Well as Don said I have had a very proud and very fulfilling relationship with the NFF for a long time, certainly fulfilling for me. I can remember representing the NFF in numbers of wage cases during the 1980s and turning up and lecturing the Conciliation and Arbitration Commission on the virtues of contracts and flexible labour markets. I can tell you it wasn't a very happy experience and I'm glad to say although we won't none of them Don, you always paid your bills.
But let me just today outline where the Australian economy is and some of the challenges and some of the policy issues that confront us and I think confront the NFF. Economic conditions in Australia are very propitious. They're as good as they have been for some time, over the course of the first half of this year, economic growth has stepped up a notch, probably now around 4 per cent. Our budget will be in surplus by next year, 1998-99. This is an extraordinary achievement. It has only been done once before over the last couple of decades and as somebody who presided over a $10 billion deficit over a period of three years, to close it, with all of the efforts that involved and the political frustration that our opponents engaged in, it's going to be a mark of achievement, I believe, for the Howard Government. One of the great marks in achievement. Not only for our Government, but in world terms, this is a big turn around. What that means is that our privatisation program, led with the spectacular success of Telstra yesterday, is not being engaged in for purposes of balancing the budget. This is a very important point and I want you to understand this. When Labor was selling the Commonwealth Bank they were doing it to cover revenue deficits. The proceeds of the sales of those capital assets went into general revenues and were spent within the year of the sale.
The proceeds of the Telstra sale will not go in general revenues, they will be a capital item. This year Australia will retire debt and next year and the year after. And our objective is by the turn of the century to halve the debt to GDP ratio. Halve it. To take it from 20 per cent to 10 per cent to set Australia up in a strong sound financial position for the next century.
As Treasurer I would want to be around when our debt position was half of what it is now because it just gives you opportunities. It gives you opportunities in relation to tax and spending that we could not have dreamed about two years ago and gives us the opportunity to set ourselves up for tax reform in a way we thought not possible over previous decades. The fourth point I want to make about the Australia economy is in relation to interest rates. We are all a little blazay, I think, these days a long term bond rate of 6 per cent. But it would have been inconceivable five, ten or fifteen years ago. When our Government was elected the differential between Australia and the US long term bond rate was 250 basis points; 2.5 per cent. You paid a premium in Australia of 2.5 per cent for borrowing in Australian dollars. The difference now is about 10 points. It's the best measure of how our financial position has improved. And of course it is in part the consequence of low inflation rates. Inflation rates we have not since in Australia since the days of Menzies.
None of us who grew up or had our adult life post 1960 have experienced an economic climate like this before. You would have to have been in business in the 50s or the 40s to know what it was like to live in a low inflation environment. And for a lot of Australian business that means that there are significant adjustment decisions. We know how to make money in high inflationary times. You buy assets and wait for them to inflate. But we haven't had the experience of doing business in a low inflation climate. A low inflation climate, you save and you invest long term and you look for the returns, all of those kinds of things that economically will set us up for strong growth. And it's good that we're in a situation now which is as propitious as it is because there are uncertainties in our world.
The first of course, is South East Asia. We don't know when the volatility is going to stop, nor can we say that all of the volatility is over. We can say, however, that there will be significant down turn in South East Asia and that will have an effect in Australia. It's too early to say the extent of that effect, but I can tell you this we are much better equipped to weather external events. As a result of what happened, and what we did, and the progress that we have made over the last two years. I wouldn't want to be in this situation if we were still running $10 billion deficits, and on a path to build debt from now until the next century. I would not want to be.
Secondly, the financial instability, obviously, is not confined only to South East Asia. We have seen even overnight the extent of some of the exposure of the Japanese financial system. The Japanese economy, as you know, has been very slack for a long time, probably four or five years. With our largest trading partner, that will have an effect on Australia. But these things are largely outside our control. The best thing we can do is to strengthen our position to withstand those external shocks and also to play our part.
Australia has played it's part in stabilising currencies in the South East Asia region. We are part of two IMF packages. Australia is contributing by way of loan in relation to each one of them. The money is advanced as those countries engage in structural adjustment programs, when they complete those programs and their position is stabilised, the money is repaid. I want to stress that point, these are loans that are repaid after structural adjustment. And the structural adjustment is in our interest as much as it is in the interests of those countries concerned.
Think of it this way. If a downturn in those countries has an adverse effect on Australia, an upturn must have a positive effect. It is in our interests to stabilise those economies. That brings me to the last point I want to make about inflation; rates that we have not seen since the 1960s, of benefit to Australian farmers as much, if not more, than anybody else. What happened in Australian agriculture over the 70s and the 80s and the 90s, as you know, was that by and large you were price takers in international markets. Whilst your prices were not moving, your domestic costs were. It was the price-cost squeeze. Your prices were moving adversely and you were unable to pass them on to your buyers. Nobody suffered more in that inflationary squeeze than the Australian farming sector and nobody has more to gain by the reversal of that position.
Having said all of that there is still, obviously, a lot of work to be done, both in the general economy and for the farming sector. It's because we acknowledge the need for restructuring in the farming sector that we announced the package of Agriculture, Advancing Australia. This was not just a series of sweetening measures but a serious attempt to engage in the restructuring of the farming sector which would set it up on a sustainable basis for a long time.
