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Address to the National Press Club, Canberra [and] Questions and answers



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1 40 • 1- 1 ,0 -4 -'1517 prlf PRESS

NO.

TREASURER

RELEASE

THE HON RALPH WILLIS MP

NATIONAL PRESS CLUB, CANBERRA

WEDNESDAY 11 MAY 1994

Thank you very much Jim. Ladies and Gentlemen, students of Sienna College. Might I say Jim that's the very first time anyone has every compared me to Machiavelli. I am pleased to be able to stand here today and say to you that the economy is firmly in recovery. And that nobody disputes that. At

least I don't think they do. They dispute various other things but not the fact that we are now firmly into recovery. And certainly all the evidence is overwhelmingly supportive of that proposition. We have got production growing at a rate of 4 per cent during 1993. Employment is growing strongly.

The unemployment rate falling. And the objective of the government is to do everything possible to make sure that strong economic growth is sustained throughout the whole of the decade and that the fruits of the recovery flow to all Australians.

Now some commentators have criticised the Government for spending too much of the so-called growth dividend on the Working Nation initiatives, and allocating too little of the growth dividend to accelerating the deficit reduction strategy. We reject that criticism and we reject it on two grounds.

First, on social justice grounds. The long-term unemployed must not be left behind as the rest of the community enjoy the fruits of recovery. That would be an unconscionable action on the part of Government and the part of the rest of the community. I don't think it is what the community wants.

And secondly, the Working Nation initiatives are crucial to our capacity to keep economic growth high for the whole of the decade.

Now if these initiatives had not been taken - if the long-term unemployed had simply been ignored and left on the scrap heap - that would impair the capacity of the economy to keep growing. In other words it is not just in the interests of the unemployed, it is in the interests of all of us, in terms of having sustained growth and lower levels of unemployment. That type of approach would put speed-limits on growth, that is if we were to leave the unemployed on the scrap heap. The jargon term for

that speed limit is the NAIRU, non accelerating inflation rate of unemployment, a terrible jargonistic word. What it means is the unemployment rate at which inflationary tendencies re-emerge. And by

COMMONWEALTH PARLIAMENTARY LIBRARY MICAH PRESCLUB.DOC

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training up the work force, getting a better trained and job ready group of unemployed persons then

we are much more likely to have them being able to be employed as job opportunities arise and therefore that we can drive down the NAIRU, drive down the level of unemployment at which

inflationary tendencies will start to come into being and thereby limit our capacity to continue to reduce unemployment. So Working Nation was about driving down this so called NAIRU - about lifting the capacity of the Australian economy to provide strong national economic growth for the whole of the decade. The Budget reinforces that by confirming the Government's commitment to its

deficit reduction strategy. Indeed, the Budget accelerates the deficit reduction program. You would be aware that we had previously forecast that by 1996-97 we would have the deficit down to 1.2%

of GDP and we now forecast that it will be down to around 0.9 per cent of GDP, so about 0.3 per

cent of GDP less and in the subsequent year, 1997-98 that will be down to less than 1 h per cent of

GDP. Even though in that year we will be bearing the full burden of the reduction in company

income tax. By doing all this, by taking the action that we have in Working Nation and in the

Budget, we pare back the public sector's claim on national saving. That means that more of the

nation's savings can go towards financing the business investment Australia needs. Australia needs more plant and equipment, and we need up-to-date state-of-the-art plant and equipment so that we can give jobs to the unemployed, and so that those jobs are in truly internationally competitive, and truly sustainable production. The more of that investment we can finance ourselves, and the less we need to borrow from overseas, the better off we are. And so that means we have to improve our

national saving performance and reducing the deficit as investment increases is a crucial part of ensuring that we are able to meet our savings needs and that we don't finance our investment increasingly by going overseas and using other people's savings thereby driving up the current account deficit and ensuring that we have a current account limitation on our capacity to have

sustained growth. So what we are about is getting sustained economic and employment growth. We are not just about getting growth for next year or getting growth up until the next election but

getting growth on a sustained basis. Year after year so that we can chalk up the kind of employment

and economic growth record which will see the nation prosper in terms of having increased living standards and lower levels of unemployment. Now we did that in the 1980s. We had several years, from 1983 to 1990, we had pretty much with one down year down to about 2 per cent growth in the

middle of that period, but for that period generally we had high rates of economic growth and we

can do that sort of thing again. We believe that for the rest of this century, particularly given the fact that our economic fundamentals are so much better now than they were in the 1980s. I remind you

that during the 1980s we had inflation averaging 8 1/2 per cent. We now have inflation at around 2 per cent and that is just one indication of the change in the economic fundamentals. They have had

the transformation of the Australian economy during that time. So that the Australian economy is now infinitely more, much more not to overstate it, much more efficient, competitive and dynamic

than it was in the period a decade ago. And certainly that is a process through micro-economic

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reform that the Government has instituted and that ongoing program of micro-economic reform is certainly crucial to our continuing capacity to remain a country which can produce sustained economic and employment growth.

