3 February 2000

Keynote Address to the Committee for the Economic Development of Australia, Melbourne

Ladies and gentlemen, thank you for inviting me here today to present this keynote luncheon address.

It is a little over a year since I last addressed CEDA.

Back then, I talked about Australia's economic performance and what that meant for our ambitions to make Australia a global financial centre.

That speech was peppered with robust numbers and economic superlatives.

Now, a year later, and already into the second month of the year 2000, I am glad to be able to say the economic story is just as good as it was 12 months ago.

Today, the Australian economy continues to experience sustainable strong economic growth. In fact, we are enjoying one of the longest periods of sustained economic growth since the 1960s.

The Australian economy grew by 4.5 per cent in the year to the September quarter 1999, about the same growth rate as the 2 previous financial years.

And this economic expansion is tipped to continue, albeit at a slightly more moderate pace.

The really positive news is that the extended period of strong economic growth has translated into strong growth in employment and significant inroads have been made into cutting unemployment.

Since March 1996 when the Government came to office, the number of people employed has risen by over 620,000 – or 7.5 per cent - including a jump of 2.9 per cent over the year to last December.

And whilst monthly data can be volatile, last December unemployment fell to 6.9 per cent – and that is the lowest level since July 1990.

And like our economic performance, official projections point to further employment growth, also at a more moderate rate.

And that means unemployment should continue to trend downwards.

Ladies and gentlemen, our encouraging economic performance – especially through the Asian crisis - can be put down to a number of factors.

In recent years we have experienced strong productivity growth, moderate nominal wage outcomes, low interest rates and a more competitive environment.

But the real surprise has been inflation.

Unlike past periods of strong growth, inflation remained very subdued in the late 1990s. In fact, since the Government came to office increases in the CPI have averaged just 1.1 per cent a year.

And it is strong growth in productivity that has been a key factor in Australia’s low inflation throughout the late 1990s. Labour productivity has been particularly impressive, growing by around 3 per cent over the last 3 financial years of the 1990s.

Despite good employment growth and rising real wages – results which have benefited Australia's workers - there was little pressure on labour costs due to better productivity.

This allowed business to maintain its profit performance without putting pressure on prices.

More recently, inflation has risen very slightly and was 1.8 per cent in the year to the December quarter. Most of the rise in inflation over the second half of last year was due to rising world oil prices.

And despite yesterday’s interest rate rise, inflation is expected to remain well within the Reserve Bank’s target range of 2 to 3 per cent in 1999-2000.

Ladies and gentlemen, these outstanding economic conditions have not come about by chance.

Rather, they’re the result of thoughtful macroeconomic policies and comprehensive structural reforms. The overall medium-term policy framework for both monetary and fiscal policy has underpinned investor confidence in Australia.

This has helped to keep interest rates low while productivity continued to grow.

Our medium-term policy objective is to achieve a fiscal balance, on average, over the course of the economic cycle.

Consistent with this objective, the fiscal surplus is expected to be 0.8 per cent of GDP in 1999-2000, taking into account more than $1 billion of previously unexpected spending associated with our commitment in East Timor.

The Government has also strongly supported the Reserve Bank’s low inflation target and has enhanced its independence in setting monetary policy.

Monetary policy credibility, together with a more competitive and productive Australian economy and moderate wage outcomes, has kept inflation low despite the significant decline in the Australian dollar that was associated with the Asian crisis.

During a time of considerable uncertainty in regional financial markets, the stability, the integrity and the efficiency of the Australian financial sector has been a crucial factor in our economy’s robust performance.

Recent reforms, including the full implementation of the recommendations of the Wallis Inquiry and the Corporate Law Economic Reform Program, aim at maintaining sound regulatory foundation for well-functioning markets.

I also believe that one the great unsung success stories of Australia’s reform program has been our capacity to undertake enormous change without compromising the efficiency or the performance of the various business sectors.

Reform generally has the capacity to cause some temporary dislocation for business, yet Australian business has coped very well with the reform agenda. This may have something to do with the business-friendly nature of our reform initiatives.

Ongoing reforms, including those in labour and financial markets, have produced a flexible and a productive economy that is capable of responding to the challenges that have their origins outside of Australia.

For evidence of this flexibility, you only have to look at the way our exporters diversified their sales away from major markets in Asia to other, stronger economies during the Asian crisis.

Ladies and gentlemen, the Government is not content to rest on its laurels. It is pushing ahead with the structural reform process.

We have before us the implementation of our new tax system – the most significant reform ever to this country’s taxation infrastructure.

The new tax system will deliver $12 billion of income tax cuts with the result that 80% of all Australians will pay no more than 30% in income tax.

