Subject: Bilateral relations; Asian economic downturn; reform fatigue; Howe leather, trade; tax reform; business investment.
E&OE .............................................................................................
Thank you very much Mr Perigot, and to the Australian Ambassador to France, John Spender.
I'm here on behalf of the Government and the people of Australia to do two very simple things. To reaffirm the strength of the bilateral relationship between Australia and France which has always been very strong, but did go through a difficult phase in the mid-1990's. But that phase is now behind us. I had the opportunity during a meeting with President Chirac yesterday to say that to him and both of us agreed that a line had been drawn in relation to that and that the goal of policy of both governments should be to build on the natural strength that exists between us.
This morning I want especially to address, it is the second thing I come to say, the importance of the economic links between your country and ours. Those economic links at the present time are quite significant. France is the fourth largest investor from the European Union in Australia, there are tens of thousands of Australians employed directly or indirectly by French companies, French technology and French ingenuity is widely acclaimed and recognised in Australia, and opportunities in transport and, the defence industry, telecommunications, indeed the whole gamut of the investment of the modern industrialised society is there for the taking, provided the product being offered is competitive both price wise and quality wise, it is there for the taking by French companies.
But what makes it particularly attractive at the present time, is I believe the strength of the Australian economy. It is going through its ninth year of expansion, where it's enjoying an average growth rate of around 4% per annum. We have removed our budget deficit. We have significantly changed our labour laws and made them more flexible. We have reduced the power of trade unions, without in anyway removing the democratic right of Australians to join unions if that is their choice. We have elevated the importance of direct negotiations between employers and employees. We are now the largest in proportionate terms, the largest share owning democracy in the world, as a consequence of a very vigorous program of privatisation which is not over, because it remains the policy of the Government, subject to being satisfied about the delivery of certain obligations particularly to rural customers of telecommunications companies, it remains the policy of the Government to sell the remaining public interest in Telstra which is our major telecommunications company. We have also undertaken very significant competition reforms. And on the 1st of July the largest economic reform attempted in Australia since World War II, that is a fundamental restructuring of our taxation system will come into operation.
Now none of these things will come as news to people here this morning, having as most of you do, business operations in Australia. You are familiar in one degree or another to the, with the changes that have taken place over the last few years. But what I do want to emphasise to you this morning is that the Government remains committed to an ongoing reform process. There is really no option in the modern globalised world for governments to do other than continue with the reform process. We don't underestimate the political and social challenges that that involves. There is in all of our societies, and I am sure that France is no different to Australia in this regard, there is a sense in the community of what people call reform fatigue. There are those who say well we've had enough reform, let's stop the process of reform for ten or twenty years, so we can recover
and then we'll get ready for the next bout of reform.
Now that sounds all right in theory, but we know in fact that in a globalised economy that is impossible. Countries that elect to do that fall behind. And nobody should ever assume that what's been achieved over a number of years, impressive though it may be, is enough for the next few years. I don't in relation to Australia. We have done good things over the last few years, but if we are to maintain the competitive edge we have now gained as a result of those reforms, we have to keep the process going. We can't afford to be in any way complacent. And what we offer to the companies of the world, and we certainly offer them to French companies, we offer a very stable economy. We offer an economy that has a strong, well-supervised financial system. It has clear rules of corporate governance, it has an attitude of mind at a national government level that is accommodating towards the business community - understands the need to provide quick responses and administrative approvals, recognises the enormous value of foreign investment and is determined to ensure that the Australian economy has balanced linkages with the rest of the world.
We are in the Asian Pacific region. And I've frequently said in talking about my country's linkages with the rest of the world, I've often spoken of the special intersection that Australia occupies. We are as you all know a nation with deep cultural and other roots in Europe. We're also a nation that has had for a very long time a very close association with the United States. But we are in the Asian/Pacific region. There are 800,000 Australians who are fluent in Asian languages. There are 400,000 Australians of Chinese descent. There are representative communities of just about every major nation of the Asian Pacific region.
