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The state of the Australian Economy



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EMBARGOED /PM 26 AUGUST 198A

ADDRESS

BY

THE HON J S DAWKINS MP

MINISTER FOR FINANCE

TO

THE ECONOMIC SOCIETY OF AUSTRALIA

13TH CONFERENCE OF ECONOMISTS

THE STATE OF THE AUSTRALIAN ECONOMY"

PERTH

26 AUGUST 198A

2

The theme of this Co n f e r e n c e , "P ublic Policy for Sustainable Growth ", is a very familiar one to me and to MY COLLEAGUES WHO, SINCE THE EARLY MONTHS OF THIS YEAR,

HAVE BEEN INVOLVED - AND AT TIMES IMMERSED - IN THE

PREPARATION OF THE 1984-85 BUDGET. FOR THAT CONCERN - OF

FORMULATING AND SETTING POLICIES WHICH WILL ALLOW AND

CONTRIBUTE TO THE CONTINUATION OF THE STRONG ECONOMIC

GROWTH THAT WE HAVE WITNESSED OVER THE PAST YEAR - HAS

WEIGHED HEAVILY ON OUR BUDGET DELIBERATIONS AND IS AT THE

HEART OF THE BUDGET STRATEGY.

Public policy played a key role in the recovery of the ECONOMY AND OF EMPLOYMENT IN 1983-84. NOTABLY:

. A SUBSTANTIAL FISCAL STIMULUS, EMANATING LARGELY FROM

the Commonwealth b u d g e t , helped draw the economy out

OF RECESSION;

. THE SIMULTANEOUS ACHIEVEMENT OF DECLINING INFLATION

AND RAPID GROWTH (AND CONSEQUENTLY THE DRAMATIC

DECLINE IN REAL UNIT LABOUR COSTS AND THE RESTORATION

OF CORPORATE PROFITABILITY TO MORE NORMAL LEVELS) HAS

IN NO SMALL WAY BEEN ATTRIBUTABLE TO THE SUCCESSFUL

OPERATION OF THE PRICES AND INCOMES ACCORD; AND

Γ\

. T H E S W I F T A N D S T R O N G R E C O V E R Y IN T H E H O U S I N G M A R K E T ,

W H I L E R E F L E C T I N G F A V O U R A B L E D E V E L O P M E N T S IN F I N A N C I A L

M A R K E T S , H A S A L S O IN P A R T B E E N A T T R I B U T A B L E T O T H E

R E M A R K A B L E S U C C E S S O F T H E G O V E R N M E N T ' S F I R S T H O M E

O w n e r s S c h e m e .

W i t h e c o n o m i c r e c o v e r y s t r o n g a n d a s s u m i n g a m o m e n t u m o f

i t s o w n , t h e r o l e o f f i s c a l p o l i c y h a s c h a n g e d s o m e w h a t i n

1984-85. Th e p r i m e o b j e c t i v e n o w is t o e n s u r e t h e

CONSOLIDATION OF RECOVERY; TO PROVIDE AN ENVIRONMENT

FAVOURABLE TO THE CONTINUATION OF THE ACCORD AND TO

ENCOURAGE BUSINESS AND HOUSEHOLD SPENDING. WE AS A

Go v e r n m e n t r e c o g n i s e t h a t t h e s i n g l e m o s t i m p o r t a n t f a c t o r

IN OUR ACHIEVING THE AMBITIOUS SOCIAL AND ECONOMIC GOALS

WE HAVE SET OURSELVES IS SUSTAINED ECONOMIC AND EMPLOYMENT

G R O W T H .

