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Investing for growth: National Press Club, Canberra, 8 December 1997: address [and] Questions and answers.
The policy statement I release today, Investing for Growth, adds important new dimensions to the policy framework that the Government has established since March 1996. At the heart of this statement is a range of significant initiatives to encourage innovation, promote investment, develop Australia's export trade, maximise Australia's gains from the information age and further enhance our credentials as a world financial centre.
A strong, diversified, world-class business sector is crucial to Australia's future.
Without it we cannot generate the jobs to employ our young, provide the national wealth to support the less fortunate in our society or create the stable and enduring economic framework so essential to fulfilling our unique destiny as a nation.
Successful businesses are not only economic assets but increasingly, through partnership with others, they contribute to the building of our nation's social capital.
A confident business community is the life blood of a nation confident about its future.
My Government believes that Australia's business sector, through its skills, motivation and resourcefulness will play a fundamental role in shaping the Australia of the twenty first century.
Today's statement is being delivered against the backdrop of the strongest economic foundations in 25 years.
As we move into 1998 and beyond the domestic economic scene is full of hope and optimism .
With the political will to pursue the right policies we can, together, realise Australia's potential for the next millennium.
Our vision for Australian business and industry in the first quarter of the twenty first century is one of:
. a technologically advanced, competitive manufacturing sector, strongly oriented to exports,
. high quality service industries including the full realisation of Australia as the major financial centre in the region after Tokyo;
. information industries which are a major source of employment growth, exports and new business opportunities in their own right and which transform other industries across the economy,
. a vibrant small business sector - the birthplace of many new firms and ideas - complementing our larger companies; and
. the export of our goods and services to the region and elsewhere satisfying the full range of their needs.
Australia occupies a unique intersection of history, geography, culture and economic circumstances. There is no other country in the world which has such an asset. It is an immense strength and never a weakness. It can be used to our advantage in maximising the economic returns and potential of our nation.
The very certainty and stability of our legal and political systems are huge advantages that we too often take for granted.
We are endowed with natural beauty and a rich resource base which has underpinned the development of our great mining and agricultural industries which are amongst the most efficient and least protected in the world.
Our imaginative, inventive and highly skilled people have been acclaimed for innovative genius and commercial strength well beyond our weight of numbers.
Our first class scientific, technical and engineering workforce also boasts some of the most competitive labour costs in the region.
Our diverse and tolerant nation has extended the gift of welcome to new citizens who have made our workforce more able. Many of them constitute a priceless link with the Asia Pacific region.
Our resilient and optimistic people, founded on a commitment to enterprise, rose to the challenges of post war reconstruction and manufacturing development to build a secure and united Australian nation. Those same qualities equip us well as we face the limitless challenges of the information age.
At the turn of the century Australia had the highest living standard in the world. But as opportunities passed us by so too did many countries on the international league tables. We failed to realise our full potential.
This Statement is part of a comprehensive economic blueprint for taking Australian business and industry into the next century and achieving Australia's maximum potential.
It complements our extensive economic reforms to date and our plans for major tax reform.
It is a further instalment in the Government's strategy of creating a framework for sustained, high economic growth and employment.
We are - above all - a high growth government. The overriding aim of our extensive economic reform agenda is to deliver Australia an annual growth rate of over 4 per cent on average during the decade to 2010.
Strong and sustainable economic growth is the key to significantly reducing unemployment and raising living standards for all Australians.
No Australian Government could possibly embark on the initiatives I am announcing today had it not first established strong economic foundations.
Strong economic foundations are the key to any country's capacity to grow, create more jobs and build more national wealth.
But there is also a place for specific initiatives that will encourage private sector innovation, expansion and diversification.
Investing for Growth sets out some important initiatives in that regard established within a clear policy framework committed to maintaining strong economic foundations.
Restoring the Economic Foundations
The strongest economic foundations in 25 years have allowed us to avoid much of the fallout from recent economic and financial instability in East Asia, indeed to contribute to financial rescue packages for the region.
Economic growth is accelerating and this year's Christmas appears likely to be the strongest in five years. With recent indicators suggesting continuing robust activity, it is now widely expected that growth of more than four per cent will be achieved through 1997. The stage is set for continued strong growth into 1998. With inflation well-behaved and productivity continuing to grow strongly, sustainable growth is within our grasp.
The first phase of the Government's economic strategy was to restore the nation's economic foundations, without which growth and competitiveness cannot be achieved and sustained.
The Government is delivering low inflation, low interest rates and a much better budget position. We are swinging the budget into surplus, enhancing fiscal responsibility and accountability through the Charter of Budget Honesty and increasing monetary policy credibility through formal recognition of the independence of the Reserve Bank of Australia and its low inflation objective.
This process has been complemented by major structural reforms, particularly reform of Australia's outdated industrial relations system.
It has continued with a major programme of privatisation which has enhanced efficiency, competition and choice.
It has included a major package of measures for small business which has cut red tape, reduced regulation and expanded opportunity.
It has included measures to boost competitiveness in Australia's telecommunications and financial sectors as well as in our energy markets.
Our policies have successfully overturned the legacy of deficit and debt inherited from the last 13 years. As a result of this strategy of fiscal consolidation, independent monetary policy and structural reform there has been an unambiguous improvement in a range of economic indicators.
Where the underlying inflation rate averaged at 5.5 per cent under Labor between March 1983 and March 1996, it is now at 1.5 per cent, the lowest rate since 1972.
Where bank housing interest rates averaged at 12.6 per cent under Labor they are now at 6.7 per cent, the lowest since March 1970.
Where annual labour productivity growth averaged at 1.7 per cent over the Labor years in 1996-97, it was 2.2 per cent in 1996-97.