So we do have some special, I believe, assets as a result of that. We don't see ourselves in any presumptuous way of representing any kind of bridge between Europe and Asia, the linkages, the bilateral linkages between the nations of Europe and the nations of Asia are well known and well understood. But what we do represent is a country, part of the Asian Pacific region, but having some special understanding of that region and the rest of the world.
And one of the things that the Government over the last four years has endeavoured to do is to restore a sense of balance in our economic and foreign relations. We haven't attempted in any way to walk away from our close association with the countries of Asia. But we do recognise that we have economic and political and national interests in remaining very close to the nations of Europe and the nations of North America. One of the reasons why Australia was able to avoid the impact of the Asian economic downturn was that we were able to diversify some of our trade away from the failing Asian economies to North America and Europe. And that is one of the reasons why contrary to most expectations, including I have to honestly say my own, we were not caught up in the Asian economic downturn.
So it is important in a long-term sense that Australia and France and Australia and the other nations of the European Union remain close and we build further our economic relationship. I do not want Australia to be seen as a country that is totally preoccupied with it's economic linkages with Asia, important though they are to us, and valuable though they are to us, and because they still provide the most receptive markets that we can find around the world.
Nor do I want to pretend in addressing a French audience that there aren't significant trade and economic differences between us. You will be aware of the long standing Australian unhappiness with the restrictive agricultural policies of the European Union. But I would not want any French audience to imagine that an Australian Prime Minister has in any way forgotten that. Nor would I want any French leader political leader to think that Australia has forgotten. And it does remain a point of aggravation in that a modest subsidy given by our government to a leather company can be the subject of censure and penalty by the World Trade Organisation, yet much greater and more overt subsidies given by the European Union, the United States and Japan to their agricultural exporters, escape scot-free from any kind of penalty or sanction.
But the overall picture I bring to you is of an economy that continues to grow. Of a government and country that remains very committed to openness, to an investment climate that is attractive to companies from around the world. Not only are we reforming the personal and indirect taxation system in Australia, but we're also undertaking major changes to our business tax system. We are reducing the company tax rate from 36 cents to 30. We are virtually halving the capital gains tax rate. We are replacing a more series of rather clumsy indirect taxes with a single, you would call it a value added tax, we would call it a goods and services tax, and that will be accompanied by a significant reduction in personal income tax.
Those tax changes are quite major. They will make Australia more competitive and they will make it more attractive to do business in Australia. And they are of a piece with a pattern of policy change and reform over the last few years which is designed to make Australia more attractive.
So, can I say to you ladies and gentlemen that I welcome very much this opportunity of talking to such a diverse cross-section of the business community of France. The investment you have already made in Australia in so many areas is greatly appreciated. We would want more and you would want more from us. It is not the role of governments to point to companies who ought to invest, rather it is the role of governing to make it as attractive as possible for companies to invest and then leave it to the proper operation of the market economy.
But the last thought I want to leave with you before I answer your questions is that I'm sure that Australia shares with France and the government of Australia shares with the French government, a belief that the world economies have now embarked upon a path from which there is no turning back. We do live in a global economy. As you live in global economy you must constantly change and reform and there's an obligation that that to form a government and that is too fully communicate the of change and reform to their people.
I think much of the economic debate in the world, and I'm sure it's the same here in France as it is in Australia, there is an odd separation of economic and social policies. Many commentators talk as though there is no linkage between the two. I think there is a very strong linkage. The goal of good economic policy is a stronger sense of social contentment. I have no doubt in the world that the social security, the welfare safety net of Australia is stronger now than it was four years ago because we have a strong economy.
