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Transcript of address to the Associatied Retailers Ltd National Conference Dinner, Melbourne



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TRANSCRIPT OF

ADDRESS TO THE ASSOCIATED RETAILERS LTD NATIONAL CONFERENCE DINNER SOUTHERN CROSS HOTEL 16 MARCH 1992

MELBOURNE

E & OE PROOF COPY ONLY

Thank you very much Graham Yeomans for those very kind words of introduction. My Parliamentary colleague, Russell Broadbent who is also a retailer, other Distinguished Guests, Ladies and Gentlemen.

I am very pleased to be here in person tonight. I have to-

take up your comment about Max Gillies. You may know that my opponent, Paul Keating, has recently hired himself a new speech writer who used to write for Max Gillies, so a lot of those practice lines are, in fact, from the same source. It would be interesting to see whether he can make him do a Bob

Hawke in terms of his electoral popularity as well as Max Gillies did a Bob Hawke. In fact, when you met Max Gillies, you weren't quite sure whether, in fact, you were meeting Bob Hawke or not.

I was asked tonight to deliver a serious message and to be entertaining - and that is fairly difficult in current

circumstances and I don't know a lot of retailing jokes. But there is one that stuck in my mind from my time in the United States which I thought I would share with you as a way of

making a point. It is to do with a major retailer in the

United States who was signing a contract for his 24th

supermarket and the room was full of all the legal advisers and so on and he arrived with a great flourish and sat down and the signing ceremony began. They passed the contract to him and indicated where he should sign to finalise the

arrangements for the purchase of this final supermarket which would make him the largest supermarket retailer in the United States. When they gave him the contract, he simply put an "x " where he was to sign and the lawyer said, that's right, that's where you sign, he said, I did and he said I never learn' t to

read or write he said I just signed my name with an "x " . The lawyer was taken back and said that's absolutely amazing, well how did you get started, how did you ever get to the stage

that you are now the nation's largest supermarket operator and owner. He said well, I started in very difficult times back in New York. My father died when I was very young - in fact, before I was 12, my mother worked but I needed to go out and

find a job so I did. I went door-to-door in Harlem looking for work. I came to one particular door and knocked on it and

COMMONWEALTH

Parliament House. Canberra. A.C.T. 2600 Phone 277 4022 PARLiA/ViE NT ARY Li BRARY M!CAM

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at the time I didn't know what it was, in fact, a brothel and the madam came to "the door and when I said I wanted work she said, look I have work for a bookkeeper, I can't help you, and he said I can't help you either - I couldn't do that job. She

felt sorry for him and gave him $10 and with that $10 he went out and bought a basket of fruit and sold that door-to-door. As he made profits he built the business to have a lot of

people selling baskets of fruit, then to buy a fruit barrow, then to buy another one until he had a whole chain of fruit barrows and then sell that to buy his first supermarket and then trade up to be signing a contract for his 24th

supermarket. The lawyer is sitting back in the chair

absolutely amazed, the room was silent, everyone was listening intently to this storyi . Finally, the lawyer said, it's amazing, can you imagine, just imagine what you would have achieved in life if you could have been able to read and

write. He said, yes, I'd still be a bookkeeper in a brothel!

There but for the grace of God, go I suppose a lot of people say.

I thought tonight I would do just a couple of things. I-

thought I would begin by commenting on the recovery and -

recession recovery process as we see it from the Opposition. And to pick up a couple of points that Graham made in his

introduction and then go on and talk about the challenges that I think are there for policy today. As you might imagine, I probably should say something specifically about the goods and services tax towards the end of my remarks and open the way

for you to focus on that or tariffs or whatever aspect of the policy you really like in the question time.

Tomorrow we're to get some national accounts data. There is an expectation around that it will show that the economy has come off the bottom somewhat and that is probably what it will show - there'll be a slowdown in the pace of stock rundown,

there'll probably be some pickup in government expenditure and personal consumption expenditure, there will be no recovery at all, of course, in business investment expenditure, and if

anything, I suppose net exports will be a small negative. There will be, I guess, a fair bit of euphoria as to whether we are on our way out of this very difficult period of

prolonged recession. I suppose I should also mention that there'll be some evidence of a pickup in housing activity if the partial data we have seen is correct.

