The policy statement I release today, Investing for Growth, adds important new dimensions to the policy framework that the Government has established since March 1996. At the heart of this statement is a range of significant initiatives to encourage innovation, promote investment, develop Australia's export trade, maximise Australia's gains from the information age and further enhance our credentials as a world financial centre.
A strong, diversified, world-class business sector is crucial to Australia's future.
Without it we cannot generate the jobs to employ our young, provide the national wealth to support the less fortunate in our society or create the stable and enduring economic framework so essential to fulfilling our unique destiny as a nation.
Successful businesses are not only economic assets but increasingly, through partnership with others, they contribute to the building of our nation's social capital.
A confident business community is the life blood of a nation confident about its future.
My Government believes that Australia's business sector, through its skills, motivation and resourcefulness will play a fundamental role in shaping the Australia of the twenty first century.
Today's statement is being delivered against the backdrop of the strongest economic foundations in 25 years.
As we move into 1998 and beyond the domestic economic scene is full of hope and optimism.
With the political will to pursue the right policies we can, together, realise Australia's potential for the next millennium.
Our vision for Australian business and industry in the first quarter of the twenty first century is one of:
a technologically advanced, competitive manufacturing sector, strongly oriented to exports;
high quality service industries including the full realisation of Australia as the major financial centre in the region after Tokyo;
information industries which are a major source of employment growth, exports and new business opportunities in their own right and which transform other industries across the economy;
a vibrant small business sector - the birthplace of many new firms and ideas - complementing our larger companies; and
the export of our goods and services to the region and elsewhere satisfying the full range of their needs.
Australia occupies a unique intersection of history, geography, culture and economic circumstances. There is no other country in the world which has such an asset. It is an immense strength and never a weakness. It can be used to our advantage in maximising the economic returns and potential of our nation.
The very certainty and stability of our legal and political systems are huge advantages that we too often take for granted.
We are endowed with natural beauty and a rich resource base which has underpinned the development of our great mining and agricultural industries which are amongst the most efficient and least protected in the world.
Our imaginative, inventive and highly skilled people have been acclaimed for innovative genius and commercial strength well beyond our weight of numbers.
Our first class scientific, technical and engineering workforce also boasts some of the most competitive labour costs in the region.
Our diverse and tolerant nation has extended the gift of welcome to new citizens who have made our workforce more able. Many of them constitute a priceless link with the Asia Pacific region.
Our resilient and optimistic people, founded on a commitment to enterprise, rose to the challenges of post war reconstruction and manufacturing development to build a secure and united Australian nation. Those same qualities equip us well as we face the limitless challenges of the information age.
At the turn of the century Australia had the highest living standard in the world. But as opportunities passed us by so too did many countries on the international league tables. We failed to realise our full potential.
This Statement is part of a comprehensive economic blueprint for taking Australian business and industry into the next century and achieving Australia's maximum potential.
It complements our extensive economic reforms to date and our plans for major tax reform.
It is a further instalment in the Government's strategy of creating a framework for sustained, high economic growth and employment.
We are - above all - a high growth government. The overriding aim of our extensive economic reform agenda is to deliver Australia an annual growth rate of over 4 per cent on average during the decade to 2010.
Strong and sustainable economic growth is the key to significantly reducing unemployment and raising living standards for all Australians.
No Australian Government could possibly embark on the initiatives I am announcing today had it not first established strong economic foundations.
Strong economic foundations are the key to any country's capacity to grow, create more jobs and build more national wealth.
But there is also a place for specific initiatives that will encourage private sector innovation, expansion and diversification.
Investing for Growth sets out some important initiatives in that regard established within a clear policy framework committed to maintaining strong economic foundations.
Restoring the Economic Foundations
The strongest economic foundations in 25 years have allowed us to avoid much of the fallout from recent economic and financial instability in East Asia, indeed to contribute to financial rescue packages for the region.
Economic growth is accelerating and this year's Christmas appears likely to be the strongest in five years. With recent indicators suggesting continuing robust activity, it is now widely expected that growth of more than four per cent will be achieved through 1997. The stage is set for continued strong growth into 1998. With inflation well-behaved and productivity continuing to grow strongly, sustainable growth is within our grasp.
The first phase of the Government's economic strategy was to restore the nation's economic foundations, without which growth and competitiveness cannot be achieved and sustained.
The Government is delivering low inflation, low interest rates and a much better budget position. We are swinging the budget into surplus, enhancing fiscal responsibility and accountability through the Charter of Budget Honesty and increasing monetary policy credibility through formal recognition of the independence of the Reserve Bank of Australia and its low inflation objective.
