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Tuesday, 9 November 1976


Dr EDWARDS (Berowra) -The Treasurer (Mr Lynch) said that there was irony in this matter proposed by the Opposition. I would stress the Opposition's gall for it was the Labor Party when in government which created the mess of historic proportions from which we are extricating the economy- the high and stubborn inflation rate, the more than a quarter of a million unemployed, the serious deterioration in our competitive position in the world economy and the massive deficit in the public accounts. We have the task of extricating the economy from this mess. The Government is getting the situation under control. Its economic management is paying off. Inflation is coming down. The figure of 2.2 per cent for the September quarter, even if enlarged for the factor referred to by my colleague at question time, is still below the level of the September quarter last year not including the Medibank change. The comparisons just made by the honourable member for Gellibrand (Mr Willis) lean heavily on the fact that in the September quarter last year there was an artificially low figure- 0.8 per cent- recorded for the increase in prices, the underlying rate with the Medibank factor excluded being 2.9 per cent.

Albeit the growth in the September quarter slowed, as the honourable member for Adelaide (Mr Hurford) stated, the important point is that growth is continuing. Albeit the indicators are somewhat equivocal the economy is on a path of moderate sustained growth. Real consumption in the June quarter was 3 per cent up on a year earlier. Perhaps the retail figures have not been too strong since then; however I note that the sales of new motor vehicles, seasonally adjusted, increased 10 per cent in September to stand 12 per cent above a year earlier. It is the year earlier comparisons that I stress. I take dwellings. In the June quarter fixed capital expenditure in constant prices of dwellings was 34 per cent up on the year earlier. There is still momentum as private dwelling approvals in the September quarter were 12 per cent up on a year earlier.

Unemployment, unhappily, is still high though not higher than a year earlier if allowance is made for short-term palliatives such as the Regional Employment Development scheme by which the previous Government attempted to mop up unemployment but only got the situation further into difficulty. As against that, employment is edging up and overtime is increasing.

Exports in the September quarter increased 12 per cent to stand 29 per cent higher than a year earlier. And all these factors to which I point are taking place against the background of broadly favourable factors. The overseas recovery, though perhaps not as fast as earlier anticipated, is proceeding in the world's major economies, the shake out in stocks which depressed product during 1975 appears to have run its course, and other factors.

It is against that background that I affirm that the mix of policy we are pursuing is the only way to restore economic health to this country. A recent issue of Business Week referred to the considerable consensus among economists 'as different as Britain's left wing Joan Robinson and the U.S.'s conservative Henry C. Wallich, member of the Federal Reserve Board '. There is an approach and a broadly agreed one. It is along these lines: First and foremost, it is to counter inflation. We put the emphasis there because inflation itself is a main, if not the principal, cause of unemployment. Only the other day the British Prime Minister, Mr Callaghan, stated that nobody seriously disputed that inflation is the number one enemy of employment. So we put emphasis on inflation. To beat that there has to be fiscal restraint, that is, restraint in government spending and tax raising and, in particular, in getting hold of deficits. There has to be monetary restraint. The fact is that over a time the inflation rate runs at just a few points below the increase in the money supply. There are all sorts of mechanisms in that upon which I cannot elaborate. However, I will mention this one: Local, and also importantly, overseas investors confidence is significantly influenced by what is happening to the money supply as an earnest of the Government's determination to beat inflation. Also there must be incomes restraint, notably the increases in wages and salaries. In these ways, policy moves to counter inflation. Then, in a context of declining inflation, the stage is set for restored thrust in the economy, for investment, growth and increased employment, given appropriate consumer and business confidence.

There are currently 2 major areas of difficulty for policy against that background. The first is monetary policy, the context in which this motion is put forward, including the weekend moves on the monetary front. That well illustrates the delicacy of striking a right balance between the instruments of economic policymonetary in this instance- on the one hand and the important requirement of moves to engender confidence on the other hand- the confidence to which the honourable member for Adelaide made repeated reference. With the recent growth in liquidity, new lending and the money supply, the Reserve Bank of Australia's action affecting the short end of the interest rate structure was essential. I stress that the Australian Saving Bond rate is a short term rate in this context. The very process of properly managing and financing the deficit makes this essential. The honourable member for Gellibrand had a lot to say about the size of the deficit. But what is important is not just the size of the deficit but also how it is financed. We take this latter aspect seriously. The condemnation of the Australian Labor Party when in government was not only on the basis of the size of deficit, although that was important, but also that it made no serious effort properly to finance and manage it.

These measures were essential. But against that, there is the confidence area. Let me state categorically to the Australian community what the Treasurer has said. He said that this is not- I repeat the word 'not'- a credit squeeze. It is not a cutting down in the availability of finance for legitimate private productive activities, which is what a squeeze implies. It is not a cutting of the reasonable requirements of economic activity. Rather, it is a matter of mopping up of an excess of liquidity. The Government has been obliged to keep on with its expenditure, but receipts at this time of the year lag behind. It is true to a significant extent in this case that this has been due to the changes in relation to company taxation. But that again was a measure important for the confidence and the capacity of industry to invest. So the aim of this Government is not in any way to deprive any legitimate borrower for a genuine productive purpose of the necessary finance. What these measures will do is to forestall a real credit squeeze, the sort of thing that the Australian business and private community experienced under the previous Government in mid 1974, a squeeze which would otherwise occur in the latter stages of the financial year if this excess money or liquidity is not mopped up now. So I put it to the Australian community: Ignore the posturings of Opposition members on this matter and get on with the business of your normal economic activities.

The other major area of difficulty is in respect of incomes growth. This Government has not flinched from the task of endeavouring to slow the growth of money wages and salaries. I say that the great majority of Australians recognise the correctness of this action. They recognise that in the interests of the unemployed, and in the interests of effectively protecting and in the end advancing the standard of living of all Australians the growth of money wages and hence of costs must be slowed.


Mr DEPUTY SPEAKER (Mr Giles -Order! The honourable member's time has expired.







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