it be solved in the future?
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PM: Well, it's partly structural and it's partly Cclical. Part of it is from the economic
cycle of the recession; part of its from the churning that's taking place in our
industrial structure. And we're trying to take people and retrain them and put them
back into other sectors of employment and we are directing labour market
programs at the long term unemployed. That is, those people-who are unemployed
for 12 months or more -to give them work experience, training and a36iubsidyto
get them back into the workforce, to get their self esteem up, to give them the
opportunity of getting some specialisations back and some skills back so that they
can maintain their place. And we have a very high success rate with the
unemployed people: who are contacted by our labour market programs.
But aggregate unemployment is still high at around I1I percent although, I might
add, with a very high participation rate. That is, the number of people the
proportion of the population in the workforce is very high in Australia. If we were
comparing for instance the participation rate in the United States with Australia,
were we to have your participation rate we'd have unemployment down to around
6 or 7 percent. But with our participation rate, unemployment is at around I I
( percent).
Now, that means that many people are looking for work and the only way of
finding it, in the end, will be economic growth. And we've got the Australian
economy growing again at about 3 percent and we're hoping for more growth in
the coming year and we see growth principally as a way of providing the jobs.
But, we are now in a productivity laden recovery. This is not an employment
laden recovery as the 1983 recovery was. This is a productivity laden recovery.
And so were gettingrmore output from fewer people, which I guess means that
we've got to have mnore output again, if we are to take up the number of jobs that
we wvant to see be takent up.
As well as that, the Government has commissioned a task force to look at novel
ways in which we might deal with unemployment systemic changes which might
help us deal with this problem, While the cycle of the economy is changing, while
cyclical unemployment is declining and while we are still dealing with the churning
which has come through the change to our industrial structures fromn the old
Australia to the modern industrial Australia. This will be, I think, an important
report for the Government to sec in which ways we can actually do something
novel -in world terms -to help the unemployed.
But, above all else, our commitment will be to growth and emnployment through
growth by letting the Australian economy grow when we see the opportunities to
let it grow. We won't be artificially constraining its growth because we do have an
incomes policy to rely upon, as well as monetary policy, so we are able to let the
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economy grow faster than most other compgrable countries. That, we hope, will
be a longer term answer to unemployment.
3: Mr Prime Minister, in your remarks you-;'* phasise the consensualnauef
politics in Australia. Arnd yet on the mosf recent Budget it seems that things may
have been going something amiss. I'm wondering if you could take a moment or
two just to clarify the Government's position on the Budget and what we might
expect in the weeks ahead?
PM: Well, the first thing I would say to you is we're pretty confident the Budget will
pass through the Parliament. No other Australian Budget hasn't and we think this
one will. The reason that this one is an issue is bt sciee conservative parties in
Australia have decided to vote against, to obstruct the Budget's passage because
they are miffed about losing, having lost the last election. Now, that's not much of
a reason for voting against a Budget, but that is their reason.
And that has meant that the Government has had to go down the highways and
byways of our second chamber to ensure the Budget's passage and that's why it is
in the debate. This is not a policy which can be sustained by the conservative
pariies in Australia. The Government convincingly won the election six months
ago and therefore it has a very firm mandate for its policies. And the notion that
the opposing party can upset it is not one that normally has currency in Australian
public life.
Now the traditions are different in the United States. Gencrally, here the
Republicans don't normally pitch in and help a Democratic administration carry
budgetary mneasures as we've seen in the United States again recently. But in our
country the Government is made in the House of Representatives and the money
legislation of the country is made there and the convention is that it has passage
through our upper house. The conservative parties in Australia, this time, are
breaking that convention which only means we've got to spend more timne about
the Budget's passage. But pass the Budget will; which then has the happy effect
for me of inaking the conservative parties even more irrelevant than they are now.
3: Mr Keating, I just wonder in termns of the Olym pic choice whether it's Sydney or
Beijing what change would you expect Sydney winning the Olympic bid would
have on your economic forecasts?
P M. I don't know that it would change our forecasts all that much but it would
obviously be a good thing for Australia to host an Olympics. Sydney is well
capable of hosting an Olympics. We've got quite unique facilities, I think, in world
termns not just in national terms ror this bid. And were we to win it it would be a
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good thing, I think for the southern hemisphere and for the Pacific in the year 2000
let alone for Australia and Sydney in particular. And I think it would be a good
opportunity for us to advertise the Australian nation, its unique identity and its
success, its social cohesion, its role in the world. All these things, I think, are
opportunities opened up to the host of the Olympic Games.
So, I think that's the tangible benefit from it rather than the impetus to growth in
any particular year. No doubt there would be some impetus to growth in the year
2000 were we to secure the Olympic Games but I don't think that is something
which we need to rely upon to build our economic fortunes. It's just one of those
little pluses that come through along the way. More important, I think, for the
country's culture and its view the view of it in the world than it is for any
particular economic effect.
PM: Well, I think I have exhausted you all. Oh no, there are a few punters over here..
