J f e .^ .A U S T R A L IA  ÃÂ

TREASURER

EMBARGO 4 . 3 0 A M  E S T ,  TUESDAY 23 AP RI L 1 9 8 5

PRESS RELEASE

5 G

N O .  43

ADDRESS BY

THE TREASURER OF THE COMMONWEALTH OF AUSTRALIA

THE HON PAUL KEATING, MP .

TO

THE A S IA  SOCIETY

NEW YORK

22 APRIL 1985

- "Ã¢ÂÂ  Â·Â· fÂ·. Ã¢ÂÂ Â·.'Â·.Â·Â·Â·Â»'Â·>'Â· >

The A u s tra lia n  E co nom y Monday, April 22, ly.SS

A G E N D A

a :ii Registration and Cotfee

M o r n i n g  P r o g r a m

C h a i r m a n

P i e r r e  L. G o u s s e la n d Chairman and C h ie f Executive ( )lTiccr  ÃÂÃÂ ÃÂÃÂ§ Inc.

'Â· mi ( ) \ 1  !

P O LIT IC A L  t.NYLxx )X M E N T

Ã¢ÂÂ¢ Ha atom ic Trends and ( H itloo k

Ã¢ÂÂ¢ <  i(:x ernment Policies and Business Climate

S ir N o el F o ley , C.B.F.. Chairman Westpac Banking CorporatiÂ· m

....... RESOURCE SECTOR

Ã¢ÂÂ¢ Australia's Resource Ba-e

Ã¢ÂÂ¢ Market O u tlo o k  and D e v e lo p m e n t Plans

S ir J a m e s  B a l d e r s i o n e Chairman The Broken H ill P roprietary C om pa n y Ltd.

(.din m e n t a t o r   C h ris to p h e r W. B ea le Managing D ire ctor and  Head o f Project Finance Â· The First Boston C o rpo ratio n

ÃÂ "U M AXI Â·FACTORING ShC.TOR

Ã¢ÂÂ¢ O u tlo o k  fo r Heavy Industry

Ã¢ÂÂ¢ Labor E n v iro nm e nt

Ã¢ÂÂ¢ High Technology Trends

C h a rle s  S. C h a p m a n Managing D ire c to r  Genera! M o to rs -H o ld e i. , Ltd. Via. President, General Motors Corporation

T. B ria n  F in n Managing D ire c to r  IBM Australia Ltd.

ÃÂ  p m Reception and Luncheon

I PO LICIES * PERFORM ANCE I O U T LO O K  FOR FO R E IG N  IN V E S T M E N ÃÂ

1 CM) K E Y N O TE  ADDRESS

T h e  H o n o ra b le  P au l K e a tin g Treasurer o f  Australia

P r c s i t / r r

S ir R o b e rt C o tto n , K .C .M .G . Australian Ambassador to the United M acs

A fte rn o o n  Program C h a irm a n Jam es D . W o lfe n s o h n President James D. W olfensohn Inc.

2:15 FIN VNCIAl. SERVICES SEC TOR

Ã¢ÂÂ¢ Deregulation: Impact and O u tlo o k

D r . H a r o ld  F. B e ll, A .O ., O .B .E . Chairman D evelopm ent C orporation o f  New South Wales

.V.V) IN IT  KN A T IO N ÃÂ I.!/.A l'IO N  U r   . AUSTRALIAN ENTERPRISES

J o h n  B. G o u g h , O .B .E . Managing D irector  D u n lo p  O ly m p ic  Ltd.

4 :IS GOVERNMENT POLICY AND P.EGCEAI IO.V  U.S. INVESTMENT IN ACS ERA! !A

Ã¢ÂÂ¢ Trends in Foreign Investincni Policy

Ã¢ÂÂ¢ Investm ent Incentives anal Regulations

J e ffr e y  F. B ro w n e Partner Sullivan and C ro m w e ll. Melbourne

5:00 C ocktail Reception hosted In  The 1  lo n o ra b ic  John C. Taylor. Consul General o f Australia, and  A n th o n y  J. Walton, Executive Vice  President, Wcstpac Banking C orporation

THE AUSTRALIAN  ECONOM Y

ÃÂ¦ P O LIC IE S

& P E R FO R M A N C E

O U T L O O K  FO R

F O R E IG N  IN V E S T M E N T

A O n e -d a y  C o n fe re n c e

M o n d a y. A p r il 22. 1985

P resented by

C &S| A s ia ( t  T H E

So c i e t y

w i t h  th e  c o o p e r a t io n  o f

Westpac Banking Corporation

T h e  Asia S o cie ty

2

I VERY MUCH APPRECIATE TH IS OPPORTUNITY TO DISCUSS WITH YOU  TODAY THE PROSPECTS FOR THE AUSTRALIAN ECONOMY.

AUSTRALIA VALUES ITS RELATIONSHIP WITH THE UNITED STATES, AND  A MAJOR PART OF THIS IS  ITS  ECONOMIC RELATIONSHIP.

I REGARD A FUNCTION SUCH AS TH IS AS PLAYING A VERY USEFUL  ROLE IN FOSTERING THAT RELATIONSHIP. IN ENSURES THAT THERE  IS THE MAXIMUM MUTUAL UNDERSTANDING OF OUR ECONOMIC  STRATEGIES AND CIRCUMSTANCES.

I CONGRATULATE THE A S IA  SOCIETY FOR ITS  DECISION TO ORGANISE  THE CONFERENCE, AND I ALSO CONGRATULATE ONE OF OUR OWN MAJOR  COMPANIES, THE WESTPAC BANKING CORPORATION, FOR ITS ROLE IN  STAGING THIS FUNCTION. .

I WISH TO EXPLAIN TO YOU TODAY SOME OF THE THINKING WHICH IS  BEHIND THE ECONOMIC STRATEGY WHICH THE LABOR GOVERNMENT OF  WHICH I AM A MEMBER HAS ADOPTED IN AUSTRALIA.

TO DO THAT, AND TO PUT THE GOVERNMENT'S TASK INTO PERSPECTIVE  I THINK IT  IS FIRST NECESSARY TO APPRECIATE THE CIRCUMSTANCES  IN WHICH THE LABOR GOVERNMENT WAS ELECTED IN MARCH 1983.

PRIOR TO OUR ELECTION, UNEMPLOYMENT HAD RISEN WITHIN THE  SPACE OF A YEAR BY MORE THAN A QUARTER OF A M ILLIO N PEOPLE TO  10% OF THE LABOUR FORCE.

GROSS DOMESTIC PRODUCT WAS FALLING FOR THE FIRST TIME SINCE  THE GREAT DEPRESSION; OUR IN FLA TIO N  RATE, AT 1 1 .5 % , HAD  RISEN TO BE MORE THAN DOUBLE THAT OF OUR MAJOR TRADING  PARTNERS AND CORPORATE P R O F IT A B IL IT Y  WAS AT HISTORICALLY LOW

LEVELS.

A MAJOR CONTRIBUTION TO THAT SAD STATE OF AFFAIRS HAD BEEN A  D E B IL IT A T IN G  WAGES PUSH DURING THE 1 9 8 1 - 8 2  FINANCIAL YEAR,  DURING WHICH THE ANNUAL RATE OF WAGES GROWTH REACHED 17%.

THAT WAGES PUSH WAS, I MIGHT ADD, VERY MUCH FUELLED BY  PREMATURE TALK, ENCOURAGED BY THE PREVIOUS GOVERNMENT, OF A  BOOM BASED ON INVESTMENT IN RESOURCES INDUSTRIES.