Bu t t h a t s a i d, w e a r e n o t in t h e b u s i n e s s o f p r o d u c i n g

"t r i c k l e -d o w n" b u d g e t s . T h e r e a r e r e a l a n d p r e s s i n g n e e d s

IN THE COMMUNITY WHICH WILL NOT BE REMEDIED QUICKLY, IF AT

ALL, BY ECONOMIC GROWTH A L O N E . THIS BUDGET ADDRESSES

THOSE NEEDS. IT ALSO LOOKS TO THE FUTURE. THERE IS

INCREASED PROVISION IN THIS BUDGET FOR PUBLIC

INFRASTRUCTURE AND SERVICES. THE CURRENT MACRO-ECONOMIC

REQUIREMENTS OF POLICY MAY BE EXACTING BUT WE HAVE NOT

NEGLECTED THE PUBLIC EXPENDITURES NECESSARY FOR THE

BALANCED DEVELOPMENT OF THIS COUNTRY IN THE YEARS AHEAD.

3

4

THE MAJOR FEATURES OF THE 1984-85 BUDGET

In a s s e s s i n g b u d g e t s , e c o n o m i s t s t e n d t o t h i n k f i r s t l y

ABOUT AGGREGATES, ABOUT DEFICITS AND TOTAL EXPENDITURES,

SO LET ME FIRST TURN TO THOSE ASPECTS OF THE 1984-85

Bu d g e t .

Th e d e f i c i t in 1984-85 is e s t i m a t e d a t $6 3/4 b i l l i o n ,

COMPARED WITH SLIGHTLY BELOW $8 BILLION IN 1983-84. AS A

PROPORTION OF GDP THE DEFICIT IS ESTIMATED TO DECLINE BY A

FULL PERCENTAGE POINT TO 3.3 PER CENT. THE GOVERNMENT

BELIEVES THAT A REDUCTION OF THIS MAGNITUDE IS APPROPRIATE

FOR A NUMBER OF REASONS.

. T h e f i s c a l s t i m u l u s o f 1983-84 h a s h a d i t s e f f e c t .

Re c o v e r y is n o w s t r o n g a n d h a s a t t a i n e d i t s o w n

MOMENTUM.

5

If t h a t m o m e n t u m is t o b e s u s t a i n e d , a n d i n p a r t i c u l a r

IF THE INCIPIENT RECOVERY OF BUSINESS INVESTMENT

EVIDENT IN THE FIRST HALF OF 1984 IS TO DEVELOP AND

STRENGTHEN, IT IS IMPORTANT THAT BUSINESS CONFIDENCE

BE NURTURED AND THAT THE COST OF CAPITAL AND FOREIGN

CURRENCY PRICE OF THE AUSTRALIAN DOLLAR ARE NOT PUSHED

UP BY EXCESSIVE COMPETITION FOR FUNDS IN OUR CAPITAL

m a r k e t s . C o r p o r a t e b o r r o w i n g is n o t e x p e c t e d t o r i s e

APPRECIABLY FROM ITS LOW LEVELS OF 1983-84 BECAUSE OF

THE IMPROVEMENT IN CORPORATE CASH FLOW. HOWEVER,

HOUSEHOLD NET LENDING IS EXPECTED TO FALL MARKEDLY IN

1984-85 AS HOUSEHOLDS CONSUME A HIGHER PROPORTION OF

THEIR DISPOSABLE INCOME. THERE IS CONSEQUENTLY AN

IMPLIED NEED FOR PUBLIC SECTOR DEMANDS FOR FUNDS, AND

HENCE BUDGET DEFICITS, TO BE REDUCED.

Ta k i n g a s l i g h t l y l o n g e r -t e r m p e r s p e c t i v e , t h e s t r o n g

RECOVERY IN THE ECONOMY PROVIDES AN OPPORTUNITY, THAT

WE WOULD HAVE BEEN ILL ADVISED TO IGNORE, TO REDUCE

THE BUDGET DEFICIT. SHOULD WE HAVE FAILED TO REDUCE

THE DEFICIT, THE GROWTH IN THE BURDEN OF PUBLIC DEBT

INTEREST (ALREADY 8.8 PER CENT OF BUDGET OUTLAYS IN

1984-85, AND RISING) WOULD HAVE BECOME EXTREMELY

DIFFICULT TO CONTROL. HIGHER DEFICITS NOW ADD TO THE

INTEREST BURDEN OF FUTURE YEARS, DIMINISHING BUDGETARY

FLEXIBILITY AND THE ABILITY TO IMPART A FISCAL

STIMULUS TO THE ECONOMY SHOULD THE NEED ARISE.