A strong economy is not an end in itself, a strong economies real purpose of course is to provide for greater contentment of the people of the nation. And that is certainly how we see the link between our economic policy and the goals that we have sought to pursue over the last few years. And I think it is something that the leaders of all democratic, industrialised nations must keep in mind because although we might understand, particularly in an environment such as this, we might understand the need for ongoing economic reform in order to remain relevant and competitive, unless both political leaders and business leaders understand that people need constantly to have explained to them the benefits of ongoing economic reform and to see those benefits as they affect their daily lives. The resistance to further reform will grow and the sort of changes that business wants in order to remain profitable and relevant will be that much harder to achieve in the future.
Can I thank the Ambassador for the splendid work that he has done on behalf of our country and on behalf of the government here representing Australia in this very important post. It is for me a special privilege to be the first Prime Minister to visit this country since 1994, to have the opportunity to say directly to the President and to you ladies and gentlemen is that the bilateral relationship is important to us. It's a relationship which has a lot of history, but we're here this morning to talk not so much about the past important though that is, but rather to focus on what we have in common for the future.
We are both progressive, modern, industrialised nations reaping the benefits of the information technology revolution and I think we are both countries that see globalisation as bringing benefits to our societies and I hope in the years ahead that this is translated into further investment by you and your companies in Australia. We will endeavour to keep the economy open and competitive and I hope also that those years bring greater opportunities for Australian penetration into France and also Australian direct investment
into the republic.
Thank you.
QUESTION:
Mr Prime Minister, in your impressive introduction you mentioned the reform of the tax system in your country. I believe that one of the main features is the introduction of this value added tax that you call GST. Do you view this feature of your reform as a necessary modernisation of your tax system, as a subtle and rather harmless way of increasing the taxes and taking back by one hand what you give from the other hand or both? And as an investor of Australia, I would be interested if you expect any negative impact in this new tax on the inflation rate on the industrial investment and more generally on your well acclaimed and sustained growth rate.
PRIME MINISTER:
Well sir we have been debating the need for taxation reform in Australia for about twenty years or more. I have been a member of the House of Representatives since May of 1974 and I can remember in the second year that I was a member of Parliament, there was a big report tabled which recommended that we introduce a value added tax and that we replace some of the existing wholesale sales taxes and we do many of things we've now decided to do. And there's been a big debate about it for a long time. And successive governments put it off because some of the difficulties involved. If one were going to reform the taxation system in Australia, now is the very best time to do it because we have very low inflation, we have a strong economy we have a more flexible labour market and we are seen around the world as a county that has been willing to undertake some reforms.
You ask about the impact on inflation - when you introduce a goods and services tax you always have a temporary increase in the cost of living index. But we don't believe that will be other than temporary and once you are through the transitional phase that blip, as we call it will disappear. And that is our very strong view and you have to remember of course that although we are going to have a 10% goods and services tax it's going to replace a number of other taxes.
But the average Australian and prime ministers are always very interested in their reaction, as are French Presidents in the reaction of the average person. The price of goods in the supermarket, some will go up, some will go down and some will remain the same. And people will have a personal income tax cut. I think your question asked if we're giving with one hand and taking with the next. We'll know because of the overall taxation burden will come down. Eighty percent of Australian taxpayers will be on a top
personal tax rate of no more than 30 cents in the dollar. Which given our experience is a very significant improvement. I don't think there are any negative affects at all for business or indeed for the public. I think they're all beneficial. Reform that leads to Australia's better economy has got to be beneficial. I'm very enthusiastic about the change and I think the Australian public will find that it will be absorbed and accommodated a lot more readily than some of the doomsayers in our community have been saying.
QUESTIONER:
Phillipe Mongal from DPN. I would like to know how are you contemplating the development of transport infrastructure in Australia? Do you consider that the CO2 restriction imposed by the Kyoto memorandum would be a very important for you? I repeat the question. I would like to know are you contemplating the development of transport infrastructure? How do you consider - will you respect the Kyoto memorandum which is including a new reduction of CO2 emission?
PRIME MINISTER:
I think you asked me about the transport infrastructure and also about the CO2 emissions?
QUESTIONER:
Yes.
