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TREASURER

EMBARGO '

NO. 79

Ad d r ess b y the Tr e a s u r e r , the Ho n o u r a b le J ohn Howard M.P.

to the Vi c t o r i a n Chamber of Ma n u f a c t u r e s An n u a l - D i n n e r *— ,

So uthern Cross Ho t e l , Mei b o u r n e , Th u r sd ay 17 August 1978 .

I PARTICULARLY VALUE THE OPPORTUNITY OF ADDRESS I _NG: YOUR ANNUAL

Di n n e r . . . . ; . "

Th i s i s t h e f i r s t o c c a s io n I h a v e a d d r e s s e d a Me lb o u r n e a u d i e n c e

SINCE DELIVERING THE BUDGET*AND IT IS ALSO THE FIRST OCCASION

THAT I HAVE HAD THE HONOUR OF SPEAKING TO A GATHERING OF THE

Vi c t o r i a n Chamber of Ma n u f a c t u r e s . . . . .

Your Chamber and your members are a c o n s t a n t d e m o n s t r a t io n to

t h e Go v e r n m e n t and a b r o a d e r c o m m u n it y of the c r u c i a l im p o r t a n c e

to Au s t r a l i a of a h e a l t h y and c o m p e t i t i v e m a n u f a c t u r in g i n d u s t r y .

Wi t h o u t a strong m a n u f a c t u r i n g , s e c t o r , the Au s t r a l i a n economy

CAN NEVER ACHIEVE THE STA B ILITY AND V I R I L I T Y TO WHICH WE ALL

ASPIRE. . . .

No t SURPRISINGLY, I SHOULD LIKE TO TALK TONIGHT ABOUT THE BUDGET -

MORE SPECIFICALLY, ABOUT WHAT THE BUDGET MEANS FOR INDUSTRY.

2 ,

One way of l o o k i n g a t t h i s t o p i c w ou ld b e to p i c k up some of

THE DETAILS ON THE EXPENDITURE AND REVENUE SIDES OF THE BUDGET, '

I COULD, For e x a m p l e , qu ote f i g u r e s - of d i r e c t a s s i s t a n c e to .

MANUFACTURING INDUSTRY, NOTING THE BUDGETED INCREASE FROM $88

MILLIO N i n 1 9 7 7 - / 8 TO $ 1 3 7 M IL LIO N t h i s y e a r, a r i s e of a l m o s t

50 PER CENT.

I f I WERE TO ADOPT THAT APPROACH, I WOULD NO DOUBT BE WANTING TO .

SAY SOMETHING ABOUT THE INCREASE IN EXPORT INCENTIVE AND DEVELOPMENT

GRANTS, AND THE EXPANSION OF THE INDUSTRIAL RESEARCH AND DEVELOPMENT

Sc h e m e. * .

I MIGHT, ON SUCH AN APPROACH, WANT.TO GO ON TO NOTE THE CONSIDERABLE.

EXPANSION THIS YEAR OF INDIRECT ASSISTANCE TO INDUSTRY THROUGH

THE TAXATION SYSTEM - THE INVESTMENT ALLOWANCE, THE TRADING STOCK

VALUATION ADJUSTMENT AND SO ON. · ■ ’

... One mi ght go on t o. t a l k , a b o u t t h e d e t a i l e d d e c i s i o n s e l s e w h e r e i n

t h e Bu d get t h a t w i l l i m p a c t upon i n d u s t r y or some s e c t o r s o f i t -

PARTICULARLY, PERHAPS, THE REDUCTION IN SALES TAX ON MOTOR VEHICLES

OR, LESS H A P P IL Y , THE EXCISE INCREASES THAT WE FOUND I T NECESSARY

TO MAKE, I MIGHT GIVE AN ASSESSMENT OF THE EFFECTS UPON CONSUMER

DEMAND OF THE INCOME TAX INCREASE AND THE ABOLITION OF THE

i’lEDIBANK LEVY. ............................... .

