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Property Council luncheon, Crown Towers Hotel, Melbourne, 4 August 1999: transcript of address [and] questions and answers.

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4 August 1999





Subject: Economy, taxation reform


Thank you very much Peter Lavis. To Louise Asher, the Minister for Small Business, to Carol Schwartz, your national president, Peter Clarke, other distinguished guests, ladies and gentlemen. I want to thank the Property Council for inviting me here today to give to me an opportunity on behalf of the Government to share some thoughts, and I hope also aspirations I have about the future economic and political landscape of Australia.

It’s not a bad time to be talking to a business audience about the state of the Australian economy, nor indeed about the prospects that lie ahead of us as we come towards the end of this millennium. Of the many memorable things he said, Franklin Roosevelt just after he was inaugurated as President of the United States in the early 1930s, I think he used words to the effect that we have nothing to fear but fear itself. And that was an injunction delivered to a nation and world that was very battered down and weary by the ravages of the great depression. How different the circumstances are now, particularly here in Australia against the background of a world economy which is working better I believe than it has probably at any time since the end of World War II. And particularly against the background of the American economy which is displaying an incredible level of resilience and strength.

And if I could perhaps borrow for today’s circumstances those words of Roosevelt and to make the observation that just because we are performing well at the present time, and just because by any measure the recovery in Australia and the strong growth in Australia has continued longer than most people expected, that is no reason to fear for a moment that if we follow the right policies we can enjoy a continuation of that strong growth and that great stability of the Australian economy. I suppose that the many things that have been said about me in my political career, I’ve probably never been accused too often as being reckless, or indifferent about the need to take caution. I am appropriately cautious about certain things. I don’t believe in changing something that works well, but I do believe very strongly in embracing change, even radical change, for those institutions, practices, and attitudes within the Australian community that ought to be changed. And the message that I want to leave with you today above everything else is that the strong state of the Australian economy in 1999 is not the product of inadvertence, it is not the product just of luck, it is the product of a number of fundamental changes and reforms that have been implemented in our economy over the last 10 to 15 years. And I’ve always been willing in looking back over the history of the Australian economy, where appropriate to give credit to changes that were introduced by our predecessors in government. And in one or two areas changes implemented by our predecessors have made a very material contribution to the strength and stability of the Australian economy today.

But very particularly the strength we have at the moment, the fact that we are without any doubt the strongest performing economy amongst the OECD countries, and I never tire of saying that of all the economic statistics of which I’m immensely proud at the moment none gives me greater pride in the fact that I can say to an audience like this, and indeed to any audience, that of the 24 member countries of the OECD the debt to GDP ratio, the government debt to GDP ratio of Australia is the lowest of the 24 member nations of the OECD. Or put another way, the burden of debt on future generations of Australians is lighter than the burden of debt on future generations of the populations of any of the other 23 member nations of the OECD. And that kind of situation delivers incalculable benefits not only to the present but also to the future.

We have as you know over the last three-and-a-quarter years set our faces toward a very strong program of economic reform. We got the country out of a deficit of $10.5 billion, we have returned a surplus a year ahead of schedule. We have delivered the lowest interest rates, the lowest inflation, the steadiest levels of business investment, and an economic growth rate that in 1998 was faster than the economic growth rate of any of the G7 nations. We’ve done that because of a commitment to a number of fundamental reforms. It wasn’t easy in the early months of government to cut back government spending. It wasn’t easy in the early months of government to tackle industrial relations reform. We faced a titanic, [inaudible], and industrial battle when we set out to reform the Australian waterfront. And most importantly of all and most contemporaneously of all, we have embraced the most fundamental and sweeping reform of Australia’s taxation system certainly since World War II.

