Speech: Howard In Japan

6 July 1999

ADDRESS BY THE HON JOHN HOWARD MP

AT LUNCH HOSTED BY JAPANESE

BUSINESS ORGANISATIONS

TOKYO

Mr Inaba, chairman of the Japan Chamber of Commerce and Industry

Mr Imai, chairman of the Japan Federation of Economic Organisations and of the Japan-Australia Business Cooperation Committee

Mr Murofushi, chairman of the Japan Foreign Trade Council

Mr Suzuki, vice-chairman of the Japan Federation of Employers' Association

The Japan Association of Corporate Executives

Ladies and gentlemen

Let me say at the outset how pleased I am to be here and to have the opportunity to address such a distinguished business audience.

My first overseas visit as prime minister included Japan, three years ago. That would be no surprise to any Australian. Japan is Australia's largest trading partner, the largest consumer of our exports.

Moreover, since the war we have built a relationship that has developed far beyond our obvious economic complementarity. It is now the most broadly based relationship that Australia enjoys in our region - because of shared strategic interests, political cooperation, and the interaction between our societies.

It is a model of a relationship between two very different societies and different cultures. It is a relationship with a history that we each in different ways have had to come to terms with.

Our bilateral relationship is a mature one with its own momentum. But to gain the maximum advantage, both countries must keep in touch with each other, understand what is happening in each other's country, and ensure that we are alert to the new opportunities the relationship presents us. That is why I am visiting again.

Australia's partnership with Japan goes well beyond purely bilateral concerns. I continue to believe that the Australia-Japan partnership is one of the most important foundations of the region's stability and economic prosperity.

How actively we cooperate in achieving our shared interests in our region will have a large bearing on how well the region emerges from this period of enormous political, economic and social change.

I want to use my discussions with Mr Obuchi and his colleagues to reinvigorate that sense of purpose behind our partnership in the region.

Within that context I want to convey three principal messages to you.

First, Australia is now stronger than it has ever been. Our economy is stronger than at any time in the past three decades. As a commercial and investment partner, Australia offers more to Japanese business than it ever has before.

But Australia also has a stronger sense of its global reach: the unique intersection it occupies as a country next to Asia, with a strong European heritage and strong links to the United States. We are stronger because of clear economic and social policy directions, because of the increased confidence of our society - whether one speaks of business people or our young men and women - and because of the greater optimism that pervades our community.

This makes us a valuable bilateral and regional partner for Japan.

My second message is to welcome the important steps Japan has already made to restructure its financial sector and kickstart its economy. The changes that are occurring in Japan are often underestimated by outside observers.

But the other part of this message is to say that Japan's complete economic recovery is vital to the rest of us in the region and the world as a whole. Japan must not flinch from following through what it knows has to be done.

The importance of Japan's economic health is self-evident. Japan constitutes about 70 per cent of East Asia's economy. But the issue goes beyond the economic.

The region needs a strong and confident Japan that can give a lead in dealing with the serious challenges we face. That leadership will not be as effective as it might be until your economy is truly fit again.

My third message is that Japan must play a leading role in ensuring the start of a new comprehensive global trade round and in ensuring its ultimate success.

As a nation that has built its wealth on being able to export to open markets Japan has an interest in doing so. It also has a responsibility to do so as the world's second largest economy.

Australia's economy

When I last spoke at this forum three years ago, I spoke of my government's ambitious economic reform programme. I can now report that we have more than fulfilled our commitments.

When the Asian financial crisis first struck, the conventional wisdom was that it was bound to badly damage Australia. After all, ours was one of the most East Asian-oriented economies in the world. Before the crisis, nearly 60 per cent of our exports went to East Asia, and growth in East Asia apart from China and Taiwan had slowed dramatically or gone into the negative.

And yet, far from contracting as the majority of commentators had predicted, Australia's economy has continued to flourish.

Our GDP grew five per cent in 1998, faster than the US economy and more than double the OECD aggregate growth rate. For the last six quarters, Australia's annual rate of growth has been 4.5 per cent or more - a performance not matched since the end of the 1960s. The IMF and OECD forecast that in 2000 Australia will grow faster than all G7 economies.

The eminent US economist Paul Krugman recently described Australia as a 'miracle economy'. But the word miracle implies that it cannot be explained. The truth is there is a very ready explanation: Australia is reaping the rewards of ongoing economic reform, sound policy and skilful exchange rate management.