- - . . - ·

t i UT TO DO THAT WOULD NOT, I N MY V I E W , BE THE BEST APPROACH TO T H I S

V I T A L S U B J E C T . I N T E R E S T I N G - - AND I NDEED I MPORTANT -· AS THESE .

D E T A I L S A R E , THEY DO NOT GO TO THE HEART OF THE I S S U E S . I F WE

FOCUS TOO HARD UPON THEM, WE S H A L L BE I N DANGER OF M I S S I N G THE

WOOD FOR THE T R E E S . ·." . - - ·

3.

Th a t i s a p a r t i c u l a r t e m p t a t i o n , I s u p p o s e, w i t h a Bu d g e t t h a t

CONTAINS SO MANY ELEMENTS ABOUT WHICH A DRAMATIC STORY CAN BE

WOVEN, *

The m e d i a h a v e h a d a f i e l d d a y w i t h " s h o c k, h o r r o r" s t o r i e s . .

BUT IN SO DOING, MANY OF THEM HAVE, I FEAR, FALLEN INTO THE ERROR

I HAVE JUST .DESCRIBED·-:-^ THEY-HAVE MISSED THE WHOLE POI NT -OF W H A T ™

t h i s Budget i s a l l a b o u t.

The r e a l q u e s t i o n i s w ha t t h e Bu d g e t i s s e e k i n g to a c h i e v e a n d

HOW I T IS GOING ABOUT I T . THAT IS A QUESTION V IT A L A L I K E TO

INDUSTRY AND TO THE COMMUNITY AT LARGE. . . . . '

I n CONSIDERING THAT SUBJECT, I T IS NECESSARY TO REMEMBER THAT THE

Bu d g e t i s n o t a u n i q u e e v e n t to b e s e e n i n i s o l a t i o n , I t t a k e s i t s

PLACE AS PART OF A CONTINUING AND ON-GOING STRATEGY. THAT IS .

DIRECTED, MOT JUST AT A PERIOD OF TWELVE MONTHS THAT I S ALREADY

PART OVER, BUT AT A MEDIUM TERM OF SOME YEARS, . .

No d o u b t any Go v e r n m e n t" wou ld w i s h t h a t to b e s a i d o f i t s a p p r o a c h

TO THINGS ECONOMIC; BUT IN THE CIRCUMSTANCES OF TODAY, AND AGAINST

THE BACKGROUND OF THE PROBLEMS THE GOVERNMENT HAS BEEN GRAPPLING

WITH FOR ALMOST THREE YEARS NOW, I T ASSUMES A QUITE FUNDAMENTAL

IMPORTANCE. , . . . . ..........

For t h o s e e c o n o m i c p r o b l e m s a r e c r u c i a l an d d e e p s e a t e d ; t h e y are

NOT TO BE DEALT WITH B Y A N Y S.HORT-TERM APPROACH. ONLY THE STEADY

APPLICATION OF A COHERENT, WELL-THOUGHT-OUT STRATEGY CAN PRODUCE

l a s t i n g r e c o v e r y . Th e 1 9 7 8 - 7 9 Bu d g e t v e r y much t a k e s i t s p l a c e i n

THE MAINSTREAM OF THAT STRATEGY. . · . .

4 ,

I t i s , i n some r e s p e c t s, e a s y to make p o l i t i c a l c a p i t a l o u t of

THIS S IT UA T IO N . OUR OPPONENTS OFTEN ACCUSE US OF "IGNORING

u n e m p l o y m e n t " b e c a u s e·we w i l l n o t be t e m p t e d i n t o p o l i c i e s of

SO-CALLED "EMPLOYMENT CREATION" THAT MAY HAVE A SUPER FIC IAL

APPEAL - BUT DO NOT GET TO GRIPS WITH THE REAL PROBLEMS OF THE

ECONOMY, AND MAY INDEED MAKE THEM WORSE.. ' ‘ .

