Australia – Fighting for a Future
The Inaugural Downer Lecture by the Rt. Hon. Malcolm Fraser, C.H.
The University of Adelaide - Tuesday 30 September 1986
I was honoured when Lady Downer asked me to give the first Sir Alick Downer lecture.
When I first went into politics I soon learnt to respect Sir Alick greatly. Sir Alick had volunteered in the second war as a gunner in the second AIF, he became a prisoner of the Japanese for four years. He entered parliament in 1949. Sir Alick later became minister for immigration and after that High Commissioner in London. Both positions were held for a number of years and were undertaken with great distinction.
Sir Alick and his son Alexander come from a family steeped in the tradition of public life. Virtually all of Sir Alick's working life was devoted to the service of Australia, as was his father's before him.
While he was in Australian terms a liberal, he was in fact a philosophical conservative. The best conservatives identify those things which are important to a nation, to a community, and seek to protect them. This puts them in a stronger position to initiate change when that is desirable.
Sir Alick had a great love of the United Kingdom. His many years as high commissioner for Australia in London must have given him an enormous sense of satisfaction. He clearly deplored the United Kingdom's move towards the common market and Europe and would have believed that Britain could build a greater future for herself by revitalising and strengthening the Commonwealth. He fought vigorously against the diminution of Australian and Commonwealth interest in Britain.
He clearly recognised that Britain's priorities for the future would not be ours. Something which was exemplified shortly afterwards by Britain 's virtual withdrawal from major strategic concerns in South East Asia and east of Suez . It was a withdrawal which was consummated without honour.
As minister for immigration, Sir Alick recognised the great debt that we owe to the United Kingdom. If it were possible, he would have maintained Anglo-Saxon dominance in our migration programme. He recognised, however, the reality of the times that, if Australia were to grow, we had to draw people from all races and from all continents and that we must eschew a narrow view of our own future.
Sir Alick understood the importance of basic institutions and principles and their contribution to the stability of Australia. Amongst these are our constitutional democracy under the monarchy, maintenance of the rule of law, equal access to the protection of the law for all one's citizens. These indeed are, in Australian terms, relatively old concepts but they are ones which we should remember. They should not be taken for granted. Much of the stability which they imply has been diminished in recent years.
In Sir Alick's time, security was often a dominant issue in Australia. There were problems of communist insurgency in Malaya, of confrontation between Indonesia and Malaysia and then of course there were enormous difficulties caused by the Vietnam War.
In domestic politics, the Labor Party had been split asunder guaranteeing continuing majorities for Sir Robert Menzies' government. It was a time of strong economic growth, of growing pride in Australian achievement.
The world has changed very much since those days. Internationally much has altered. In the United States there is a new found self-confidence and assertiveness which many friends and allies of the United States welcome. The disenchantment, the lack of direction in the post Vietnam, post Watergate years, was worrying not only to America but to America's friends. But we should also notice that there is something different about the new self-confidence in America. There lacks a quality of internationalism, which was so very evident post-war until the end of the Kennedy era. The great international institutions, the International Monetary Fund, the World Bank, the General Agreement on Trade and Tariffs, the Marshall Plan for Europe, could not have been developed if the United States had not felt a sense of obligation to the wider international community.
Today's assertiveness from the United States is more nationalistic, much more ‘we have been successful, you will be too, if you can only emulate us.' Such exhortations often fall on deaf ears because the circumstances of America are generally not applicable to other countries.
In the United States much has been achieved and the free world is the better for it. However, in the development of her own foreign policy, the United States is often too ideological. This leads to similar policies being applied to Nicaragua and Angola, I happen to believe her policies are right in the first but grievously mistaken in the second. It has also led in significant ways to a misunderstanding of the basic reality of South Africa and to undertaking actions which to many people around the world appear to place the United States on the side of state president Botha. I happen to know that that is an unfair and unjust allegation, but it is one that is widely held.
In the Soviet Union is to be found a new and, in many ways more forward looking premier in Mikhail Gorbachev. But basically the Soviet system follows the same principles and ideology.
Mr Gorbachev was selected by the old men of the Kremlin; they weren't selecting somebody who was going to change the system; they were selecting somebody who was going to try and make the system as it was, work more effectively. Nevertheless, Mr Gorbachev is a more modern man, much more aware of the needs of international public relations. Within his own parameters he is a fast learner. Can we compare the slowness to inform the Russian public and indeed the world as a result of the Chernobyl disaster, with the speed and frankness of reaction in relation to the recent tragedy in the Black Sea.
