Address to Australian Business in Europe – “Economic Perspectives 2003: Australia and the Asia Pacific Region”

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Speech at the Anzac Day Dawn Service, Gallipoli
April 25, 2003
Economy, Drought
April 30, 2003
Speech at the Anzac Day Dawn Service, Gallipoli
April 25, 2003
Economy, Drought
April 30, 2003

Address to Australian Business in Europe – “Economic Perspectives 2003: Australia and the Asia Pacific Region”






Thank you for offering me the opportunity to speak here this morning.

I want to talk today about two interrelated themes.

First, about the reasons behind Australia’s impressive economic growth, and

the strong institutions and sound policies that have supported this performance.

Second, about Australia’s position in the dynamic East Asian region and the

opportunities this presents for European companies.

Our strong links with East Asia provide European business with wide-ranging

opportunities to use Australia as a competitive base for regional expansion.

Some have described Australia as ‘the miracle economy’, and while divine intervention

is always welcome, our strong growth over the past decade has been due, to a

much larger extent, on policies and institutions focussed on ensuring sound

economic management.

Importantly, this has created a highly competitive environment within which

both domestic and foreign firms can operate. And it has better enabled the Australian

economy to reap the benefits of relationships built with the European Union

and East Asia. Australia’s success is the consequence of many years of hard


Reaping The Benefits From Reform

Over recent years, the Australian economy has proven to be very resilient.

The economy has grown, on average, by around 4 per cent per annum over the past

decade. Many expected the Asian financial crisis in 1997-98 to drive the Australian

economy into recession. In fact, Australia survived the most significant downturn

of recent years in our region with only limited impact on our growth.

More recently, the prolonged weakness in the international economy has coincided

with the most severe drought Australia has experienced in the last century.

In the absence of the drought, the economy would have again achieved around

4 per cent growth in the current financial year. As it is, despite the global

weakness and the drought, growth of 3% is forecast for the current financial


Despite strong economic growth and falling unemployment, both wages growth

and inflation remain moderate. This was unimaginable in the 1980s and early

’90s. Strong productivity growth – one of the best in the industrialised world

– has been a hallmark of the Australian economy over the past decade.

Looking ahead, the Australian economy is expected to continue to outperform

most of the world’s advanced economies – a view recently endorsed by both the

IMF and the OECD.

Our experience highlights the theme of this year’s OECD Ministerial meeting.

Well-targeted economic policies provide a substantial flow of benefits over

a long period.

For Australia, structural reform has brought greater competition to the markets

for products, services and labour. Australia has embarked on an ambitious trade

reform agenda which has left the level of tariffs at 5 per cent or less on most


In the financial sector, the removal of banking regulations has allowed better

access to finance, and has allowed the value of the currency to be determined

by competitive forces.

A significant focus of efforts since our Government came to power in 1996

was improving flexibility in our labour market. Enterprise bargaining and a

focus on productivity-based outcomes has significantly increased the productivity

of Australia’s labour force. So much so, that our productivity performance has

outstripped that of the United States.

Competition has been introduced into industries formerly dominated by government-owned

monopolies. Opening the telecommunications sector to full competition has delivered

conspicuous benefits to end users.

Tax reform has been a key priority of the Government over the past five years.

Business tax initiatives and indirect tax reforms have given Australia a modern

and internationally competitive taxation system. This benefits Australian businesses

competing on the international stage.

The Goods and Services Tax (GST), the cornerstone of the new indirect tax

base, has met its goals.

  • Inefficient taxes, particularly the wholesale sales tax and financial institution

    duties, have been abolished.

  • By removing all taxes on exports the GST has also improved the productivity

    of the investment capital of Australian businesses.

  • We have funded a huge reduction in personal taxes – worth around $12 billion

    per year, and most taxpayers now face a top marginal tax rate of 30 per cent

    or less.

Business tax arrangements have also been modernised and improved. The centrepiece

of these reforms has been the significant reduction in company tax rates to

an internationally competitive 30 per cent.

The Government has also acted responsively to remove impediments to business


Recent venture capital reforms have been designed to provide an internationally

competitive framework to encourage more foreign investment and expertise in

Australian business.

Of course Australia cannot afford to rest on its impressive reform credentials.

We must do more. A recent step in the economic reform process has been the release

of the ninth instalment of our Corporate Economic Reform Program (CLERP) to

enhance the corporate disclosure framework – something I spoke about yesterday

at the OECD forum.

