E&OE..................
Thank you very much Colin for the warm words of welcome. To you and to Max Trenorden, the newly elected Leader of the National Party in Western Australia, Chris Ellison the Minister for Customs and Justice in the Federal Parliament, my other federal and state parliamentary colleagues and Peter Middleton the Chairman of the 500 Club, ladies and gentlemen.
I am both encouraged and delighted at the large turnout today here in Perth because it does give me an opportunity to talk very directly to a cross-section of the business community here in Western Australia about the political and economic condition as I see it at the moment. Some of the political challenges that face the Federal Coalition over the remainder of the year and some things that are of particular relevance to an audience in Western Australia.
Can I start by saying to my state colleagues, here in Western Australia that I regretted very much the defeat of the Court Government. I thought it was a good government that provided solid conditions for economic growth here in Western Australia. It worked very hard with the Federal Coalition Government after 1996 to bring about more intelligent native title laws. Unfortunately we have been frustrated in that goal by the stubborn anti-development attitudes of The Australian Democrats, fanned by the Western Australian resident leader of the federal parliamentary Labor Party, Mr Beazley. And the combined attitude of the Australian Democrats and the Beazley federal Opposition in the Senate has done untold damage to the resource and pastoral industries of Western Australia and there's no point in mincing words about that. I was in Kalgoorlie yesterday and the lack of commitment of dollars to prospecting because of the continuing uncertainties of native title is not something that any of us on our side of politics should tire of talking about because it remains a very significant barrier to the development of which you spoke Colin which is so important not only to Western Australia but also to the entire nation.
We live at present, to vary the old Chinese proverb, we live in challenging and interesting economic times. There is no doubt that there is a degree of turbulence on world financial markets. There has been an economic slowdown in the United States which came at unexpected speed, evidenced by the decision of Dr Greenspan, the Chairman of the Fed to cut interest rates for the first time in January. The economic indicators coming out of the United States remain contradictory, they are good one day, they are indifferent the next. There is undoubtedly a lot more nervousness in relation to tech stocks and obviously some of the exuberance of which Dr Greenspan spoke disapprovingly last year, some of that exuberance has disappeared. As to how all of that will work out on the rest of the world, I can't be certain, indeed nobody can. The Japanese economy remains very sluggish and some of the improvement that has been apparent in economies in Asia generally over the past few months some of that is now slowing down, although economic growth in many of the European countries remains quite strong.
So I have to tell you that the picture is very mixed. You probably concluded that from your own study and your own reading of the press on economic conditions around the world. They are mixed and there's a degree of turbulence and there is a degree of uncertainty. One of the consequences of that has been the flight to quality and strength that always happens on the currency markets when you have a degree of international turbulence and that has occurred in relation to the American dollar and that remains the major reason why the Australian currency is undervalued at the present time. I think it's very important at a time like this, more important than usually to keep a sense of perspective. I don't believe in ignoring reality, I don't believe as prime minister in coming to an audience like this and saying 'well you know everything, every where in the world is absolutely marvellous, don't worry, nothing bad is going to occur and everything is going to be rosy' - that is plainly ridiculous.
But I think it's also important to try and keep a sense of perspective and a sense of balance about the economic conditions in the world and the economic situation of Australia. We do have very strong economic fundamentals, now you've heard me say that before and you've heard Peter Costello say it before, but it's not a cliche, it's a reality. The last time we had a recession in this country that recession was preceded by a sustained period of crushingly high interest rates. It was almost a necessary precondition to that recession. The former Government and the former banking authorities in this country used high interest rates as an attempt to control what they thought were some of the excesses of the economy and the weakness of our current account. And the effect of that was when interest rates went to 17 and 18% for homebuyers and for many farmers, bill rates of 22 and 23%, the effect of that of course was to crush the life out of the economy.
