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Present Australian approach to economic policy and some recent policy initiatives



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t

TREASURER

EMBARGO

IMMEDIATE RELEASE

ADDRESS BY THE TREASURER, THE HON J . HOWARD, MP TO THE AMERICAN AUSTRALIAN ASSOCIATION, NEW YORK ON FRIDAY 9 MAR 1979

I am v e ry happy to be h ere to a d d re ss a g a th e r in g o f peo p le who have

given p r a c t i c a l e x p re s s io n to th e v alu e o f th e r e l a tio n s h ip between our

two c o u n tr ie s .

I propose to t a l k to you to d ay about th e p re s e n t A u s tr a lia n approach to

economic p o lic y and some re c e n t p o lic y i n i t i a t i v e s .

The 12 F eb ru ary is s u e o f B u sin e ss Week c a r r ie d a r e p o r t o f an in te rv ie w

w ith th e Prime M in is te r o f A u s tr a lia under th e h e a d in g , "A re a ch f o r

F is c a l C o n serv atism ' and an accompanying e d i t o r i a l e n t i t l e d " A u s t r a l i a 's

I n f l a t i o n F ig h te r Hangs Tough". ,.·

W ithout w anting to o v e r s ta te th e s i t u a t i o n , th e s e h e a d lin e s do c a p tu re

some o f th e e s s e n t i a l s o f o u r p o l i c i e s .

F is c a l r e s t r a i n t even though i t may a p p ea r " c o n s e rv a tiv e " to some, i s ,

in our view, a fundam ental p r e r e q u is ite o f an e f f e c t i v e .

a n t i - i n f l a t i o n a r y p o lic y .

The o n ly way to c o n tr o l i n f l a t i o n i s t o g e t "tough" w ith f i s c a l and

m onetary p o lic y . · '

2

Our fundam ental ju d g m e n t has been t h a t a p e rm issiv e approach to

i n f l a t i o n w i l l on ly d e la y and make more p a in f u l th e p ro c e ss o f economic

a d ju stm e n t.

I n f l a t i o n u n q u e stio n a b ly th r e a te n s th e v i t a l i t y o f our f r e e e n t e r p r i s e

econom ics. We would do w e ll to n o te th e in ju n c tio n c o n ta in e d in th e

p re fa c e t o th e p u b lic a tio n o f th e speeches and c o n g re s s io n a l s ta te m e n ts

o f A rth u r B u rn s :-

" ..(m y ) s tr o n g c o n v ic tio n ( i s ) t h a t i n f l a t i o n has become th e most

dangerous economic a ilm e n t o f our tim es and t h a t our c o u n try may

be headed f o r d i s a s t e r i f we ig n o re th e le s s o n s won th ro u g h h a rd

e x p e r ie n c e " .

T hat in ju n c tio n a p p lie s to us a l l .

S ince 1975 th e A u s tra lia n G overnm ent's m acro-econom ic p o lic ie s have been

d esig n ed to b rin g i n f l a t i o n under c o n tro l and to e r a d ic a te th e se v e re

d i s t o r t i o n s i n our economy which developed i n th e e a r ly to mid 1 9 7 0 's.

These in c lu d e d a b ig im balance between r e a l wages arid p r o d u c tiv ity which

s h a r p ly d e p le te d th e p r o f i t s o f th e p r iv a te s e c t o r , a c o lla p s e o f

in v e stm e n t and a much in c re a s e d sa v in g s r a t i o . . ;

In th e l a s t th r e e y e a rs our o b je c tiv e has been to la y th e .fo u n d a tio n s

fo r a resum ption o f n o n - in f la tio n a r y grow th i n a c t i v i t y and employment

which can be s u s ta in e d over th e lo n g e r h a u l. .

We have r e je c te d th e panaceas th a t prom ise in c re a s e d a c t i v i t y i n th e

n e a r term but would f a i l to s u s t a i n i t i n th e lo n g e r term .

We have b i t back h ard on th e grow th o f p u b lic e x p e n d itu re .

F e d e ra l o u tla y s sh o u ld show l i t t l e or no in c r e a s e i n r e a l term s o v er th e

th r e e y e a rs ending June 1979. This can be c o n tr a s te d w ith an in c re a s e

o f over H5 per c e n t in 1975.

