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Thursday, 16 September 1971
Page: 1469


Mr HAYDEN (Oxley) - The Budget outlines a dangerous strategy, especially dangerous in view of the poor performance of the economy last year. Last year was a tough year for the economy. It was a tough year for business and the sort of strategy being proposed in the Budget suggests more toughness, more recession, more run down and a greater drop in output and productivity which will be lost forever. Value in terms of potentially improved welfare services, improved education and improved environmental conditions will be lost and will never be achieved again no matter how much the performance of the economy is improved in subsequent years. What concerns me particularly is the potential disaster which could be lying ahead of us because of the strategy outlined in the Budget. Let us take some of the points I enumerated so quickly. Last year was a tough year for the economy. The per capita real rate of growth was only .5 per cent. Honourable members talk a lot about growth rate and the quality of life. Many arguments being expressed today were initiated by Mishan several years ago. This economist, whose views have been taken up by many spokesmen today, indicated the dangers of an obsession about growth - that a fixation on this narrow quantitative area is a dangerous thing for an economy. This is true enough but the point is that we have not even made a reasonable fist of quantitative progress and if we cannot make a reasonable fist of quantitative progress in economic growth there will not be much in the way of a surplus to spend on qualitative improvement. This is a hard but realistic fact of life, so the first thing we must do is to improve growth rates in our economy if we are to talk meaningfully about qualitative improvement. Last year was an exceptionally poor year with a .5 per cent per capita real growth rate. It was one of the worst years for many years. There was no real growth per capita in retail sales, so business had a tough year.

In private companies the rate of increase tumbled from 13.5 per cent the year previous to a low of 3.2 per cent. That was a dramatic drop in the rate of performance of private enterprise in the economy. This is clear. These are some of the areas which have been taking the brunt of restrictive economic policies in the last 12 months. This is a not particularly publicised fact. Nevertheless these areas have been taking the brunt of fairly savage restrictions in the economy. In private fixed investment the rate fell from 6 per cent to 5 per cent. This is an important sector of the economy. Capital investment in the economy is the sort of driving force which gives a thrust to the progress of an economy. If there is a cut back in the rate of capital investment there is a cut back in capacity to progress in economic movement, lt is serious that this should occur.

Private dwelling commencements fell by 6 per cent after a poor year in 1969-70. Our rate of growth in exports fell from 22 per cent to 7 per cent and the terms of trade worsened. Interestingly enough, the fall in the terms of trade means that relatively our export prices fell and our import prices rose. We have heard no discussion from members of the Government about the inflationary effects which are injected into the economy by this sort of movement. Consumption demand increased by 5 per cent the year before last. The increase was 5 per cent, the lowest growth rate for more than 5 years. Again 1 raise an important point for consideration, namely, that the strategy of this Budget has been aimed at dampening down demand. As every finance writer is asserting forthrightly and correctly, this is the wrong area in which to aim the effects of the economy. It is not a problem at all.

I move to some more significant factors. The farm sector has been seriously savaged. Five years ago net farm income was $l,283m. Last year it fell by 22 per cent on this figure to $74 lm. Unemployment figures show that a serious problem is commencing to develop in the metropolitan areas. For instance, since about February last, in the metropolitan areas job vacancies expressed as a percentage of the number of employed showed a significant diminution on what had been the rate in the previous 18 months to 2 years. This is a reversal of the previous long term trend. But more import is the fact that in the rural area there has been a long term chronic depression, because in the rural area the registered unemployed exceed job vacancies by more than 4 to 1. For several years this has been a long term chronic problem in the economy. Up to this time there has been no evidence in this House that the Government has been aware of it, because there has been no definition of a consciously constructive policy to attack this serious problem.

As 1 have said, in some areas it has been a bad year, but it has been a peculiar year because on the one hand while there is evidence of stagnation developing, there seem to be contradictions. Obviously the monetary policy has operated unevenly. I mentioned that investment in private dwelling fell dramatically in the last 12 months, but investment in non-dwelling building skyrocketed. For instance, in the March quarter it increased by amost 46 per cent on the March quarter of the previous year. As the Treasury White Paper pointed out, this sort of influence on the economy will be with the population for some considerable time, because in most cases there are substantial gestation periods between when investment commences and when a project is completed in this sort of development.

Wages continue to push ahead and the cost of living soared by 5.4 per cent according to the consumer price index.