6

A FEATURE OF THE 1984-85 BUDGET IS THE SUBSTANTIAL CUT IN

INCOME TAX THAT IT PROVIDES, AT A COST OF SOME

$1297 MILLION IN 1984-85 AND $2125 MILLION IN A

FULL-YEAR. THE GOVERNMENT IS CONCERNED WITH THE

RELATIVELY HIGH MARGINAL TAX RATES ON LOW AND MIDDLE

INCOME EARNERS. MOREOVER, AND OF MOST IMPORTANCE AT THIS

JUNCTURE, THE GOVERNMENT IS OF THE VIEW THAT SUBSTANTIAL

TAX CUTS ARE NECESSARY TO SUPPORT THE ACCORD. I HAVE

ALREADY ALLUDED TO THE IMPORTANCE OF THE ACCORD IN THE

ECONOMIC ACHIEVEMENTS OF THE PAST YEAR OR SO; ITS

CONTINUED APPLICATION AND OBSERVANCE ARE OF NO LESS

IMPORTANCE FOR THE ECONOMY IN THE PERIOD AHEAD.

Ta x c u t s w i l l b e o f b e n e f i t t o t h o s e in e m p l o y m e n t . T h e

Bu d g e t a l s o p r o v i d e s s u b s t a n t i a l a d d i t i o n a l a s s i s t a n c e t o

PENSIONERS AND BENEFICIARIES, INCLUDING RECEIPIENTS OF

UNEMPLOYMENT BENEFITS.

. A l l i n d e x e d p e n s i o n s a n d b e n e f i t s w i l l b e r a i s e d b y

$2.50 PER WEEK FOR SINGLE PEOPLE AND $4.20 FOR COUPLES

f r o m No v e m b e r . T h i s i n c r e a s e in p e n s i o n r a t e s , t h e

FIRST REAL INCREASE IN RATES SINCE MAY 1975, WILL MORE

THAN OFFSET THE EFFECT OF THE INTRODUCTION OF MEDICARE

ON THE INDEXATION ADJUSTMENTS TO PENSIONS.

7

. S i n g l e u n e m p l o y m e n t b e n e f i c i a r i e s 18 y e a r s o f a g e o r

OLDER WILL RECEIVE AN ADDITIONAL $2.00 PER WEEK NEXT

Ma y. T h i s m e a n s t h a t t h e s i n g l e b e n e f i t r a t e w i l l

HAVE INCREASED BY SOME $20 PER WEEK OR OVER

30 PER CENT SINCE THIS GOVERNMENT TOOK OFFICE, WHICH

GOES A CONSIDERABLE WAY TO RESTORING THE CUTS IN THE

VALUE OF THIS BENEFIT VISITED UPON IT BY OUR

PREDECESSORS.

. P e n s i o n e r s in p r i v a t e r e n t a l a c c o m m o d a t i o n a n d t h o s e

WITH DEPENDANTS WILL BENEFIT FROM THIS BUDGET. SO TOO

WILL 16 AND 17 YEAR-OLDS IN RECEIPT OF JUNIOR RATE OF

UNEMPLOYMENT BENEFIT FOR A PERIOD IN EXCESS OF

6 MONTHS.

Th e t o t a l c o s t o f t h e n e w s o c i a l s e c u r i t y m e a s u r e s in t h e

Bu d g e t is $430 m i l l i o n in 1984-85 a n d $683 m i l l i o n in a

FULL-YEAR. OTHER FEATURES OF THE BUDGET INCLUDE:

. $623 MILLION IS PROVIDED TO THE STATES UNDER THE

Co m m o n w e a l t h St a t e Ho u s i n g Ag r e e m e n t . T h i s l e v e l o f

FUNDING IS SOME $200 MILLION ABOVE THAT OF TWO YEARS

AGO AND SHOULD PERMIT SIZABLE INROADS INTO HOUSING

RELATED POVERTY IN THIS COUNTRY.