How do these changes play themselves out? So far as the Soviet Union is concerned, there is no great change. They still push, they look for opportunities, they seek to expand areas of influence. In other ways they are careful and somewhat cautious. They do not wish to provoke a nuclear contest or major response from the west.
In our part of the world after Vietnam everyone wanted to believe that troubles and difficulties did not exist. Indeed, the time that the Vietnam War had bought the Asian nations enabled them to consolidate and advance. A period of stability intervened. In the last two or three years, however, that has been shaken. There are great traumas in the Philippines. President Aquino has started well, but it is too early yet to know whether she will ultimately be successful in overcoming the great difficulties which she inherited. It is an enormously complex task.
We are seeing a much more active Soviet policy in the Pacific. They are developing associations which are most likely to lead to military agreements with Pacific Island states.
We have seen the Soviet Union signing commercial agreements with Kiribati and is seeking similar arrangements with Papua New Guinea . There are certainly consultations between the Soviet Union and Vanuatu. There are Cuban links with New Caledonia and Vanuatu. Libya has trained insurgents for the freedom movement in New Caledonia. New Zealand has deserted ANZUS. United States tuna fishermen continue to violate the economic zones of small Pacific Island states. France tests nuclear weapons in the Pacific and pursues policies that are bound to cause problems in New Caledonia.
There are many who forget that a small nation of a few tens of thousands of people can sign treaties with the Soviet Union or sign access to their real estate just as easily and just as damagingly as can a large nation.
We have seen the end of the commonwealth regional meetings which, for the first time, were seeking to draw small Pacific states into the larger world community by exposing them to the leadership and experience of nations from the Indian sub-continent and South East Asia. Abolition of these meetings is one of the factors making it easier for the Soviet Union to move into the area.
We have seen a report on Australian defence which, if fully implemented, would take Australia a significant stride towards isolation in defence matters and enormously diminish our capacity to respond effectively to our obligations under what remains of the ANZUS Treaty.
Whatever the problems may be in strategic matters, during the next few years Australia's major concerns will be economic and they will be in two parts. There are instabilities in the international financial system of trade and payments. Then we have one or two domestic concerns of our own.
In the last seven or eight years, enormous imbalances have developed in the international system of trade and payments. These find their origin in the massive and continuing United States domestic budget deficit, now running at the order of $200 billion a year. The problem yet remains to be tackled in any effective way. Mr. Reagan has increased America's deficit more than all other presidents combined and has turned the United States into the world's major debtor nation.
Because Americans spend most of their income and save very little, the federal government has only been able to fund its deficit by borrowing very large sums from abroad. This has, for much of the period, been made possible by tight money policies and high real rates of interest in the United States.
The combination of presidential policies has led to a significant loss of competitiveness in American industry and to a massive trade deficit which is not coming right in spite of very significant devaluation of the American dollar against other major currencies.
These imbalances threaten the stability of the international system of trade and payments.
First they create an internationally unstable situation, as we can see from the large currency fluctuations of the last two to three years.
Second, surplus countries, Japan and Germany, are unwilling to expand their own internal demand and maybe cause significant problems for themselves in the future, to make up for difficulties caused by America's internal budget deficit.
Third a massive increase in government corporate and personal debt establishes a sensitive situation which adds to the difficulty caused by budget and trade imbalances.
Many parts of the third world, especially in South America and Africa, have accumulated huge overseas debts which they are unable to service or repay. Such debts threaten the stability of those who originally lent the funds. They technically remain viable only because their major creditors lend additional funds.
This is not the only outstanding debt which places segments of the financial institutions in difficulty. The fall in oil and farm prices has affected many institutions in the United States in particular. In addition, the leveraging of America, the conversion of $180 or $190 billion of equity to debt over about two years, has placed a number of major corporations in a questionable position especially if major industries continue on a deflationary path.
Unless major policies are changed in the United States, the sensitivities caused by these imbalances, by this accumulation of debt, will become greater. It cannot be assumed that a major breakdown of 1929 proportions will not occur. There are now too many similarities to be ignored.
Breakdown could be caused by a number of factors. The U.S. could find that it needs to increase interest rates to enable its own internal deficit to be funded. Such an increase in interest rates could provoke a fundamental downturn in the U.S. and world economy. There are many deflationary factors operating at the present time which could cause major liquidity problems for highly leveraged corporations and for financial institutions.
If confidence broke, statements by a president or chairman of the Federal Reserve Bank would not easily re-establish it.
