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CEDA, Regent Hotel, Sydney, 18 February 1998: address.

In all of the years CEDA has been in existence, it has distinguished itself as Australia's foremost gathering for the discussion of the most important economic issues of our times. I come before you today representing the alternative Australian Federal government.

I come before you at the beginning of what most commentators expect to be - but what should not be - an election year. A government really in control of its agenda would not, as this one has, govern in a mire of endless election speculation. As we all know, it is bad for business.

Nevertheless, today, I want to unveil the fundamentals of the approach a Beazley Labor Government will take to budgetary management.

Federal Labor governments in the 1980s and 1990s had custody of the Australian economy for 13 years. Together, my frontbench colleagues and I have literally decades more experience in economic management than our opponents.

That economic management is one of the signal achievements of Federal Labor's unprecedented 13 years in office. Upon assuming office in 1983, we took the view, and that view strongly informs the team I lead today, that weaknesses in economic management, both perceived and actual, had historically played a large part in the demise of the Labor administrations which preceded us.

Consequently, good economic management has by now become as iconic for the Australian Labor Party as it is for any other party on the Australian political scene.

As I said, the record is a proud one.

Remember, Labor is the party that brought you four Budget surpluses in a row in the 1980s and 1990s. We are the party that brought you record lows of industrial disputes, the party that brought you healthy corporate profits year after year, and the party that brought you improved export competitiveness.

Labor is the party that floated the dollar, that deregulated the financial system, and that gave you lower corporate tax rates.

Labor is the party which, during the 1980s, lifted the quality of economic debate in this country, and sold the vision of an Australia engaged in the global economy, and an Australia that was a real player in the push for free trade through APEC.

This record is no less important to my Shadow Cabinet today than it was to the Cabinets in which I had the honour to serve during the 1980s and early 1990s.

Labor today has honoured that tradition by enshrining it in the Labor Party Platform which was produced by our recent National Conference.

The next Labor Government will be operating within the disciplined fiscal guidelines imposed by a new Platform that acknowledges the importance of fiscal policy as one of several tools that contribute towards managing the economy at stronger and sustainable levels of growth.

On this, it says, and I quote directly:

" Responsible budgetary policy, of the kind Labor will administer, needs to have regard to multiple objectives ... including its impact not only on growth and employment but also on:

. the need to maintain low inflation and a manageable current account deficit;[and]

. public debt, including by not making future generations pay for present recurrent expenditure."

Let me stress also that this Platform is exactly what it says; a Platform. It is not the package of policies we will take to the next election.

It is the responsibility of the Parliamentary Labor Party to decide the policy priorities for our election campaign, and for when we are in office. This was the case when we were in government and it remains the case in Opposition.

Our Platform allows that, after identifying the Party's main priorities as: economic recovery, a fair distribution of the benefits of economic growth; and improvements in the welfare and living standards of the Australian people, the Parliamentary Party has the flexibility to determine the priorities and timing of specific policy implementation.

That flexibility was instrumental in enabling the Hawke and Keating governments to respond to rapidly emerging economic contingencies throughout our period in government.

And it is a flexibility that will be important for future Labor governments. Because governments must be able, particularly in the area of economic management, to respond to issues as they emerge. This is particularly the case for a small, open economy like Australia - an economy which must be able to absorb the inevitable external shocks without allowing them to derail the domestic economy.

We have now in the form of the economic shakeout among our Asian neighbours and trading partners one of the most profound external shocks Australia has experienced in recent decades. In the face of this shock, the Coalition government has been inflexible and worse. Indeed, the initial reaction was one of complacency, or, better said, smugness and arrogance.

Treasurer Peter Costello, speaking at the Conference of Economists on 29 September last year, felt able to comment, and I quote:

"The fact that Australia has been immune to the instability that spread through South East Asia ...."

Nearly a month later, on 22 October, he said that the impact of the crisis on Australia would "hardly be measurable".

Once that story no longer remained tenable, John Howard and his Ministers changed tune. They now take credit for fireproofing the economy with their strategy of swingeing fiscal cuts. I can honestly say that I hope those words never return to haunt this government.

Because the fact is that they are at best disingenuous, and at worst betray an alarming lack of understanding of precisely what underlies the economic difficulties of our regional neighbours.

The overwhelming reality is that many of the problems afflicting our regional neighbours do not reflect their budgetary positions, but the state of their financial systems and the general lack of transparency in economic policy making.

If any contribution 'fireproofed' the Australian economy in this context, it was Labor's reform of Australia's financial system in the early 1980s.

We undertook those reforms to set Australia up to gain a place in a rapidly changing global economy. Floating the dollar, and allowing competition from foreign banks, were important measures to open Australia up to the opportunities offered by a world about to explode in terms of volumes of international trade.