TO THE ABSOLUTE CONTRARY, OUR VERY REAL CONCERN ABOUT UNEMPLOYMENT

IS EVIDENCED IN OUR DETERMINATION, AS A GOVERNMENT, TO GET TO GRIPS

WITH THOSE DEEP SEATED ECONOMIC PROBLEMS OF WHICH UNEMPLOYMENT

IS ONE OF THE C H I E F , AND MOST DISTRESSING, SYMPTOMS.

Le t me sum a l l t h i s up b y a q u o te from t h e Bu d g e t Sp e e c h, w h e r e i n

I d e s c r i b e d our e c o n o m i c o b j e c t i v e s as f o l l o w s: .

" F i r s t , b o t h for i t s own s a k e an d as t h e o n l y

REAL B A SI S FOR ACHIEVING OUR OTHER OBJECTIVES,

- W E : ARE DETERMINED THAT AUSTRALIA W I LL HAVE S T I L L .

LOWER IN F L A T I O N . . ' . . : ' \

Se c o n d l y, a n d s u b j e c t t o t h e c o n s t r a i n t s s t i l l . .

UPON THE ECONOMY, WE SHALL PURSUE HIGHER LEVELS .

OF ECONOMIC A C T I V I T Y AND GREATER JOB O P P O R T U N I T I E S , " .

I t I S , I T H I N K , WORTH SPENDING A L I T T L E TIME ON EXPLORING THOSE

"CONSTRAINTS" - IN THE PROCESS MAKING CLEARER, I HOPE, THE

NATURE OF THE TASK WHICH-HAS BEEN PARTLY ACCOMPLISHED, BUT .

REMAINS TO BE COMPLETED.

Un d o u b t e d l y , t he m a i n c o n s t r a i n t i s t h a t n e i t h e r t h e r e l a t i v e p r i c e

OF LABOUR, NOR INCOME SHARES MORE GENERALLY, HAVE YET RECOVERED

FROM THE DISRUPTIVE SHIFTS WHICH THEY EXPERIENCED IN 1 9 7 3 AND 1 9 7 4 ,

La s t y e a r, p r o g r e s s i n u n w i n d i n g t h e s e c o n t i n u i n g i m b a l a n c e s*

I N T H E ECONOMY WAS S L OW; I N P A R T I C U L A R , ON T HE P R E L I M I N A R Y

E S T I M A T E S , T H E S HARE OF COMPANY P R O F I T S , A T AROUND 1 4 PER C E N T ,

WAS S L I G H T L Y DOWN ON T HE 1 9 7 6 1 7 7 L E V E L OF AROUND 1 4 % P E R C E N T

AND ON L Y S L I G H T L Y ABOV E T HE LOW P O I N T RE A CHE D I N 1 9 7 5 ,

T h e GROWTH OF 7 P E R c e n t i n m o n e y t e r m s i n g r o s s c o m p a n y . .

P R O F I T S I N 1 9 7 7 - 7 8 T H E R E F O R E m a i n l y d e r i v e s , f r o m p r o d u c t i v i t y

G A I N S - G A I N S WH I C H R E F L E C T T HE S U B S T I T U T I O N , WHE RE V E R P O S S I B L E , · .

OF M A C H I N E R Y FOR L A B O U R . . . . .

S O L ONG AS T H E R E A L COST OF L A B OUR R E M A I N S OUT OF L I N E W I T H

I T S P R O D U C T I V I T Y , T HE GROWTH I N J OB S W I L L . B E H E L D B A C K AND

U N E MP L O Y ME N T W I L L B E D I F F I C U L T TO R E D U C E , , . " ; · ’

W e WOUL D A L L L I K E TO S E E F A S T E R P R O G R E S S ; B U T A C H I E V I N G T H A T

MEANS WE H A V E T O KE E P W H I T T L I N G AWAY A T T HE B A S I C C O N S T R A I N T S .

U P O N , i T HE WO R K I N G OF T HE ECONOMY WH I C H OUR P R E D E C E S S O R S ' .

P O L I C I E S B E Q U E A T H E D TO U S . . . . .