8

Ed u c a t i o n f u n d i n g is t o r i s e b y n e a r l y 4 1/2 p e r c e n t

IN REAL TERMS, THE LARGEST INCREASE IN EIGHT YEARS.

A PROVISION OF $1,111 MILLION IS MADE FOR EMPLOYMENT

AND TRAINING PROGRAMS, DOUBLE THE LEVEL OF TWO YEARS

AGO.

An i n c r e a s e OF 11 PER c e n t t o $5,630 MILLION in b u d g e t

FUNDING FOR CAPITAL PURPOSES. WITHIN THIS TOTAL,

DIRECT BUDGET SECTOR CAPITAL EXPENDITURE (AIRPORTS,

GOVERNMENT OFFICES ETC) IS BUDGETED TO RISE BY MORE

THAN 40 PER CENT TO $840 MILLION. ·

Th e d e v e l o p m e n t o f i n d u s t r y is a s s i s t e d i n t h e

Bu d g e t . A d d i t i o n a l m o n i e s a r e m a d e a v a i l a b l e f o r t h e

PROMOTION AND DEVELOPMENT OF OVERSEAS TRADE, THE WOOL

AND TOURIST INDUSTRIES AND NEW TECHNOLOGIES IN

MANUFACTURING. AS WELL, THE ELIGIBILITY FOR THE

INVESTMENT ALLOWANCE HAS BEEN EXTENDED, THE

DEPRECIATION OF INCOME PRODUCING BUILDINGS HAS BEEN

REDUCED AND THE TAX TREATMENT OF SUBSIDIARIES AND

EXPENDITURE IN THE MINING INDUSTRY HAVE BEEN CHANGED

TO ENCOURAGE INVESTMENT.

9

Fi n a l l y , I s h o u l d e m p h a s i s e t h a t t h e s e a d d i t i o n a l p r o g r a m s

AND COMMITMENTS HAVE NOT SIMPLY BEEN ADDED TO EXISTING

EXPENDITURES. THIS YEAR, AS IN 1983-84, A SIGNIFICANT

PROPORTION OF THE COST OF OUR NEW POLICIES HAS BEEN

FINANCED BY REORDERING BUDGETARY PRIORITIES. IN THE

1984-85 B u d g e t s a v i n g s o f s o m e $600 m i l l i o n h a v e b e e n

SECURED ON EXISTING PROGRAMS. THIS IS ADDITIONAL TO THE

SUBSTANTIAL SAVINGS (ESPECIALLY TO REVENUE) B E N E F I T I N G

t h e 1984-85 B u d g e t t h a t d e r i v e f r o m d e c i s i o n s m a d e l a s t

YEAR.

THE ECONOMIC OUTLOOK

To n i g h t 's g a t h e r i n g o f e c o n o m i s t s w i l l b e f a m i l i a r w i t h

THE ANALYSIS AND FORECASTS THAT ARE PROVIDED IN STATEMENT

No 2 o f t h e Bu d g e t p a p e r s s o I c a n l i m i t m y r e m a r k s o n t h e

SHORT-TERM OUTLOOK FOR THE ECONOMY TO A FEW KEY POINTS.