Our firm r e s t r a i n t i n Government e x p e n d itu re has:

- e ra b le us to s i g n i f i c a n t l y reduce, th e burden o f ta x a tio n and to

b rin g down th e s i z e o f th e budget d e f i c i t

- In 1978-79 t h a t d e f i c i t i s l i k e l y to be a b o u t 3 per c e n t o f GDP

compared w ith more th a n 5 p e r c e n t a few y e a rs e a r l i e r .

T his has h e lp ed to r e s to r e a h e a l t h i e r b a lan c e between th e claim s o f th e

p u b lic and p r iv a te s e c to r on th e n a t i o n 's re s o u r c e s . A part from th e s e

d i r e c t b e n e f its our e x p e n d itu re r e s t r a i n t has g r e a tly a id e d th e p u r s u it

o f our m onetary o b je c t iv e s .

■ . . ■ 3 ■'· . . . .

4

In r e c e n t y e a rs we have more th a n h alved th e grow th i n dom estic m onetary

a g g re g a te s from a peak r a te o f over 20 per c e n t in 1975.

T h is has made a c o n tr ib u tio n tow ards re d u c in g b o th i n f l a t i o n and

i n t e r e s t r a t e s . ,

W h ilst We have had c o n s id e ra b le su c c e ss i n th e f i s c a l and m onetary a re a s

we have had l e s s s u c c e s s i n th e wages a re a .

A lthough we have c o n s is te n tly argued f o r maximum wage r e s t r a i n t i n wage

case h e a rin g s and have ach iev ed a p p re c ia b le m o d eratio n in wage l e v e l s ,

i t i s no s e c r e t t h a t we have n o t had as much su c c e ss a s we would have

lik e d . '

F i n a l l y , our dom estic p o lic ie s have been e f f e c t i v e l y underp in n ed by a

more f l e x i b l e management o f th e exchange r a t e . ...

These have been th e b a s ic elem en ts o f our s t r a t e g y o v er th e p a s t

th r e e y e a r s .

They w i l l rem ain s o . . .

The grow ing evidence i n re c e n t months o f s tr e n g th e n in g economic a c t i v i t y

confirm s our re s o lv e .

• 5 · ■ ·. · . - ■ ; . · · ■ . · ; ·

U n fo rtu n a te ly , by s tic k in g to t h i s s t r a t e g y , scxne accuse us o f paying

too l i t t l e re g a rd to unemployment.

We r e j e c t t h a t c h a rg e .

In d eed , we b e lie v e t h a t t h i s c r i t i c i s m m isses th e p o in t. I t i s

p r e c is e ly because o f our very r e a l concern to e n su re l a s t i n g employment

grow th and a perm anent re d u c tio n in unemployment t h a t we a re s t i c k i n g

d e term in e d ly to our a n t i - i n f l a t i o n s tr a te g y .

In our view c o n tin u a l adherence to an e f f e c t i v e a n t i - i n f l a t i o n s tr a te g y

is th e only way to ensure a r e s t o r a t i o n o f consumer and b u s in e s s ^

c o n fid en ce and s u s ta in a b le economic re c o v e ry .

To e n te r ta i n any r e la x a tio n o f t h i s approach would m erely squander th e

hard won g a in s to d a te . x

Let me b r i e f l y document a few o f th e s e g a in s .

P r iv a te consum ption i s c o n tin u in g to firm .

B usiness in v e stm en t i s grow ing s tr o n g ly : in v estm en t i n m ining and

m a n u fa ctu rin g is e stim a te d to have in c re a s e d by o n e - th ir d in 1978.

The o u tlo o k f o r housing i s showing s ig n s o f improvement.

Export ’demand has re-em erged as an im p o rta n t so u rc e o f p ro d u c tio n

grow th: th e s e a s o n a lly a d ju s te d value o f re c o rd ed e x p o rts in th e

th r e e months ended Jan u ary 1979 was 17 per c e n t g r e a te r th an in th e

p re c e d in g th r e e m onths.

