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Australian Chamber of Commerce and Industry Annual Dinner, Hyatt Hotel, Canberra, 18 November 1997: transcript of address [Budget repair, Telstra, Corporations law, Financial system, Tax reform]


Mr President, Rob Gerard, Kate Carnell, Chief Minister of the ACT, all of my cabinet and ministerial colleagues, to Members of Parliament, to distinguished guests, diplomatic corps members, ladies and gentlemen.

The first thing I would like to say is that I think agreed with nearly all of your speech Rob. In fact I offered to give the vote of thanks at the conclusion. You asked for a resurrection in relation to a tax concession. I said to you it's a big ask, there's only been one resurrection in the last 2000 years. But I was rather relieved when you began your speech by saying you wanted everybody to be relaxed and comfortable. That's the point at which we knew we had you on side.

For the ACCI I want to say this tonight, we have regarded the ACCI as partners in reform. A reform process which we have begun in this country at March of 1996, a reform process in which we have made massive strides but a reform process where we have not yet finished the task. A reform process which is, as you said Mr President, must go on. When our Government inherited a budget deficit of $10.5 billion we knew that one of the first priorities we had to make was to stop Australia sliding further into debt. We've made enormous strides. Our goal to balance the Australian budget is now within our sight. It's a goal which we can accomplish by the next financial year. It's a goal which will see the fruition of one of the most ambitious fiscal programs this country has ever seen and a fiscal process which was not done by increasing revenues but by reducing expenditures. By the year 2000 outlays to GDP at the Commonwealth level will be back to at or below 24 per cent - pre-Whitlam levels. It's a big achievement but it's an achievement which sets Australia up for future possibilities which would not have been dreamed of two years ago.

We've made great strides in relation to inflation. Inflation is now at its lowest level since the early 1960s. Nobody who has come to maturity in Australian business has lived through a low inflation climate like this before. We all knew in Australia how to make money in a high inflationary climate - you bought assets, you negatively geared and you waited for inflation to deliver a profit to you. It's tough coming to grips with business in a low inflation climate because what it does is it encourages savings and long term investment and good returns. But we've seen significant achievements in relation to inflation flowing on to significant achievements in relation to interest rates. Home mortgage rates now at their lowest level since 1969. And good prospects of growth in the Australian economy over the first two quarters of this year, the Australian economy grew at the annualised rate of 4 per cent. One of the highest in the developed world. Putting our budget back into balance has given us the opportunity to engage in Australia's greatest privatisation program. And I think all Australians will feel proud that the national telecommunications carrier Telstra was privatised in such a successful way over the last two days. 1.8 million Australians who applied for shares in Telstra, our national carrier, an oversubscription of about five times what was actually on offer. A chance for individual mums and dads to come and to have a stake in that great Australian economy and part of our goal to encourage Australians from all walks of life to share in growth and prosperity and to share in the Australian equities market. What a wonderful achievement. What a wonderful outcome to see Australians voting with their feet and their chequebooks coming in and sharing in this marvellous privatisation and what an opportunity it gives Australia to set up further successful privatisation programs.

Our budget inflation, interest rates growth, assets sales have now given us also the opportunity to start retiring debt for the first time in a decade in Australia. The proceeds of the sale of Telstra are not going to be dissipated on recurrent outlays. That's what makes our privatisation program different from Labor's. When Labor floated the Commonwealth Bank it spent the proceeds in a year and still ran up deficits. Our budget will be in balance and the proceeds from the sale of Telstra will go to retiring debt. To get that debt burden off the yoke of the Australian economy. In 1991 Australia's debt was $16.6 billion and five years later, $93.2 billion. The Commonwealth ratchetted up debt 5.6 times in five years. And for those who say it doesn't matter, let me give you this figure. We pay $9.4 billion a year to service our debt, not to pay it back, but to service it. Payroll tax in this country raises $7 billion. If you weren't servicing $9.4 billion in interest payments you wouldn't need a payroll tax in this country. Petrol excise raises $6 billion. If you didn't have interest payments of $9.4 billion per annum you wouldn't need a petrol excise in this country. Company tax in this country raises $19.2 billion. If you weren't paying $9.4 billion in interest year in, year out you could halve the Australian company tax rate. I'm just talking here about the cost of servicing debt, not the possibilities of paying it back. There was no plan. There was no plan before our Government was elected to stabilise let alone retiring. And if we can achieve the great goal of halving Australia's debt to GDP ratio by the year 2000, of halving it from 20 per cent to 10 per cent, we set up opportunities which Australia could not have dreamed about two or three years ago.

And so we can say that we've made some great strides in relation to the budget, in relation to inflation, interest rates, growth, asset sales, debt retirement and economic possibilities for the future. There are those today who are arguing that having made those strides we could throw economic reform into reverse, that we could put the budget back into deficit, or run up debt or throw back industrial relations reform or go back to running a nationalised phone company. That we could erect tariffs or trade barriers or that we could freeze our tax system in the 1930s. A trip down memory lane. A recipe from both right and left in Australia to turn our backs on the possibilities that we will only achieve if we go out and continue the reform process.