But at the same time, we understood that prudential regulation must remain strong, and must be carefully balanced so as to provide the financial system with stability and strength, but not so as to get in the way of the opportunities which flow from a less regulated market. There was no place for ideology, amateurism or attitude in these decisions - our reforms were about securing Australia for the future.

They did secure Australia for the future.

In confronting the economic turmoil in Asia, the two most immediate economic issues for Australia are its effect on our rate of economic growth, and on our current account deficit.

I note that as time passes and commentators receive more details about the Asian economies, their forecasts for Australia become more pessimistic:

Initially it was expected that we might lose a quarter to half a percentage point of growth. Then the estimates moved closer to one percentage point. A fortnight ago Bob Joss of Westpac said he thought that the effect would be one percentage point. And last week the Economist Intelligence Unit issued a forecast which predicted growth this year being reduced by 1.4 percentage points, and that next year the rate of growth would be down 1.6 points to 2.4 per cent.

It also seems inevitable that Australia's current account deficit will come under increasing pressure in the medium term. The Government conceded as much in the Mid Year Review, where the CAD forecast for 1997-98 has been lifted from $21 billion to $23 billion, or 4 1/4 per cent of GDP.

As we can all gather, the effects on Australia of this crisis will be complex - they do not warrant simplification down to a one-chord symphony on fiscal consolidation. Fiscal restraint is certainly necessary, particularly with regard to the current account pressures arising from the Asian crisis. But Australian governments must also be concerned to look after what makes Australia a competitive nation in the global economy.

In other words, a surplus produced at the expense of programs which educate and skill our people, which support industry and export activity, and which enhance innovation will fail Australia at this crucial juncture.

Australia needs a government now that is capable of this kind of balance, and this kind of strategic vision.

Let me now talk about some of the specifics of Labor's approach.

One of the central undertakings in our newly adopted Platform emphasises the need to continue building national savings so that we can reduce our reliance on foreign capital, and particularly on foreign debt.

This is why I announce today that, based on the government's current economic and budget projections, the next Labor Government, which I shall lead, will deliver underlying surpluses in each of its first three budgets.

This is an important undertaking in the context of the current economic debate, but also for the long-term security of the Australian economy and the Australian people.

In doing so though, let me distinguish Labor's approach from the approach taken by our political opponents. We believe the present government has handled fiscal policy badly.

Firstly, despite its talk about national savings, the Howard Government has regularly gone about increasing public savings at the expense of private savings. For example, by abandoning Labor's superannuation co-contribution arrangements the Government has thrown out a mechanism which would have increased national savings by $400 billion by 2020.

Second, Labor understands the need to achieve strong bottom lines in a way that is sensitive to the needs of the Australian community.

We fully support good budget management and balanced budgets. But some of the specific cuts made by the Coalition have gone too far. For example, the Federal Government's presence has been withdrawn from many communities as numerous offices and services have closed. Local employment opportunities, especially in rural and regional Australia, have been undermined as the Government has withdrawn. And we believe it is also valid to ask whether the community has really benefited from the abolition of export promotion programs, the abolition of training schemes to assist unemployed people to move from the dole to meaningful work, or from the reduction in access to higher education for many kids from poor families.

Third, Labor believes that the Howard Government's approach to economic management has damaged the economy in several respects. The exaggerated post-election talk about a Budget black hole destroyed consumer confidence and damaged business confidence. That, combined with the contractionary effects of the 1996 Budget, meant that economic growth fell away and the employment market worsened.

My Shadow Treasurer, Gareth Evans, has calculated that if the Howard Government had pursued its fiscal goals in a more balanced way - for example, combining cuts of $1 billion in 1996-97 and $2 billion this year, with economic growth a point higher in each year - the Budget would have come back into underlying surplus by 1998-99. And if annual employment growth had remained around 2 1/2 per cent - the level during our last term - unemployment would have been around 6 1/2 per cent at the end of this Parliament, rather than struggling to get down to 8 per cent.

My government will be different, but we will never take our eye off the fiscal goals.

The next marker I set for the next Labor government concerns fiscal reporting.

I announce that Labor in government will publish at the end of each month a report on outlays and revenue decisions taken during that month. Known in the trade as post budget decisions, we shall publish a description of each decision, and a calculation of its effect on the bottom line in the current year and in the forward years.

While we haven't finalised the design of the new report it may be delivered as an attachment to the monthly report on Commonwealth Financial Transactions.

There are several reasons why this is an important issue and why I am announcing it now.