I'd suggest to you that we have a very long way to go before we see a sustained recovery in Australia, even though some of these numbers will start to show some improvement. It is still possible, of course, that there is still some significant bad

news to come and on the employment front, I think that is

particularly true. .

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The point that Graham made in his introductory remarks about unemployment being somewhat ingrained in our system and at over 10 per cent, I think he is dead right. What we're

looking at for first time since the 1930's is the prospect of unemployment staying somewhere around 8.5 per cent and 9 per cent on average through this decade under the sort of policies we've seen in recent years. We see a youth unemployment rate

in Victoria, I think, at the present time at .about 46 per cent. You think about it, nearly one in two of our young

children leaving school are not going to get jobs and that is a major structural problem as are other aspects of our current recession. We are a long way from being out of the woods I

think too because of the nature of the world economy. This is the first time in the post-war period that Australia has gone into the recession first. Traditionally, we have been pulled into recession as world economic activity has slowed down, our markets have shrunk, our exports have tapered off, our

commodity prices have fallen and that has flowed through the rest of the economy. But this time we were thrown into^

recession in the latter part of 1989 because interest rates;- were basically doubled in the context of an economy that was- riddled with structural inefficiencies and problems. We have;

been in recession for a long time, it's been a rolling

recession and we will, to a substantial extent, rely on the world economy to start to pull us out in a sustained sense. We need to do more on our own, but we won't make a significant recovery as long as the world isn't recovering. Indeed, we

got some very disturbing news today about the state of other economies, particularly the Japanese economy. The Nikkei Dow Index in Japan - the stockmarket index - went below 20,000 which is about half what it was at its peak. It starts to put

the Japanese banking system, as I am told, under real

pressure because as the stockmarket falls below 20,000, the banks move to being in breach of their capital adequacy ratios and there is pressure on them to raise capital or further restrict lending.

The prospect of that and other changes in Japan is that

economy will move into recession, our major export market will move into recession' for the first time in the post-war period and it could do it in the course of the next 6 months and

growth could be well below the 3 per cent that it's averaged in recent years in the course of the next 12 to 18 months.

The US economy could perhaps triple dip and that's the

expectation of a lot of forecasters in other parts of the world and, of course, the European economy is being

constrained by Germany. The Germans, as they have always been, hellbent on controlling inflation and those high real interest rates that they are running and the appreciated value of the Mark are deflating a lot of the European economies as

we11. ‘ .

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So, while there w i M be some bright spots in Australia as some sectors respond to the low interest rates, and I think a

bright spot that the rural sector will be stronger than was expected, the world economy is going to be a major constraint on our recovery. In fact, the speed of our recovery is going to be subjected to some very real limits, not only from the pace of recovery in the world economy, but also from the fact

that we are carrying a legacy of past policy, failure and inactivity, principally $183 billion worth of international debt which puts a very significant constraint on our capacity as a nation to grow very quickly in current and prospective circumstances.

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So my point is simple. We have been in a rolling recession for quite some time, I don't think we will come out of it

significantly this calendar year. The pace at which we do come out will be heavily influenced by what happens in the world economy and our capacity to come out of it under the sort of policies we have seen in the last couple of decades in_. Australia will be severely constrained by the fact that we now-­

have such a huge legacy from the past international debts that" are reaching unsustainable proportions. -

It's against the background of that type of assessment and the recognition that the opportunities that exist today for our children and our grandchildren are less than they were for us when we were coming through the system that "Fightback! " was

designed to deal with the fundamental problems in Australia. We took the view that we should put politics to one side and call it the way we saw it, honestly state where this country is and where it's headed, and then paint an alternative which

is that we can be a major player in the Asia-Pacific region by the year 2000. But we are really going to have to get our act in order, domestically and internationally, in the course of that period if we are to achieve that sort of objective. A nation with tremendous wealth and tremendous potential and tremendous opportunity if we can only capitalise on it. But

the history of the last couple of decades is we've let things slip, we've slipped incredibly off the pace and as a nation, we've become incredibly dependent, I believe, on government rather than on ourselves as individuals and individual

business people. So "Fightback!" faced the reality of that sized challenge and, as I say, tried to honestly call it the way we saw it. j

