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Transcript of Dr John Hewson mp luncheon address to CEDA



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Leader of the Opposition

31 October 1991

TRANSCRIPT OF DR JOHN HEWSON, MP LUNCHEON ADDRESS TO CEDA MAYFAIR CREST HOTEL, BRISBANE

E & EO Proof Copy Only

Thank you very much Mr Deicke, Jan McMaster, my very old friend Peter Grey, Denver Beanland and other Parliamentary colleagues that are here, distinguished guests, ladies and gentlemen, I must say how very pleased I am to see such a

tremendous audience here in Queensland and in particular to spot one member of this audience, my wife, who is here today in her capacity as a Director of Schroders Australia. Let me put on record how thankful I am that Schroders have seen fit to give Carolyn some time to contribute to my career as well

as developing her own. It's good to see you here- It is

about as close as we'll get for the next few days I'm afraid. It is one of the occupational hazards of this job.

I must admit, when I woke up this morning 1 didn't know where I was. I knew, to be fair, that I was in Queensland but when I read the newspapers and saw all this talk about nirvana and utopia and historic wage decisions and so on, I thought I must have been in another place.

I had a good look at the decision that was taken yesterday and it didn't seem to me to be doing all the things that the

newspapers were claiming it was going to do for wage

determination in Australia. And yet there is almost euphoric and fairly unanimous support for this decision. So I thought today I would make a few comments about the wage decision and the concept of enterprise bargaining as it is being described

in the media today and then go on and talk about, a little more broadly, what I think has got to be done in this country to re-build the business community as a central part of re­ building the-Australian economy in the course of the next few

years,

There are a number of claims made in the papers today about that wage deal, it is supposed to be collective bargaining. Well it will be collective alright. It will be more like collective thuggery because what you are going to have is big

unions picking off weak employers. It is not collective bargaining or genuine enterprise based bargaining in the sense that we have used that term.

Parliament House, Canberra, A.C.T. 2600 Phone 277 4022

It doesn't involve workers negotiating with employers. It involves a deal.done in effect between large unions and large employers "with the Government active or at the very least watching on. Whenever I read that the industrial relations

club has agreed to something and welcomed something I get very suspicious. And that was a classic industrial relations club decision yesterday. To my mind they are only going through the motions. We got out in front. We established the need

for enterprise based bargaining in Australia as a central part of what has got to be done. As a result of the recession we had to have, as a result of the increased focus and attention justifiably on unemployment as an issue they have responded

and gone through the motions as if they are moving towards enterprise based bargaining.

But it has got nothing to ; do with the enterprise based bargaining that we have in mind. It falls well short of that. And indeed, in niany respects, it may not even be a tentative first step towards what has got to be done in the industrial

relations area in Australia.

The Government remains totally committed to the Accord. The Government still does deals at the Lodge, late at night, between Bill Kelty and Martin Ferguson and some of the senior Ministers to determine the nature of wage increases in

Australia and to impact on the lives of just about every Australian. There was a deal done just before the last Budget for a wage increase this year - the Government said 4.5% in the Budget, the unions said 5%, and John Kerin said through the

year it will be closer to 6.5%. The deal was done. At the same time they did a deal on occupational superannuation - to legislate for occupational superannuation. To tax the business community in the name of occupational superannuation. Now these deals have been done and will continue to be done.

Now they aren't any part of what I've got in mind for

enterprise based wage determination; or superannuation; or provision for retirement incomes. It has got nothing to do with the reality of workplaces in Australia. How is it that they can do a deal for a wage increase for 4%, or 5%, or 6.5%,

whatever the number, in Canberra and for that deal to apply just as effectively in Broome as it might in Burnie, or at any work place in between. It is quite unrelated to the

profitability of a business enterprise, whether it is a dynamic and growing concern or whether it is a shrinking concern - a failing concern. Quite unrelated, really, to genuine profitability and capacity to pay at the workplace

level and unrelated right through the 1980's, at least, and quite unrelated to productivity.