IN ADDITION TO THAT L IS T  OF PROBLEMS, THE NEW GOVERNMENT, LEAD BY PRIME M INISTER BOB HAWKE, CAME TO OFFICE AT A TIME OF  CURRENCY C R IS IS , WITH SEVERAL B IL L IO N S  OF DOLLARS HAVING LEFT  THE COUNTRY IN THE WEEKS PRECEEDING THE ELECTION.

WE WERE FORCED TO REACT TO THAT SITUATION WITH A DEVALUATION  OF THE AUSTRALIAN DOLLAR, THE VALUE OF WHICH WAS THEN SET AT  A MANAGED RATE.

FURTHER, THE D IF F IC U L T IE S  FOR THE NEW GOVERNMENT WERE  COMPOUNDED BY THE EARLY ADVICE WE RECEIVED OF A MAJOR FISCAL  DETERIORATION.

AFTER BUDGETING FOR A D E F IC IT  OF LESS THAN 1% OF GDP, THE  PREVIOUS GOVERNMENT'S 1 9 8 2 - 8 3  BUDGET WAS HEADED FOR A D E F IC IT   OF NEARER 3% OF GDP.

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ON TOP OF THAT, OUR O FF IC IA LS  ADVISED US THAT WE HAD IN  PROSPECT - MERELY BY CONTINUING THE PREVIOUS GOVERNMENT'S  PROGRAMS ALREADY IN PLACE - A D E F IC IT  FOR THE SUBSEQUENT  FINANCIAL YEAR OF AROUND 5% OF GDP.

FURTHERMORE, THERE WERE OTHER PROBLEMS W ITHIN THE AUSTRALIAN  ECONOMY OF A STRUCTURAL NATURE.

THOSE WERE PROBABLY LESS EVIDENT BACK IN 1983 AGAINST A  BACKDROP OF GENERAL ECONOMIC RECESSION, BUT HAVE BEEN EXPOSED  TO GREATER SCRUTINY AS THE RECOVERY HAS PROGRESSED.

THESE STRUCTURAL WEAKNESSES WERE EXACERBATED BY THE FACT THAT  UNDER THE PREVIOUS ADMINISTRATION THE AUSTRALIAN DOLLAR  EXCHANGE RATE HAD BEEN PERSISTENTLY OVER-VALUED - A CRUDE

A N T I-IN F L A T IO N  POLICY PURSUED IN  THE ABSENCE OF AN EFFECTIVE  INCOMES POLICY.

THE RESULT WAS S IG N IF IC A N T  DAMAGE TO THE COMPETITIVE POSITION  OF OUR EXPORT AND IMPORT-COMPETING SECTORS.

ASIDE FROM THOSE D IF F IC U L T IE S , IN CERTAIN AREAS OF OUR  ECONOMY, REGULATION AND RESTRICTION WAS S T IF L IN G  INNOVATION  AND PROGRESS.

WITHIN MY AREA OF R E SP O N SIBILITY THE FINA NCIAL SERVICES  SECTOR STOOD OUT AS A PARTICULAR PROBLEM SECTOR - AND I W ILL  RETURN TO THAT LATER.

S IM IL A R L Y , OUR TAXATION SYSTEM IS  IN DESPERATE NEED OF MAJOR  REFORM, AND THAT IS AN AREA WE HAVE NOW BEGUN TO TACKLE.

A THIRD AREA OF CONCERN WAS THE STRONG GROWTH IN BORROWINGS  BY THE STATE-LOCAL SECTOR.

THE NEW GOVERNMENT BEGAN TO TACKLE THE PROBLEMS I HAVE  OUTLINED AGAINST THE BACKGROUND OF THE POLICY WE HAD  ENUNCIATED DURING THE ELECTION CAMPAIGN - THAT IS  THAT THE  GOVERNMENT SHOULD MAKE A COMMITMENT TO CONSULTATION AND

CONSENSUS, TO THE EQUITABLE D IS T R IB U T IO N  OF THE BENEFITS OF  ECONOMIC GROWTH, AND TO THE ACHIEVEMENT OF SUSTAINED, NON-INFLATIONARY GROWTH.

I BELIEVE THAT IN THE SORT OF FREE DEMOCRATIC SOCIETIES TO  WHICH BOTH OUR NATIONS ARE COMMITTED, THE PURSUIT OF PROFIT  BY THOSE WHO EMPLOY AND THE ATTEMPT TO MAINTAIN AND IMPROVE  L IV IN G  STANDARDS BY THOSE WHO ARE EMPLOYED ARE LEGITIM ATE AND

HONOURABLE OBJECTIVES.

UNFORTUNATELY, THEY ARE OFTEN SEEN AS BEING IN CONFLICT, AND  ARE PURSUED IN WAYS WHICH CAN DAMAGE ECONOMIC PERFORMANCE.

THE INCONTROVERTIBLE TRUTH IS THAT THEY ARE BOTH BEST CAPABLE  OF ACHIEVEMENT WHEN THERE IS  CO-OPERATION TO CREATE THE MOST  FAVOURABLE CONDITIONS FOR HIGH LEVELS OF ECONOMIC GROWTH.

4

AND, IF  THAT ENVIRONMENT IS CREATED, NOT ONLY DO THE  PARTICIPANTS IN GROWTH BETTER SATISFY THEIR LEGITIMATE  ASPIRATIONS, BUT, IMPORTANTLY, SOCIETY ITSE LF IS THE BETTER  ABLE TO DISCHARGE ITS OBLIGATIONS TO THOSE WHO ARE LESS

FORTUNATE.

YOU MAY APPRECIATE THE DIRECT POLICY RELEVANCE OF THIS  APPROACH IF  I RETURN TO ONE OF THE POINTS I MENTIONED  EARLIER - THE WAGES PUSH OF 1 9 8 1 - 8 2 ,  WHICH CONTRIBUTED VERY  S IG N IFIC AN TLY TO THE ECONOMIC SLUMP WHICH FOLLOWED THAT  PERIOD.

THE QUESTION FACING THE HAWKE GOVERNMENT WAS HOW TO PREVENT  SUCH A WAGES PUSH OCCURING AGAIN AS THE AUSTRALIAN ECONOMY  EMERGED FROM THE RECESSION.

AT THE SAME T IM E , HOWEVER, WE HAD NO WISH TO ADOPT P O L IC IE S ,  WHICH THOUGH DIRECTED AT L IM IT IN G  INCOME DEMANDS AND THEREBY  IN FLA TIO N , SERVED THAT PURPOSE ONLY BY L IM IT IN G  THE NATION 'S  OVERALL GROWTH RATE.

OUR GOVERNMENT HAD BEEN ELECTED ON THE PROMISE THAT WE WOULD  ABANDON THE SO-CALLED FIGHT INFLATIO N FIRST P O LIC IE S  IN  FAVOUR OF AN EFFORT TO FIGHT BOTH INFLATION AND UNEMPLOYMENT  SIMULTANEOUSLY.

CONSEQUENTLY WE HAVE EVOLVED A POLICY PRESCRIPTION WHICH  TAKES ACCOUNT OF THE P E C U LIA R IT IE S  OF THE AUSTRALIAN  ENVIRONMENT AND WHICH HAS VERY EFFECTIVELY MET OUR OBJECTIVES.

THE CENTRE-PIECE OF THIS APPROACH IS OUR ACCORD, OR  AGREEMENT, WITH THE AUSTRALIAN TRADE UNION MOVEMENT.

THE ACCORD EMBODIES A COMMITMENT TO WAGE RESTRAINT W ITHIN A  CENTRALISED WAGE FIXA TIO N  SYSTEM, THAT IS  B U IL T  ON  WELL-ESTABLISHED FEATURES OF THE AUSTRALIAN INDUSTRIAL  RELATIONS R E ALITY .

