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Tuesday, 7 December 1976
Page: 3377

Mr MACPHEE (Balaclava) (Minister for Productivity) - It will disappoint the honourable member for Adelaide (Mr Hurford) to know that members of the Government backbench are not in disarray and their morale is not destroyed. In fact they have been exercising a most commendable independence of mind in expressing constructive nuances on the economic strategy of the Government. This is a healthy attitude. It is to be encouraged. It is always encouraged by the Prime Minister (Mr Malcolm Fraser) and the Treasurer (Mr Lynch). These constructive comments have been in marked contrast to the number of negative comments which have come not only from the Opposition in this chamber but also from certain people in public positions. The important point is to examine the serious economic situation which still confronts Australia and to try to examine the strategy which has been adopted consistently by the Government. I refute any suggestion as made by the honourable member for Adelaide, that the Government is embarking upon a course of confrontation with the trade union movement. This is not so. There is no solution for anyone in confrontation.

I refute also the allegation that the control of inflation is no longer the main task facing the Government and that the Government has departed from its strategy of curbing inflation. Inflation has been reduced. Employment opportunities will increase and the level of unemployment will decrease. The important point is that the Budget strategy, which was announced in August, is consistent with the economic policy adopted by the Government from the beginning of the year and is still the thrust of the Government 's economic strategy. The only departure from that strategy is in relation to devaluation. I shall come to that in a moment. The honourable member for Adelaide remarked on the absence of the Treasurer in the House during this debate. I shall refer substantially to remarks made by the Treasurer so that his absence will not be felt in terms of substantial discussion.

I direct the attention of honourable members to the Budget strategy which was the core of the Government's policy and still is the core of the Government's policy. I should like to refer to my own summation of that strategy on 7 September this year at page 763 of Hansard. I stated: the Budget strategy has S basic principles. These may be stated as being; making the reduction in the rate of inflation the essential aim of government policy for the time being; restraining government spending in order to allow the private sector to expand and create jobs in the medium term; restricting government taxation revenue in order to encourage further wage restraint and improve both business profitability and confidence, reducing the size of the deficit in order to moderate increases in the money supply; and continuing to implement selective social programs based on recommendations of the Henderson report on poverty and on a philosophy of assisting the most disadvantaged and assisting others to help themselves more effectively.

That, in a nutshell, is the economic policy of the Government which has not been departed from in any way. There is no way that it can be said that we have adopted ad hoc economic measures. Those 5 basic principles have been adhered to by the Government. It is still our concern to have as our first target the control of inflation. What has occurred has been an un-sought devaluation- a devaluation which has positive impacts that have been ignored. Most attention has been focused on the inevitable unfortunate impact which comes from any across the board measure. I turn to the Treasurer's own statement of 28 November in which he announced the decision to devalue. The statement reads:

The changed system would permit the use of the exchange rate, by means of changes upwards or downwards in the rate as appropriate, as a more flexible element amongst the available arms of economic policy.

The Government has been forced to devalue, Mr Lynch said, because of the deterioration that had occurred over recent years in Australia's underlying external situation, as a result of the higher increase in wage costs than in our major trading partners and the continuing loss of reserves.

The Treasurer went on in that statement to explain that the Government, although it knew that the exchange rate was overvalued compared with other currencies, nonetheless sought to obtain the necessary discipline within the Australian community in order to reduce inflation and to create more job opportunities. When this action became inevitable, for reasons set out clearly in that statement by the Treasurer, the Government could adopt no course other than to devalue. I repeat: That course does not depart from the S principles contained in the Budget strategy and the earlier statement of economic policy which has governed the policies of this Government. Page 4 of the Press release issued by the Treasurer on 28 November states:

This decline in reserves had continued despite the additional monetary measures announced on 7 November and had left official reserves at 26 November at around $2, 100m, sufficient to cover less than three months' imports.

It is worth interposing that when Labor came to office reserves stood at a record level of $4.6 billion. The Treasurer went on to say:

Added to that the Government faced the prospect of an even greater rate of outflow around the end of December/early January period.

The Treasurer in that extract of 28 November stated further

There would also be a close monitoring of the volume of lending by the various financial institutions to ensure that the growth in lending came back from recent excessive and unsustainable levels to a pace consistent with the sound development of the economy.

I quoted that to refute the suggestion that the policies are ad hoc and that for some reason there is a vacuum of policies. It is perfectly clear to anyone who really wishes to look at the matter objectively that all arms of policy to which the Prime Minister and the Treasurer have referred over recent days are being monitored constantly so that steps can be taken to control any aspect of policy which appears to be putting further pressure on inflation. The various terms of pessimism which have been mentioned by other speakers only talk down the economy and do not improve it.

