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Thursday, 10 May 1984
Page: 1910


Senator HILL(12.02) —In my contribution to the debate on Appropriation Bill (No. 3) and cognate Bills I intend to argue that the economic prospects for this country are not as bright as Government spokesmen have indicated, that in fact real difficulties are apparent for the next financal year and that whether the economic recovery can be sustained will depend on government policy. Therein lies the concern because in fact it might be argued that the recovery has in part proceeded despite some of the Government's policies.

There is no doubt that there has been something of an economic recovery in this country. We have witnessed a return to positive growth rates. There has been a small decline in unemployment. There has been some employment growth and we are experiencing lower inflation rates. These are all signs of an economy emerging from low levels of economic activity. I readily concede each of these.

However, it is important to look at the reasons for the turnaround over the last six months from the low level of economic activity. I believe that such a turnaround can be attributed to four factors. First, Australia has benefited from the dramatic upturn in world economic activity in 1983, particularly in the United States of America. The latest available International Monetary Fund projections for 1984 put world economic growth at 3.7 per cent in real terms. For the first time in 15 years the average world rate of inflation is below 5.1. Australia's longer term economic prospects will continue to depend on the growth and durability of the world economic upturn in general, and the United States economy in particular. Secondly, the ending of the drought has had a dramatic one-off effect on Australia's growth projections for this financial year. In the first half of 1983-84 gross farm product rose at an annual rate of 85.2 per cent . The significant proportion of the 11.3 per cent increase in gross domestic product in the first half of 1983-84 can be attributed to the dramatic farm recovery.

Thirdly, the continuing effects of the previous Government's wage pause program through to September 1983 provided a vital brake to the massive real wage increases of late 1981 and 1982. The pause in wages growth gave business valuable breathing space to restore profit levels, a necessary requisite for increased investment activity. Finally, the tentative recovery can be attributed in part to the Government's stimulatory spending on such things as housing and job creation projects. The cost of such discretionary budgetary action has, however, been an addition of some $2 billion to the structural component of the Budget deficit. Therefore, three of the four major infuences on Australia's economic recovery were outside the control of the present Government, which is probably why we have got as far as we have.

However, this is not a recovery of even economic growth. Clearly it is patchy and many indices show how precariously balanced it is. It is a recovery capable of turning sour in a very short time. I give the Senate some examples. Firstly, I ask them to look at the metals and engineering sectors-two sectors that have been particularly savaged by the recession. A combined Metal Trades Industries Association Inc.-Commonwealth Banking Corporation survey, published only last month, predicted manufacturing and metal sales to rise by 9 per cent during 1984 . I remind the Senate that in 1983 they declined by 4 per cent. The survey identified agricultural implements, housing, consumer goods and light industrial equipment as healthy sectors during 1984. Nevertheless, the same survey has predicted slack activity in foundries, heavy engineering, general engineering, heavy electrical engineering, pumps and compressors. In addition, the MTIA survey concludes that investment in new buildings and structures will remain depressed.

That leads me to the second of the indices, that of private fixed investment. Private fixed investment has not risen in the last year. In fact it fell by 4 per cent in the December 1983 quarter and is predicted to fall by a further 10 per cent in 1984 and 1985, in current price terms. In particular, in seasonally adjusted terms investment in manufacturing has declined continuously since the March quarter 1982, falling from $1,023m to $730m in December 1983. There is no reason for joy in those figures.

Again, in employment there has been pleasing expansion of job opportunities, but unemployment rates have fallen only marginally-from 10.4 per cent in December 1983 to 9.3 per cent in March 1984, on a seasonally adjusted basis. One therefore suspects that this has been accounted for by an increase in participation rates as the economy has improved. That subject was debated in some depth yesterday. Therefore, the economy continues to be burdened by the costs of intolerable unemployment, particularly of 15 to 19-year-olds, that unemployment rate having declined only marginally. Yet this sector, I remind the Senate, has occupied a principal priority in government relief initiatives. In the manufacturing sector we must remember that employment has declined by 17,000 or 1.5 per cent in the three months to February. Therefore, when we examine the so-called recovery in employment, we in fact see it to be a narrow employment- based growth with jobs being provided mainly in finance, public administration, community services and construction. We are therefore in a shaky position.