Now we are living at the present time with historically low interest rates. Now there are good reasons for that, inflation is much lower than it was and I think the monetary authorities around the world have got more clever at managing the variations in interest rates levels. But I think it's important when you hear people talking down the economy and there's no shortage of people around who are willing to do that, to bear in mind that to talk of a recession against the backdrop of the sort of interest rate levels we have at the present time is plainly ridiculous and something that should be firmly discouraged. We also have a much stronger fiscal position in the Federal Budget than we had the last time we were hit by a recession. We have historically a very strong government debt position. The accumulated federal government debt is only 6.4% of the annual wealth that the Australian economy generates each year, by comparison in Japan it's 130%, in the United States it's about 40% and the OECD average is in the order of 45%. We've paid off about $50 billion of the federal government debt that we inherited in 1996 against the fierce opposition, at virtually every turn I might add, of our political opponents. But I think it's important because if you start from a strong position as far as national debt it concerned you don't need to run excessive surpluses. We're going to have a balance in our Budget in May, we're not going back into deficit. But you don't need to run a big surplus particularly if you have only 6.4% of GDP as government debt. So once again it's a question of keeping things in perspective.
And we've also achieved higher productivity in our economy. One of the things that I'm exceptionally pleased about and very pleased when I hear our opponents talking about having a fairer industrial relations system and I'm going to return to industrial relations in a big way in a moment. But when I hear people talking about a fairer industrial relations system it is almost as if Rip van Winkle-like they have ignored what's occurred over the last five years. Because one of things we have actually been able to do in this country over the last five years is to boost the after-tax incomes of Australian workers in a quite substantial way. And we've done that through three devices. We've seen a lift in productivity and that means you can run nominal wage increases at a fairly good level without it becoming inflationary because your productivity is improving. And we've actually seen an improvement in the wages of workers over the last five years at a much faster rate than occurred over the thirteen years of the Labor Government and one of the ironies of economic performance in this country is that that the allegedly employers' party, the Liberal Party has in fact delivered higher real wages for workers than the allegedly workers' party, the Australian Labor Party did during the previous thirteen years. And I won't bore you with the statistics, but let me assure you they are there to back up that claim.
On top of that you have seen very significant reductions in mortgage interest rates. And for people on modest incomes with families paying off a home still remains the biggest single financial commitment. And paying off a home is on average $300 a month less than it was five years ago and that is very significant. Very significant indeed.
Now we've had in this country until a few weeks ago, we'd had quarter after quarter of successive economic growth and then in December the economy statistically went into reverse and we had a contraction of 0.6% of GDP. Now that wasn't in the fairly irresponsible words of the headline writer of the Sydney Morning Herald evidence that Australia had hit the wall, it was simply evidence of the fact that for a combination of transitional reasons and one-off factors the economy did go into reverse in the December quarter. It was overwhelmingly, not entirely but it was overwhelmingly due to the impact of the transitional affect of the GST on the housing sector. We knew that there would be a transitional impact because there was a lot of housing activity dragged forward before the 1st of July and we knew that once that happened that after the 1st of July it would slow down. It slowed down a lot more sharply than many, not all, some in the housing industry had predicted it would fall down that sharply, I should acknowledge that, but certainly more sharply than our official advice suggested and that contributed mightily to the contraction in December. I think high petrol prices played a part. I think the distorting effects on sections of the economy of the Olympic Games also played a part and obviously some people felt the fluctuations in the currency were unsettling to confidence and may also have played a part. Our view is that the housing sector will rebound very strongly through a combination of the doubling of the First Homeowners' Grant for new dwellings and also the significant reductions in interest rates, 1.25% which have occurred over the past few weeks. And we believe the combination of those will produce a very strong and buoyant housing sector in some months' time.
