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The Budget's strategy for business and investment



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TREASURER

EMBARGO ' 1»·â– 

NO: 99

' · ‘ ·., ' " · - · · " Z r h : ' . ' ■ '· · ; : ■ ·..· ; 3 -

• . 1 . " . .: · . _ : * · * · * ’ .· * _ . ; · <

ADDRESS BY THE HON R.I, VINER, HP, MINISTER ASSISTING THE TREASURER„ TO THE SECURITIES INSTITUTE OF AUSTRALIA» T 2 SEPTEMBER 1977

THE BUDGET»S STRATEGY FOR BUSINESS AND INVESTMENT

THE ANNUAL BUDGET OF THE COMMONWEALTH GOVERNMENT IS. THE

CENTRE-PIECE OF ANY GOVERNMENT9S, ECONOMIC STRATEGY. UNLESS

BUDGETARY POLICY CAN BE PUT RIGHT AND KEPT RIGHT ECONOMIC

POLICY GENERALLY IS UNLIKELY TO ACHIEVE,ITS OBJECTIVES.

' ■ · : . „ .. · . . · · , .

I WOULD ASK YOU TO KEEP THOSE THOUGHTS FIRMLY IN MIND-;

WHEN MAKING YOUR ASSESSMENTS OF THE 1977-78 BUDGET. λ

• , v . * - - ‘ ' ’

A LITTLE LATER I WILL DISCUSS JUST HOW THE 1977-78 BUDGET

DOES EMBODY THE RIGHT ECONOMIC POLICIES FOR FURTHER RESTORING

THE PRE-CONDITIONS FOR SUSTAINED ECONOMIC GROWTH IN AUSTRALIA

AND HOW IT WILL FOSTER THAT GROWTH. FUNDAMENTALLY„ OF COURSE

THAT GROWTH CAN ONLY TAKE PLACE IN THE PRIVATE SECTOR. OUR

POLICIES REFLECT THAT.

BUT FIRST LET ME BRIEFLY REVIEW THE PROGRESS THAT HAS

ALREADY BEEN MADE. '

v ·

MEMORIES ARE NOT SO SHORT AS TO HAVE ALREADY FORGOTTEN

WHAT THIS GOVERNMENT»S ECONOMIC INHERITANCE AMOUNTED TO.

I MENTION AS ONE OF THE NOTABLE CONTRASTS BETWEEN THE

THREE YEARS TO 1975» AND THE PERIOD SINCE, THE LAXITY .

WHICH CHARACTERISED THE LABOUR BUDGETS. YOU MAY RECALL

AS ONE OF THE PET THEMES OF THE FIRST LABOR TREASURER

THE NEED TO DEMOTE THE COMMONWEALTH GOVERNMENT BUDGET AS

AN ECONOMIC MANAGEMENT TOOL? THAT KIND OF PREACHING WAS

PRACTISED WITH GREAT ENTHUSIASM.

ON COMING TO OFFICE THE GOVERNMENT PUT IN PLACE. A COHERENT

ECONOMIC STRATEGY AIMED AT REDUCING INFLATION AND FOSTERING

A RECOVERY IN PRIVATE SPENDING AND PRODUCTION AND HAS STUCK

TO I T . IT HAS ESTABLISHED OBJECTIVES AND MET THEM.

OUTLAYS, PROJECTED IN OUR FIRST BUDGET TO RISE BY 11.3: PER

CENT, FOLLOWING THE 22.5 PER CENT EXPANSION IN 1975-76,

ACTUALLY INCREASED BY 10.3 PER CENT IN 1976-77; THE DEFICIT,

ESTIMATED TO FALL FROM $3·6 BILLION IN 1975-76 TO $2.6.BILLION

IN 1976-77, ACTUALLY CAME OUT AT $2.7 BILLION. .

‘ 1 . L : " '

EARLY THIS YEAR, THE TREASURER LAID DOWN AS BUDGETARY.

OBJECTIVES FOR 1977-78 A FURTHER REDUCTION IN THE DEFICIT

AND A LEVEL OF OUTLAYS THAT WOULD REPRESENT NO REAL GROWTH

ON 1976-77; THESE OBJECTIVES HAVE BEEN GIVEN EXPRESSION

IN THE 1977-78 BUDGET. ' . . . . . .

CLOSELY RELATED TO THE SUCCESS OF FISCAL RESTRAINT, THE

GROWTH RATE OF THE VOLUME OF MONEY. OVER 1976-77 WAS WELL

WITHIN THE 10-12 PER CENT RANGE PROJECTED BY THE TREASURER

IN THE 1976-77 BUDGET. . .

3

THE OVERALL STANCE OF POLICY WAS ALSO KEPT INTACT FOLLOWING

LAST NOVEMBER6S DEVALUATION BY ADJUSTMENTS TO FISCAL AND

.MONETARY POLICY. -

■ ' * - V ■ - " ‘ - ■ ■ '

WITHIN THE BROAD STRATEGY I HAVE OUTLINED, MEASURES HAVE

ALSO BEEN TAKEN TO DIRECTLY STIMULATE THE BUSINESS SECTOR.

THE INVESTMENT ALLOWANCE, THE TRADING STOCK VALUATION

ADJUSTMENT, AND TAXATION CONCESSIONS IN THE MINING AREA

WERE ALL IMPORTANT INITIATIVES TAKEN IN OUR FIRST YEAR

OF OFFICE.

IN TERMS OF IMPROVED BUSINESS CONDITIONS, WHAT HAS THE

GOVERNMENT6S STRATEGY DONE FOR THE PRIVATE SECTOR?