Our success today is in the first place the fruit of reforms in the 1980s and 1990s, and the reforms made since my government came into office. The point I make frequently in Australia is that our success tomorrow will in turn depend on the reforms we make today.

Let me provide a few examples of what we are achieving.

Since 1996, a budget deficit of over $10 billion or 2.1 per cent of GDP has been turned into a surplus of $3.1 billion or 0.5 per cent of GDP. This transformation was achieved without increasing taxes.

The labour market has been substantially deregulated. In 1998 days lost due to industrial disputes were at the lowest level for 86 years.

Productivity has increased at an average rate of 2.4 per cent per annum over the past four years, compared to an historical average of 1.4 per cent.

Unit labour costs have risen by only 1.8 per cent per annum in the past four years compared to 7 per cent per annum in the 1980s.

Corporate profits are now over 15 per cent of GDP, an historical high.

Our economy is one of the most open in the world. The most recent OECD Economic Outlook reports that Australia's average tariff rates are along with Japan's now very low. Only 0.7 per cent of Australia's tariff lines are affected by non-tariff barriers. The figure in Japan's case is 10.7 per cent.

Structural reforms, deregulation and privatisation have increased the Australian economy's flexibility and competitiveness.

Partly as a result of privatisation, more Australians now own shares than ever before in our history. Australia is second only to the United States in the proportion of its citizens who are shareholders. The sale of a further 16 per cent of Telstra, our national telecommunications company, will increase the number further and reinforce the personal ownership of the economy amongst our citizens.

From 1 July 2000, the most comprehensive tax reform in our history will be in place. Australians will benefit from significant income tax cuts. Costs for business and exporters will be dramatically reduced. The outdated wholesales tax system which disadvantages business will be replaced with a broad-based goods and services tax.

The new tax system will create incentives for individuals to achieve more and will make business and exporters more competitive.

All this obviously has a direct relevance to Australia's business partners in Japan. It will make Australian companies more reliable and more competitive suppliers. It will make us a much more attractive place for Japanese investors.

I want in particular to highlight the major reform of the prudential and supervisory arrangements for our financial sector which have been introduced since I was last here. By any measure, these are world class and the IMF has held them up as a model.

Along with other reforms they have helped Australia weather the Asian financial crisis in good shape. They make us more attractive as a centre for financial services. My ambition is to set Sydney up as a global financial centre.

It may come as a surprise to some of you that the Australian dollar is the sixth most traded currency in the world. The Australian Stock Exchange is ranked ninth in the world in terms of turnover. It is the third largest in our region in terms of market capitalisation and turnover - larger than Singapore. It has been rated as one of the top three in the world for equities settlement services, operational risk and value for money.

In the region, the Sydney Futures Exchange ranks second to Tokyo on the basis of futures trading volumes.

Further encouraging use of Sydney as a financial services centre, our new tax system will remove taxes on share and financial transactions.

I said that our success tomorrow will depend on further reform today.

The government will shortly receive a major report into reform of our business taxes. The government's agenda this term also includes further labour market reform and promotion of ideas-based industries.

Australia has often been described as the lucky country because of our rich natural resources and lifestyle. We also have a reputation for inventiveness and high quality research far out of proportion to the size of our population.

Our goal now is to become the "can-do" country. We want to become more successful in translating these endowments into widespread practical applications and commercial products. We are considering ways in which the government can encourage risk-taking, reward innovation and increase the opportunities for higher education and research. This programme involves changes to our education system, labour market and to our taxation arrangements.

My government has a track record of reform and has the political will to keep reforming.

I emphasise that this is not reform as an end in itself. This is reform to ensure that Australia's economy continues to grow and that the benefits are spread through new jobs and better living standards.

There is a conviction behind our reforms of the sort of society we want to build in Australia. We want our tax system and workplace relations to provide families and individuals with greater flexibility and choice as to how they can organise their lives.

We want to strengthen the family unit. We want, for example, to relieve the pressure on low and middle income families. We want to make it easier for a parent to choose if they want to stay at home when the children are young.

We want to give individuals and especially the young greater encouragement and reward for personal responsibility. We want to increase the sense of mutual obligation so that those who benefit from society - whether they are businesses or young people on welfare programmes - put something back into the community.