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

A ND AS SOON AS P O S S I B L E E L I M I N A T E T H E M , . . . . .

6 .

For a s t a r t, f i r m growth of d e m a n d r e q u i r e s a c o n t i n u i n g

RESTORATION OF BOTH CONSUMERS' AND INVESTORS' CONFIDENCE.

Mo d e r a t i o n of i n f l a t i o n a r y e x p e c t a t i o n s i s a k ey e l e m e n t i n

THAT PROCESS. THAT IN TURN REQUIRES FIRM AND STABLE FISCAL AND

MONETARY POLICIES AND CONTINUING EVIDENCE OF ACTUAL PROGRESS

AGAINST IN FL AT IO N. . , ,

Em p l o y m e n t growth r e q u i r e s s u s t a i n e d e x p a n s i o n of dem an d a n d

o u t p u t; b u t n e c e s s a r y th ou gh t h a t c o n d i t i o n i s , i t w i l l , n o t ,

BE SU FFI CI EN T UNLESS I T IS ALSO ACCOMPANIED BY THE MORE R E A L IS T I C

WAGE LEVELS WHICH ONLY A FIRM FISC AL AND MONETARY ENVIRONMENT ...

CAN HELP TO PRODUCE. . . . . . .

Re s t o r a t i o n of .g r e a t e r;s t a b i l i t y on e x t e r n a l a c c o u n t, i n c l u d i n g

A PIC K- UP IN PRIVATE CAPITAL INFLOW, ALSO REQUIRES DEMONSTRABLY

SOUND DOMESTIC ECONOMIC MANAGEMENT. . .

I t IS WITH ALL THESE ELEMENTS IN MIND THAT THE GOVERNMENT HAS .

PURSUED, AND W ILL CONTINUE TO PURSUE, A STRATEGY DESIGNED TO

REDUCE THE RATE OF IN F L A T I O N , RESTORE S T A B I L I T Y AND CONFIDENCE,

AND RECTIFY THE CONTINUING IMBALANCES IN THE ECONOMY.

On l y i n t h i s way can we a c h i e v e: s u m a i n a b l l e c o n o m i c e x p a n s i o n .

Ce n t r a l to t h a t s t r a t e g y i s a f i s c a l p o l i c y a i m e d a t w i n d i n g b a c k

t h e s h a r e of n a t i o n a l r e s o u r c e s b e i n g co n su m ed b y. t he p u b l i c

SECTOR. Th a t E N T A I L S : FTRM RESTRAINT ON BUDGET OUTLAYS AND A

r e d u c e d Bud ge t d e f i c i t .

7 .

AS I INDICATED IN THE BUDGET SPEECH, WE WERE FACED WITH SOME

VERY D I F F I C U L T DECISIONS THIS YEAR IN GETTING TO A BUDGET

OUTCOME THAT EMBODIES A PURSUIT OF THAT ON-GOING STRATEGY.

I AM.SURE, HOWEVER, THAT EVERYONE HERE IS FULLY FAMILIAR

WITH THE DETAILS OF THE DECISIONS EMBODIED IN THE BUDGET AND I

DO NOT NEED TO GO OVER THEM IN D E T A I L . . .

Pe r h a p s I s h o u l d make one e x c e p t i o n , t h o u g h, an d s ay a few ·.

WORDS ABOUT ONE PARTICULAR DECISION - THE TEMPORARY INCREASE IN

-THE STANDARD RATE. OF INCOME TAX. WHILE THIS WAS A PARTICULARLY

D I F F I C U L T DECISION TO HAVE TO TAKE ·- GIVEN OUR COMMITMENT TO TAX

REFORM AND REDUCTION - I WOULD L IK E TO EMPHASISE MY BE LIE F

THAT INDUSTRY SHOULD.NOT FEAR ITS EFFECTS UPON CONSUMER DEMAND.

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

BRING I T TO AN END ON 30 JUNE NEXT; THERE IS NO REASON, . ;

THEREFORE, WHY I T SHOULD HAVE AN ONGOING EFFECT ON CONSUMER .