There is also significant danger from misguided solutions that seek to tackle symptoms and not the cause. The pressures for much greater protection in the United States is an example. The president is to be commended for vetoing highly dangerous legislation which, if put into effect, would be likely to plunge the world into a major depression.
Currency fluctuations of the last 2-3 years have been damaging to genuine traders and to international trade and financial relations generally. As a consequence, there is a growing debate about moving away from a floating dollar. So often we forget that the Bretton Woods system broke down simply because country after country lost control of its own budgetary affairs.
Countries did not move to a floating dollar because they thought it was a better or a free market system but because as a result of their own inadequacies, they could not sustain a system which had in fact lasted very well for a considerable period. We have forgotten that they could not sustain that system because governments relaxed their own discipline and lost the art of self-restraint.
Those who continue to argue for market determined floating currencies forget that few markets exhibit fair or balanced competition. A market our size could be overwhelmed overnight. The players in the market are unequal, that fact has led to the Reserve Bank intervening here to sustain a rate op over 60 U.S. cents to an Australian dollar, thus our currency is no longer solely market determined.
In the United States there is a strong view that a managed currency places more pressure and responsibility on a government than a floating rate.
There is now an awareness that the movement of funds for speculative purposes rather than for financing normal trade determines the market value of the currency. Quite often underlying economic reality in relation to a particular economy is ignored for a considerable period and sentiment dominates. Sentiment can be out of tune with the realities of a country's economy for up to two to three years but when traders finally see those realities, they are likely to move fast in ways that often exaggerate currency fluctuations.
The large swings in currency values over the past 2-3 years, have been promoted partly by incompatible policies between major states and partly because of floating currencies. There is a general recognition, however, that a more stable system cannot be achieved until there is compatibility between the policies of the European community, North America and Japan. Quite specifically did not say converging policies because that implies they are all becoming similar. That does not necessarily have to be the case, but they have to be compatible, one with the other. For example, if America had been part of an expanded European monetary system, over the period of President Reagan's government, there would have been two possible consequences. If U.S. Budget policy had been unaltered, the United States would have blown. The system apart and would have been held responsible for doing just that. The other possibility is that the discipline of the system may have modified the extremes of the United States budget policy.
There has been some debate about modifications to the International Monetary Fund and of the World Bank. Secretary of the Treasury Baker has taken some significant initiatives but these only touch part of the problem and much more is needed if the financial system, is to become more secure.
The U.K. Should join the European monetary system then discussion should take place between Europe , North America and Japan to establish an extended international monetary system.
As things stand, I do not believe the policies now in place will sufficiently ameliorate United States trade and budget deficits to remove sensitivities and dangers from the international system of trade and payments. This has important consequences for confidence in the international system. It has some important consequences for Australia.
What of Australia? We know we are in trouble, but I doubt very much if the full implication of the new world is understood in Australia. There is still not sufficient appreciation that we are facing fundamental and long term problems. So much of the debate about our economic ‘crisis' seems to be based on the assumption that we are in a short-term situation based on the belief that we are in a cyclical low for farm and commodity prices and that when these lift, all will again be well with the lucky country.
That, unfortunately, is much too simple a view.
Australia has indeed entered a new era. It's an era in which farm and commodity exports are most unlikely to earn sufficient overseas funds to sustain anything like current living standards.
The continual adverse monthly trade figures have finally brought home to Australia that we are facing a serious problem. We should start to understand how serious that is when the treasury papers attached to the budget documents indicate that the balance of trade deficit in this current year will be worse than in the last year. That is in despite of substantial devaluation over the last 18 months and in spite of a budget, as we are told, designed to tackle the nature of the economic crisis.
First a word about what has happened. For a considerable time, as the balance of trade figures indicate, the Australian government and the Australian people have been living beyond their means. We have been borrowing very substantially overseas to cover the shortfall. Net debt will have risen from $13 billion in 1980 to$74 billion in June 1987.
We have sustained our current living standards in the same fashion as the United States, by borrowing overseas for consumption in Australia. Clearly, such policies can't continue.
I do not doubt there are many in official circles who would have advised the government that as a result of the devaluation, Australia's exports will expand greatly, that we will import less and the balance of trade will therefore be corrected. For reasons which I shall argue, that was never the situation; it is most unlikely to happen that way.
It is important to look at the nature of Australian exports and the kind of markets we are up against. Australia once relied on agricultural products alone. These are now finding international marketing tougher than ever before for three reasons. First because many former importers are now self-sufficient, secondly because of the competitive subsidy war between the European economic community and the United States and thirdly because new technologies are likely to increase agricultural productivity and output very very significantly.