IT  IS  ALSO IMPORTANT TO REALISE THAT THE ACCORD HAS NOT  OPERATED IN ISOLATION - THE LABOR GOVERNMENT HAS ALSO WORKED  HARD TO GET THE SETTINGS OF BOTH FISCAL AND MONETARY POLICY  RIGHT.

OUR CONSENSUS APPROACH TO POLICY HAS NOT LED US TO IGNORE THE  FUNDAMENTALS; INDEED, I T  HAS HELPED US TO PURSUE THEM.

BY ANY MEASURE, I BELIEVE THE POLICY APPROACH WE HAVE  IMPLEMENTED HAS PRODUCED THE RESULTS WE SOUGHT - I F  ANYTHING,  THE PERFORMANCE OF THE AUSTRALIAN ECONOMY IN THE PAST TWO  YEARS HAS OUTSTRIPPED EXPECTATIONS.

IN THE 23 MONTHS FROM APRIL 1 9 8 3 , THE MONTH OF THE NATIONAL  ECONOMIC SUMMIT CONFERENCE, TO MARCH TH IS YEAR, 3 4 0 ,0 0 0  NEW  JOBS HAVE BEEN CREATED, EQUAL TO ABOUT 6% EMPLOYMENT GROWTH.

OBVIOUSLY IN THE AMERICAN CONTEXT A NUMBER OF THAT S IZ E  MAY  NOT APPEAR PARTICULARLY SUBSTANTIAL, BUT IN OUR MUCH SMALLER  ECONOMY, OF COURSE I T  HAS HAD A MUCH GREATER IMPACT, ABSORBING NEW ENTRANTS INTO THE WORKFORCE AS WELL AS REDUCING  THE NATIONAL UNEMPLOYMENT RATE FROM A PEAK OF 10.4% IN

SEPTEMBER 1983 TO 8.8% NOW.

UNDERPINNING THIS IMPROVEMENT IN THE LABOUR MARKET HAS BEEN A  SURGE OF PRODUCT GROWTH. '

OVER THE COURSE OF OUR 1 9 8 3 - 8 4  F IN A N C IA L YEAR AUSTRALIA WAS  THE FASTEST GROWING OF THE WESTERN WORLD'S ECONOMIES, FOR A  TIME OUTSTRIPPING THE UNITED STATES.

OUR LATEST NATIONAL ACCOUNTS FIGURES, ISSUED LAST WEEK FOR  THE DECEMBER QUARTER 1 9 8 4 , ENABLE ME TO ILLUSTRATE THE  PATTERN OF GROWTH ON A CALENDAR YEAR B A S IS .

DURING 1 9 8 2 , THE NON-FARM ECONOMY GREW BY 0 .9 % , DURING 1983  THAT GROWTH RATE LIFTED TO 2.6% AND DURING 1984 I T  GREW BY  5.1% .

THE FARM SECTOR OF THE ECONOMY HAS ALSO RECOVERED  CONSIDERABLY OVER THE PAST TWO YEARS, FOLLOWING THE DROUGHT  IN 1 9 8 2 .

DURING TH IS SAME PERIOD OF EXTREMELY STRONG ECONOMIC GROWTH, WE HAVE ACHIEVED A VERY S IG N IF IC A N T  REDUCTION IN THE RATE OF  IN F L A T IO N , WHICH IS DOWN FROM 11.5% WHEN WE TOOK OFFICE TO  ABOUT 5% NOW.

THAT ACHIEVEMENT HAS LARGELY FOLLOWED THE SUCCESSFUL  OPERATION OF THE ACCORD WITH THE TRADE UNIONS.

THE ACCORD HAS WORKED - SO MUCH SO THAT AWARD WAGES HAVE  MOVED EXACTLY IN LIN E  WITH CENTRALISED WAGE F IX IN G  DECISIONS  OF THE ARBITRATION COMMISSION.

THE FACT THAT WE HAVE JUST COMPLETED A 12 MONTH PERIOD DURING  WHICH THERE WERE NO AWARD WAGE RISES AT ALL IS A MEASURE OF  WHAT THE ACCORD HAS ACHIEVED..

THAT SORT OF WAGES MODERATION HAS ALLOWED US TO GO A LONG WAY  TOWARD CORRECTING SOME OF THE FUNDAMENTAL PROBLEMS IN THE  AUSTRALIAN ECONOMY.

I MENTIONED EARLIER THAT THE CORPORATE PROFIT SHARE HAD  FALLEN VERY S IG N IF IC A N T LY  IN THE PERIOD BEFORE THE ALP  GOVERNMENT WAS ELECTED.

THE NATIONAL ACCOUNTS S T ATISTIC S TO WHICH I REFERRED A L IT T L E   EARLIER UNDERLINE THE DRAMATIC IMPROVEMENT THAT HAS TAKEN  PLACE ON THAT SCORE.

IN THE S IX  MONTHS TO DECEMBER LAST YEAR THE CORPORATE PROFIT  SHARE OF GDP WAS 15%, A MARKED RISE FROM THE TROUGH LEVEL OF  12.2% RECORDED IN THE S IX  MONTHS TO THE DECEMBER QUARTER 1 9 8 2 .

6

S IM IL A R L Y , LABOUR COSTS HAVE BEEN REDUCED TO A MORE R E A LIS T IC   LEVEL.

THE INDEX OF REAL UNIT LABOUR COSTS, WHICH IS  A MEASURE OF  LABOUR COSTS RELATIVE TO PRODUCTION, FELL TO 1 0 1 .6  IN THE  DECEMBER QUARTER, WELL BELOW THE HIGH OF 1 0 8 . 4  RECORDED IN  THE S IX  MONTHS TO DECEMBER 198 2.

REAL UNIT LABOUR COSTS ARE NOW CLOSE TO THE AVERAGE LEVEL  EXPERIENCED IN THE PERIOD 1 9 6 6 - 6 7  TO 1 9 7 2 - 7 3  - A PERIOD

OFTEN JUDGED TO BE A DESIREABLE BENCHMARK.

ANOTHER VERY IMPORTANT REWARD FLOWING FROM THE ACCORD HAS  BEEN A SHARP DROP TO THE NUMBER AND INTENSITY OF INDUSTRIAL  DISPUTES.

I FULLY APPRECIATE THAT THE INCIDENCE OF INDUSTRIAL  DISPUTATION CAN BE A MATTER FOR REAL CONCERN. HOWEVER, YOU  MUST ALSO APPRECIATE THAT THE S IZ E  AND NUMBER OF HEADLINES  APPEARING IN THE PRESS ARE NOT A TRUE BAROMETER OF THE LEVEL  OF DISPUTES.

THE REALITY IS  THAT O F F IC IA L  S T A TIS TIC S  SHOW THAT THE NUMBER  OF WORKING DAYS LOST IN AUSTRALIA BECAUSE OF INDUSTRIAL  TROUBLES ARE NOW AT THEIR LOWEST LEVEL FOR 17 YEARS.

THAT IS A VERY DIRECT BENEFIT OF THE ACCORD, AND A SITUATION  WHICH, IN THE AUSTRALIAN EXPERIENCE, WOULD HAVE BEEN  UNTHINKABLE JUST A FEW YEARS AGO.

CERTAINLY, IT  IS  A STATE OF AFFAIRS WHICH OUR PREDECESSORS,  WHO WERE, AND S T IL L  ARE, PRONE TO PRACTICE A MORE  CONFRONTATIONAL STYLE OF INDUSTRIAL RELATIONS, WOULD HAVE  FOUND IMPOSSIBLE TO MATCH.