My government is developing what we call a social coalition comprising governments, business and community groups cooperating in efforts to tackle major social problems, such as drugs.

Japan's economy

Let me say a few words about Japan's economy.

Japan's economy is a mighty force - even now after a long recession and still with evident problems. It is a force not to be underestimated and some very silly things have been said about it - much as some years ago commentators dismissed the US economy as finished.

Japan has taken some important steps that are vital for her recovery. Massive fiscal stimulus packages combining public investment and tax cuts have had a welcome impact on growth. The bad loans problem is being sorted out. The financial big bang reforms are opening the financial sector to outside competition.

In that respect I am very pleased to inform you that the Commonwealth Bank of Australia is the first Australian bank to obtain a full Japanese securities registration. The bank will today be making a formal announcement of the establishment of its new securities company in Tokyo.

The flow-on consequences from Japan's financial deregulation will transform Japan's economy. We also know that significant restructuring is going on within the business sector, and the benefits of this will inevitably take time to emerge in the full light of day.

It makes no sense for a foreign visitor to try to tell an audience of experts in doing business in Japan what Japan ought to do. You know better than anyone else, and I know that you are not backward in telling your own government. I am confident that Japan will take the necessary steps, as it has in other periods of important transition in its history.

I do want, however, to emphasise the importance - to the rest of the region and the world - of Japan's taking those steps as soon as possible and returning to sustainable growth.

Japan has been very generous in its financial assistance to those economies that have suffered from the Asian crisis. Through the Miyazawa plan, and in other ways, you have made a very great contribution that has not always received the credit it deserves.

But generous though this assistance has been, it is the recovery of Japan's economy that is a key to a sustainable recovery in the region as a whole.

Also important is the confidence and credibility that Japan will gain from restoring its economic health. Japan is a central element in the strategic and political as well as the economic structure of the region. Your capacity to exercise leadership in policy directions and regional institutions is important for the future stability and prosperity of Asia.

A new global trade round

Perhaps the most important issue on the international economic agenda this year is the launch of a new WTO round.

For Japan, as for many other countries, access to markets has underpinned job growth and rising living standards. Japan has as big an interest as Australia in keeping existing markets open and in further market opening. It must play a leading role in the campaign for a new global trade round.

The risks in the present international environment of a return to protectionism are high, and the economic and political implications should be of the deepest concern.

Economies wishing to grow and provide more and better jobs and higher living standards must become more flexible and competitive globally. We do not have the option of opting out of the world economy.

Globalisation, however, is creating deep social pain and political costs as sensitive sectors are opened up to outside competition and go through difficult adjustments. The human costs are hurtful and governments have a responsibility to help people through the process.

Calls for protection are understandable, but they are ultimately self-defeating. Governments - and business - have to communicate more effectively why this is the case.

We must keep the momentum for trade liberalisation going through APEC and in a new global trade round. We can take some heart from the understanding that crisis-stricken countries like Thailand and Indonesia have shown of the importance of opening up their economies as an element in restoring their growth.

Australia is particularly concerned about pressures for "food security" or greater agricultural self-sufficiency. We think this is misguided. It is a burden on the rest of the economy. It is ultimately unrealistic. Further opening of agricultural markets is vital for a comprehensive and balanced WTO package from which everyone will benefit.

In past decades, Japan's success in modernising its economy has been a model and an inspiration to other economies in Asia. Likewise, I urge Japan in the period ahead to accept its responsibility to show leadership in progressively opening up its economy and demonstrating faith in an open world system.

Conclusion

Thank you for giving me the opportunity of speaking to you.

In talking to Japanese business leaders, I have in my mind the fact that the modern Australian-Japan partnership is built on the shoulders of those of you here and your predecessors who first opened up our commercial links in the 1950s after the war.

In this regard, I have the greatest pleasure in announcing that tomorrow morning I will have the privilege of bestowing Australia's highest national award on Dr Shoichiro Toyoda. The honour acknowledges the great contribution he and his company have made to our relationship, to Australia's economy and to the livelihood of many Australians.

He is one of many business leaders who have created a great legacy - both commercially and through the personal links they developed between Australians and Japanese. These pioneers of the post-war relationship impose on us an obligation to do everything we can to see the relationship prosper for the benefit of our countries and the region in which we both live.

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