Labor believes strongly in improving the transparency of government. The previous Labor Government had a good record on this issue. For example, we were the first to publish forward estimates for both outlays and revenue, and to expand the range of information in the budget papers. We also introduced the Mid Year Review.

That record stands in stark contrast to the Coalition.

The current Prime Minister was the Treasurer who, in 1983, left the incoming Labor Government a Budget deficit of $9.6 billion - or $25 billion in 1998 dollars.

He is the Treasurer who, during that election, told voters that the deficit would be about $6 billion. As we later discovered, Mr Howard had been told by Treasury during the election campaign that the starting point deficit was going to be about $9 billion. He defended himself by saying that the $6 billion figure was a " ... personal estimate" which he was entitled to make "... having been Treasurer for five years."

The Prime Minister and his Treasurer make a great deal of noise about their fiscal rectitude, and about their transparent government. But the reality is quite different.

Under the Coalition, release of new policy is rarely accompanied by detailed information of its effect on the Budget bottom line.

My proposed monthly Budget report will prevent Governments from avoiding the publication of detailed costing information as decisions are made. Such information is vital for the markets and for the community.

The Mid Year Review, published just before Christmas, emphasises my point.

Between the May 1997 Budget and the beginning of December 1997, when the books were closed for the Mid Year Review, the Howard Government made decisions which added nearly $3 billion to the bottom line over the Budget period 1997-98 to 2000-01:

. $395m in 1997-98;

. $566m in 1998-99;

. $733m in 1999-00; and

. $1,242m in 2000-01

These decisions were unfunded. They were not offset by other reductions in outlays. At the same time, this government has the hide to criticise the Opposition for foreshadowing that some of the surplus might be used to restore proper funding for some of the programs they themselves are now having to contemplate repair jobs on.

The irony is that much of this unfunded increase in outlays is caused by Mr Howard's policy backflips, for example:

. new spending of $411 m on RD programs, to offset the damage caused by reduction of the 150 per cent RD tax concession abolished in the 1996 Budget;

. return of some of the funds cut from the Australian Federal Police (AFP) and the Customs Service as the effect of 1996 Budget cuts on their operations became too difficult to ignore;

. changes to the proposed up-front entry fee for nursing homes and delays in new arrangements costing the bottom line $180m over four years; and

. reversal of a 1997 decision on rent assistance for pensioners, adding another $190m to the catalogue of backflips.

Taken together, these backflips hardly signal confidence on the government's part that its Budget surplus did not come at too great a price.

I have spoken about Labor's plans for a monthly Budget report, but I would also like to outline Labor's position on the Coalition's proposed Charter of Budget Honesty.

The Prime Minister makes great play about his Charter of Budget Honesty and says that it is so important that he will use it as a Double Dissolution trigger rather than accept any Labor Party amendments.

However, in its present form the proposed Charter is really the Charter of Optional Budget Honesty. In its present form, the Charter is merely a stunt.

Labor is seeking to ensure that Australians get a Charter which lifts the quality of democratic debate through greater accountability and transparency, not one that is hostage to political bias.

Accordingly, we have proposed amendments to the current Bill. I want to list today some of those that have been rejected by the government:

. Labor voted to make the Charter legally enforceable. The Howard Government voted successfully to keep it optional.

. We sought to have Governments publish estimates of the effect of budget measures on national savings. Again this notion was rejected by the Howard Government.

. Our proposal to include a discussion of threats to the integrity of the tax base was rejected;

. Labor sought to have the pre-election economic and fiscal outlook reports published within five days of the issue of writs for an election, rather than the proposed 10 days. As it is now, it is merely an election tactic available only to the government.

. And finally, we strenuously oppose the participation of Ministers in the preparation of the fiscal outlook paper to be published during the election. We want these papers prepared by the public service for the public, the media, the Opposition, and the caretaker government. It would be totally inappropriate for Ministers to involve themselves in this process.

Today I re-affirm Labor's support for a proper Charter of Budget Honesty, and hope that the government will see fit to join us in passing a decent version of it.

The third marker I want to put down today relates to monetary policy under the next Labor Government.

Today I restate Labor's strong support for, and commitment to, the Reserve Bank's target of an underlying inflation rate of 2 to 3 per cent on average over time.

Of course, the target must continue to operate within the Reserve Bank's Charter, which, among other things, requires it to conduct monetary policy in a manner which promotes the maintenance of full employment in Australia.

The Labor Opposition understands the importance of low inflation. Indeed, we regard the current low inflation environment with some pride of authorship. It was the Labor government which delivered low inflation in this country.

In a world of short memories it is worth recalling that the RBA's inflation target was actually introduced in the early 1990s by the previous Labor Government and enshrined in Accord Mark 8. We do not see the RBA's inflation target as a barrier to strong, sustainable growth. We see it as crucial to our overall approach to economic management.

