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Howard Touts Australian Reforms To German Business Leaders

Economic reforms in five key areas have been the key to the success of the Australian economy, according to the Prime Minister, John Howard, in an address to German business leaders in Frankfurt, Germany.

John HowardOn the first day of his two-week European trip, Howard cited the deregulation of the financial system and the floating of the Australian dollar as key reforms of the past twenty years. Both of these reforms were implemented by the Hawke Government in 1983, following the defeat of the Fraser coalition government in which Howard had been Treasurer for five years.

Tariff reductions in the late 1980s and early 1990s, also implemented by the Labor government, were significant reforms, as were the changes to the labour market, described by Howard as “the single biggest enduring reform under my Government”. Converting a large Budget deficit into a Budget surplus was also important, resulting in a government debt to GDP ratio of 4.6%, compared to an OECD average of 35-40%.

Howard claimed the introduction of the new taxation system on July 1, 2000, including the 10% Goods and Services Tax, had contributed to improving the competitiveness of Australian exporters. He reiterated that this was a “never-to-be-altered rate of 10%”, adding: “I never lose an opportunity of making that point”.

This is the transcript of a speech delivered by the Prime Minister, John Howard, to a German Business Leaders Dinner in Frankfurt, Germany.

Thank you very much Ambassador, Mrs O’Sullivan, Minister, ladies and gentlemen.

I would like to thank all of you for coming here tonight to give me the opportunity of saying a few things about the bilateral relationship between Australia and Germany, and sharing a few brief thoughts with you about the journey of economic reform that Australia has travelled over the past few years.

May I first of all though, as the Prime Minister of a self-confessed sports loving nation, extend my commiserations to you on the outcome of the soccer World Cup. Everything is relative. Unfortunately because of the superior play of Uruguay, Australia didn’t qualify – in soccer that is. But I would of course hastily remind my German friends here tonight that we do hold the World Cup currently in both cricket and rugby. They are not sports that have deep penetration, particularly the former, here in Germany.

But ladies and gentlemen, it is an occasion to say something about a very important bilateral relationship to Australia. The Ambassador traced some of the personal links between our two countries. Britain and Ireland aside, Germany is, after Italy and Greece, the third largest tributary, if I can put it that way, to the modern Australia. Some 750,000 Australians would owe their ancestry to Germany. And over many years in every walk of life, Australians of German descent have made an enormous contribution.

Our cultural links are of course overwhelmingly European and when I come to Europe I am reminded of those links and they are links that are not only found of course in the United Kingdom and in Ireland. They are also found in every part of Europe, and very particularly here in Germany. And the influence of German literature, of German thought and of German music has been immense not only in Europe but of course around the world and Australia has been very much a part of it.

So it is a relationship that is well founded in the things that matter, and that is a sense of identity and of shared links and shared attitudes. But it is also a relationship that has a great deal of contemporary economic resonance.

As I look around this room tonight, and I’ve had the opportunity of talking to you, I’m conscious of how deep is the German investment and the German economic state in the modern Australia. Just before I left we announced the sale of Sydney Airport. It is the largest airport privatisation I think in the world and a German company has a major holding in the consortium that bought the airport. I think of the great construction works that have been undertaken in Sydney in particular in recent times and the role of German capital and German engineering and German know-how has been very evident. And the investment of Germany in Australia is very deep-seated. Siemens, a very well known German company, in fact has its headquarters in my own electorate of Bennelong in Sydney. And I’m very conscious of the German involvement in many of the pharmaceutical and high-tech companies that also have their headquarters in my electorate in Sydney.

So what I want to do in the time that I have here in Germany and broadly of course in Europe, is to emphasise not only the collective link between the European Union and Australia, but also the individual characteristics of the bilateral relationship between our two countries. And what I want of the relationship with Germany and I will be expressing this view to your Chancellor, Herr Schroeder, when I see him in Berlin tomorrow, is that Germany can be a growing and even more important partner in her own right with Australia in so many areas of economic endeavour.

Australia’s economic performance over the past few years has been very gratifying. Last year we had I think the fastest economic growth of any developed country. And I’ve been asked on occasions, what is the reason. Every country has a share of good fortune but also successful economic managers make their own luck. The main reason why I believe the Australian economy is performing so well at present is that we are now enjoying the cumulative benefit of widespread economic reform across all of the relevant areas. And I’m quite happy to say that some of those economic reforms have been carried out by Governments of the opposite political persuasion to mine. But they have been successful because in those areas where our political opponents acted, they had our very strong support from Opposition.

In five key areas, we have reformed the Australian economy over a period of 15 to 20 years. We have deregulated our financial system and floated the Australian dollar and that occurred late in 1983. Importantly we carried out very significant reforms in the area of tariff reductions in the late 80s and early 1990s. Under my Government, the single biggest enduring reform I believe has been the changes that we have made to the labour market. When I became Prime Minister, we had a very rigid, inflexible labour market. It is still too rigid and too inflexible from my point of view, but it is infinitely less rigid than it used to be. And that has made a very big contribution to boosting the productivity performance of the Australian economy.

We have also, as the Ambassador said, converted a large Budget deficit into a Budget surplus. In Australian dollar terms we have paid off something like $57 billion of Federal Government debt in six and a half years. And our Government debt to GDP ratio now is only 4.6% against an OECD average I think of somewhere in the order of 35 or 40%. Some of that of course has been achieved through privatisations but it doesn’t alter the fact that the Government debt has been eliminated and privatisations have become an instrument of economic policy in most countries around the world in recent times.