This was the highest increase in more than a decade and a half. As I said, we have this peculiar situation. Stagnation obviously is occurring in substantial areas of the economy yet in other areas, while this run down is occurring, there is an upsurge of inflationary pressures. The distressing feature is that it seems as though, through tha handling of the economic affairs of this country by the conservative Government opposite, we have finally achieved stagflation - the problem which has bedevilled so many of the advanced economies of the western world. What is even more alarming - 1 keep repeating this - is the uneven way in which the economic policies of the Government have operated. For instance, while trading company profits fell by $66m, finance investment company profits increased by $46m. Clearly the picture that is emerging is that there is a quite inadequate handling of the economic affairs of this country - a lack of selectivity in the way in which the various economic tools available to the Government have been applied.

I mentioned that last year was a bad year. The facts which I have given clearly evidence this. In my opening remarks I mentioned also that what we are really getting is more of the same. This is most disturbing. Evidence of more of the same is apparent in the Budget outline which is aimed at a surplus of about $630m. In achieving this surplus it is proposed to jack up indirect taxes and to set income and company taxes at a high. Of course, the purpose is to win the economy, to pull back demand, but it is fighting the wrong opponent. Let me give some evidence of this assertion that the whole strategy of the Budget is aimed in the wrong direction. In recent surveys the Associated Chambers of Manufactures and the Bank of New South Wales showed that the economy rather than being flattened out should be stimulated. Of manufacturers contacted only 38 per cent felt that the performance of business was satisfactory whereas 40 per cent expected that worse was to come. This is an unsettling influence because this is a psychological attitude which is developing and it is not the sort of thing which can be easily overcome through either fiscal or monetary policy. If we contrast that group of 38 per cent only which felt that business was performing satisfactorily for that quarter with the S3 per cent figure for the March quarter we get a picture of a complete loss of confidence in the way in which the economy is being handled. I mentioned that unemployment is climbing sharply. The Prime Minister calmly predicts that there will be 100,000 unemployed by next January.

I tura to the ronened publication from the Commonwealth Bureau of Census and Statistics which is entitled 'Capital and Maintenance Expenditure by Private Businesses in Australia', setting out the figures for the June quarter of 1971. This document includes certain projections. We see that the new private capital expenditure for the period July to December 1971-72 is expected to grow by 7 per cent. But we must balance that figure against past performances. For instance in 1970- 71, for the same period, the anticipated growth was 14 per cent. In 1969-70, for the same period, it was 1 1 per cent. Again, significantly in each case, the anticipated rate set out in those projections was approximately 100 per cent greater than the actual rate which was achieved.

So, here we have a situation in which the anticipated growth in new capital expenditure for July to December 1971-72 will be only about half of what the anticipated rate was for the same period the previous year. In the previous year, the actual rate of growth was only a little better than half the anticipated rate of growth. We again get the clear impression that this is going to be a fairly bad year all around in the economy. If investment or expenditure in the capital field is cut back, the rate of development in the economy is really being set back.

The Budget strategy at its best is punitive and inflationary. It will be stagnating at the same time as it will set off further inflationary pushes. What distresses me is that it could well prove to be a spectacular disaster. Let me make 3 points in relation to this factor. I refer to page 6 of Statement 1 attached to the Budget Papers. It is pointed out there that we are to have a really tight liquidity period in the second half of the new financial year. What happens then? This is an official document, which is further substantial evidence behind the point that I am making. We are informed that although we have had a bad year we will have an even more difficult year this financial year.

What will happen if the seasonal inflow of capital investment which the Treasury depends upon and relies upon in the closing stages of the second half of each financial year to bolster the operations of the economy does not materialise because of the international economic problems which are quite apparent today. In that situation, the monetary policy and the tight liquidity which will be the symptom of that monetary policy in the second part of the new financial year will have an especially savage bite on the economy. The impression that I gain is of a mounting problem. We cannot persist with the proposals in this Budget. A mini-budget, as these things are called, must be introduced fairly soon.

I turn to another factor which must taken into calculation. What will happen if trade with Japan suffers some sort of serious setback? It seems certain that we are to suffer some sort of adversity. The sale to the United States of articles containing wool fibre manufactured in Japan from Australian wool will certainly be set back. The sale of minerals to Japan or at least the rate of increase in those sales could diminish. But, somehow or other, one gets the clear impression that some sort of setback will occur in this area. All of this will have a shock wave effect which will be felt in the Australian economy. We will feel it more as a result of our economic situation than will the economies of Japan or the United States of America. Gregory Clark, reporting in the 'Australian' of 31st August 1971, stated:

New blast furnaces coining into production this year in Japan were supposed to meet an expected 100 million tons demand for crude steel. They are now being operated on half shifts . . .