Now I referred before to the fact that there are some areas of the Government's assumptions which have been questioned. I could turn to some of those now. Firstly in relation to economic growth. The economy grew by 4 per cent through the year to the December quarter 1993 and that's historical fact and to achieve the Budget forecast for year average growth of 4 1/2 per cent in 1994-95 represents

only a slight acceleration in the current pace of activity. So partial economic indicators and measures of business and consumer confidence strengthening noticeably in the latter part of 1993 and the retail trade figures released on Monday of this week point to continued strong consumption growth in the March quarter. So given this starting point, a forecast for growth of 4 1/2 per cent in 1994-95 is not based on an assumption of a marked acceleration in the pace of activity where it is talking about moving up from 4 per cent rate to 4 1/2 per cent and with all the indicators pointing in the direction of stronger growth. And growth of 4 1/2 per cent is strong but it is not high by past standards. It is the average rate achieved between 1983-84 and 1988-89. And in fact in four of those six years growth exceeded 4 '1/2 per cent so a 4 1/2 per cent growth rate is not some extraordinary rate that seems impossible for us to achieve. We have done it year after year, only a short time ago in the 1980's. So it is certainly an achievable rate. And particularly in the context of the growth potential of the economy having been lifted by the past decade of structural change to which I have already referred.

Now a number of private sector forecasters are predicting broadly similar rates of growth to those that we have in the Budget. National Mutual, Westpac, BIS shrapnel have all published forecasts of 4 1/2 per cent or higher for the period immediately ahead. The Opposition has made much of the fact that Access Economics has predicted lower growth and higher inflation than the Budget forecasts.

Access actually is the odd man out as far as we can see among the private sector forecasters few of whom share their view that growth will actually slow next year from the rates that we are already recording. But a broad picture presented by the private sector forecasts is very similar to that in the Budget. Strong GDP growth, a strong recovery in business investment, low inflation, strong employment growth and only a slight increase in the current account deficit. There has been some focus on the forecast growth in business investment of 14 1/2 per cent in reaction to the Budget.

Growth in business investment of this level is by no means unprecedented. Investment spending is highly cyclical and the amplitude of that cycle is typically much greater than that for economic growth. Now over the 1980s business investment had a peak growth rate of 17 per cent and bottomed at a negative growth rate of almost 13 per cent. In 1979-80 business investment fell by 3.7 per cent only to rise by 17 per cent the following year. So you get this very sharp cyclical bounce. In

1982-83 and 1983-84 business investment fell only to bounce back with growth of 14.9 per cent in year 1984-5. In last two years, 1990-91 and 1991-92 investment fell by 25 per cent and then flattened out. It has grown by 1 per cent we expect in 1993-94. The historical record suggests that

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investment growth of the order of 141/2 per cent bouncing back from that is perfectly reasonable.

Indeed, a number of leading private sector forecasters have similar or higher forecasts. BT Australia is forecasting investment to increase in 1994-95 by 15.6 per cent. The National Australia Bank has

15 per cent, CS First Boston says 14 per cent. So you can see that there are a number of private sector forecasters who are certainly expecting investment of the order that is contained in the Budget forecasts. And more importantly the fundamentals for a strong increase in business investment are in place which makes one expect that there will be this bounce back. Cash flows and corporate profits

have been improving steadily since mid 1991. The corporate profit share has now risen to 17.7 per cent of GDP which is the highest profit share since the September quarter of 1985 which means that

they have got resources to invest. Inflation is low and is likely to remain so. The process of balance sheet restructuring appears to be virtually complete. The gearing ratios for major corporates have returned to more historically normally levels. Australia's competitiveness has increased by 20 per cent over the last two years. Growth in domestic demand combined with little growth in the capital stock

in recent years is leading to a rapid return to more normal levels of capacity utilisation. And clearly the stock overhang in central business district property will persist for some time but the need for new investments for other sectors in the economy is becoming more apparent. Business confidence continues to improve in line with improving prospects for the international economy. And business confidence is a less tangible but a nevertheless very important factor. The National Australia Banks general business survey indicates that business confidence is now at its highest level for fie years. In

addition the ACCI Westpac Survey of Manufacturing tends indicated business confidence is now at its highest level in that industry, the manufacturing industry, for thirty years. Business survey also

suggested investment intentions increased significantly in late 1993. The ACCI Westpac Survey of

