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Prime Minister addresses Metal Trades Industry Association and discusses the economy; warns that the Coalition would change industrial relations policy when in office

ELLEN FANNING: As we've said, the Prime Minister has delivered an up-beat assessment of the Australian economy. In a speech to the Metal Trades Industry Association dinner in Canberra last night, the Prime Minister described himself as bullish about the prospects of continuing growth into the next century, and he raised the prospect of Australia reversing its relative decline in prosperity over recent decades. But in a warning to the association, which has cooperated with the Government's industrial relations regime, Paul Keating said the Coalition would change that system by stealth, threatening a period of major industrial conflict. Our chief political correspondent, Fran Kelly, reports from Canberra.

FRAN KELLY: According to the Prime Minister, the only economic news on the horizon is good.


PAUL KEATING: I'm rather bullish about the terms of trade. The terms of trade have been shifting on Australia since 1950. In 1950, the things we sold to the world were valuable and the things we bought were relatively inexpensive. Resources were expensive and manufactures were cheap and we had, therefore, a very high standard of living in the post-war years. That all changed, so we got to those absolutely depression level terms of trade in 1985-86, the period that I talked about, the banana republic, and those banana republic terms of trade.

I think we're probably going to see an upward pressure on prices and more value attaching to real things as distinct from manufactured things. And I think, if Australia actually gets the double with high value-added manufacturing industries, and at the same time a pick-up in the terms of trade, we'll start shooting back up that income curve which we slipped down between 1950 and the mid-1980s.

FRAN KELLY: Mr Keating was insistent that the changing economic environment internationally and the gains put in place with APEC, and the avenues to the massive markets of China and East Asia that brings us, means an up-beat scene for Australia in terms of growth and activity. But in a veiled warning to the Coalition, who the Government insists can't make the philosophical shift to Asia, he says that without such a shift those gains are threatened.

PAUL KEATING: There are very few countries like Australia, OECD countries like Australia, that have either the growth we have or the growth opportunities we have, and they're very much there. But first of all, you've got to want to be in it, you have to want to be in the East Asian game. You can't be there as a sideline or a fad. You've actually got to want to be in it. And you can't straggle out there with loyalties to White Hall and to Washington, believing that you're going to have all the doors opened up for you in Kuala Lumpur or Beijing or Jakarta if our focus remains only in the places where we'd been before.

FRAN KELLY: The Prime Minister says much of Australia's economic achievements in the past decade are thanks to the Accord with the unions. Last night, Paul Keating warned the audience of industry leaders that these kinds of gains will be threatened if the Coalition tries to take apart the current industrial relations system, and he promised to make this coming election a referendum on IR.

PAUL KEATING: What we won't be having in the election campaign is a radical change of the labour market by stealth, of one side pretending that they've got the policies of the other side, when in fact they have a completely different set of policies altogether. Stabbing the Arbitration Commission in the stomach, knocking it out of the system, not having a no-disadvantage test, not effectively giving people a choice - these, I think, are all the recipes, I believe, for going back to the conflict model that we all came from in the late 1970s, which saw a spurt of wages growth and then a big fall in real wages thereafter. This is not going to be a low wage, low rent society, and nobody should try and take it there. But if the Coalition want to take it there, then this will be the issue in the election, that is one where we'll have a referendum on industrial relations, on wages and conditions.

FRAN KELLY: The Prime Minister's up-beat assessment of the economy is at odds with the thoughts of many market economists who are concerned about Australia's weakening economic fundamentals, rising unemployment, slower growth and rising inflation. Paul Keating is insistent though that those views are wrong and that, short of a change of government, nothing will knock Australia off its high growth, low inflation path.

ELLEN FANNING: Fran Kelly reporting there from Canberra.