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Speech by the honourable John Dawkins MP Treasurer of Australia



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NO. * 683883*

TREASURER

PRESS RELEASE

SPEECH BY T H E H O N O U R A B LE JO HN D A W K IN S , MP TR EA SU R ER OF A U S T R A LIA

T O T H E C O N FE D E R A TIO N O F B R ITIS H IN D U S T R Y & A U STRA LIAN B R IT IS H C H A M B E R OF C O M M E R C E LO NDON 30 SEPTEM BER 1992

Introduction

Today I wish to address two issues

First, to dispel some myths about the Australian economy and to outline the significant transformation that has occurred over the 1980s; and

. Second to suggest to you that, as a result o f that transformation, and Australia’s increasing integration into the Asia-Pacific region, there are . excellent investment and trade opportunities that can only further strengthen the traditional economic relationship between Australia and the UK.

Economic Transform ation

Earlier this year. The Economist conducted a Survey o f Australia which described a nation in transition - one being transformed from a highly protected tightly regulated economy, to a truly open and competitive

country fully integrated into the economic life o f the Asia-Pacific region.

. As The Economist cogently noted

"There is still a long way to go. but ...Australia can now boast: We ain't what we oughta be. We ain't what we're gonna be. But. thank ...God. we ain't what we was."

. it is interesting to compare the latest Economist Survey w ith the Survey published in 1987. Where the current Survey describes a country' rapidly being transformed into a w orld class competitor, the 1987 Survey commenced by stating ’’Australia is in trouble: and knows it", and concluded by noting that there was a real possibility that

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Australia, a third world economy w ith a first world standard o f living, risked becoming a third w orld economy with a third world standard o f living.

By the time the Labor Government took office in 1983 it had become apparent to us. at least, that Australia could no longer rely solely on traditional' natural resource wealth and exports, even though these had previously delivered strong growth in living standards and employment.

In order to deliver future employment growth and rising living standards, Australia had to be better able to compete in the international environment.

At the outset the Government embraced a dramatic reform agenda aimed at internationalising the Australian economy and increasing its efficiency and competitiveness.

As The Economist alluded, it took a while for the community as a whole to appreciate the extent o f the challenges vve faced, and to accept fully the policy prescription. But once having done so, our community has embraced

the need for reform.

The extent o f that reform is not always fu lly appreciated. Some still cling to outdated stereotypes o f Australia and Australian industry.

Let me deal w ith five commonly held misconceptions:

1. Australia is a high wage, high inflation country prone to industrial disputes.

2. Australia is a high tax country w hich discourages investment.

3. Australia cannot compete on w orld markets.

4. Australia is little more than a farm and a quarry.

5. And fifth ly , Australia is a European outpost not seriously engaged in the region.

Some o f these views arc, and have always been, wrong while others are at least, to some extent, rooted in historical fact. But even then they describe an Australia that no longer exists.

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Let me dispel these myths one at a time and explain the way Australia has changed.

1. Australia is a high wage, high inflation country prone to ' industrial disputes.

First, we have witnessed a remarkable transformation in industrial relations, basically because it is now widely agreed that we have to develop a more competitive, outward looking economy i f we are to deliver sustainable employment growth and rising living standards.

It is widely agreed that we cannot rely on protection or other methods to resist competitive pressures from the rest o f the world. Instead we have had to compete more effectively by changing our attitudes to work, wages and industrial disputation.

- In contrast to Australia's past record on industrial disputes, the number o f working days lost over the 1980s has been below the OECD average, while in early 1992 disputes fe ll to the lowest level e in thirty years.

• A t tire same time, the Accord w ith the trade union movement has seen wages grow more slowly than the CPI since 1983.

: I suspect that there are few countries in the world that could have managed a transfer from wages to profits o f the size that occurred in Australia w ith the low levels o f disputation that we witnessed.

- But even more importantly, we are now in the midst o f a transition to enterprise bargaining which w ill see wage growth tied more closely to improvements in productivity'

: The Government and the trade union movement have made a path breaking commitment to work toward wage outcomes consistent with keeping Australia's inflation rate at or below those o f our major trading partners.

- in other words, unlike virtually all other industrialised countries, our wage setting arrangements are helping to deliver low inflation.

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And low inflation is what we have achieved. Our inflation rate was 1.2% in the four quarters to June 1992. the second lowest in the OECD But more importantly, it is likely to stay low.

* : At about 2%. it w ill remain at historically low levels in 1992­ 93 and w ill continue to be below that o f our major trading partners, thereby delivering further competitive gains.

; And inflation expectations in recent times have been much lower than at any time in the past 20 years.

2. Australia is a high tax country' which discourages investment.

- Australia is the third lowest taxed country in the OECD, with a tax to GDP ratio o f less than 31 per cent, comparable with the US and Japan and well below the OECD average o f 39 per cent.

- And while this reflects a small public sector, it is a public sector carefully honed to perform its vital public function. We have increased expenditure in areas like health, education and training and * support for the aged. Welfare expenditure has been redirected away from those whose needs are least to those whose needs are greatest.