Manufacturing Trends indicated that plant and equipment investment intentions were at a five year high. And the Government has deliberately pursued taxation policies designed to make investment more attractive with measures such as the development allowance, the investment allowance, the accelerated depreciation rates, and the corporate tax rate cut to 33 per cent. And importantly for the timing of business investment the eligibility for the investment allowance, the 10 per cent general investment allowance requires new investment to be in place by the end of 1994-95. So business has

a strong incentive to invest in 1994-95 before that allowance expires. So all these I think are very strong indicators as to why we would expect investment to turn around quite sharply. Finally, the

forecast growth in business investment is entirely consistent with the Bureau of Statistics data on capital expenditure expectations and comparing the forecast with those expectations suggests that the realisation ratio, which is a ratio of actual investment to that currently planned, of 1.4 per cent

compares with average realisation ratios through the 1980s of around 1.45 and even rates in the mid 1980s when it was 1.6. So the forecast investment growth rate would only result in investment

accounting for 9 1/2 per cent of GDP in 1994-95 compared to a peak of 12.4 per cent in 1988-89 and

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a record low of 8 T h in 1992-93. So for all of these reasons, given Australia's favourable economic situation, I can see now reason why the forecast level of investment should not be achieved.

But perhaps you could say they are just theoretical arguments so let's look at the real world. What are people actually saying out there in the business world. The commentators who were in the lock-up yesterday may have thought that this is a crucial issue and that this was something that the

Government was a bit vulnerable on. For the reasons I have given, I don't think that is so. But if we look at what the business community had to say about the budget and the likelihood of our forecasts for growth in business investment being achieved I think we get an even stronger impression that it is going to happen. After all, these are the people who will be making the investment decisions - not

the commentators. Firstly the Housing Industry Association, which was not exactly one of our ardent supporters at the last election I remind you, said their press release it was a "good news budget for housing" and "the prospect of strong employment growth with low inflation is good news for home buyers and the housing industry. The budget settings should maintain hard-won affordability gains and sustain home buying opportunities for young and lower to middle income earners".

Then there is the Master Builders Association. Their press release was headed "MBA welcomes

1994-95 Budget". It went on to say "the 1994-95 Budget places the building and construction industry in a sound position to contribute to the reinvestment of Australia's infrastructure".

The Australian Chamber of Commerce and Industry said in their press release, "This is a very different approach from the past which will do much to build business confidence". They also said some other things that weren't so complimentary I will admit!

The Australian Mining Industry Council headed its press release "Thumbs Up For Budget". And they said the "Federal Government had brought down a budget which did not jeopardise the growth and expansion of the economy." The Business Council of Australia headed its press release "Business Council Of Australia Considers Budget To Be Sound, Albeit With Some Risks".

The Chairman of their economic and financial panel Ian Salmon, who is also the Managing Director of the AMP Society which is certainly concerned with a lot of investment in this country, was asked

specifically about the 14 per cent business investment growth forecasts on 2UE radio last night, and this is what he said:

"Well, we don't find that estimate, at all, untoward. We've just completed a survey of our own amongst our own membership. In fact that survey was only completed over the last three days and a number of our members, a third of the ones that responded, told us that they were expecting to increase their particular business investments by more than 20 per cent". He was then asked if a 14 per cent average would not be unreasonable and he replied, "It may well not be unreasonable".

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Now that sounds to me like the real world talking, it sounds to me like business is saying that this is

a good Budget for business, that they don't have any great qualms about what's contained in the Budget, that they expect that it is conducive to increased activity and investment to a stronger

Australian economy and more employment and that's what we all want to see happen.

PRESCLUB.DOC

TREASURER RALPH WILLIS, NATIONAL PRESS CLUB - QUESTION AND ANSWERS

TUESDAY, 11 MAY 1994

COMMONWEALTH

E & OE - PROOF ONLY PARL1AM MAARHY LiBRARY

SUBJECTS: Budget 1994

BRADLEY PERRETT: I take it from the Budget papers that the starting point for the Budget before the White Paper was 10.7 billion which is a pretty heroic improvement on the 13 billion that you were talking about in February, before you started negotiations with the Greens and Democrats, one suspects that you had a little more money in your pocket than you were letting on. Secondly, I wonder if you could comment more generally on why all of the Government's major forecasts over the past year have proven to be pessimistic - GDP, inflation and the current account balance - have all proven to be better than forecast last year?