Where the current account deficit averaged at 4.8 per cent of Gross Domestic Product over 1983-84 to 1995-96 under Labor, it was 3.5 per cent in 1996-97.
Where the underlying budget deficit in 1995-96 was just over 2 per cent of GDP, budget projections show an underlying surplus in 1998-99 increasing to a surplus of 1.6 per cent of GDP in 2000-01.
Where general government net debt was just under 20 per cent of GDP in 1995-96 under Labor, it will be cut to around 10 per cent in 2000-01.
Where real business investment averaged at 10.5 per cent of GDP under Labor, over the last six months it was a record level of 14 per cent.
Where unemployment averaged at 8.7 per cent under Labor and while it remains always the last indicator to come right, the outlook for employment is improving.
The restoration of Australia's economic foundations will encourage low inflation and release domestic savings to fund higher investment and economic growth without a deterioration in Australia's current account deficit.
Moreover, we have achieved better budget outcomes while delivering in full on our promised tax cuts, providing capital gains tax relief for small business, fringe benefits tax relief on taxi travel and carparking, a reduced provisional tax uplift factor and a tax cut on savings.
However, we realise that improving economic performance is an ongoing task and that our overseas competitors are not resting on their laurels.
Realising our Potential as a Nation
The initiatives I announce today in Investing for Growth build on the coherent policy framework already in place and will help to realise our potential as a nation into the twenty first century.
Our determination for Australia to achieve its economic potential commits us to polices that will deliver high levels of productive investment, encourage an innovative and entrepreneurial spirit in business enterprises and give us the capacity to take advantage of new growth industries.
To fully utilise Australia's unique human and natural assets, add value, win exports and generate jobs, we are committed to polices that will encourage world competitive Australian enterprises.
Creation of world competitive enterprises capable of generating high value adding jobs is the aim of industry policy. The challenge is to harness change by focussing on emerging activities, encouraging international best practice and gaining access to lucrative markets, particularly in our own region.
The Government reaffirms its preparedness to strategically intervene in industry to offset distortions and remove impediments to expansion.
The package of new measures announced in this statement, which include spending, of $ 1.26 billion over five years, will further boost innovation, investment, export trade and innovation in new, high growth industries.
Investing for Growth
In developing the suite of initiatives in Investing for Growth the Government has had the benefit of three important reports:
. the report of the Review of Business Programs undertaken by Mr David Mortimer, Going for Growth: Business Programs for Investment, Innovation and Export;
. the report of the Information Industries Taskforce (IITF), chaired by Prof Ashley Goldsworthy AO, The Global Information Economy - The Way Ahead, and
. the report of the Information Policy Advisory Council (IPAC), chaired by Dr Terry Cutler, A national policy framework for structural adjustment within the new Commonwealth of Information.
I take this opportunity to thank all of the contributors for their valuable input to these reports.
The Mortimer report advocated Going for Growth, and emphasised that sound macroeconomic policies were an essential part of that process as is maintaining the momentum of broad ranging microeconomic reform, including taxation reform. The Mortimer Report highlighted the importance of boosting business investment, encouraging innovation, expanding exports and ensuring the careful design and effective delivery of business programmes.
The Goldsworthy and IPAC reports focussed on establishing a framework for the development of the information economy, on widespread adoption of new technology and development of the information industries. Both emphasise that the Commonwealth should urgently address the issues raised by the rapidly changing information economy. The initiatives and policy commitments announced in Investing for Growth provide a whole-of-government response consistent with the priorities identified in those reports.
The initiatives set out in Investing For Growth are focussed on five key areas:
. increasing support for business research and development and the commercialisation of that research,
. making investment in Australia more attractive;
. helping Australian businesses capture new export markets and introducing a more competitive customs regime;
. promoting the further development of Australia as a financial centre, and
. making sure Australia maximises its benefits from the global information age.
Encouraging Business Innovation
Innovation will be a key driver of the competitiveness of firms and economies into the next century.
The Government's innovation programmes recognise that in some circumstances business research and development (RD) will be subject to market failure and require additional assistance. To these ends the Government will commit $1 billion to support business innovation over the next four years.
In addition to the 125 per cent RD tax concession, we are extending the RD Start programme with the provision of an additional $556 million over the next four years bringing total expenditure on RD Start over that period to $739 million.
The expanded RD programme will comprise three elements:
. A core element which will provide grants of up to 50 per cent of the project costs. Assistance under this component is equivalent to a 189 per cent tax concession.
. RD Start-Plus will provide grants of up to 20 per cent of project cost for companies excluded from the general RD Start programme, that is, companies with a group turnover of more that $50 million. The assistance available under this component is equivalent to a 150 per cent RD tax concession.
RD Start- Premium will provide additional assistance of up to the equivalent of a 200 per cent RD tax concession. Assistance provided under RD Start-Premium will be repayable upon successful commercialisation through a royalty agreement, or similar arrangement.
We will also encourage venture capital funds through expansion of the Innovation Investment Fund Programme at an additional cost of $43 million and a total cost of $ 153 million over four years. This additional round of funding will ensure the critical mass necessary to develop a venture capital market in Australia, it is directly targeted at small high technology companies and expands a programme which enjoys strong support from industry.
Further measures to encourage diffusion of technology costing an additional $72 million and a total of $108 million over the next four years will also be undertaken.
High levels of investment are essential to strong economic growth and durable improvements in living standards. The recent financial turbulence in our region highlights the importance of secure economic foundations to foreign investors as well as the potential fragility of investor confidence. It also reaffirms the reality that highly interventionist strategies to attract or target investment do not guarantee economic advantage in their own right.