The only way we will solv« our wage-cost disadvantage in this country is to go back to the workplace level and have

negotiations at that level between employees and employers. And that has got to be done on the basis of a common legal footing not on the basis of some deal or some structure that has been put in place as a result of a deal by a few

government leaders, union leaders and on occasions business

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leaders. It has got to look at the reality and be driven by the reality of the workplace. Until we make that shift we aren't going to solve the problems that the Accord process and the centralised wage determination has brought with it in the

1980's. '

There have been at least three major failures of the Accord process in the 1980's. The first is an economic failure. It has failed to give us competitive wage outcomes as a nation. Now I know a lot of people in this room would say, yes, but

the wage increases have been a lot less than we thought they would be. They averaged about 6.5 or 7 per cent over the time ul Lln= Hawke OuvciuuimL wlili.li 1 c. a luL Icon Lliaii we Γ cai oj they would be, particularly when the boom got underway in the

latter part of the 1980's. But the problem was, while they were less, and I concede that, than they might otherwise have been or than was expected, they didn't come on the back of a dramatic productivity improvement. They in fact have

destroyed the very essence of the productivity development process. If you think about it they give you a 6.5 or 7 per cent wage increase basically every year. As a worker why would you bother working any harder, or lifting your game, if

you know it is always there. The same thing is going to

happen too, by the way, with occupational super. If they get it up workers will say, well, that's it I don't need to prepare for my retirement, my employers are doing it for me and I don't need to save. And just when the country needs

saving we won't get it and I bet you national savings will go down.

Well, just in the Accord process they got the wage increases alright but they didn't raise the productivity. Productivity performance in the 1980's in Australia has been abysmal by world standards. When you put those two things together the

better than expected wage increase, nominal wage increase, and the flat productivity experience you find that our unit labour costs increased at roughly double that of our trading partners right through the 1980's. And that is principally why our

inflation was double that of our trading partners right through the 1980's. So the first failure of the Accord was that it gave uneconomic outcomes. We became less competitive. On the Treasury's own index of competitiveness, today we are

15% less competitive than we were in 1982/1983 when the Hawke Government came Into office. The. first reason, a failure on economic grounds.

The second problem with the Accord is that it has failed to look after the interests of the people that I thought they said they were looking after, namely the workers. Workers have been™ driven backwards through the 1980's. I am

absolutely staggered that the Prime Minister, on a regular basis, gets up in the Parliament and says to me, we have cut real wages by 8, or 9, or 10 per cent in the course of my time in Government. Well, that might make him feel great but it

doesn't make the worker feel too good because their living standard has been cut dramatically right through the 1980's.

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And when you add to that the tax burden and the high interest rate burden- the average PAYE tax payer has gone backwards. So the Accord has failed to do what it is supposed to do - which is to look after the interests of workers.

The third reason it failed arid a principal reason, I think, that we are in the mess we are economically is that it has elevated people like Dill Kelty and Martin Ferguson, and Simon Crean before them, to defacto Cabinet status. They have a phenomenal veto power over most of the major reforms that have

been debated in this country in the last several years and when you add to them the other unions in Australia, the Green union and the Black union and so on, you see quite clearly why development projects just haven't got off the ground in recent

years and you see why a lot of genuine of reform, whether it is on the waterfront; or ! in telecommunications; or in aviation; or in electricity generation; or anywhere else you can see why it hasn't got off the ground.

It is no accident that the power base of the union movement, today, is in the public sector and public sector business enterprise. Only about thirty or thirty-one per cent of the private sector is unionised. . But sixtynine to seventy per

cent of the public sector is unionised. So that when you have got problems in Australia because you pay too much for telephone calls, for example, it is the Telecom union that has extracted that deal. Or the same in electricity generation.

If you are worried about the decline in the quality of

education in Australia it is the teachers union that has done that damage and forced the system towards the lowest common denominator.

So, three reasons why the Accord has failed.

1. It has failed in economic terms.

2. It has failed to look after the interests of workers and to give them any incentive to raise their

productivity; and, of course

3. It has failed by blocking most essential parts of reform.

And I say you have got to move away from the centralised system. You hove got to move to genuine bargaining and agreement, if you like, at the workplace level and you have got to make that process as free as possible. And it has got

to be an effective process from the point of view of both the employer and the employee. That is why we make so much noise about it being on the same common law footing. We don't want a situation where employers can exploit employees. Equally, we don't want a situation where employees can exploit

employers by the exercise of industrial muscle. You will only get that when they are on an equal footing under common law not an unequal footing before the Industrial Relations Commission,

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That has got nothing to do with law it has got everything to do with the. deals and the centralised process and the club.

It has got nothing to do with putting people on an equal common law footing*

Secondly, you have got to make sure that you do outlaw

compulsory unionism. There is no point having an enterprise bargaining process 1 ike we got yesterday which, in effect, requires yuu to be a union member to be part of it. That is going precisely the wrong way. individuals should be paramount in this. They should be given free choice. They

shouldn't be subjected to any sort of thuggery or influence to join a union, or any legal or other basis, to be part of a union in order to get a wage', increase. You have to outlaw compulsory unionism as well as,putting them on the same common

law footing. . ;

Finally, I think, you need to create the circumstances in which you can have union representation but that it is a genuine enterprise based union. Not one of twenty large national unions forced by some misguided amalgamation, but

one that is genuine by vote of the workers at the workplace who decide they’d rather negotiate collectively in their wage deal then to represent themselves individually. But they should have the choice to represent themselves individually or

to form an enterprise union if they wish.