It's because we want to improve the position of the farming sector that we must keeping working to improve our industrial relations in this country. Farmers, more than anybody else, have been price takers through bad labour practices in this country. We have made important steps and we must keep ensuring that we work to improve industrial relations. But I want to finish on two great challenges for the Australian economy and for the farming sector generally. The first is our financial system. We have a financial system which by world standards is average. Our prudential controls have been good, its financial stability is unquestioned, but it is not world's best practice. We are not delivering the most efficient financial sector at the lowest costs that could be obtained here in Australia and we should aim to do so. When we commissioned the Wallis Inquiry into the Australian financial system, the report came back "it's average by world standards".
And we have seen some quite dramatic improvements in some sectors of the Australian financial industry, particularly in relation to home mortgages. We have seen margins in relation to home mortgages squeezed through new competitors. And what we need to do in this country is encourage an efficient and open financial system which can squeeze margins in relation to business lending as well. You wouldn't be surprised the number of farmers that come up to you and say "when do we get the benefits of the lower lending in relation to business loans in this country?" And the answer to those farmers is that the benefits flowed to the home mortgage borrowers when the new entrants came into the market, the mortgage originators, and they started supplying the service on a lower margin. We were high margins by world standards and now we are probably below average.
We have reduced official interests rates in the country by 2.5 per cent, the standard variable mortgage has dropped by nearly 4 per cent. 1.5 per cent was shaved off the margin, and the truth here in Australia is to open up the system so that we get new entrants into the business lending market, so that we get new players to work on squeezing those margins. I want to ensure that credit unions can compete with banks on an open basis. We have announced a policy to allow credit unions to issue their own cheques. We're going to allow credit unions to get access to the payments system. We are going to introduce a regulator which will regulate banks and credit unions and building societies and other deposit taking institutions all under the one rubric. So that new financial institutions, in the public eye, have the same prudential regulator and are put on a more equal competitive basis.
We want to encourage new financial institutions in all of those country towns where banks are pulling back, to step in and take up the slack. And I've just commissioned the House of Representatives Committee, and I want the NFF if you would to please give evidence before it, on ways in which we can get new entrants providing new financial services in rural and region Australia.
Australia has, I believe, the opportunity to become a significant financial centre in this time zone. One of the consequences of the instability throughout our region will be increased attractiveness in Australia. But in Australia we must work to improve our financial system. When we get the legislation into the Parliament to implement the changes arising from the Wallis Inquiry next year, there will be vested interests that will come out against it. But at the end of the day this has the capacity to give enormous benefit to both the consumer and industry.
A final challenge that I want to talk to you about today, and forgive me for my brevity, I would love to talk to you about Wik, Native Title, all sorts of other issues, and I'm sure that when the Labor Party comes out here to address you today, you will take up the issues of Wik and all of those other issues. But I do want to address you about tax.
Tax reform was tried in this country in the 70s it failed, in the 80s it failed and in the 90s it failed. We are now on our last chance, but it is also our best chance. What our Government wants to do is engage in major tax reform. What we want to do is fix the indirect tax system which is presently falling apart; a goods based tax system in an economy which is increasingly sophisticated. We are charging higher rates on a narrower base and we need to broaden the base and reduce the rates. In relation to our income tax system we see much the same development. Our income tax system is exceptionally complicated. We are taxing a narrow base at high rates, we need to both broaden the base and reduce the rates. We need to modernise it, we need to think about being a tax competitive country in this region.
And one of the great opportunities that we have as a result of our budget position is this; we are going to the Australian people arguing for tax reform not because we need more money. I want to underline this point, we don't need more money if our budget is in surplus. So the one thing that this tax reform is not directed towards is increasing Government tax take. What it is directed towards is taking that take in a modern, efficient and progressive way. We are in a position of strength in relation to tax reform. And from the view point of the Australian rural community, predominantly an export area, tax reform is of the utmost significance. Those of you that are exporters are paying tax on your exports. You are paying tax which is impacting in an indirect way on all of the goods that you use; on your transport systems, which is being built into your packaging, which is ensuring that when your exports go out, there is a tax component on it in world markets.
And those countries which have modern taxation systems, who refund all tax in full, completely on exports, have their goods sailing around in ships going past yours, tax free. Your ships are sailing out there with a tax component and your competitors are sailing out there tax free. You are at a disadvantage, a disadvantage which only a complete rewrite of the Australian taxation system can fix. I said before that we were on our last chance for tax reform. We are on our last chance frankly because it's been tried and failed and if the Australian public sinks into the popularism of Labor and Beazley on this, then the conventional political wisdom will be that tax reform is off the political agenda. But we are also on best chance I think. Our best chance because now more than ever it becomes clear. Why is it that every other country in the world can modernise taxation. Why should Australia condemn itself in this particular way? Why can't we ensure that we have a pro-business, simpler, lower transactional costs, rebate for export, new taxation system, which makes us tax competitive. Well I think there is no reason why we can't. But I must say to you I think that, but we are going to need allies to convince the Australian public. Those people, those exporters, those contributors to the Australian primary industries that have so much to gain.
And I make one other point, I think the thing that has always given the NFF a lot of respect is that it hasn't just seen itself as some kind of trade union for farmers, that it's always had a national interest in Australia. That it has been prepared to argue the big issues in the national interest. I think this has given it a lot of respect over the years. It certainly has given me a lot of respect and admiration for its work in relation to that and I believe thinking people through Australia will hear as a national interest issue from the National Farmers Federation, the National reconstruction and new national tax system and with all of those thoughts and all of those words, Mr President, I hereby declare the conference of the National Farmers' Federation open.