What the Australian people deserve is a government that will pursue policies that will build on the fortuitous events of last year. What that means is government leadership in the vital areas of wage control, budgetary restraint and the adoption of policies which will create an economic climate conducive to increased private sector investment. In these areas the Government does not have the policies to achieve such goals.

Let us look first at wage control. I think all honourable senators will accept that it is of paramount importance. Put simply, wage restraint is necessary if profit levels are to be allowed back and profits are to be maintained at levels conducive to increased private investment and employment growth, particularly bearing in mind the historically low levels that have existed over the last two years. The prices and incomes accord, about which we hear so much, has not and will not achieve the objective of wage restraint. The most visible manifestation of the accord to date has been the reintroduction of full wage indexation over the past two quarters of 1983-84. In the six months since wage indexation, wage increases of 8.6 per cent have been granted by the Conciliation and Arbitration Commission. While Australia has, therefore, been in the process of emerging from a recession, the private sector has had to meet an additional $6 billion wage bill irrespective of its capacity to pay such an increase. As an instrument, therefore, of broadening the base and strength of recovery the accord has failed to deliver. It has been shown to be an instrument purely for the purpose of wage maintenance, which incidentally means the maintenance of wage cost pressure on employers and the consequent impacts on domestic prices. On that subject, our need to contain and, ideally, reduce domestic cost pressures in order to achieve greater international competitiveness for our export industries remains.

The accord is a major impediment to meeting this challenge. Australia's costs and prices presently remain out of kilter with those of countries with which we trade. The latest available comparative figures for consumer price changes published by the Organisation for Economic Co-operation and Development show only France with consumer prices increasing at a greater rate than Australia. Australia's current underlying inflation rate is in the vicinity of 7.6 per cent , compared with current rates of inflation in Japan of 1.8 per cent; Canada, 4.2 per cent; the United States of America, 3.2 per cent; West Germany, 2.6 per cent ; and the United Kingdom, 4.9 per cent.

The accord with wage indexation in operation at a time of tentative economic recovery has created a major hindrance in achieving improved international competitiveness. In its analysis of the international competitiveness dilemma the Business Council of Australia pointed out last December that in 1982-83 nominal wage costs in the OECD area rose by a mere 5 per cent. Yet even with the wage pause instituted in the latter part of 1982, total average weekly earnings in this country rose by more than 11 per cent, double the OECD figure. This year with the accord in operation little change is expected in the discrepancy between overseas and domestic wage rates. The Business Council of Australia saw the inevitable consequence of wage rises at this stage of economic recovery in the following terms:

. . . the restoration of 'full indexation plus some drift' at the current inflation rate of 7-8 per cent through 1983-84, will limit the relief from what is quantitatively the most important source of pressure on our price competitiveness.

There will, no doubt, be considerable drift. With what might be called the Medicare distortion, the consumer price index was artifically reduced for the March quarter to minus 0.4 per cent which should, theoretically, result in no wage rise. But now, pursuant to the terms of the previous accord, the unions are demanding catch-up awards. The concept of catch-up awards is envisaged as part of the agreement. Beyond the immediate dangers to international competitiveness posed by wage indexation we have yet to see any concerned government initiatives which address the excessive pressures on Australia's wage structure of on-costs and the multitudinous Federal and State government charges which add significant amounts to the nation's wage bill. Too often that area tends to be overlooked.

The Australian Industries Development Association bulletin of April 1983 showed , for example, that labour on-costs grew at a rate 60 per cent faster than direct wage costs in the period from 1974 to 1982. In 1982 alone AIDA estimated the rate of on-cost growth to be 77 per cent higher than direct wage costs. Such figures bring home one vital point: The critical issue for Australia's future international competitiveness is not only direct labour costs through wages, but also an ability to maintain shifts in unit labour costs-wages plus on-costs-in line with unit labour cost changes occurring overseas. In this endeavour the Government, and the accord, has conspicuously failed to meet its responsibilities. The past two indexation awards and resulting on-costs will lead to the private sector employers facing a mammoth $12m bill this year. The question is: Can Australia and particularly the unemployed in this country afford such a situation?