If you make those changes than you will radically change industrial relations in Australia and you will radically change the economic outcome; you will radically change the outcome from the point of view of the workers and, by the way. Bill Kelty, Simon Crean, and others would not be defacto

Cabinet Ministers and wouldn’t have that influence. Then you will get productivity growth because it will be a common sense of purpose. It will be genuine industrial harmony at the

workplace level in the context of that company. In the context of that companies capacity to pay in terms of

productivity; in terms of profitability; in terms of the strength of the company and so on.

We are attacked, of course, from time to time because they say that our system is really just going to be the rule of the jungle. Well, T tell you, it has got nothing about being the rule of the jungle. It has got everything about being the

rule of the law and not the rule of politics which is what you have got under the centralised club based, Accord based system that now exists.

We have also said that we will cause a lot of industrial strife if we move to our system. If you want to go to our

system that too is voluntary. If you are worried in the transitional phase you can stay in the centralised system. If you are worried about being picked-off you won’t leave the system and you won’t go to the enterprise bargaining

arrangements that we have identified.

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You shouldn't forget one thing - workers don't cause strikes. Union organisers : cause strikes. That is a fundamental difference, -agairiV between ourselves and the Government.

Now these are very important issues because right now we face a prospect we haven't faced j in Australia for a very long time - probably in the memory of most of you. And that is the prospect of sustained high unemployment as an economic problem

and as a massive social problem in the course of this decade. We have seen the rate go over 10% we hear the Government concede that it' could go to 10.75%. We read in leaked

documents that it will go to 11.25%, that it is going to go much higher than it is today and already we have nearly one million Australians unemployed,on top of which there are some 600,000, prospectively 700,000, Australians who are working

less than they want to. They are working less time because their number of shifts have been reduced or they have gone from five to four, or four to three day weeks, or they are working on staggered hours, forced days off and so on. You

are looking at 1.75 million Australians approaching 17%, 18% or 19% of the workforce that are directly affected by

unemployment or by an inability to work as much as they want to.

You think about that. We did an exercise a few days ago, we took the Government's model. I'm always at risk of being accused of being a right-wing model driven, computer driven ideologue,but we did take their model and we ran their numbers

through it. Their model, the Murphy model, shows that by the middle of the 1990's unemployment will still be near 9% and in order to get back to somewhere like 6% or 6.5% by the end of the decade you need to create about 2 million jobs and the

prospect of that in the course of this decade, given the state of the business community today is absolutely staggering.

Three hundred thousand Australians will be long-term unemployed, that is unemployed for more than twelve months between now and the middle 1990's. Most disturbingly, the youth of Australia, not one in ten unemployed, they are one in

three unemployed and some of the kids leaving school now are not going to find jobs in the first half of the 1990's. In those circumstances you φς> not tinker at the edge with that sort of decision that was taken yesterday. You go for the

jugular and make sure that when you change the system you change it decisively and substantively so that you can do something about that problem. Because they don't understand that and that is the greatest, to me, the most destroying

thing for somebody who has recently come into politics and watch politicians work. They don't understand the damage they are doing by _the games they are playing with decisions like yesterday or"other decisions that they have taken.

Let me just give you a couple of specific examples in relation to unemployment. If you look at the Government's own numbers. They have increased wages in this recession by about 7% or 8% in real terms. That is, if we take the period from late 1989

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through to September of next year, for which we have their wage forecasts, fwe see that real wages will rise by 7% or 8% in the midst of the worst recession, of their admission now, in sixty years. It has never happened before and what it means is much more unemployment than would otherwioe be the

C&i-o. As much as three percentage points of our measured unemployment is due to the fact that they have gone ahead and pushed for real wage increases of the same order of magnitude

that they got right through the 1980's. They've continued to push for them and get them in the course of the worst

recession in sixty years. Yesterday's decision is only going to compound that.

Secondly, of course, the occupational superannuation decision. It is not a magic pudding. You guys know better than anybody else that business is no magic pudding. If you start

increasing the taxes on business - business will lay-off workers. If you look at the! situation of that occupational superannuation increase that is scheduled through the middle half of this decade that is estimated to cost 100,000 jobs and

add about 2% or 3% to the inflation rate over that period.

As I say they do not understand the damage they are doing by the policies they are adopting and they have substantially worsened the unemployment prospects across the board and particularly for our youth as a result of those two decisions

alone.