If there were genuine free trade in agriculture, Australia would flourish, because we are low cost, and competitive without subsidies. But that is not the world we face.
We face a subsidy war, and government control of markets. In any case, the volume of agricultural production is subject to seasonal pressures rather than to changes in price. We meet the market, we sell what we produce; a devalued dollar, in many instances, is likely to lead to some more Australian dollars for Australian products but at the same time much cheaper products for our customers. The expansion in volume as a result of devaluation will not make up that deficiency.
The second main area of exports for Australia is minerals and metals. Many of these are priced at historically low levels. After over three years of one of the longest and most sustained American recoveries in the post-war years, we would have expected such prices to have risen significantly. That they have not indicates the substantial change in the circumstances today compared to even 8 or 10 years ago.
What then has happened? Firstly, the imbalances within the international trade and payment system have created considerable uncertainty. Thus productive private enterprise investment has been greatly reduced.
Secondly, budget deficits have been much greater than in the 50s and 60s, forcing interest rates to levels they would not otherwise have reached and putting up the prices of funds for productive investment purposes.
Thirdly, governments have directed an increasing proportion of their own expenditure to welfare or to services and have reduced their own capital expenditure. Thus the recovery has been much more modest than in earlier times. As a result the increase in demand for minerals and metals has been less.
To that must be added other changes. An increasing proportion .Of the production of these commodities is now controlled by third world or communist governments. They tend to produce to gain overseas funds regardless of price.
Furthermore, as a result of scientific advance, there have been strategic changes in the use of materials. Motor cars have much less metal in them than they used to. In communications, fibreoptics takes over from copper. Such changes throughout the range of industry have themselves reduced the demand for many commodities.
As a consequence, while the American economic recovery continued, the prices of commodities tended to fall in real terms. Many prices are at historically low levels. In the foreseeable future, this circumstance is unlikely to change.
Of course we can improve our relative position by increasing market share. This is a slow, competitive and difficult process. There have been increases in Australia's commodity exports in the last year or two, but a significant part of that has been because of built-in conditions in long-term contracts. Most of it would have occurred irrespective of devaluation. Much of the trade is governed on a long-term basis.
Increased value of minerals and metal exports is not going to do enough to overcome our own balance of trade problems.
What choices are available to us?
The options available to Australia are circumscribed by an external debt that is equal to one-third of our gross domestic product. The servicing of that debt now takes nearly 40% of our export income. The options are further circumscribed by union attitudes which demand money pay increases, even if Australian income is falling and also by the fact that other commodity producers are ahead of us in introducing productivity and profit related compensation schemes. We are further circumscribed by the fact that the policies of the EEC and U.S. are severely damaging our agricultural trade.
As things stand, we can expect some expansion in returns from services and tourism and maybe some expansion of manufacturing exports but for a whole variety of reasons, unless other policies are changed, we are unlikely to see a significant general Australian move to export manufactured goods. But it is that which is required. We must get into the value added business and manufacturers must earn their share of exports. This will not happen unless attitudes change.
In the days when Australia relied on primary commodities alone, we had balance of payments crises every three or four years as a result of price changes or adverse seasons. We were then used to government acting swiftly to correct balance of trade problems. It became ‘a good' for Australia if industry was prepared to establish merely to replace imports. Much industry was established under these circumstances with the protection of import licences. Even when import licensing was abandoned in the early 60's, protection in many instances remained high and manufacturers and unions involved in manufacturing did not generally look to exports.
On two or three occasions, manufacturers have sought to move into the export field vigorously; they have had their fingers burned as cost pressures in Australia have forged them out of export markets. Many will be timid about future commitments to export.
Present moves to persuade Australians to buy Australian made goods are only likely to have a marginal impact. Such campaigns have been undertaken before. They cannot be expected to achieve an adequate turnaround in the trade account.
On the import side there are other difficulties. A large proportion of total imports is made up of producers equipment and if manufacturing industry is to thrive there will be a tendency for manufacturing industry itself to consume larger volumes of imports.
If we don't change our ways the outlook will be a dim one indeed. Different sectors of the Australian community will squabble for their share of diminishing resources. There will be pressure for all sorts of responses on the part of government which would take us down paths which will only exacerbate the basic problem. There would be increasing restrictions on imports, capital controls would be replaced and within tightening government regulations, the sinking of the Australian economy would proceed even faster.