And the value of that reform will endure for years into the future. And although we didn’t achieve 100% of what the Australian people voted for in October of last year, we have achieved through the deal that we made with the Australian Democrats something like 85 to 90% of the promises we took to the Australian public. And the structural value of that reform is immense. It will lower the fundamental cost structure of the Australian economy. It will make our exports cheaper. It will reduce our domestic business costs. It will lower the price of fuel and that’s very important to a nation that’s physical as large as Australia. It will deliver to 80% of Australian taxpayers a top marginal rate of no more than 30 cents in the dollar, and it will guarantee over time rising levels of revenue and a stronger revenue base for the States of Australia to provide the basic services which are their responsibility.

And as all of you will know, that follow political debate in this country, you’ll be aware that one of the great political pantomimes of Australia have been the annual gatherings between the Prime Minister and the Premiers in Canberra. It doesn’t matter who the Prime Minister’s been, it doesn’t matter who the State Premiers it has been, it doesn’t matter whether it’s Labor or Liberal, it’s been the same for decades. The Premiers go along and demand more money. The Commonwealth says they can’t afford to give them any more money because they’re already over indulged and the Premiers go away complaining that they’ve been given a very raw deal. And that pantomime has gone on now for decades. And one of the great benefits of the deal that we now got through the Parliament, and one of the great consequences of the agreement that I signed with all of the Premiers and the Chief Ministers of the Territories, is that after the transitional phase there will be a steady growth in the revenue from the goods and services tax for all of which will go to the States of Australia. Every last dollar of the GST revenue will be committed to the States and out of that growing revenue the States will have a growing opportunity of providing the increased services in health and housing and governments schools and police which are the ongoing responsibility of State governments in Australia.

But I wouldn’t like, in talking for a few minutes about what we have achieved over the last three-and-a-quarter years, I wouldn’t want anybody in this audience to imagine that we regard the reform process as having been completed because when you live in a global economy, and forever Australia is part of the globalised economic environment in which the whole world now exists. We don’t have an option to go back to the 1950s or 1960s when we may have had good levels of prosperity, no better than they are today. But we lived then in a very protected cloistered world. We now live forever in a globalised economy. We’ve seen the seamless transfer of capital across borders without regard for political boundaries, matched increasingly by the seamless transfer of job opportunities. So in this globalised world you have to keep competing effectively. It is like a never ending race where you have to remain ahead of your competitor. And it’s not good enough to say to yourself - well we’re doing better now than we were doing five or ten years ago because how you were doing five or ten years ago amount to absolutely nothing so far as beating your rival or beating your competitor.

And in that world of global competition it’s essential that the process of reform go on because you never really complete the process of reform. It’s like climbing one hill only to find another one facing you on the horizon. And some it is that although we have done a great deal to reform the Australian economy. Although we’re in a very strong position we have a responsibility of pressing ahead with the reform process, and particularly in two areas. We need more industrial relations reform. We need it in the form of still less regulation. We need some-how-or-other to persuade the Senate to pass those laws which will remove the restrictions on unfair dismissal which ought to be removed. We also need to some-how-or-other to persuade the Australian Senate to pass the legislation that we want that will guarantee that youth wages remain part of the industrial relations landscape of Australia because by maintaining youth wages we protect the jobs of several hundred thousand young Australians. So there’s still much to be done on the industrial front.

But I know of particular interest to this audience, having completed the process of legislating for the GST, and everything that accompanies the goods and services tax, and now having embarked upon the process of implementing the GST reform, it is imperati ve that we now turn our attention to the responsibilities of business taxation reform. And it’s no secret that John Ralph handed his report to Peter Costello a few days ago, and I had the opportunity here in Melbourne this morning of a lengthy discussion with Mr Ralph in relation to the report that he’s delivered to the government.

And I want to take a moment to record my gratitude to John Ralph, to Bob Joss, and to Rick Allet and all the other members of that committee, as indeed I share my gratitude to people like Carol Schwartz, your national president, for the willingness of people in the private sector to give up their time and to make a contribution to the making of better policy and more competitive policy for the Australian economy. Because it is quite impossible for a government acting alone with its public service advisers, with all the wisdom collectively we might try and bring to the task, is quite impossible for us acting alone to re-write effectively the business taxation system of this country.