- We have made fundamental reforms to the tax system to encourage investment and growth

: most recently, w ith the introduction o f a new world competitive depreciation regime and a special development allowance fo r w orld competitive projects;

: we have also introduced a special 10 per cent tax rate for offshore banking units;

: and introduced special tax preferred bonds to encourage private investment in roads, ports and electricity generating plants.

- We have also sought to increase investment by substantially liberalised foreign investment policy, most recently announcing:

: the abolition o f the 50 per cent Australian equity guideline for new mines; and

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: a significant lift in the threshold below which foreign investment proposals are not examined from S5m to S50m. the removal o f restrictions on the number o f foreign banks * permitted to operate in Australia, and permission for banks to

operate as branches rather than subsidiaries.

3. Australia cannot compete on world markets.

Third. Australia has adopted a comprehensive reform program designed to improve our ability to compete on world markets. The reforms I have just mentioned have been supported by other structural changes designed to improve the efficiency o f the public sector, particularly that o f the Government Business Enterprises, as well as reforms to the financial, aviation, telecommunication and shipping industries.

The benefits o f our reform agenda are gradually appearing in the form o f increased ability to compete, which is most apparent in our trade performance.

Australia did not participate in the rapid growth o f trade and specialisation which produced strong productivity growth in most other industrial countries in the post-war decades. Instead, our export and import volumes remained roughly constant at about 15 per cent o f GDP prior to the I980's.

Since then, the size, direction and composition o f trade have changed markedly.

• Exports now make up almost 23 per cent o f GDP. and total exports have doubled since 1983.

- The balance on goods and services was in surplus in 1991-92 for the first time since 1979*80.

- in the six years to 1991. Australia's manufactured exports grew at around 15 per cent per annum - the fastest rate o f any country in the OECD, and faster than the newly industrialising Asian economies.

- Exports o f services have also increased by an average o f 14% a year since 1986*87. reflecting not only tourism but also the development o f education, health and financial services.

4. Australia is little more than a farm and a quarry.

The fourth misconception should have been dispelled by some o f the trade data I have cited. Manufacturing exports are the fastest growing area in the w orld economy, and they have increased from 10 per cent to 15 per sent o f our total exports in just seven years. Indeed, last year manufactures as a

group w ere, for the first time, our number one export earner.

5. Australia is a European outpost not seriously engaged in the region.

The fifth misconception is readily dispelled.

The growing internationalisation o f the Australian economy has been paralleled by its increasing links w ith the Asia-Pacific region.

- The share o f merchandise exports going to the Asian region has increased from 47 per cent 10 years ago to 57 per cent in 1991-92.

: a change that parallels Britain's integration with Europe, wliich has seen the share o f your exports to the EC increase from 44 per cent to 57 per cent oxer the 1980's.

The composition o f our exports to Asia has also changed dramatically.

- XVe are now the tenth largest supplier o f manufactures to Japan.

: ahead o f Canada. Hong Kong and all the ASEAN countries.

- And similarly are a significant supplier o f manufaemres to Korea.

: exports o f sophisticated manufactures to Korea have grown at an average rate o f over 50 per cent every year since 1985.

- ASEAN is now a larger market for us than either the US or the UK.

- And a third o f our exports to South-East Asia are manufaemres.

Japan is our third largest source o f foreign investment, and, already over 15 per cent o f Australian investment abroad is in Asian countries.

These closer economic links are also repeated on the social and cultural

side.

- We welcome over 1'2 m illion Japanese tourists each year:

. Over 60.000 Asian students arc studying in Australia;

• And we have more Japanese language students (over 100.000) than any other country apart from Japan and more than Canada. UK and USA together.

- This pattern is being repeated with our other Asian neighbours.

The 1992 Economist Survey commenced by noting that:

"... Australia's main task over this decade is to fit into Asia".

and concluded with the following:

"Whatever the hurt, whatever the odds. Australia needs nonetheless to do all it can to retain its old markets. Turning to face Asia does not mean turning its back on the rest o f the world. An Australia made f it to compete in Asia w ill be able to compete every where."

I endorse that sentiment. Australia has changed dramatically · and w ill continue to change. Our ability to compete and tlirive in our own neighbourhood - clearly the most competitive and dynamic region o f the world - is essential i f we are to deliv er the employment growth and rise in

living standards that our community' demands.

- These changes are already paying o ff for us in our own region and. as The Economist foresaw, they are providing the wherewithal for us to improve our performance in our traditional markets, such as Britain.

LK«Austraiia Relationship

. Australia's growing tics w ith the dynamic economies o f Asia does not reflect any decision - explicit or im plicit - to distance ourselves from our traditional European markets. It simply reflects the recognition o f changing opportunities.

Europe w ill never again be as important to us as a market as it once was.

But ii is likely to be more important in the future than it now is.

Economic realities have meant that while the U K has become increasingly integrated with her European neighbours, we have become increasingly integrated in the economic developments o f our region.

But this integration should not be interpreted as meaning that we are losing sight o f the rest o f the world. To survive in a competitive world we have to increase and maintain our attractiveness to investors and traders the world over

The world has prospered w ith a liberalised international trading environment - one vyhich allows opportunities and competition to come from all points.