Now I've taken a few moments to try and put into perspective what I think has happened and what I'm saying to you is that I think the economy is fundamentally very sound. It has had a setback in the December quarter, there's no point in ignoring that but there are reasons for it and there's no reason at all why the long-term momentum of economic growth shouldn't be regained and indeed go on for a significant period of time because if you have a sound fiscal position in the federal budget you have low inflation and you have low interest rates, and you otherwise have a beckoning economic climate there is no reason why high levels of investment should not be generated. Bearing in mind always of course that we live in a global economy and what happens in other parts of the world particularly the United States will have an impact.
Now much of the economic debate over the past few months has of course been concentrated on the introduction of the new taxation system. Introducing a new taxation system was a mammoth undertaking. We needed tax reform in this country. For twenty-five years politicians on both sides of the house in Canberra have known in their hearts that we've needed to reform the tax system. I've known that for a long time, Bob Hawke knew it, Paul Keating knew it, Kim Beazley knew it and so the list goes on. Now some aspects of it people didn't like. If I had my time over again I wouldn't have essentially altered anything that I endeavoured to do. I don't have any regrets about taxation reform and I believe very passionately that it will deliver long-term benefits to the Australian economy. I think you do need a better taxation system to have a pro-development environment because if you have a more pro-competitive taxation system you will encourage more investment. There were inevitably going to be some implementation challenges and I am conscious that there has been some burdens place upon small business in particular I adjusting to the new system. And we have as a government tried to respond as rapidly as possible to the concerns that people have expressed about the Business Activity Statement, the IAS and other aspects of the implementation of the new system.
But it has been the biggest systemic economic change that this country's probably had since World War II and it would have been truly astonishing if something like that had not involved some upheaval, some difficulties and some challenges. But what was the alternative? The alternative was to sit on your hands and do absolutely nothing. And when you get into government and when you become a prime minister you've really got two alternatives, you've got Plan A or Plan B. Plan A is to actually try and do something to improve the economic and social condition of the country. Plan B is to swan around in the white car and think isn't it terrific being prime minister, I'll go out of my way not to offend anybody, I'll smile at everybody, I'll say yes to every request and I'll make whoopee for a few years and to hell with the consequences when I'm defeated. I mean that, they are really the two plans that you have. And I made a promise to myself and my colleagues and I collectively made promises to each other that having finally got there after thirteen years, pretty frustrating years in Opposition. And having on earlier occasions perhaps in government been accused of not using a mandate when we controlled both Houses of Parliament - God what an idyllic situation that would be now - I resolved that what we were going to do was to try and make a difference, to try and grab hold of the reins and with the power and authority we had in the Lower House and whatever persuasion we could exercise in the Upper House, to try and make a difference.
And one of the things of course we set out to do after the last election having won a mandate on it was to reform the tax system. And we should remind ourselves of the reasons why we set out to change it. To start with we had a very old-fashioned indirect tax system, multiple rate wholesale tax system fell on some people not on others, very complicated, very old fashioned, very cumbersome, I don't think anybody in this room would really like to go back to it. We also needed to reform Commonwealth/State relations. I'd grown tired as both a prime minister and a treasurer of endless arguments with states about a growth tax and for the first time since the Commonwealth assumed uniform tax powers as a war time measure in 1942 we now have a revenue-sharing arrangement whereby the states will get a growing source of revenue to fund the schools, the hospitals, the police, the roads and all the other public services that state governments need to provide. And this represents a revolution in Commonwealth/State financial relations, it will take several years before Western Australia is better off under this system than it is under the existing arrangement, but once it becomes better off the gains grow very significantly. Queensland will begin to be better off I think the year after next and I can assure you that notwithstanding what some of the Labor premiers have said about the new taxation system, they fell over themselves to sign the interstate agreement with me which guaranteed them the tax revenue. And there are no votes for rollback amongst state Labor premiers because rolling back means reducing their revenue and I remind you again that every dollar of the GST goes to the states, none of it comes to us. Every single dollar. And when you're talking about rolling back, you're rolling back the revenue that will go to the states.