WILLIS: It just shows how conservative our estimates are (sic) - so that's the answer to the first part. The second part - I think in relation to the first part of the question that we in putting together our original estimates of what the starting point was, had probably underestimated the strength of the economy in 1994/95 - in other words, we

raised our forecasts for growth in 1994/95 in line with the December Quarter National Accounts which clearly emphasise the strength of recovery. I think any lingering doubts there might have been anywhere in the country about the fact that we were well and truly out of recession into a relatively strong recovery, was eliminated at that point. Even the

Opposition started to agree then that we actually had a recovery of substance and started to talk about a boom and bust (cycle). So once we had those December Quarter National Accounts, there was a revision of growth forecasts. Therefore the parameter changes meant that there was a revision of the outlays, expenditures - particularly with the

expectation of less expenditure on unemployment benefits, with a more buoyant economy, more employment, more tax revenue -so that the starting point shifted down quite considerably. Now, you ask was it $10.5 billion, I guess it depends on various

assessments as to what the starting point actually was. But I think probably that's not far off the mark, in the sense that if we'd done nothing in this Budget - if we'd absolutely done nothing, just simply just rolled through with a Budget that said: well, we're leaving everything as it is, we're not changing any outlays, not changing any taxes, we're doing

nothing - then the deficit would have been around $10.7 billion. So you weren't too far off the mark, but of course I think that would have been a bad Budget for us to produce. Now, some people might say that would have been a good Budget - there would have been a lower deficit and that would have been better for us. On the other hand, that would have meant no action on the long-term unemployed and associated areas which

are contained in Working Nation - for the reasons I've already mentioned in my address. We believe that it was important to undertake those expenditures and we believe that they're very, very important for us to have sustained economic and employment growth. lt's not just a matter of looking at the immediate outlook, we have to provide for the

medium and longer-term, if we're going to have sustained economic and employment growth - and making that change in terms of reducing the levels at which we can keep growing without having inflation pressures develop - is a very, very important aspect of economic policy and I think it was absolutely right to undertake it. Now, you can also say: well yes, you should have done but paid for it by increasing taxes with a jobs levy or

something of that kind. We took the view that it would not be an appropriate measure at

this time. We just brought in the tax cuts last November. They were part of getting the economy into substantial growth. We believed that it would take away from recovery just at a time when business is looking to get around to investing - you'd be starting to pull back demand - and it was better at this stage not to do that, to wear it on the Budget a bit. But particular in the context of us being able also to do better on the deficit reduction program without any tax increase of that kind, than we'd previously forecast. So we believe that the most responsible economic policy for us to pursue, was the one which is in the Budget and for the reasons that I've given, I think it was a sound decision.

ROBERT GARRAN: Robert Garran from The Australian Mr Willis. You've argued in favour of the Working Nation spending on the basis that it's an important part of improving the efficiency of the economy. But it seems to me the main argument in that case is not about whether the money should have been spent, but how it's funded? And

notwithstanding Bradley's question, you have been criticised for what is seen as optimistic forecasts in the Budget - not just on business investment, but also about the way structural reforms have lifted the speed limits of growth for the economy. If you're wrong about having lifted those speed limits, and about the investment forecasts - how will you

raise taxes or cut spending to avoid the need to raise interest rates if fiscal policy proves to have been too loose?

— WILLIS: Well, I guess if we get less growth than we're expecting, then there'd be less inflationary pressures and less reason to be worried about the possibility of rising interest rates. So I don't think that's an issue that arises. I think I've already covered the territory in respect of why we made the decision we did, and didn't bother to fund from tax increases in the Working Nation expenditures. I might add, all the other expenditure that was in the Budget was more than fully offset, but essentially the Working

Nation expenditures were not by specific savings or revenue measures. I think I'd just go back to the point that if we had done that, we probably would have had a less buoyant economic outlook than we otherwise have. I think we want to achieve the fastest feasible rate of economic and employment growth - to keep getting that unemployment rate down. We are wearing a terribly high rate of unemployment, and I'm sure everyone in the nation wants to see that figure reduced as quickly as is feasible. Now to do that, you simply have to chalk up substantial rates of economic growth - there's no other way in which you get it down. The Working Nation statement was not about reducing unemployment per se, it was about making sure the long-term unemployed and new untrained entrants to the workfroce, have a much better chance of getting the jobs that are available than they would otherwise have, without those initiatives. That's what Working Nation is about. It's additionality in terms of jobs - there is some additionality - but it's relatively a small part of the whole process. We weren't looking for the jobs to come from Working Nation - the jobs come from economic growth. We wanted that economic growth to move up that next

notch - to move up to 4.5% and not to be constraining it by having a withdrawal of fiscal stimulus that was too great at this stage. Now, these are all matters of judgement - I accept that - and others can make another judgement and say: well, it should have gone further. But I believe strongly that the judgement that we'd made is a responsible one, and particularly I stress again in the context of doing better in the deficit reduction program than we previously forecast - both in terms of this year. We're coming down. We talk about 3.8% last year - that's becoming 3.2% as for 1993/94 - now down to 2.5%. It's quite a considerable reduction in the deficit already, and doing better in 1996/97 than we

previously forecast. In those circumstances I feel quite strongly that it's a responsible decision for us to have taken.