Australia's key as an investment location is the strength of its economic foundations, such as low interest rates, low inflation and fiscal responsibility. The Government is not disposed towards providing across-the-board investment incentives or establishing a dedicated fund for that purpose. We recognise, however, that in limited and special circumstances there may be a need for some specific incentives to attract major strategic projects that would not otherwise be likely to occur in Australia where a significant net benefit for the economy and jobs is expected. The criteria against which the need for such incentives will be assessed are clearly set out in Investing for Growth.
To co-ordinate this case by case approach to incentives, Mr Bob Mansfield has been appointed to the new position of Strategic Investment Coordinator to be located within the Prime Minister's portfolio. Mr Mansfield will be responsible for liaising with relevant Departments through a streamlined process and for advising Cabinet through me on projects which may justify provision of incentives or policy changes. Mr Mansfield will retain his current responsibilities for major project facilitation.
This role will be supplemented by an upgraded, high-profile programme to promote investment opportunities in Australia. A new body, Invest Australia, will be established to promote Australia's advantage as a location for investment and an amount of $ 11 million a year over four years will be provided.
Improving Our Trade Performance
Our economy is becoming increasingly open, providing both challenge and opportunity to Australian firms and industries. This means that we need to be outward looking and internationally competitive to achieve greater access to markets and strong economic growth.
The Government is pursuing a multi-faceted approach to trade policy, including bilateral, regional and multilateral initiatives.
We are building stronger bilateral trade relations with key trading partners.
Within APEC we are maintaining the momentum towards free trade and investment by 2010/2020. This year we successfully pushed for the early liberalisation in fifteen sectors, including food, chemicals and energy, key sectors proposed by Australia.
Within the WTO, we will continue to push for a new world trade round and early conclusion of the financial sector negotiations, an initiative that the APEC countries supported in Vancouver.
We recognise that more needs to be done to improve our trade prospects, building on our export successes to date.
The Government will introduce two complementary schemes to improve Australia's attraction as a site for regional manufacturing and warehousing by removing excessive access and compliance costs. We will introduce new Manufacture in Bond provisions exempting exporters from customs duties and sales tax on imported goods subsequently re-exported or used as inputs to exports. This scheme will let businesses use Australia as a base for operating in the Asia Pacific region without incurring customs duties on products intended for re-export.
I am sure that the people of Newcastle and the Hunter Valley as well as many others will welcome this announcement.
This reform will be supported by the consolidation of the Duty Drawback and Tariff Export Concession schemes into one integrated and simplified scheme to be known as TRADEX at a cost to revenue of $105 million over four years.
The Export Market Development Grants Scheme which has assisted Australian business to develop international markets will be provided with an additional $300 million to extend it to 2001-02.
The Government will commit $18 million over the next four years to the APEC Market Integration/Industrial Collaboration programme for activities aimed at removing impediments to standards and conformance and promoting industrial cooperation as well as customs harmonisation within the APEC region.
We will also boost opportunities for regional and small business exporters through the extension of Export Access and the new TradeStart programmes respectively.
Austrade information and services on export markets will be provided to assist local businesses to develop and expand their export markets. Over $13 million dollars will be provided to support these programmes over the next four years.
Australia as a Financial Centre
Australia is already a major financial centre in our region. We have a highly developed and sophisticated financial sector. Our aim is to become a leading world financial centre and capitalise on the explosive growth in financial services worldwide.
The fundamental building block is our response to the recent Wallis inquiry, which will encourage the development of a world class, competitive financial system. We recognise, however, the intensive international competition for financial services activity. In advance of major tax reform, we have decided to introduce specific tax measures at a cost of $22 million in revenue foregone in a full year. We will enhance the concessional tax regime for Offshore Banking Units, widen the interest withholding tax exemption to encourage the domestic corporate debt market and relax Foreign Investment Fund (FIF) tax rules to exempt FIF investments located in the United States.
We will not, however, stop there. We will also establish a task force of the Financial Sector Advisory Council to report to the Treasurer on developments in international financial markets and provide further options to boost Australia's prospects as a financial centre.
The Information Age
The emerging global economy is based upon information and knowledge. This new age is touching almost every element of our lives. How we react to these changes will greatly influence opportunities for economic growth and jobs.
The Government has already demonstrated national leadership in this area. We have established a National Office of the Information Economy reporting to Senator Alston, who is now the Minister for the Information Economy, to co-ordinate the Commonwealth's information policies. This is supported by a Ministerial Council to ensure ownership of the information agenda by all the relevant stakeholders in government.
We are committed to maximizing the benefits of this new information age and ensuring their equitable distribution. The Government will play a national leadership role in this area to:
. foster business and consumer confidence through a light touch regulatory framework;
. establish the Commonwealth as a leading edge user,
. improve our information industries base;
. facilitate access to the information age particularly for regional and remote Australia, the disabled and to enhance IT related skills in the community.
We will introduce an Information Industries Action Agenda to attract new investment and encourage competitive advantage, including through superior software engineering and testbed facilities at a cost of $28 million over four years.
We will establish an electronic one-stop shop for all business regulatory needs so that all appropriate services are deliverable on the Internet by 2001.
The Government will also remove tariffs on inputs to the manufacture of information industries equipment. We will ensure that goods ordered and delivered electronically through the Internet will remain tariff/customs duty free. Also there will be no bits tax on the Internet.
Delivering the Programme
To drive industry reforms we will implement Action Agendas in specific industries to address impediments to growth and to identify opportunities for market expansion. The Supermarket to Asia is an example of a constructive and productive Action Agenda.
In developing and delivering industry policy programmes the Government will adopt the design principles recommended in the Mortimer Review. In particular, these principles require the specification of clear objectives and measurable performance indicators for all new programmes.