PRIME MINISTER:
Well on the question of transport infrastructure, Australia is, as you know, a very big country and renewing our infrastructure, whether it's transport infrastructure or infrastructure more broadly defined, is one of the things that I believe we will have to give increasing attention to in the time ahead. We have a number of quite major transport infrastructure projects, one of which involves the Speed Rail project, a very significant French component. That particular project is being assessed at the present time. There area other major rail projects that are in the feasibility study stage. We expect to begin construction of the Darwin to Alice Springs railway which has been argued for since 1911. And at long last I believe the construction phase is going to commence but we need to recognise as a community that there comes a time when the renewal of that kind of infrastructure is very important and the government has a significant role. We want to maximise the partnership between the private sector and the public sector but even the most of rabid free-marketer will accept that one of the basic roles is, for the government, is to provide a certain amount of essential infrastructure for use by the community and by the private sector.
The question of CO2 emissions is a especially perplexing one for Australia because unlike most other industrialised nations we are a net exporter of energy product and therefore it proposes a particular difficulty for us and some of our approaches in this area are quite different from those of the European Union.
We thought that the agreement reached at Kyoto was a fair one and took a reasonable account of our position but provided some benchmarks for the future. We're not optimistic that you can have a really comprehensive arrangement about emissions and greenhouse gases generally unless you can sign up the developing countries because they are very much a part of the problem as well as the solution and you will need to adopt policies, particularly in relation to emissions credits and so forth that are sufficiently accommodating. We have a somewhat different view of the capital credits that some of the European countries and in a number of other areas where I think we do have difficulties, it's not an easy issue this and it depends a bit on if you're establishing targets of benchmarks, it depends a bit on what year you choose to start. You start at one particular year for one particular benefit to countries that have just phased out some of their coal mines and also such benefits to other countries. This has been the base of some of the differences between Australia and the countries of the European Union.
JOURNALIST:
Mr Prime Minister, with Australia being closely related to the Asian markets, do you have an opinion about any post crisis improvement in this area?
PRIME MINISTER:
Yes, I think a number of countries have recovered and I hope I put this with appropriate respect. I think a number of countries have recovered quite quickly and I admire the structure of changes that have taken on by Korea has come around quite well and I think Thailand has as well. I think Indonesia is still going through a great deal of economic difficulty but the new government and the new President, are bringing a very good sense of economic and political direction in Indonesia.
It's no easy task for a country of that size .with many different races, different religions and not experience democracy really for any length of time at all until now, and in all of the circumstances I think the new government has got off to very good start and a great deal of credit is due to the President for that. The Japanese economy of course is important to all of us, very important to Australia, and Japan is Australia's best customer. The United States and Korea vie for second and third positions, so we watch very carefully what happens in both Japan and Korea. I think the Japanese economy is somewhat stronger now than it was, but it is not likely to be in the same strong growth league as your country, or the United States or our own for a while yet. Some of the other countries of Asia did not suffer as much - the Philippines, Taiwan. But I think overall there is clear evidence that Asia has come off the bottom and is coming back and that's quite apparent from our own trading results. Whether all of the countries have undertaken with the structural change particularly in their banking systems that are really part of the cause of the problem, I'm not sure, I'm not sure about that. I think some of them have, but I'm not sure that others have gone quite as far as they might have done, so I can't be in the end be certain that there might not be a re-emergence of some of the difficulties.
But overall, the picture is a lot more optimistic now and we are very happy to report that there is growing demand from Asian countries for services and products that disappeared a couple of years ago and used to be there, and disappeared but are now coming back again. And that's very valuable, as far as we are concerned we are very pleased about it. And I admire greatly what a number of the countries have done in the sort of structural change that we find in countries like France and Australia difficult to justify in Australia with our population - you could only begin to imagine how hard it is when you are dealing with a country that has a much lower standard of living and whose citizens are thrown out of work in many cases overnight. And I think these changes that have been embraced, particularly by Korea and Thailand are quite admirable and they deserve a great deal of credit for it.