These reforms aim to further strengthen the regulatory framework in the areas

of financial reporting, continuous disclosure and the protection of shareholder

rights. They will also promote auditor independence and improve the quality

of financial information to shareholders and the market more generally.

The reforms have been part of an on-going process whereby the Government has

been systematically reviewing Australia’s corporate regulation.

We are also currently reviewing Australia’s international tax rules. The key

issues for the review include:

  • Improving our attractiveness as a location for internationally-focused

    companies to operate global and regional businesses.

  • Enhancing Australia as a global financial services centre by examining

    the foreign investment fund provisions and the capital gains tax treatment

    of non-residents investing in Australian managed funds; and

  • Improving Australia’s tax treatment of foreign expatriates to enhance Australia’s

    attractiveness to overseas expertise.

Although I have emphasised the importance of structural and regulatory reforms,

we cannot overestimate the benefits from a sound macroeconomic policy framework.

Australia’s macroeconomic policies now have a great deal of credibility and

certainty. This has been vital in creating a platform for solid and sustainable


Australia now has one of the lowest levels of general government net debt

in the OECD – 5 percent of GDP and it is still falling. Australia’s total tax

burden is already amongst the lowest for the developed economies. According

to the OECD, government revenues in 2002 are expected to have been 32.7 per

cent of GDP in Australia, compared with the OECD average of 35 per cent.

As a reflection of the success of Australia’s macroeconomic policy framework

and structural reforms, ratings agencies Moody’s and Standard & Poor’s both

recently upgraded Australia’s Foreign Currency credit rating to ‘AAA’.

Australia, Europe and the Asia-Pacific: shared interests

As we witness tumultuous events around the world, it is worth acknowledging

the success of Europe in economic integration from customs union to a common

currency. And the process is continuing with the enlargement of the EU in 2004

by 10 new countries. Enlargement will create a more expansive dynamic and growing

market. However, this past success should not lead to complacency – EU growth

is currently subdued, and it is not just a transitory problem. Serious structural

problems arising from persistent budget deficits, high public debt, rigid labour

markets and distorted product markets – especially in agriculture – will constrain

future growth and policy options if they are not addressed quickly. Europe’s

emerging demographic challenges make it even more imperative to move now, and

to move quickly.

Governments across the EU are beginning to tackle structural problems, particularly

in the area of labour market reform. But Australia’s experience shows that reform

needs to be ongoing and broadly-based. Comprehensive structural reform in Europe

would help re-balance global growth and see Europe live up to its ambitious

Lisbon Agenda goal of becoming the world’s most dynamic knowledge-based economy

by 2010.

A stable global security environment is also important for sustained growth

and prosperity. Australia has recently demonstrated its willingness to contribute

to this objective through our involvement in both Afghanistan and the Middle

East. We believe democracies need to shoulder the burden, and encourage others

to take on a greater share of these global responsibilities.

Australia’s relationship with the EU is well-established and deep, underpinned

by substantial people-to-people links. The EU as a whole has been Australia’s

largest single economic partner for the past 11 years – it is our largest partner

in terms of two-way trade in goods and two-way trade in services, the largest

investor in Australia, and the second largest destination for Australian investment

overseas, with Australian investment in Europe totalling A$127 billion at end

June 2002.

Reflecting the maturity of the relationship, Australia’s economic links with

the EU are more diversified than with most of our other trading partners. And

while Australia is a base for hundreds of EU companies, many with links to the

Asia-Pacific, there is a clear basis for strengthening the relationship and

tackling future challenges and opportunities.

EU plans to develop single markets in key sectors, such as energy and financial

services, should also further reduce barriers and costs for Australian companies

seeking to do business in the EU.

But enlargement also has the potential to adversely impact on Australian interests.

Extension to new members of protectionist measures under the Common Agricultural

Policy would further distort world agricultural markets. While this would harm

Australia, it would be a savage blow to the developing world. The Monterey Consensus

highlights the critical role of trade liberalisation in global efforts to boost

growth and fight entrenched poverty – a view also strongly expressed by WTO

Director-General Dr. Supachai Panitchpakdi, at the International Monetary and

Financial Committee meeting earlier this month.