Seeing that reference has been made to the fact that the Treasurer is not here I want to again quote something which needs to be repeated. I quote from a statement made by the Treasurer in this House on 30 November in which he said:

Suggestions that the Government's economic strategy has failed are without foundation; what has not been possible is the continuation of efforts to hold the exchange rate. It has not been possible because of the obvious limitations in the extent to which reliance can be placed on any single instrument of economic policy. Let me repeat: Assertions that the Government's economic strategy has not worked neglect the achievements that are the result of that strategy. The rate of inflation has moderated in each quarter since the S.6 per cent increase in prices recorded in the December quarter of last year. Prices increased 3 per cent in the March quarter, 2.S per cent in the June quarter and 2.2 per cent in the September quarter. Figures published recently shows that Australia's rate of inflation is now broadly in line with the OECD average. Industrial production has firmed since July. Activity in the housing sector remains buoyant. Registrations of new passenger vehicles have recovered to more normal levels, following the sharp decline in July and August due to the introduction of more stringent emission control standards. The weakening in the labour market has been largely arrested over the course of the September quarter.

I think that statement is a matter of which the House should again take note. It shows the consistent nature of Government policy and the achievements of that policy, bearing in mind the constant stress by the Prime Minister that it is a long haul and that a slow recovery is what the Government is aiming for. It will be a slow sure recovery; it will not be a yo-yo such as the honourable member for Gellibrand (Mr Willis) implied at question time today.

I quote another extract from the Treasurer's speech on 30 November. He said:

The fact is that, faced with the rundown in reserves, there were only 2 alternatives; the options put to the Government by its advisers were devaluation or borrowing on official account, of the order of $1 billion, to shore up the reserves position. In these circumstances the Government could have allowed the situation to drift on and attempted to arrange further borrowings overseas to finance what would inevitably have been further outflows of private capital. The announcement of large additional borrowings, m a situation where our underlying external situation remained out of line with our competitors, would have had perverse effects, leading to an escalating increase in the rate of loss of reserves. Such a loss, together with any additional borrowings the Government had been able to undertake would have involved enormous costs to the authorities in the event that we were forced to make an exchange adjustment

I want to quote one more extract from that speech but in the course of doing so let me remind the House that we would have had to borrow at least another $1 billion from international sources and this, in the estimate of the Treasurer, would only have bridged the situation temporarily. It would not have averted speculation, it would not have averted capital outflow, it would not have preserved jobs and it would have led to an eventual decision about devaluation. It was with reluctance but with wisdom that the Government took its decision to devalue. Towards the end of that speech on 30 November in this House the Treasurer said:

The devaluation will restore the long run growth prospects for this sector -

That is the mining sector- and increase annual export returns significantly- perhaps by approaching half a billion dollars. The devaluation wilalso go a long way towards offsetting the effect of excessive wage increases on costs of manufacturing and service industries such as tourism, enhancing their competitive ability. The removal of uncertainty about the exchange rate will restore investor confidence.

What Australia requires most of all is investment. Our scarcest commodity is capital. We have seen, even in 1973 and 1974 when we had record increases in wages, further squirreling and further saving by wage earners. People who talk of a consumer led recovery have not found the means whereby we can unlock people's savings. We recognise that we need investment in Australia. We have a situation where because of speculation about our over valued dollar money was not coming into Australia- on the contrary money was going out of Australia- and investment was not taking place in manufacturing industry, the industry which provides employment and in which the greatest unemployment has occurred. Export potential unquestionably will be increased as a result of the devaluation decision and will lead to further investment and more jobs.

Much has been said about the trade unions. It is fair to say that the rank and file of the trade unions have recognised that if those who are currently in employment can minimise their wage demands then those who are unemployed will have a greater chance of gaining a job. Real wage increases in fact can really come only when we have a substantial increase in productivity. We do not seek to improve productivity merely by improvements in technology alone, nor by managerial decisions alone. Nor do we seek to improve it by decisions of the rank and file regarding their systems of work and their contributions. We seek to do it by mutual cooperation, a recognition that there is mutual self interest in improving our efficiency and reducing our costs of production- that is improving our productivity.

It has been the decision of the Government to look at the long term productivity prospects in parallel with the economic strategy begun from the day the Government came into office. That is a strategy aimed at a medium term recovery. No one suggested it was to be a short term panacea, a short term recovery. That economic strategy has continued unabated. There is nothing ad hoc about it as suggested by this discussion. The estimates of an inflationary impact concerning devaluation cannot be quantified. One has to ask the Opposition whether it seriously looks at the alternative to devaluation. If it seriously looks at that it would realise that the economic situation of Australia would be infinitely worse over the next few months than it will be as a result of the decision to devalue.

I can only stress again that the Government is constantly monitoring all the arms of policy and will adjust them according to need. The problem of this across-the-board measure was very much the result of a series of across-the-board measures taken by the Labor Government- upward valuations, across-the-board expenditure, inflation which had an across-the-board effect and tariff cuts which were of an across-the-board nature. We have reduced speculation, reduced capital outflow, increased capital inflow, increased investment prospects and industries have ceased going offshore. We have increased the employment position as a result. We can compete with imports, we can have higher exports. We can gradually get ourselves back to the standard of living which all Australians seek if they have the patience and the restraint to live with the Government's strategies.

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