Asia Society and Merrill Lynch & Co., Inc.
in association with American Australian Association, The Downtown Economists, Inc. and Business Council for International Understanding, Inc. present

How Financial Reform is Working for Australia
with
The Honorable John Howard MP
Prime Minister of Australia

July 15, 1999, Asia Society New York

The following is the transcript of Prime Minister John Howard's address.

Well thank you very much Nicholas Platt. To my Ministerial colleague Joe Hockey the Minister for Financial Services in the Australian Government to Andrew Peacock the Australian Ambassador to the United States, Michael Baume the Australian Consul General here in New York, many other distinguished guests, ladies and gentleman. I want to thank the organisations that have brought this luncheon together and the fact that they bring together an organisation which is concerned about the involvement of the rest of the world in the affairs of Asia, that is the Asia Society, the fact that the hosts also include organisations that bring together the fostering of good relations between Australia and the United States and organisations that are concerned about the economic strengths and the economic well being of our two societies is certainly very appropriate for the subject of my address.

I'm coming to the end of what has been a two week visit out of my country. A visit which has taken me, not only to the United States, but also taken me to Australia's best customer America is a good one, but we have one that's even better and that is Japan and the visit has in both countries has reinforced to me a number of things. First and foremost of course its reinforced the interaction and the interdependence of our relationships both politically and economic with those two countries. Its brought home to me how important economic strength is in the world. How much economic strength allows a nation of Australia's size of just under 19 million to punch considerably above its weight and I've had the opportunity over the last couple of weeks to reinforce to all of the people I've seen, which have been at the highest levels of Government in both Japan and the United States, the continued commitment of Australia to a very deep and abiding involvement in the affairs of the Asian Pacific Region.

I'm rather pleased that when introducing me Nicholas referred to that phrase of mine, the unique intersection that Australia occupies because it does to my mind encapsulate very well where Australia is placed in the world. We are unusual in occupying that intersection. We do of course have very strong and abiding links with the nations of Europe. We have a shared history, we have a shared language, with one of them we have a shared culture with so many of them. We of course have, as all of you in this audience particularly know and understand, we have a special affinity and a special affection for and a shared history with the people of North America, particularly the people of the United States.

But there we are geographically, side by side, cheek by jowl, with the peoples of Asia. And that does give us a special opportunity and it gives us a special responsibility. And in taking advantage of that opportunity and in discharging that special responsibility we can best do so from a position of economic strengths and economic example and economic vitality. And of a number of things that I'm particularly proud of, that the Government I lead has been able to achieve over the last three and a quarter years, one of them is the fact that in Asia's time of trial and economic difficulty, Australia was able to be a good helpful and reliable friend. It wasn't just an association of rhetoric and an association of expressions of goodwill. We were, along with Japan, the only other country that participated in the three international monetary fund bailouts of Indonesia, Korea and Thailand. And at a very critical stage of the negotiations between the international monetary fund and Indonesia it was the representations of the Australian Government to the International Monetary Fund which I believe played a very important role in perhaps injecting a greater sense of realism and a greater understanding of the need to achieve a balance between the economic and the social considerations in relation to that particular country.

We've been able to do these things and I believe without exaggeration to play a very constructive role over the last few years because of greater domestic economic strengths and it brings back to all of us the importance that if you seek to have some influence in the world you must do so in part from a position of economic strengths and economic dependability.

The Australian economic story of the last few years is a very good one. We are growing very strongly, last year we had a growth rate of around five per cent. We have the lowest net government debt to GDP ratio of any country in the OECD. We have the lowest interest rates as my Treasurer humorously says since man first walked on the moon in 1969. We have very low inflation. If we can get rid of the other 50 per cent of Telstra, we'll have no net Commonwealth debt by the year 2002. And we have course are now getting the benefit of a number of fundamental economic reforms that have been carried out in Australia over the last few years. And when three weeks ago that wonderful afternoon that in my political career I will never forget, there was returned to the House of Representative from the Senate a series of bills to amend the Australian taxation law and I had the opportunity of moving that the House of Representatives approve the legislation and thus finally pass into law the bills to reform Australia's taxation laws after years and years of debate and advocacy.