For these reasons we welcome the fact that the process of enlargement, by

adding to existing fiscal pressures, has led some EU members to push harder

for agricultural reform. Still, there remains substantial resistance among other

EU members. The EU can only enjoy the benefits of agricultural liberalisation

when its political leadership acts in the interests of the majority of its citizens,

rather than in the narrow interests of the agricultural sector.

As the EU undergoes its own historic expansion, it is natural that much of

its focus is inward. However, it will be important that these changes not detract

from EU engagement with our region. Europe is an important partner for the Asia-Pacific.

The EU is the region’s second most important trading partner and source of inward

investment after the US. The EU can be a force for stability and growth in the

Asia-Pacific and we would not wish to see it back away from engagement.

Of course Australia’s economic and strategic interests are inextricably bound

up with the Asia-Pacific region. Our recent economic performance has been assisted

by the return of East Asia to substantial growth.

East Asia now accounts for 53 per cent of Australia’s exports and 45 per cent

of our imports. Our investment linkages are less developed, though they will

increase with continued reform, growth and stability in the region, and continued

openness of the Australian economy to inward and outward investment flows.

Australia’s strong and diverse economy, complementary economic structure,

sophisticated financial markets and transparent rules-based commercial system

offer substantial value to economic partners in East Asia, and to business outside

the region, seeking to use Australia as a base for regional expansion.

China’s decision last year to award a 25-year LNG contract worth $20 to $25

billion to Australia is a powerful demonstration of the important trade developing

in the region.

Our Shared Challenges

East Asia’s size and dynamism make its future economic performance vitally

important to the global economy. The region now accounts for 27 per cent of

world output on a purchasing power parity basis, up from only 16 per cent in


Any renewed financial instability and economic weakness would pose serious

risks to both regional and global security and to economic prosperity, particularly

were this the result of further terrorist attacks or from social and political


In this regard, an important focus of our bilateral dialogue with the EU has

been our cooperative endeavours on counter-terrorism and transnational crime.

The EU also continues to play an important role in the provision of development

aid and other financial support to ASEAN and the Pacific.

The increased interest in East Asia in recent years in exploring regional

responses to shared economic and financial challenges is clearly a development

of great significance.

The principal catalyst has been the 1997-98 financial crisis, which had a

sobering effect on the region. This prompted recognition of the extent of economic

interdependence and common challenges to improve financial, legal and regulatory

systems to enhance growth.

But East Asia has also observed the deeper regional integration occurring

in Europe and the Americas, and is thinking about how it too can enhance its

competitiveness and benefit from closer, more institutionalised, integration.

For us, this shift to regionalism is most obviously manifest in the formation

of ASEAN+3. Regional forums can bring policymakers together to discuss issues

in a constructive and open manner. This enables collaboration to identify and

manage shared risks. It may also improve the region’s ability to project its

interests and provide a regional perspective in global institutions and forums.

Australia supports East Asia’s desire for stronger voice and representation

globally as it pursues its collective economic interests.

We see our economic engagement with the Asia-Pacific as being guided by three


The first is building capacity to establish sound domestic institutions, markets,

and policies in the emerging Asia-Pacific economies. This is an area in which

Australia has much to offer and where our Australian Treasury is actively engaged.

The second priority is to rekindle the momentum of trade liberalisation, in

support of APEC’s trade liberalisation commitments, and to break the current

logjam in the Doha Round. While this logjam is most apparent in agriculture,

it is affecting services and other negotiations as well. We risk the failure

of the Doha Round without a sustained commitment from all countries. This is

where you, here, can play a role by pressing all governments to accelerate the

Doha process.

The third priority is to strengthen regional and international financial architecture

to better prevent and deal with financial crises. We are supporting regional

efforts to improve policy dialogue and surveillance. We will also explore constructive

ways to advance regional financial cooperation, including through regional mechanisms

for crisis financing that complement, and help improve the effectiveness of,

existing global mechanisms.

Australia and Europe will inevitably have differing emphases in their approach

to economic policies. But we must not lose sight of our common objectives of

securing open, competitive economies and a strong global trading system.

ABIE can continue to play a valuable role in the process by raising the profile

of Australia in Europe and stimulating discussion on our strong mutual interests.

Beyond that, ABIE will, I am sure, continue its first rate work in providing

networking opportunities for Australian business people in Europe and for Europeans

with Australia. By building on the strong economic links between Australia and

Europe, we can all benefit.