As we look to our region and we see the volatility in relation to currency and stock markets, we can't say yet whether that volatility has ended, nor can we say yet the full effect that it will have on the Australian economy, but we can say this unquestionably - we face that volatility much stronger because we are no longer running $10 billion deficits. We face that volatility much stronger because we have a plan to stabilise and retire debt. We face that volatility much stronger because we have low inflation and interest rates. We face that volatility much stronger because we are prepared to engage in industrial relations reform and tax reform. And as we look out into our region we see not only the benefits of the reform process so far, but let me suggest to you an opportunity for the reform process in the future. One of the great opportunities which Australia can seize at the moment is to become in the region, in the time zone a centre of business and finance which will give us opportunities which will build Australia very much greater in the future.

But I want to focus on three areas, three necessary areas of reform which can make Australia a centre of finance and commerce in this region. I want to focus on corporations law, on the financial system and on tax reform. I guess anybody who's tried to do business in Australia will know that our corporations law is highly prescriptive, highly complicated for directors difficult to comply with. And in March of this year the Government announced a comprehensive Corporation Law Economic Reform Program. To bring a new approach to corporations law, to remember what the purpose of a corporation was, to remember that it has economic objectives, to remember that our laws should protect investors but ultimately service the objective of developing the economy and creating jobs.

We have already delivered four substantial policy papers under this program on accounting standards, fundraising, directors duties and corporate governance and takeovers. We have two more to come on electronic commerce and futures and securities markets.

In developing these proposals together with my Parliamentary Secretary, Ian Campbell, we have closely consulted with the business community. I would like to thank the Australian Chamber of Commerce and Industry tonight for the substantial amount of effort they have put into this program.

The support of the business community is essential. We want to deliver a corporations law which is state of the art, which preserves investors confidence whilst reducing transactional costs. The reform proposals which we have out for discussion, if they receive substantial business support, will be enacted under the program next year. Small business will be big winners. Under the specially designed package in relation to fundraising for example, fundraising will be less costly and easier for small business. Companies will be able to raise up to $2 million each from up to 20 persons without issuing a prospectus. They will be able to offer or raise up to $5 million based on shortened offer information statements and they will be able to have liberalised rules in relation to raising from people who have substantial assets.

We will never forget the need to protect retail investors coming into the market for the first time. But we want to make it possible for Australian companies to raise finance in a more cost effective way.

In relation to directors duties we are proposing to introduce a business judgement rule. A business judgement rule which would say to directors who bona fide exercise their business judgement, who have no conflicts of interests, that they will be absolved from liability in relation to honest informed and rational judgements. To give directors the confidence to go out and do what corporations should be doing, to generate wealth and to create jobs. At the some time to protect shareholders with the statutory derivative action to enforce rights that reside in the company.

Why are we interested in the Corporations Law Economic Reform Program? We are interested in it because we can make Australia a better place to do business. We are interested in it because we realise we are now in competition as a base for business in the region. We can do it because we realise these are high transactional costs and we can do it because we want to make Australia a place where business is easier and less expensive. Corporations law has the potential to make Australia a much more benign place to do business.

The second area that I want to concentrate on tonight is the financial system. When we commissioned the Wallis inquiry report, an extensive report, the most extensive report into the Australian financial system since Campbell. The Wallis committee reported to us that the Australian financial system was average. By world standards, average. Excelling in no particular area, defective in no particular area, strong prudential position but certainly not delivering the best benefits to Australian business and consumers.

If we want to make Australia a centre for the financial system in this region, we need to have the most efficient and modern financial system and regulatory arrangements that we can make them. We need to heighten competition in the financial system and the recommendations of the Wallis inquiry, which our Government intends to implement, are designed to ensure that the Australian financial system will become more competitive. That we'll get new entrants into it.

If you want to see the advantages of competition in the financial system look at the home mortgage lending area. In relation to home mortgages we now have the lowest rates since the 1960s. Although official interest rates have fallen 2.5 per cent, home mortgage standard variable rates have fallen 4 per cent. 1.5 per cent has been shaved off the margins of the Australian bank lenders.

Why? Because new entrants came into the market. Mortgage originators came and started competing with banks for business. And you know what, we need new entrants into the business lending market as well. We need to create the opportunities for credit unions and building societies and other deposit taking institutions to come in with full-on, red-hot competition. Red-hot competition to deliver better benefits to business and consumers. That's why we are proposing to have one single regulator for deposit taking institutions. So that there will be no advantage through the regulatory system of banks as against other institutions.

We have announced that we are going to allow credit unions to issue cheque in there own name. We - are going to give access to the payments system to other deposit taking institutions. This is going to be driven by competition and competition is going to drive consumer benefits. Competition is going to drive consumer benefits. I make this point about competition because I don't think it is well understood. I think there are many people in Australia that think that some how competition will make us poorer.

