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Thursday, 17 February 1977
Page: 173


Mr HURFORD (ADELAIDE, SOUTH AUSTRALIA) - I ask the Treasurer In view of the recent devaluation and the 9 subsequent revaluations and other changes in the Government's economic policies, have new estimates been made of the levels and rates of major economic variables for the current financial year to replace those published in the Budget? For example, is there still expected to be a growth in employment of 2 per cent over the year as a whole and is the rate of increase in the consumer price index still expected to be of the order of 12 percent?


Mr LYNCH (FLINDERS, VICTORIA) (Treasurer) - I can understand the honourable member being concerned about these matters. For the sake of the listening audience I use this opportunity to restate what the honourable gentleman said publicly recently, that 'the danger in Labor's approach was the possibility of intensified pressure of demand leading to further prolonging of inflation'. No doubt the honourable gentleman -


Mr Hurford - I raise a point of order, Mr Speaker. Is it possible to ask the Treasurer to answer the question rather than make blustering personal attacks? If he is again reading from the letter from which he has read previously, may I ask once again that the full text of the letter be incorporated in Hansard.


Mr SPEAKER -There are 2 parts to the point of order that has been raised. The first part concerns the nature of the answer by the Treasurer. He is entitled to answer in a manner that is relevant to the question. As to the second part, at the conclusion the answer I shall pursue the matter of tabling the letter.


Mr LYNCH - I was not sure whether the honourable gentleman said 'blustering attack' or blistering attack'. We have been waiting all week for that incisive, sharp economic attack from the Opposition. I confess to becoming a little tired of waiting for it. But perhaps it will arise during question time. I invite such an attack because the answers can be provided. The first part of the question asked by the honourable gentleman related to unemployment, for which the Opposition Party stands indicted because it caused that particular problem when in government. Unemployment is too high. We are on the record as stating that and I reaffirm that we yield to none in our concern for the unemployed throughout this country. But I remind the honourable gentleman, who eschews a sense of concern for statistics, that it was the Opposition that pushed unemployment from 1.8 per cent to 5.6 per cent over the period of 3 years in which its members were in government. It has since risen by a mere 0.2 of a per cent. Of course, I indicate no complacency in relation to that, but I shall take up that point in a moment. As the Budget Papers indicated, no improvement -


Mr Hurford - I raise a point of order, Mr Speaker. My question was about the growth in employment during the current financial year. I should be very interested to learn about the current rate of unemployment at another time, but is this answer relevant to my question?


Mr SPEAKER -I think the answer is relevant. I must draw the attention of the House to the fact that when a question is asked the questioner may not be satisfied with the answer, but it is not the purpose of the Standing Orders to prevent this occurring. The purpose of the Standing Orders is for the questioner to put the question and for the Minister to answer it as he sees fit provided it is relevant.


Mr LYNCH -As I was saying before the interruption by the honourable gentleman, the Budget Papers indicated that no improvement in the unemployment situation was expected during calendar year 1976. As we move further into 1977 and the recovery strengthens improvement can be expected. I take the opportunity to say on the general question of employment figures that I believe that a closer look needs to be given to the true picture. I refer to the last special survey that was conducted by the Department of Employment and Industrial Relations. Of the respondents to the survey only 63.8 per cent were unemployed on the Australian Bureau of Statistics definition which, of course, is an internationally agreed definition, 26.8 per cent were employed full time or part time or had lost or found a job in the week of the survey, 9.4 per cent were classified as not in the labour force under the internationally agreed definition and finally 17 per cent of the sample survey rather than the respondents to the survey were found to be not residing at the address stated when registering for unemployment benefits.

As to the reference of the honourable gentleman to the consumer price index, I remind the honourable gentleman of what I said in my speech to the House on this matter on Tuesday of this week. Of course the CPI which comes out at 12 noon next Tuesday will show a higher increase than any since the 5.6 per cent recorded for the December quarter of 1975, but that once and for all statistical effect should not be allowed to obscure the steady and considerable underlying improvement in the rate of inflation. I went on to say that the point could be more easily seen if one looked at the broadly based deflators. I recall a question from the honourable member for Melbourne Ports on broadly based deflators quite some time ago. I welcome the Dorothy Dix question from the shadow Treasurer and take the opportunity to say in the strongest terms that this Government deplores the attacks which he and his colleagues have disgracefully made upon the integrity of the Acting Commonwealth Statistician. I understand that the CPI figure will be released at 12 noon next Tuesday. That is a matter for the judgment of the Acting Commonwealth Statistician; it is not a matter which comes within the competence of this administration. The Statistician exercises that responsibility, as of course he ought, in a normal independent manner.


