PM Transcripts

Wednesday, 28 January 1998

I want today to mark the beginning of a new year by not only taking

stock of our progress toward the goals we set for ourselves and the

nation when we were elected, but also to outline the government's

main goals for the coming year.

I intend that today's address will be the first in an annual

series in the run up to the Centenary of Federation in 2001 and beyond.

As we approach the Centenary of Federation, it is important to reflect

on our achievements and aspirations as a nation and, in particular,

as a government, on how public policies and programmes can be adjusted

and adapted to ensure that they remain effective and relevant to the

needs of Australia as we enter the new millennium.

The goals we have as a government for the year ahead are very clear.

They are designed to build an Australia which is both strong and fair.

This year the government is intent on accelerating the pace of economic

reform. We must consolidate recent gains in strengthening the economic

fundamentals. This will further cushion the Australian economy against

the fallout from difficulties in our region and sustain economic growth,

the key to further reducing unemployment.

The government will also unveil its proposals to reshape, modernise

and improve the fairness of the Australian taxation system so that

Australians can be guaranteed a world class taxation system as we

enter the 21st century.

We will continue and extend our partnership with the community in

addressing important social issues. Building on that approach, I will

announce in this speech a series of measures to broaden the application

of the principle of mutual obligation. They include further steps

to tackle the problem of youth unemployment.

This year the government will also amplify policies that impact on

rural and regional Australia to ensure that Australians living outside

the large capital cities share equally in our economic and social

progress.

And finally, the issues of native title and whether or not there should

be constitutional change regarding our head of state must be addressed.

Today I will be talking about concrete progress: first, our successes

in managing the economy, not least in the crucial task of fiscal consolidation;

and then some aspects of social policy—particularly those where

our actions most clearly express the stronger underlying themes of

our government. I will also be talking about the necessary connections

between economic and social policy, and putting the economics in their

proper perspective.

It is important that speeches laying out goals and principles address

the real condition of the nation and the citizen.

In that vein, the headland speeches I delivered before the election

of 1996 did not attempt to promise a utopian state of affairs. Instead,

they referred to continual processes which are as valid now as they

will be in twenty or fifty years from now.

The themes of those speeches, as of this one, relate to the ways people

live and work, the way they fit into families and into society, their

ability to pursue happiness.

Now that the Labor Party—with some help from Tony Blair—has

discovered ‘community', I should perhaps add one important

point. Most of the habits and institutions which form and bind our

society are not created by government. They are created when government

allows people the right environment and enough of their own resources

to do it themselves.

The kind of society we want can only be realised through a shared

endeavour between individuals, the community and governments with

each playing their rightful role. Striking the right balance between

these three elements is the constant challenge of modern politics.

Our approach—and it has a long history in the Liberal Party—

is based on two very important understandings.

First—the obvious one, that politics should speak a language

that does relate to the way people live or want to live.

Second—that our economic institutions depend entirely on the

condition of society. Without the habits of honesty, trust, self-reliance,

co-operation, civility, tolerance, obligation and reason, society

does not work—and nor does the free economy. And without prosperity

and economic security, those habits are harder to secure. They always

reinforce each other.

These are intensely real considerations, often overlooked in the day-to-day

business of politics. They underlie the jargon of economic policy,

the jargon of GDP growth and budget balances. Economic policy is central,

but it is not an end in itself, only a means to an end.

There are, of course, those who wilfully choose to misunderstand and

misrepresent this government; those who trot out the overworked language

of ‘economic rationalism' as if it were the highest form

of sophisticated criticism. I think of myself rather as an economic

realist: realistic about economic prudence and necessity, realistic

about economic reform, realistic about the limits of economics, realistic

about the proper ends of economic policy.

These ends are the considerations against which our achievements in

office should be measured. And they are very considerable achievements.

The economic record

In simple economic terms, we must take greatest pride, I think, in

our record of fiscal consolidation.

We inherited an underlying budget deficit of $10.3 billion for 1995–96;

with no policy change this would have blown out to more than $11 billion

in the following year. In 1998-99, as a result of our policies, we

expect an underlying surplus of about $2.5 billion—handsomely

exceeding our aim of balancing the budget in our first term.

This has not been achieved by raising taxes—in fact, tax as a

proportion of GDP will remain essentially constant over the next few

years. It represents real restraint in spending: underlying outlays—standing

at 27 per cent of GDP when we took office—will decline to around

23 per cent in 2000–01, the lowest percentage of GDP since 1973–74.

And in that same period, Commonwealth general government debt will

be nearly halved—to around 10 per cent of GDP.