This process has been complemented by major structural reforms, particularly reform of Australia's outdated industrial relations system.
It has continued with a major programme of privatisation which has enhanced efficiency, competition and choice.
It has included a major package of measures for small business which has cut red tape, reduced regulation and expanded opportunity.
It has included measures to boost competitiveness in Australia's telecommunications and financial sectors as well as in our energy markets.
Our policies have successfully overturned the legacy of deficit and debt inherited from the last 13 years. As a result of this strategy of fiscal consolidation, independent monetary policy and structural reform there has been an unambiguous improvement in a range of economic indicators.
Where the underlying inflation rate averaged at 5.5 per cent under Labor between March 1983 and March 1996, it is now at 1.5 per cent, the lowest rate since 1972.
Where bank housing interest rates averaged at 12.6 per cent under Labor they are now at 6.7 per cent, the lowest since March 1970.
Where annual labour productivity growth averaged at 1.7 per cent over the Labor years in 1996-97, it was 2.2 per cent in 1996-97.
Where the current account deficit averaged at 4.8 per cent of Gross Domestic Product over 1983-84 to 1995-96 under Labor, it was 3.5 per cent in 1996-97.
Where the underlying budget deficit in 1995-96 was just over 2 per cent of GDP, budget projections show an underlying surplus in 1998-99 increasing to a surplus of 1.6 per cent of GDP in 2000-01.
Where general government net debt was just under 20 per cent of GDP in 1995-96 under Labor, it will be cut to around 10 per cent in 2000-01.
Where real business investment averaged at 10.5 per cent of GDP under Labor, over the last six months it was a record level of 14 per cent.
Where unemployment averaged at 8.7 per cent under Labor and while it remains always the last indicator to come right, the outlook for employment is improving.
The restoration of Australia's economic foundations will encourage low inflation and release domestic savings to fund higher investment and economic growth without a deterioration in Australia's current account deficit.
Moreover, we have achieved better budget outcomes while delivering in full on our promised tax cuts, providing capital gains tax relief for small business, fringe benefits tax relief on taxi travel and carparking, a reduced provisional tax uplift factor and a tax cut on savings.
However, we realise that improving economic performance is an ongoing task and that our overseas competitors are not resting on their laurels.
Realising our Potential as a Nation
The initiatives I announce today in Investing for Growth build on the coherent policy framework already in place and will help to realise our potential as a nation into the twenty first century.
Our determination for Australia to achieve its economic potential commits us to polices that will deliver high levels of productive investment, encourage an innovative and entrepreneurial spirit in business enterprises and give us the capacity to take advantage of new growth industries.
To fully utilise Australia's unique human and natural assets, add value, win exports and generate jobs, we are committed to polices that will encourage world competitive Australian enterprises.
Creation of world competitive enterprises capable of generating high value adding jobs is the aim of industry policy. The challenge is to harness change by focussing on emerging activities, encouraging international best practice and gaining access to lucrative markets, particularly in our own region.
The Government reaffirms its preparedness to strategically intervene in industry to offset distortions and remove impediments to expansion.
The package of new measures announced in this statement, which include spending of $1.26 billion over five years, will further boost innovation, investment, export trade and innovation in new, high growth industries.
Investing for Growth
In developing the suite of initiatives in Investing for Growth the Government has had the benefit of three important reports:
the report of the Review of Business Programs undertaken by Mr David Mortimer, Going for Growth: Business Programs for Investment, Innovation and Export;
the report of the Information Industries Taskforce (IITF), chaired by Prof. Ashley Goldsworthy AO, The Global Information Economy - The Way Ahead; and
the report of the Information Policy Advisory Council (IPAC), chaired by Dr Terry Cutler, A national policy framework for structural adjustment within the new Commonwealth of Information.
I take this opportunity to thank all of the contributors for their valuable input to these reports.
The Mortimer report advocated Going for Growth, and emphasised that sound macroeconomic policies were an essential part of that process as is maintaining the momentum of broad ranging microeconomic reform, including taxation reform. The Mortimer Report highlighted the importance of boosting business investment, encouraging innovation, expanding exports and ensuring the careful design and effective delivery of business programmes.
The Goldsworthy and IPAC reports focussed on establishing a framework for the development of the information economy, on widespread adoption of new technology and development of the information industries. Both emphasise that the Commonwealth should urgently address the issues raised by the rapidly changing information economy. The initiatives and policy commitments announced in Investing for Growth provide a whole-of-government response consistent with the priorities identified in those reports.
