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Speech at the Forbes Global CEO Conference Pricewaterhousecoopers round table dinner, Sydney.

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(embargo: 7.00pm 29.8.05)



I am very pleased to be here tonight to talk about how the Australian Government is approaching some of the global trends that you have been discussing this afternoon.

Your roundtable discussions have been based around three themes - growth, talent and China. In making my comments, I will bring together elements from these themes as I see them from my perspective as the Deputy Prime Minister and Minister for Trade.

Australia now has one of the strongest economies in the world, with low inflation, low unemployment and low interest rates.

Australia’s present economic strength is due to the reforms that the Government has carried out over the last nine years, our strong financial management and the favourable shift in Australia’s terms of trade.

The challenge we face is to maintain Australia’s economic growth as our population ages. Over the next forty years, the number of Australians over the age of 65 is expected to double. The number of people of traditional working age will hardly increase at all.

It’s not possible to stop people growing older, so we are taking steps now to make sure we can maintain our strong economy into the future.

We are carrying out a series of measures to increase the productivity of the workforce, which include:

- strengthened vocational and technical training, including 24 new colleges around the country; - the proposed changes to the workplace relations laws; - further reforms to the taxation system to reward hard work; and - an increase in the skilled migrant intake.

The Government is also undertaking a major reform of the welfare system to encourage people to move off welfare and into the workforce. The Government is investing more than $2 billion over four years in training and assistance. The plan, Welfare to Work, will help people to make the full use of their talents - and that’s a worthwhile goal in itself, even without its long term national benefits.

The Government is also putting in place measures to upgrade Australia’s infrastructure: telecommunications and the export corridors that enable us to pay our

way in the world.

The Government’s decision to sell the rest of Telstra will enable us to carry out the reforms that are needed to encourage competition and secure better services. It will also enable us to deliver the biggest regional telecommunications package in Australia’s history.

On the transport side, we are investing $12.7 billion in Australia’s roads and railways under AusLink, our national land transport plan. The plan will enable the Australian, state and territory governments and the private sector to plan transport infrastructure better.

Australia will, nonetheless, face major infrastructure challenges over the next twenty years. The Government will need to keep up its level of investment in transport infrastructure, because of our rapidly growing exports and the rapid population growth along the eastern seaboard. It is said, for example, that one in four Australians will live between Coffs Harbour in NSW and Hervey Bay in Queensland by 2020.

We will also need to invest more in rebuilding Australia’s natural environment.

The Government is now providing substantial funding for natural resource management, through measures like the $2 billion Australian Water Fund. But there will need to be sustained Government investment in the years to come. Its results will be hard to quantify, but it will be the most fundamental and important investment that any Government can make.

In the last few days, it has been suggested that the Government should cut taxes further for high income earners.

The Government has the ability to consider this sort of proposal because of our strong financial management. We have reduced the Australian Government’s debt from $96 billion to $6 billion, which has freed up $5.7 billion a year in debt repayments.

But the Nationals believe that any proposed tax cuts must be consistent with two principles:

- Firstly, the Government’s priority must be to invest more in infrastructure, including our natural resources, transport and communications.

- Secondly, we must ensure that any decision on tax cuts recognises the needs of regional taxpayers, many of whom are on lower incomes.

These priorities are not mutually exclusive. The Government can meet them all successfully, including the need to build infrastructure to sustain our rapidly growing economy.

Our exports are part of that rapid growth. In 2004-05, Australia’s exports amounted to $162 billion - the highest level ever. All our export sectors grew strongly; our resource exports rose by 38 per cent to a record high of $48 billion.

To a large extent, the growth was driven by increased exports to East Asia, and in many cases has stemmed from the growth we have seen in China.

The Government will continue to expand Australia’s access to overseas markets through our mature and ambitious trade strategy. It combines:

- our efforts at a multilateral level to bring about genuine reform to the international marketplace through the WTO. These negotiations are our highest trade priority; and - our pragmatic approach to free trade agreements, where we can deliver deeper and faster gains on some issues than is possible through the multilateral negotiations.