The Next Step
While Investing for Growth is a key element of our plan to realise our potential as a nation, the next step must be to reform and modernise our unfair and antiquated taxation system.
The Government aims for a fairer, better, more internationally competitive taxation system which ignites incentives to work save and invest.
Central to any tax reform are our commitments to no overall increase in the tax burden, major reductions in personal income tax, consideration of a broad based indirect tax to replace some or all existing indirect taxes, appropriate compensation for those deserving of special consideration and reform of financial relations between the Commonwealth, States and Territories.
We cannot afford yesterday's tax system for tomorrow's world. I do not underestimate the difficulties of selling tax reform but no government (or its political alternative) can be serious about achieving high economic growth and living standards unless it embraces the challenge of tax reform.
No one should doubt the complete resolve of my Government to pursue fundamental reforms to Australia's taxation system.
In summary, Investing for Growth adds to the reform agenda which the Government has established to date. It does so by outlining the important initiatives required to further enhance innovation, investment and exports and to develop our finance and information technology sectors as vital building blocks in a coherent economic strategy.
As a high growth Government committed to strong economic foundations, to an innovative industry policy and to a modernised taxation system we can look forward with optimism to an Australian economy achieving its full potential for the benefit of all Australians into the twenty first century.
JOURNALIST: Michael Millet, Sydney Morning Herald, Prime Minister. Development's, last week, mean that next years budget becomes inevitably an election budget. These are normally used to reward voters for the pain inflicted over the previous two budgets, yet you are also pursuing a major tax package. How do you reconcile the two? Does it mean that next years budget becomes just a holding exercise or is there some other objective? And secondly, in terms of fundamental tax reform, are you looking at a shift between indirect and direct tax?
PRIME MINISTER: Michael our budgets are never holding exercises. Our budgets always have loads of reform. They always make a contribution. Talk about special interjections. I can assure you there will be plenty new and interesting, and surprising, in next year's budget. It is true that we worked very hard to clean up the huge deficit that Kim Beazley and Paul Keating left us in our first two budgets and some of the decisions we took weren't all that popular but that is in the nature of correct policy making.
I said in my speech that nobody should doubt our commitment to taxation reform. They shouldn't. We are very serious about taxation reform. It is the greatest single piece of unfinished economic reform business on the Australian national agenda and if we don't get it right this time, if we are again obstructed and undermined by malicious fear campaigns, then the national interest will have been very very severely wounded. And those who have inflicted those wounds, if they are inflicted, will pay a very heavy price.
Now I don't underestimate, nor do any of my colleagues, the difficulties involved in selling tax reform but I am a lot more heartened by developments over the last few years. The degree to which different sections of the community are out talking to each other as well as talking to the Government. The maturity demonstrated by the welfare sector, and I don't mean that in any patronising sense, I think some of the statements that have been made by ACOSS on this are a breath of fresh air. And I congratulate those who are responsible. So tighten your seatbelt next year, there will be plenty happening.
JOURNALIST: Paul Bongiorno, Network 10, Prime Minister. Just picking up what you said there. There are some who are urging the Government to move very quickly to resolve the deadlock between the Senate and the House of Representatives over the Wik Native Land Title. Some believe that if the process is allowed to go its full cycle so that a joint sitting could be as much as 15 months away, then the certainty that you talk of and the sort of signals that business needs from your Government will be hindered and delayed in a damaging way. What do you say to that and some have urged that perhaps you shouldn't have a budget in May next year but go quickly to a double dissolution election to resolve the impasse?
PRIME MINISTER: Well, Mr Bongiorno we haven't got an impasse yet. The Senate hasn't rejected it a second time and I think before people start setting election dates they ought to wait until that happens. We'll be putting it back and we will be calling on the Senate to pass it.
The timing of the next election, as always, is in the hands of the Prime Minister and I don't intend to share it with you today because I am unable to do so. I haven't made up my mind when the next election will be held.
The purpose of sending the Bill back is not to have a double dissolution but to get it passed into law. And as you all know the Constitution provides a resolution mechanism for deadlocks and a double dissolution is not an end in itself. The end is to get a desirable change to the law through the Parliament. And if the Senate decides to defy and obstruct, and torpedo the aspirations of a Government with a 44 seat majority in the House of Representatives, which was elected on a mandate inter alia of making the Native Title Act more workable, then it s hardly surprising that we should invoke the deadlock provisions of the Constitution.
But don't get too excited about the timing of the next election. I am not. You shouldn't be.
JOURNALIST: Malcolm Farr from the Daily Telegraph, Prime Minister. Unfortunately for you, all roads do go back to the Senate on most issues. There hasn't been a Government in control of the Senate for about 20 years. It seems unlikely...
PRIME MINISTER: Malcolm Fraser lost it in June of 1981...
JOURNALIST: In about 15 years. And it seems like there won't be one in the near future. Would you agree that the Labor Party program of increasing the numbers in the Senate have added to that new certainty, that Government's in the future won't have any control there? Is there a strong case to argue for a reduction in the numbers of the Senate? If you agree with that, wouldn't it be something that the Coalition Party's could take to the next election?
PRIME MINISTER: What, a reduction in the number of Senators? But you can't have a reduction in the number of Senators without a contemporaneous reduction by a factor of two in the number of members of the House of Representatives. I don't think I will be going to the election with that proposal. Nor, might I add, will I be going to the election with a proposal to increase the size of the Parliament either.
Now there is a bit of debate, some experts say that the increase in the size of the Senate meant that it was impossible because you had an even number retiring every three years it was impossible to get a majority of that even number. Other people who's skill and acumen in these areas I respect enormously, argue to the opposite. I am analysing it at the moment but I don't have any proposals about the size of the parliament in mind or in the drawer, or I am not aware of any such proposals that are sculling around.