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PETER COLE-ADAMS: Peter Cole-Adams,

The Canberra Times, Treasurer. Could I

just turn to the politics of this thing, particularly the Senate politics. I looked at both the Greens and Democrats making disgruntled noises - they often do - how confident are you that you can keep them on side? Alternatively, how ready are you to make them concessions, so that you don't end up with the sort of mess which cost Government so dearly last year?

WILLIS: I don't envisage anything like last year's post-Budget scene. Last year, of course, there was a quite difficult post-Budget process. The Government sought to avoid that this year by having a much more consultative process - both with the Democrats and Greens and Senator Harradine - and also with our own Caucus. So there was much more discussion in the preparation of the process of the Budget, than there

had ever been before. I think that was helpful in the understanding by the minor Parties as to what the Government was trying to achieve. They put their ideas to us about what they would like to see in the Budget - they were certainly very ambitious sort of ideas. I think we made it clear that we didn't think we could encompass a lot of that, but certainly

in the areas that we have addressed in the Budget, they would be fully in support. I don't think there's any qualms being expressed that I've seen anyway, from the minor Parties and certainly not by our Caucus about the Working Nation statement or the other actions that have been announced in the Budget to improve social justice. So I don't see that there's much there for the minor Parties to oppose. They may criticise us, and I think

already have criticised us for not doing some other things that they wanted to see done. But they're the criticisms for failure to do things, rather than criticism of what we've actually done - which means they're not likely to take action to stop anything that's actually in the Budget.

GEOFFREY BARKER: Geoffrey Barker from The Age Treasurer. In view of what you said last night and again this morning about the economic fundamentals - are we to assume that the Government now takes the view that it believes the economy, the heavy-lifting in terms of economic reform is complete? That all that's necessary now is a little bit of fine-tuning to ensure the economy stays repaired and ready for long-term growth into the 21st century?

WILLIS: Well, I sort of detect in that question a bit of the theme that the Government is resting and taking it a bit easy. I must say it doesn't feel like that - it feels anything but like that. I think there's been a bit of comment along those lines this morning in the press, and I think that ignores the fact that last week we had a Working Nation statement - that was a major set of initiatives and took an enormous amount of

Government effort. It was the culmination of the Green Paper and a very detailed process of the Government itself - considering the Green Paper and producing responses which met the items raised in the Green Paper and in supplementary areas like regional development - addressing reports in that area and industry policy. I must say that some of those items which looked relatively minor there caused us a lot of consideration. A lot of time and energy and effort went into developing those policies. So you can regard that as

water under the bridge, I suppose, this week because we did it last week. But it's taken up an awful lot of our time over the last several months. The Budget, of course, is the Working Nation statement and the Budget statement itself all put together. So this is a Budget which is not just a matter of the Government doing very little, this is a Budget in

which the Government has done a lot - through the Working Nation statement and also the social justice initiatives to make the kind of changes it believes will make Australia a better place. In the future, well certainly I think if we can keep the economy rolling along at the rates that we see happening - then there'll be less need to make statements like

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Working Nation -

that's for sure. But it doesn't mean to say that the Government will be sitting back and not trying to improve the social fabric of the nation, and to get the economy going better. Particularly, I might say, in areas of microeconomic reform - we are absolutely committed to continuing with that process. I stressed in the Budget speech

last night, that that's a crucial part of our being able to continue to grow rapidly and to create higher levels of employment. That requires a hell of a lot of effort from Government. It's Government that's driven the microeconoimc process and it's Government that has to keep driving it, especially now as it moves from areas where we can directly influence, into areas where our influence is more indirect because it's in areas which are very much the problems of State Governments. That will require for us a lot

more effort to get the States to operate in fully cooperation with what we think is necessary. Now, I'm fairly confident that it will happen - there are certainly good indications at the last COAG meeting - but there's a lot of effort to be undertaken yet before we sew all those areas up.

SID MAHER: Sid Maher from the Courier Mail. You used a lot of historical figures to back up your premises as to why business investment is going to take off etc. But the Budget papers give a fairly flat growth forecast of around 4%. I'm wondering why history won't apply in the future as well as in the past?

WILLIS: Well, I'm not quite sure what history you're talking about there. — Are you saying because the growth rates tail off over the next couple of years?

SID MAHER: (inaudible reply)

WILLIS: Well, can I say that there's a difference between hard forecasts which the Government can make with a hopefully high degree of precision in the immediate future, and forecasts for years further out, which are more in the nature of projections. Obviously you can be much less certain about them, but what they form is a

reasonable scenario for that period as you view it from two, three, four years away. Now that's basically what those growth forecasts are based on. If you're going to publish deficit outcomes - not just for the forthcoming year, but for three years after that, which is what we are now doing - then you have to make growth forecasts. You can't produce the

Budget outcomes without making some assumptions about what the growth rates are going to be, and therefore what employment, unemployment levels will be etc. So you have to do it, and these are the best estimates we can make from this point as to what is a reasonable scenario without overstating things at all. Now, of course as we get closer to those years, we'll want to fine-tune those forecasts - increase them hopefully - maybe

change them the other way if things don't turn out as well as we would hope. But certainly, that's our reasonable estimate as we see it from here, and that's all that one can do.