Mr SPEAKER -Does the honourable member for Adelaide wish to pursue the matter of the letter?


Mr Hurford - Yes please, Mr Speaker.


Mr SPEAKER -I ask the Treasurer whether he was quoting from a document.


Mr Lynch - Yes, I was.


Mr SPEAKER -Is it confidential?


Mr Lynch - No, the document is not. I should however, so that the honourable gentleman is not misled, say that I have a document here which is headed: 'What is Wrong with the Opposition's Economic Policy'. The document runs to 8 pages. I am very happy to incorporate it in Hansard.


Mr SPEAKER -Does the honourable member for Adelaide wish it to be incorporated?


Mr Hurford - Yes, those documents from which he quoted.


Mr Lynch - I seek leave to incorporate the document in Hansard.


Mr SPEAKER -Leave has been granted.

The document read as follows-

TREASURER

Parliament Home Canberra 2600 15 February 1977

WHATS WRONG WITH THE OPPOSITION'S ECONOMIC POLICY

SUMMARY OF POLICY

The danger in Labor's approach is the possibility of intensified pressure of demand leading to further prolonging of inflation.'

MrHurford 15 February 1977

1.   An increase in the money supply to the rate of inflation plus growth.

2.   Selective stimulatory government spending:

(   a ) Grants to the States for works programs.

(   b) Grants to local authorities.

(c)   Manpower programs such as youth employment subsidies.

3.   Indirect tax cuts and/or grants to the states to reduce public sector charges.

Background

On 7 February the Shadow Treasurer issued a two-page press statement that purports to be the Opposition's economic policy. The statement contains no economic analysis and provides no details of the way in which the policy would be implemented or, indeed, of its objectives for growth, inflation and unemployment.

It is useful to recall that the Liberal and National Country Parties' economic policy in Opposition, released on 10 February 1975, covered some 57 pages of detailed exposition.

A Faulty Analysis

The Opposition's policy is designed primarily to stimulate a higher level of economic activity and begins from the following premise:

The present low level of economic activity and high level of unemployment are more that a cyclical recession.'

Apart from the fact that all recissions are cyclical, by definition, economic activity is, of course, at a low level relative to what was the norm during the post-war period only because of the damage done by the Labor Government. What we promised at election time was a three year program. It recognised that the enormity of the economic problem required policies to curb the deteriorating position under our predecessors, and to lay the groundwork for sustained recovery. Inflation was clearly the number one objective; its prominence is supported by virtually everyone but the Labor Party.

Facts the Opposition Ignores

If we look at the first year's economic performance, evidence is increasingly showing the correctness of our approach; the fact is that economic activity has recently strengthened: 1 976 has by almost all accounts been a much stronger year than 1975.

We expect the budgeted growth rate for the economy to be exceeded.

Real gross non-farm product has increased in each of the first three quarters of 1976. It is now 7.6 per cent above the December 1975 level.

Industrial production has been filming after a growth pause around mid-year; year on year gains are spreading.

Registration of new motor vehicles, seasonally adjusted, rose to 63,200 in December, a record monthly level; 1976 registrations were higher than 1975- the year when sales tax was substantially reduced to boost the industry.

Retail sales, seasonally adjusted, grew by 2.6 per cent in November and 1.2 per cent in December, reflecting increasing buoyancy as compared with earlier months in the year. Again, 1976 appears to be a year of real growth.

Real private investment in dwellings in the six months to September was 26 per cent higher than in the same period a year earlier.

Real private investment in plant and equipment, (seasonally adjusted) responding to the Government's investment allowance, increased by 4.3 per cent in the six months to September following a 3.6 per cent decline in the six months to March.

Company profits increased by 26.2 per cent during the six months to September last, as compared with almost no change in the six months to March 1 976.

Facts the Opposition Likes to Forget

As to the question of unemployment, the following should be taken into account:

The Labor Government, not the present Government, stands indicted for the destruction of full employment in Australia.