The initiatives set out in Investing For Growth are focussed on five key areas:
increasing support for business research and development and the commercialisation of that research;
making investment in Australia more attractive;
helping Australian businesses capture new export markets and introducing a more competitive customs regime;
promoting the further development of Australia as a financial centre; and
making sure Australia maximises its benefits from the global information age.
Encouraging Business Innovation
Innovation will be a key driver of the competitiveness of firms and economies into the next century.
The Government's innovation programmes recognise that in some circumstances business research and development (R&D) will be subject to market failure and require additional assistance. To these ends the Government will commit $1 billion to support business innovation over the next four years.
In addition to the 125 per cent R&D tax concession, we are extending the R&D Start programme with the provision of an additional $556 million over the next four years bringing total expenditure on R&D Start over that period to $739 million.
The expanded R&D programme will comprise three elements:
A core element which will provide grants of up to 50 per cent of the project costs. Assistance under this component is equivalent to a 189 per cent tax concession.
R&D Start-Plus will provide grants of up to 20 per cent of project cost for companies excluded from the general R& D Start programme; that is, companies with a group turnover of more that $50 million. The assistance available under this component is equivalent to a 150 per cent R&D tax concession.
R&D-Start Premium will provide additional assistance of up to the equivalent of a 200 per cent R&D tax concession. Assistance provided under R&D Start-Premium will be repayable upon successful commercialisation through a royalty agreement, or similar arrangement.
We will also encourage venture capital funds through expansion of the Innovation Investment Fund Programme at an additional cost of $43 million and a total cost of $153 million over four years. This additional round of funding will ensure the critical mass necessary to develop a venture capital market in Australia, it is directly targeted at small high technology companies and expands a programme which enjoys strong support from industry.
Further measures to encourage diffusion of technology costing an additional $72 million and a total of $108 million over the next four years will also be undertaken.
Boosting Investment
High levels of investment are essential to strong economic growth and durable improvements in living standards. The recent financial turbulence in our region highlights the importance of secure economic foundations to foreign investors as well as the potential fragility of investor confidence. It also reaffirms the reality that highly interventionist strategies to attract or target investment do not guarantee economic advantage in their own right.
Australia's key as an investment location is the strength of its economic foundations, such as low interest rates, low inflation and fiscal responsibility. The Government is not disposed towards providing across-the-board investment incentives or establishing a dedicated fund for that purpose. We recognise, however, that in limited and special circumstances there may be a need for some specific incentives to attract major strategic projects that would not otherwise be likely to occur in Australia where a significant net benefit for the economy and jobs is expected. The criteria against which the need for such incentives will be assessed are clearly set out in Investing for Growth.
To co-ordinate this case by case approach to incentives, Mr Bob Mansfield has been appointed to the new position of Strategic Investment Coordinator to be located within the Prime Minister's portfolio. Mr Mansfield will be responsible for liaising with relevant Departments through a streamlined process and for advising Cabinet through me on projects which may justify provision of incentives or policy changes. Mr Mansfield will retain his current responsibilities for major project facilitation.
This role will be supplemented by an upgraded, high-profile programme to promote investment opportunities in Australia. A new body, Invest Australia, will be established to promote Australia's advantage as a location for investment and an amount of $11 million a year over four years will be provided.
Improving Our Trade Performance
Our economy is becoming increasingly open, providing both challenge and opportunity to Australian firms and industries. This means that we need to be outward looking and internationally competitive to achieve greater access to markets and strong economic growth.
The Government is pursuing a multi-faceted approach to trade policy, including bilateral, regional and multilateral initiatives.
We are building stronger bilateral trade relations with key trading partners.
Within APEC we are maintaining the momentum towards free trade and investment by 2010/2020. This year we successfully pushed for the early liberalisation in fifteen sectors, including food, chemicals and energy, key sectors proposed by Australia.
Within the WTO, we will continue to push for a new world trade round and early conclusion of the financial sector negotiations, an initiative that the APEC countries supported in Vancouver.
We recognise that more needs to be done to improve our trade prospects, building on our export successes to date.
The Government will introduce two complementary schemes to improve Australia's attraction as a site for regional manufacturing and warehousing by removing excessive access and compliance costs. We will introduce new Manufacture in Bond provisions exempting exporters from customs duties and sales tax on imported goods subsequently re-exported or used as inputs to exports. This scheme will let businesses use Australia as a base for operating in the Asia Pacific region without incurring customs duties on products intended for re-export.
I am sure that the people of Newcastle and the Hunter Valley as well as many others will welcome this announcement.
This reform will be supported by the consolidation of the Duty Drawback and Tariff Export Concession schemes into one integrated and simplified scheme to be known as TRADEX at a cost to revenue of $105 million over four years.