KIM SWEETMAN: Kim Sweetman, Courier Mail, Treasurer. On a regional matter, does the establishment of the Daintree Rescue Fund mean the Federal Government is going to move to compulsorily acquire land in the region? What does it all mean for the tens of millions of dollars worth of development already locked into the pipeline with the approval of the State Government?

WILLIS: Well, it means we're going to develop that program in co-operation with the Queensland State Government and that's not finalised yet. So that's something which will be negotiated through with the Queensland Government, it's on a dollar for dollar basis. We put up I think it's eleven and half million dollars, from

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recollection. We expect them to put up the same and then we will implement that

package. Now whether that involves a compulsory acquisition or not is a matter to be decided between us and the Queensland Government, but certainly it is a matter of concern that there is such areas of the Daintree which have been bought up by private land holders and what we had hoped to institute with this money, was a buy back arrangement which would mean that there would be some buying back of some properties, but I think that can't happen across the scale. It would be too expensive to do that on a sort of complete across the board scale, but some strategic properties would be

bought back. That's my recollection of the way in which that package was being developed. This is a matter which is probably better raised with the Minister for the Environment, but I'm pretty sure that that's the way in which we saw the package developing. So we recognise the great potential damage that could be done to the Daintree if there was a lot of clearing of land by private owners, some private owners of course have not cleared the land at all. I mean they've kept it in virtually its pristine state, or built a house in the trees or something like that, to maintain the environment absolutely as well as one can, whilst living in it. Others have just gone through apparently and cleared the whole of the area and tried to put it things like Motels or something. Now that obviously is a matter of considerable concern. That kind of uncontrolled development which was let loose by the previous Queensland government has been arrested, it's now a matter of clawing that back and in co-operation with the Queensland government we \ would hope to do that with this package.

PHIL HUDSON: Phil Hudson, Herald Sun, Mr Willis. Despite your rosy hopes for business investment and given the warnings by yourself and the Prime Minister two months ago of the consequences if business didn't re-invest its profits. What happens if something goes wrong and business doesn't re-invest the profits that it's making? Does that mean that you will look at backing the ACTU push for a wage increase?

WILLIS: Well I don't think that businesses in Australia are going to be so silly as to forego very good investment opportunities. If you've got the sort of circumstances that I've outlined in my earlier address, then there are obviously very good opportunities for business developing and if business doesn't invest, it simply won't be able to meet them. Which means that business will go off somewhere else. Now that of course, would be a crazy decision by Australian businesses. Now I don't expect that that's going to happen. I don't think anyone expects that to happen to any degree. The questions basically are not about whether we're going to see a resurgence of investment, but whether it's going to be 14.5% or some lesser or greater figure. All I can say is our best estimate is that it will be of that kind of order and with that we can expect to move up that extra notch in economic growth to around the 4.5% rate. If despite all our expectations, investors in Australia decided to hang on to their money and not do anything, obviously we'd have less growth and less growth of employment and higher

levels of unemployment. That would be decidedly unfortunate and I don't think however, that it's a feasible scenario, because all of the indicators are just so conducive to investment that one can't believe that investors are not going to take advantage of the opportunities that are there. I draw your attention particularly again, to that point I made

about the investment allowance and getting in by the end of 1994-95 to make sure you are able to use that 10% allowance.

TIM COLEBATCH: Tim Colebatch of The Age, Mr Willis. I think everybody would agree that the reason the policy got off the rails in the late 80s and 90s was that the Government failed to foresee the risks to the strategy. First in monetary policy, over doing it, secondly, in growth being too slow to generate jobs. I wonder if, as a sort of

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shareholder, asking the managing director at the annual meeting, could you tell us what

you see is the risk to the strategy at the moment? And what sort of things you are doing to make sure they don't eventuate?

WILLIS: Well Tim, I think we really have canvassed a lot of that ground. Going back in your history I suppose in retrospect, it is certainly true to say that we were too slow to take stimulatory action in the recession and as a result the recession was a bit deeper than it might have otherwise had been. I think many economic forecasters got it wrong at that time and not just the Government, but most private sector forecasters as well. So that I guess there's a lesson being learnt from that by us and by everybody else.