The whole issue of wages is indicative of this Government's inconsistent approach to economic management. It is ironical to note the support the Prime Minister (Mr Hawke) and the Treasurer (Mr Keating) have given to the efficiencies of financial market deregulation. We saw the floating of the dollar in November of last year together with the Government's announced intention to allow the entry of foreign banks-decisions which have the laudable objective of widening and freeing up Australia's financial markets. They are decisions which the Opposition supports and welcomes as far as they go. Yet the Government has adopted a totally contradictory approach to the labour market through its commitment to the accord and to wage indexation. As far as the Government is concerned, the rationale behind its decisions to seek a more efficient and sensitive financial and banking sector through the freeing of the markets is not applicable to wages. If the market is seen to provide an efficient allocation mechanism in one, why not the other?

Another area which requires some comment relates to the Government's expected or anticipated budgetary policy. The Government's commitments to the Australian Council of Trade Unions under the prices and incomes accord and its discretionary decision for an $8.6 billion deficit in last year's Budget leave it little room to manoeuvre in formulating the 1984-85 Budget. In order to maintain the accord and set the groundwork for an election-most probably in December of this year-a tax cut in this year's Budget has now become mandatory, which leads to concern as to the future deficit and its effect upon economic recovery. The Victorian Chamber of Manufactures estimates that next year's Budget deficit will be $7.6 billion. Furthermore, it predicts that this deficit will blow out to $9.2 billion the following year. In conjunction with this, the VCM, together with the Government's own forecasts, predicts inflation to rise from 7.3 per cent this financial year to 9 per cent the following year. The Government, clearly, has not heeded warnings of business leaders that a deficit over $5 billion will put undue pressure on the economy. Instead, the Prime Minister and the Treasurer have sought to present a deficit at least the same size as last year's as an exercise of economic sobriety. The danger of such a policy is clear to see. As the Australian commented a couple of days ago, on 8 May, in the last paragraph of its editorial:

With an already overly high level of national debt, another relatively large budget deficit later this year can only drive up interest rates and raise the spectre of higher taxation further down the track.

What this amounts to is that the Hawke Government has had a dream run economically with a series of fortuitous events giving it a great opportunity. But instead of seizing the opportunity to build upon that base it is going to seize the opportunity for an early election. Its policies cannot and will not lead to sustained economic growth. Its policies will not lead to an Australia that is internationally competitive, confident of reducing unemployment and able to meet the reasonable aspirations of its potential work force.

I suggest to the Senate that those policies are found in the Opposition's economic policy and its wages and incomes policy, both of which have been recently announced-policies that are directed towards economic growth, that look to less reliance on income tax, a less distorted economy with less unnecessary regulation. Coalition objectives aimed at lowering the deficit will be achieved by reduced government spending with consequent less pressure on inflation and interest rates. Lower government spending will permit the arrest of continuously rising government taxes and charges and the return of productive incentive. Coalition policies will reintroduce reality back into wage fixation, permit a flexibility to reward growth and achievement and respond to economic downturns.

The comparison is clear. Labor's policies, as I have indicated, are artificial and contrived. They are not a framework for a strong and efficient economy. When the Government, rather than face reality, takes us to an early election the Australian public must not be fooled. Australians should ask: How much of any recovery has been contributed to by the fortuitous circumstances to which I referred earlier?

Australians will see that coalition policies are based on reality. They recognise the hard facts of life, that in a competitive world there is not an easy way. To face reality is never easy. But when reality is faced we will have taken the first step in this country back on a road to recovery, not dependent upon fortuitous events but on policies that face the facts of real economic life . Australians will then be better off for having made that decision.