Over the last few years, we have reached free trade agreements with the United States, Singapore and Thailand.

The full array of benefits they bring to the Australian economy will become increasingly clear as businesses exploit the opportunities that are available.

Four hundred and fifty companies have already entered the Singaporean market with assistance from Austrade since the FTA came into effect.

The FTA with Thailand is less than a year old, but Australia’s merchandise exports there have already grown by over 60 per cent.

We are looking to add to these successes through the FTA negotiations that we are undertaking with ASEAN, in conjunction with New Zealand, and bilaterally with Malaysia, the United Arab Emirates and, of course, China.

China's opening to the world and its emergence as a major growing industrial power is one of the most significant - and positive - global developments of the past 25 years.

A prosperous, outward-looking and engaged China is a vital component of both international security and regional economic prosperity.

China is currently the fourth largest trader in the world and its share of world trade has risen from 1 per cent in 1988 to 6 per cent in 2004. The Government’s forecasters predict that its share will to 16 per cent by 2015.

Over the past five years, China has been the fastest growing market among the regional economies. In 2004, China’s GDP grew by 9.5 per cent - which is expected to moderate to a more sustainable 7 to 8 per cent over coming years.

Every aspect of China’s rapid growth is staggering. For example:

- In 1996 China had 7 million mobile phones. In 2003, it had almost 270 million. - In 2004, China was the world’s largest grain consumer - around 380 million tonnes - The number of home personal computers in China is doubling every 28 months.

Australia has been well-placed to benefit from China's rapid industrial expansion because of our strengths - our flexibility, our dynamism, and our competitiveness, as well as the complementarity of our two economies.

In 2004, China became our second largest source of merchandise imports and second largest merchandise export market.

Two way merchandise trade has quadrupled in the last decade to $28.9 billion and China is now our third-largest trading partner.

China needs Australian exports, including energy and resources, to fuel and sustain its own economic development.

Our exports to China grew a staggering 21 per cent in 2004 year on year to almost $11 billion led by a:

- 41 per cent increase in iron ore exports (to $2.45 billion). Last year, China overtook Japan as our largest iron ore market, though Japan remains our largest market for coal, LNG, beef, and aluminium. - 33 per cent increase in wool exports (to $1.25 billion) - 72 per cent increase in coal exports (to $417 million) - 210 per cent increase in cotton exports (to $211 million) - 88 per cent increase in nickel exports (to $142 million).

Exports of elaborately transformed manufactures (ETMs) to China have been growing by more than 16 per cent per annum in the last five years while our ETM exports to the world have grown by less than four per cent per annum.

Australian services exports to the world have grown by less than five per cent per annum in the last five years while our services exports to China have been growing at 14.4 per cent per annum.

In 2004, China was our 7th-largest services export market (worth $1.27 bn) dominated by education and tourism. Australia’s education services relationship with China is worth annually around a billion dollars. By 2010, we estimate that more than

one million Chinese tourists will visit Australia annually, a tremendous prospect.

The bottom line is that China will continue to grow and will become a driver of regional economic prosperity.

A free trade agreement with China will see our already buoyant trade and economic relationship go much further.

Australian and Chinese officials held a successful round of negotiations last week. We are making solid progress, with a comprehensive exchange of information about each other’s trade and investment arrangements. The next negotiating meeting will take place in early November.

So in conclusion, the Australian Government is pressing on with policies to maintain our strong economy and our high level of growth. Our policies are based on liberating the talents of our people, through stronger incentives, higher productivity and greater

levels of workplace participation. We are also supporting Australia’s exporters, with better infrastructure and greater access to overseas markets.

Thank you.

Bill McKinley Communications Adviser Office of the Hon Mark Vaile MP

Deputy Prime Minister Leader of The Nationals Minister for Trade

Tel: 02 6277 7420 Fax: 02 6273 4128