How Financial Reform is Working for Australia

The Honorable John Howard MP

New York, NY
July 15, 1999

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

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