QUESTION:
Prime Minister, the Australian economy has done very well, financial recovery, .. Asia in 1997 and 1998, can you tell us about the factors that affected the Australian economy and if any - what are the consequences of major structural reform in the face of the crisis?
PRIME MINISTER:
I think the main reason, there's no one reason why Australia was able to avoid the flow through of the Asian economic downturn. I think there's a number of reasons. The flexibility of our exchange rate was a very important element, a very important element. I think the strength and the transparency of our banking and financial assistance was another reason. I can still recall in 1996 not long after I became Prime Minister being told by some Australian business men that we needed a little more flexibility in relation to the operation of our financial system, perhaps it was a little too rigid. And that we needed to perhaps adopt some of the approaches that were adopted in some parts of the Asia Pacific region. And of course we weren't persuaded of that, we in fact made some further changes to our system which made it more competitive and more open but that is not what they were talking about. But I think the stability and the strength and the transparent character of our financial system is very important. I think the fact that we were seen around the world as being willing to make economic reforms to get our budget back into surplus, all of those things assisted. Our capacity, as I said in my speech, to diversify our trade, that of course is linked to the flexible exchange rate. Now, I would think that was one of the major reasons why we were able to do it. We also have a very sophisticated innovative workforce and one shouldn't underestimate the value that that is to the Australian economy when you have a work force that has got an above average share of additional linguistic skills, not only in Asian language, but also in European language. All of those things are of assistance but I think the greater flexibility of the Australian economy is thus the stability of our financial system and we were seen as a stable economy when the slide began and I think that helped us a great deal to get through the problems.
MC:
Thank you very much Mr Prime Minister.
QUESTION:
Prime Minister ..the successful introduction of the . [inaudible]?
PRIME MINISTER:
Of all the things I would like to talk about when I am travelling around Australia, there's none I enjoy talking about more than the fact that we have got an increase in productivity. I like to say that Australian workers are better off now than they were before because interest rates have fallen and their wages have risen at a faster rate than the rate of inflation. And the reason that the latter has occurred is that we have improved our productivity. I think one of the reasons we've improved our productivity is the same reason that the United States and other countries have improved that productivity and that is that we are getting a dividend from the very heavy investment in technology, particularly information technology. And that has made it possible for most companies that use it wisely to increase their efficiency and their productivity. This debate that is going on at the moment about the old economy and the new economy of course that is a totally false dichotomy, or a largely false dichotomy that's not totally. Because the companies that have done really well mind you are those companies that many of them would be classed as old economy companies that have adapted to new technology and the ways of the new economy most effectively to their operations. They are the real success stories, and it's those companies that have provided real income gains.
But at least we have got the benefit of technology and there's no particular Australian genius in that although we've done it well and better than many. But no better than many other countries, including your own and other sophisticated industrialised countries. I think the other reason why we have higher productivity is that we've made changes to our industrial relations system. And we have made industrial relations more flexible. And I was struck last night in talking to a number of you how significant you saw the change on the industrial relations front in the last twenty years, certainly in the last ten years. But we do have a more flexible industrial relations system and that has underwritten productivity gains and I think it would be a real shame if any of that momentum in Australia were lost. It's one of the most valuable reforms that we have achieved, there's still further progress to be made in that area and if there's any regression at a state government level in relation to that that would do damage to the investment flow of that state, and it's very important that we maintain that. So I would say they are the two principal reasons.
As far as the rate of inflation is concerned, well I think getting rid of the budget deficit which helped the conditions that enabled interest rates to come down, that played a role. But I think you have to give credit to the cumulative impact of economic reforms over a number of years, the removal of very high tariffs, and the general opening up of the Australian economy have all meant that firms have to be more efficient, they have to be more competitive, they have to recognise the fiercely competitive nature of the global environment in which they live. Australian consumers are a lot smarter and discerning than they were. Firms may not find price adjustment as easy they used to and that's due to the fact that we have a more open, competitive economy. And all of those things have combined to keep our rate of inflation down. But of course many of the industrialised countries, including this country have been very successful in getting inflation down.