FIRST, A STABLE AND PREDICTABLE ECONOMIC POLICY ENVIRONMENT

IS AN IMPORTANT ELEMENT IN THE RESTORATION OF CONFIDENCE

AND THE BREAKING DOWN OF UNCERTAINTY. THE SIGNIFICANCE

OF THIS FOR BUSINESS PLANNING AND DECISION TAKING IS OFTEN

OVERLOOKED. STEADFASTNESS IN POLICY, IN ITSELF, HAS - * . - ' " ; - .

FOSTERED AN ENVIRONMENT IN WHICH INVESTMENT DECISIONS

CAN BE MADE WITH GREATER CERTAINTY.

SECOND, A SOLID START HAS BEEN MADE TOWARDS CONQUERING

INFLATION AND LIFTING BUSINESS PROFITABILITY FROM THE

INTOLERABLE NADIR OF 1974-75 - THE MAIN ASPECTS OF THE MALAISE

WHICH SAPPED THE PRIVATE SECTOR OF ITS VITALITY. '

BROADLY-BASED PRICE INDICATORS ROSE IN 1976-77 BY SOME

4 TO 6 PERCENTAGE POINTS LESS THAN IN 1975-76. FOR EXAMPLE,

4

THE IMPLICIT PRICE DEFLATOR FOR GROSS NON-FARM PRODUCT

DERIVED FROM THE NATIONAL ACCOUNTS ROSE B Y . 11„3 PER CENT

IN 1976-77» AS AGAINST 10.5 PER CENT IN 1975=76.

FROM THE LOW POINT OF 12.4 PER CENT IN THE SEPTEMBER

QUARTER 1974, THE SHARE OF GROSS OPERATING SURPLUS OF

COMPANIES IN NON-FARM GDP AT FACTOR COST HAD CLIMBED TO

AN AVERAGE 14.5 PER CENT BY THE FIRST HALF OF 1977.

COMPANY PROFITS INCREASED BY 23-5 PER CENT IN 1976-77

AS A WHOLE. , . '

WAGE COSTS GREW LESS RAPIDLY IN 1976-77 THAN IN 1975=76,

THOUGH THE SLOW-DOWN WAS LESS THAN WE HAD HOPED FOR.

THIRD, STEADY ECONOMIC GROWTH HAS RESUMED.

GROSS NON-FARM PRODUCT INCREASED BY 3.5 PER CENT IN

1976-77. IT IS SIGNIFICANT FOR THE DURABILITY OF RECOVERY

THAT MOST OF THE GROWTH CAME FROM EXPANSION OF PRIVATE

SPENDING, WITH PRIVATE CONSUMPTION AND INVESTMENT IN

PLANT AND EQUIPMENT BOTH CONTRIBUTING. '

DWELLING INVESTMENT AND EXPORTS WERE CONSIDERABLY HIGHER

FOR THE YEAR AS A WHOLE, DESPITE SOME SLACKNESS IN THE

LATER MONTHS. V

CAPITAL INVESTMENT ON PLANT AND EQUIPMENT ROSE BY 6 PER

CENT IN REAL TERMS

IT IS TRUE, OF COURSE, THAT THERE WAS. A FLAT PERIOD ;

IN THE EARLY PART OF 1977· . ' · ' ■ . 1

THIS WAS NOT, AS SOME HAVE SUGGESTED, EVIDENCE OF ANY

BASIC WEAKENING IN THE RECOVERY PROCESS. *

IT WAS DUE ALMOST ENTIRELY TO A CHANGE IN TIMING OF

EXPENDITURES AND IMPORTS ASSOCIATED WITH THE DEVALUATION

IN NOVEMBER OF LAST YEAR. " *

IT IS WORTH NOTING THAT THERE HAS BEEN SOME PICK-UP

IN THE INDICATORS OF ACTIVITY OVER RECENT MONTHS AND THAT

THERE WAS REAL GROWTH RECORDED IN NON-FARM PRODUCT DURING

THE JUNE QUARTER." " ' ' · ·

- ■ ■ ' * 1 ' ' * > ' · Λ . . - ■ * ' ' ·

OF PARTICULAR INTEREST IN THE JUNE QUARTER WAS THE

SEASONALLY ADJUSTED 5*3 PER CENT. DECLINE IN THE VOLUME

OF IMPORTS OF GOODS AND SERVICES AND THE 1.7 PER CENT

INCREASE IN EXPORTS OF GOODS AND SERVICES. TRADE FIGURES

FOR JULY AND AUGUST REVEAL A CONTINUED STRENGTHENING IN .

AUSTRALIA* S TRADING POSITION WHICH SHOWS THAT THE BENEFITS

OF DEVALUATION ARE NOW BEGINNING TO FLOW THROUGH.

LET ME RETURN NOW TO THE 1977-78 BUDGET STRATEGY. THE

GOVERNMENT'S BASIC OBJECTIVES WERE REAFFIRMED AS FOLLOWS

IN THE TREASURER'S BUDGET SPEECH; , ■ < .

. "OUR FIRST GOAL IS TO MAINTAIN THE UNDERLYING

TREND TO LOWER.INFLATION. . . .

OUR SECOND GOAL, WHICH IS DEPENDENT UPON THE

ACHIEVEMENT OF THE FIRST, IS TO PROMOTE MODERATE

AND NON-INFLATIONARY GROWTH IN ORDER TO CREATE

JOBS AND REDUCE UNEMPLOYMENT."

THE, 1977-78 BUDGET WILL MOVE AUSTRALIA FURTHER TOWARDS

ACHIEVING THESE OBJECTIVES. ONE OF ITS MOST-IMPORTANT .