10

Gi v e n t h e p e r s i s t e n c e o f s t a g f l a t i o n in t h i s c o u n t r y

OVER MORE THAN A DECADE, POSSIBLY THE MOST SIGNIFICANT

FEATURE OF THE FORECASTS FOR 1984-85 IS THE INFLATION

o u t l o o k . T h e CPI is p r o j e c t e d t o r i s e b y a l i t t l e

OVER 5 PER CENT OVER THE COURSE OF 1984-85 WHILE THE

MORE BROADLY-BASED NON-FARM PRODUCT DEFLATOR IS

FORECAST TO RISE BY 6 1/2 PERCENT OVER THE COURSE OF

THE YEAR. S u c h a n o u t c o m e w i l l g o a s u b s t a n t i a l w a y

TO CLOSING THE UNFAVOURABLE GAP THAT HAS PERSISTED FOR

SOME YEARS BETWEEN THE DOMESTIC RATE OF INFLATION AND

THE AVERAGE RATES RECORDED FOR OUR MAJOR TRADING

p a r t n e r s . M o r e o v e r , t h e r e c e n t a n d p r o s p e c t i v e CPI

INCREASES WILL ENSURE A LOW LEVEL OF INDEXED WAGE

INCREASES OVER THE COURSE OF 1984-85 AND SHOULD REDUCE

SUBSTANTIALLY INFLATIONARY EXPECTATIONS. - THESE

FACTORS AUGUR WELL FOR THE MAINTENANCE OF A LOW

INFLATION PERFORMANCE IN THE PERIOD AHEAD.

11

. A n o t h e r f e a t u r e o f t h e e c o n o m i c o u t l o o k is t h e

BROADENING IN THE BASE OF THE RECOVERY PARTICULARLY IN

THE AREA OF BUSINESS FIXED-INVESTMENT. PRIVATE

BUSINESS FIXED INVESTMENT IS PROJECTED TO RISE BY

5 PERCENT IN 1984-85 FOLLOWING A FALL OF 11.6 PERCENT

IN THE PREVIOUS YEAR WITH SOME INITIAL RECOVERY IN THE

SECOND HALF OF THAT YEAR. A RECOVERY IN BUSINESS

INVESTMENT PROVIDES A GOOD LITMUS TEST OF RETURNING

BUSINESS CONFIDENCE IN THE OUTLOOK FOR THE ECONOMY,

AND CONTINUED STRENGTH IN BUSINESS INVESTMENT WILL BE

ESSENTIAL IF THE ECONOMY IS TO SUSTAIN GROWTH RATES

THAT ARE CAPABLE OF STEADILY REDUCING UNEMPLOYMENT.

Fo r e c a s t s o f t h i s k i n d b y t h e i r v e r y n a t u r e a r e n e v e r

CERTAIN AND THIS IMPRECISION NEEDS ALWAYS TO-BE BORNE IN

MIND. T h e f a i l u r e o f m o s t a n a l y s t s t o p i c k t h e s t r e n g t h

OF THE RECOVERY IN 1983-84 PROVIDES AMPLE ILLUSTRATION OF

THE DIFFICULTIES NOT LEAST OF WHICH ARE THE UNCERTAINTIES

STILL SURROUNDING SOME OF THE RECENT STATISTICAL RECORD.

(Of n o t e a r e u n c e r t a i n t i e s in t h e m e a s u r e m e n t o f a v e r a g e

WEEKLY EARNINGS, THE GROSS OPERATING SURPLUS OF COMPANIES,

AND THE HIGH STATISTICAL DISCREPANCY IN THE SECOND-HALF OF

1985-84.)

12

Th e r e c a n b e n o d o u b t h o w e v e r t h a t t h e r e a r e m a n y

INDICATIONS POINTING TO CONTINUED FIRM GROWTH IN 1984-85

a n d St a t e m e n t No 2 e s t i m a t e s t h a t g r o w t h in n o n-f a r m

PRODUCT OVER THE COURSE OF 1984-85 WILL BE AROUND

4 1/2 PER CENT. T h i s w o u l d c o m p a r e w i t h g r o w t h o f

8 PER CENT OVER THE COURSE OF 1983-84 AND WOULD REPRESENT

A CONSOLIDATION FOLLOWING AN INITIAL SURGE THAT IS TYPICAL

OF THIS PHASE OF THE BUSINESS CYCLE.