QUESTION:
You mentioned several times your direction to invest or to attract the investment in what you call the new economy in the high tech, and the telecommunications side - could you elaborate a little bit more about it and what you plan to do to attract more investment in Australia?
PRIME MINISTER:
Well, Sir, the point I was endeavouring to make was that I thought there was a danger to the people who talked about a rather artificial divide. You hear this glib talk everywhere about the new economy and the old economy, the NASDAQ and the DOW and it's sort of on everybody's lips and we're in danger I think of being swept away with a belief that is not based on reality and I was saying that I thought it was a false, it was a very artificial division that many of the successful companies, not only in Australia, but around the world, being those countries that have really adopted the ways of the social and new economy that's in effect information technology and other technology to their operations and made them more efficient. And I thought we would, if you saw it in that way you would be a lot more, you would be a lot closer to the mark as to what has really happened. But as far as investment in Australia is concerned in the new technology and communications, we don't see that separately from investment in other economic activity.
Once again it is the role of the government to set a good investment climate for everybody and then leave it to the individual entrepreneur to make a judgement as to where the investment would go. The climate for investment in telecommunications in Australia now is a great deal better than it used to be. I mean we've broken the monopoly that used to be in the hands of the government, wholly government-owned Telecom, we now have a lot more competition in that area. And the cast of competition policy means that it will get even more open as time goes by. And one of the reasons why the Government believes that the remaining 50% of Telstra should be sold is that we know that Telstra is operating in a very competitive environment and it shouldn't be encumbered, it shouldn't be burdened by being half government-owned. But you can't, you can't have a telecommunications company indefinitely being half government-owned and you can't go back. I mean I don't hear anybody in Australia arguing that we should re-nationalise Telstra. It would be an absurd use of billions of dollars of taxpayers' money to buy back the 49% we've already sold. That would certainly take it back, not to the 1950's, but to the 1940's and it would be ridiculous thing to do and so I really think the only path there is ultimately which of course is our policy, to sell the rest of it.
But the competitive environment and the opportunities for telecommunications are getting better in Australia because the demand for them is growing very, very rapidly. The competitive environment is a lot more open and I even saw speculation in one of the Australian newspapers this morning that we be even more open as a result of some decision that is going to be handed down, so I think it is a very good environment.
MC:
Well is there a very burning, a terribly important one of you want to put to the Prime Minister before we finish with their venture? Now this is not a joke, I mean really you have the privilege of the Prime Minister of Australia in front of you if there is really one question you want to put? Well, openly, strongly do it, it is your privilege. Ok, you can do it now. This is (inaudible) who wants to ask a question about agriculture. An easy question for Australian ..?
QUESTION:
Thank you Mr Prime Minister. We've been represented in Australia since 1907, we've got a lot invested in that over the years and future now. Certainly [inaudible] why the private companies that have got access to trading barley, rice, sugar which is our business in fact before the regulations and the state regulations does not allow us to accumulate and export these products. So we think, practically sure that the growers and the Australian economy would benefit from bigger more open competition. My question is not is that going to happen, but when is it going to happen?
PRIME MINISTER:
Correct me if I'm wrong and I may have misunderstood it, but please forgive me, were you asking, or were you effectively complaining about the fact that our market is not open enough in agriculture? You're serious?
QUESTIONER:
I think you've got the point.
PRIME MINISTER:
Well I'll do a deal with you. If you can persuade the European Union to relax the common agricultural policy I'll fix barley.
QUESTIONER:
Okay.
PRIME MINISTER:
Okay?
QUESTIONER:
I think it will take a long discussion so I'll leave it at that. Thank you very much.
PRIME MINISTER:
Thank you.
[ends]