FEATURES IS ITS REDUCED DEFICIT, WHICH GIVES EFFECT TO

AN OBJECTIVE STATED LAST JANUARY. THIS WILL CONTRIBUTE TO

THE CONTROL OF INFLATION BY DAMPENING INFLATIONARY

EXPECTATIONS AND, MORE TANGIBLY, BY HELPING TO KEEP

MONETARY CONDITIONS IN CHECK. TO PUT A LITTLE MORE

PRECISION ON THE LATTER, I REFER TO THE TREASURER'S STATEMENT

IN THE BUDGET SPEECH THAT;. .

"DESPITE THE MANY HAZARDS IN SUCH PROJECTIONS, •. Z ' * · · · · · .

THE PRESENT OUTLOOK. INDICATES FUTURE GROWTH IN

THE BROADLY DEFINED MEASURE OF. THE VOLUME OF .

MONEY, M3, IN THE RANGE OF .8-10 F>ER CENT OVER THE - ’ ‘ . ; λ ’ .

COURSE OF 1977-78. ....... o .... . . ..THIS. WOULD MAINTAIN

THE GOVERNMENT'S POLICY OF PROVIDING ADEQUATE FUNDS

FOR SUSTAINABLE RECOVERY IN PRIVATE SECTOR ACTIVITY

AND EMPLOYMENT, WHILE CONTINUING TO BEAR DOWN

STEADILY ON INFLATION AND INFLATIONARY EXPECTATIONS." .

■ ■ . . ·.

THE GOVERNMENT HAS, IN THIS WAY, QUANTIFIED THE BROAD .

MONETARY OUTLOOK IN THE .LAST TWO BUDGETS IN THE BELIEF THAT

THE PRIVATE SECTOR IS THEREBY PROVIDED WITH A GREATER DEGREE

OF CERTAINTY REGARDING THAT ASPECT.OF POLICY IN THE YEAR

AHEAD THAN IT HAD PREVIOUSLY ENJOYED - PARTICULARLY IN THE

1973-75 PERIOD. IT SHOULD HELP, FOR EXAMPLE, TO ALLAY

FEARS OF EITHER EXCESSIVE FINANCIAL TIGHTNESS OR FINANCIAL

EASE. I AM SURE THAT THE SIGNIFICANCE OF THAT MESSAGE

WOULD NOT. BE LOST ON- THIS AUDIENCE. IT WOULD NOT BE A.

VERY HELPFUL MESSAGE, OF COURSE, IF THE- RANGE GIVEN FOR

M3 GROWTH WERE-UNREALISTIC. ON THAT SCORE., THE GOVERNMENT’S

RECORD SPEAKS FOR ITSELF„

IMPORTANT AS A REDUCED BUDGET DEFICIT IS, IT ALONE BY.NO

MEANS OFFERS A FULL EXPLANATION OF THE WAY THE 1.977.-78

BUDGET WILL SERVE THIS GOVERNMENT’S OBJECTIVES; IT IS A

COMPLEX ' SET OF INTEGRATED MEASURES. TODAY I WANT T.O; TALK

ABOUT FOUR ASPECTS - THE EASING OF THE BURDEN ON. MONETARY

POLICY, TAX REFORM, ENERGY CONSERVATION AND THE L I N K ,

BETWEEN THE BUDGET AND EXTERNAL ECONOMIC .POLICY. (

NOT ONLY IS THE.BUDGET. CONSISTENT WITH AN APPROPRIATE

MONETARY OUTCOME BUT ALSO, BECAUSE OF -THE BETTER BALANCE . • · ' Λ _ '

THAT IS BEING ACHIEVED BETWEEN FISCAL AND MONETARY POLICIES,

OPENS UP THE PROSPECT OF ACHIEVING THAT OUTCOME WHILE EASING

THE BURDEN ON MONETARY POLICY. THE TREASURER SPELT OUT THE

IMPLICATIONS FOR MONETARY POLICY BY STATING IN THE BUDGET

"WE ARE THUS A STEP CLOSER TO OUR OBJECTIVES’ ; OF.

!· SUSTAINABLY:LOWERING INTEREST RATES AND BEGINNING ·

' TO EASE THE RESTRICTIONS ON BANK LENDING DURING . .

THE COURSE" OF 1977-78." ' . .

LET ME ELABORATE. ■

THE OPERATIVE WORDS ON INTEREST RATES ARE "SUSTAINABLY .

LOWERING"·. A SUSTAINABLE- LOWERING OF-INTEREST RATES

REQUIRES MUCH LOWER'· RATES OF INFLATION’ · THAN · WE·' HAVE BEEN

ACCUSTOMED TO IN RECENT YEARS·, AND THE" CONTINUED WINDING

DOWN OF INFLATIONARY EXPECTATIONS; IN ANY OTHER CIRCUMSTANCES

A LOWERING' WOULD BE ONLY TRANSITORY. TO THAT. END.THE

FURTHER REDUCTION IN' THE BUDGET DEFICIT WILL RESTRAIN THE .

PUBLIC SECTOR BORROWING REQUIREMENT AND EASE THE COMPETITION

FOR FUNDS IN THE CAPITAL MARKET. ECONOMIC CONDITIONS HAVE

BEEN MOVING IN- THE REQUIRED DIRECTION. FOR REDUCED INTEREST

RATES, AND THE 1977-78 BUDGET IS AIMED AT MOVING THEM

FURTHER IN THAT'DIRECTION. - .