CONFIDENCE OR EXPECTATIONS. " . ■ . ' . ;

Se c o n d l y, i t i s n o t l a r g e i n r e l a t i o n t o t h e t a x c o n c e s s i o n s .

WE HAVE ALREADY GRANTED, PARTICULARLY THE STANDARD RATE SCALE.

I n 1 9 7 8 - 7 9 t h a t r e f o r m, a n d t h e e f f e c t s o f h a l f i n d e x a t i o n from

1 J u l y, w i l l o u t w e i g h t h e t e m p o r a r y l h p e r c e n t i n c r e a s e b y - .

ABOUT $ 7 0 0 M I L L I O N . ·â–  ’. . .

8 .

Al t h o u g h t h e r e were many d i f f i c u l t d e c i s i o n s to b e t a c k l e d i n the

COURSE OF THE BUDGET PROCESS THIS YEAR, THE END OBJECTIVE - TO BRING

down a Bu d g e t r e p r e s e n t i n g a c o n f i r m a t i o n an d c o n s o l i d a t i o n of

OUR STRATEGY - WAS CLEAR ALL ALONG, .

I THINK INDUSTRY SHOULD TAKE HEART FROM THE EVIDENT SIGNS THAT,

INFLUENCED BY THAT STRATEGY, THE ECONOMY IS SLOWLY BUT SURELY

EMERGING FROM THE SHADOWS, . ..

Fi r s t a n d f o r e m o s t, of c o u r s e, i n f l a t i o n c o n t i n u e s t o m o d e r a t e,.

The i n c r e a s e i n t h e cons um er p r i c e i n d e x o v e r t h e co ur se of ..

l u 7 7 - 7 8 - 7 , 9 p e r c e n t - was the l o w e s t f or s i x y e a r s, A w i d e

RANGE OF PRICE INDICATORS SHOWS A S I M I L A R TREND,. .

De m a n d ha s b e e n r i s i n g f i r m l y . Re a l d o m e s t i c f i n a l de m an d

INCREASED AT AN ANNUAL RATE OF A . 6 PER CENT IN THE FI RS T HALF

OF 1 9 7 8 , .

' Among t h e c o m p o n e n t s, co nsu m er s p e n d i n g has b e e n w e l l t o the

. FOREFRONT, WITH BOTH RETAIL SALES AND PASSENGER MOTOR VEHICLE

REGISTRATIONS R IS IN G BY OVER 3 PER CENT IN THE JUNE QUARTER.

Bu s i n e s s f i x e d i n v e s t m e n t , more e s p e c i a l l y on p l a n t a n d . .

EQUIPMENT, HAS BEEN MOVING AHEAD VERY STRONGLY. NEW CAPITAL

EXPENDITURE BY PRIVATE ENTERPRISES ROSE BY NO LESS THAN 24 PER

CENT IN THE YEAR TO THE JUNE QUARTER; MANUFACTURING INDUSTRY

BY NO MEANS LED THE F I E L D , BUT THE RISE WAS A HEALTHY 1 2 , 6 PER

CENT NONE THE LESS, . . . .

9 .

The d e p r e s s e d d w e l l i n g i n d u s t r y ha s r e c e n t l y shown a

TURN FOR. THE BETTER, PRIVATE DWELLING COMMENCEMENTS WERE '

UP NEARLY 9 PER CENT IN THE JUNE QUARTER, THE FIRST RISE FOR

18 m o n t h s, Le n d i n g for h o u s i n g i n t h e J une q u a r t e r was a l s o

UP STRONGLY.

On t h e e m p l o y m e n t f r o n t, a g r e a t d e a l w i l l d e p e n d on wage d e v e l o p m e n t s

AS I AM SURE INDUSTRY APPRECIATES VERY 'MUCH. W e , AS A GOVERNMENT,

CAN ESTABLISH AN APPROPRIATE ENVIRONMENT FOR WAGE RESTRAINT - AS I

BE LIE V E WE HAVE - AND WE CAN USE OUR POWERS OF EXHORTATION, BUT

IN THE END OTHERS MAKE THE DECI SIO NS, . ' . .