The benefits of all this have been immense—greater, perhaps,

than we would have expected. As Alan Mitchell pointed out in last

week's Financial Review:

‘The Howard Government's program of fiscal consolidation

has paid dividends in the form of lower interest rates. It has

largely insulated the Australian dollar and interest rates from

the financial market panic that has engulfed most of Asia'

I think this is the simplest and best example of means and ends in

economic policy. The benefits of lower interest rates—increased

economic activity and employment, housing affordability, consumer

demand—are all pretty obvious.

But even these benefits are surpassed now by the absence of crisis

and panic in Australia.

So far we have weathered the Asian storm remarkably well; and, while

the future is never certain, we should continue to do so. There are

already signs, indeed, that Australia will now become even more attractive

as a low-risk destination for investment in the Asian region—and

Australian investors will also be looking to take advantage of new

opportunities to invest in the region.

While we can sometimes take specific measures to help those affected—as

we have done recently to reassure those dependent on Korean markets—the

best policy available to us is to reinforce the perceptions and the

reality of economic stability and responsibility which have now served

us so well.

I would add that the effects of creating a safe haven are not all

economic: they also provide us with a more secure frame of mind in

which we can pursue both economic and social priorities.

This insulating effect has, of course, been reinforced by our perspective

on foreign affairs. My government has sensibly broadened Australia's

international perspectives.

We have maintained the special focus on Asia, developed over many

years by past governments, but not at the expense of pursuing wider

interests. The emphasis, in a phrase, has been ‘Asia first',

not ‘Asia only'.

Our success in prudent fiscal management has been matched in other

areas.

The decline in interest rates has indeed been significant: official

rates have fallen by 2.5 per cent in the last eighteen months, and

business lending rates have fallen by the same margin. Variable home-loan

rates have fallen by around 3.8 per cent, to their lowest level since

the early 1970s.

Movement in interest rates has gone hand in hand with a welcome fall

in inflation.

For the year to the September quarter 1997, the headline CPI fell

by 0.3 per cent—the lowest headline rate in 35 years. Through-the-year

underlying inflation has fallen to only 1.5 per cent, the lowest annual

rate since the series began in 1972. This rate is well below the bottom

end of the Reserve Bank's target range.

The concord between the government and the Reserve Bank in respect

of the Bank's independence, and of inflation targets, has restored

a good deal of credibility to monetary policy, and helped to diminish

inflationary expectations. Underlying inflation, indeed, is expected

to remain below the Reserve Bank's target range for the rest

of this financial year.

The performance, and the expectations, on both interest rates and

inflation are two of the factors which have at last started to unlock

domestic demand and increase domestic economic activity. Real business

investment, for instance, is at a record high level of around 14 per

cent of GDP.

Retail spending has been strong, and economic growth has accelerated.

Employment, always the last economic indicator to turn, is now growing

strongly, with around 140,000 jobs being created in the last four

months of 1997.

So while the Asian troubles will have some dampening effect on national

income, robust domestic demand will cushion the impact on overall

economic growth.

Economic growth is still expected to reach 3 per cent in 1997–98[still

o.k.?—more like 3.5?].

One further factor here is the gains steadily accumulating as the

effects of our industrial relations reforms spread through the economy.

Even though these reforms have been operating less than a year, major

gains are already evident.

The Employment Advocate has already approved 4393 AWAs; and the National

Bank business survey found that one-third of businesses covered expect

to complete agreements during the coming year, with expected productivity

offsets averaging about 2.3 per cent.

In the wider industrial relations sphere, a better ethos seems to

be spreading. The number of industrial disputes in 1996 was the lowest

since 1940; and the number in 1997 is expected to be even lower.

Unfair dismissal claims have also fallen sharply - by around 50 per

cent - in 1997. And the total number of working days lost is expected

to be the lowest since 1959.

I cannot help adding—so much for the dire predictions of industrial

chaos promoted by opponents of our legislation.

In two areas, I must add to the record what I think can be called

unalloyed triumphs.

The first is the sale of one-third of the government's holding

of Telstra which resulted in almost 1.9 million Australians becoming

shareholders in this great Australian company.

The second is the successful outcome of the Kyoto conference. Despite

a marked lack of support - despite, indeed, being labelled an international

pariah by some of our domestic critics - we held to the line, and

with persistent reasoned argument achieved an outcome very much in

Australia's best interests.

Sound economic management has so far put us in an enviable position.

But the events in Asia also mean that we have to accelerate the progress

of other economic reform. If the future is uncertain, if there are

further shocks in store that we cannot even guess at, then there is

all the more urgency to continue economic reform.

On the economic front, the government has two major priorities which

are both obvious and compelling. These priorities will carry us through

the remainder of our first term of government and well into our second.