It was of course designed to take some of the load off high marginal tax rates for middle income earners. We didn't go as far on that as we would have liked to because of the obstruction of the Senate which cut the proposal to bring the top marginal rate in at $75,000 rather than the level that was imposed by the Senate of $60,000. On the 1st of July this year the company tax rate will fall from 34 cents in the dollar to 30 cents in the dollar and we've effectively halved capital gains tax for individuals. So it's important in the debate about the administrative implementation of the tax system for people to remember what the fundamental reasons driving tax reform really were. And I've reprised some of those reasons.
But it wasn't only in tax that we set out to make major change, and if I were asked what was the area of economic change that I think in a lasting sense has probably been as important as tax or perhaps even arguably more important I would say industrial relations. As many of you know in Opposition I campaigned very strongly for industrial relations reform. I think one of the great achievements in this state of the Court Government were the changes brought in in the area of industrial relations. Changes that closely mirrored our policy at a federal level and they are changes that have reduced the unreasonable reach of union power and they're changes that have helped boost the productivity of individual workplaces. Those changes have helped deliver the productivity of which I spoke earlier. And those changes have brought about I think a very significant transformation of workplaces within this country. And we should keep reminding ourselves that only 25% of the workforce of Australia now belongs to a trade union. And the enrolment level in the private sector has fallen slightly below 20%. Now, only one in five workers in the private sector of the Australian economy now belong to trade unions. And when you look at it from that point of view it is truly astonishing to find the level of ideological commitment that's still retained by the Labor Party to the role of the trade union movement within our society.
I have noticed in Western Australia that already in the few weeks that the new Government has been in office the re-emergence of the 'no ticket, no start' rule on construction sites and the general return of the influence of trade unions into the economy of this state. I have to say to you that it will get much, much worse if a federal Labor government is elected. Bear in mind that if the federal Labor Party wins at the end of this year you will have a Labor government in Canberra and you will have a Labor government in five of the six states of Australia. You will have an almost unprecedented level of Labor government and therefore an unprecedented opportunity for trade unions to impose their unreasonable views in relation to industrial relations. Now I don't argue that there is no role for the trade union movement in our society nor do I argue and in fact as prime minister I have led a government that's delivered better wage outcomes for the workers of this country than did our political opponents. But what I do argue against and what I argue very strongly is that it would be absolutely tragic for this country's economic future if the industrial relations gains of the last five or ten years, both at a state and federal level, were rolled back.
And that is exactly, I swear to you is what is going to happen if we have a change of government at a federal level. Don't think for a moment that this government, this Labor Party in government would be less beholden to the trade union movement than previous Labor governments, that will not be the case. The level of former union official membership of the front bench of the federal Labor Party is higher than what it was in earlier years. And there's a natural career path progression from president of the ACTU through to a senior position on the Labor Party frontbench. You will see a repeal of Australian workplace agreements, you will see a reimposition of compulsory unionism, you will see a destruction of the secondary boycott provisions of the Trade Practices Act and you'll see a combined return of union muscle and union power at both a state and federal level if you get the combination of the two.
Now some of you may say it's alarmist. Can I tell you it's not. I think it's very important in politics to have both a positive and a negative message. I don't support those political leaders and those political parties whose whole stock in trade is to run negative message about their opponents, but I think if you have been an active government as we have been for five years, if you've taken political risks as we have to achieve long term national interest outcomes, if you've been prepared to have a go to implement difficult policy, and you have got a fair degree of that accepted by the Australian people, I think you have a both a moral and a political right to define the negative aspects of your political opponents.