And the report that John has delivered to the government is the product of an enormous amount of work contributed very generously by the private sector of the Australian community. And the changes that will flow from that report will have long term ramifications, I believe very beneficial ones, on the operations of business in Australia. And we’ve got one or two very simple principles in mind as we come to address that report. And those principles really surround one or two fundamental questions. And the first of those questions is will the changes we implement make it more attractive to invest in business operations in Australia? Will the changes make Australia more competitive? Will these changes be seen by investors overseas as more likely to attract their dollars to Australia.

And there couldn’t be a better time in the last 20 or 30 years for an Australian government to look at removing any barriers to greater investment in this country from overseas. Because the achievement of the Australian economy, and the strength of the Australian economy is very widely recognised around the world. And that was driven home to me very strongly when I was in the financial capital of the world, New York, only a few weeks ago. And in the 25 years that I’ve been visiting that city in various government and opposition capacity, I’ve not found a greater respect for what Australia has achieved, and the strength of the Australian economy than I did on this particular occasion. Now we’re going to ask ourselves that fundamental question - will it make Australia more competitive, will it make it more attractive to invest in Australia?

And another fundamental question we have to ask ourself is whether the changes that we propose to make, and I can assure there will be some quite fundamental changes to the Australian business taxation system, will those changes lead to less complexity, will they lead to changes which are more likely to produce a simpler and more coherent taxation system? Now I can’t pretend to you today that any business taxation system can be the essence of simplicity because business transactions of their very nature are often complex and indirect. But I think there is an overwhelming view in the Australian business community that not only do we need a taxation system that encourages more competition and more investment, and more risk taking, but we also need a business taxation system which is less complicated and easier to follow. And that will be the second of the great principles or the great questions that will apply to the deliberations that we are about to bring to the report delivered to us by Mr Ralph.

I think all of you are aware of some of the areas of debate and some of the areas of discussion about business tax reform. I make one very important request to all of you, and that is when having a look at the impact of any of the recommendations and the decisions of the government that follow those recommendations, I do ask that you take into account the aggregate impact, not only of the business tax changes but also of all of the changes that flow from the goods and services tax on your operations. There is a tendency with these things for businesses to look at them in watertight compartments and say - well the GST has given me this advantage that’s terrific, but if the business tax change doesn’t give me also an additional advantage than I’m against it. I ask all of you to look in aggregate at the changes that will be brought about by business taxation reform, and also add to them the changes that have been brought about through the goods and services taxation reform. And I ask you to ask yourselves especially, when you add both of them together whether the aggregate of the benefit, the changes are beneficial to your businesses and your business operations. And I believe that if you do that you will find that in the overwhelming majority of cases you can answer that in a very very strong affirmative tone that I believe will be the reaction of the business community to the changes that we bring about.

So we have ahead of us therefore ladies and gentlemen, a number of major further reform challenges. We have come a long way. We have made the Australian economy achieve something that I don’t think many people thought it would achieve and we have seen it s tare down the worst downturn in the Asia Pacific region since the end of World War II. And if I’d addressed this gathering a year ago, just on the eve of the release of the taxation reform plan, and before the October election of 1998, I probably would have said to you that we were looking forward to the challenge of selling tax reform to the Australian community. And I also would have reported to you that although the Australian economy was performing very well and is growing more strongly than many predicted, we thought it would be badly damaged and that growth would slow significantly as a result of the Asian economic downturn. And I would have asked you to accept the proposition that in the face of that impact of the downturn, that the government was better equipped than the alternative opposition to guide Australia through those very very difficult months, perhaps years.