We had an interesting debate and I talked about the five pillars of the modernisation of the Australian economy over the last 15 or 20 years. I mentioned the fiscal consolidation that has been undertaken in the last three and a quarter years where we've turned a deficit of $10 .5 billion into a surplus in two years. I talked about the financial deregulation of the Australian economy, first recommended by the Canberra report, which I commissioned as Treasurer in 1979, looked at with some trepidation by the incoming Labor Government in 1983 but then to its great credit and with our support in Opposition embraced in full and that led to the floating of the Australian dollar, the admission of foreign banks into Australia, the abolition of exchange controls and a number of other measures which have underwritten the operation of the Australian financial system since.

I thought of tariff reform. Once again particularly of the statement made by the former Labor Prime Minister, Bob Hawke in 1991, with our strong support from Opposition, to reduce tariff levels in Australia. I of course also recalled that great thing that had been left unchallenged in Australia year after year, that is the deregulation of the labour market which has been undertaken very vigorously by my Government over the last three and a quarter years and has played a major role in boosting the productivity of the Australian workforce and the Australian labour market.

And the fifth and final of the pillars of economic reform has of course been the renovation of the Australian taxation system. And that taxation reform is undoubtedly the biggest change to our taxation system since World War II and arguably the biggest change to our taxation system since federation. It will introduce a broad based indirect tax, a goods and services tax we call it, it will replace a very outdated old fashioned wholesale sales tax, it will replace a number of taxes at a state level. I'm pleased to tell this audience, amongst those will be stamp duty on share transactions and it will also replace immediately the Financial Institutions Duty which is levied by State governments. Importantly, it will give to the Australian States a guaranteed revenue base to provide the Government schools, the hospitals, the roads, the police services which are the bread and butter of the provision of public services by governments in Australia.

All-in-all it represents the major renovation of our system and it will be accompanied, wisely in my view, at precisely the same time with major reductions in personal income tax. I've never believed that it's wise in politics to try and implement major structural reforms separating what might be seen as the electorally harder bits from the electorally more attractive bits, because surprisingly voting publics have a tendency not to remember for terribly long some of the electorally attractive bits, but to remember for much longer some of the electorally harder bits. So taking my cue from other countries that have disconnected elements of the reform, we've kept the two of them together. And when on the 1st of July next year the Goods and Services tax comes into operation, also on the 1st of July there will come into operation the largest reduction in personal income tax in Australia since the end of World War II.

Taken together it does represent a mammoth reform. It's going to make our exports cheaper, it's going to cut the cost of fuel, and that is very important in a country as large as Australia. It's going to reduce business costs overall and I think its going to inject a great deal of additional vitality into the Australian economy.

Now that in a sense is one shoe of tax reform. The other shoe which will start dropping on the 31st of July when we receive a report from a very respected Australian businessman, John Ralph who's written it with the assistance of a number of other very well known Australian businessmen including Bob Joss who's done such a marvellous job of running the Westpac bank in Australia over the last few years. That report will deal with the renovation of Australia's business taxes. Now I would be the first to acknowledge that we need reform in that area. I understand the view to be widely held in many areas of the investment community that the odd change here and there to the capital gains tax would be extremely welcome. I understand that people are arguing very strongly for a more competitive corporate tax rate. I appreciate that in an increasingly globalised economy where seamless transfers of capital are almost as quickly matched by increasingly seamless transfers of job opportunities, that it is important if you want to attract capital from, for example the United States, it is important to have the investment choice tax-wise as neutral as it can possibly be. And without endeavouring or trying in any way to pre-empt what John Ralph's committee is going to recommend, I can assure you that those sorts of considerations and the need to make Australia as attractive as possible as an investment destination will bulk very largely in our minds.

And as many in this audience will know, one of the specific focuses of my visit to New York has been to associate myself with the efforts of many both within the government and within the business community in Australia to promote Australia as a world financial centre. And indeed Joe Hockey's specific responsibility within the government includes very much that particular activity. And in doing so I believe that I speak, and Joe speaks, from a position of great generic economic strength as far as our country is concerned because I can't think of a time when it's possible to speak with credibility as positively as we can now about the strength and the optimism of the Australian economy. So I can assure this audience that we will have that particular aspiration of making Australia a world financial centre, that particular aspiration very much in our minds when we sit down in a few weeks time, as we will, to consider the recommendations of the Ralph Committee.