Our re-commitment to the inflation target is an important signal of our commitment to sound economic management. It is also important in the context of our number one priority; jobs and jobs growth.

Labor has argued that the best means of generating new jobs in the Australian economy, and making a substantial impact on unemployment, is through higher economic growth. But to be of long term benefit to the economy and the community, and to seriously reduce unemployment, those levels of economic growth must be sustainable.

Let me just briefly re-cap what I have said today:

Firstly, l am committing a Beazley Labor government, providing the Budget settings remain as the government portrays them at present, to producing Budget surpluses in each of our first three Budgets.

Secondly, I am committing Labor to a new regime of regular fiscal reporting, with the publication at the end of each month of a report detailing the effect on revenue and outlays of decisions taken by the government during that month.

Thirdly, l have stated Labor's support for a genuine Charter of Budget Honesty - with appropriate design features to ensure it is free from influence by the government of the day, legally enforceable and gives a proper picture of the state of national savings and the integrity of the tax base.

And fourthly, l have given a Beazley Labor government's commitment to the Reserve Bank's 2-3% average inflation target. This target was introduced by Labor, and we remain committed to it.

In the context of the Treasurer distributing his glossy pamphlets deriding the tax system, l would like to finish today with some comments on tax reform.

Let me make it clear, Labor supports tax reform. We believe that the debate is best proceeding from an informed basis, not on the basis of propaganda. Accordingly, let me make a few points about the current tax system:

We recognise that the system is complex, but it must be remembered that much of its complexity is due to a series of exemptions built into it for sound business reasons.

We notice that the government claims Australians as a people are overtaxed, yet if we look at the comparative equation, Australia was the second-lowest taxed nation in the OECD at the end of Labor's term in office. If the argument turns to the balance between direct and indirect taxes, Australia is right on the OECD average.

We also notice the government's argument that income tax rates are too high. Labor provided seven rounds of personal tax cuts in the 1980s and 1990s. If we had not - if we had left office still levying the rates that were in place under John Howard - Australia's income tax take would be around $30 billion higher than it is today.

In addition, l would like to take this opportunity to point out some of the faults of a GST that I am presuming do not make it into Peter Costello's glossy pamphlet:

. A GST will increase the number of private business tax collection points from 75,000 at the moment to over one million nationwide.

. A GST is a high tax solution for a low-spending country. In 1995, Australia's government expenditure as a percentage of GDP was 37%. That compares to France at 54%, Germany at 50% and the United Kingdom, after over a decade and a half of Conservative rule, at 43%. These levels of spending encourage a GST to finance them. Australia's do not.

Peter Costello's argument about the discretionary nature of the current indirect tax system is now neatly punctured by his own speculation surrounding exemptions from the GST. One day he is talking about the broadest possible base - taxing health, education, electricity bills and rental housing. The next he is talking about exemptions. I think the government needs a more honest and coherent version of what it is proposing - adventure or no adventure.

In reality we do not have an adventure on tax reform. We now have a Dance of the Seven Veils, but we are unlikely to see more than the first of them this side of the election campaign.

I began this speech talking about Labor's economic management record through the 1980s and 1990s. I tried to give you some flavour of how important good economic management has become to the modern Australian Labor Party.

We believe in good economic management because we recognise that the goals we hold so dear as a Party can only be delivered when we are in office. We are not in a situation where we can civilise the agenda of our political opponents from Opposition. On the contrary, we face the painful reality of seeing policies we believe in intensely abandoned by a conservative government ignorant of the kind of society Australians want to be.

But we believe that there is no reason why stable public finances, healthy corporate profits and an improving current account position cannot be consistent with good public policy.

In fact, it is the Australian tradition.

Australians are unwilling to vote for large public sectors or high-handed centralism - as I outlined earlier, we have smaller government expenditure than the major European economies, including post-Thatcher Britain.

This Australian tradition demands a different agenda for Australian social democracy. It demands an intelligent, effective, parsimonious social democracy. It demands the brand of social democracy Labor provided for 13 years up to 1996, and the brand we will provide again in the future.

These are deeply-held beliefs for Australian Labor today. This is why, as Labor leader, I view the attempts of our political opponents to portray us as some antipodean version of the Supreme Soviet as laughable. Those attempts fly in the face of Australian tradition, of Labor tradition, and of contemporary reality.

I have addressed those of you in this room many times before. You know the Australian Labor Party, you remember our record - and now you know our intentions.

Foremost among those intentions is to be a good government for Australia and Australians. The last two years only make us more determined.

Thank you.