The situation bears too many similarities to the 1930s for comfort. Then the government devalued 35% against sterling to reduce the trade deficit by squeezing domestic income and encouraging import substitution. Such policies were inadequate in the 1930s and so Australia resorted to protection. That did not solve the problem then. Why should similar policies in a similar situation be more effective in 1986?
What then should we do?
One option is to accept lower living standards indefinitely, permanently. I hope that this will be rejected. It would involve a fall in comparative world standards and losing the respect of our traditional friends and our near neighbours who would regard us as opting out of the real world.
People overseas are not going to have any sympathy with this country if we fail. They are not going to make special arrangements for us. We have been a lucky country for so long and have enjoyed living standards above that of many others. Around the turn of the century we had the highest living standard in the world. If we fall by the wayside it will be because we have not responded to the challenge of our own situation.
In many ways I believe prime ministers in countries like Switzerland, Japan or Singapore are fortunate. They can say to their people: if you don't work, if you do not use your imagination, if our industries aren't innovative we won't be able to earn a good life. Their constituency can see very well that their work must be created by their hands, by the products of their mind. Too many Australians have clung to the view that we could all enjoy a good living by shearing another sheep and digging another ton of coal. Those days are gone.
The countries high in international living standards will be those who are innovative, those who do new things: those who can manufacture for the markets of the world. That is not to say that agriculture and commodities will not have a valued place. They will, but they will not again be able to carry current Australian living standards, current Australian demands for imports which those standards generate, without much more significant contributions to export income from other sectors of Australian industry. Manufactured exports must increase greatly if Australia is not to fall further and further behind.
What changes have to be made to respond to the period ahead of us to maintain our place in the world economy and our self-respect as a nation?
Remaining capital controls have been lifted and overseas capital invited to invest more in Australia. Such decisions are of dubious value. I have no philosophical problem with removal of such controls but it should be done when our dollar is strong. Current decisions smack too much of selling off the farm at give-away prices to sustain current living standards. That there has been no real debate about such policies indicates the extent to which laissez faire policies have gained greater support here than in almost any other country. There is a public interest in these matters that will not be protected by unequal market forces alone.
The political process seems to have recognised that demand within Australia must be reduced and that there is a need to expand exports. The political process seems to have accepted that devaluation, coupled with reduced demand, will cure our problems. I believe that such policies alone are not adequate.
The balance of payments problem can be overcome by reducing demand but, unless other things change that can only occur if there is a major recession or depression in Australia. Devaluation with a major recession would indeed turn us into a banana republic. It is essential that exports be increased.
I propose several major changes.
The first will involve the attitudes of trade unions and manufacturers. Employers and employees must recognise the need to be world competitive. That is against the Australian tradition.
Within the Australian practice, our arbitration system has moved between two major trends. On the one hand there have been occasions when the system has been highly centralised and the official awards of the arbitration commission have been dominant. On other occasions. collective bargains, freely negotiated settlements or consent awards, were negotiated in many industries throughout Australia . At different times the balance has moved from one process to another. At the moment we are in a phase in which the system is probably more centralised than it has ever been.
Greater flexibility is required, but against a background of law of legal discipline. The principle of comparative wage justice has been too dominant. Different industries clearly have different requirements.
In Australia the union movement is probably more powerful than in any other country. Too often that power has been used in the perceived interest of trade unions and at the expense of employees and of the country. For example, currently trade unions are saying that they have given up a great deal over the last four years, in the interest of Australian advancement. They point to award wages having risen fairly modestly. Well, in that they have an argument. But take-home pay, largely because of over-award payments, has risen by more than the consumer price index. That doesn't seem to indicate that over recent years unions have sacrificed much, especially when one takes account of their demands for increases in the social wage which have generally been met by the government. Wage increases over three years have been more than double the increased in Japan, the U.S. or West Germany. Our unions are still expecting a large increase flowing from inflation in addition to new superannuation agreements. The plain facts are that we cannot afford either or for that matter the tax cuts that come into operation later this year.
Changing the rules of industrial relations negotiations does not involve having no rules. Agreements once entered into and all future decisions of the commission should have the force of law, as similar situations would in Britain or in the United States. Third parties, for example, damaged by industrial disputes, should have redress in law against the party causing the dispute.
The government itself has indicated that work practices need reviewing, but that is not enough. The main change in the industrial relations area that must be undertaken is not institutional but involves a frame of mind. Manufacturers must realise that they will have to pull their weight in making Australia a strong country by being prepared to export efficiently. Trade unions must recognise that they cannot demand so much, that manufacturers are pushed out of export markets. If these propositions were accepted it would not be too difficult to have the arrangements necessary that would respond to Australia's needs. Changing attitudes on the part of manufacturers and employees are major requirements.
