HON. WAYNE SWAN MP
FEDERAL MEMBER FOR LILLEY
"Opening Address To The APEC Structural Reform Ministerial Meeting"
MONDAY, 4 AUGUST 2008
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It is my great pleasure to officially welcome you to our Ministerial Meeting on Structural Reform.
In doing so I would like to acknowledge the Kulin people who are the Traditional Custodians of the Land on which we meet today. I would like to pay respect to the Elders, both past and present, of the Kulin Nation.
This is a meeting of economies dedicated to long term reform for the future. And a meeting of economies determined to bring our citizens along with us, as we go about modernising the economies of the Asia-Pacific.
I would like to welcome Ministers and Heads of Delegation from APEC member economies.
I would also like to welcome all our other guests, including:
I am pleased that Mr Mark Johnson, the 2008, Co-Chair of the APEC Business Advisory Council could join us.
I also welcome Professor Bob Buckle, Chair of APEC’s Economic Committee and Ambassador Michael Tay, Deputy Executive Director of the APEC Secretariat.
I appreciate that you have all travelled a long way to be here. I know this underscores your commitment to APEC, and to structural reform in your economies. I am sure that the next day and a half of discussion will prove worth the trip.
Before we get started on our agenda, I would like to discuss a few of the challenges and opportunities that structural reform presents.
But before I do that, it’s good to talk briefly about what we mean by structural reform. If I had to sum it up in one sentence, it would be this: structural reform is the set of government policies that reduces barriers to competition; improves operation of markets; or corrects market failures.
Our discussions of structural reform will cut to the core of two major priorities:
Just as it is vital that we have a long‑term vision and to take tough, necessary decisions, so too is it vital that we engage those that are impacted by structural reform.
Structural reform does not always grab the headlines and it is often a thankless task for those that undertake it. But it is the primary means by which we lift the potential growth of our economies and therefore the living standards of our people.
This meeting provides us, as Ministers who are undertaking major structural reforms, with an opportunity to share and learn from our combined experiences.
We in Australia have had first‑hand experience of how structural reform can inject vitality into a mature economy.
By the 1970s Australia found itself with a highly protected manufacturing industry, rigid labour markets and numerous statutory monopolies. In short, a highly regulated and anti‑competitive economy.
For many years leading up to this, a strong global economy, and good prices and robust demand for our rural and mining exports, masked the inefficiencies and economic costs created by such a regime.
When the global economy turned down in the 1970s, we found ourselves not only with rising unemployment but with high inflation as well. In response, we embarked on a comprehensive program of structural reform through the 1980s and early 1990s.
We cut tariffs, deregulated finance, floated the Australian dollar, introduced enterprise bargaining to determine wages, and imposed an inflation target on the central bank and gave it autonomy to pursue it. We imposed new and tougher competition rules, privatised some government businesses and put others on a commercial basis.
The wave of reforms evolved in a cumulative way to gradually encompass much of the economy. And we have reaped the benefits of this extensive reform.
Our labour productivity has increased by over 40 per cent since the beginning of the 1990s. Since 1991, Australia’s output has increased by four‑fifths. And we now employ an additional three million people – an increase of nearly 40 per cent.
We have fundamentally changed the way we do things. We have become a far more open and outwardly focused economy. For example, our trade share has increased from around 20 per cent of GDP in 1970 to over 40 per cent.
And, as it has grown, our trade has become more diverse. Australia’s exports of services and elaborately transformed manufactures are now each bigger than the rural exports that were once the backbone of our economy.
But we cannot rely on the benefits of past action.
We are again experiencing buoyant terms of trade. Australia’s terms of trade are the highest in over 50 years, driven by strong global demand for our commodities. This has helped to drive economic and employment growth over recent years.
But this has brought with it some challenges for us to tackle. While our economy has been supported by strong demand, largely from the economies represented in this room, we were not investing sufficiently in our productive capacity. This has resulted in capacity constraints and infrastructure bottlenecks in our roads, railways and ports. It has resulted in a shortage of skilled labour. And as a result, productivity growth in Australia is again languishing at an unacceptably low level. These factors are contributing to inflationary pressures within the Australian economy.
But we are committed to tackling these challenges head‑on.
Australia is once again committed to an ambitious program of structural reform. We will use the once in a generation opportunity to modernise our economy and secure our prosperity beyond the mining boom. This was the central objective of the Rudd Labor Government.
For the first time in Australian history we have created a very large fund we can use specifically to modernise our infrastructure of ports, roads, rail and communications. We created another fund to enhance our education system and our skills training. We created a third fund to improve our health system, to invest in hospitals, medical technology equipment and medical research facilities and projects. They are part of a broader agenda to invest in the drivers of economic growth and remove the burdens placed on business.
This agenda centres around three key reform processes. The first is the introduction of our Carbon Pollution Reduction Scheme. The second is the most comprehensive review of Australia’s tax system in a generation. The third is modernising our federation.
Climate change is the greatest economic challenge of our time. Australia’s Carbon Pollution Reduction Scheme will ensure that Australia transitions to a modern, low emissions economy at least cost. The Government will introduce the Scheme in a measured and responsible manner. And part of this approach means taking decisive action now. For the longer we wait to take action on climate change, the sharper the adjustment to the economy will be when we are forced to act.
The reform of Australia’s tax and transfer system will underwrite Australia’s global competitiveness, make the economy more productive, and lift workforce participation in the face of an ageing population.
The far-reaching reforms to commonwealth-state relations will provide a platform for long term, fundamental microeconomic and social reforms.
In education, for example, the commonwealth is working with the states to improve access to high quality early childhood education, lifting teacher quality, and boosting the overall skill level of the Australian workforce.