In terms of the current circumstances, well I think that we are undertaking a prudent policy at the present time •by the actions that we put in place in the budget. I've already mentioned the fact that we had the option of deciding to withdraw more of the fiscal stimulus at this stage, the fiscal stimulus we put in place in One Nation and subsequent statements to minimise the impact of recession. We had the option of withdrawing more of that by funding the Working Nation statement fully, by some tax increases, and we decided deliberately not to do that. Because we believe that it would be taking too much of the fiscal stimulus away at this stage. We are withdrawing some fiscal stimulus, the deficit does come down by about 3/4 of 1% and that obviously brings with it reduction in fiscal stimulus. To withdraw say another, few per cent might have been just adding to the problems of getting a higher growth rate and we decided on balance that it was better to — have a lesser deficit reduction and to be sure of moving up that notch and not limiting

demand too much by withdrawing more the fiscal stimulus. That was the kind of decision we had to make, so in terms of nurturing the recovery and trying to ensure the recovery moves on to its next stage, in the sort of rolling recovery that we're experiencing, that was the kind of thinking that we had in mind. So I think that was going to ensure that we didn't over do it. That we didn't take too much of a deficit reduction step which might have caused us to have investors thinking twice, about whether they should go in for the new

round of investment and therefore just limiting the growth and getting much less in the way of employment growth and less headway in unemployment.

MICHAEL MILLETT: Michael Millett, Sydney Morning Herald, Mr Willis, the Working Nation reforms will obviously take some time to make the long term unemployed viable players in the labour market. How do we avoid, employment bottle necks, pushing up wages, particularly skilled wages in the interim? And would it be easier for the Government in it's efforts to control inflation if it had a tighter central control over wages?

WILLIS: Well Michael, I don't think there's much evidence of skill shortages at the moment. Now, it's certainly true to say that unfortunately in recessions, employers tend to save money by cutting back on training and I don't know why they don't learn the lessons each time this happens, but in the recession of the early 80's that

happened in a big way, and so we found ourselves with the problem of skill shortages developing later on in the 1980s. Now it's possible without the kind of actions that have been taken in One Nation that we'd be facing similar kinds of problems in two or three years time. I don't see it as an immediate problem, but certainly as the economy rolls on, unless there's a lot of intensive effort taken to ensure that there are more skilled and trained workers, then certainly we would run into that kind of a problem. So Working

Nation was very much about that. It seeks to push up a number of apprenticeships and traineeships and generally to ensure that there's a more skilled workforce so that we don't run into those kinds of restrictions on growth.

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PAUL BONGIORNO:

Paul Bongiorno, Ten Network, Treasurer. Realising that hope springs eternal in the human breast, and taking on board your comments on the out-year forecast as being more projections, especially when it comes to growth. I was wondering what that does to Simon Crean's assertion at the week-end, that we could achieve two

million jobs by the turn of the century, given that the most optimistic projection, or forecast we have, is growth of 4.5% for 250,000 jobs, even allowing that this continues, it would take eight years rather than six. Not that I want to quibble too much, but I'm really just wandering whether this is just a little bit of political hyperbole?

WILLIS: Well I think the important thing is that the Government has set itself a challenging objective of getting to around 5% unemployment by the end of the century and that certainly will require a lot of sustained high economic and employment

growth to achieve that. Now how many jobs you require to get there is difficult to assess at this stage because we don't know exactly what's going to happen to the participation rate. The proportion of the working age population who want to go and work, we're living in a time of enormous social revolution with an increasing proportion of women, particularly women with children, wanting to go back into the workforce and as that happens, and the participation rate goes up, year by year, it fell during the recession, but it's coming back now and it will continue to increase whilst there is economic and employment growth and there are things like real wage factors which are an added attraction as real wages are going up, that's an added inducement to join the workforce, — because there's more reward in working. These sort of factors have all to be fed into

one's calculations about how many jobs you'll need to get to 5% unemployment and it's very difficult to make those assessments. The best you can talk about is some kind of a range and I think that two million is probably around the very top end of that range, that

probably has some pretty drastic assumptions about the extent of the increase in the participation rate. If you have rather more conservative assumptions then the number might be around one and half million or maybe even a little less. But roughly speaking, and I think taking a conservative approach to the participation rate, we would expect that you'd have to create something in the order of 170,000 additional jobs each year just to keep unemployment where it is. So that's your starting point, 170,000 per annum, roughly, I mean that's not exact science, but of that order. And so over the last 12 months we've had 230,000 so we've been able to knock unemployment down to 10.3% but you have to keep on getting a surplus over that 170,000 figure year after year, after year. And if the participation rate grows rapidly, than that 170,000 will move up maybe to 180,000 -190,000 which means the hurdles are even greater to jump to get unemployment down. So it's difficult to be adamant that one's going to achieve forecasts like 5% by year 2000. We live in a time when a greater and greater proportion of the population of working age, want to work, and that is a legitimate aspiration on their part. But my God, it makes the job of getting unemployment down very, very difficult. So the nation I think, has to understand that, that the level of employment growth that's required to get unemployment down is high and that we have to do it in a sustained way and it needs a lot of national effort not just by governments, but by everyone to be determined to act in a way which brings that about. We can do it, I think. Particularly if the participation rate doesn't grow too fast. But it will be a challenging task and it does mean that we have to have sustained growth, year after year and not just short spurts followed by turn downs in the way that might have happened in the say back in the 60s or 70s.