I’m very happy now in August of 1999 to say that a year ago I would have been too pessimistic in saying that, because I don’t mind conceding that the Australian economy has performed better over the last two years than I thought it would. And I think it’s fair to say that the Australian economy has performed better than most people thought it would. And I think it’s very important that just as we have outperformed our expectations over the last couple of years, and that although we should never be complacent or smug about the future, there is no reason to believe or fear, to borrow Roosevelt’s expression again, there is no reason to fear that we can’t continue to enjoy the sort of economic stability and progress and that we are enjoying at the present time. And we can do that. It is within our grasp to build for ourselves the third great era of economic prosperity that Australia has seen this century. And we do have it within our grasp to do that if we continue the reform process. We won’t achieve that goal, we won’t build that third era of great economic progress if we imagine that what we have achieved either over the last couple of years has been a matter of luck and the luck is going to turn against, or if we imagine alternatively that we have completed the reform process. The reform process, you know it in your businesses, we know it with our experience in government, is never completed. We have done great things to get the budget back into surplus. We have done great things to reform the industrial relations system. We have pursued a vigorous competition policy which has brought about reduced business costs for just about all businesses in this country. We have achieved great things in the taxation reform front. But we still have many reform challenges that lie ahead of us.

And if I could finish on one note ladies and gentlemen it is this - that of all of the benefits that I believe that we have derived from the economic achievements and the economic reforms of the last few years, and the strength, the current day strength of the Australian economy, the most important dividend out of that is I believe a dividend that goes to the national psychology. When I became Prime Minister of Australia in March of 1996 I had the sense in which Australia was something of an anxious outsider in the Asia Pacific region knocking on the door seeking admission to the rich club of the Asia Pacific region. We had the sense that some-how-or-other we were lagging behind as we were aspiring to be accepted as part of this unique grouping of nations. And now three-and-a-quarter years on so much of that has changed. Australia is seen with a new respect in a new light. Australia is seen as having achieved something that even many Australians didn’t believe was possible. We have bred in this country a belief that we are only really entitled to enjoy a few short years of economic prosperity, and then the boom underwriting those years would be replaced by a bust, and that in some way we would have to put up interest rates to restrict imports and we would have to go back to restrictive policies.

And I think the psychological dividend that the last year or two has delivered to Australia has been enormous. It has given to the country a new respect, a new strength around the world. We are seen as an achiever. We go to the councils of the Asia Pacific region, and a good friend of the region, that as a country that goes there on its own terms in its own right, and being as it always has been a totally Australian experience with those countries. And I think therefore that the psychological dividend, the self confidence dividend that has come out of the last couple of years is indeed the greatest dividend of all. And that should encourage us to believe that we shouldn’t fear the possibilities that prosperity can disappear almost automatically in a year or twos time. And if we remain resolved to continue as the government is to the process of reform in the years ahead there is no reason at all why the prosperity the country now enjoys ought not to be consolidated or not to continue to the benefit of future generations of our fellow countrymen and women.





From the perspective of this room, one of the most important components of the GST reform package was the removal of stamp duty from commercial property. When do you intend to deliver on this promise?


Well under the arrangement that we have entered into with the Australian States it will not be removed as early as we had anticipated, not through any lack of desire on our part but because the compromise reached with the Australian Democrats meant that the growth in revenues would not be as quick as we had anticipated, and it will be…I can’t give you an exact date, it will be several years into the future, precisely when I can’t at this stage indicate but it will occur as soon as the growth in revenue from the GST exceeds the benefit to the states of the existing financial arrangement that the Commonwealth has with the States.