The Export Market Development Grants Scheme which has assisted Australian business to develop international markets will be provided with an additional $300 million to extend it to 2001-02.
The Government will commit $18 million over the next four years to the APEC Market Integration/Industrial Collaboration programme for activities aimed at removing impediments to standards and conformance and promoting industrial cooperation as well as customs harmonisation within the APEC region.
We will also boost opportunities for regional and small business exporters through the extension of Export Access and the new TradeStart programmes respectively. Austrade information and services on export markets will be provided to assist local businesses to develop and expand their export markets. Over $13 million dollars will be provided to support these programmes over the next four years.
Australia as a Financial Centre
Australia is already a major financial centre in our region. We have a highly developed and sophisticated financial sector. Our aim is to become a leading world financial centre and capitalise on the explosive growth in financial services worldwide.
The fundamental building block is our response to the recent Wallis inquiry, which will encourage the development of a world class, competitive financial system. We recognise, however, the intensive international competition for financial services activity. In advance of major tax reform, we have decided to introduce specific tax measures at a cost of $22 million in revenue foregone in a full year. We will enhance the concessional tax regime for Offshore Banking Units, widen the interest withholding tax exemption to encourage the domestic corporate debt market and relax Foreign Investment Fund (FIF) tax rules to exempt FIF investments located in the United States.
We will not, however, stop there. We will also establish a task force of the Financial Sector Advisory Council to report to the Treasurer on developments in international financial markets and provide further options to boost Australia's prospects as a financial centre.
The Information Age
The emerging global economy is based upon information and knowledge. This new age is touching almost every element of our lives. How we react to these changes will greatly influence opportunities for economic growth and jobs.
The Government has already demonstrated national leadership in this area. We have established a National Office of the Information Economy reporting to Senator Alston, who is now the Minister for the Information Economy, to co-ordinate the Commonwealth's information policies. This is supported by a Ministerial Council to ensure ownership of the information agenda by all the relevant stakeholders in government.
We are committed to maximizing the benefits of this new information age and ensuring their equitable distribution. The Government will play a national leadership role in this area to:
foster business and consumer confidence through a light touch regulatory framework;
establish the Commonwealth as a leading edge user;
improve our information industries base;
facilitate access to the information age particularly for regional and remote Australia, the disabled and to enhance IT related skills in the community.
We will introduce an Information Industries Action Agenda to attract new investment and encourage competitive advantage, including through superior software engineering and testbed facilities at a cost of $28 million over four years.
We will establish an electronic one-stop shop for all business regulatory needs so that all appropriate services are deliverable on the Internet by 2001.
The Government will also remove tariffs on inputs to the manufacture of information industries equipment. We will ensure that goods ordered and delivered electronically through the Internet will remain tariff/customs duty free. Also there will be no bits tax on the Internet.
Delivering the Programme
To drive industry reforms we will implement Action Agendas in specific industries to address impediments to growth and to identify opportunities for market expansion. The Supermarket to Asia is an example of a constructive and productive Action Agenda.
In developing and delivering industry policy programmes the Government will adopt the design principles recommended in the Mortimer Review. In particular, these principles require the specification of clear objectives and measurable performance indicators for all new programmes.
The Next Step
While Investing for Growth is a key element of our plan to realise our potential as a nation, the next step must be to reform and modernise our unfair and antiquated taxation system.
The Government aims for a fairer, better, more internationally competitive taxation system which ignites incentives to work save and invest.
Central to any tax reform are our commitments to no overall increase in the tax burden, major reductions in personal income tax, consideration of a broad based indirect tax to replace some or all existing indirect taxes, appropriate compensation for those deserving of special consideration and reform of financial relations between the Commonwealth, States and Territories.
We cannot afford yesterday's tax system for tomorrow's world. I do not underestimate the difficulties of selling tax reform but no government (or its political alternative) can be serious about achieving high economic growth and living standards unless it embraces the challenge of tax reform.
No one should doubt the complete resolve of my Government to pursue fundamental reforms to Australia's taxation system.
Conclusion
In summary, Investing for Growth adds to the reform agenda which the Government has established to date. It does so by outlining the important initiatives required to further enhance innovation, investment and exports and to develop our finance and information technology sectors as vital building blocks in a coherent economic strategy.
As a high growth Government committed to strong economic foundations, to an innovative industry policy and to a modernised taxation system we can look forward with optimism to an Australian economy achieving its full potential for the benefit of all Australians into the twenty first century.
8 December 1997
See original at http://pandora.nla.gov.au/pan/10052/20011121-0000/www.pm.gov.au/news/sp…