Secondly, because the international financial opinion has run strongly against Australia and partly because the kinds of changes we are speaking about, changes of attitudes of mind, can't be accomplished quickly, one or two things should be done right. Now that would indicate that changed forces are at work.
We should demonstrate that we are prepared to work harder, Indeed just as hard and just as effectively as our major competitors. In 1983, for example, an Australian worked 1653 hours, each American worked 1965 hours and each Japanese worked 2114 hours. That means a Japanese worked 35 more hours in a year than an Australian. That is obviously putting Australian industry under an enormous handicap. It is not just a question of the number of hours worked. It is also a question of total costs per hour and productivity.
Total costs per hour - need to be reduced and productivity increased. Our hours worked should be more comparable with those of our major trading partners. We would send important signals to the world if we abolished the 17½% holiday loading, returned to a 40 hour week and reduced annual leave to 3 weeks. Such decisions would not be too harsh, having in mind the burden of debt we of this generation are building and which must be repaid by our children. We should not leave them to pay for the debts that we are piling up at the present time.
Thirdly, we need a different view on taxation. We should aim at the lowest level of taxation on the broadest possible tax our objectives should be to unleash the talents and energy of Australians.
We need to have closely in-mind the taxation changes in the U.S. Simply put, personal income tax will be a maximum rate of 28 cents and the corporate tax rate will be 34 cents.
Most people will just wish in relation to tax, that they lived in America. But bright, vigorous and ambitious young men and women entering the financial and commercial world will take it beyond a wish. They will work in an environment where taxes are low so that they can save and build a capital base of their own. Australia would only need to lose relatively small numbers, maybe a hundred, of our brightest minds each year, to have a material impact on future development and innovation in this country. Whether we like or not, America's tax system will force us to reassess our own attitudes to taxation. That, too, will create a fundamentally new situation.
Much lower levels of taxation will become absolutely imperative. More stringent budgetary control than ever before will be necessary to achieve this. Careful examination of existing deductions will be necessary.
There is an important philosophical point which has been accepted too glibly and which needs much greater debate. There are many now arguing for the neutrality of the taxation system. Those who so argue are suggesting that the tax system should not be used to support national objectives.
They argue that there should be no tax incentive to encourage a person to do one thing rather than another. I suggest that such views are wrong. If one wishes to argue the neutrality of the system, presumably spouse rebates and supports for families should be abolished. I wonder how many Australians would support that. A tax on the gold mining industry would have to be introduced. Special provisions designed to assist the tourist industry would have to be repealed and, carrying the argument forward further, tax deductions for authorised charities would have to be abolished.
The tax system as it is at the moment is not neutral and those who argue that it should be neutral really need to state their position on many current provisions in the Act.
In the U.S. Small industries are given a lower rate of tax. This has done much to encourage growth and vigour in American industries. We also should provide special encouragement for small industries. They are so often the innovators and pave the way for significant growth in later years.
Australia is acutely short of export income. The EEC provides a substantial tax incentive for exports by exempting them from value added tax. If our manufacturers are to be persuaded to move adequately into exports we may need a similar bias in our tax system.
If the tax mechanism is to be used to support national objectives, as I believe it should, those objectives should be clearly defined, widely understood and the tax structures should be kept as simple as possible.
My fourth proposal would involve much bolder initiatives in international trade.
Pressure for a new GATT round is an inadequate response to protectionist demands.
GATT in its present form has shown itself unable to cope with the pressures created by newly industrialising countries. It has been unable to establish fair rules for agricultural trade or for trade in services and intellectual capital. The GATT has been most effective at reducing trade barriers between major industrial states but, beyond that, protection has increased more often than not. After nearly 40 years of GATT, protectionist pressures are greater in the US than at any time since the 1930s. Every American trade negotiator for 25 years has gone into a new round of GATT negotiations declaring that America will insist that agriculture be part of the final settlement. Every trade negotiator over that period has finally given in and accepted a European veto of such propositions. The recent victory involved no more than EEC allowing agriculture to be listed for discussion. There is every reason to believe that the Europeans will at the end of the day continue to veto the expansion of GATT to cover agriculture.
If a new GATT round is conducted on the same basis as previous discussions, we are likely to see a great deal of division and a significant increase in trade tensions. We have seen Australia host meetings of agriculture exporters whose purpose is to fight the common agricultural policy and American farm subsidies which, in the next year, will hit a combined total of not less than US $50 billion as a direct charge on their budget. The total EEC budget, national expenditure and consumer cost will be as much as US $80 billion in 1986.