In these circumstances, of course, you don't want to go around raising expectations that you can fix the problem quickly because it is going to take time. It is going to take time to change basic attitudes and basic values and some of the

institutional structures that have got us into this mess.

There are, of course, however some things you can do straight away. In the wage area I would start by saying, which they didn’t say yesterday, that there should be no more national wage cases. Absolute - there should be no more national wage

cases. They don't mean anything anyway, as I said before. The only wage increases that should be allowed are those that are matched by producuivity improvement at the workplace level in the way I have described it. I'm happy to run to the next election on that claim. I am happy to fight for that because

that is the single most important thing you should do as a first step in moving towards a better wage and industrial relations system.

Second, you can immediately scrap the occupational

superannuation policy. In saying that I am not saying we shouldn't have a retirement incomes policy - we should. I mean the Government gives $3.35 billion worth of tax

incentives to those going into the superannuation industry at the present time and they have basically admitted that with all that money going out the door they still haven't been able to get the coverage up so they are going to tax you now to

make sure that they get the coverage up. I am not even sure

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that'll get the coverage up because if you.Abroke paying the taxes that won't work either. But you can scrap that decision and in doing that I recognise you have got to put in place an alternative that encourages people to go into superannuation by choice not by compulsion. It is a major problem. When my

age group hits the pension age, if we live that long, there will only be three Australian workers supporting each of us and today there are six supporting the aged. You think of that over the next 25 years. ί

You need an effective superannuation policy but you don't do it by taxing people and compulsion.

Thirdly, of course, you can do something about immigration. We know that adds to the demands on our workforce every year. Now, I believe that immigration has been overwhelmingly

beneficial to Australia. I think our future is built on expanded immigration but I recognise that our capacity today to absorb immigrants is not what it was a few years ago for two reasons:

- A lot of them, about 35% of them, end up on some

Government benefit within the first twelve months.

- A lot of them don't want to come here any more

because we are not such an attractive place. So we have got to live with a smaller immigration intake.

In context to that labour market I described you can have a significant cumulative effect over the decade if you cut immigration numbers. You can ensure that there are other job availabilities as they come up for those who are presently, or prospectively unemployed, among the existing Australian

residents.

So there are three things you can do now to start to turn that problem around. If you are prepared to go further, as we will, which is to then put in place an overall reform package then you can make dramatic change in Australia and you can

restore full employment as a realistic goal with stable prices.

But you are going to have to be prepared to take some tough decisions. You have got to be prepared, for example, to get into the Government sector and to ensure, to the extent possible, we get the Government off the back of business and

individuals.

We've got to cut Government expenditure and we are going to have to be prepared to fight about that. I think it is

ludicrous that welfare dependency has increased as much as it has - about 90 cents in the dollar of the PAYE tax payers dollar goes to social security and welfare spending alone. Think about it - 90 cents. And that happens before you get

your dollar. They have first claim on your dollar. If you think about, the Government takes its share before you get

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your take home pay. You are supporting individuals and their families before you are supporting your own. In that sense you really - have- got to get in there and do something

substantial about inefficiency while ensuring that you do take care of the genuinely needy. You can deliver services much more efficiently and you can deliver them through the private sector quite often a lot more efficiently than you can through

the public sector. Then back that up, of course, by a genuine program, an accelerated program, of privatisation.

You can move a lot of the problems out of the public sector where they will never be solved. Organisations like Qantas, Australian Airlines, Commonwealth Bank, AIDC, should be privately owned and managed. They are becoming massive

problems because they have been meddled with; played around with; making large losses; run by union leaders on the Board; influenced by Ministerial directions on a daily basis; or for some s>hoi.L-lt!xm political end ana sacriticing the quality of

the service, whether it is airways or banking or whatever. They have got to go out of the public sector. And, of course, in that area you need a tax system change as well.

Now, the Government taxes you too heavily and has a very inefficient system of collecting taxes. And those bullets have got to be bitten and that is why we have advocated a broad-based goods and services tax as part of a genuine

process of tax reform. It might be politically difficult but is a sensible thing to do in Australia at the present time. If the Prime Minister is right, and he is, that we spend too much in Australia relative to our productive capacity then I think it is about time we started to tax consumption and give

people some money back in their pocket by way of income tax cuts and change the nature of the system. You don't need to rely on interest rates to do that job you can use the tax system as an effective part. Of course, the biggest payers of

the sales tax system which ought to be completely scrapped are the business community - $6 billion worth of tax collected off you every year; about $1.25 billion off exporters every year, and we expect you to expand your business and boost your

exports on a tax system that taxes you out of existence and discourages you from exporting and encourages you to import. I think you ought to face some of those problems.