The r u r a l s e c t o r , which has been o p e ra tin g under d i f f i c u l t y i n r e c e n t

y e a r s , is e x p e rie n c in g much improved f o r tu n e s in 1978-79: we have had a

re c o rd w heat c ro p and p r ic e s f o r a number o f p ro d u c ts - n o ta b ly wool and

m eats - have in c re a s e d a p p re c ia b ly .

P ro d u c tio n s tre n g th e n e d i n th e December q u a r te r and we expect grow th in

g ro s s dom estic p ro d u c t in 1978-79 to be g r e a te r th a n f o r seme y e a r s .

The r e d u c tio n o f i n f l a t i o n stemming from our firm economic p o lic ie s has

g r e a t l y im proved A u s t r a l i a 's i n t e r n a t i o n a l c o m p e titiv e n e s s .

As a r e s u l t , our b alan ce o f payments i s b e g in n in g to im prove.

As I m entioned e a r l i e r , th e h ig h le v e l o f unemployment i n A u s tr a lia i s

' ' i ■ . .

of g r e a t concern t o th e Government. ' · . · · ' . ·

However, i t i s a f a c t of h is to r y t h a t employment p ic k s up l a t e r th a n

p ro d u c tio n .

We a re e x p e rie n c in g a s tre n g th e n in g tre n d i n o u tp u t and ov er th e l a s t

few months we have see n seme e n co u rag in g s ig n s o f in c r e a s in g employment.

7

C iv ilia n employment has r is e n i n each o f th e f iv e months to Novemer 1978

and employment i n m a n u fa ctu rin g has begun to in c r e a s e more s tro n g ly i

O vertim e w orking i n f a c t o r i e s has r is e n to i t s h ig h e s t le v e l s in c e 1974.

The Government i s determ ined to c o n tin u e to pursue p o lic ie s t h a t C reate

th e c o n d itio n s f o r f u r t h e r s u s ta in a b le re d u c tio n s i n i n f l a t i o n and

i n t e r e s t r a te s and f o r expanded p ro d u c tio n and employment.

There i s a grow ing and j u s t i f i a b l e mood o f optim ism about A u s t r a l i a ’ s

economic p ro s p e c ts .

With a much reduced i n f l a t i o n r a t e th e economy i s growing more s tr o n g ly .

These developm ents have c o n trib u te d to a marked improvement in -the

investm ent c lim a te . .

A re su rg en ce o f in v estm en t i n la rg e s c a le re s o u rc e developm ent p r o je c ts

is o c c u rrin g .

New c a p i t a l in v estm en t in m ining was 75. p e r c e n t h ig h e r in th e y e a r to

Septem ber 1.978, and a re c e n t m ining in d u s tr y su rv e y showed t h a t l a r g e r

mining companies ex p ect to in c re a s e t h e i r in v e stm en t by a f u r t h e r

32 per, c e n t in 1979.

8

At December 1978 th e e stim a te d c a p i t a l c o s t o f m in e ra l p r o je c ts firm ly

committed o r i n th e f i n a l f e a s i b i l i t y s ta g e was $4,000 m illio n .

T h is f ig u r e does n o t in c lu d e th e n o rth w est s h e l f p r o je c t w hich i s now

b e in g proved up i n $50 m illio n f e a s i b i l i t y s tu d y .. Im petus has been

giv en to th e o i l in d u s tr y by our crude o i l p r ic in g p o lic ie s and ta x a tio n

and in v e stm en t i n c e n t i v e s .

As a r e s u l t , A u s t r a l i a 's o i l re s e rv e s have a lre a d y been upgraded

s i g n i f i c a n t l y and th e re c e n t a c c e le r a tio n o f o i l e x p lo r a tio n a c t i v i t y

w ill c o n tin u e ini 1979.

M an u factu rin g in d u s tr y i s a ls o p a r t i c i p a t i n g in th e r e v iv a l o f economic

a c t i v i t y i n A u s t r a lia .

In re c e n t w eek s:-

IC I has announced t h a t i t w ill c o n s tr u c t a $500 m illio n

p e tro c h em ica l complex i n V ic to r ia and a $400 m illio n e th y le n e

p la n t i n New South W ales;

The Government has approved a GMH p ro p o sa l which w i l l r e s u l t in a

new $210 m illio n engine complex being b u i l t i n V ic to r ia ;

A u s tr a lia n N ew sprint has announced th e planned c o n s tr u c tio n o f a

$160 m illio n n e w sp rin t p la n t i n Albury-Wodonga.