3: Mr Prime Minister, could you elaborate a bit on which countries in Asia you might
see priority in trade with you referred to the continent but any countries in
particular?
PM: Well the great bulk of our trade, the largest most preponderant parcel of our trade
is with Japan. And I was just speaking briefly at the table here earlier about our
trade with Japan which is very large. U. S.-Japan two way trade is about $ 100
billion but Australia. Japan two way trade is about $ 20 billion. We have a fifth of
the trade the United States has but the United States economy is twenty times
larger than ours. Which gives you some indication of the level of trade between
Australia and Japan. That's the principal trade sinew of South East Asia and
around that we've also other trading possibilities and opportunities. Among them,
and most notable I suppose is Korea and more latterly, China and the ASEAN
group of countries. So, it is probably the growth opportunites across them all
the growth opportunites are probably greater amongst the ASEAN countries of
Thailand, Indo-China and China itself given that we already have a high level of
trade with Japan and Korea. But in those two countries the trade is continuing to
change to sophisticate away ftom bulk traded commodities onto manufactures and
elaborately transformed goods. And that, I hope, will continue to grow but there
are enormous growth opportunites in these other economies which we intend to
take up as well.
The important cultural change that has taken place in Australia is the attitude of
Australian business to exports. Instead of regarding exports as an exportable
surplus from some domestic production program, companies are now going in for
exports as a primary business. And you're seeing this in food, in food processing
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where we've seen very large acquisition of brand names and the building of quite
large capital structures to export into South East Asia. We're seeing it in
telecommunications, we're seeing it in all sorts of elaborately transformed sectors,
And this is a sea change, as I said earlier, Which we've never had before. So, the
cultural shift in Australia has well and truely been made. It's now simply a matter
of driving it home and maintaining the competitiveness hard won
competitiveness we now have so that we can drive it home.
But wc need the structures to do it in and that's where APEC becomes important.
We need the trade liberalising agenda of APEC to give us the opportunities which
we otherwise wouldn't have the very same opportunities which will make all of
the economies of the region so much wealthier where the velocity of trade can~ be
so much greater. So) while we have distinct and important trading opportunities
we want to get the institutional structures right so that we can not only exploit the
very high levels of growth which are currently obtained in this part of the world,
but even higher levels of growth with even less impediment to trade and
investment so that we can all benefit from a higher velocity of growth in incomnes
through the region. So, really, I think, from Australia's point of view we fire now
in the game in earnest. And we're now earnestly trying to change the institutional
structure so that we remain in the game in perpetuity.
J: Mr Prime Minister, to what extent do you think that the inflationary conditions in
China and the large current account deficit that China has to what extent are
these a threat to trade generally in the Pacific basin and to Australia specifically?
PM: I don't think they're a threat to trade generally. I think China will continue to grow
at a healthy pace. Maybe not growing as fast as it is now, obviously, with
unsustainable levels of investment, And China is now seeking ways of curbing that
activity -while lacking the sophisticated instruments that exist in an economy like
the United States or Australia, They don't have a readily available monetary
systemn to use. Fiscal policy doesn't have the sharpness it has in the United States
or Australiat so there's a much heavier reliance upon administrative mneanis of
slowing up the Chinese economy while at the same time developing these
instruments. So, I would think that yes, we will see China slow down and that will
cause some gnashing of teeth.
But it will still grow at a clip, I think, and it is not simply China's growth though
upon which Australia's trade opponiunites in the area depend or the United
States' trade opportunities in the area though obviously they are enhanced by
China's growth. And the income growth, that's the important thing I think, the
income growth within China itself. But, yes they are in a period of very high
growth, inflation has taken off, they know this is a bad thing for them and they are
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doing all they can, 1 think, to bring it back. Atid we should assist themn where we
can in doing that so that their growth is sustainable and that they're in there playing
a long term role on a sustainable basis and not find themselves in, simply, cycles
which are unsustainable and basically sout their investment sectors and those who
invest in them. So, I think China is going to be a very strong player into the future
and I don't think we ought to believe that the current slowdown is going to be
immeasureably change the nature of their economic transition.
J. Mr Keating, I'm an Australian exporter in the fashion industry, new into the United
States. I was just wondering, are you intending to increase the frequency of
payments under the Export Market Development Grant.
PM: We've put somne changes through in the Budget, I think, to enhance the Export
Market Development Grant Scheme. One of the things which a study we had;, by
the McKinsey company, of 700 dynamic exporting companies or the most dynamic
exporting companies in Australia.... One of the things that survey found was that
export market development assistance was of material assistance in helping
businesses develop new markets in various parts of the world.
And so in the recent Budget we have increased funding for export market
development assistance and from memory, one of those things is more frequent
payment. In other words, you don't have to wait until the end of the year to get a
reimbursement of your expenditure -which I think is the point of your question.
I think you'll find a perusal of the Budget papers will reveal that to you, if I'm not
mistaken.
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