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Wednesday, 16 May 1973
Page: 2230

Mr EDWARDS (Berowra) - The Opposition is in a difficult position in relation to this Bill. In the terms in which the Government has come to use and understand it, it can be said that it has a mandate for this type of action. But we will urge the Government to have some further thoughts about this Bill. The Treasurer (Mr Crean) began his own second reading speech, very properly, with some account of the theory and practice in the control of inflation. This is right because inflation is indeed the No. 1 economic and social problem that confronts the Government and this proposed Prices Justification Tribunal fits in as a component of the Governmment's strategy. The Treasurer concedes, with appropriate modesty, that the Government does not pretend that 'some simple solution' to inflation 'has been revealed to it', and I would agree that there is no simple solution. One comment in passing is in order here. I am sure I can say that it is universally agreed that a first necessary, albeit not sufficient, condition for the control of inflation is to keep an adequate but taut rein on aggregate effective demand in the economy. I am pleased to note that the experts of the Treasury whom, as the Treasurer said a few days back, 'it is important to keep on tap but not on top', have got on top of him on this point. It was disturbing when in a recent address to the Company Directors Association of Australia in Melbourne on 13th April the Treasurer said:

The Government rejects the concept of over-full employment as a major cause of inflation.

That is a view right in line with the Prime Minister's interpretation of the meaning of full employment which in answer to a question in this place the other day he gave as meaning absolute zero unemployment. That, unhappily, is infeasible and equally, as the Treasurer now concedes, it is, 'obviously' necessary as part of an anti-inflationary strategy 'to avoid the emergence of overall excess demand'. That is rightly so.

But, as the Leader of the Australian Country Party (Mr Anthony) quoted the Treasurer as saying, it also widely recognised that policies to contain inflation must be broad and multi-pronged'. One such component is the effort to contend directly with prices and costs under the now commonplace heading of 'a prices and incomes policy'. The proposed Prices Justification Tribunal is a major step into this area. It is, of course, an important area of debate as to whether a prices and incomes policy can or cannot contribute effectively to contain inflation, especially over the long term. But the considerable resort to such measures overseas and notably in the United States and the United Kingdom is a pretty compelling reason for trying. So we must try this along with control of total effective demand.

The honourable member for Eden-Monaro (Mr Whan), who has just left the chamber, referred to the deficit that is emerging. That is indeed a major component tending to lead to excess demand. It cannot be attributed to the actions of the previous Government. We have explored this in an earlier question without notice. An amount of $630m was in fact budgeted for by the previous Government as keeping it within the limits of responsible economic control. There were certain changes of mind after that which account for some $21m only, but the build-up from that to the iresent figure, which I suggest is now probably of the order of $ 1,000m is the present Governments responsibility. When the Treasurer investigated it, it was of the order of $950m, but it was then acknowledged that that excluded certain measures which the Government had not costed - either the Treasury was unable or unwilling to put a figure on them. So in that area it is important that the proper restraint be exercised. But in addition, as I have said, there is the field of the effort to contend directly with prices and costs. The mechanism or the shape of a prices and incomes policy can vary widely. There can be variations according to the dimensions, whether it is voluntary or mandatory, whether it is in the short term - including at one extreme a complete freeze as was essayed in the United States from August to November 1971, the main impact of which is to give a shock effect to inflationary expectations - or in the long term; according to the scope of the controls in respect of prices, whether it is limited to firms of a certain size; and so on. In the broad, however, the mechanism is prices and incomes controls, including profits through the price control mechanism and also dividend control. The institution of these sort of policies are, typically, a prices body and a wages body. In the United States there is the Price Commission and the. Pay Board. Similar bodies were set up recently in the United Kingdom. The reasons for the 2 bodies are at once technical and operational but also sociopolitical. They are technical because the mechanism of inflation involves in the broadest analysis one casual chain from price increases to wage demands and wage increases - I concede that - and another from wage increases to price increases.

The essence of an incomes policy is the attempt to restrain the response in each context, in the one case of wage demands to price increases - which stimulate those demands - and in the other, of price increases in response to wage increases. The reasons for this, as I say, are technical. They are also socio-political. There must be not only a more or less equally weighted prices and income control system but it must be seen to be there if any progress is to be made towards the community consensus without which the policy will never work. So I say that by and large we recognise the need and the mandate to establish some institution in the prices area.

The Government in some measure acknowledges not only the necessity for an institution in the prices area, but the need for something on the wages side. I recall words to that effect by the Treasurer in his speech in setting up the Joint Committee on Prices.

But it is significant that this debate follows in close juxtaposition to our discussions last wek on the Conciliation and Arbitration Bill. It is something of an article of faith of the Labor Party and of the Government that wages are already controlled and hence, in looking towards the institution of an anti-inflation policy, the prices bodies must come first. But by what mechanism are wages and salaries controlled? Minimum rates are fixed by the arbitration tribunals and from time to time the Full Bench takes an overall look and, having regard to one criterion - the capacity of industry to pay, but not only to that; also to equity considerations - it makes a general award wage increase. But, as we discussed at length last week, over a wide area employeremployee negotiations, a form of collective bargaining, is superimposed on the arbitration system in determining actual wages and salaries, and every year the margin by which actual rates forge ahead of statutory minima increases.