ON THE EASING OF RESTRICTIONS ON BANK LENDING, THE TREASURER

WAS ABLE "TO MENTION ONE CONCRETE STEP IN THE BUDGET'SPEECH -

THAT THE GOVERNMENT' HAS ADVISED THE RESERVE BANK THAT IT WANTS

9

TO SEE BANKS AND OTHER. FINANCIAL INSTITUTIONS ENCOURAGED TO

INCREASE-UTHEIR LENDING "FOR PRIVATE HOUSE' BUILDING·, 'PARTICULARLY.

IN THOSE STATES AND AREAS WHERE THE CAPACITY OF THE BUILDING

INDUSTRY IS UNDER-UTILISED. ~ '· ' ' . " ' ' ' '

I TURN NOW TO TAXATION REFORM. THE GOVERNMENT APPROACHED ITS

BUDGETARY DELIBERATIONS THIS YEAR WITH THE FIRM CONVICTION

THAT ALTHOUGH THE DEFICIT HAD TO BE REDUCED, DECISIVE STEPS

ALSO HAD TO BE TAKEN TO EASE THE BURDEN OF TAXATION THAT

HAS SAPPED THE SPIRIT AND INITIATIVE. OF THE COMMUNITY OVER

RECENT YEARS. THE GOVERNMENT WAS..NOT PREPARED TO .DO SO AT -

THE EXPENSE OF;CONSISTENT ECONOMIC STRATEGY. IT HAD TO BE ·

SATISFIED THAT A PROPER.BALANCE COULD BE ACHIEVED BETWEEN

THE BASIC ARMS O F ‘.ECONOMIC POLICY AND, THEREFORE·, THAT IT'

WAS INTRODUCING REFORMS. AT A TIME WHEN THEY WOULD HAVE ' ·.

MAXIMUM MEANING FOR THE TAXPAYER. UNLIKE OUR PREDECESSORS:

WE. BELIEVE THAT TAXES HAVE TAKEN TOO MUCH FROM THE .

COMMUNITY AND THAT PEOPLE NOW WANT GREATER CHARGE OF THEIR

OWN AFFAIRS. THE PERSONAL INCOME TAX SCALE BEING INTRODUCED

NEXT FEBRUARY IS DESIGNED TO. RESTORE INCENTIVE AND THE WILL, .

TO WORK BY RELIEVING BLUE COLLAR AND WHITE COLLAR WORKERS

ALIKE OF THE DEBILITATING PROSPECT OF WORKING HARDER ON

TAKING A PROMOTION FOR NO WORTHWHILE NET FINANCIAL GAIN.

10

. ■ ' - . ' γ ■ · · . . : , , ' . τ ■ ■ . · ' ■ '

THE GOVERNMENT'S CONCERN WITH THE, EXCESSI VE, TAX BURDEN . ·

AND THE RESULTANT EROSION OF INCENTIVE;IS NOT CONFINED .

TO THE PERSONAL SECTOR. IN 1977-78 THE BUSINESS SECTOR

WILL BENEFIT TO THE EXTENT OF ABOUT $900 MILLION FROM

COMPANY TAX REFORMS INTRODUCED LAST YEAR - THE INVESTMENT

ALLOWANCE, TRADING STOCK; VALUATION ADJUSTMENT AND CONCESSIONS

IN THE MINING AREA. PERSONAL TAX INDEXATION ALSO BENEFITS

SMALL BUSINESSES AS WELL AS WAGE AND SALARY EARNER TAXPAYERS.

THE TASK OF PRESERVING THESE ESTABLISHED TAX· REFORMS AND ,

OF FINANCING THE COSTLY'BUT ESSENTIAL NEW REFORM IN '

PERSONAL TAXATION IS A FORMIDABLE ONE AND HIGHLIGHTS

THE CONTINUING. NEED FOR RESTRAINT O N ,BUDGET OUTLAYS . , '

THE 1977-78 BUDGET GIVES EFFECT TO THE OBJECTIVE STATED

LAST JANUARY OF KEEPING THE GROWTH O F .NOMINAL OUTLAYS .

TO WITHIN ZERO REAL GROWTH. . . " ' .

IN VIEW OF THE MAGNITUDE OF THE TASK OF FINANCING TAX

REFORMS IT WAS ALSO DECIDED, AS Y O U ’KNOW, TO INCREASE

THE RATES OF COMPANY TAX TO APPLY IN RESPECT OF ‘

1976-77 INCOMES.. ' '

11

' i , · ν ’ ■ · ' . · · . · . . ’

THIS IS NOT A STEP TAKEN LIGHTLY5 IT WAS TAKEN ONLY

BECAUSE OF THE NEED TO FINANCE WHAT WAS. SEEN AS A VITAL

PERSONAL INCOME TAX REFORM.

IT IS, NONETHELESS, A FACT THAT VERY SUBSTANTIAL TAX.

CONCESSIONS WERE GIVEN TO BUSINESSES LAST YEAR. I MENTIONED

EARLIER A FIGURE OF $900 MILLION AS THEIR COST TO THE

BUDGET IN 1977-78, WHICH COMPARES WITH THE $200 MILLION

INVOLVED IN THE COMPANY TAX INCREASE IN 1977-78. THAT

INCREASE HAS ALSO TO BE SEEN AGAINST THE BACKGROUND OF THE

RECENT AND PROSPECTIVE STRONG INCREASES IN CORPORATE

PROFITABILITY.