I just want to say two other things before allowing plenty of time for people to ask me questions, and I want to return to a theme that I developed for a moment at the gathering yesterday which I addressed. And that is that one of the great dividends of what has happened in Australia over the last year, one of the great dividends of the fact that we have been able to stare down the worst economic collapse Asia's had in the last 40 years, is that it has given to the Australian people and to the Australian nation a sense of self-belief about the capacity of this country to succeed internationally that I don't believe it's had before.

Australians by character and by nature are openly confident people. Yet there's always been within many of us, in many Australians a belief that whatever our assertiveness may be and whatever our confidence may be, when it comes to the international economic stage it's always been a bit difficult and a bit threatening and a bit intimidating out there. And what we've been able to do over the last year against all predictions and that is to defy a collapse that by all the conventional rules should have engulfed us, and indeed most people in Australia believed it was going to engulf us in one form or another by about the end of 1998, has I believe not only sent a very powerful message to the rest of the world, but it's also sent the very powerful message to all Australians and to the entire Australian nation. It's demonstrated to the world that we are a can-do community, that we do have a capacity to slug it out and survive and to stare down the worst that a fairly hostile world economic environment can offer.

Now, there are reasons for it, and I've described the various reforms that have been undertaken in Australia over the last 20 years which have played a part in the strengthening and in a time of crisis the fire-proofing of the Australian economy against the Asian economic downturn, and I might add that one of the things that also greatly aided us during that very difficult period in 1997 and 1998 was the skilfull management of the exchange rate in Australia by the Reserve Bank. Now all of those things came together when they were most needed. But I think the best thing of all that's come out of it beyond the employment growth, the low inflation, the low interest rates, the high levels of business investment, valuable though all of those things are, the psychological value of Australians finding that they've been able to defy and overcome this major economic challenge I think it is made an incalculable contribution to the national sense of self-worth, belief and confidence of our country. And in the end that is infinitely more important than any more narrowly based economic doctrine, or economic goal, or economic prescription. So as Prime Minister I find that of all of the emotions, if I can put it that way that one feels out of the experience of the last year, that is far and away and infinitely the most satisfying and the most enduring.

Can I simply conclude Nicholas by thanking you and your colleagues for having me here again here in New York. I think you've helped host a few luncheons for me in the past. I do value very much the involvement of the organisations that have sponsored today's lunch and it's another opportunity for me to say again as Prime Minister of Australia how deep and abiding and how important is our relationship with the United States. We have our differences, we've had one this week on one aspect of our export trade of which I won't dwell any further because it is already well-known to the audience. We've believed that we've been treated less than fairly and have made that very plain in our discussions with the American Administration. But the relationship is deeper and more long-standing and more important than an understandable and deeply held difference, and in some quarters of the Australian community a quite bitterly held difference, on a particular trade issue and today is an opportunity for me to say again how very important that overall relationship is and I'm delighted that I've had the chance of addressing this lunch today to share some of my thoughts with you.

Thank you.


QUESTIONS AND ANSWERS

QUESTION:

My name is Dick Radez and I am not a shy American but I work with US pension funds and endowments and venture capital fund to fund managers that invest in venture capital funds in Silicon Valley in Europe. We have been prevented from investing in Australian venture capital opportunities over the years because of both the legal treatment of the venture capital investment vehicles in your country, the capital gains tax and whatever. Now, I have been after your Minister, Mr Hockey, about this already and he's agreed to take another look at a presentation in the Australian venture capital community gave to Mr Ralph. But given that his brief seems to be on rather a larger scale there is one more concern with things like trying to create another Silicon Valley down in Australia where we think you have got the intellectual talent and the experience and software information technology, the Internet. How do we get this revisited if the Ralph Report doesn't touch upon it as fully as it might?

PRIME MINISTER:

Well, I think Ralph will have something to say about it. And I can assure you that it will be very thoroughly visited when we look at the Ralph Report in every respect.

QUESTION:

You talk about the five pillars and that's fine. It seems one pillar you have missed out on is immigration. What are your comments on that?