Short of a major, all-embracing world depression, I do not see the common agricultural policy changing or the policies of subsidisation for United States agriculture significantly altering.
Government policies also influence or manage in the technical sense 80% of all trade. In these circumstances there are many people now asking whether GATT should continue to be supported.
Fair rules for trade are important for small or middle ranking countries such as Australia. We don't have enough trade weight to influence our markets without such rules. The US can impose voluntary restraint agreements against Australia, on other countries, so can Europe and Japan. Small countries cannot act unilaterally. While many of the rules have been bent to enhance the interests of the large, if a country such as Australia sought to do likewise, the GATT legal processes would be invoked against us. We in Australia need to ask whether the GATT structure, as presently implemented, helps us or hinders us. I suspect that it hinders in the advancement of our trade interests, simply because, by being there, it prevents us looking to alternatives.
Are countries our size to be defenceless in this environment, or are avenues that we can pursue? The government has sought to bring agricultural exporting nations together to strengthen their joint negotiating position in the international arena. That's a productive step, but much much more is needed on the trade front. We should build a pacific area common market from Australia to Japan, with pacific area rules. In part, that may be reactive, but the arbitrary, basic restrictions against countries such as Australia flowing out of Europe will not be altered unless they meet a counter-pressure.
Such a regional development would be designed to facilitate trade especially between member states. It may have as a condition that each member state will refrain from increasing protection in any of its forms against any other member. That could be a good starting point for reducing current levels of protection. One of its conditions should be that subsidised produce from outside the region would not be allowed within the region. That would start to give Europe a message which currently she does not hear. It would be placing agricultural trade on the same footing as manufactured trade, where anti-dumping rules already apply.
We should explore much more actively with the countries of Asia the possibility of developing trade associations or organisation in the Pacific which will facilitate growth in pacific trade and protect markets from predatory subsidising policies of the European economic community and the United Sates.
Fifth proposal concerns education. Our approach to education needs revitalisation. We can't do the sorts op things that we need to in a modern world unless we have a more highly qualified community, unless more young men and women stay at school longer and go to colleges and universities where they will receive an appropriate, high-quality and challenging education. I don't believe it's just a question of doing more of the same, there are some basic problems with education. Concepts and attitudes within the educational structure need challenging and debating.
Certainly this is an area where some more resources are required. The proportion of our 17 year olds still in full education is tiny compared to Japan or the United States, or most of the countries of Europe.
It is highly doubtful if commonwealth support of education at the higher levels in the current role carries any real merit. When the commonwealth is involved in providing funds between different educational institutions, it has often done so in a way that spreads resources evenly. This tends to discourage excellence and to encourage mediocrity. Our education process should do the reverse. It should encourage excellence and should encourage each individual to reach the highest standard of which he or she is capable.
If university and college education were to be returned to the states and if the commonwealth role were to be limited to supporting centres of excellence or to encouraging particular national requirements in education, then maybe a significant start on the process of restructuring could be made.
Private universities should be encouraged. Fees should be charged in tertiary institutions with low income families protected through scholarships and living allowances. This measure should not be regarded merely as one of economy. It would rather be designed to encourage the independence and excellence of individual faculties and schools.
Just as power should be devolved from the commonwealth to the states in higher education, so should, within a state, power be devolved to the local community. The states have in fact tried to give greater local authority to school councils. They have thus reduced the power of central education departments but school councils have been composed in such a way that power has really devolved to teachers who are subject to guidance from highly centralised and sometimes suspect teachers' unions. The process has resulted in a transfer of power from state department to teachers' unions. And that is not in the interest of education.
Power over schools in local areas should be given to appropriately controlled councils, chosen from local communities. They need the power of controlling their own staff, with the right to hire and fire.
Diversity in education would be further improved by a renewed emphasis on private education. The commonwealth support for pupils should go directly to families or pupils, to be spent at either government or private schools, as the parents and the student determine.
Such policies would widen choice, decentralise control and give esteem and influence to local committees.
My sixth proposal concerns further reductions in government expenditure. Attitudes have changed remarkably in Australia over the last ten years. When my government began, Mrs. Thatcher was not prime minister of Britain and Mr. Reagan had not won the presidency. We were the first government to approach and practice expenditure restraint. In our first five years, we reduced the government share of resources considerably as a proportion- of national product and my government was the most frugal government of all, certainly in the post-war environment.