Ot h e r a s p e c t s o f t h e o u t l o o k f o r 1984-85 i n c l u d e :

. CONTINUED FIRM GROWTH IN PRIVATE CONSUMPTION (WITH

YEAR-ON-YEAR REAL GROWTH OF AROUND 2 3/4 PERCENT AFTER

ABSTRACTING FROM THE EFFECTS OF MEDICARE)/ AND RAPID

GROWTH IN INVESTMENT IN DWELLINGS (ABOUT 15 PERCENT);

. A SUBSTANTIAL CONTRIBUTION FROM NON-FARM STOCKS AS

STOCK LEVELS PICK UP FROM THEIR LOW LEVELS:

. YEAR-ON-YEAR GROWTH IN NON~FARM PRODUCT OF AROUND

5 PERCENT;

13

. AFTER ALLOWANCE FOR DECLINE IN FARM PRODUCT, TOTAL GDP

GROWTH OF SOME 4 PERCENT;

. A RISE IN THE CURRENT ACCOUNT DEFICIT OF THE BALANCE

OF PAYMENTS FROM 3.6 PERCENT OF GDP IN 1983-84 TO

4 PERCENT;

. 2.5 PERCENT GROWTH IN NON-FARM EMPLOYMENT THROUGH THE

YEAR WHICH, WITH SOME RISE IN THE PARTICIPATION RATE,

IMPLIES A SLIGHT DECLINE IN MEASURED UNEMPLOYMENT; AND

. SOME REDUCTION IN PRESSURES ON FINANCIAL MARKETS.

In s o m e w a y s t h e m o r e i n t e r e s t i n g q u e s t i o n a n d, i n d e e d ,

THAT IDENTIFIED IN THE THEME FOR THIS CONFERENCE, IS WHAT

ARE THE PROSPECTS FOR THE ECONOMY A LITTLE FURTHER DOWN

THE TRACK?

. S o m e w o u l d s a y t h a t t h e Go v e r n m e n t 's p o l i c i e s h a v e y e t

TO BE TESTED WHEN ALLOWANCE IS MADE FOR THE FACT THAT

t h e Go v e r n m e n t c a m e i n t o o f f i c e a t t h e b o t t o m o f a

- RECESSION RIDING ON THE COAT TAILS OF THE PREVIOUS

GOVERNMENT'S WAGES PAUSE INITIATIVE AND AT A TIME WHEN

THE RURAL SECTOR WAS ABOUT TO SWING INTO A BOOM YEAR.

- I WOULD HAVE TO ACKNOWLEDGE THAT CIRCUMSTANCES

HAVE BEEN FAVOURABLE. I WOULD ADD, THOUGH, THAT

IT IS ONE THING TO BE PRESENTED WITH

OPPORTUNITIES AND QUITE ANOTHER TO TURN THEM TO

ADVANTAGE AS SUCCESSFULLY AS THE GOVERNMENT HAS

DONE TO DATE.

Th e r e a r e s o m e h a l l m a r k s t o t h e Go v e r n m e n t 's a p p r o a c h

THAT WILL CONTINUE TO CONTRIBUTE TO A DURABLE RECOVERY:

- As a Go v e r n m e n t w e a r e c o m m i t t e d t o c o n s u l t a t i o n

AND TO BUILDING A CONSENSUS VIEW OF THE

r e q u i r e m e n t s o f p o l i c y . T h e Na t i o n a l Ec o n o m i c

Su m m i t , t h e f r a m i n g a n d i m p l e m e n t a t i o n o f t h e

Pr i c e s a n d In c o m e s Ac c o r d , a n d t h e c o n s u l t a t i v e z. A P PR O A C H TH AT WE ARE T A K I N G IN THE AR E A OF TAX

RE FO R M AMP LY ILLUST RA TE THE POINT. OUR E F F O R T S

TO IMPROVE THE SCOPE A ND D E T A I L OF THE

I N FOR MAT IO N T H A T IS P R O V I D E D ON G O V E R N M E N T

A C T I V I T I E S IS D I R E C T E D T O W A R D S THE SAME END.