Colin is right. This election is going to very hard for us to win. It's always hard for us to win a third term but there's a lot at stake. There has been a cultural change in the attitude of people towards economic growth and economic activity in Australia over the last five years. We have been a strong, high growth economy. We have generated hundreds of thousands of jobs. We are seen around the world as being an economy with a government that's been prepared to implement long term valuable reforms. We don't need a government that will really just try and wind a lot of those reforms and a lot of those changes back. Now, it is true that you need, in appealing to the broad electorate, you do need to talk about things other than economics, and I do.This is essentially of course a business audience and I focus most of my remarks on economic issues and government policies that relate to economic issues. But I'm particularly proud of a lot of the things that we've done in the non-economic areas. If I were asked to name the three biggest things this government has done, I would probably include two things that are not economic. One of them is uniform gun control laws, and the other was the leadership we gave in relation to the saving of East Timor. Both of those things represent high watermarks of taking a stand on important issues that define the character of a country and show a determination to create a safer society.
I think we've also come a long way in the country in creating probably the most equitable system whereby people can make an effective choice about how and where their children are educated. There's been a lot of debate about support of government and independent schools in the Australian community. And speaking as somebody himself who is the product of a public education system in NSW and who believes that parents ought to have the right to choose where their children are educated, I'm very proud of the fact that in the last five years there's been a very significant growth in the opportunities for low income parents in this country to exercise the choice of sending their children to independent schools. So much of the debate surrounds the so-called 'elite' schools. They are but a fraction of the independent school sector and the real growth has not been in that area, the real growth has actually been in the low fee new independent schools. And in many ways Australia has achieved the best balance between public and private provision of education of any country in the world.
And even our much maligned health system which becomes a ritual political football, not only between federal and state governments with constant finger pointing and blame shifting and cost shifting, but is also a political football in a ritualistic way between state governments and state oppositions. I sometimes, as I go around the states, I turn on the news bulletins, I close my eyes, I hear the soundtrack talking about the state opposition criticising the waiting lists and the dialogue is almost the same. The only difference that in one state it is a state liberal government with a state labor opposition and in another state the situation is reversed. But despite all fo that, we ought to see our health system as being infinitely better than any other system in the industrialised world. I mean, the reality is that if you are of modest means, if you are a battler, don't get sick in the Bronx or in Brixton, much better to get ill in a suburb of Perth or a suburb of Sydney. And we have through our 30% tax rebate and our lifetime health rebate, we have in fact resuscitated private health insurance in this country. It was bleeding to death when we came to power and our resuscitation attempt has been so successful that the Labor Party has, theoretically anyway, abandoned its commitment to repeal the private health insurance rebate. I don't really believe them but that is their formal position because they recognise that that policy has been extremely successful.
So I would readily acknowledge that there are things that are important to people other than economic issues and the condition of our society, we often talk about the efficiency of our economy. The last couple of weeks I've been involved firstly in the launch of a 'tough on drugs' television campaign. It was designed to encourage more Australian parents to talk very directly to their children about the dangers of illicit drugs. Last Sunday my wife and I attended a service in the Sydney Domain of parents of children who for a combination of reasons had taken their own lives. And confronting, in a modern prosperous sophisticated society such as ours, the horrendous problem of youth suicide - particularly amongst young males in rural areas of Australia - is an arresting and sobering social experience. And it is a reminder to all of us that when we talk about the condition of Australia we don't always and only talk about the economic condition, the condition of our budget, the condition of our businesses, but we also talk about the condition and the quality of our society and the sort of pressures that we place on the more vulnerable members of the Australian community.
Ladies and gentlemen, can I conclude by saying how encouraged I am by such a large gathering. I can assure you that I have a lot of stomach and a lot of determination and a lot of energy for the fight that is ahead over the next few months. I've been in a lot of political scraps over the years. I know what success is, I know what defeat is, I know what disappointment is. There's been no really successfully political leader in this country who hasn't at various stages of his or her career tasted adversity as well as success. We deserve to win the next election because we have tried to do good things for our country. That doesn't guarantee that we are going to win it, but it gives us a head start over the alternative, and that is if we hadn't set out and tried to do good things for Australia. We have got a good story to tell. We'll have more things to say as the year goes on about the future. We have a policy barren opposition. For five years the Labor Party has not developed one realistic alternative sustainable policy and there are a lot of things at stake, they are important for Western Australia and they are important for our country overall. I need your support. I appreciate the expressions of support I've received today and if we work together in that spirit of extolling our positives, but not losing an opportunity to define the negatives and deficiencies of our political opponents then I have every reason to believe that we are going to win.