AND OF COURSE THAT REDUCTION IN INDUSTRIAL DISPUTATION HAS  FED THROUGH DIRECTLY INTO PRODUCTIVITY.

THESE ARE THE REAL AND VERY GENUINE BENEFITS WHICH HAVE BEEN  ACHIEVED UNDER THE GOVERNMENT'S ACCORD WITH THE TRADE UNIONS.

THERE ARE SOME WHO ARGUE THAT WE SHOULD ATTEMPT TO DISBAND  T H IS  SYSTEM AND REPLACE IT  WITH A MORE DIRECTLY MARKET  RELATED METHOD OF SETTING WAGES.

OFTEN THOSE WHO PROMOTE THAT VIEW CITE THE UNITED STATES  LABOUR MARKET AS A MODEL THAT AUSTRALIA COULD EMULATE.

THE REALITY IS THAT SUCH AN OPTION IS  NOT A V IAB LE ONE IN THE  AUSTRALIAN CONTEXT.

EACH COUNTRY MUST DESIGN ITS IN S T ITU TIO N A L ARRANGEMENTS ON  THE BASIS OF ITS  OWN EXPERIENCE AND CIRCUMSTANCES.

HISTORY SHOWS US THAT WITHOUT A MECHANISM FOR WAGE RESTRAINT  SUCH AS WE HAVE PUT IN PLACE THE AUSTRALIAN ECONOMIC RECOVERY  COULD ONCE AGAIN FALL V IC T IM  TO AN INTERNECINE BATTLE OVER  INCOME SHARES.

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THAT WOULD LEAVE US ALL WORSE OFF, AND WOULD DASH OUR HOPES  OF FURTHER REDUCING UNEMPLOYMENT.

UNFORTUNATELY, THERE ARE SOME IN THE AUSTRALIAN COMMUNITY WHO  SEE A LONG-TERM ADVANTAGE IN PROMOTING SUCH A STRUGGLE.

THEY BELIEVE I T  IS  POSSIBLE TO RE-MAKE THE AUSTRALIAN  INDUSTRIAL RELATIONS SYSTEM AND, AT SOME UNSPECIFIED TIME IN  THE FUTURE, AND WHATEVER THE PAIN AND LOST OPPORTUNITIES, TO  EMERGE TO A UTOPIA WHICH MEETS THEIR D E F IN IT IO N  OF THE  THEORETICAL OPTIMUM.

LABOUR MARKET DEREGULATION IS CHAMPIONED IN A SIMPLE ANALOGY  WITH FIN A N C IA L DEREGULATION.

THE PLAIN FACT IS  THAT THE AUSTRALIAN LABOUR MARKET IS  NOT  ORGANISED TO OPERATE AS A MARKET.

IT  HAS A HIGH DEGREE, OF UNIONISATION BUT NOT ON AN INDUSTRY  OR ENTERPRISE B A S IS . UNIONS ARE ORGANISED ACROSS INDUSTRIES.

WAGE CHANGES IN THE PAST HAVE NOT GONE TO EMPLOYEES IN  INDUSTRIES THAT HAVE THE CAPACITY TO PAY. RATHER THEY HAVE  GONE TO THOSE WHERE PARTICULAR UNIONS HAVE INDUSTRIAL MUSCLE.

THE NORMAL ECONOMIC IMPERATIVES HAVE NOT OPERATED. THAT IS  WHY THE GOVERNMENT HAS CHOSEN TO DEAL WITH THIS FACTOR BY  RESORT TO A CENTRALISED POLICY.

MR CHAIRMAN, I HAVE DESCRIBED THE GOVERNMENT'S APPROACH TO  THE PRIORITY ISSUES WHICH CONFRONTED US IN  1983 AND 1 9 8 4 . I  HAVE ALSO REPORTED TO YOU THE SUCCESS OF THAT APPROACH, WHICH  I THINK FAIRLY CAN BE DESCRIBED AS VERY SUBSTANTIAL.

BUT I DO NOT WANT TO GIVE ANY IMPRESSION THAT OUR SUCCESS IN  ADDRESSING THE PROBLEMS OF HIGH IN F L A T IO N , HIGH UNEMPLOYMENT,  LOW GROWTH AND LOW P R O F IT A B ILIT Y  MEAN THAT THE GOVERNMENT  THINKS THAT I T  NO LONGER FACES THE MOST PROFOUND CHALLENGES.

OVER THE NEXT 6 MONTHS, IN PARTICULAR, THE AUSTRALIAN  GOVERNMENT W ILL FACE AND MEET A NUMBER OF CHALLENGES WHICH  W ILL SET OUT THE TONE OF AU STR ALIA'S ACHIEVEMENTS FOR THE  REST OF THIS DECADE AND INTO THE NEXT.

LET ME L IS T  NOW WHAT I  SEE AS THE MOST IMPORTANT OF THESE. YOU W ILL NOTICE THAT AUSTRALIA IS  NOT ALONE IN FACING THEM.

. F IR S T , THE DEVALUATION OF OUR CURRENCY REQUIRES THAT ALL  MEASURES NECESSARY FOR THE R E C TIFIC A TIO N  OF OUR EXCESSIVE  CURRENT ACCOUNT D E F IC IT  MUST BE PURSUED WHILST AVOIDING A  RESURGENCE IN THE RATE OF IN F L A T IO N . AUSTRALIANS MUST

GIVE GREATER PRIORITY TO EARNING THEIR WAY IN THE WORLD,  AND THE STRUCTURAL CHANGES NEEDED FOR THIS MUST BE  FA C ILIT A TE D  BY ESSENTIAL RESTRAINT IN OTHER AREAS.

. SECOND, WE MUST ACHIEVE A FURTHER S IG N IF IC A N T  REDUCTION  IN THE RELATIVE DEMANDS PLACED ON THE ECONOMY AND ON  FIN A N C IAL MARKETS BY THE GOVERNMENT SECTOR.

8

- IN THE AUSTRALIAN CONTEXT THAT MEANS A MOST RIGOUROUS REVIEW OF COMMONWEALTH OUTLAYS WHILE AT  THE SAME TIME ENSURING THAT THE UTMOST FISCAL  D IS C IP L IN E  IS  EXERCISED BY STATE, TERRITORY AND

LOCAL GOVERNMENTS.

. THIRD, A MAJOR START MUST BE MADE TOWARDS THE REFORM OF  THE TAXATION SYSTEM. AS IN MANY OTHER COUNTRIES, THE  AUSTRALIAN TAXATION SYSTEM IS F A ILIN G  UNDER THE PRESSURES  OF HIGH REVENUE DEMANDS ON AN UNDULY NARROW INCOMES AND

TRANSACTIONS BASE. IT  HAS BECOME BOTH IN E F F IC IE N T  AND  UNFAIR. '

IN MEETING THESE CHALLENGES WHICH L IE  IMMEDIATELY AHEAD OF  US, WE W ILL BE ASSISTED BY OUR ACHIEVEMENTS OVER THE PAST TWO  YEARS.

- THE P R O F IT A B ILIT Y  OF AUSTRALIAN BUSINESS HAS BEEN LARGELY  RESTORED

- THE ECONOMY IS  GROWING

- A START HAS BEEN MADE TO THE REJUVENATION OF OUR ECONOMIC  STRUCTURE, WITH DEREGULATION OF THE F IN A N C IA L SECTOR AND  PROGRAMS AIMED AT IMPROVING THE STRUCTURE AND PERFORMANCE  OF MANY OF OUR INDUSTRIES.