I think the other observation that ought to be made is that one of the consequences of the difficulty of either side of politics, in its own right, getting control of the Senate - and that has certainly been the case over the last 15 years - that does tend to disadvantage the Coalition a lot more than it does the Labor Party because in Government the Labor Party always has a defacto Coalition arrangement with the Australian Democrats.
What ever may be the views of people who vote for the Australian Democrats, the reality is that they are a centre/left group within the Australian political firmament. In fact they are further to the left of the Labor Party on most economic issues and they support the Labor Party on social issues and when we were in Opposition we were very responsible and supported most of the Labor Party's economic reform so they were able to do a lot better with their program. And this is one of the consequences of the alignment of Australian politics and it is a difficulty with which the Coalition has to contend and it is something that will be, I think increasingly, a focus of the Australian community over the months ahead.
JOURNALIST: Mr Howard, Margo Kingston from the Sydney Morning Herald. You told the Party Room on Tuesday that miners would not allow a retreat from the 10 Point Plan.
PRIME MINISTER: The who?
PRIME MINISTER: Miners. No, I didn't tell the Party Room that.
JOURNALIST: Well, your spokesman quoted you as saying that, quote:- the miners and the pastoralists would not allow a retreat on Wik. Since then Joseph Gutnick, the gold miner, has announced that he may be forced to vote Labor for the first time because he would have a very difficult moral decision to make on Wik. In your view, how united is the mining industry in preferring the push along to a double dissolution election on Wik rather than a compromise?
PRIME MINISTER: Well, I'm glad you asked me that question, Margo, because it gives me an opportunity to sort out a few references to the covenant and to covenants generally.
What I did say and what I repeat is, that the Liberal and National Party Senators and Members that entered into a covenant each with the other, that having reached agreement on the 10 Point Plan we were going to stick to it. It wasn't a covenant with the mining industry or the pastoral industry, much in all as I respect both of those industries, they don't give directions to or they don't tell us what we're going to do. We're not pushed around by interest groups the way our political opponents are pushed around by the ACTU.
But having said that, there is no doubt that if we walked away from our legislation then the mining industry and the farming community would be entitled to criticise, and criticise us they would, and they would have a pretty fair point.
You asked me about Mr Gutnick. I haven't seen what he has said, but accepting that you may be - I don't mean that rudely of course - you may be reporting him accurately, well, everybody has different reasons for voting in different ways. In my judgement there is no moral choice involved in the Wik issue.
In the judgement of the Government, the legislation that we are proposing is a fair and decent, honest balance in a very difficult situation. It is a compromise between competing interests in an extraordinarily difficult situation, made more difficult by the sense of betrayal that many in the rural community feel given the undertakings that were given to farmers and to miners, but particularly to farmers, at the time of the 1993 legislation. They do feel a very deep sense of betrayal and it is not surprising that they should put those views very strongly to us.
I just want to say that I regard the constant indication of morality in this issue as being an attempt to use moral intimidation against the Government in the belief that it will change its position. I can assure you that we're made of sterner moral fibre than that. We don't intend to back away from the position that we regard as eminently decent and eminently fair. And I can only say that increasingly the Australian community will see us as wanting to get the issue behind us and behind the community. And our political opponents and their supporters in the Senate on this issue as wanting to indefinitely delay the issue for short-term political advantage. Now, there may be some short-term political advantage for the Labor Party in taking the course that it has adopted. That remains to be seen and that will, of course, ultimately be resolved by the Australian people, as things should be in a democracy.
We haven't decided our position on the basis of polling. We've decided our position on the basis of what we think is right and what represents a fair balance and we're going to maintain that position come what may.
JOURNALIST: How much is Australia in danger of being seen internationally as the new apartheid regime...
PRIME MINISTER: The new what?
JOURNALIST: ...as the new apartheid regime, reminiscent to the old South Africa?
PRIME MINISTER: Are you from the New South Wales Government are you?
JOURNALIST: Channel 7.
PRIME MINISTER: Well, Bob Carr said that yesterday. And I've got to say, I mean, his remarks really plumb the depths of political irresponsibility. I mean, anybody who runs around saying that our position is similar or can be likened to the stance taken by the discredited apartheid regime in South Africa is deliberately inflaming the situation, wants race to be an issue and is behaving in a provocative, quite dishonest fashion.
I mean, for heaven's sake, it wasn't until 1994 that the franchise was extended to the vast bulk of black South Africa. And for a long time until 1952 the only South Africans other than the white population who had a vote, had a limited franchise, were the Cape coloureds and that was taken away in a notorious exercise in 1951.
To draw comparisons between that regime and what the Government is doing in Wik is a very desperate, irresponsible thing for a Premier who himself, in the privacy of a conference with the Premiers and the Prime Minister, was prepared to give general support to what we were doing. I think if the Australian public really knew what Bob Carr told his colleagues at the specially convened Premiers' meeting held in Sydney in January of this year they would find his comment yesterday sickening in the extreme.
Bob Carr was almost as supportive of what you might call a radical response to the difficulty created by the Wik decision as many of the non-Labor Premiers at that time. And if you want any confirmation on that go and talk to Jeff Kennett.
JOURNALIST: Prime Minister, Matt Peacock, ABC Current Affairs Radio. I'd like to ask you about that last point but I will talk about industry.
PRIME MINISTER: Hooray.
JOURNALIST: It was only last week when your ... (inaudible) ... weaknesses in the Mortimer model as exhibited by the meltdown or otherwise ... (inaudible). What convinced you against his ... (inaudible) ... and what made you decide to re-establish some of these R D investment incentives when you got rid of them in the first place?