One of those priorities is to maintain fiscal consolidation and continuing

micro economic reform including industrial relations.

Micro economic reform involves following through with existing initiatives

in major areas of infrastructure provision such as electricity, gas,

water, rail and telecommunications. It also involves the application

of the new industrial relations framework to improve productivity

and competitiveness in the waterfront and maritime industries, the

coal sector, meat processing, building and construction. These are

all areas which have in the past displayed intractable industrial

relations problems.

The government has already moved, through its shipping reform agenda,

to improve competitive conditions in the maritime sector. Those efforts

will continue in 1998. Internationally competitive maritime and waterfront

industries are essential to boosting Australia's trade performance

in the current economic environment in the Asia Pacific region.

Some further evolutionary changes to our industrial relations legislation

have recently been foreshadowed. AnyThese changes we make will not

only heighten the flexibility and the productivity pay-off flowing

through from our first reforms; more importantly they will help us

in the task of reducing Australia's unemployment levels.

The arguments in favour of freeing up the labour market to help those

excluded from it have been conclusively won. Our task is to achieve

the necessary level of freedom without impairing our distinctively

compassionate Australian approach to helping the unemployed.

The second great priority is the formulation of a fairer and better

taxation system to put to the people of Australia before the next

election.

We do this in the full knowledge that past attempts—not only

in 1993, but also in 1985—have failed to get over the political

hurdles. But the reform of our taxation system—our taxation shambles—can

no longer be put to one side.

The ludicrous anomalies and complexities which pervade the entire

wholesale sales tax structure are now intolerable. The incidence of

our income tax on ordinary wage-earning individuals and families is

equally so.

There is nothing to be said for an indirect tax system under which

caviar is tax-free, but orange juice is taxed at 12 per cent; where

Lear jets are taxed at zero, and the family car at 22 per cent. It

is a system, moreover, which places particular burdens on exporters.

The income tax system has already reached the limit of fairness. In

1954–55, the top marginal rate of tax cut in at 19 times average

earnings—by 1999–2000, the top rate will cut in at 1.2 times

average earnings. The complexity of the system is such that over 70

per cent of Australian taxpayers now use tax agents.

Our principles in this area have already been made quite clear.

* We will not contemplate reform which increases the overall tax

burden.

* Reform should involve major reductions in personal income tax—especially

for families.

* Consideration should be given to a broad-based indirect tax

to replace some or all of the existing indirect taxes.

* There should be appropriate compensation for those deserving

of special consideration.

* We need to address reform of our Commonwealth-State financial

relations.

Those five principles remain paramount. And it is difficult to see

any alternative: is there anyone here today who believes that tax

is not in need of root-and-branch reform?

Sadly, in fact, the Opposition believes that a few more band-aids

will do the trick. At its conference last week, Labor talked of soaking

the rich a bit more, and perhaps some tax rebates for exporters. Neither

of these is really feasible. There are not quite enough rich people

to make the magic pudding effect work.

For example, a surcharge of 5 per cent on those earning more than

$100,000 a year would raise only $650 million, that is exactly half

of one per cent of current taxation revenue. That is hardly the wherewithal

to fund remediation of the current indirect taxation system or other

fundamental improvements. And only a broad-based indirect tax can

rebate tax paid on exports in an effective and internationally-acceptable

manner.

The record of the social agenda

I am proud of the economic outcomes which I have just outlined. Our

GDP and employment growth in 1998 and 1999 will be higher than in

any of the G7 countries, and better than the OECD average. Most importantly,

the economic growth and stability we have achieved enables us to get

closer to the kind of society we want.

We have acted in many ways to further that aim.

Before the election, we spoke of making Australia a safer community.

Our gun laws legislation was a very significant contribution to that.

But there are other measures—our initiatives on youth suicide,

for instance.

We spoke of creating a more civil society. That is a difficult objective

to achieve, but I think we have helped. The tone of politics is less

vitriolic, less abusive. The democratic right of dissent can be exercised

without instant vilification. There is, I hope, less domination of

debate by narrow interests.

We spoke of a stronger sense of community. And in a number of areas

we have been able to draw on the strengths of private and voluntary

organisations for important policies—the government-business

alliance in the Partnerships Against Domestic Violence, for instance,

and the important role of non-government bodies in our National Illicit

Drugs Strategy. In March, I will be chairing a major round table of

business and community leaders aimed at developing strategies to promote

partnerships between businesses and community groups and corporate

philanthropy.

We spoke of a more united nation. Our aim of providing the citizens

of rural and regional Australia equitable access to normal services

is an important part of that. Here I should mention, for instance,

the $250 million Regional Telecommunications Infrastructure Fund.