WE WILL ALSO BE ASSISTED BY THE POLICY-MAKING PROCESSES WHICH  HAVE BEEN ESTABLISHED. WE HAVE MECHANISMS TO OBTAIN GREATER  COMMUNITY AWARENESS OF OUR CHALLENGES AND HENCE ACCEPTANCE  FOR THE MEASURES WHICH ARE NECESSARY.

I  FULLY EXPECT, HOWEVER, THAT THERE W ILL BE SOME P O LITIC A L  COSTS ASSOCIATED WITH THE FIRMNESS OF APPROACH WHICH WE W ILL  ADOPT. THE MEDIUM AND LONG RUN BENEFITS, HOWEVER, REQUIRE US  TO FACE UP TO THESE P O LIT IC A L D IF F IC U L T IE S .

THE FIRST GROUP OF CHALLENGES FACING THE GOVERNMENT ARISE  FROM THE RECENT VERY LARGE DEPRECIATION OF THE AUSTRALIAN  DOLLAR. I T  IS  TRUE THAT THIS DEVELOPMENT OFFERS S IG N IF IC A N T   BENEFITS. THE CHALLENGE TO THE GOVERNMENT IS TO PRESERVE  THESE.

UNTIL RECENTLY AUSTRALIA HAS FACED A COMPETITIVENESS PROBLEM  NOT UNLIKE THAT APPARENTLY FACING THE UNITED STATES NOW.

MUCH OF THE ADDITIONAL DEMAND GENERATED BY OUR DOMESTIC  ECONOMIC RECOVERY HAS SPILLED INTO IMPORT PURCHASES BECAUSE  AT THE PREVAILING EXCHANGE RATE DOMESTIC MANUFACTURERS WERE  UNCOMPETITIVE.

THE DEPRECIATION SHOULD CORRECT THAT PROBLEM.

LIK E W IS E , OUR EXPORT INDUSTRIES WILL RECEIVE A BOOST BOTH  FROM HIGHER AUSTRALIAN DOLLAR DENOMINATED RETURNS AND AN  IMPROVEMENT IN THEIR COMPETITIVE PO SITION .

9

IN A MORE GENERAL SENSE, THE POTENTIAL BOOST TO A C T IV IT Y   GENERATED BY THE DEPRECIATION HOLDS OUT THE PROSPECT OF MUCH  STRONGER EMPLOYMENT GROWTH THAN WE WOULD OTHERWISE HAVE  ACHIEVED OVER COMING YEARS.

THESE ARE THE P O S ITIV E  ASPECTS OF THE DEPRECIATION. BUT  THERE ARE ALSO COSTS.

THE AUSTRALIAN DOLLAR PRICE OF IMPORTS WILL RISE SHARPLY.  WHILE WE WILL HAVE THE COMPETITIVE SCOPE TO SELL MORE  OVERSEAS WE W ILL HAVE TO ACCEPT THAT PER UNIT OUR EXPORTS  WILL BUY LESS IMPORTS.

BUT IF  WE ARE SUCCESSFUL THE CURRENT ACCOUNT D E F IC IT  W ILL  FA LL, WHICH W ILL BRING A NEW S T A B IL IT Y  TO OUR BALANCE OF  PAYMENTS.

IN OTHER WORDS, WHILE THE DEPRECIATION OFFERS OPPORTUNITIES  FOR FASTER OUTPUT GROWTH I T  ALSO BRINGS WITH IT  A SUBSTANTIAL  ONCE-OFF REDUCTION IN THE TOTAL REAL INCOME OF THE

COMMUNITY. AND WE W ILL ONLY REALISE THE POTENTIAL BENEFITS  I F  WE ADJUST SENSIBLY TO THE UNAVOIDABLE INCOME FALL.

AT THIS STAGE THE DEPRECIATION HAS BEEN A LARGE ONE. ON A  TRADE-WEIGHTED BASIS THE AUSTRALIAN DOLLAR HAS FALLEN BY MORE  THAN 20 PER CENT SINCE THE START OF THE YEAR.

WITH SUCH A LARGE DEVALUATION AND RELATIVELY BUOYANT DEMAND  CONDITIONS, THERE W ILL BE PRESSURE ON IMPORTERS TO PASS TH IS  ON PROMPTLY THROUGH PRICE R ISES.

THE CHALLENGE REMAINS OF HOW TO AVOID A D E B IL IT A T IN G  ROUND OF  IN FLA TIO N .

WHAT THE GOVERNMENT DOES NOT ACCEPT IS THAT ARBITRARY  DECISIONS, IMPOSED WITHOUT CONSULTATION, W ILL DO ANYTHING TO  HELP. IN FACT, SUCH AN APPROACH WOULD MOST PROBABLY DO QUITE  THE REVERSE.

AS I  HAVE OUTLINED TO YOU EARLIER, THE LABOR GOVERNMENT HAS  ALREADY COME A LONG WAY IN RESTORING EMPLOYMENT, REDUCING  INFLATION AND CORRECTING MANY OF THE FUNDAMENTAL, UNDERLYING

D IF F IC U L T IE S  IN THE ECONOMY.

WE ARE NOT ABOUT TO ALLOW THOSE GAINS TO BE DASHED.

WE HAVE A MEGHAN IS IM  - THE ACCORD - WHICH HAS THE F L E X I B I L I T Y   TO DEAL WITH THIS ISSUE.

AS THE CONSEQUENCES OF THE DEPRECIATION ARE REFLECTED IN  ACTUAL PRICE CHANGES WE W ILL BE DISCUSSING WITH THE UNIONS  AND WITH EMPLOYERS THE WAYS IN WHICH THE ECONOMY CAN PRESERVE  THE BENEFITS AND M IN IM IS E  THE LONG TERM COSTS OF THE

DEVALUATION.

THUS, WE W ILL CONSIDER WITHIN THE FRAMEWORK OF THE ACCORD THE  FUTURE PATTERN OF INCOME SETTLEMENTS.

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I BELIEVE THAT THE ECONOMIC PORTENTS FOR AUSTRALIA ARE GOOD.

THE PARTIAL INDICATORS THAT WE HAVE RECEIVED FOR THE EARLIER  PART OF THIS YEAR GENERALLY ENDORSE THE VIEW THAT OUR  ECONOMIC RECOVERY HAS CONTINUED STRONGLY.

RETAIL SALES AND NEW MOTOR VEHICLE REGISTRATION FIGURES POINT  TO CONTINUING GROWTH IN PRIVATE CONSUMPTION, WHILE BUSINESS  INVESTMENT INTENTIONS SURVEYS INDICATE STRONG REAL GROWTH IN  1985 AND BEYOND. :

BUILDING A C T IV IT Y  APPEARS TO BE MAINTAINING A HIGH LEVEL OF  A C T IV IT Y  AND THE MARCH QUARTER BROUGHT AN ACCELERATION IN  EMPLOYMENT GROWTH.

ON THE BASIS OF THE DATA TO HAND, THE ECONOMIC FORECASTS  WHICH UNDERLAY OUR MOST RECENT BUDGET, WHICH I BROUGHT DOWN  IN AUGUST LAST YEAR, APPEAR TO BE BROADLY ON TRACK.

THOSE FORECASTS WERE FOR FIN A N C IAL YEAR GROWTH OF 4% FOR THE  ECONOMY AS A WHOLE, AND 5% FOR THE NON-FARM SECTOR.

