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Tuesday, 7 December 1976


Mr HURFORD (Adelaide) -The Prime Minister (Mr Malcolm Fraser) and the Treasurer (Mr Lynch) have destroyed any credibility they may have had as economic managers. For an inadequate, naive and simplistic policy obsessively concerned with just one economic aim, a policy which led to massive and disastrous devaluation, they have now substituted virtually no policy at all; or are we to revalue back to 17 1/2 per cent in dribs and drabs at 2 per cent a time? Is this what will happen in the name of a viable policy? I might add that the Prime Minister and the Treasurer also treat this Parliament with utter disdain. Today is no exception. I mentioned in a speech that I made last week on the economy that they do not come into this Parliament and defend their measures. Neither of them are here to defend the grave claims made against them in this debate on a matter of public importance. Instead we have the most junior member of the Ministry and a back bencher, neither of whom were involved in any way in the decision making. They may be able to articulate better than the Prime Minister and the Treasurer about what has occurred but they are not responsible for it.

I take this opportunity to state again that for 10 months now, as Shadow Treasurer, I have been seeking to debate economic policy with the Treasurer in the media- on television and radio- but on no occasion has he fronted. Instead, we get people like the Minister Assisting the Treasurer (Mr Eric Robinson) or today, the Minister for Productivity (Mr Macphee). Let me outline some of the inconsistencies, some of the reasons why this Government now has no credibility and some of the examples of how it has left chaos and uncertainty in the country in failing to specify clear and consistent economic policies. I quote first from the Budget Speech of the Treasurer which reads:

We have made our first priority the absolute necessity to combat inflation.

This was the constant refrain of all Government economic spokesmen until 10 days ago.


Mr Shipton - That is right.


Mr HURFORD -How can any honourable member say that it is right now when the Government has completely thrown out that policy. The Prime Minister said on 15 November: - 'We intend to be unrelenting in our anti-inflation policy'. He also said on that day: 'Getting back to a fully satisfactory basis of economic policy won't be possible until inflation is beaten'. Mr Lynch said in his Budget Speech that reducing the rate of inflation was the central aim of the Government. Let me quote him further:

Not merely because of the direct hardships that inflation obviously brings, because unless we can break inflation we shall not succeed in restoring full employment.

The obsessive pursuit of this single aim was used by the Government as justification for imposing enormous costs on the community. A universal and simple health insurance scheme was destroyed. Spending on housing and on decentralising urban services was slashed. A deliberate policy of retarding economic recovery was pursued. By reducing real government outlays- in other words government spending in real terms has been reduced, a policy unique to Australia amongst member countries of the Organisation for Economic Co-operation and Developmentunemployment was increased and maintained at historically high levels, alienating and demeaning scores of thousands of youths entering the workforce for the first time and humiliating tens of thousands of established wage earners. Investment was discouraged and structural distortions introduced to the economy which will take years to correct. All this was done in the name of reducing the rate of inflation. Even before the devaluation the anti-inflation policy was not consistently pursued.

The Medibank levy will add in the order of 2 per cent to the annual rate of growth of prices. The effectiveness of the Prices Justification Tribunal is being severely curtailed by changes to its legislation. Indirect tax cuts which could have reduced another couple of per cent from the rate of growth of prices were not introduced. On 28 November, after constant categoric and even contemptuous denials, the Government devalued by the largest amount in living memory, or should we say that the Prime Minister devalued. Not a single person has denied that this devaluation will contribute substantially to inflation. The inane comments of the honourable member for Higgins (Mr Shipton) and the honourable member for Barton (Mr Bradfield), who are seeking to interject, will not change that one iota. Devaluation will add markedly to inflation and there is no responsible commentator who would gainsay that. Published estimates of the addition to the rate of growth of prices vary from 2 per cent or 3 per cent a year to 10 per cent a year. A conservative estimate cannot realistically be less than 3 per cent or 4 per cent a year.


Mr Bradfield -That is quite right.


Mr HURFORD - I am glad that the honourable member for Barton says that this is quite right. Of course this will add to inflation. Honourable members should compare this with the extraordinary pressure from the Government for the introduction of plateau wage indexation, which at the most will contribute only 0.8 per cent to a lowering in rate of growth of prices.

For short term sectional reasons the Prime Minister and the Treasurer by devaluation have made a decision which more completely undermines their previous aims than could any other possible policy. They have fuelled inflationary expectations- the principal driving force behind price growth- and by refusing to examine the implications of their decision or to set alternative policies for controlling inflation they have set no limits to the growth of inflationary expectations. The Government says that it will control inflationary effects of devaluation by preventing price increases flowing on to wage earners through indexation. This claim is not credible. The Liberal and National Country Parties rejected powers over wages and incomes by opposing the referendum 2 years ago. There would be massive community opposition to the abolition of the Conciliation and Arbitration Commission. Yet there are still hints that this is to be done. Despite the utterly reasonable and understandable policies of the trade union movement the Government continues to set the stage for vicious confrontation. The Government does not have the will or the goodwill to come to reasonable terms with the wage and salary earners of our country. I understand that further announcements coming from the party meetings of today will do nothing more than exacerbate the relationships with the trade union movement. Some selective tariff cuts could dampen the inflationary effects of devaluation. But the Government is vacillating. The devaluation has resulted in about an 80 per cent increase in the average rate of protection. Yet immediately after the announcement the Prime Minister declared that there would be no reductions in the tariffs to offset the inflationary effects.