15

Th e p u r p o s e in a l l o f t h i s is t o g i v e m o r e

EMPHASIS TO THE NATIONAL INTEREST AND TO USE THAT

TO WEAKEN THE BARRIERS TO CHANGE THAT ARE

PRESENTED BY THE SHORT-TERM SELF-INTEREST OF

DIFFERENT GROUPS IN THE COMMUNITY.

Pr o f e s s o r Ol s e n, w h o is t o b e a k e y-n o t e s p e a k e r

AT THIS CONFERENCE, HAS RECENTLY BEEN SPEAKING ON

s u c h i s s u e s . T h e Pr i c e s a n d In c o m e s a c c o r d

PROVIDES AN EXCELLENT EXAMPLE OF SUCH PROCESSES

a t w o r k. S o m e s e e a r i s k t h a t t h e Ac c o r d w i l l

BUILD NEW INFLEXIBILITIES INTO THE ECONOMY.

Wh i l e t h e a c c o r d in a s e n s e h a s p r e d e t e r m i n e d t h e

Go v e r n m e n t 's p r i o r i t i e s t h e a c c o r d r e l a t e d

PROGRAMS ARE INDIVIDUALLY IN THE NATIONAL

INTEREST AND MORE IMPORTANTLY THE MAINTENANCE OF

THE ACCORD ITSELF IS CERTAINLY A CRUCIAL

DETERMINANT OF OUR ECONOMIC WELFARE.

Th e Go v e r n m e n t is a l s o c o m m i t t e d t o a n a p p r o a c h

THAT IS RESPONSIVE TO THE PRACTICAL REQUIREMENTS

OF ECONOMIC POLICY. THE STEPS THAT HAVE BEEN

TAKEN TO DE-REGULATE ΤΗΈ FINANCIAL SECTOR OF THE

ECONOMY WELL ILLUSTRATE THE PREPAREDNESS OF THE

Go v e r n m e n t t o r e-s h a p e i t s p o l i c i e s i n t h e l i g h t

OF NEW UNDERSTANDING ABOUT THOSE REQUIREMENTS.

16

An o t h e r f e a t u r e o f t h e Go v e r n m e n t 's a p p r o a c h is i t s

ATTITUDE TO THE ROLE OF G O VERNMENT.

. A PRINCIPAL OBJECTIVE IS EFFICIENT AS DISTINCT FROM

SMALL GOVERNMENT. TWO PAPERS HAVE BEEN PUBLISHED

OUTLINING THE GOVERNMENT'S ENDEAVOURS TO IMPROVE

ADMINISTRATIVE AND BUDGETARY REFORM AND I AM CURRENTLY

FINALISING A THIRD PAPER FOR PUBLIC DISCUSSION ON

REFORMS IN THE MANAGEMENT OF STATUTORY AUTHORITIES.

Th e Go v e r n m e n t b e l i e v e s t h a t e f f i c i e n t l y -m a n a g e d

PUBLIC AUTHORITIES HAVE AN IMPORTANT ROLE TO PLAY IN

THE DEVELOPMENT OF THE AUSTRALIAN ECONOMY,

PARTICULARLY WHERE THERE ARE SOCIAL AS WELL AS PURELY

ECONOMIC OBJECTIVES TO BE MET.

/.

. E f f i c i e n c y i n t h e p u b l i c s e c t o r i s j u s t a s i m p o r t a n t

AS E F F I C I E N C Y IN T H E P R I V A T E S E C T O R IN P R O M O T I N G

S U S T A I N A B L E G R O W T H IN T H E E C O N O M Y .