EVEN WITH THIS INCREASED RATE AND THE INCREASES IN CORPORATE

PROFITS IN 1976-77, COMPANY TAX IN TOTAL IS ESTIMATED TO

INCREASE BY ONLY $17^ MILLION, OR 6 PER CENT, IN 1977-78

COMPARED WITH $302 MILLION, OR 12 PER CENT, IN 1976-77. j

IN OTHER WORDS, NOTWITHSTANDING THE INCREASE IN THE BASIC ' ' · " . . . i

RATE OF COMPANY TAX, THERE WILL BE A SHARP DROP IN THE RATIO

OF ACTUAL TAX PAYABLE TO COMPANY INCOMES. '

ALTHOUGH NOT PART OF THE BUDGET TAX PROPOSALS THEMSELVES,

THE TAXATION AND OTHER CONCESSIONS.WHICH THE GOVERNMENT HAS

GRANTED TO HELP THE NORTH-WEST SHELF NATURAL.GAS PROJECT. GET

STARTED DESERVE MENTION IN THE CONTEXTS BOTH OF INCENTIVES

AND ENERGY CONSERVATION AND DEVELOPMENT. THESE CONCESSIONS

AMPLY DEMONSTRATE THE GOVERNMENT’S PREPAREDNESS TO ASSIST } ' . · . · . . ■ ■ · . 5

VITAL DEVELOPMENT PROJECTS AND, TOGETHER WITH OUR DECISIONS j

. . 4

ON URANIUM, DEMONSTRATE THE GOVERNMENT'S RESOLVE TO> SEE

AUSTRALIA'S ENERGY RESOURCES DEVELOPED IN. A WORLD THAT

IS. SHORT OF ENERGY AT A TIME WHEN AUSTRALIA IS HUNGRY

FOR JOBS. .· v. . . . ■■ " ' '

IN THIS YEAR'S BUDGET, T O O ,.THE GOVERNMENT HAS FOCUSED ON

THE PRESSING NEED TO CONSERVE AND DEVELOP.OUR CRUDE OIL

AND OTHER ENERGY R E S O U R C E S .

AUSTRALIA CANNOT AFFORD A PRICING POLICY THAT FLIES IN THE

FACE OF ALL ENERGY CONSERVATION PRINCIPLES BY CONDONING

EXCESSIVE CONSUMPTION O F .OUR SCARCE PRESENTLY K N O W SUPPLIES

OF CRUDE OIL, . . . . .

IN ESSENCE, WE HAVE ANNOUNCED THE PROPORTIONS OF OIL TO BE

SOLD AT IMPORT PARITY PRICES THAT WILL APPLY IN THE FIRST

FOUR YEARS OF THE MOVE TOWARDS IMPORT PARITY,

THIS WILL IMPART A DEGREE OF CERTAINTY FOR FORWARD PLANNING.

WE HAVE THUS INSTITUTED A PRICING POLICY THAT WILL ENCOURAGE

NEW EXPLORATION AND ENSURE FULL RECOVERY OF KNOWN DEPOSITS,

MY COLLEAGUE, THE TREASURER, ANNOUNCED IN HIS BUDGET SPEECH

THAT, IN VIEW OF THE VERY HIGH PROFITS WHICH CRUDE OIL

PRODUCERS WOULD OBTAIN FROM THE GOVERNMENT'S. DECISION TO

PROGRESSIVELY MOVE TOWARDS IMPORT PARITY PRICING FOR FIELDS

DISCOVERED PRIOR TO 14 SEPTEMBER 1975, THE CRUDE OIL LEVY

WOULD BE INCREASED, BUT THAT THE GOVERNMENT WAS EXAMINING

• - . ■ . ' . 12 . .

■c

13

€rt · . ' .

WHETHER THE LEVY SHOULD BE REPLACED BY A RESOURCES TAX.

SUCH A TAX WOULD BE RELATED TO PROFITS DERIVED FROM THESE . > 'If . '* · · . > . ■ ' ' I ' · . ... ' - -I : ■ ■ ·

FIELDS. IF SUCH A TAX IS IMPOSED, IT. WOULD BE THE INTENTION • ^ v "i - ' · · ~ '·'''

TO ALLOW FOR THE RISKY NATURE OF THE INDUSTRIES CONCERNED,

AND NOT TO DISCOURAGE VIABLE PROJECTS. THE MINISTER FOR

NATIONAL RESOURCES ANNOUNCED IN A STATEMENT FOLLOWING THE

BUDGET SPEECH THAT THE GOVERNMENT WOULD BE SEEKING EARLY

. DISCUSSIONS WITH THE RELEVANT OIL PRODUCING COMPANIES ON

THE POSSIBLE FRAMEWORK OF SUCH A TAX.

' . . . ; 'c. Li. „ . ’ ·

MR ANTHONY ALSO ANNOUNCED, IN A STATEMENT CONCERNING THE : . Λ,,".· ' - -i · " " ' ' ■ · '

GOVERNMENT’S URANIUM POLICY ON 25 AUGUST, THAT IN VIEW OF _ ■ : ,i; - · . - . ' · · ■ ■

THE SUBSTANTIAL ECONOMIC BENEFITS LIKELY TO BE OBTAINED BY

PRODUCERS FROM THE DEVELOPMENT OF AUSTRALIA’S URANIUM

RESERVES, THE GOVERNMENT HAD ALSO DECIDED TO INITIATE

DISCUSSIONS WITH URANIUM PRODUCERS ON THE POSSIBLE FRAMEWORK

OF A RESOURCES TAX ON THE URANIUM MINING INDUSTRY. - ' ' , > : v ' . · · ■ > ' · . - .

DISCUSSIONS ARE TAKING PLACE WITH INDUSTRY REPRESENTATIVES.

IN THE LIGHT OF VIEWS EXPRESSED AT THE MEETINGS AND FURTHER

WRITTEN MATERIAL THE COMPANIES HAVE PROMISED TO SUPPLY, THE

GOVERNMENT WILL EXAMINE FURTHER THE QUESTION OF INTRODUCING

A PROFIT RELATED RESOURCES TAX.. . .