TIM DODD: Tim Dodd, Financial Review, Treasurer. A two-part question: you told us earlier that if no policy changes had been made in this Budget, the deficit would have been substantially lower. Given that, do you concede that you have made the structural position worse? The second question is that your Budget outcomes depend on

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the sale of Moomba to

moment is plagued by completed by that date?

Sydney pipeline before June 30 of this year. That sale at the I lot of problems, so are you absolutely confident that it will be

WILLIS: I'll take the second part first. I'm not looking at that on a day-to-day basis - that's with Kim Beazley - and my understanding is it's still expected that it will be achieved by the end of the financial year - that's certainly the objective with which the Government is working. You're right that there are some difficulties associated with that, which I don't think should be canvassed here. But we still expect to overcome those, and we're working to do that - and in that case we'll have it in this year's Budget. Now if that doesn't happen, if in fact it slips for some reason, then we wouldn't be forsaking the sale -we'd be looking at still making the sale but making it at subsequent time - maybe the following 1994/95 or some subsequent year. Now there are technical difficulties

associated with just moving straight away into a sale if this one does fall through, but nevertheless it would still be on our asset sales program and so that it would be there for some future year. In terms of the first part of the question, has there been a deterioration in the structural side of the Budget - I suppose that's one way that one can analyse it. On the other hand, one can say that by taking the approach that we have, we've been able to bring about a faster rate of reduction in the deficit than we'd previously forecast - and still

have this very worthy addition to Government expenditures - which although it has its impact on the Budget, has a very substantial impact on the workforce and the ability of the nation to undertake sustained economic growth. As I indicated earlier, it's a trade off between those two positions, and it comes down to a valued judgement about which is the most important thing to do? In our view there was no doubt which was the more important thing to do, and we've taken that approach as the Prime Minister spelt out to you very strongly last week.

JIM MIDDLETON: That's all the questions we have. I just might add one before we go if we have time. It takes up on the point that was raised by Paul Bongiorno and the question of unemployment and the 2 million projection by the year 2000. Given the difficulties that you expressed yourself in coming out with making predictions of that kind, wouldn't it have been wiser not to have set such an optimistic target in the first place?

Secondly, also from what you're saying, if it so sensitive to minor changes in the economic life of the nation - isn't it the case if you have one bad year - the prospect of getting 2 million jobs let alone 1.4 million jobs, let alone 2 million jobs by the year 2000 is simply out of the question?

WILLIS: Bear in mind that in the 1980s between 1983 and 1990 we had employment increase by 1.7 million. So we did it in the 80s, so I don't think you should regard growth of 1.75 million or even up to 2 million in the 1990s as something that's out of the question. We've already done that sort of growth - there was a 26% growth in employment between 1983 and 1990. Now that kind of growth is possible again, but obviously it's a big ask to undertake that and we're not committing ourselves to that kind of growth. But certainly we would want to see employment grow as strongly as possible, and it's an objective that the Government properly sets itself to get unemployment down to 5%. Now even at 5% there's going to be a lot of people who are unemployed, who would love to have a job. We would like to see unemployment to go even lower, to even lower rates -

but obviously the lower you get, the more difficult it is to make the next step downwards. But we believe that particularly with the actions been taken on the long-term unemployed and the increased employability of them over the course of the next few years, that it will be possible to get down to 5% without getting the kind of inflationary pressures that would

make it much more difficult to go much beyond that. The fact that we've already done a

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1.7 million increase in employment in the 1980s, makes me reasonably confident of the fact that we can do it again. I can't see why that's not possible to achieve something of that order again in the 1990s - so long as we have the sustained kind of growth that we achieved in the 80s. Now in the 80s we had growth of an average of 4.5% over a six-year

period; and we did that with rates of inflation which were running far above what they are at the present time - with our economic fundamentals generally being far less favourable than they are at the present time - without any of the structural changes, or just with them beginning to feed through. Whereas now we've made those structural changes in a very

big way, and got productivity improving at a quite rapid rate over the last couple of years -compared to what had happened in the 1980s. All of these put us in a much better position for growth in the 1990s. Now, of course, something untoward can always happen in the external economy, but in the short-term the external economy looks likely to be very favourable to us, because the industrial countries have forecast to increase their economic activity over the next two or three years, and that will help our growth rather than hinder it. So I think one can be optimistic about it and it's not at all untoward for the

Government to set the kind of objective which requires strong employment growth. It is achievable and we'll be doing all that we can to make sure that it's delivered.

ENDS