17

AS I HAVE ALREADY INDICATED, IN FRAMING THE 1984-85

Bu d g e t , t h e Go v e r n m e n t h a s r e v i e w e d i t s p r o g r a m

PRIORITIES TO HELP ENSURE THAT IT GETS THE BEST VALUE

FOR THE RESOURCES AVAILABLE TO IT WHILE MAKING ROOM

FOR THE STRENGTHENING IN PRIVATE SECTOR ACTIVITY. IT

IS LIKELY THAT BUDGET OUTLAYS WILL DECLINE AS A

PROPORTION OF GDP AS THE PRIVATE SECTOR STRENGTHENS

BUT THAT WILL NOT BE ACHIEVED IN 1984-85. THERE ARE

HOWEVER SEVERAL FACTORS CONTRIBUTING TO THE ESTIMATED

6.1 PERCENT REAL INCREASE IN BUDGET OUTLAYS IN 1984-85

THAT SHOULD BE NOTED:

- T h e Go v e r n m e n t 's d e c i s i o n t o r e p l a c e t a x

EXPENDITURES WITH PROGRAMS INVOLVING OUTLAYS HAS

AFFECTED BOTH THE GROWTH OF OUTLAYS AND THEIR

PROPORTION AS A PERCENTAGE OF GDP. THUS THE FULL

YEAR EFFECT OF MEDICARE, WHICH PRINCIPALLY

REFLECTS A CHANGE IN THE MEANS OF FINANCING

RATHER THAN THE LEVEL OF EXPENDITURE ON HEALTH

CARE IN THIS COUNTRY, IS ESTIMATED TO ADD

2.2 PERCENTAGE POINTS OF REAL GROWTH IN TOTAL

OUTLAYS IN 1984-85.

- RISING PUBLIC DEBT INTEREST PAYMENTS - PRIMARILY

THE LEGACY OF PAST BUDGET DEFICITS AND THEIR

NECESSARY FINANCING - WILL CONTRIBUTE A FURTHER

1.6 PERCENTAGE POINTS TO REAL GROWTH IN OUTLAYS.

Th a t i s,w e l l o v e r h a l f t h e r e a l g r o w t h in o u t l a y s

IS REPRESENTED BY THESE TWO ITEMS.

- AS WELL, THE REDUCTION IN TAX EXPENDITURES IN THE

HOUSING AREA AND THEIR REPLACEMENT BY THE FIRST

Ho m e Ow n e r Sc h e m e h a s a l s o c o n t r i b u t e d t o t h e

REAL INCREASE IN OUTLAYS IN 1984-85. IN TOTAL,

TAX EXPENDITURE/PROGRAM RELATED MEASURES

ANNOUNCED IN THE ECONOMIC STATEMENT OF MAY 1983

HAVE CONTRIBUTED AROUND $2250 MILLION TO OUTLAYS

IN 1984-85, WHICH IS EQUIVALENT TO AROUND

1.2 PERCENTAGE POINTS OF THE RATIO OF BUDGET

OUTLAYS TO GDP - ESTIMATED AT 31.1 PERCENT. IN

OTHER WORDS IF THIS CHANGE IS TAKEN INTO ACCOUNT

OUTLAYS AS A PROPORTION OF GDP WOULD HAVE

18

DECLINED.

19

In s u m m a r y , t h e r e h a s r a r e l y b e e n a t i m e w h e n p u b l i c

POLICY IN THE FORM OF MACRO ECONOMIC STRATEGY HAS BEEN SO

CRUCIAL TO SUSTAINING GROWTH IN THE ECONOMY. WHILE THE

INITIAL IMPETUS WAS DERIVED, AT LEAST PARTLY, FROM FACTORS

UNRELATED TO THIS GOVERNMENT'S ACTIONS, NOW THAT

INDICATORS ARE SO FAVOURABLE, IT IS VERY MUCH A MATTER FOR

t h e Go v e r n m e n t t o k e e p t h e m f a v o u r a b l e . T h i s Bu d g e t h a s

THAT CENTRAL OBJECTIVE. IT WILL REDUCE PRESSURE ON WAGES,

INTEREST RATES AND INFLATION AND CONSEQUENTLY MAINTAIN THE

MOMENTUM OF GROWTH.