The modernisation of the federation will also help create a seamless national economy governed by a consistent set of regulations.
Together these reforms will help secure Australia’s long-run prosperity – and shore up Australia’s strong economic foundations in the face of existing global economic turbulence.
These same global factors are at play right across the Asia Pacific region.
On the one hand, growth for developed APEC economies is expected to slow to 1.8 per cent in 2008, after growing by 2.6 per cent in 2007. This slowing largely reflects the impact of recent global financial market turbulence.
The resulting increases in borrowing costs, tightening credit standards and flow‑on impacts on confidence are impacting all our economies.
At the same time inflationary pressures remain elevated in the region, on the back of higher global food and energy prices. And these effects have yet to run their course.
Despite this slowing growth in the mature economies, growth in emerging and developing APEC economies is forecast to remain robust at 8.1 per cent in 2008. Such growth will provide continued momentum for increasing per capita incomes and furthering economic development.
However, such rapid growth can create its own challenges. Internally generated inflationary pressure can exacerbate the effects of high food and energy prices on consumer price inflation.
In this challenging global economic context, structural reform is a common solution to many of these challenges. It can stimulate growth, improve productivity, and inject vitality into our economies.
But structural reform isn’t easy.
I am sure you all share my deep disappointment that the Doha trade negotiations failed to reach agreement last week. We are clearly in a time of global economic difficulty and the global economy could have done with the boost a deal would have delivered. An agreement would have delivered real benefits to all of our economies. We should not lose sight of how close we were to an agreement.
So while we may not have succeeded this time around, achieving significant global trade and investment liberalisation in the future is not only possible, it is imperative. To fail to do so would be to fail our children.
If the APEC experience tells us anything, it is that those who make the tough decisions to modernise their economies deliver the best outcomes for their people and for their future generations.
Our region has gained greatly from the reforms of the past and as a result is the most dynamic in the world. It is home to rapidly developing economies, flourishing global production networks and massive investment flows. It is also the major force of global economic growth.
Since its establishment in 1989, APEC member economies have generated more than 60 per cent of global economic growth. And the APEC region consistently outperformed the rest of the world, even during the 1997-98 Asian financial crisis. APEC’s mission is to continue that impressive economic performance.
We are determined to promote sustainable economic growth and improved living standards across the Asia Pacific region through enhanced trade and economic integration. As APEC’s trade agenda has advanced, there has been an increasing recognition that removing non-trade, or “behind the border” barriers, is equally important in achieving economic growth. And so the APEC agenda has evolved to place a strong emphasis on the reform of structural or behind-the-border barriers in the region.
A forum such as this offers APEC economies a valuable opportunity to share and exchange insights and experiences on vitally important elements of structural reform. APEC is ideally positioned to promote economic reform across the Asia‑Pacific, because of its capacity to evolve and respond to new challenges, and its cooperative, non-binding consensual approach. These features contribute to APEC’s success as a regional forum, and distinguish it from other, rules‑based multilateral bodies.
Because structural policies are domestic in nature, they are sometimes not well suited for negotiation between economies. So APEC also provides the ideal context for us to consider our next steps in tackling structural reform issues in the region.
I would also like to highlight another important feature of APEC, one which is central to its success as a regional forum.
We recognise the differences, as well as the similarities between our economies in an open manner. We recognise that member economies have different starting points and priorities. We recognise that each economy must take its own path to reform. But despite these differences, we share many similarities. We have faced similar challenges and experiences. And we have learnt valuable lessons that we can share with each other.
We know that each step on our different paths to reform must be informed by sound economic principles on what makes markets efficient.
Our similarities are also about paving the way forward, and forging further initiatives to support structural reform efforts in the region and meet the big challenges of our time.
I know many of you recognise these challenges and are reaffirming your own commitments to structural reform. But when embarking on these reforms, we here all understand that reform does not occur in a political or social vacuum.
Achieving structural reform is tough work, and we need all the help we can get. This is why I am looking forward to our discussions over these two days, where we can reflect on our own experiences, share useful tips and offer assistance to one another in our reform endeavours.
The first theme of this Ministerial Meeting – the political challenges of structural reform – is relevant for all economies, developed and developing alike. It recognises the importance of building consensus to achieving sustainable structural reform.
Our proposed agenda will allow us to look at some of the determinants of successful reform and how we can utilise different institutional frameworks, strategies and processes to achieve reform.
Regulation is one of the key instruments governments use to implement structural reform. We know that regulation influences the behaviour of firms and individuals, and that it can be used to achieve important economic, social and environmental objectives.
But inappropriate or poorly designed regulation can be a barrier to competitive, efficient markets and sustained economic growth. Such regulation can ultimately impact negatively on living standards.
I, in particular, look forward to the opportunity for dialogue with our APEC business representatives. The business community has a vital role to play in the structural reform process. It is a brave politician that does not engage the business community in the reform process.
Business perspectives can also help inform the design of our structural reform policies and help build consensus for reform – not just letting us know when we have gone too far or regulated too much. That is why they are such an important part of this discussion.
And tomorrow we will discuss how regulatory reform frameworks can facilitate structural reform.
Effective regulatory reform frameworks provide a better process for making and reviewing regulation. This helps governments strike the right balance between the need for regulation and the cost imposed on business. Our proposed agenda will allow us to consider the elements of good regulatory reform frameworks, which will help us lock in good structural reform processes.
Structural reform is an ongoing process, and needs to take place within the context of each individual economy. But structural reform is a vital element of sound economic management.
Ladies and gentlemen, I look forward to an insightful and fruitful conversation over the next day‑and‑a‑half as we share our experiences, insights and perspectives on structural reform.
I now ask for a formal adoption of the meeting agenda.