There is a lot of focus now, of course, as to "One Nation" is an alternative to "Fightback!". I won't spend much time on the politics tonight but it is a political document. You should look at it's economic argument to see whether it makes any sense. You might, remember when we were plunged into

recession that the argument was we spend too much in Australia relative to what we produce and therefore we have to cut

expenditure. And as we can't cut government expenditure any more, we better cut private expenditure and we'll put up interest rates to bring that about. That was done in a

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context of where it was said we were not only spending too much but saving too little and borrowing too much as a

consequence of our balance of payments crisis. Now, what's the solution offered by "One Nation"? More spending, less savings, and more debt.

Precisely the factors that got us into the problem are

advocated now as solutions to get us out of the problem. But the centrepiece is there untouched and that is, production. If we do not boost our productive capacity in Australia, if we don't boost our exports by 3.5% to 4% in a sustained sense, if we don't encourage import replacement in Australia, we aren't going to get out of our difficulties. Any quick-fix, any attempt to stimulate spending without changing that production equation, is just going to give us more of the same - a repeat of the same type of boom-bust scenarios we've seen in this country over the last 15 or 20 years. We have no alternative than to go to the heart of the problem and, that is, boost our international competitiveness as the only way to boost our capacity to produce more, then we can spend more which is__

important to your industry. There is no point having people-­ spend more for a few months and then to have that clawed back~ as we go back into a bust situation or inflation picks up, or; we have a balance of payments crisis, so interest rates go up

or whatever.

Your industry will benefit most from a sustainable increase in expenditure and in current circumstances we can only afford that as a nation when we get a sustainable increase in

production.

So "Fightback!" is directed to those cost disadvantages that make us internationally uncompetitive, that is, its

centrepiece. It's not just tax, it's a whole host of things that have produced the very cost uncompetitive businesses that presently exist in Australia.

Sure we focus on tax and the goods and services tax because it's a centrepoint of the tax reform package. That is only one of twenty points that we list in the "Fightback!" document as essential to turning our circumstances around. As far as

tax goes, the focus, we think, ought to be on the $20 billion worth of tax we will take off the business community. Graham mentioned government charges and imposts. There is nothing worse from a business point of view than the massive taxes

that are collected off business, that are charged on business inputs, and we eliminate a number of those, importantly payroll tax, petrol excise, and sales tax and replace it with a system, a goods and services tax system, which in essence, seeks to take the tax off business inputs.

I put it to you,, when the business community pays all up about $36 billion in tax, the elimination of two thirds of that tax cost disadvantage ought to be a fundamental stimulus to better business and more employment in Australia in itself, apart

from anything else we do in the package. Over and above that,

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there are then a lot of other business costs which are higher relative to those-of .our trading partners. In fact, if you go across the board in Australia, major business cost items are 20 per cent to 50 per cent higher than they are in any of cur other trading partners, or the average of our trading

partners, whether it's transport costs, or waterfront charges or telecommunications costs or aviation costs, or power costs or labour costs, they are significantly above those of our trading partners and the average is, according to the Business Council and the Industry Commission, somewhere between

20 per cent and 50 per cent. So that's the second key element of "Fightback!", the elimination of those cost disadvantages.

Central to all of those is, of course, the labour market. The fact that our labour costs, while they might hhve in a sense seemed lower in the 1908's than people had expected at the start of the 1980's, relative to productivity, they have averaged double those of our trading partners right through the 1980's. We have an abysmal productivity performance in Australia and we, therefore, can't afford to pay ourselves as^ much as we have against that productivity performance. So:-

labour market reform and the refocussing of that back to the- workplace level, is absolutely fundamental to the elimination^ of cost disadvantages in business. Not only because of the direct costs of labour but also the fact that those labour costs are central to the problems on the waterfront or in power generation, or in transport or in any of the other areas that I mentioned.