PRIME MINISTER:

Well, I don't think I did miss out on it at all. I was describing in that speech, and again today, the five things that I believe have contributed to the strength of the modern Australian economy. So the question though of immigration policy is a separate issue. We have achieved the economic strength we have now either because of, in spite of, or based upon in some way the immigration policy we have presumably followed over the last 20 or 30 years. So I don't think it can be said that in arriving at where we are now the immigration policy that we have followed is flawed. We have, as a Government, the view that at the moment the current intake is about right. The current intake is lower than what it was at some stages in the1970s and 1980s. It is an intake that has a greater proportion of people with skills and with a greater emphasis on business migration. It is, of course, based on a completely non-discriminatory principle. It is open to this or any future government to vary the level of immigration in the future if it believes that economic and social circumstances require it. Immigration if you look at the sweep of years since World War II immigration has been of enormous benefit to Australia as it has to the United States. But it's always been important to ensure that the aggregate flow of immigration and the composition of it in terms of skills versus family reunion is right for the economy at the particular time. So we don't have a doctrinaire view about the level of immigration we have a pragmatic view. And the pragmatic judgement at the moment is that the current level is right. There is a view that if you doubled or trebled immigration overnight, if you could do that you would have an enormous impact on the so called aging of the population. There have been some studies done on this and that particular view is somewhat misplaced and somewhat exaggerated that it's not quite as simple as that. But that does not say that a higher intake might not be sustainable in Australia in the years to come. I don't rule that out but I think there is some mythology about, around about the impact in the short to medium term of a dramatic increase. It just doesn't compute according to the advice I have it doesn't quite work out in practice like that.

QUESTION:

My name is Tim Copland from Goldman Sachs, Mr Howard. With the falling gold price and the relative strength of the Australian dollar the Australian gold mines are hurting at the moment. Do you propose to provide them with some assistance whether it's by tax relief or some other means to help out the Aussie gold miners?

PRIME MINISTER:

Well, it's not immediately in contemplation, if I can put it that way. Look, I mean, fair try but….

QUESTION:

Nicholas Hyde from JP Morgan. I have been out of Australia for about two years and one thing about being in the United States which I find different to Australia is the depth of the economy across all regions and across the smaller towns of America. And I was just wondering when I look at Australia I see more of a concentration in the major cities and hopefully with the increase of information flows, you know, is the Government doing anything about trying to get the wonderful performance of the economy into centres other than just within the major cities of Australia?

PRIME MINISTER:

Well, I am not surprised that you would find that difference. I mean, because of the huge size of the United States and the vastly bigger population of course that is a difference. I mean, I might be statistically wrong in saying so but I don't think I am conceptually wrong in saying that Australia is probably the most urbanised western society. I mean, it is one of the things that people still have great difficulty in coming to terms with about Australia of just how big our cities are. Of how big, for example, by world and United States standards a city like Sydney is. So we are a very urbanised society and it is also true that as the nation is doing very well economically there are still significant areas of social deprivation and economic deprivation in the regions. I mean, the major cause of the rise for a moment and then thankfully the disappearance of One Nation was not, in my view, race but it was economic deprivation and alienation in regional areas of Australia. And it's something that every society has to grapple with but we are doing a number of things in relation to that. We are making very strenuous efforts including out of the proceeds of the privatisation of Telstra. We are making very great efforts to provide more communication services in the bush. We don't want communications haves and have nots in Australia. We are working very hard at that. But one of the reasons why we are so very angry about the American decision on lamb, now that you have asked me, is the opportunity that is…I mean, here is a group of people of really battling Australian farmers without any government help, got off their backsides and carved out a new market in this country and whack, it's taken away or certainly penalties put on it. Look, I think there are a large number of particular policies that we are following in telecommunications, in land renewal through our Natural Heritage Trust proposals. We are trying to tackle the problem of getting medical practitioners into country areas, we are trying to reduce the cost of country students boarding in universities or colleges in the cities. There are a whole range of things that we are doing. But it's a very good and relevant question because side by side with the national economic strengths and the extraordinary prosperity of a number of parts of Australia, particularly in parts of the larger cities and some of the coastal areas, there are communities that feel as though they are left behind and we are working very hard to bring them along as best we can.

QUESTION:

Philip Hedger from Pfizer [inaudible]. You have just been to Japan and we do a lot of business both in your country and Japan as you know. And I wonder if you could give us your, sort of, first hand appreciation of the economic positive indicators that have just come out of Japan in the first quarter and doubtless you spoke with various ministers there whether you feel that there's cause for prolonged optimism there?