It is important that you back up the industrial relations change by genuine personal tax reform as well. Not only do people not have the incentive to raise their productivity under the industrial relations system but they don't have the

incentive to do it under the tax system either. When you pay 38 cents in the dollar at $21,000 income, which is two-thirds of average income, there is not much incentive in that. If you go to $-36,000 and start paying 46 cents in the dollar

there is even less incentive in that. That system just has to be changed.

A key element of that change is embracing a goods and services tax.

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Finally, I think, there are two other things that we need to do. One of them can be done quickly, the other will take some time. ~ -

The one that takes time is all the infrastructure areas that I mentioned. All those heavily union dominated public sector problems like power and telecommunications and other areas like waterfront; aviation; electricity generation - they are

major cost disadvantages. The' bottom line to you as business people is that you pay 20% to 50% too much in all those areas: for waterfront clearances; for telecommunications charges; for electricity; land transport; rail transport is a shambles, whatever they are. They are all the areas which are bottom

line major cost disadvantages to you which have to be

eliminated. They all have similar problems. Part of the problem is that some of them are in the public sector - you get them out of the public sector into the private sector. Other parts of the problem relate to the industrial relations

and work and management practices - they can be solved by the enterprise bargaining approach applied both to the public and the private sector.

Another part of the problem is a lack of competition. Where you open up our aviation industry to genuine competition, domestically and internationally. You open up the waterfront to competition between ports in major cities like Sydney and

Melbourne or between Sydney and Melbourne, Competition is fundamental to change in the nature of that port cost

disadvantage.

Finally, of course, there are a lot of regulations by

Government over all those areas and some involvement by Government. Like Port Authorities that are Government owned and will have to be privatised; or massive structures of regulations that have been built on the back of those union

dominated areas. So that can be changed. Some of it can be done more quickly than other parts. Telecommunications can be opened up to full-blooded competition, I think, very quickly by calling for licence applications along the lines of the way

it was done in the banking industry in the early 1980’s.

The other area is to accelerate or to change the basic

Government attitude to development and development approval processes. In saying that I am not in any sense stepping back from the requirement that we ought to match the toughest environmental standards in order to get those projects off the ground. But you ought to be able to set clear-cut rules and

approve the process quickly if the businesses concerned can match those standards.

Equally I "am not suggesting that we ought to jettison Aboriginal heritage considerations but I can't imagine a situation as being defensible where the Prime Minister can judge better than the Aboriginal people concerned as to what

is in their best interests. Here is a man who doesn’t by his own admission believe in God all of a sudden believed in Bulla

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when it came to blocking the Coronation Hill mine. You think about the projects^ that could go ahead right away. It is interesting the way they are all running around now - the union movement, the Premiers 4 saying that we have got to have

accelerated development projects. They’ve all been part and parcel to the system that i blocked Wesley Vale; blocked Coronation Hill; sticks with, a three mines uranium policy; can't build the third runway at Sydney airport or the second

airport; or whatever. There are four decisions Bob can take today if he wants to demonstrate that he is genuine and wants to get on and get a pro-development attitude in this country.

So, to me, my message is very simple. Don't get euphoric about historic decisions like yesterday. They are so far short of what is required in this country that it is

staggering. Near enough is just never going to be good enough in Australia. If we aren't prepared to match best

international practice in everything we do than we aren’t going to make it. Yesterday wasn't best international practice - it was a long way short of it. It is a bit of the Australian disease, isn't it - it'll be alright; it'll turn

around; something will come around to save us. That attitude is all over today's media - at last we have got inflation down, we’ve got a wage system that is going to solve

everything, we are into the nirvana and off we go. I mean that is a pipedream.

We have major decisions; major structural change; major social change and it has got to be done and there is no alternative but to actually get out there and fight for it. As far as I am concerned I do not want a situation where my children will

get a lower standard of living than I enjoyed and that is what the generation in this room is about to leave to their kids as a result of this system. No opportunities; a prospect of one in three being unemployed throughout a large part of the

19901s - do you really want that sort of world. The answer is no. Near enough is not good enough. There is no alternative for dramatic change. You can't tinker. You have got to move decisively. Tinkering has generally compounded the problem

and moved this country backwards.

If you want to take a decision, for example, like changing the side of the road on which the traffic travels you can’t tinker with it. You can't move the heavy trucks across at 10.00 am because it ain't going to work. You do it all at midnight in

one go. And that is what we have in mind for the Australian economy - major and dramatic economic change - there is no alternative.

Thank you