CERTAINLY, MY CONFIDENCE HAS BEEN BUOYED BY THE FACT THAT ONE  OF THE HIGHLIGHTS OF THE DECEMBER QUARTER NATIONAL ACCOUNT  S T A TIS TIC S  WAS A VERY D IS T IN C T  SHIFT IN A C T IV IT Y  FROM THE

PUBLIC SECTOR TO THE PRIVATE SECTOR.

THAT IS A TREND WHICH I  INTEND TO ENCOURAGE.

DURING OUR PERIOD OF OFFICE SO FAR WE HAVE FOLLOWED A POLICY  OF GRADUALLY WINDING BACK THE COMMONWEALTH'S FISCAL STIMULUS  AS THE PRIVATE SECTOR HAS STEADILY BEEN RESTORED TO HEALTH  AND AGAIN TAKEN ON IT S  NATURAL ROLE AS THE MAIN VEHICLE OF

ECONOMIC GROWTH.

AS A CONSEQUENCE, THE COMMONWEALTH D E F IC IT , AS A PROPORTION  OF GDP, HAS BEEN REDUCED TO APPROXIMATELY 3.3% OF GDP THIS  FINA N C IAL YEAR FROM 4.3% LAST FINANCIAL YEAR. WE INTEND TO  REDUCE I T  TO A LEVEL APPROACHING 2.5% NEXT FIN A N C IA L YEAR.

WE HAVE ALSO COME TO AN HISTORIC AGREEMENT WITH THE S IX   STATES THAT MAKE UP THE COMMONWEALTH OF AUSTRALIA, AND WON  THEIR AGREEMENT TO L I M I T  THEIR BORROWINGS THIS FINA N C IAL YEAR  TO THE SAME AMOUNT IN MONEY TERMS AS THEY BORROWED THE

PREVIOUS F IN A N C IA L YEAR.

IN OTHER WORDS, THEY HAVE AGREED TO A REAL REDUCTION IN THEIR  LEVEL OF BORROWING.

IN THAT WAY WE HAVE EFFECTIVELY BEGUN THE TASK OF REDUCING  THE NA TIO N 'S TOTAL PUBLIC SECTOR BORROWING REQUIREMENT.

GOVERNMENT BORROWING HAS TO BE REDUCED IF  PRIVATE SECTOR  RECOVERY IS  NOT TO BE CHOPPED OFF BY HIGH INTEREST RATES AND  SCARCE CREDIT. .

I AM ALSO DETERMINED THAT AUSTRALIA W ILL NOT REPEAT THE  EXPERIENCE OF THE UNITED STATES.

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FOR SEVERAL YEARS YOUR P O L IT IC IA N S  HAVE BEEN PROCLAIMING  THEIR COMMITMENT TO LOWER BUDGET D E F IC IT S  AND REINING IN  PUBLIC DEBT. BUT THE RHETORIC HAS NOT BEEN MATCHED BY ACTION.

THROUGHOUT THE FASTEST AND LONGEST PERIOD OF ECONOMIC GROWTH  FOR DECADES, THE BIG  BUDGET D E F IC IT S  HAVE CONTINUED.

WINDING THE UNITED STATES D E F IC IT  DOWN AS GROWTH SLOWS WILL  BE VERY D IF F IC U L T .

THE BEST TIME TO HAVE WITHDRAWN FISCAL STIMULUS WAS WHEN THE  ECONOMY WAS GROWING STRONGLY.

THE AUSTRALIAN GOVERNMENT IS COMMITTED TO A MORE D IS C IP LIN E D   APPROACH. I T  IS DETERMINED TO PULL DOWN THE D E F IC IT  AS THE  RECOVERY PROCEEDS.

THE LABOR GOVERNMENT HAS IMPOSED ON ITSE LF A "TR ILO G Y " OF  FISCAL POLICY CONSTRAINTS UNPRECENDENTED IN AUSTRALIAN  GOVERNMENT HISTORY.

THE GOVERNMENT HAS PROMISED -. FURTHER REDUCTIONS IN THE COMMONWEALTH'S BUDGET D E F IC IT  IN  MONEY TERMS IN 1 9 8 5 - 8 6  AND AS A PROPORTION OF GDP OVER THE  THREE YEAR L IF E  OF THE CURRENT PARLIAMENT;

.NO INCREASE IN TAX REVENUE AS A PROPORTION OF GDP IN  1 9 8 5 - 8 6   AND OVER THE L IF E  OF THE PARLIAMENT; .A  REDUCTION IN EXPENDITURE AS A PROPORTION OF GDP IN 1 9 8 5 -8 6   AND THE L IF E  OF THE PARLIAMENT.

THESE COMMITMENTS HAVE BEEN ENDORSED BY THE FULL MINISTRY OF  THE LABOR GOVERNMENT AND BY OUR FULL PARLIAMENTARY PARTY.

THEY ARE A MEASURE OF THE LABOR GOVERNMENT'S DETERMINATION TO  PURSUE SOUND FISCAL POLICY.

THE FULFILMENT OF THESE COMMITMENTS WILL REQUIRE DECISIONS  WHICH W ILL UNDOUBTEDLY BE UNPOPULAR IN SOME QUARTERS.

THAT I S ,  HOWEVER, IN E V IT A B LE  IF  GOVERNMENT IS  TO SUCCESSFULLY  L I M I T  IT S  DEMANDS ON THE NATIONAL ECONOMY.

ALREADY WE HAVE TAKEN QUITE A NUMBER OF P O LIT IC A L LY  D IF F IC U L T   DECISIO N S; MOST NOTABLY THE INTRODUCTION OF AN ASSETS TEST TO  DETERMINE PENSION E L I G I B I L I T Y  AND THE REMOVAL OF OVER  GENEROUS TAXATION CONCESSIONS FAVOURING SUPERANNUATION  BENEFITS TAKEN AS A LUMP-SUM.

IN THE RUN-UP TO OUR NEXT BUDGET - DUE THIS AUGUST - THE  GOVERNMENT HAS BEGUN EARLY ON THE TASK OF REVIEWING ALL AREAS  OF ITS EXPENDITURE.

ALREADY, SOME DECISIONS RESULTING FROM THAT REVIEW HAVE BEEN  ANNOUNCED.

THESE INCLUDE TIGHTER FUNDING ARRANGEMENTS WITH THE STATES  FOR ROAD CONSTRUCTION AND A CUT-BACK IN THE LEVEL OF HOME  PURCHASE SUBSIDIES TO FIRST HOME BUYERS.

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FURTHER MAJOR EXPENDITURE REDUCTIONS W ILL BE ANNOUNCED IN THE  NEAR FUTURE.

OF COURSE, IF  THE COMMONWEALTH EXERCISES RESTRAINT OF THIS  NATURE, OTHER LEVELS OF GOVERNMENT MUST EXPECT TO SHARE THE  LOAD.

IN AUSTRALIA THE FEDERAL GOVERNMENT COLLECTS THE GREAT BULK  OF TAX REVENUE, AND MAKES GRANTS TO THE STATES AND LOCAL  AUTHORITIES FOR BOTH GENERAL AND S P E C IFIC  PURPOSES.

THE ARRANGEMENTS UNDER WHICH GENERAL PURPOSE FUNDING IS   ALLOCATED ARE SCHEDULED FOR REVIEW BY END-JUNE. THE  COMMONWEALTH INTENDS TO REQUIRE STATE AND LOCAL GOVERNMENTS  TO PLAY THEIR PART IN MEETING THE GENERAL DEMAND BY THE

COMMUNITY FOR FISCAL D IS C IP L IN E . THE GOVERNMENT'S POSITION  IN THIS AREA W ILL BE PUT TO THE STATES AT A MEETING WITH THE  STATE PREMIERS AT THE END OF NEXT MONTH.