- Australia is committed to such a system, which means we w ill not be turning our back on any trading partner, but w ill aim to maximise opportunities whenever they occur.

: .And while we know that Britain shares this view. Europe more generally could also benefit from adopting this attitude and ensuring that it does not turn its back on the rest o f the world - including Australia and the rest o f the Asia-Pacific region.

One thing o f which i am sure - neither Australia nor the U K w ill turn their back on the other.

The UK-Australia economic relationship w ill continue to be very important,

- The U K is the only EC market within Australia's top ten merchandise export markets

: .And those merchandise exports have grown at an average o f 7 per cent a y ear for the last 5 years.

- It is our third largest source o f merchandise imports.

- The U K is the second most important source o f total foreign investment in Australia behind the US.

. Moreover, the U K is one o f the top sources o f direct investment and is a particularly important investor in Australia's manufacturing sector, accounting for around one-third o f all foreign direct investment in Australian manufacturing.

. And the U K continues to be our second largest source o f migrants after Hong Kong.

The strength o f the commercial relationship is demonstrated by the presence in the UK o f over 150 subsidiary or branch offices o f Australian organisations marketing a diverse range o f products and sendees, importantly, these companies have set up in the UK both as a means o f

entering the U K domestic market and as a stepping o ff point into the EC.

- The product m ix o f exports to Britain changed substantially in the 1980s with exports o f sophisticated manufactures increasing by almost 50 per cent in the last four y ears. Britain is currently Australia's sixth largest export market for such products. For

example, export o f automotive engines and parts has overtaken the export o f wool to Britain, reversing a situation in 1989 where the value o f wool exports exceeded that o f automotive engines and parts by 50 per cent.

- Growth o f service exports such as computer software has been rapid. Some 50 Australian companies are selling information technology products in Britain For example. Paxus is a major player in the UK and Europe and has a substantial share o f the UK market for insurance industry software.

- Wine is another Australian success story, with exports to the UK last year o f almost S92 m illion.

- In a very competitive m arket two o f our Australian banks. A N Z and the National Australia Bank, have built up a significant presence in retail banking in the U K and Ireland through the purchase o f established banking networks. I understand N AB is the seventh largest bank in the U K and the largest foreign owned bank.

- The transport industry is another example where Australian companies have made a substantia! impact in the U K and Europe. Three major Australian companies. TNT, Mayne Nickless and

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Brambles, have been successful. For example. TNT employs approximately 7.000 people in B iitain and in 1991 UK TN T Express returned record profits from its U K domestic freight operations.

, On the manufacturing side. AM CO R a major Australian company with substantial operations and investment in forestry, pulp, tissues and packaging opened a new corrugated box plant in Cambridgeshire in 1989. This large, purpose built, highly automated plant which represents a green fields investment of.627 m illion is one o f the most modem and advanced in the world.

- AM COR recently announced plans fo r a similar sized investment in Chester.

. The U K is a highly significant destination fo r Australian direct investment abroad, accounting for around 40 per cent o f Australia's external direct investment at June 1991

Conclusion

Australia’s first priority w ill remain the Asia-Pacific region. It is our part o f the world and we feel very much at ease with our neighbours.

. But for Australia there is no single hemisphere policy.

. We have no privileged access to Asia as Britain has to Europe.

. The markets we have won have been hard won against all comers and in many cases in spite o f trade barriers. But success in Asia implies an ability to compete anywhere.

. That's why Australia pursues a global approach to trade, investment and commerce generally.

We are a co u nty with a foot hold in both hemispheres and with a determination to stay there.

. And maybe here is a lesson for Britain committed to Europe but still unsure o f the future - uncertain about the cost o f this commitment.

. Like Asia for Australia. Europe is where Britain belongs and the process o f integration w ill no doubt continue.

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But Britain has always been a global power in commerce as in other areas and Australia provides an hospitable environment for expansion in the fastest growing region o f the world.

Just as more and more Australian companies have chosen Britain as their European headquarters. Australia can provide a reciprocal base for British companies not already located in Asia. Or an alternative base for those already there.

Australia's remarkable success in some o f the world’s toughest markets holds an important message for companies interested in diversifying their markets. We offer [he prospect o f a new partnership in Asia with Britain w ith whom we have our longest and most enduring links.

Our relationship is from time to time a little testy - a consequence o f fam iliarity w hich has not always taken account o f each others changed perspective.

But its a healthy testiness which we intend to maintain as we regain the an o f winning at cricket without losing the a bility o f winning in rugby.

But the testiness is evident elsewhere. It was never entirely apparent that Bob Hawke and Margaret Thatcher thought the other was the cats whiskers.

Indeed, the now Baroness would visibly cringe whenever Australia's then Prime Minister's renowned informality extended to the public use o f first names. .And when called upon to respond her references to Bob caused visible verbal anguish.

Yet they' both saw great merit in breathing new life and meaning into an old friendship between our nations.

I f Bob and Maggie could find something to agree upon there must exist rich v e in s fo r others to tap.

I for one believe so.