What does this Government which is professedly anxious to balance the social equation between prices and wages do in the collective bargaining area? In its new industrial legislation the Government has given every encouragement it could to the further development of that sector. Every restraint on the exercise of muscle by the unions has been, or will be if the Bill ever becomes an Act, taken away. This open season for collective bargaining is a guarantee of excessive wage increases because in this country the principle of comparative wage justice is perhaps more strongly entrenched than in any other country. Where each industry is left, as it will be increasingly under that legislation, to determine its own wage levels and pay formulas, this will lead to excessive wage increases as the pace is set by the industries with the largest pay increases and on comparative wage principles these increases extend to all industries.

So the course that we were on, whereby the Full Bench of the Commonwealth Conciliation and Arbitration Commission could have become something in the nature of a pay board, a board of review of inflationary wage settlements, has been put in reverse. What we have is that on the other side of the equation prices are now to be subject to the most minute surveillance. So the sweet reason of the Treasurer's early speech to which I referred is, I suggest, hollow humbug. The

Government is just not serious about the control of inflation, and the people of Australia need to realise this.

Turning to the specific proposals for the tribunal, I said that prices are now to be subject to the most minute surveillance. At least that is the possibility under this Bill. Clause 18, which I will not read out in full, requires a notification of every price variation by a company. I have one representation on that clause from a company that (fits into the $20m sales criterion. This company is a brewery and its main products are beer and stout. But it also owns and runs hotels which sell meals. When the price of steak goes up the price of hotel steak meals also goes up. Does this company have to give notice of every variation in the price of steak meals that it sells in its pubs?

I might say that this is a problem that will arise in other areas of seasonal fluctuation of prices. Perhaps that case is something of an extreme one. I take this opportunity to pass on a representation that has been made to me; but there, can be no question as to the potentially vast scope of the operation of this legislation if it is enacted. This clause would not be of such moment if the penalty were not so severe. But the penalty for not notifying a price increase - could this be the price increase of the steak meals in the pub? - is $10,000. I have some recollection that the Treasurer made some remarks, typically in a Press release and not in his second reading speech, about 'the intended scope of the Tribunal's operations. I would like to hear him further on this matter.

The second matter to which I want to refer is the important aspect of the whole theoretical basis of this operation, namely, the proposition in the second reading speech that - there is in much pricing behaviour, particularly by large firms, a considerable element of discretion - scope to adjust prices without close and detailed discipline of the market.

In some degree there is this discretion, as I have said in other writings on the subject. But it will not be an easy thing for the Tribunal to identify, if and where it exists. It would by no means be always simply reflected in too-high profits. It can get appropriated in higher levels of wages and salaries and fringe benefits in an industry; in selling costs and, perversely, in inefficiency. The honourable member for Eden-Monaro had a good deal to say about this. It will be en lightening to see how the Tribunal can attempt to track this matter down.

Then, of course, there are the problems in most firms of this size of the sheer number of products. I know of one company with over 1,500 products that called in a management consultant to try to determine for it just which of the products were and were not profitable and gave up baffled after a considerable period. There are real problems here in determining the profitability and the rightness of one price over a large range of products arising from the spread of the overhead costs, the common costs and other factors in the firm. Another point in this connection is that if the tribunal were to achieve some success in ferreting out this so-called discretionary excess pricing, the overall contribution to the constraint on inflation at a rate of 5 per cent to 10 per cent could only be marginal. In 1969-70, for the whole manufacturing sector the ratio of operating profit to sales was 8.4 per cent, and of net profits to sales 4.5 per cent. One would be going some to knock that down by even one per cent of final prices, because to do that in a context where the ratio of operating profits to sales is 8.4 per cent would be to effect overall a decrease in profits of 12.5 per cent. Is that really feasible across the board of manufacturing industry?

That gives me the thought that the Tribunal may have the benefit, by way of community education, of demonstrating to the supporters of the Government that business is not the bottomless goldmine - the veritable magic puddin - that so many of them so fondly believe it is. The view is widespread, but not true, that existing prices are too high - some perhaps are, but by and large this is not so- and that cost increases can readily be absorbed without price increases and without damage to the efficiency and the growth of business. If the Tribunal tends to counter this idea, that will be a considerable contribution.

I would mention briefly several further points in conclusion. They arise not only from the all-embracing scope of this legislation but also from its permanency. One is the issue of efficiency in the situation with this Tribunal where increased costs justify a price increase. That can have a significant effect in blunting the incentive to improve efficiency and cut costs. That relates, too, to a second point: If the policy bites too deeply - witness the recent Broken Hill Pty Co. Ltd case this year - in the effort to succeed as an anti-inflationary measure in a context where costs and especially wages are uncontrolled, it could hardly fail to have an adverse effect on investment and growth. A third point is that if it is made difficult in this way for firms to increase prices, the more surely will they avoid ever reducing prices. But it is an essential component, when one gets into the area of a reduced level of inflation, down to the 2 to 3 per cent range, that prices in areas where productivity is increasing should be reduced.

The Opposition concedes, as I said at the outset, that the Government has a mandate for an institution of this general character. But the Government did not say during the election campaign how this was to operate. There was no mention of a penalty of $10,000 for mere failure to notify a price increase. If considered in terms of the letter of the legislation this Tribunal will require for its operation a truly massive bureaucratic machine. Perhaps the Government will think again about this measure.

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