The second major area that we address is those infrastructure cost disadvantages and the third main area that we address is, of course, a whole host of attitudes by government to

business. Whether it's the size of government which we cut back by $10 billion in terms of government expenditure and privatise $15 billion worth of government business

enterprises, that is a massive $25 billion shift out of the government sector into the private sector where there is real opportunity for wealth generation as a result. Or whether it is because of a massive attack on business regulations which have now come to the stage where it's almost impossible to get a project off the ground or a business started without dozens

literally, dozens of legislative and other regulatory requirements to be met at the three levels of government or it might involve the • •speeding up of the approval processes for

major projects and major developments. All those anti­ business government attitudes and regulations and values which I put to you are fundamental to change.

So that's the essential approach of "Fightback!" to go to the very heart of the problem. The fact that private enterprise has been reduced, its significance has been reduced in the last couple of decades and has been replaced by government enterprise and the increased reliance on government is, and

ought.to be, a major embarrassment to this country. Not just as individuals as we have seen the welfare bill grow and the dependence of individuals on government handouts increase, but

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it is also an attitude that has permeated business to the point where a lot -of business doesn't take the decisions they ought to take. A lot of business hasn't taken a wage decision

in decades in Australia - I'll cite one example - but more disturbingly recent surveys which show that the business community, manufacturers in particular, believe that their major disadvantages as far as exports are concerned, are a

lack of government assistance which was the outcome of a recent survey of the Chamber of Manufacturers which absolutely staggered me. Fancy listing too little government assistance as the major reason why we don't export more in Australia.

So our idea is to clear the decks, to get government out of the way, to give you control over your lives as individuals or as individual business people and, then quite frankly, you'll have little or no excuse but to get on and to generate real business activity, sustainable business activity as the only route to generating sustainable jobs.

Now within all that, of course, there is a lot of focus on the, role of the goods and services tax and because it's a;-

retailing convention, I thought I should say something- specifically about that tax because a lot of people say it's^ specifically detrimental to the retailing industry. I don't believe that to be the case at all. In fact, I think we've

gone out of our way to design a tax system change which is

retailer friendly and there is going to be a lot of

scaremongering going on in the course of rhe next 12 months about how difficult it's going to be to meet the requirements of this system but I don't believe that is borne out by

international experience - most recently, of course, the experience of our near neighbour, New Zealand. The driving force in the tax system is to build an international

competitive tax system and most major countries have made the shift towards a broad based value added or goods and services tax. Twenty one of the twenty four OECD countries have it and I'm interested to see that in the last 12 or 18 months that we've been debating it in Australia, a number of our Asian

neighbours, the super-competitive, highly successful neighbours, most recently Singapore, Thailand and Japan have all moved in the direction of a broad based value added or goods and services tax. If we don't have one, our business community is cost uncompetitive relative to the other

countries that do because our business community will pay sales tax or other taxes on business inputs which are not charged in other countries and that is a principal focus, of course, of the decision that's been taken.

Second, of course, the sales tax system that operates is grossly inefficient and anomalous. You've seen many of the examples of some of these anomalies - 10 per cent tax on

dishwashers, 20 per cent tax on school exercise books, 30 per cent tax on watches - where's the logic in that sort of tax structure given the nature of those three items. Where's the logic when we see that cotton buds are taxed and cotton balls aren't, toothpaste is taxed and toothbrushes aren't, above

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ground pools are taxed, below ground pools are not,

freestanding wardrobes are taxed, built-in wardrobes are not and so you can go on - thousands of examples of anomalies and inconsistencies. It's a grossly inefficient system, it's been an administrative nightmare for the Tax Office and for any of those who have had to pay it and it has a very significant

impact in Australia which shouldn't be underestimated.