And finally, and very importantly, it is now two years almost to the day – in fact it’s two years to the day here on European time – since we introduced the new taxation system in Australia, which involved the introduction of a broad-based indirect tax or a Goods and Services Tax, levied at a uniform never-to-be-altered rate let me say – I never lose an opportunity of making that point – never-to-be-altered rate of 10%. The introduction of that new taxation system was accompanied by extraordinary prophecies of gloom and despair and despondency. The stars were sort of meant to change their position and all sorts of strange things were to occur, and people were to go mad in the process. But it didn’t work out that way, and two years on it is barely talked about because it has been very successful and it has made a very great contribution to improving the competitiveness of Australian exporters because as you would know, as a value-added tax community for many years, one of the great advantages of such a system is that it does make your exports more competitive.

We have I think created as a result of all of these reforms a more business-friendly environment. We reduced as part of tax reform our company tax rate to 30%, which is quite competitive internationally. I think we have seen very great productivity growth in Australia. Without boring you too much with statistics, let me tell you that labour productivity in the second half of the 1990s grew at an average rate of 3.7% a year and in the 12 months to March of this year by 4.2%.

We have also become a world leader in the application of new technology. It’s very important I stress application. We’re not great manufacturers of IT but we are great adaptors. Australians are very adaptive in having new invention and new idea readapted and use it. And we have some of the highest rates of internet and other IT usages of any country in the world.

I think the practical demonstration of the strength of the Australian economy is to be found when in 1997 and 1998 the Asian economic downturn took many countries with it. And many of us thought that the same thing would happen to the Australian economy. But we were able to weather that storm and that owed something to the fact that we had a very flexible exchange rate that took some of the economic adjustment on the exchange rate, and the cumulative effect of those economic reforms was also beginning to bear fruit. And equally last year when there was a dip in the United States and other economies, that did not affect Australia.

The reform process of course is an ongoing one. Once a Government loses the appetite for economic reform, it loses some of its rationale for existence. And we would like to see more reform of the labour market and we are embarking upon some major reforms of our welfare system. Like all societies, we are an ageing one. The demographic challenges for Australia are not quite as sharp as they are for many of the European societies, but we are nonetheless trending in the same direction. We have a low fertility rate of 1.7% and although as I say the dimension is not quite as acute as it is in many European countries, it is nonetheless of the same broad order of magnitude. And we have to come to terms with ways of dealing with that particular issue.

Another thing that pleases me very much about the Australian economy is that over the last year we have become a net direct foreign investor. And this has not been achieved because of a slump in direct investment to Australia. But we are in fact investing a lot in other countries. I understand that tonight in I think Dusseldorf, I may be wrong, there will be a merger consummated involving a $2.8 billion Australian investment by Amcor, one of our highly successful paper companies and Schmalbach-Lubeca, a very significant example of what I just mentioned. This is $2.8 billion of direct foreign investment from Australia coming into Europe. And it is an example of the sort of modern partnership that can build a better and closer relationship because Australians and Germans when they do business together, do it efficiently, do it on the basis of trust and confidence, and do it to their mutual benefit.

There is just one other thing that I would like to mention and that is the broader agenda of reform. Reform is not just a nation specific thing, it is also, dare I say it, a European Union specific thing, and also a world specific thing, and we do as a group of nations, we do as a world community need, hard though it will be, to address the challenge of trade reform.

It will come as no surprise for you to hear a prime minister say that he doesn’t like the Common Agriculture Policy – and I don’t. If you will forgive me, we don’t find very acceptable a situation where the level of subsidy to agriculture from the European Union is 35% of the total value of agricultural production in the European Union – 35%. In the United States it is 21%, and in Australia it is 4%. We have very efficient farmers, they feel aggrieved by the current world trading system and we think it ought to change and we will argue very strongly and very passionately to the European Union. I’ll be in Brussels next week and I will put the same views to individual government leaders in Europe, difficult though it is, we do need to address as a world community, the challenge of trade reform.

We’ve just had a meeting of the G8 in Canada and pleasingly one of the things that came out of that was a new commitment to economic development of assistance in Africa. Very worthwhile, very laudable, and something that Australia strongly supports. But can I gently but nonetheless relevantly make the point that removing trade subsidies is worth by degrees of three or four the total value of current foreign aid by the developed countries to the developing countries. You get a far greater return for developing countries by reducing trade barriers than you do by increasing direct foreign aid and foreign assistance.

Finally, ladies and gentlemen, can I say on a personal note how different it is to be here in Frankfurt than it was on the occasion of my first visit. I spent Easter of 1965 at a youth hostel somewhere here in Frankfurt, I’ve forgotten exactly where, it was my first visit to Germany. I was not then in government. I hadn’t long left university and I was doing what most Australians of that generation did, they went and worked for 6 or 9 or 12 months in London and to use the vernacular of the time they spent another 6 months ‘doing Europe’, travelling around. It was my first experience of your country. I had a very warm and friendly reception from the Germans I met there and the Germans I met subsequently in Berlin in both the then West and East Berlin and subsequently other German cities. And although the circumstances of my being here, and I’ve been several times in between, particularly when I was Treasurer, given Frankfurt’s status as the financial capital of Germany, on every occasion I’ve been received with very great warmth and very great friendliness, and I want to thank all of you for coming along tonight to give me a few opportunities to speak of the importance I feel for that relationship and share with you some of the things that Australia has endeavoured to do.

I think we can build a stronger, even better, more purposeful distinctive economic and social and political partnership between our two countries and I’m sure that in the room tonight there are many men and women who are very strongly committed to that goal.

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Malcolm Farnsworth
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