THE FINAL ASPECT OF BUDGET STRATEGY■WHICH I WANT TO TOUCH

ON IS ITS RELATIONSHIP TO EXTERNAL ECONOMIC POLICY.

AUSTRALIA’S STRENGTHENING TRADE ACCOUNT PROVIDES

AN ENCOURAGING BASIS' FOR THE ROLE OF EXTERNAL POLICY IN

JZL . v' ' *

14

THE ANTI-INFLATION STRATEGY IN THE YEAR AHEAD, AS I

MENTIONED EARLIER, EXPORTS HAVE BEEN MOVING UPWARDS AND

IMPORTS DOWNWARDS IN THE MOST RECENT MONTHS. AUSTRALIA'S ■ . ’ . . . · · · * : . . - ­

UNDERLYING CURRENT ACCOUNT POSITION IS STRENGTHENING.

MEANWHILE, LONG-TERM OFFICIAL BORROWING OVERSEAS HAS BEEN

RESUMED TO REINFORCE THE CAPITAL ACCOUNT. ARRANGEMENTS

FOR BORROWINGS BY ΊΉΕ COMMONWEALTH GOVERNMENT FOR $600

MILLION OR MORE ARE BEING PLANNED FOR 1977-78. THE PROCEEDS

($226 MILLION) OF A EURODOLLAR BOND ISSUE WILL BE RECEIVED

IN SEPTEMBER. OVER AND ABOVE THIS, AUSTRALIA HAS THE

CAPACITY TO RAISE AT SHORT NOTICE FURTHER VERY SUBSTANTIAL

AMOUNTS IN THE WORLD'S CAPITAL MARKETS, WHETHER BY PUBLIC

ISSUES OR PRIVATE PLACEMENTS.

LAXNESS IN FISCAL AND MONETARY POLICIES WOULD ENCOURAGE

INFLATION AND INFLATIONARY EXPECTATIONS, UNDERMINE OUR

INTERNATIONAL COMPETITIVENESS AND SABOTAGE ΊΗΕ BENEFITS

FROM LAST NOVEMBER'S DEVALUATION. THE 1977-78 BUDGET AVOIDS

THIS PITFALL.

LET ME NOW TURN BRIEFLY TO THE ECONOMIC OUTLOOK.

THE FISCAL, MONETARY AND EXTERNAL POLICY SETTINGS WHICH I

HAVE DESCRIBED LAY THE FOUNDATIONS FOR FURTHER IMPROVEMENT

IN ECONOMIC CONDITIONS THROUGH 1977-78. .

ANY REMAINING EFFECTS OF LAST YEAR'S DEVALUATION, SOME

"CATCH-UP" EFFECTS FROM THE RECENT PRICES "PAUSE" AND THE

15

DIRECT AND INDIRECT EFFECTS OF THE PRICING AND DUTY

DECISIONS ON PETROLEUM PRODUCTS ANNOUNCED IN THE BUDGET

SPEECH WILL AFFECT THE COURSE OF INFLATION DURING 1977-78.' \ . -i'f· ■ ■ ■ ■ _

BUT, MORE IMPORTANTLY, THE BASIC DIRECTION OF POLICY IS

SUCH AS TO FURTHER REDUCE THE UNDERLYING RATE OF INFLATION.

THUS, WHILE THE FIRST HALF OF 1977-78 MAY SEE SLIGHTLY HIGHER

RATES OF PRICE INCREASE THE TREND IN THE SECOND HALF WILL

VERY DEFINITELY BE DOWNWARDS. . '

ANOTHER MAJOR INFLUENCE ON INFLATION - AND UNEMPLOYMENT'-

IN 1977-78 WILL BE THE EXTENT OF WAGE INDEXATION THAT IS

APPLIED. " · ' ■ ' ' ' ‘ : · ■· ·:· · ' ' · ·: " ' · · ; ■ ·

. : · , · ' · · ; · .· . ■ ■ : · · ,

IT GOES WITHOUT SAYING THAT THE LOWER THE PERCENTAGE O F Λ

INDEXATION GRANTED THE MORE INFLATION WILL BE WOUND DOWN

AND THE BETTER THE PROSPECTS WILL BE FOR A REDUCTION IN

UNEMPLOYMENT. , ■ ·. ‘ . -

AS EXPLAINED EARLIER, DEMAND AND ACTIVITY HAVE BEGUN TO

GROW AGAIN» AND THEY ARE EXPECTED TO GATHER PACE OVER THE .

COURSE OF : 1977-78. .

■ · . , ' : ■ ; . . . -

INCREASES IN DOMESTIC DEMAND WIL L .AGAIN--BE CONCENTRATED

IN THE PRIVATE SECTOR AND AS THE TRADE ACCOUNT CONTINUES

TO SWITCH AROUND, IT TOO WILL CONTRIBUTE SIGNIFICANTLY TO

THE GROWTH OF DOMESTIC PRODUCT OVER THE COURSE OF THE YEAR.

^ J*

GROSS NOW-FARM PRODUCT SHOULD INCREASE BY OVER k PER CENT

BETWEEN THE JUNE QUARTERS OF 1977 AND 1978.

DUE TO THE WITHIN-YEAR PATTERNS - PARTICULARLY THE

STRONG FIRST HALF AND WEAK SECOND HALF OF 1976-77 -

GROWTH OF THAT ORDER IN NON-FARM PRODUCT OVER THE COURSE

OF 1977-78 WOULD ENTAIL GROWTH FOR 1977-78 AS A WHOLE OF

ABOUT 2 PER CENT.