It will mean the replacement of 7 different rates of Wholesale Sales Tax.

It will mean the abolition of insidious financial services taxes like, debits tax and stamp duty on the transfer of marketable securities.

And very importantly, it will mean the Government is collecting about $6 billion less in tax from Australians in the next financial year.

And in the arena of corporate law, the reform is ongoing.

The Government's Corporate Law Economic Reform Program is the showcase of overhaul and aims to contribute to the efficiency of the economy, while maintaining consumer sovereignty and maintaining market integrity.

The Corporate Law Economic Reform Program Act 1999, which includes fundamental changes to the Corporations Law in the areas of fundraising, takeovers, corporate governance and accounting standards, passed through the Senate late last year.

The provisions relating to accounting standards started on 1 January and most of the other operative provisions will start on March 13 this year.

Last March the Government released further details of its proposals involving fundamental change to both corporate law reform and financial sector reform.

These changes – known as CLERP 6 - will result in an integrated regulatory framework for all financial products, services providers and markets.

Under these reforms Australia will have a new, innovative and flexible regulatory system for the financial services industry that will be adaptable to innovations in the financial system.

This will place us at the forefront of financial product and service reform, which is vital in positioning Australia as a centre for global financial services.

The CLERP 6 regime is all about encouraging innovation and promoting business, while at the same time ensuring adequate levels of consumer sovereignty and market integrity.

At the heart of the reforms is the development of a single licensing, conduct and disclosure regime. This regime will cover financial service providers who offer general insurance, superannuation, securities, derivatives and banking products.

Through this single regime, industry participants will receive the efficiency gains promised by the Wallis reforms.

An exposure draft of the CLERP 6 legislation is expected to be released this month for a period of public consultation.

I am today releasing a consultative paper outlining proposals for the next phase of our corporate reform package. This phase - CLERP 7 - covers the issues of simplified lodgments and compliance for businesses.

At the heart of the CLERP 7 proposals is the Government’s commitment to making sure regulation does not impose unnecessary paperwork on businesses.

CLERP 7 will allow businesses - especially small operators - to get on with the job of building their enterprises free from excessive red tape.

It will change document lodgment requirements, which will cut compliance costs by streamlining the relationship between business and the Australian Securities and Investments Commission.

And while companies will still have to notify ASIC of any changes in company particulars, the CLERP 7 proposals include abolishing annual company returns.

CLERP 7 also proposes measures that will simplify Corporations Law fees.

All companies will be subject to an annual fee, payable on the anniversary of the company’s registration. The paper proposes that this annual fee – now set at $200 – should be capped at that level until June 2003, delivering a reduction in real terms. This proposal will be particularly useful for small business.

Along with this change, fees for occupational license holders will be determined on the number of representatives they have - rather than on a flat-fee basis, as at present.

Fees such as those for registration of companies will be rationalised and search fees will be simplified.

And CLERP 7 will streamline document lodgment requirements.

A single multi-purpose form will be used for notifying changes in particulars. The Corporations Law will be amended to further facilitate, and encourage, the electronic lodgment of documents.

A Business Advisory Board, made up of members of the business community and professional organisations, will be set up to advise ASIC on matters affecting its Public Information Program.

One of ASIC’s key responsibilities under the Corporations Law is the maintenance of an up-to-date Register of Companies that is readily accessible to the public.

The information on this register strengthens the confidence of investors, and suppliers in the integrity of the market.

This can only be good news for global institutions considering Australia.

The Government is keen to receive public feedback on the CLERP 7 proposals. Our consultation period for CLERP 7 will be short as we consider the proposals as non-contentious.

Ladies and gentlemen, 2000 will be a busy year for the Government and no doubt for business.

I don’t think we should tolerate the doomsayers and prophets that are predicting Armageddon as a result of the structural changes to our taxation system in particular.

The reform process must continue.

I can only hypothesize that if our forefathers had undertaken reform at the turn of the century when Australia enjoyed one of the highest living standards in the world then perhaps we would be a wealthier country.

And if the Governments of the 1950’s and 1960’s had undertaken structural reform then perhaps the economic boom of that era would have made us a wealthier country today.

This Government is not content to simply enjoy Australia’s current achievements.

We must build wealth not just for today …. but for tomorrow. Therefore much is still to be accomplished.

The path of reform is not an easy one. It requires large doses of courage and hard work.

Today we are enjoying the fruits of the hard work we did yesterday. And the hard work we do today will bring greater rewards tomorrow.

That’s why the Coalition Government is committed to ongoing reform.

We are committed to putting Australia at the economic cutting edge and keeping it there.

And with that commitment I am sure that Australia will have an equally compelling economic story in another 12 months' time.

Thank you.