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Tuesday, 9 November 1976


Mr HURFORD (Adelaide) -Australia is suffering today not only the most conservative but also the most cynical government in its history. Every day we have yet more evidence of this cynicism. The Government answers in question time today were no exception. There can be only one interpretation of the Fraser Government's incompetent economic management decisions as they unfold from day to day and that is that this conservative coalition is deliberately postponing economic recovery so that improvements will come only when the next federal election is due.

A year ago the Liberal and National Country Parties were telling the Australian people that they could run the economy better than the Labor Party. What blatant untruths they told then, as they are telling now. What false promises were made then that misled the Australian people just a year ago. The Prime Minister (Mr Malcolm Fraser) said that he 'could get private enterprise moving' and 'create jobs'. He also said that a major element in the LiberalNational Country Parties' strategy was to bring about growth in production in the private sector. He said that under a Liberal-National Party government there would be jobs for all who want to work. He also said that there would be a return to business confidence and a growth rate of 6 to 7 per cent was feasible.

These assertions sound extraordinary in view of what has happened this year. The most recent national income statistics show an increase of only 0.6 per cent for the June quarter, a sharp decline from the 3.6 per cent growth rate in the first quarter of the year when the Australian Labor Party Government's policies were working. The Treasurer (Mr Lynch) said in his extraordinarily defensive speech on Friday that 'there was some slowing in growth in the September quarter'. This suggests that the rate of growth of national income has fallen in two of the last 3 quartersthe only quarters in which the present Government's policies could have had an impact. Seasonally adjusted factory production excluding power was at the same level in August as in February- that is, there has been no growth in private secondary industry production during 1976. The Minister for Employment and Industrial Relations (Mr Street) has stated publicly that during the coming months he expects the highest level of unemployment since the Depression.

The Government is failing badly. Production remains static, unemployment is increasing, inflation is barely improving and investment is falling. Stock exchanges' prices, obvious indicators of business confidence, are lower now than they were at the beginning of this year and are continuing to fall. Indices for secondary industry particularly are now well below their levels at the beginning of this calendar year. Yet on Sunday the Government announced tighter monetary controls. Credit is to be restricted and interest rates are to rise.

Although the changes are not large they certainly will have the effect of retarding recovery even further. Higher interest rates will raise costs and higher credit will inhibit private investment. As one commentator wrote, many potential bank borrowers who would have been considered creditworthy customers last week will not be able to borrow this week. In addition there will be the gravely adverse psychological effect on a population which already has been unnecessarily punished by this Government. The tremendous attack on consumer confidence is continuing. The storm of reaction to the relatively small monetary measures shows that there is widespread unease about the Government's economic policies. Gloomy prognostications emanating from business, which the Treasurer noted in his speech last Friday, will be strengthened by these measures. Rather than encouraging the private sector the internal conflicts within the Government's economic policies are now worsening the economic environment. They are reducing business confidence.

The Government is caught in a dilemma of its own creation. It promised, at election time, to abolish quarterly company tax payments. It did this on taking office. The answer from the Treasurer at question time today, as all objective commentators will note, was completely unconvincing. The result of abolishing the quarterly payments is that in the first 4 months of this financial year company tax receipts were $43m compared with $528m in the first 4 months of last year; that is, company tax payments are about $50Om lower so far this year when campared with the same period last year. This is the principal reason for the higher deficit in the first 4 months of this financial year when compared with last year. The deficit, after 4 months, is nearly $3 billion. As a result the money supply during the last 3 months has grown at an annual rate of 1 8 per cent, a rate of increase which is too fast when compared with the rate of consumer price increases of about 13 per cent or 14 per cent; and there has been very little real growth in the economy at the same time. If quarterly company tax payments were still being made, the annual rate of growth of M3 would have been about 1 1 per cent or 12 per cent. These rates would be well within the Government's monetary growth target. I supported the growth targets at the time, presupposing other more stimulatory measures in the fiscal field. But I do not support these targets now in the present very stringent circumstances which are creating grave unemployment and grave lower levels of economic activity in this country.

If there had been the proper stimulatory measures which I have advocated we would not have needed or have had this unnecessary monetary package which was announced yesterday. This time last year the conservative parties made much of the size of the deficit after 4 months. The present Prime Minister cynically sang out, to his everlasting discredit, such memorable phrases as: 'We must rein in Government extravagances'. He was referring to a Budget deficit which is less than the Budget deficit which this cynical Government is running. In fact, the deficit this year is $2 50m larger than at the same time last year. The Labor Government was being called spendthrift. Both the Treasurer and the Prime Minister forecast that the deficit at the end of the financial year would have been $4.5 billion, a claim which had no credibility at any time. The decision to defer quarterly company tax payments has created a problem of monetary management. The whole community is now to pay the cost. It was part of the cynical buying of votes which took place at this time last year. Some of the unwanted liquidity of companies is probably being transferred overseas as a hedge against devaluation. So from every point of view the decision to defer quarterly tax payments was unwise and, as I have said and as I repeat, it is giving rise to this monetary package which is causing hardship. Many companies have greater liquidity than they are able to use because they must prudently put funds aside for tax payments.