A re c e n t su rv e y o f m a n u fa c tu rin g in d u s tr y showed t h a t new o rd e rs and

o u tp u t were th e b e s t f o r fo u r y e a rs and m a n u fa c tu re rs g e n e r a lly ex p ected

to m a in ta in or in c r e a s e o u tp u t.

The'Government* s d e s ir e to encourage in v e stm en t i s a ls o r e f l e c t e d i n our

d e c is io n l a s t y e a r to approve $1,800 m illio n of i n f r a s t r u c t u r e fin a n c in g

f o r p r o je c ts s e le c te d by th e S ta te Governments.

The Government has re p e a te d ly made c l e a r i t ' s a t t i t u d e tow ards fo r e ig n

in v e stm e n t. We need i t . We encourage i t .

F in a lly , I would l i k e to t e l l you about a m ajor in q u ir y t h a t I have

r e c e n tly annouced in to th e A u s tr a lia n f i n a n c i a l system .

T his w ill be th e f i r s t in q u ir y i n t o th e A u s tr a lia n f in a n c ia l system in

over 40 y e a r s . D uring t h i s p e rio d , th e r e have been many f a r re a c h in g

changes i n th ? s tr u c tu r e o f t h a t system .

We have p u rp o se ly s e le c te d a sm all com m ittee o f f iv e members a l l o f whom

a re w idely e x p e rie n c e d in v a rio u s s e c to r s o f th e f in a n c ia l system and

each o f them o u ts ta n d in g i n t h e i r own r i g h t . .

As Chairman o f the. Committee, we; have s e le c te d th e C h ie f E x ecu tiv e o f

one o f our l a r g e s t r e a l e s t a t e developm ent companies and Chairman o f a

■ ' 9 ■ ■

s u c c e s s fu l m erchant bank.

■ . · - \ ί ο · : "

The Committee has been g iv en thie w id e st p o s s ib le r e in . A lthough th e

term s o f re fe re n c e m ention s p e c i f i c a re a s t h a t sh o u ld be covered as a

minimum (eg th e r e la tio n s h ip between banks and non banks, th e q u e stio n

o f fo r e ig n exchange arrangem ents and th e r o l e o f th e R eserve B ank), th e

term s o f re fe re n c e a re s u f f i c i e n t l y broad to allo w th e Committee to

pursue what o th e r q u e stio n s th e y c o n s id e r to be im p o rta n t.

The s u c c e s s o f t h i s In q u iry w ill depend very much on w hether a l l

i n t e r e s t e d p a r t i e s a re p re p a re d to subm it t h e i r view s to th e Committee.

In my s h o r t tim e a s T re a s u re r, I have spoken to r e p r e s e n ta tiv e s o f many

c o rp o ra tio n s and i n s t i t u t i o n s , some o f which a re re p re s e n te d h e re , who

have m entioned to me ways i n which th e system could be im proved.

I s tr o n g ly urge th o s e o f you who have an i n t e r e s t i n th e o p e ra tio n o f

our f in a n c ia l system to ta k e t h i s o p p o rtu n ity to o f f e r a su b m issio n .

W h ilst th e Government does n o t w ish to p re ju d ic e th e C om m ittee's

fin d in g s , I have a lre a d y made i t c le a r t h a t th e In q u ir y was not

e s ta b lis h e d f o r th e purpose o f in c r e a s in g Government r e g u la tio n .

In d eed I s h a r e .t h e view in c r e a s in g ly e x p re sse d bo th h ere and in

A u s t r a lia t h a t th e r e i s too much governmen r e g u la tio n o f th e p r iv a te

s e c t o r .

I

11

We b e lie v e i n th e. s tr a te g y we a re fo llo w in g .

We a re encouraged by i t s r e s u l t s .

We do n o t d is c o u n t th e d i f f i c u l t i e s th a t w ill l i e ahead o r e x a g g e ra te

our su c c e s to d a te .

We a re determ ined to m a in ta in t h a t s t r a t e g y .

CANBERRA ACT 10 Mar 1979