PRIME MINISTER: Well, what we've established in the R D area is different from what we got rid of. I mean, what we got rid of were the Crean syndication proposals which were being rorted. We got rid of them because they were being abused. And you have a far better targeted approach to R D if you have an outlays programme. And the concerns that we had in relation to syndication and the operation of a former system remain and that is why what we have done is to build, very significantly, on what we did to replace the old syndication arrangements.
Now, as far as the meltdown in Asia is concerned, the real take-out about the meltdown in Asia is two-fold. And I know this is something that both the Treasurer and I have talked about a great deal over the last few weeks. And that is that aren't we lucky, isn't it fortuitous that Australia's economic foundations are so strong. Otherwise we would have been badly knocked around by what has happened in our part of the world. And so far, from Australia being in a position to help others, and I say with some pride, it's a very, very satisfying feeling of national honour to be able to say to our friends and neighbours in the region: we not only want to help you but we're strong enough to help you. And I think that scores ten out of ten for Australia. And you can only do that when you've got the fundamentals right. You can only do that when you've cut the deficit. You can only do that when you've tackled the legacy of deficit and debt. You can only do that when you've got inflation and interest rates down and you're heading towards a budget surplus after only three years in government.
So the first take-out of the Asian meltdown is, you've got to have the fundamentals right otherwise you get washed up on the shore along with some of the others. And the second observation is that I think it demonstrated that highly interventionist strategies, which we have deliberately turned our face against in this statement and quite properly in my view, don't work. And some of the problems in the region are due to excessively interventionist policies, particularly in relation to the links between the Government and the banking systems of many of those countries. You've got to have transparent financial systems in the modern global economy. And if you don't, you will eventually have problems.
Now, they are the two conspicuous take-outs from the financial turbulence in our part of the world. And everything we've done in this statement is utterly consistent with that understanding of ours.
JOURNALIST: Diane Stott from the Sydney Morning Herald, Mr Howard. I've got two linked questions also on industry policy. Firstly, where is the money coming from to fund this package? Is it whittling away at that budget surplus that you're so proudly upholding as our saviour against Asia? And if that is the case, when the Government cut its budget spending over the past two years you said it was done in a fair way because all were sharing in the burden - families, working people, business and those on welfare were sharing in that burden. How do you defend that now when you're restoring funding to the business community while leaving those other groups to fund the budget cutbacks?
PRIME MINISTER: Well, when I said that people were being asked to fairly share the burden, I didn't mean that everybody was being hit because the core welfare programmes were not hit. We didn't cut pensions. We didn't cut Medicare. We didn't cut unemployment benefits themselves. We didn't cut the core social security safety net, and we never would, for all the really needy in our community. What we did was to try and spread the burden around amongst those who could afford to make a contribution. Now, some of the decisions we took in the business area were criticised and they haven't been reversed. For example, the abolition of the DIFF scheme, the tariff concession changes and a number of other changes that we have made. They haven't been and they won't be reversed.
But we took decisions to appropriately increase HECS charges and a whole range of other decisions to spread the burden around. We took, I admit, a very unpopular decision in relation to the superannuation surcharge, it was to make a contribution, probably a lot of people in this room didn't like that decision very much, I understand that, but we have stuck to it. It wasn't popular but it had to be done. But one of the things that I am very proud to say about the first two budgets we brought down is that the people who were really dependent on social welfare, who really needed safety-net help they were not touched.
So, if I may say so with respect, the premise of your question is not accurate. And nor is it true to say that all of the business changes that were made have been restored. They haven't. What has happened is that in one area, namely R D, we have adopted a different approach from the one that we drew back in our first Budget to provide more support for R D. And I think it has been done in a way that is better targeted and therefore will deliver better outcomes for the taxpayer.
JOURNALIST: Steve Lewis, Financial Review, Prime Minister. I just want to pick up on some of the points you made there in respect of research and development. As well as cutting out syndication you also reduced the 150 per cent concession to 125 and I would argue that no other single decision taken by this Government received such an unpopular response from business. You have now gone some way to restoring the R D funding to business through more than $500 million in new spending, including some references to what appears to be a scheme similar to a 150-type concession. Are your initiatives today a concession by yourself that you went too far in your first budget in terms of causing damage to the business community. Do you now concede that the decision to cut from 150 to 125 has caused major harm to Australia's innovative culture and to businesses who claim that they have cut their R D expenditure as a result of that decision? And more broadly, do you now believe that this package, Investing in Growth, will win back the support of business and allow you to secure their support in the lead up to the next election?
PRIME MINISTER: Well how different businesses react is a matter for them. We didn't sort of run particular measures past particular companies or particular organisations. The answer to the first question is no.
The answer to the second question is, that we believe that the way in which we have decided to give the additional R D assistance is more sophisticated, better targeted, will deliver a better return on the taxpayers dollar and will really more effectively target excellence than the other arrangements that used to operate earlier.
Can I say in relation to the attitude of the business community towards this Government. In major areas I believe that the Government has always had, and will continue to have, significant support from the business community. I mean, the priorities that I understood the Australian business community to be setting for the new Government were first of all to fix the chaotic budget situation. Secondly, to reform the industrial relations system. Thirdly, to press ahead with other micro-economic reform, including privatisation. And fourthly, if it were possible, to undertake fundamental taxation reform.
Now I have no doubt at all that the business community in Australia will give very strong and sustained support to this Government in it's endeavours and it's commitment to and it's resolve to achieve fundamental reform to Australia's taxation system.
But, can I just make the obvious point, that we don't exist as a political outreach of the business community. We have a different relationship from the business community than the Labor Party has with the trade union movement. We are not owned by the business community. It is a very crucial difference. We represent all Australians and I am very pleased to note that one of the statements that I have read in relation to today's statement is one issued by the Newcastle Branch of the Australian Workers Union giving very, very strong support to the manufacturing in bond system that will be of particular benefit to the people of Newcastle. It has been a good year for them, particularly the last six months.