It is one of the consequences of the deal that was made with the Australian Democrats. The stamp duty on financial instruments will be removed almost immediately the new arrangements come into force. The wholesale sales tax will be totally removed on the first of July of next year and the removal of other state taxes will be delayed by several years as a consequence of the slow down in the growth of revenues. It would have been otherwise if we had been able to get the entire package through the Senate. It simply hasn’t proved possible to do that for reasons that you are all very well aware of. I know that that is of a disappointment to this audience but just as you live in a real commercial world, we live in a real political world. We didn’t have the numbers in the Senate, we weren’t going to go and have another election over whether or not the GST should include fresh food and I didn’t get many encouragements from anybody to do that and we took the view that we should achieve a compromise that delivered 85-90% of what we wanted. We have done that and we feel in overall terms the benefits are enormous but I acknowledge your point. I can only ask you to understand the circumstances in which it arose.


With the greatest respect Prime Minister, that sounds like, you say it is going to be delayed for several years, I am hearing it is never going to happen. Your speech…..


No well with the greatest respect, you are wrong. I will come back when it happens and remind you so.


Well said.


Prime Minister, one of the consequences of economic prosperity is full employment. Now in Australia this might mean that it’s not 3% or 5%, it maybe 7% because the old unemployed people don’t match the new jobs. If that is the case and that is what I am finding, how are you likely to review your immigration policies to bring in people who have the skills that Australia needs and certainly hasn’t been able to provide its work force, so that we can position ourselves into a global future?


I would answer that question in a couple of ways. The first way is to say that we have already begun, and in fact over the last three years we have begun to alter our immigration policy quite dramatically to address the very issue you’ve raised. Over the last three years we have altered in a very major way the balance between family reunion and skilled migration. The current migrant intake, a far greater bulk proportion of the people being brought in, are skilled migrants and far fewer come in under the family reunion category. So we have already begun to address that.

The broader question which I think you raised, and I guess underlying what you put to me is the proposition that we’re hitting a point where you can’t further reduce unemployment because the jobs that are available, they are not matched by the people who a re out of work. Now that is true up to a point. It will always be true for any society irrespective of what level of immigration it has. There is a view that the Australian economy would receive an enormous boost if we had a much higher level of immigration and people who put that view are partly, but not totally instructed by the experience that this country had in the 1950s and ‘60s when major immigration made an enormous contribution to Australia’s post war economic expansion.

We don’t have a fixed, in concrete view about the level of immigration. We take the view that the level of immigration should be adjusted according to economic circumstances. I don’t think anybody can say, given the economic growth we’ve had over the last few years that we have got the fundamentals of economic policy wrong. I think that we have got them fundamentally right. We are ready to alter the migrant intake if we believe that the economic imperative require it. We are totally committed to maintaining, and where possible, building on the current mix between skilled and family reunion. We think the more skilled migrants that this country can have recruited on a completely non-discriminatory basis, the more the nation will be enhanced, and when I talk overseas about the possibility of Australia becoming a world financial centre one of the attributes that I put forward is the fact that we have, as Australian citizens now, hundreds of thousands of people who have come from the countries of Asia who speak the language of those countries and one of the enormous advantages of Australia in a global economic sense is that we, sure, we speak the English language which is of enormous advantage in world finance, particularly in world finance, but also we have as Australian citizens a very diverse pool of people whose skill and dexterity in speaking the languages of other nations, particularly in our region is of enormous benefit.

So our position is that we are not permanently committed to the current level of immigration. If we see advantage to the country in increasing it, we will but it is important that the increase occur not so much in the family reunion area, although there is constant political pressure to do so, but from an economic point of view it is far better that the increases occur in the skilled migration areas because it is there that you can best adjust the flow to ensure that the jobs that are not being filled by those who remain unemployed in Australia can be filled from people overseas. I think we can have a lower unemployment rate in this country if we do two things. If we keep our current rate of economic growth we can drive unemployment down even further and if we can further liberalise the labour market, then we can also drive it down further. As to what is a natural level of unemployment in Australia, I don’t quote figures of that kind. My goal is always to drive it lower and I think that everybody as a matter of common sense will know that once you get to a certain point it gets extraordinarily difficult to drive it further down, although I think we have come down a lot further than many people thought would be possible about 18 months ago.




jy  1999-08-06  10:39