The average rate of unemployment in Australia between 1963 and 1972 was 1.3 per cent of the workforce. In December 1972, when the Whitlam Government came to office, the level of unemployment was 1 . 8 per cent

In January 1976, reflecting three years of the Whitlam policies, the level of unemployment had reached 5.6 per cent- it is now 5.8 per cent. In other words, the Labor Party which pushed unemployment from 1.8 per cent to 5.6 per cent over a period of three years is now condemning the present Government because the level has moved upward by one fraction of a per cent over the past twelve months.

This year's Budget papers made it clear that a decline in the level of unemployment could only be expected towards the end of the financial year, with further improvement in labour market conditions later in 1977 in response to strengthening economic activity. This trend should be further aided by the positive effects of devaluation.

Unemployment in January this year was in no way inconsistent with what was put before the Parliament last August.

Present expectations are thus for only a gradual reduction in the rate of unemployment with little if any of this appearing during calendar 1 976. ' (P. 53 Hansard 17August 1976)

The Labor Party, both in and outside the Parliament, has attempted to create apprehension in the community about the unemployment situation. Both the Leader of the Opposition and his Deputy last year predicted that unemployment would reach half a million in January. The President of the ACTU made the same prediction. Labor's new statement of economic policy is a further attempt to exploit the 'politics' of unemployment.

What the foregoing demonstrates is that the whole basis on which the Opposition has framed its policy is wrong. The level of unemployment is not a lead indicator and cannot, therefore, be used to assess activity at the present stage of the economic cycle. Economic activity is trending upwards and the economy cannot be said to be moving deeper into recession.

Against this general background a number of fundamental criticisms can be levelled at the Opposition's policy:

Wages

The policy makes no reference at all to wages and it must therefore be assumed that full wage indexation for the majority of the workforce, as set down in the so-called Whitlam five point plan of 14 October last, remains as ALP policy in this area. This factor alone during 1977 would inevitably lead to increased inflation, especially insofar as it would greatly exaggerate the price effects of the devaluation. The supine posture assumed by the Opposition to the critical question of wages stands in sharp contrast to its position when in Government.

For example, the previous Treasurer explicitly recognised the real wage problem in his 197S Budget Speech when he said:

It does employees generally no good to get higher and higher money incomes if the results are just higher prices, a severe squeeze on profits, a slump in new investment and a contraction of job opportunities.

Consider, also, Mr Whitlam 's words to the 197S Young Labor Conference:

Inflation today is undoubtedly and almost solely due to wage claims and increases. '

Manpower Policy

The Labor plan argues for manpower programs such as youth employment subsidies and apprenticeship, vocational and technical education schemes'.

This, of course, completely ignores the very significant employment innovations of the present Government:

A special youth employment training program;

Relocation Assistance Scheme;

Community Youth Support Scheme;

Improvements to NEAT;

Review of CES Services;

Commonwealth Rebate for Apprenticeship Full-Time Training;

Inquiry into education and the labour force.

Monetary Policy

Labor's new policy abandons monetary control as an instrument in the fight against inflation. The Labor Party now proposes that the rate of monetary growth should be increased to the rate of inflation plus the rate of economic growth- or, according to Mr Hurford, by around 5 per cent.

This is put forward because, according to the Opposition, the present rate of money supply growth 'is causing a credit squeeze '. The first point to be noted is that any suggestions of a credit squeeze are baseless in fact. In the wake of devaluation, certain adjustments to the monetary instruments have been necessary to keep the thrust of monetary policy firmly on the anti-inflation track:

Yields on Government paper have been increased in order to attract more funds from the non-bank private sector;

Measures have been taken to restrict shorter term, low priority overseas borrowings from adding to monetary easiness;

Further moves have been made to contain the Budget deficit;

The SRD ratio has been increased by 3 percentage points, with another call of 1 per cent effective on 2 1 February so as to prevent an inflationary upsurge in bank lending.

But calls to SRDs have not been excessive- trading bank free liquidity averaged 6 per cent of deposits at the end of January, an increase or 4 percentage points over the level at the end of November. The very substantial non-official holdings of Treasury notes- over $2.5 billion-will serve to smooth out the liquidity rundown during the final quarter of the financial year.

Furthermore, the minimum LGS ratio of the trading banks will revert from the present 23 per cent to 18 per cent at the end of March, or when the liquidity down-swing gets underway.