JOURNALIST: Prime Minister, John Short, The Australian newspaper. In your speech at page 7 you say, that the Government is not disposed towards providing across the board investment incentives or establishing a dedicated fund for that purpose, so effectively dismissing a key element of Mortimer. Then you go on to say, we recognise however, that in limited and special circumstances there may, not would, there may be a need for some specific incentives to attract major strategic projects. Why shouldn't business dismiss this policy position on two inter-related grounds, namely, that provision of the assistance you have foreshadowed, rather than announced, will be the exception rather than the rule? And secondly, your failure to commit funds in the budget for attracting major strategic projects to Australia means that this really is a claytons policy in terms of investment promotion because after four months of discussion your Cabinet remained split on implementing the key recommendations of Mortimer in relation to the $1 billion Invest Australia Fund?
PRIME MINISTER: Without sort of going into the details of Cabinet discussions John, I want to tell you that there was never much support for a dedicated fund. So your fundamental premise is really wrong. I don't think there is any reason for them to dismiss it. I think the words plainly mean what they say, that in special and limited circumstances and according to criteria there would be incentives made available. I don't think there is anything odd about that.
In the past this country has done it, I mean, I remember when I was a member of the former Coalition Government that there was some special arrangements made in relation to the giant North-West Shelf project. I am not sort of holding that up as any kind of role-model for what we had in mind here, but it is a reminder of some of the special arrangements that were made. There is nothing inconsistent with saying you are going to do that and that, but you are against some kind of dedicated fund for across the board incentives.
JOURNALIST: Rob Chalmers, Inside Canberra, Prime Minister. I thought Matt Peacock's question was so good that you might like to try and answer it again?
PRIME MINISTER: No, no.
JOURNALIST: Why didn't you accept the interjecting Treasurer's advice against setting growth targets? And secondly, I noticed that your speech refers to building stronger bilateral trade relations with our trading partners, those trading partners you will recall were very angry about the dumping of the DIFF scheme in your first budget. Are you likely, or prepared to think again about the Development Import Finance Facility scheme?
PRIME MINISTER: The answer to that question Rob is, we have thought about it and we decided to get rid of it and we said that before the election. And that was actually in meeting our commitments. The costings document we put out before the election, so there was nothing sort of sudden or meliaceous about that. We told the public before the election that we were going to get rid of it. So I know getting rid of it was unpopular with some people but we can't do anything about that. I am sorry, but at the end of the day you have got to take decisions.
And as far as the statement is concerned I think it is appropriate to have what we have said about growth. I think it gives a beacon, it gives a light on the hill in terms of business activity and business aspirations which is very desirable.
JOURNALIST: Craig Johnston, Courier Mail, Prime Minister. I just want to take you back to native title if I could. I am curious as to how you judge the support of the mining and farming industries. Once you'd come up with your 10 Point Plan were you disappointed that they didn't do enough to counteract the very effective lobbying campaign by the Aboriginal community? And secondly, just on your answer to Malcolm's question, are you ruling out any change to the Electoral Act that would give either major party a better chance at controlling the Senate?
PRIME MINISTER: I have no such plans under consideration. As to the first question, can I say to you... was I disappointed? Look, I am not going to give a running commentary on the lobbying skills or efforts of different stake holders in this issue. Sometimes the success of lobbying a particular point of view is not directly proportionate to the skill of the lobbying but it is sometimes due to the disproportionate receptivity of those who communicate the different messages.
JOURNALIST: Prime Minister, Andrew Butcher from the Melbourne Herald Sun. You say a critical part of any industry investment policy, and indeed, of getting jobs growth which is presently elusive is a reform of the tax system. Would you consider putting your tax plan into legislation before the next election so that if the Senate rejects it you could also take that to a double dissolution election. You could then pass it untouched...
PRIME MINISTER: No doubt about you.
JOURNALIST: ...if you won that election.
PRIME MINISTER: Our position on that is very simple and that is that everybody will know in some detail what we intend to do on tax if we get re-elected and I understand that Mr Beazley has already said that if we were to present a detailed tax plan and we were to win the election then he wouldn't use his numbers in the Senate to block it. I mean, he has sort of done an advance Keating a la Fightback on that and I'm quite sure that he will be reminded of that between now and the election, and I am quite sure that you will all remind him of it regularly and that he will repeat it, repeat it ad nauseam during the election campaign.
Now as to whether we go further than that, look, I haven't given any thought to that but given what he said and given the logistics of the whole thing, I think that is all that's feasible. Can I just make it clear, there are no sort of sleeve options, nothing is being held back, there are no cute words anywhere. We will be spelling out what we are going to do on tax before the election. The public will know what we are going to do. They will know that Beazley has said that if we win the election he won't block it in the Senate and we will all wait to see what he's got to say. He seems to have got off the tax reform train already, hasn't even got on it because he said that he's not really seriously interested in embracing tax reform for the next century.
But everybody will know and they will have a very, very clear choice to make at the next election.
JOURNALIST: Louise Maher, Radio 2UE and affiliated network. Mr Howard, given your success in bringing down the budget deficit, delivering five interest rate cuts and signs that jobs growth is finally starting to pick up, are you surprised that most Australians do not appear to be more relaxed and comfortable under your Government? Why do you think that is the case and, given the uncertainty over Wik, the big changes you are planning to the tax system and the possible impact of the Asian economic meltdown, do you expect that Australians will feel any more comfortable by the time we get to the next election?