In those years, the opposition was still arguing that the right way to solve our problems was to spend more money. It only changed its mind after the 1983 election. When we had meetings with industry groups, we had to persuade them that reduction in government expenditure was the appropriate path. Sometimes it was a lonely debate but now much has changed. The British and American governments have adopted the same philosophy and major industry organisations and even the labor party espouse restraint. Against that environment, it is possible to do much more that when one is arguing the policy against a skeptical public.
There are many programmes now that affect special or single interest groups. Many of such programmes could be abolished. A number of bodies that have a right to tax deductions for donations abuse that right grossly.
Because of changed community attitudes, much more could now be done. Expenses on community aid and employment creating schemes should be abolished and the funds used in reducing levels of taxation to industry, which would instead create real jobs.
The single parents pension could be effectively abolished and that would save well over 1 billion dollars.
We should return to some important values. The government has assumed responsibility in areas that should be of individual or family concern. If a single person has responsibility for a child, out of wedlock, financial responsibility should, in the first instance, be on both parents. Special benefits should be available for cases of genuine hardship.
This issue also raises the question of the responsibility of parents for their children. At what age does that responsibility cease? I suggest very strongly it does not cease immediately the child leaves school. Policies should be designed strongly to discourage single parenthood and to encourage normal families.
Unemployment benefits for 16 and 17 year olds should be abolished. I was interested to see that this was raised during the pre-budget discussions, but not put into effect. It is acceptable if a youth of that age leaves school for work otherwise such students should remain in appropriate education.
Paying unemployment benefits to youngsters of that age is one of the harshest things that this community can do for them. In fairness I should add that this would not be a cost-saving to the commonwealth because the consequential education provided those youngsters would clearly cost more than unemployment benefits.
My seventh proposal concerns international affairs, especially as it affects our northern and Pacific neighbours. We need significant changes in policy. At the moment Australia tends to be an appendage on the edge of Asia. Some time ago a significant Asian journal, widely read throughout the world, carried a frontpiece of Australia and New Zealand painted in a different colour to the world and both upside down. This was no editorial error. The heading was simply: ‘the countries that want to jump off the world'. We must demonstrate by our policies, our relevance, our reliability, our participation in Asian life in its fullest respect.
Our foreign policy should be more active but in a co-operative sense. We should not act as though we know best how Asians should solve Asian problems.
We should return to the days when we are prepared to make Australia a centre for education and in particular higher education for many of the countries of Asia. Recent moves, following Prime Minister Thatcher's earlier decision in Britain, to make overseas students pay a much larger share of their full education costs in this country are retrogressive and unfortunate. The benefits to Australia of many students from Asia being educated here has been immeasurable. That influence is being reduced by current policies. Our scientific and technical experts need also to be put to better use in co-operating with countries of Asia.
We should seek to work much more closely with countries of the South Pacific. We should recognise that these are amongst the least developed countries of the world with few resources. Therefore, even though it is against world trends, we should with wealthy countries in the Pacific, including New Zealand, Japan, Canada and the United States and others who may wish to join, establish special arrangements that will give the small Pacific Island states more hope for the future. This will involve the establishment of a body which may be regarded at a South Pacific development commission or bank whose purpose would be to expand opportunity and trade for the less developed countries of the Pacific. Relations have currently deteriorated to such an extent that the present adverse trends will not be redressed without a significant new initiative of this kind.
We used to have much more active defence policy in the region. Now the thrust seems to be towards withdrawal and isolation. Willingness to participate in regional defence is still an important matter for Australia. We need to maintain the capability to participate. Unfortunately, recent decisions concerning defence point in the opposite direction. We should breathe new life into the defence agreement with Malaysia and Singapore.
We should tell New Zealand that defence co-operation between New Zealand and Australia will be ended unless they rejoin the ANZUA Treaty as full-blooded partners.
Acceptance of the suggestions recommended in this speech would involve a major effort, a positive demonstration of leadership. The prime minister is correct when he says Australia faces a challenge equivalent to that which confronted us in a war. The nature of the challenge is still not well understood its seriousness or the depth of the change required. The challenge is one for our time. It is so easy to become just another country that failed. I have enough faith in my fellow Australians to believe that we will find the national unity, wisdom and strength to respond effectively.
Our place in Asia and indeed the world, the respect with which we are held including the view we have of ourselves will all be determined in the period ahead. Nations which let time pass them by, that miss opportunity seldom rise or achieve greatness. It is our time for decision.