None t h e l e s s, e c o n o m i c r e s p o n s i b i l i t y i s , an d has t o b e, v e s t e d

IN. THE ELECTED GOVERNMENT, .

I n c a r r y i n g out t h a t r e s p o n s i b i l i t y , the Go v e r n m e n t m u s t do what .

I T CAN TO ENSURE THAT WAGES P O LIC Y , IN WHICH THE CONCILIATION AND

Ar b i t r a t i o n Co m m i s s i o n p l a y s a k e y r o l e, s u p p o r t s t h e o t h e r

ELEMENTS OF ECONOMIC P O L I C Y , ' .

Th e f a c t of t h e m a t t e r i s t h a t t h e Co m m i s s i o n has v e r y c o n s i d e r a b l e

POWER OVER ECONOMIC EVENTS, , ' '

Th e Go v e r n m e n t has s o u g h t i n wage c a s e a f t e r wage c a s e to c o n v i n c e

t h e Co m m i s s i o n of t h e i n e s c a p a b l e i n t e r d e p e n d e n c e of e c o n o m i c

RECOVERY AND WAGE RESTRAINT. We HAVE, HOWEVER, HAD ONLY L I M I T E D

SUCCESS - AND AS A RESULT THE ECONOMY HAS SUFFERED AND THE . .

Au s t r a l i a n c o m m u n i t y - p a r t i c u l a r l y youn g p e o p l e and t h e u n s k i l l e d -

HAS SUFFERED. .

10

I n a d v i s i n g the Co m m is s i o n of the Go v e r n m e n t ' s monetary framework

FOR THE PERIOD AHEAD AND POINTING TO THE IMPLICATIONS FOR THE

WELL-BEING OF THE ECONOMY OF ANY FAILURE OF WAGES POLICY TO F IT

INTO THAT FRAMEWORK/ WE ARE NOI SEEKING TO INTERFERE WITH THE

INDEPENDENCE· OF THE COMMISSION, . ■

Ra t h e r we are p r e s e n t i n g the Co m m is s io n w it h our v ie w s on how

IT CAN EXERCISE ITS SUBSTANTIAL POWER IN THE MOST RESPONSIBLE

WAY, SO AS TO CONTRIBUTE TO THE WINDING DOWN OF INFLATION, THE

RECOVERY OF A C T IV IT Y , THE REDUCTION IN UNEMPLOYMENT AND THE

STRENGTHENING OF THE EXTERNAL ACCOUNT, . ■

I BELIEVE THAT, SO FAR FROM "INTERFERING" WITH THE INDEPENDENCE

of the Co m m i s s i o n i n . c o n v e y in g these v ie w s to i t , the Go v e r n m e n t .

WOULD BE RECREANT IN ITS RESPONSIBILITIES IF IT DID £KTL DO SO.

I n my b e l i e f , an appro ac h to wage d e t e r m i n a t i o n t h a t p a i d

MUCH GREATER REGARD TO THE LINK BETWEEN JOBS AND MONEY WAGE .

GAINS WOULD DO MORE THAN ANYTHING ELSE TO STRENGTHEN EVEN

FURTHER THE OUTLOOK FOR ACTIVITY AND EMPLOYMENT. . . . / .

AS I SAY, SIGNS OF PROGRESS ARE TO BE FOUND IN THE-ECONOMY .

TODAY. T he c h a l l e n g e i s to m a i n t a i n the e c o n o m ic s t r a t e g y THAT. -

W ILL BUILD ON THAT PROGRESS. . , .

The 1 9 7 8 -7 9 B udget meets t h a t c h a l l e n g e . I b e l i e v e t h a t , i n ·

THE BROAD, IT MERITS THE FULL SUPPORT OF INDUSTRY. . .

17 A ugust 1978