Against this background there is no basis for claiming that there is a credit squeeze and that monetary policy should be eased.

Indeed, what the Opposition now advocates is that inflation should be underwritten by monetary policy. It is worth recalling that Mr Hurford claimed on 22 January last year that the Government had put in hand a 'vicious credit squeeze', in spite of the statement by Mr Hayden at the time that the Government's economic package was 'an appropriate measure'. It should also be recalled that, in a speech on 3 August last, Mr Hurford endorsed the Government's monetary policies in the following terms:

The rate of inflation would be reduced by a combination of policies including . . . allowing the money supply to grow at a rate sufficient to accommodate a recovery of growth and a declining rate of price increases. '

Last August Mr Hurford presented a mirror image of the Government's monetary policy- now he claims for political reasons that measures taken, in line with that policy, will lead to a credit squeeze. It is not irrelevant, when considering the Labor Party s record in this area, that the 1974 credit squeeze was far more severe than any credit restrictions in the post-war era and was instrumental in pushing the economy to the depths of its recession.

The Private Sector

Labor's new policy now finds it appropriate to 'scrap or reduce some of the more extravagant, and only marginally useful, investment and depreciation allowances .

In other words, Labor would abolish the 40 per cent investment allowance that has been one of the primary factors leading to a revival in business investment spending. It would also reduce the extent of depreciation allowable to businesses and, presumably, abandon the move towards company tax indexation of which adjustments to depreciation are a fundamental part.

This aspect of Labor's new policy alone would seriously jeopardise the recovery. Again, it is not irrelevant to note Labor's previous actions and it will be recalled that the Labor Government abolished the 20 per cent investment allowance that was in force under the preceding Government. Business has condemned this aspect of Labor's policy in trenchant terms. Some of the business groups having done so include the Associated Chamber of Manufactures, Victorian Chamber of Manufactures and the Australian Farmers' Federation.

Government Spending

Labor's plan calls for 'a selective, stimulatory, Government spending program '. Consistent with the rest of the policy statement no figure for spending is included. It has to be assumed that the figure given by Mr Whitlam in bringing forward his five point plan last October-$500 million- is a minimum.

Labor's spending proposals are simply the same old discredited big spending, big deficit approach that has been repudiated not only by the Australian electorate, but by every international meeting of finance ministers over the past twelve months. The new plan is, in this regard, little more than a hangover from the halcyon days of Dr Cairns who, it will be recalled, lifted Federal spending by some 46 per cent in one year. Far from bringing about any stimulus, the Cairns policies simply added to the economy's difficulties at the time.

Indirect Tax Cuts

Labor's plan suggests that indirect tax cuts should be used to increase real incomes and to boost consumer spending. There is no real basis for Labor's assertion that reductions in indirect taxation could effectively reduce the rate of inflation, thereby leading to an increase in consumption.

In fact, when Labor reduced sales tax on motor vehicles early in 1975, the stimulus was short-lived- sales slumped badly in the second half of the year.

As a rule of thumb about $400 million of indirect tax revenue has to be foregone to reduce the Consumer Price Index by a mere 1 per cent. If inflation really could be dealt with by cutting indirect taxes, it is astonishing that such pleasantly soft options have not been universally adopted. Quite apart from the hard economic realities, precedence clearly needs to be given to personal income tax reform because of Australia's already heavy reliance on direct, rather than indirect, taxes.

What Labor Doesn't Mention

Labor's new plan makes no mention of three important proposals that were previously put forward as essential in the Whitlam plan:

A reduction in the rate of company tax;

More generous income tax rebates;

A reduced health levy.

The plan gives no commitment to either personal tax indexation or company tax indexation.

The plan makes no mention whatever of external policy. It has to be remembered that the Labor Party has been critical of the Goverment 's external policy. In the light of such criticism, it is strange indeed that no alternative has been brought forward.

Finally, the plan says nothing of substance about financing the increased deficit- although some mention is made of aggressive' selling of bonds (whatever that means)- it is abundantly clear that the Hurford plan is simply to print more money.

Conclusion

The absolute folly of Labor's proposal is, perhaps, best summed up in the words of the British Prime Minister, Mr James Callaghan, in his address to the Labor Party Conference on September 1 8 last:

We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists and that insofar as it ever did exist, it worked by injecting inflation into the economy.'







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