ANOTHER AREA WHICH HAS BEEN THE SUBJECT OF MUCH PUBLIC  DISCUSSION RECENTLY HAS BEEN THE GOVERNMENT'S CONDUCT OF  MONETARY POLICY, INCLUDING MY DECISION TO SUSPEND OUR MONEY  SUPPLY TARGET FOR THE 1 9 8 4 -8 5  F IN A N C IA L YEAR.

THAT DECISION WAS A CONSEQUENCE OF THE VERY EXTENSIVE PROGRAM  OF F IN A N C IA L DEREGULATION THAT WE HAVE UNDERTAKEN DURING THE  PAST TWO YEARS. IT  DID NOT IN ANYWAY REPRESENT A DECISION TO  ABANDON MONETARY POLICY OR DEPART FROM THE NON-INFLATIONARY  MONETARY POLICY STANCE WE HAVE PURSUED SINCE COMING TO OFFICE.

BY D E F IN IT IO N , DEREGULATION FREES BANKS AND OTHER FINANCIAL  IN STITU TIO N S TO DO BUSINESS WHICH WAS PREVIOUSLY PROHIBITED.

SUCH CHANGES W ILL OBVIOUSLY IMPACT ON THE MONETARY AGGREGATES  WHICH ARE IN LARGE PART MEASURES OF THE BUSINESS DONE BY  VARIOUS CLASSES OF FIN A N C IAL IN S T IT U T IO N . THE EXTENT OF THE  IMPACT IS  UNPREDICTABLE; IT  DEPENDS ON THE S K IL L  AND

COMPETITIVE AGGRESSION OF VARIOUS IN S T IT U T IO N S .

NONE OF THIS SHOULD HAVE COME AS A SURPRISE TO ANYONE. THE  UK, THE US AND CANADA HAVE ALL BEEN THROUGH S IM IL A R   EXPERIENCES. IN AU STR A LIA 'S  CASE, HOWEVER, THE SCOPE AND  PACE OF DEREGULATION SEEM TO HAVE RESULTED IN VERY MARKED  CHANGES TO PAST S T A T IS T IC A L  RELATIONSHIPS BETWEEN THE  MONETARY AGGREGATES, ECONOMIC A C T IV IT Y  AND PRICES.

AS A CONSEQUENCE BY EARLY THIS YEAR OUR MONEY SUPPLY -  EXPRESSED IN TERMS OF M3 - WAS RUNNING WELL ABOVE THE RANGE  SET DOWN AT BUDGET-TIME.

AT THE SAME T IM E , HOWEVER, THE REAL ECONOMY SEEMED VERY MUCH  ON TRACK WITH OUR BUDGET TIME EXPECTATIONS AND THERE WERE NO  INDICATIONS THAT PRICES AND WAGES WERE MOVING AHEAD OF OUR  PROJECTIONS.

DESPITE THE RECORDED GROWTH IN MONETARY AGGREGATES MONETARY  CONDITIONS WERE JUDGED BY OUR O F F IC IA L  ADVISORS TO BE QUITE  FIRM.

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CONSEQUENTLY, THE GOVERNMENT DECIDED NOT TO PERSIST WITH THE  TARGET. THE FURTHER TIGHTENING REQUIRED TO ACHIEVE IT  COULD  BE EXPECTED ONLY TO DISRUPT THE RECOVERY WITHOUT PRODUCING  ANY FURTHER GAINS AGAINST IN FLA TIO N .

AS I HAVE ALREADY S A ID , THIS DECISION HAS NOT MEANT ANY  EASING IN THE GOVERNMENT'S APPROACH TO MONETARY POLICY. WE  ARE CONTINUING TO PURSUE FIRM NON-INFLATIONARY POLICY AND  THIS IS  REFLECTED IN TIGHT MONETARY CONDITIONS IN AUSTRALIAN  F IN A N C IA L MARKETS.

FOR THE FUTURE, CONTINUED DEREGULATION IS  LIKELY TO HAVE  IMPACT ON THE MONETARY AGGREGATES IN 1 9 8 5 - 8 6  AND BEYOND.

IN PARTICULAR, I RECENTLY ANNOUNCED THAT AUSTRALIA WAS TO  ADMIT 16 FOREIGN BANKS TO OPERATE IN OUR DOMESTIC FINA N C IAL  MARKET.

THAT DECISION WAS TAKEN WITH THE AIM OF INCREASING  COMPETITION WITHIN OUR BANKING INDUSTRY.

I BELIEVE THAT AUSTRALIA W ILL DERIVE VERY S IG N IF IC A N T   BENEFITS FROM INCREASED COMPETITION.

HOWEVER, A LARGE OF NUMBER OF NEW BANKS W ILL ALSO HAVE A  MAJOR, BUT YET TO BE DETERMINED, IMPACT ON OUR MONETARY  AGGREGATES, AND WILL PRODUCE CONTINUING MEASUREMENT AND

TARGETING PROBLEMS.

HOW WE COPE WITH THIS IN THE 1 9 8 5 - 8 6  F IN A N C IA L YEAR HAS YET  TO BE DECIDED.

BUT I DO FEEL JU S T IF IE D  IN OBSERVING THAT THE VERY PEOPLE WHO  SO ENTHUSIASTICALLY ENCOURAGED THE GOVERNMENT TO UNDERTAKE  THE FIN A N C IAL REFORMS WE HAVE PUT IN PLACE ARE NOW SO READY  TO COMPLAIN AT THE SHORT TERM D IF F IC U L T IE S  THE REFORMS BRING  WITH THEM.

LET ME TURN NOW TO MAKE A FEW COMMENTS ON THE THIRD MAJOR  CHALLENGE BEFORE US - THE REFORM OF THE TAXATION SYSTEM.

AS FOR A NUMBER OF OTHER COUNTRIES, TAX REFORM IN AUSTRALIA  IS  NOT OPTIONAL.

THE AUSTRALIAN TAXATION SYSTEM IS  IN A STATE OF ADVANCED  DEGENERATION.

THE WEAKNESSES OF THE TAXATION STRUCTURE HAVE BECOME MORE AND  MORE SERIOUS FOR THE SAME REASONS EXPERIENCED IN MANY OTHER  COUNTRIES.

THE REVENUES BEING SOUGHT FROM THE TAXATION SYSTEM HAVE  M U LTIP LIE D  TWO OR THREE TIMES SINCE THE 19 5 0 S , AND THIS HAS  MEANT THAT THE BURDENS ON A NARROW BASE HAVE BECOME TOO GREAT.

IN AUSTRALIA, THE TAX RATE APPLYING TO AN EXTRA DOLLAR EARNED  BY THE AVERAGE WORKER HAS REACHED 46 PER CENT.

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WEAKNESSES IN THE TAX SYSTEM MEAN THAT A LARGE PROPORTION OF  TAXPAYERS AVOID THE BURDEN OF TAX INTENDED BY THE  LEGISLATURE. AS A RESULT, THE SYSTEM HAS BECOME BOTH UNFAIR  AND IN E F F IC IE N T .

SUCH A TAX SYSTEM OPERATES IN A D E B IL IT A T IN G  WAY ON THE  ECONOMY.

RESOURCES ARE ALLOCATED TO AREAS OF MAXIMUM TAX ADVANTAGE  RATHER THAN MAXIMUM GROWTH POTENTIAL.

WAGE PRESSURES GROW AS TAX TAKES SUCH A HIGH PROPORTION OF  INCREMENTAL EARNINGS.