Third, of course, we need a much more equitable and efficient way of raising that amount of money or a comparable amount of money and a shift in the direction of a uniform rate tax that is broadly based is much better than an anomalous specifically

targeted tax of the type we've seen with the administration of the sales tax in recent years. There are a .host of other

reasons why the change to a broad based goods arid services tax ought to be made in. Australia simply from the point of tax administration alone apart from the broader case that I've put to you as a mechanism by which we can actually genuinely

reform the whole tax ·system and build an internationally competitive tax system in Australia. „

There is a lot of debate, of course, about the size of the*

price impact of the goods and services tax of 15 per cent. We- estimated in the "Fightback!" document that the price impact of our indirect tax changes would be about 4.4 per cent, not 15 and the reason is that the whole cost base of the system is

significantly lowered by the abolition of sales tax, petrol excise and payroll tax in particular. In doing that sum, we didn't really make adequate allowance for the fact that some of those taxes cascade through the system. How many times in the final price of a product do we pay, in fact, count

directly or indirectly, payroll tax, petrol excise or sales tax? It's not good enough to say I don't pay it on my inputs directly, because you could pay it on your inputs indirectly and you can take any example you like. A carton of milk is one that I've seen focused on in recent days - it doesn't

carry any direct tax. Go back to the cow and count the number of times petrol excise, payroll tax and sales tax can impact on the final price of a carton of milk.

The whole cost base'of the whole system will be lowered when you abolish those taxes and we will use the Prices

Surveillance Authority, for the limited life it will have under us, to make sure that it does, in fact, see those cost advantages passed on. When you add back the 15 per cent, on a CPI basis we estimated 4.4, on a broader based GDP deflator, only 2.2 per cent price impact and we know that that is a very conservative estimate. We have no better authority than the Treasury recently which came out at 3.6 per cent on a

comparable basis saying we'd over-estimated the price effect - so there will be a minimal price effect. From your point of view, it's not just the price effect, it's the fact that most Australians are adequately compensated for that change. Where other - countries haven't spent the time on designing a

compensation package that will do the job, we did and we have done an enormous amount of work on every conceivable structure

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of Australian households to satisfy ourselves that we are more than adequately compensating them relative to the price effects we identified, let alone to the fact that we know the

price effects are going to be lower than, in fact, we've

estimated.

So people will have more money back in their pocket and

they'll have more incentive to work under the sort of tax system we've structured and they'll have a greater capacity to get on and build their lives to get a job and to build their lives and to educate their kids and they'll have the money to do it. We cut government expenditure by $10 billion to make

sure that, in fact, there's a net input back into the system as a result of the change. _.

As an individual retailer, of course, there has been some concern as to how the administration of the tax will operate in your case. As I say, we think we've made it retailer

friendly, we think there are significant cash flow advantages to most retailers under the system as we've proposed it in - ­ terms of how regular, given the size of your business you will-" need to report, or how fast you will be able to get the"

refunds on any input taxes that are charged on the GST, I -

should say on your inputs, irrespective of how long the goods might sit on your shelves before you finally sell them. Most of the examples we've looked at, and we're happy to take more, demonstrate to us that there are significant cash flow

advantages apart from other structural advantages that will flow to the retailing industry as a result of the change.

We haven't gone out to make your life difficult, we've gone out to make it as simple as possible. The accounting

requirements are no more complex than I imagine all of you do or should keep by way of records at the present time. If

you've got sales and purchases data, you can handle the

problem very simply. As we've seen in the Canadian case in recent days, the accounting profession has come up with a number of alternative ways of even expediting that process. As I read today in one of our major dailies, the banks are

looking at being able to provide the service for you off coded deposit slips and cheques so that, in fact, you don't need to keep those records yourself at all - although in business, I think, it does help to know* what your sales and purchases are

from time to time. !