More recently the Treasurer and other Ministers have said that the possibility of tariff cuts is under consideration. The principal point is that this issue was not thought through when devaluation was being discussed by Cabinet. The devaluation decision was not part of an integrated package of economic policies. The massive devaluation was a reversal of policies without the effects on the other arms of economic policy being thoroughly explored as they should have been by good economic managers of this country. The same is true of monetary policy. The Treasurer said that devaluation was forced on the Government by a host of other enemies of the State yet, he says, the benefits of devaluation will be enormous. He quotes the possibility of an inflow of investment funds of up to $7 billion. If even a small portion of that amount of capital flowed into Australia, how could the Government cope with the increase in the money supply without stringent restrictions on the availability of credit and a sharp increase in interest rates? We have already seen some of these increases in interest rates. Does anybody believe that we have seen the end to increases in interest rates if anything like the $7 billion of funds comes into this country? Of course they do not.

What about the multiplier effect of this massive flow into the banking system? In a question I asked today I showed that the multiplier effect could be five-fold. Of course something has to be done with regard to variable deposit ratios, statutory reserve deposits, or a combination of the two. What do we have? We have no policy at all. We have a vacuum. All we have is dribs and drabs of upvaluation of currency- this time 2 per cent. The Government's attitude looks more like a denial of the logic of what is happening than a realistic appraisal of the consequences of devaluation and of ways of coping with those consequences. It is rhetoric rather than rigorous analysis.

In the Budget the Government described a rough monetary target for a growth of 10 per cent to 12 per cent in the volume of money over the course of 1976-77. Although such targets can never be more than tentative, the Treasurer has continued to state that this remains his target for the money supply. This target is now clearly impossible, given the acceleration and the rate of inflation which inevitably follows devaluation. Even his chosen advisers like Professor Hogan and Professor Snape say it is impossible, if I read correctly the article by Tony Thomas in the Age of today. Yet no alternative indication of the expected rate of growth of M3 has been forthcoming, and this has left all branches of the capital market in a state of severe uncertainty about the constraints that will be placed on the rate of growth of money supply and therefore on the monetary conditions in which they will be working during the rest of the financial year.

Money market operators are bitter. They had trusted the Government in its statements of its strong intention to reduce inflation and had designed their policies accordingly. Now they have been betrayed. With their resentment goes the hope of proper management of Government loans and of proper and adequate funding of the money supply in this country. All Government theories about recovery have been abandoned. The year began with the assertion that investment was the key to economic recovery, but when it became clear that businessmen were rational profit maximisers who would respond to the level of effective demand the Government switched to looking for a consumer led recovery. In the absence of any sign of improvement in retail sales- in the most recent months there is an absolute decline in retail sales- the Government appears to have switched to looking for recovery led by foreign investment and exports. This is an inadequate approach also. Enormous concessions to foreign investors lead to continuing growth in the proportion of the mining industry, in particular, which is owned outside Australia. Unnecessarily generous concessions are being offered to mining companies. On the other hand, the Government is turning to the hope of an export led recovery at a time when economic growth in the rest of the world is faltering. In fact, the rate of growth overseas is slowing down sharply and is causing grave concern in the financial and industrial centres of the world. On Friday, the Prime Minister said that devaluation would permit manufacturers to increase production so enabling them to contain costs. He said: 'They have a great responsibility to do so'.

This is utterly naive. It is the Government's responsibility to create the conditions which make it possible for manufacturers to contain costs.

To top it all off, we had today's announcement of a 2 per cent revaluation. If ever there was a confirmation of the blunder of the devaluation announced a week last Sunday, this is it. Let no one be misled into believing that this is a reasonable result of the managed float. It is nothing of the sort. Such a 2 per cent change so soon is extraordinary. It will create more uncertainty in financial circles in Australia. It has brought enormous windfall profits to speculators. It is no substitute for other necessary monetary and fiscal measures, as I have already indicated. The only ray of hope on the horizon is that there appears to be now a de facto recognition by the Government of what the Opposition has been saying all along- that is, that the Government must attack inflation and unemployment together rather than simply concentrate on inflation. Both aims are important and both can be tackled together. However, by its devaluation decision, the Government has made such an attack even more difficult because inflation has been exacerbated and the effects on employment are likely to be small. There will not be any great increase in employment in Australia.

Australia desperately needs rigorous and enlightened economic management, free from doctrinaire obsessions, with reductions in the public sector outlays and attacks on trade unions. The intention of this debate is to draw attention to this lack of leadership. For the sake of Australia, I hope that the Government, with its advisers, can quickly work out a comprehensive and detailed set of economic policies so that all sections of the Australian community can plan effectively. Indeed, planning for such a recovery is desperately needed. I do not believe that this can now happen under this Prime Minister and this Treasurer. The disarray on the Government back benches in the last week leads me to the conclusion that Government members are demoralised and bewildered, and understandably so. There is only one thing that Government supporters can do for Australia. Presumably, for their own skins, they will not want an election so they must put a stop to the ad hockery and to the inconsistency. They must speak out for the hundreds of thousands of unemployed Australians. They must act for the millions whose living standards have been cut in the past year. They must get rid of these men- the Prime Minister and the Treasurer- who have led us into this mess.

Mr DEPUTY SPEAKER (Mr Lucock)Order!The honourable member's dme has expired.







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