INCENTIVES ARE REDUCED BY HIGH MARGINAL RATES WHILE THE  PERCEPTION OF UNFAIRNESS IS LEADING TO M IN IM IS A T IO N  AND  STRAIGHT EVASION BY MASSIVE UNDER REPORTING OF INCOME.

WHILST ALMOST EVERYONE AGREES THAT THE TAX SYSTEM IN  UNSATISFACTORY, PROPOSALS FOR REFORM INEVITABLY IN V IT E   CONTROVERSY.

VIRTUALLY EVERYONE SEEKS TO PROFIT FROM REFORM ON THE BASIS  OF SOME SPECIAL PLEA.

AS A RESULT, TAX REFORM IS NOT FOR THE FAINT OF HEART.

THE AUSTRALIAN GOVERNMENT INTENDS TO REFORM THE TAX SYSTEM. IN AN ATTEMPT TO MAXIMISE COMMUNITY UNDERSTANDING AND  SUPPORT, WE W ILL BE HOLDING A NATIONAL TAXATION SUMMIT  CONFERENCE IN JULY.

A SET OF POLICY OPTIONS W ILL BE RELEASED IN THE FORM OF A  DRAFT WHITE PAPER IN 5 OR 6 WEEKS TIM E.

WE ARE UNDER NO ILLUSIO NS ABOUT THE D IF F IC U L T IE S  OF THIS TASK.

THERE ARE ALWAYS MORE PEOPLE FOCUSSING ON PROBLEMS THAN  SOLUTIONS. .

THERE ARE ALWAYS MORE PEOPLE LOOKING FOR PROFIT THAN REFORM.

HOWEVER, I REMAIN CONFIDENT AND DETERMINED THAT PROGRESS W ILL  BE MADE, AND S IG N IF IC A N T  REFORMS ANNOUNCED WITHIN A SHORT  TIME OF THE TAXATION SUMMIT CONCLUDING.

F IN A L L Y , MR CHAIRMAN, I WOULD L IK E  TO MAKE SOME REMARKS ABOUT  AN AREA OF POLICY WHICH HAS OVERRIDING RELEVANCE TO  AU S TR A LIA ’ S RELATIONS WITH THE UNITED STATES AND WITH THE

REST OF THE WORLD, THAT I S ,  OUR DEFENCE ALLIANCE.

IN DISCUSSING THE ALLIA N C E , I WOULD L IK E  TO TAKE ISSUE WITH  SOME RECENT UNITED STATES MEDIA COMMENT, WHICH HAS SUGGESTED  THAT THERE HAS BEEN SOME DETERIORATION IN UNITED  STATES/AUSTRALIAN RELATIONS.

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THE REALITY IS QUITE DIFFERENT. THE ALLIANCE WITH THE UNITED  STATES HAS BEEN FUNDAMENTAL TO AUSTRALIAN FOREIGN POLICY OVER  THE LAST F IV E  DECADES, UNDER GOVERNMENTS OF BOTH MAJOR  PARTIES. THIS REMAINS THE CASE.

IT  WAS A LABOR GOVERNMENT, UNDER JOHN CURTIN, WHICH IN 1941  REORIENTED A U S T R A LIA 'S  STRATEGIC OUTLOOK AND FORGED THE US  ALLIANCE.

THE ANZUS TREATY, CONCLUDED BY THE CONSERVATIVE MENZIES  GOVERNMENT, CONTINUED THE BASIS OF THE ALLIANCE LA ID  DOWN BY  LABOR. ALL MAJOR P O L IT IC A L  PARTIES IN AUSTRALIA HAVE  CONSISTENTLY SUPPORTED ANZUS SINCE ITS  NEGOTIATION IN  1951  AND SIGNATURE IN 1 9 5 2 .

ON COMING TO GOVERNMENT IN 1 9 8 3 , THE HAWKE GOVERNMENT CARRIED  OUT A REVIEW OF ANZUS, IN CO-OPERATION WITH OUR TREATY  PARTNERS, THE UNITED STATES AND NEW ZEALAND.

THAT REVIEW LED THE GOVERNMENT, IN THE WORDS OF THE FOREIGN  M IN IS T E R , B IL L  HAYDEN, SPEAKING IN PARLIAMENT ON 15 SEPTEMBER  1 9 8 3 , "TO A FIRM AND UNEQUIVOCAL REAFFIRMATION OF THE  ALLIANCE AS FUNDAMENTAL TO AU STR ALIA'S NATIONAL SECURITY AND

FOREIGN AND DEFENCE P O L IC IE S ".

THIS POSITION HAS THE STRONGEST COMMUNITY SUPPORT IN  AUSTRALIA.

NOTWITHSTANDING THE CURRENT D IF F IC U L T IE S  IN ANZUS, BROUGHT  ABOUT BY THE DECISION OF THE NEW ZEALAND GOVERNMENT TO  EXCLUDE UNITED STATES SHIPS FROM ITS PORTS, THE ALLIANCE  RELATIONSHIP BETWEEN AUSTRALIA AND THE UNITED STATES REMAINS  AS STRONG AS EVER.

IT  SHOULD BE CLEARLY UNDERSTOOD THAT THE AUSTRALIAN  GOVERNMENT HAS TAKEN A QUITE DIFFERENT POSITION FROM THAT OF  NEW ZEALAND ON THE NUCLEAR SHIPS ISSUE AND W ILL CONTINUE TO  DO SO.

THIS IS  GRAPHICALLY ILLUSTRATED BY THE FACT THAT THE USS  BUCHANAN, WHOSE EXCLUSION FROM NEW ZEALAND IN FEBRUARY  TRIGGERED THE CURRENT PROBLEM IN US/NEW ZEALAND RELATIONS, WAS SUBSEQUENTLY WELCOMED TO A NUMBER OF AUSTRALIAN PORTS AND  PARTICIPATED IN AN IMPORTANT EXERCISE WITH UNITS OF THE ROYAL  AUSTRALIAN NAVY.

RECENT STATEMENTS BY THE NATIONAL LEADERS OF BOTH OUR  COUNTRIES UNDERLINE THE STRENGTH OF OUR RELATIONSHIP.

SPEAKING FOR THE UNITED STATES, PRESIDENT REAGAN SAID TO  PRIME M INISTER HAWKE AT THE WHITE HOUSE ON 7 FEBRUARY,  "AUSTRALIA IS A RELIABLE ALLY, AN IMPORTANT TRADING PARTNER, A TRUSTED FRIEND AND A FELLOW DEMOCRACY."

THE PRESIDENT WENT ON TO OBSERVE THAT HE "COULD NOT OVERSTATE  THE VALUE THE UNITED STATES PLACED ON ITS FRIENDSHIP WITH  A U S T R A LIA ". '

16

ÃÂ¯ > *  '

!Â«

FOR H I S  P A R T ,  P R IM E M I N I S T E R  HAWKE S A I D  ON 5 MARCH THAT HE

COULD NOT BE " A  P R I M E  M I N I S T E R  OF T H I S  COUNTRY WHERE THOSE

I S S U E S  OF CENTRAL AND C O N T I N U I NG  I MPORTANCE TO OUR S E C U R I T Y  -   THE HOSTI NG OF THE J O I N T  U S / A U S T R A L I A N  DEFENCE F A C I L I T I E S ,

V I S I T S  OF A M ER I CAN S H I P S  TO OUR PORTS -  ARE AT R I S K . "

YOU CANNOT SPEAK MORE CLEARLY THAN THAT.

LET ME CONCLUDE BY ONCE AGAIN THANKING THE A S IA  SOCIETY FOR  TH IS OPPORTUNITY TO ADDRESS AN AUDIENCE SUCH AS T H IS .

Ã¢ÂÂ  ... ;