PRIME MINISTER: Could I sort of correct a bit of mythology in Australian politics and that mythology is that that rather sort of endearing phrase that you used in your question, relaxed and comfortable, was very much a post script of commentators to the programme that I took to the last election, I think in fact I used it in answer to a question that Liz Jackson asked me on the ABC profile that was screened two weeks before the election took place and it was a description in relation to national identity, but like so many of these things it's been subject to a sort of ex post facto elevation into the defining mantra of the whole 12 months before I became Prime Minister.
I don't think the election result would have been any different if I had not used that phrase, let me put it that way. Having said that, we live in a more volatile political climate. We have lived for a long time. I think the Australian people and the people of all developed countries understand that we have to change. It's a question of persuading people that change is desirable, what the national benefits are and that change is fair.
I have always said that you can sell a big policy change if you satisfy two principles. The first of those is that you have got to persuade the public that it is in the national interest, and secondly, it has got to pass the fundamental test of fairness. Now if you look at taxation reform, I have no doubt at all in our capacity to sell to the Australian public the national interest in reforming our tax system. I don't think there would be too many people in this room who would dispute the proposition that we really do have a broken down, ramshackle, out of date taxation system. It's essentially the tax system that we inherited and in many respects, it's a tax system that has been retained for a long time under both Governments and it needs change.
Now it's our role to craft a series of changes that are fair, and then to promote them to the Australian public. I think we can do that. We are resolved on that course and if we can achieve both of those two goals, then I believe the Australian public will support us but I mean, I am quite certain the debate about relaxation and comfort will go on regardless of what I have just said, but I mean, I think it is worthwhile putting that into a little box and reminding people of the context in which that remark was made.
JOURNALIST: Stephen Spencer, AAP, Mr Howard. This time last year your Government was an average of 11 or 12 points ahead in the polls. Now you are about six behind. What's gone wrong in the last year and how important do you think what you are saying today and what you are planning to say next year on tax will be in turning that around, in persuading people that the Government really can put forward a plan to take this country forward and bring those people back on board?
PRIME MINISTER: I think what the situation is, was our first year was better than our second and that happens with governments. They go through periods like that and modern government is inevitably like that. Bill Clinton went through a period of doing very well for a while, then he went through a trough and then he came back very strongly. That happens with governments. It has happened with predecessor governments in Australia. It happened with the Thatcher Government. She was a country mile behind in the early 1980s. It happened with the Menzies Government. It happens all the time. It's part of the political process. I don't know why you should find it so extraordinary.
JOURNALIST: Tom Burton from The Financial Review, Prime Minister. I just wanted to ask a question about capital gains tax. There were three reports which you mentioned which were the genesis of this final response from the Government and each of them mentioned the deficiencies in our capital gains tax system, that is the high marginal tax rates which apply because of the capital gains tax as the major reason why we have virtually no capital market in the information industries and the venture capital areas. You have made some recommendations, or tipped some of the recommendations in terms of venture capital. Do you accept the proposition that Australia's high marginal tax rate capital gains tax system is impeding our capital market system, or development of a capital market, and do you see this as part of your agenda for next year's tax reform?
PRIME MINISTER: I think both Peter and I have made it very clear that we regard high marginal tax rates, which at a personal level drive the capital gains tax rates, as being one of the outstanding weaknesses of the present taxation system. I think, I'll use 1970 comparisons, I think in 1970 you paid the top marginal rate of about 13 times average weekly earnings and you now pay it at, what, 1.4 or something. I mean, you've got to do something about that. I mean, how on earth Mr Beazley and his colleagues can maintain that we can go on doing that into the next century and still encourage people to have a go and take a risk is completely beyond me.
JOURNALIST: Thank you Prime Minister. I report for Nature, the international science journal with a wide international readership and during the past two years when your own science statements have shown a decline in real terms in expenditure by this Government on science, technology, research and development, the impression internationally has not been very positive.
PRIME MINISTER: Have you looked at the table, I am sorry to interrupt.
JOURNALIST: Yes, yes.
PRIME MINISTER: And I think if you actually look at the Government contribution...
PRIME MINISTER: ...we stand out very, very well compared with other countries.
JOURNALIST: The restoration calculated this time is $139 million per year over four years in this extension of the START programme. To what extent does that really recover the Government's position from the cuts in its expenditure on R D, particularly in the business sector, and expand that to the public sector, Mortimer recommended the decimation - I use that term literally - of the co-operative research centre programme. You didn't mention that in your speech. Does that mean that that has survived, that programme, the existing funding by the Government for the CRC Programme?
PRIME MINISTER: What is in the statement you would be aware of because, presumably you have a copy of it but the point I sought to make by interjection, and forgive me for having done so, but I thought it was worth making, that if you actually look at the table you will see that the direct Government effort in research by Australia is significantly better by way of comparison than other countries that appear in that table.
JOURNALIST: In one of the OECD categories, you more than made a particular...
PRIME MINISTER: No, that's the aggregate, that's the aggregate, Government and private. Now unless you accept that private R D funding, it is entirely, exclusively, 100% driven by Government incentives and nothing else and not by cultural differences, the fact that many companies operate as subsidiaries and therefore don't have a need to generate domestic R D and unless you accept that proposition, then it's not fair to say that the Government effort in this country is below the OECD average, it's not, and you ask me what we've done in relation to, to express a view about what we've done in relation to the original budget decisions. It wasn't an exercise in restoring a certain percentage of what was done or taken out before, it was an exercise in putting together a series of initiatives that we thought would deliver some very direct and high quality assistance and to encourage high quality research and the best research, and we think the combination of measures that we have implemented will do that.
JOURNALIST: The Co-operative Research Centre programme?
PRIME MINISTER: There's no reference to that in the document.