So just to summarise, I believe that it is a very important step forward in Australia, it's not to say there won't be difficulties, it's not to say that people won't have problems and it's why we have gone out of our way to make sure you have every opportunity to be heard as an association or as

individuals as far as fhe implementation of that tax package is concerned. ,

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We set up some tiifie ago, the Goods and Services Tax Planning Co-ordination Office in Sydney. It is a full-time office, it is staffed by people supplied by the big six accounting firms and it has a very specific set of objectives or

responsibilities if you like, as far as its terms of reference are concerned. It is chaired by Sir William Cole who was for many years Secretary of the Department of Defence and Finance and is a major contributor these days to the public policy - debate and it has a board of management which include people

from the Tax Institute, the Chartered Accountants, the former Chairman of Coles Myer, the Taxation Committee of the Law Council and indirect tax partners with major accounting firms. It is designed to do what has never been done before - to give you a hearing, to let you put your case, to assess all the

arguments for different detailed implementation procedures as to some of those cash flow advantages that I referred to

before and it is to give specific drafting instructions to the Parliamentary Counsels so that the legislation can be

available before the next election. You will have a very- clear cut idea of exactly what we have in mind and you'll have1 ' an input into the detail of its implementation. *

We don't think from Opposition you can offer anybody any better opportunity than in fact that process offers them at the present time.

Let me just finish with a somewhat broader view of what we are trying to d o . I said at the start that we were motivated 'by the magnitude of the task that is in front of us and Graham said in his remarks that not only are we calling for major change, but we are calling for it in the midst of what I would

say is the worst recession in 60 years. Now while times are tough, I think opportunities are greatest. We do have a

genuine window of opportunity today, in a political sense and in a practical economic sense to make major change. We are advocating and are not ashamed to say so, the most radical set of changes that have ever been contemplated by a government or an Opposition in this country and we are prepared to stake our political opportunity on that fact. We are going to argue the case for major change every day between now and the next

election because we don't believe this country really has any choice. You ought to all stop and think, I believe, not only of your own individual circumstances as you find them today, but think about the future that your children and

grandchildren will have in a country that's headed the

direction we're going and I don't say that lightly.

As an individual who has travelled a lot, I am embarrassed by the number of times people have taken the mickey out of me for the fact that Australia has fallen so far short of its

potential. As a parent I recently had the experience of

talking to my son about his limited range of opportunities as he left high school. When I thought back to what I had in

1963/64 I didn't expect to go to university but I'd arranged four jobs - four - that I could have picked from in different

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institutions that I could have then used as a basis to go to night school and get some sort1 of accounting qualification. As it happened, I won two scholarships and had choice to go university and program as well. He did better, I believe, at

school and yet his opportunities were more restricted - no job opportunities queued up and had to trade off against

university and program to get in and to get a reasonable

degree - 60,000 kids today not getting into university, 100,000 not making TAFE colleges and those numbers will grow and not shrink. Their capacity down the track to get on and not only get an education but to get a job and to raise a

family are much more restricted than they were (break in tape when changing sides)

And that ought to be a national disgrace in a country like Australia. So in that context, we don't have any choice but major and dramatic change and we all have to face the reality of what that change will require in terms of our attitudes and

values. A whole generational change of attitudes and values has got to take place in Australia. We've got to shed what_ was started with the Whitlam era, this notion that we can-- depend on government for everything. We've got to put faith'

back into individual Australians and work together to turn our: circumstances around and that is really what "Fightback!" is all about trying to provide that type of leadership in the most difficult circumstances this country has seen in 60 years.

So I urge you, when you assess "FightbackI" and you assess the GST and you assess other elements of the package that I

haven't described tonight, ask yourselves two questions - what's in it for me, I understand that question, work it out for your individual business, your individual family

circumstances and then go on and ask the better and a more important and tougher question, what's in it for your children and your grandchildren? Unless we face the reality that this country is on the slide and sliding very fast to be the white trash of Asia, we are really going to go down that path a lot

faster than we presently fear.

The alternative is there, it is a very bright future as a

major player in the Asia-Pacific region. More exports in agriculture and mining, more value added in both,

manufacturing industries we haven't contemplated and, of course, a major service sector exporter of education, health, legal services, accounting services, a principal, if not the principal tourist destination in the region, the second most

important financial centre after Tokyo in the region. They are all realistic possibilities provided we are prepared to take the decisions that are necessary to turn this country around. ,

I thank you for the opportunity to be here tonight.