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Tuesday, 28 August 1973
Page: 482


Mr MAISEY (Moore) - I too reject the Budget and support the amendment moved by the Leader of the Opposition (Mr Snedden) which states:

That all words after 'That' be omitted with a view to inserting the following words in place thereof: this House expresses disapproval of the Budget because it is economically irresponsible . . .

On 28 March 1973 the Prime Minister (Mr Whitlam) wrote a letter to Dr Coombs and out of this letter the Coombs task force was born. It- reported on 24 June 1973 and the report was officially made public on Budget night. Unofficially its contents were known earlier due to the deplorable practice of leakages which appear to persist irrespective of who happens to be in power. What this task force did in detail I hope to return to on some future occasion. For the time being 1 shall confine myself to just one point. The point is how this body viewed the state of the economy at the time of writing its report, that is, some time prior to 24 June, and what assessment it conveyed to the Prime Minister. I quote from the report:

There are limits to the possible supply of goods and services and we are close to them. Indeed, awareness of these limits led to the Cabinet establishing this task force. It would seem therefore that a prime objective of economic management in coming months should be to prevent the demand for goods and services rising to levels which will intensify the growing shortages of labour and bring about inflationary rises in costs and prices. In these circumstances, the scope for a Budget which would stimulate total spending is severely limited.

Note Mr Deputy Speaker, if you will, that even prior to 24 June 1973 - even before the calamitous 13.2 per cent inflation rate of the June quarter was known - a body of some standing was advising the Prime Minister that the control of excess demand for goods and services was 'a prime objective of economic management in coming months'. It appeared that the Prime Minister took some heed of this advice, as within 3 days of receiving the Coombs task force report he took action.

I move now from 24 June to 27 June. On 27 June 1973 the Prime Minister appointed a secret committee to report on possible ways of increasing imports. His letter of that date - marked 'Personal and Secret' - to Mr Rattigan, the Chairman of the Tariff Board, said, in part:

Dr Cairnsand I have been discussing the possibility of stimulating an increase in the flow of imports as a means of expanding the resources available in the Australian economy and of providing some restraint on the upward movement of prices. We feel that, at a time when our domestic resources are coming under increasing pressure, it is only through imports that a substantial addition to the flow of goods available can be achieved.

I should like you to note 2 matters, Mr Deputy Speaker. One matter is the date of the letter. The other matter is that even then the Prime Minister accepted as a fact the existence of inflation and that this inflation was due at least in part to an excessive demand for goods and services in Australia.

Now I move from 27 June to 15 July. The secret committee reported to the Prime Minister. It agreed with .the Prime Minister's assessment and in fact filled the picture in a little. The report stated:

The pressures on labour and industrial capacity are part of the explanation for the increase in prices at both wholesale and consumer levels. But in addition to inflationary price increases, there are also reports, from retailers, of increasing delivery delays for new cars, refrigerators and similar appliances, oil heaters, plastic household goods, home and office furniture, carpets, sheets, furnishing fabrics, nightwear, underwear and the more expensive types of knitwear.

Now I move a further 3 weeks, from 15 July 1973 to the first week in August. On or about 3 August the Commonwealth Treasury released its White Paper entitled The Australian Economy 1973'. The paper said the following about prices:

At the present time, prices and costs generally are rising faster than at any. time since the Korean War boom.

The paper did not mince words about the state of demand. It stated:

Increasing demand pressures have been showing up in the labour market statistics for some months past, both of the numbers unemployed and the number of unfilled vacancies, but particularly the latter. In the skilled and semi-skilled categories and in the metropolitan areas as a whole there are now overall more jobs available than people seeking work.

In sum, major sectors of the economy are well on the way to buoyant and, in some important cases, over-stretched conditions.

I now move another 17 days, from about 3 August to 20 August - the Monday preceding Black Tuesday. On that day Sir John Phillips signed the annual report of the Reserve Bank Board of which he is Chairman. This report focused the spotlight on the forthcoming Budget. There was no ambiguity in the words used. The report stated:

Looking forward, some large increases in prices are in the pipeline. In the slightly longer run, the measures taken over the last seven months or so and the functioning - shortly to begin - of the Prices Justification Tribunal will exert restraint but it is far from certain that there will be a quick return to acceptable growth rates for prices. The Budget will, of course, be an important influence on the extent to which aggregate demand adds to pressures on prices in the period ahead.

This Labor Government, within a short space of 24 hours, demonstrated just how important an influence on aggregate demand the Budget was to be. I move now to Black Tuesday, 21 August 1973 - the day which will long be remembered as marking Australia's entry into the international big league of inflation; the day we joined Chile,- Paraguay, Uruguay, Nicaragua, Honduras, Costa Rica and Guatemala, to mention a few other distinguished members of this league. The Prime Minister's visit to Mexico earlier this year had proved strangely and unforeseeably prophetic.