But I re-emphasise this point. What brings economic growth and improvements in our standard of living is our ability to get better outputs from our inputs. That's what creates value. Another word for that process is productivity. Productivity is the basis for rising living standards and generating propriety. Those people who say they want a high growth economy but oppose productivity improvements are arguing a nonsense. What will give the Australian economy growth is productivity improvements, better outputs for given inputs. Some argue that productivity

improvements will only lead to lower living standards but through the course of human history, productivity improvements have been the basis of generating wealth.

In the early 1980s the ACTU argued against the introduction of new technology to the work place. Arguing that it would make employment in the secretarial area more difficult. In fact new technology in the work place? the PC and the word processor, lead to an explosion in productivity. Routine secretarial jobs became less frequent but higher skilled jobs in information processing multiplied. The outcome was the demand for higher skills, higher training and better jobs. But the economic effect was wider than just that industry.

The economic effect, the productivity improvement went into every industry in our society. Creating the basis for higher productivity, generating higher wealth and leading to high living standards. And higher living standards is the basis for improving health care, for improving our education, for improving our pension system. We should never be better in this country by thinking that lower living standards will lead to better outcomes than higher ones. We should never be better in this country by thinking that lower incomes should lead to better outcomes than higher ones. Productivity, higher outputs for given inputs is the basis for raising living standards, the basis for better health care, the basis for better education and the basis for better jobs.

So let me come now to the third challenge which lies before us to make Australia a base for business in the region. It's the one that Rob mentioned before. It's the great challenge, it's the challenge of tax reform. Tax reform was tried in this country in the 70s and failed, it was tried in the 80s and failed, it was tried in 90s and failed. But if we want to make this country a fit place to be competitive and productive for the challenges that lie ahead, tax reform for the turn of the century must be engaged in and won.

Let me acknowledge at the outset, anyone could run a scare campaign against tax reform. The Opposition says it will run a scare campaign against tax reform, anyone could do it and I could do it better than most. But at the end of the day, would your heart be in doing the wrong thing for the country? Would you be able to sit back and say 'that was a successful scare campaign which set reform back in this country, weren't we clear?' Would you like to sit back and say 'that was another wasted reform opportunity or another triumph of populism over policy'. At the end of the day this is a fight worth winning.

We have a wholesale sale tax in this country which was introduced in the 1930s and it was pretty good for the 1930s. We have an income tax assessment act of 1936 which was premised on concepts of income and derivation, before the advent of globalisation. And it is pretty good for a 1930s, a 1950s, maybe even 1960s, type economy. But we aren't living in a 1930s economy any more and a 1930s tax system won't do Australia for the next century. It won't do Australia in so many respects.

I acknowledge the work that the ACCI has done with ACOSS. And I know that some of our political opponents have said to ACOSS they shouldn't join the movement for tax reform. But I think ACOSS recognises that unless you have a decent broad based tax base in this country, there is no point in arguing about pensions and the health care system because you want have a base to fund them. I think ACOSS knows much more than the populist opponents. That those that genuinely are interested in securing the place of the disadvantaged in society will have an interest in a decent tax base. And a goods tax base in a service based economy is not decent, it's not modern. In relation to the indirect tax base we need to broaden it as far as possible to reduce the rates and to secure a decent tax base.

You know doing that is one of the definite ways, one of the most practical ways, of helping Australian business. Not only because our indirect tax base falls unfairly on manufacturers but when our business people send their exports overseas, when they've paid taxes on business inputs, on their transport, on their packaging, they don't get refunded in relation to their final goods output. When our competitors who operate Value Added Tax systems, cash back to exporters all of the indirect taxes that have going into the production process, their exporters put goods on international markets completely tax free. And when you look at ships which are sailing around into world destinations and world markets, our goods are sailing on ships which the baggage of taxes on inputs and our competitors are sailing around ships where the export has no input tax what so ever.

Why would you handicap yourself in international markets? Why would you say to Australian exporters run a handicap race, when nobody else is carrying any baggage? Why would you say that this is the kind of taxation system which will do Australia for the next century?

The same comes in relation to income taxes and company taxes. If we want to be tax competitive in our region, don't think about having high tax rates and cashing them out in selected areas with concessions or cashing them out to selected persons with concessions. Why not think about reducing overall rates. Giving the benefits on an overall basis. Giving Australian industry a go. As we look around our region, at the moment, we have untold opportunities. We can only grasp them by keeping the reform process moving. It is not the time to throw reform into reverse? it is the time to keep moving. To keep moving in relation to our corporations laws, to keep moving in relation to our financial system, to keep moving in relation to our taxation system. Change is a given, don't think we can seal off the Australian economy. Change is a given, the only open question is the extent to which we will harness the benefits of change.

People on the right and the left will play on the insecurity that change brings for political advantage. We could try to slow change or resist productivity improvements but if we did, who would win? We may only delay the benefits that those productivity improvements would give us. An economy which is open, flexible and adjustable will allow Australia to capture the benefits to the maximum extent. We in the Government believe this is the task that lies before us. It lies before us in relation to corporations law in which we welcome your support, the financial system in which we welcome your support. Your leadership in the tax debate, which I think has been very significant and in the national interest. And in the national interest we can grasp the great changes, turn them to our benefits and deliver the kind of Australia that we want to see and what's more that Australia deserves for the future.