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Tuesday, 11 September 1973
Page: 800


Mr SPEAKER -Is leave granted? There being no objection, leave is granted. (The document read as follows) -

 


Mr WILLIS - I thank the House. The table shows the average ratio for the decade 1963-64 to 1972-73 to be 6.1 per cent. For this year 1973-74 the ratio will be 6 per cent - that is, about the average level. Thus, if we use this simplified approach to measuring budgetary impact referred to by the honourable member for Wannon, this year's Budget looks decidedly neutral. Apart from the material to which I have referred, the Opposition has produced nothing to support its basic contention that this Budget is inflationary. From my analysis to this point it can only be said that the Opposition has failed dismally to prove this central facet of its case.

However, what does remain very clear is that the Opposition is firmly of the belief that our inflation can 'be brought under control by budgetary policy acting in association with an incomes policy. The faith of honourable members opposite in such policies is indeed remarkable in the light of experience elsewhere in the world. They seem not to have heard of stagflation which has been a feature of world economic experience in recent years. Countries all round the world have tried to cut back inflation by reducing demand; but the result, in contravention of previous economic experience, was continued inflation despite greater unemployment and reduced economic growth. To adopt a policy of moderating the growth of government expenditure now, as the Opposition would have us do, not only would deprive this nation of desperately needed social reforms but also would be a quite ineffectual means of combating inflation.

Just as futile and dangerous is the plan of the Leader of the Opposition for a 90-day wage-price freeze as a means of breaking the circuit of inflationary expectations. This also has been tried in other countries and has been proved a failure. In 1971 the United States had just such a freeze and followed it with wage and price guidelines, but it is still struggling with an inflationary problem. In this connection it is rather ironic that the Deputy Leader of the Opposition commenced his speech in this debate with a nebulous quotation from a man to whom he referred as the distinguished American economist, John Kenneth Galbraith'. A few days later that same distinguished economist arrived in this country and immediately said that a 90-day wage-price freeze would not cure Australia's inflation. The Melbourne 'Sun' of Tuesday, 4 September, reported him as saying that the practice of a wage-price freeze, of using phases of the moon, was the wrong way to go about it. So much then for the Oppositions's prescription for the prevention of inflation.

The Melbourne 'Age' of 3 September reported the same distinguished economist, on whom the Deputy Leader of the Opposition relies, as making some even more pertinent remarks. The article reads, in part, as follows:

Professor Galbraith, who arrived in Melbourne yesterday, said he doubted that any action taken in Australia alone would control inflation.

The decisive question is that it be brought under control in my own country - the United States,' Professor Galbraith said at an airport Press conference.

Inflation is a world wide problem, and it's going to be serious as long as it isn't tackled in the metropolitan economy.

As long as inflation is out of control in the US, it is likely to be out of control in those countries that do a lot of trade with the US- like Australia.

These remarks by Professor Galbraith should be studied closely by the Opposition because they are indicative of the increasing acceptance by academic economists around the world of what we on this side of the House have been saying for some time - that is, that in the current situation of substantial world inflation it is not possible to prevent inflation in a relatively small open economy such as ours.

The truth of this proposition has now been recognised not only by many economists but also by the Organisation for Economic Co-operation and Development. Incredibly, the Leader of the Opposition tried to use the OECD to support his argument that budgetary action and an incomes-prices policy were the way to control inflation. But he was apparently relying on a report by the Secretary-General of the OECD, which report is almost 3 years old. Things have changed considerably since December 1970. Inflation is now a much more severe problem throughout the world. The July 1973 edition of the OECD publication Economic Outlook' had a special section headed The International Transmission of Inflation'. This article examined the complex mechanics by which inflation is transmitted around the world. It specifically made the point that Australia is comparatively heavily exposed to international inflation. It said that it is clear that no open economy can in the long run maintain a lower rate of inflation than its trading partners under conditions of fixed exchange rates.

The article also mentioned various devices by which countries can attempt to protect themselves against imported inflation. These are: Revaluation of the exchange rate, cutting tariffs, preventing large foreign capital inflows through the imposition of high deposit requirements, taxing of exports, and the introduction of price controls. With the exception of taxes on exports, these are policies that this Government has initiated while it has been in office. It has twice revalued, it has cut tariffs and has done everything except tax exports. All these measures have been sneered at by Opposition members who are years out of date in their economics. Throughout this debate the Opposition has made virtually no mention of external inflationary factors although the OECD, on which its leader relies, says that they are clearly of importance in determining our rate of inflation today. An obvious example is meat prices. In the June quarter of this year two-fifths of the consumer price index increase of 3.3 per cent was accounted for by -the increase in meat prices, but these increased meat prices have nothing to do with the overall level of demand in Australia or the increase in wage costs. They are substantially due to increased overseas demand for our meat, particularly from the United States.

This debate has revealed how bankrupt the Opposition is in policies to fight inflation. It would apply the policies which have failed elsewhere and been abandoned because of the stagflation which has accompanied them. There can be no doubt that the economic policies being applied by this Government are the ones which will produce for this country full employment, rapid economic growth and the minimum amount of inflation which is consistent with those objectives in a world increasingly troubled by rising prices.







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