Nippon Steel has announced postponement of its new Oha blast furnace, and is pressing the other steel companies to do the same. Iron ore and coking coal bought on long-term contracts to feed the furnaces have had to be stockpiled.

I am well aware that in the 'Australian Financial Review' this morning a journalist writing from Japan has put the situation another way. But his point of view is a highly qualified one. On the face of the evidence that I am able to assess, I am much more persuaded that Gregory Clark's article is more likely to be the correct one. Even if it is not, this ought to be the way in which we slant our economic strategy, hedging all of our bets and covering all the possibilities.

Let me sum up the situation. We had a bad year last year and we have a worse one this year with potentially dangerous overtones as a result of factors some of which are outside our control because of their external nature. What is to be done? Frankly, I would not waste any time speculating on wages and prices policies except in the very short term because I have yet to see any evidence from overseas that such a policy has been effective in anything but the short term. It is about time in our community, especially on the part of those on the Government side, that there was an acceptance of the fact that wage price problems are a symptom and not a cause of inflation in the community. They are the symptom of an underlying morbidity.

At page 14 of the Treasury White Paper entitled 'The Australian Economy 1971', we read: . . wages are far from being the sole determinant of costs.

At page 17, after discussing the reasons why people seek wage increases and why in the relatively uncompetitive economy in which we live they are able to get them, the White Paper states:

Behind the normal urge to seek such gains were other influences such as the high and increasing burden of personal income taxation and the weight of personal debt on homes and household appliances and motor cars.

Where do these extra burdens come from? They come from the monetary and fiscal policies of the Government because these are the forces which are operating in the economy, which are injecting these increased costs and which in turn are pushing up the costs in the community leading to the sorts of demands that wage earners reasonably set about seeking. Is not the quotation I have just made from the Treasury White Paper a slamming damnation of the Government's policy? Mr Deputy Speaker, rather than discuss any further these taxation aspects, with the concurrence of honourable members, I incorporate in Hansard tables prepared for me by the Statistical Service of the Commonwealth Parliamentary Library on the 'Incidence of Taxation on Average Weekly Earnings'.

 

 

What is to be done? I see some excellent advice in the annual report of the Reserve Bank of Australia. I welcome this opportunity to read into the record some of the recommendations in the report because there seemed to be some disputation this morning between myself and the Treasurer as to whether criticism of the Government's policy was involved in the annual report of the Reserve Bank. On page 36, under the heading The Problem of Inflation', the Reserve Bank after a discussion of the economy states:

Hence, it is harder to attribute the recent acceleration of inflation in this country to excess demand pressures.

This is a significant factor because the whole strategy of the Budget has been to set about dampening down demand, a force which is not causing problems in the economy. What is to be done? The Reserve Bank report identifies a number of things that need to be done in the Australian economy. I will enumerate some of them:

Measures to decrease the degree of competition among domestic producers can be expected to exert a restraining influence on prices. . . .

We never hear this from the free enterprise Party which is supposed to be dedicated to this sort of competition. The report continues:

A greater degree of competition from abroad could also have a stabilising influence.

We never hear any theoretical or practical outline of the benefits of a programme in this area. The report states further:

Some countries have also appreciated their exchange rates as part of an anti-inflationary policy, package.

There is some evidence that de facto we are floating somewhere along this way. But I think that this country is entitled to an informed discussion which is presented to it through some sort of public document. The report states further.

However, supply policies can also ease inflationary pressures. Essentially, such policies involve encouraging labour and other resources into areas where prospective returns are greatest. More rapid productivity growth provides greater scope to meet demands for increased money incomes without increase in prices.

That, basically, is the problem with the Australian economy. It is a deep seated structural problem. Until the Government is prepared to face up to this problem and to bite into this deep seated imbalance in the economic structure, we will continue to be blighted by the problem of inflation which is now turning into a stagflation situation. My strategy would have been for a mildly expansionary Budget along Gal.braithian lines by which we would have given more emphasis to investment in the public sector. But I regret that the Government is too hesitant, too doubting and too weary to handle effectively the great economic challenges of the moment.







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