And there will be a significant regional component in the infrastructure

projects coming out of the $1 billion Federation Fund.

We spoke of a caring society—and, despite considerable fiscal

restraint, we have adhered faithfully to our promise to maintain the

welfare safety net, in all its essentials. The community would want

no less than that.

But that is not always enough.

There are problems which need more than the safety net.

Youth unemployment

Youth unemployment is still too high, and we maintain our commitment

to tackling it as seriously as it warrants.

I believe that we have the full support of the Australian people in

this. Australians feel a strong sense of obligation toward their young

people, an obligation not just to help, but to try to make sure that

those young people have the best possible future.

This sense of obligation is one of the habits which bind our community

together. But those who feel it know that obligation is a mutual affair—a

two-way street. Every obligation has a corresponding responsibility,

and this mutual obligation has to be recognised as a basic principle.

Just as the community expects that every effort will be made to help

the young, and to provide them with opportunities, so it also expects

the young to use those opportunities. We have a right to expect that

they will make the best of the help offered and, as far as they can,

to give something back to the community.

Education and Training

We owe it to the young to get the fundamentals right. In particular,

the economic and educational settings need to be appropriate so that

there are, first, the jobs in place, and, second, the right skills

for those jobs.

While the Commonwealth's direct responsibility in schooling is

limited, we have nevertheless taken strong action to focus on the

educational fundamentals.

We have committed $669 million over four years to raise the standards

of literacy and numeracy in schools; and the Commonwealth and

the States have agreed to a National Literacy and Numeracy Plan, which

includes testing of all Year 3 and Year 5 students against national

benchmarks.

We have also committed $187 million over four years to implement school-to-work

programmes, including school-based apprenticeships.

The new Youth Allowance, to be introduced in July, will dramatically

simplify the income support system for the young—cutting out

the 13 different rates of pay and 5 different payments we inherited.

Most importantly, it will remove the skewed incentives whereby unemployment

could be preferable to further education.

We will simply give more assistance to those who are prepared to study—whether

at school, TAFE or university.

The transition from education to employment is one area where the

Commonwealth can act, and we have done so, decisively.

The introduction of the New Apprenticeships will deliver flexible,

responsive and accessible training arrangements for business, and

will open up opportunities for many young Australians, over a wide

range of industrial activities.

We have committed $560 million in incentives to employers, apprentices

and trainees, to support up to 220,000 places over the 1997–98

and 1998–99 financial years.

The new employment services market will start operating in

May this year, and will bring a much-needed focus on getting unemployed

people real jobs—not just churning them through endless training

programmes.

The creation of the new Centrelink agency has brought together

the social security network, parts of the CES network and student

assistance and childcare services, bringing simplicity and effectiveness

to a previously complex and time-consuming system.

Mutual Obligation, Work for the Dole

Perhaps most importantly, the principle of mutual obligation, of reciprocal

duties, is now established in our Work for the Dole scheme.

The scheme is already demonstrating the strong obligation felt by

the community to the young unemployed, and the value that the unemployed

feel in being able to give something back.

Well in excess of our expectations, more than 630 enterprising submissions

for Work for the Dole schemes were received from community and welfare

groups, and from local councils. Due to this enormous demand, we expanded

the original aim of 70 pilot projects to 179—involving groups

such as Mission Australia, the ACT Cancer Society, Council on the

Ageing, Open Family Australia, the RSPCA, Centacare Catholic Family

Services and Anglicare Tasmania.

So far, around 1400 participants have started work, on 62 projects

around the country. They are involved in environmental improvement,

in preserving our heritage, or in providing direct help and support

to those who need it within the community.

We knew from the start that the participants would be a mix of voluntary

and compulsory. In fact, about 60 per cent of those participating

so far are volunteers.

And it is already clear that many of the rest have become positive

and willing participants in their scheme once they actually started

work.

For all of them, the scheme has one considerable additional benefit.

They will now be able to go to employers and demonstrate that they

have acquired some work habits. And the habits of work—of regular

routines, of working with others, of performing as expected—are

in some ways even more important than technical or vocational skills.

As more young people begin to see these benefits, we expect to see

the number of volunteers increasing.

New initiatives

The government has decided on three new policy initiatives in this

area.

Firstly, we have decided not only to expand the Work for the

Dole scheme, but also to extend the mutual obligation principle so

that all young unemployed people aged 18 to 24 who have been on unemployment

benefits for six months or more will be required to participate in

an activity in addition to job search.

Secondly, and as part of the extended mutual obligation principle,

we are introducing a major new literacy and numeracy programme specifically

designed to assist those young people who have been unemployed for

six months or more and whose