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Monday, 4 May 1987
Page: 2210

Senator MESSNER —My question is directed to the Minister for Finance in his capacity as representing the Minister for Employment and Industrial Relations and the Treasurer. Has the Minister noted the publication over the weekend of a Business Council of Australia analysis, based on the Government's 1983 economic summit model, forecasting nominal wage growth of between 7 per cent and 8 per cent for the current year and for 1988, compared with only a 4 per cent estimate for the major Organisation for Economic Co-operation and Development trading countries? Does the Minister agree that that would result in a 3.5 per cent to 4 per cent gap between Australia and the OECD countries, compared with the Government's estimate of only a 1.5 per cent difference? Will the Government be revising its wages differential estimate upwards in the light of the BCA findings? Does the Minister agree that a wages outcome such as that predicted by the BCA, which is consistent with that expected by Syntec, would, as the Reserve Bank has warned, dissipate the competitive gains of depreciation, add substantially to inflationary pressures and further discourage desperately needed investment?

Senator WALSH —I am aware of the publication; indeed, I have a copy of it with me. Among other things, it states:

Examination of the range of evidence available on recent and prospective wage experience indicates that: By excessive standards of much of the `seventies' and early `eighties', wages outcomes have been more moderate in the last four years.

That is, of course, a statement of fact, and the Government notes with some satisfaction that the BCA has recognised that wage outcomes, following those of recent years, have been much more satisfactory than they were in the late 1970s and early 1980s. We all know who was Treasurer at that time, of course. Senator Messner referred to the BCA projections being based on the summit wage price model. I am informed that the model is no longer appropriate because the move from wage indexation has broken the nexus between prices and wages that is explicit in that model. The BCA's bulletin recognises the significant achievement of the Government's wages policy. It noted that real wages since 1983 have fallen by 3 per cent in real terms while real wages amongst our major trading partners have increased by 5.3 per cent. The BCA points out, quite correctly, that international competitiveness relies on relative movements in nominal labour costs and productivity-to which should be added, I suppose, changes in exchange rates-but that Australia's experience has been inadequate on this score and the nominal unit labour costs gap between Australia and its trading partners must be closed.

That is a statement with which the Government does not basically disagree. There was, of course, a huge gap which needed to be closed at the time we came to government following the wages explosion of particularly 1981 and 1982 when nominal wages increased, if I remember correctly, by 11 per cent in one year and by 14 per cent in the next.

The Business Council of Australia is, however, wrong when it suggests that the relative earnings gap since 1983 is almost as wide on average as it was in the early 1980s. The BCA's own figures show that the gap in nominal earnings growth between Australia and its trading partners more than halved between those two periods. That is, it was 2.1 per cent on average between 1983 and 1986 compared with 4.7 per cent on average between 1980 and 1982 inclusive. The gap was some 10 percentage points in 1982, derived principally from the 14 per cent wages explosion which took place in that year when the then manager of the economy decided that wage outcomes should be determined in the market-place instead of by some central wage fixing mechanism. There was a 10 per cent gap in 1982. The gap in 1986 was reduced to around three percentage points.