ASSOCIATED EMPLOYMENT -GROWTH SHOULD BROADLY TAKE UP.

THE GROWTH IN T h E LABOUR FORCE BUT PERHAPS NOT MUCH

MORE THAN THAT.: ■ ' ·

THE OUTLOOK FOR UNEMPLOYMENT"THEREFORE:IS FOR LITTLE

CHANGE FROM JUNE 1977 TO JUNE 1978 ALTHOUGH IMPROVEMENT

SHOULD BEGIN TO EMERGE IN 1978 AS PRODUCT AND EMPLOYMENT

GROWTH GATHER MOMENTUM. - .

; . · · .

THE MAIN OBSTACLE TO GREATER IMPROVEMENTS IN INFLATION,

DEMAND, PRODUCT AND EMPLOYMENT IS THE REMAINING REAL WAGE/

PRODUCTIVITY DISTORTION "- OR,· AS THE OECD HAS DUBBED - IT, "

THE REAL WAGE OVERHANG». ON THE OECD'S CALCULATIONS

17

RELATING TO A LARGE NUMBER OF COUNTRIES , ATJSTRALIA HAD

THE LARGEST SUCH OVERHANG IN MID-1 976» IT“IS N O 'COINCIDENCE

THAT THE COUNTRY WHICH HAS HAD MOST SUCCESS IN BRINGING DOWN

INFLATION AND PROMOTING ECONOMIC RECOVERY - THE UNITED STATES

HAD NO OVERHANG AT ALL ACCORDING TO THE OECD CALCULATIONS.

IN PRESENTING THESE OECD CALCULATIONS TO THE RECENT NATIONAL

WAGE CASE THE COMMONWEALTH ACKNOWLEDGED THAT THERE COULD BE

DIFFERENT VIEWS ON THE METHODS ADOPTED BY THE OECD. WE

WOULD NOT EXPECT, HOWEVER, THAT SUCH DIFFERENCES WOULD ,

AFFECT THE ESSENTIAL POINT THAT THERE IS A LARGE REGAINING. . . · : . * ‘ " · ' r . . ' 5 · * -** ** ' · · ‘ · · · - » ............ ·

REAL WAGE/PRODUCTIVITY IMBALANCE IN AUSTRALIA. WHICH UNTIL

IT IS CORRECTED MAKES ALL TALK OF QUICKLY REDUCING

UNEMPLOYMENT MERELY HOLLOW RHETORIC. , . ■ I ■ . : " . V

THE ECONOMIC OUTLOOK WHICH I HAVE DESCRIBED BRIEFLY TO YOU

ASSUMES ABOUT THE SAME DEGREE OF WAGE INDEXATION IN 1977-78

AS IN 1976-77c

AGAINST THE BACKGROUND OF HIGH UNEMPLOYMENT SO CLOSELY

RELATED TO EXCESSIVE WAGE COSTS THAT QUITE FRANKLY WOVLD

NOT BE GOOD ENOUGH. " - ■ "

-IT WOULD, FOR ONE THING, CONTRIBUTE LITTLE TO REDUCING THE

REAL WAGE/PRODUCTIVITY DISTORTION. '

■ -X. ·'

WHAT IS NEEDED IS FOR THE COMMISSION TO MAKE A.CONTRIBUTION

TO THIS PROBLEM BY LOWER AWARDS.

P

.)

THE COMMISSION, COULD REACH THE CONCLUSION IT DID ONLY BY:. j ·â– .., .... * * - -APPLYING T H A T .PARTICULAR - AND AS IT TURNS OUT QUITE ■ >i , . · ■ » i - . , i ' INAPPROPRIATE - DEFLATOR. - . ··.·H · . : 5 . ' ■ · '

ON ALL OTHER AVAILABLE MEASURES■REAL WAGES IN THE JUNE

QUARTER OF 1977 WERE AS HIGH AS OR HIGHER THAN THEY HAD

BEEN A YEAR EARLIER.

WHILE OUR ATTENTION NATURALLY FOCUSES ON THE SHORT-TERM

ECONOMIC OUTLOOK, WE SHOULD NOT LOSE SIGHT OF THE ENCOURAGING

LONG-TERM PROSPECTS THAT ARE OPENING UP AS A RESULT OF THE

PROGRESS NOW BEING MADE TOWARDS IMPLEMENTATION OF MAJOR

NATURAL RESOURCE DEVELOPMENT PROPOSALS. I HAVE IN MIND

ESPECIALLY URANIUM AND THE NORTH-WEST SHELF, BUT THERE ARE

MANY OTHER PROJECTS, PARTICULARLY IN COAL MINING. AS I

HAVE SAID THE GOVERNMENT STANDS READY, AND HAS DEMONSTRATED

THAT READINESS, TO OFFER REASONABLE INCENTIVES TO GET THESE

VITAL PROJECTS UNDER WAY. WHILE KEEN TO SEE THE ECONOMIC

BENEFITS FLOW, WE ARE ALSO BEING CAREFUL TO BALANCE AGAINST

STRICTLY ECONOMIC CONSIDERATIONS THE MANY OTHER CONSIDERATIONS

INVOLVED. IN THE CASE OF URANIUM, THE GOVERNMENT'S DECISION

CERTAINLY HAS REGARD TO THE ECONOMIC BENEFITS TO AUSTRALIA

AND OUR INTERNATIONAL OBLIGATIONS TO AN ENERGY HUNGRY WORLD,

BUT ALSO PROTECTS THE INTERESTS OF THE ENVIRONMENT AND • - ‘ Λ · .