Borrowers have to pay higher interest rates. They will have their requests for loans scrutinised more vigorously, more rigorously, and their applications will be processed more slowly than hitherto. Some requests for loans will be rejected and lending for such things as housing will be lower than would otherwise be the case. As well the outflow of private capital has been facilitated and financed in part at least from temporary liquid funds of companies which have to set aside money for tax payments which will not be required until the end of the financial year. This is a clear example of a misguided government policy naively aimed at stimulating the private sector. But in practice it will be ineffective because it has not been accompanied by other appropriate economic policies. The principal error of government economic policy is that at a time of deep recession Budget outlays, excluding the family allowances which are largely offset by higher taxation, are likely to fall by about 8 per cent in real terms during 1976-77. It is time that the advisers to the Prime Minister and to the Treasurer taught them some simple economic realities. A government has one principal policy instrument available to it to influence the economy, and I refer to the Budget. Clearly it is the responsibility of the Government to act in a way which minimises fluctuations in the economy, which tries to smooth out the business cycle and which reduces structural problems.

Most governments in industrialised countries increase real government outlays at times of recession and reduce them in times of boom. However, the Liberal and National Country Party Government because of its doctrinaire opposition to the public sector is reducing government outlays at the time of the deepest recession this country has known since the last war. The Treasurer continues to claim that the Organisation for Economic Co-operation and Development supports his policies. He said this today during question time. But he confuses reduction in the rate of growth of real government outlays in other OECD countries with sharp decreases in the total level of government outlays which are going on in Australia at the present time under his Government. Other countries reduce the rate of growth of public spending while the Australian Government is already reducing the real level of outlays. The effect of this is to reduce total demand for goods and services, making recovery even more difficult. Other major OECD countries continued to use expanding real government outlays to facilitate economic recovery in their countries during 1975 and they are doing so now in 1976. The President-elect of the United States of America is promising even more of this. For example, the Reserve Bank of Australia in its annual report noted:

The Japanese recovery was heavily dependent on public sector spending.

Australia is deliberately retarding economic recovery by reducing government outlays which account for about one-quarter of our economy. As well, personal disposable income has been reduced through the imposition of the Medibank levy and encouragement is being given to people to take out private health insurance. These measures have certainly reduced personal consumption on other types of spending. I suggest that honourable members ask any small businessmen in the community and that they look at the economic indicators right now. So a continuation of the decline in real retail sales which has been noticeable in recent months can be expected.

The Budget Papers reported that increased consumption demand was essential to recovery. Tax indexation was supposed to be the agent for stimulating consumer demand. Of course, tax indexation merely removes the increase in tax receipts due to inflation. A higher proportion of personal income is still being withdrawn to tax payments as real incomes rise. Now the Medibank levy threatens further to lower the level of retail sales. Indeed, a Medibank levy is even counter-productive to the Government's stated aim of reducing the rate of inflation. By increasing the rate of growth of prices it will maintain the current level of price increases for many months; perhaps even a year longer than would otherwise have been the case. As well, it is an important factor in the maintenance of inflationary expectations which are themselves the principal cause of continuing rates of price increases. If a Labor Government were in office now the rate of inflation would be substantially lower because there would be no Medibank levy and indirect taxes would be reduced, providing a break in the inflationary spiral which would quickly lead to deceleration in the rate of growth of prices. As well, the level of unemployment would be considerably lower because of the selective stimulatory spending program which I have outlined previously and which would have contributed to increasing output in employment in the most depressed areas of our economy.

Exports are the one sector which have been fuelling the Australian economy. Yet they are now under threat because of the slump in the rate of economic growth overseas. The OECD was expecting that the real gross national product would grow by 5 per cent to 5.5 per cent in member countries during 1976. However, as the Economist has reported recently, it now looks as if 3 per cent to 3.5 per cent will be nearer the mark in the second half of 1976. For example, in the United States of America which sets the pace for the level of world economic activity, the rate of growth measured in annual terms was 9.2 per cent in the first quarter of 1976 and 4.5 per cent in the second quarter. It may be down to 3.5 per cent in the third quarter. I mention these things because they are important for economic strategy in this country, and I wonder whether this Government has the flexibility to change its outlook in view of these new factors. In seasonally adjusted terms, exports fell by 18 per cent between July and October. This means all the more that stimulatory domestic economic policies as outlined by me and my Australian Labor Party colleagues are essential. I hope that the Treasurer will not attempt to use the investment figures for the June quarter which were released yesterday as support for his cause. I just refer him to the following comments in the Age, although I wish I had time to go over this matter myself: The Government is falling deeper into the mire created by rigid adherence to doctrinaire monetarism; A wide and growing body of professional opinion is arguing for a change in economic strategy. We share similar objectives- price stability, full employment, balance of payments equilibrium. Certainly we would give much greater weight to reductions-of income inequality than would our conservative opponents, yet the Treasurer persists with a naive, ineffective, unjust and incompetent approach to economic policy.







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