Thank you.
QUESTION:
Prime Minister, Jim War. Obviously, one of the big issues of the election is going to be the GST. It would seem to me the problem from a business point of view is not the tax itself, which most of us are happy with, but the way its administered. Is there anything at all you can do to bring the ATO into line and stop them making an art form of complication out of the simplest piece of legislation?
PRIME MINISTER:
I know what you're saying. Can I relay a discussion, can I repeat a discussion I had with those on my table.
When we had the complaints about the Business Activity Statement and the IAS, I called a meeting in Sydney of myself and the Treasurer and the Deputy Prime Minister and Ian Macfarlane, that's the political Ian Macfarlane not the bank governor, he's the Minister for Small Business and we had representatives of nine small business and professional organisations, the ACCI and we also had the Commissioner of Taxation and the Deputy Commissioner of Taxation and the Senior person in the Treasury dealing with taxation matters.
We worked through all of the concerns that were raised by people and instead of sort of listening to the concerns of the business organisations and then going away and separately raising these concerns with our tax advisers, we put these concerns to them on the spot. I think by workshopping the concerns people had about the forms and the processes that were used, I believe that we emerged with quite a lot of changes, all of which have been announced and are now in the process of being implemented.
I think those changes will make a big difference. I have to say that that is my anecdotal experience as I move around the country. I am an impulsive asker of questions about the GST. Every business person I spoke to in Kalgoorlie yesterday I asked them about the GST. I got a variety of responses. Some supportive, some peremptory, some unrepeatable, but overall I got the impression from talking to these people that yes there had been some challenges but no, they were not insurmountable. Yeah you've made some good changes and we are getting on top of it.
Now, that's not universal, and I remain ready to further fine-tune the administration. I mean our opponents say your rolling. look rolling back is taking the GST off individual items, we're not into that and I take your point that you're not unhappy with the GST, you're unhappy with the administrative implementation of it.
Now we've tried to respond to people's concerns and we'll go on responding to legitimate concerns that people have about the administration. I don't make any apologies for that. You can't implement a change of this magnitude without going through some teething difficulties with administration. Its such a big change and I'm quite happy to further fine tune it so that you get the balance absolutely right and I'll put up with the smart alec comments from the opposition along the way.
I mean its easy I suppose, to stand on the sidelines and throw stones at those who are trying hard to actually improve the way our tax system works and we just have to put up with that and I don't really mind it. Those stones really do bounce off me because in the long run I know what we are doing is good for the country but we will continue to fine tune if that is necessary.
I do think the changes we have made as a result of a number of complaints we got at the beginning of the year have been beneficial but we'll keep a very close eye on it.
QUESTION:
Prime Minister, just a question in relation to the environment. I was interested but not unsurprised by George W Bush's decision on the Kyoto Protocols and the greenhouse gas omissions for which I think a number of people in this room would think were, even with the generous, sort of generous treatment that Australia got out of that particular round, were still unachievable. But one thing that certainly resonated in the West Australian election was from the community perspective, people still willing to put their votes with green parties and of course a new leadership, Cheryl Kernot's dream team with the Democrats will put that particular focus on the environment at the next election.
What can we give to business but also the community in terms of direction on the environment coming out of the United States decision?
PRIME MINISTER:
Well our position in relation to Kyoto, if I can use that as a metaphor for controlling the growth of greenhouse gas omissions, our position is that we are going to stick with the domestic measures that we adopted to control greenhouse gas omissions after the Kyoto meeting in 1997.
We're not going to walk away from any of those things. We