Well, what did this Budget do to the total demand for goods and services in Australia? The effect of the Budget on demand is primarily through the domestic balance of the Budget. In pretty general terms, if the Budget is a rough matching of domestic revenue and expenditure, then its net effect on domestic demand is more or less neutral. If the Budget results in a domestic surplus, then in broad terms the Budget is deflationary. But, on the other hand, if the Budget results in a net domestic deficit, it is a stimulatory or inflationary Budget. This Budget resulted in an estimated domestic deficit of $162m. In comparison, the deficit in the 1972 Budget was $21 5m. So, one would conclude that this Budget is only three-quarters as inflationary as the Budget of 1972. This is a remarkable conclusion. Of course, the Treasurer (Mr Crean) is quite right when he says that the Budget is 'designed to be much less stimulatory than its predecessor.'

What is totally incredible is that this Budget should be an inflationary Budget at all. Give a starving sheep 5 lb of wheat a day and it will survive. But, give a sheep which already is eating 20 lb of wheat a day another 5 lb and you will surely kill it. Last year we had unemployment of 2 per cent, quite a bit more than full employment would warrant. This year we have full employment. Last year in the June quarter the inflation rate was only 3.6 per cent in terms of its annual equivalent. This year in the June quarter the inflation rate was 13.2 per cent. A stimulatory Budget last year was perhaps appropriate. A stimulatory Budget this year is the height of irresponsibility.

The Treasurer says about this Budget that it:

.   . is not simply an economic document. It is also an important instrument whereby we give effect to our goals and aspirations.

In terms of plain everyday English this means: 'To he'l with inflation - we will honour our election promises whatever the cost to the nation'. I represent a State to which exports matter more than tq any other State in the Commonwealth. The exports per head of population from Western Australia are the highest in the Commonwealth. I represent an electorate and a party whose very lifeblood is exporting. Australia is justly proud that it has the world's most efficient wool industry, the world's most efficient wheat industry and the world's most efficient meat industry. For how much longer, Sir I ask you? For how much longer can we afford a government which upvalues the Australian dollar twice within 12 months? For how much longer can we afford a government which deliberately fosters inflation, if this is the price it has to pay for a set of election promises, some of which at least are a little dubious?

The primary producer does not expert sympathy from this Government. He is realist enough to know that he will not get it. 'The Economist' of London in its issue of 25 August 1972 put it quite succinctly with its headline stating 'Gough saves his help for his friends'. The article says that even blind Freddie would readily see that 'this Budget will shift resources from the farms to the cities, and hence to Mr Whitlam's supporters'.

There is nothing more devastating, there is nothing more dangerous to exporting industries than a high rate of inflation. Exporting industries cannot pass inflation on; they must absorb it in their incomes. The easiest thing in these circumstances, the easiest tactic, however dastardly, is to reallocate income from country areas to city areas, that is to allow a high rate of inflation to go on unchecked. And the reason is really very simple. It lies in the fact that trade unions ensure that wages and salaries keep pace with inflation. Their recipients, be they members of communistdominated unions or be they the fat cats of the Public Service are sheltered from the vagaries of inflation; their real incomes are likely to rise, and will rise, at the expense of that part of the economy whose members are exposed to the cold winds of international competition.

The Prime Minister has helped his friends well, indeed even too well for his own liking. The problem with resorting to devious tactics is that if you carry them to extremes you may risk being regarded by even your friends as irresponsible. Australias are fair-minded people, and if the inflation rate rises too high the skulduggery of this Government will be visible and will offend even some of its own supporters.

With this stimulatory Budget heaped on top of an incredibly high inflation rate of 13.2 per cent, there is no doubt that inflation will rise to heights not considered possible in this country before December 1972. The prospects are such that this Government will have to do something in order to put a brake on that engine which it has itself put into top gear. Unfortunately, the Government with its still unfulfilled backlog of electoral promises has set itself parameters which are fast merging into a lamina. Like the laminated windscreen, there is precious little room to manoeuvre between the 2 panes of glass. No doubt the Government will try monetary policy. It will have a bash at the good old credit squeeze and it may discourage specific forms of lending by a whole variety of devices, some very crude in concept. No doubt, too, the Government will try to encourage imports. But to quote the secret committee on tariffs which, it will be recalled, recommended the 25 per cent tariff cut, 'there are limits to the extent to which imports can be substituted for domestic supply'. Finally, the Government will try to make the Prices Justification Tribunal perform miracles. This Tribunal, with a total lack of powers of compulsion, can at best retard inflation and only in some highly specific areas of the economy - at a cost I might add, of a grave potential misallocation of resources.

Two weapons would work. One is a tight fiscal policy, that is a tight budgetary policy which the Government, burdened with its promises, is incapable of implementing and unwilling to implement. The second weapon, which should be implemented in conjunction with the first, is a stringent wages policy following a referendum in which the Commonwealth would obtain the necessary powers. Given the make-up of this Government, I despair at the very limited prospects of either policy being instituted until well after hyperinflation has been firmly established in Australia. This is basically a government of adventurers, and it is for this reason, I repeat, that I support the amendment moved by the Leader of the Opposition in these terms:

That all words after 'That' be omitted with a view to inserting the following words in place thereof: this House expresses disapproval of this Budget because it is economically irresponsible. . . .







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