PRIME MINISTER:

Well, I think the Japanese economy has undergone a number of very necessary structural changes. I think there are more needed. The best sense I could get was that there was the beginnings of a recovery but the growth was not going to be spectacular but there are still further changes needed in the banking system. But there is a belief in the Japanese business and financial sector that they have come to something of a watershed as far as labour relations are concerned. As you know Japan has had a very long history of a labour relation system that has been very different from other societies and was one of the reasons for her great economic strength in earlier years. But I was encouraged by the realism with which a lot of these issues were being addressed. I mean, Japan is still an immensely strong country and, of course, of enormous importance to our country, to Australia, because it remains far and away our largest customer and a very reliable customer at that. But I think there are the beginnings of economic recovery coming off the back of some reform. I think the leadership being shown by Mr Obuchi is winning support on a very strong basis and I was quite encouraged by what I saw and heard.

QUESTION:

Michael Kraynak, Brown Brothers Harriman. Your attempts to create an environment in Australia conducive to a financial centre, as you said, capital now moves seamlessly, it should be able to move in both directions, I think, to be successful. Is your tax reform going to include any measures which will reduce the severe penalties on Australian individuals for investing outside of Australia?

PRIME MINISTER:

Well, I think it is fair to say that we are looking at the whole gamut and that's part of it. I think you make a valid point, there's a give and take in this. And we are looking at the whole gamut of business taxation and without pre-empting what will come out of it. I can assure you the business tax system of Australia will be very different after these changes have been implemented.

QUESTION:

Prime Minister, Steve Howard from Global Agenda. In regard to this audience in linking the United States and Asia, your comments earlier about Indonesia in crisis. But referring back to your powerful speech in Washington at Georgetown on Tuesday you spoke then about the strategic role that Australia can play in being helpful, in understanding Indonesia and China in particular. I wonder if you could recap on that briefly but also about what that might mean for a commercial audience along side a strategic focus.

PRIME MINISTER:

Well, the point I seek to make particularly to any audience I address in America is that right at the moment Indonesia is undergoing an historic change and what is happening there really in political terms is quite historic. You have got a nation of 211 million people, the largest Islamic nation on earth, undergoing apparently peacefully a transition to democracy. Now, that is an astonishing thing and I don't think enough credit is given to Indonesia or to the current Indonesian Government by the rest of the world for what is being done. Now, Indonesia's space in the world media normally surrounds, well not normally, but largely surrounds the territory of East Timor. Now, that's an important issue and there are very important human rights issues involved. But if you look at what is happening in the whole of Indonesia then you have a situation where for whatever combination of reasons there is a transfer going on towards a democratic form of government. And all the information I have, including from Australian members of Parliament and from Australian electoral officials who helped the ballot, all the information I have is that the transfer is happening peacefully, the ballot was honest and it was done with comparatively little bloodshed. Now, that's a pretty astonishing achievement. And you don't hear it said very often around the world what an achievement it really was. And I think it's very important that there be due regard and respect paid to Indonesia for what has happened.

As far as China is concerned, we in Australia have tried to develop a pragmatic relationship with China that doesn't do any violence to the values we hold but recognises that in two societies that are so different as Australia and China are that if you are to have a productive relationship it has got to be based on a fair amount of pragmatism, a determination on our part to hold onto those values that we regard as important but passing up some of the opportunities that come ones way to deliver lectures about the behaviour of other people. And what we have endeavoured to do is to build a consistent pattern to establish some sort of rules of the road in our engagement and to conform with and abide by those rules of the road as we go along. Now, I think that has proved over the last three years to be very supportive and valuable. China is enormously important not only in our region but in the entire world. It is very important that China become part of the World Trade Organisation, very important indeed. We have worked out so far as Australia and China is concerned that understanding as to what will happen, and a very good understanding as to what will happen in the trade between our two societies when China is admitted to the World Trade Organisation. And I hope that that pragmatic approach might be examined to see if it can offer any kind of model for others.


Mr Prime Minister, we are deeply grateful for your appearance here today, your willingness to engage in give and take with the audience and your very distinguished performance. Thank you.