ABORIGINES AND ENSURES THAT PROPER SAFEGUARDS ARE AVAILABLE

AGAINST MISUSE OF OUR URANIUM BY BUYER COUNTRIES.

18

TO THE EXTENT THAT IT DOES,SO, THE OUTLOOK; FOR JOBS - : '

AND UNEMPLOYMENT - WILL BE STRENGTHENED..·: .· . . . '·Î¯ÏŠ;

Jr, i ■ ■ ■ > ; · ;

HOWEVER, THE NATIONAL WAGE CASE DECISION BROUGHT DOWN THE ' '

WEEK AFTER THE BUDGET EMBODIED AN EVEN GREATER DEGREE OF ·

INDEXATION THAN APPLIED, ON AVERAGE, IN 1976-77 . A

CONTINUATION OF THAT THROUGHOUT 1-977-78 WOULD BE MOST

UNHELPFUL TO INFLATION AND UNEMPLOYMENT. '

• . ; - i

THE GOVERNMENT SHALL, OF COURSE, CONTINUE TO URGE THE BENCH

TOWARDS MODERATION - STRESSING IN THAT REGARD THE RELEVANCE

OF THE TAX RELIEF WE ARE PROVIDING.

I SHOULD MAKE ONE FURTHER COMMENT IN THIS REGARD. THERE

HAS BEEN SOME CONFUSION RECENTLY AS TO WHAT HAS BEEN _ _

HAPPENING TO REAL WAGES OVER THE LAST YEAR OR SO. .

THE CONCILIATION AND ARBITRATION COMMISSION IN HANDING DOWN

ITS RECENT JUDGEMENT SAID THAT WAGES HAD FALLEN IN REAL .

TERMS OVER THE LAST YEAR. IT CAME TO THAT CONCLUSION BY .. . . . .

DEFLATING MOVEMENTS IN MONEY WAGES BY THE CONSUMER PRICE.·

INDEX WITHOUT MAKING ANY ALLOWANCE FOR THE CHANGES EFFECTED

TO HEALTH INSURANCE ARRANGEMENTS - IN 1 97 6 - i e WITHOUT ALLOWING

FOR THE FACT THAT HEALTH INSURANCE HAS TO BE PAID FOR. BY THE

COMMUNITY IRRESPECTIVE OF THE ADMINISTRATIVE ARRANGEMENTS

APPLYING

THE COMMISSION, COULD REACH THE CONCLUSION IT DID ONLY BY : .-jl ; < · . ■ > · · ' — - ---- > — APPLYING T H A T .PARTICULAR - AND AS IT TURNS OUT QUITE

INAPPROPRIATE.- DEFLATOR. :

ON ALL OTHER AVAILABLE MEASURES REAL WAGES IN THE JUNE

QUARTER OF 1977 WERE AS HIGH AS OR HIGHER THAN THEY HAD

BEEN A YEAR EARLIER.

WHILE OUR ATTENTION NATURALLY FOCUSES ON THE SHORT-TERM ,

ECONOMIC OUTLOOK, WE SHOULD NOT LOSE SIGHT OF THE ENCOURAGING

LONG-TERM PROSPECTS THAT ARE OPENING UP AS A RESULT OF THE

PROGRESS NOW BEING MADE TOWARDS IMPLEMENTATION OF MAJOR

NATURAL RESOURCE DEVELOPMENT PROPOSALS. I HAVE IN MIND

ESPECIALLY URANIUM AND THE NORTH-WEST SHELF, BUT THERE ARE

MANY OTHER PROJECTS, PARTICULARLY IN COAL MINING. AS I

HAVE SAID THE GOVERNMENT STANDS READY, AND HAS DEMONSTRATED

THAT READINESS, TO OFFER REASONABLE INCENTIVES TO GET THESE

VITAL PROJECTS UNDER WAY. WHILE KEEN TO SEE THE ECONOMIC

BENEFITS FLOW, WE ARE ALSO BEING CAREFUL TO BALANCE AGAINST

STRICTLY ECONOMIC CONSIDERATIONS THE MANY OTHER CONSIDERATIONS

INVOLVED. IN THE CASE OF URANIUM, THE GOVERNMENT'S DECISION

CERTAINLY HAS REGARD TO THE ECONOMIC BENEFITS TO AUSTRALIA

AND OUR INTERNATIONAL OBLIGATIONS TO AN ENERGY HUNGRY WORLD,

BUT ALSO PROTECTS THE INTERESTS OF THE ENVIRONMENT AND

ABORIGINES AND ENSURES THAT PROPER*SAFEGUARDS ARE AVAILABLE

AGAINST MISUSE OF OUR URANIUM BY BUYER COUNTRIES.

I LEAVE YOU WITH THIS MESSAGE s THE GOVERNMENT KNOWS

WHAT IT.IS DOING AND KNOWS WHERE IT WANTS AUSTRALIA

TO GO. WE WANT TO RESTORE VIGOUR AND PURPOSE TO OUR

NATIONAL DEVELOPMENT. BUT THAT IS NOT A TASK FOR

GOVERNMENT ALONE; ALL SECTIONS OF THE COMMUNITY MUST

WORK TOGETHER TO HARNESS OUR ABUNDANT NATURAL AND HUMAN

RESOURCES, AS THE TREASURER SAID IN HIS BUDGET SPEECH,

PART OF THE RESPONSIBILITY LIES WITH BUSINESS LEADERS.

WE LOOK TO THEM TO RESPOND TO THE MUCH IMPROVED

ENVIRONMENT WHICH THE GOVERNMENT IS CREATING FOR THE

FUNCTIONING OF BUSINESS,