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Tuesday, 22 February 1977

Mr SPEAKER -I have received a letter from the honourable member for Adelaide (Mr Hurford) proposing that a definite matter of public importance be submitted to the House for discussion, namely:

The actions of the Fraser Government which have increased the cost of living.

I call upon those members who approve of the proposed discussion to rise in their places.

More than the number of members required by the Standing Orders having risen in their placesMrHURFORD (Adelaide) (3.23)-The 6 per cent December quarter increase in the consumer price index is a disastrous result and is an appalling indictment of the economic management of our country by the Fraser Government. It is an appalling sign of the economic mismanagement suffered by the Australian people over the past year under this Liberal-National Country Party Government. In short, the position is this: We have a government which has, by its own admission, focused its attention on inflation. It has

To add insult to injury it is not outside forces, for the most part, which have caused this increase. It is the Government's own actions and decisions which have caused so much of the latest increase in the cost of living in Australia. After 14 months of Liberal-National Country Party rule inflation is higher than it was a year ago. Unemployment is higher than it was a year ago. As I have said already, it is now at a record high level. Above all else, economic activity in our country is stagnant. In anyone's terms, Australia is demonstrably in worse shape now than when this Government came to power. The reason for this is quite simple. This Government has failed. I repeat: It has failed miserably in obtaining its own objectives.

The much vaunted claim of skill as economic managers of these people who were bom to rule has proved to be as empty as their election promises on so many issues. This Government must take full responsibility for inflation and unemployment being worse now than when it came to office. To such a large extent they have been conscious decisions which have worsened the situation. Unlike what happened during Labor's 3 years in office, there has been no dramatic international slump in the last 12 months, no outside motivated massive rises in import prices to add to inflationary pressures. Most, if not all, of the deterioration which has occurred in the economy has been undeniably the responsibility of the Government.

In 1976 the Government took a number of decisions which ensured that inflation is now worse than it was 12 months ago and that the outlook for 1977 is much worse than it should have been. Two of the decisions were, of course, those relating to health insurance arrangements and devaluation. Changes to the health insurance arrangements were made predominantly on ideological rather than on economic grounds. The Prime Minister (Mr Malcolm Fraser), undeterred by an election promise to maintain Medibank, let his obsession with dismantling Labor's programs run away with him. The consequent changes to health insurance costs have added 3.2 per cent to the consumer price index and have meant that for the last 6 months of 1976 prices have risen at an annual rate of 16.4 per cent, compared with a rise of 12.8 per 268 REPRESENTATIVES 22 February 1977 Cost of Living in Australia cent for the last 6 months of the Labor Government's term of office. I repeat that the rise in the December quarter CPI is the highest since the Korean war. A government which forever features the virtues of breaking inflationary expectations has knowingly given them their biggest boost in recent history.

As if the changes to Medibank were not bad enough in giving these inflationary expectations a boost, the Government in November excelled itself by its decision to devalue. Devaluation was not forced on the Government. True, its inept decisions on company tax payments facilitated speculation against the dollar, but it was only the Prime Minister's quaint idea about income redistribution and his illogical fear of further borrowing which prompted the final decision about devaluation, I believe in the face of advice given by the Treasury and probably by the Treasurer (Mr Lynch). Devaluation will mean a substantial spurt to inflation. The adverse effect is not even included in the disastrous 6 per cent figure which has been announced today, as we are told by the Statistician in the commentary accompanying the announcement. Devaluation will mean a reversal in the underlying downward trend.

In many of his statements the Treasurer has spoken of a slowing down in this underlying rate of inflation in recent times. I know that that will be the main point that the Treasurer tries to make today in his reply to me. I am glad to see him in the chamber being prepared at last to debate matters such as this, having on so many occasions previously got away with reading dreary Treasury statements instead of debating these matters properly as provided for in the forms of this House. I am glad to see the Treasurer here. I hope that he will now follow it up by taking up my challenge to debate these matters with him in the media. He has had very many opportunities to do so, but he has managed to sidestep those opportunities. I issue to him the challenge to debate these matters with me not only in this House today but also in the media, such as on the television program This Day Tonight or any of the other programs which have invited us both to attend.

As I was saying, the Treasurer has said in his statements that there was this underlying trend for a lower inflation rate. We welcome that trend, but I have to point out to him that it is not good enough for him to drag out the Medibank figures and pretend that all is well. The trend towards lower inflation was evident when his Government took office. One has only to look at the results for the March quarter to realise that. Is anybody going to pretend that this Government's taking office in December had any effect on the March quarter results. Of course, it did not. The trend towards lower inflation was present when the Government took office. There has been a marked, abrupt alteration to that trend because of the policies of the Government.

I have said that that trend towards lower inflation figures occurred under Labor as well as under the present Government. International forces have played a significant part in that trend, of course. With import prices rising more slowly than the price of domestically produced goods, these import prices acted as a restraining influence on price indices. Now, because of devaluation, that has come to an end; that has been sabotaged. I give just one example: In the price index of materials used in manufacturing industry, prices of imported goods have risen at a substantially slower rate than the price of domestically produced goods in all but one 12-month period since December 1975. Devaluation will alter this. Import prices will no longer mean a restraining influence because of the Government's disastrous decision to devalue. The underlying rate of inflation will be pushed upwards. In other words, not only have we this 6 per cent position to withstand but also we have to withstand these trends in relation to increased import prices being brought about by devaluation. I ask the Treasurer to apply his mind to that aspect also when he is replying to me.

It is ludicrous of the Treasurer to speak glibly of 'once for all ' statistical effects of the changes in health insurance arrangements, or of quarantining price rises from devaluation. I will bet that he tries to do that again in this debate today. Knowing the source of a change in the price level does nothing to overcome its existence. The only way in which these decisions will not mean an increase in the inflation rate in the calendar year 1977 over that of 1976 will be if wage and salary earners are forced to accept a substantial drop in living standards. That appears to be the Government 's aim. Already millions have suffered a reduction in their standard of living, if only because of the time lag between the 6 per cent increase that we have all to withstand for the previous quarter and a recompense being received for that 6 per cent by means of an increase in wages. The time lag itself has caused a reduction in the standard of living, leaving aside the policies which will now be perpetrated on the wage and salary earners of this country in national wage cases.

In addition, I must repeat that even the Treasurer surely must admit that inflation expectations will be increased by this disastrous result. His Government has argued at great length for the necessity of breaking such expectations. Yet it surely must now be seen as consciously giving the expectations their biggest boost in living memory- by the Medibank decision, by the devaluation decision, by the decision not to reduce indirect taxes which I have advocated as being a proper decision to take at this time. The Liberal-National Country parties argued that activity would only increase as inflation was seen to be going down. They must now accept that there will be no increase m activity in the foreseeable future because of the rate of inflation induced by them and their policies.

I have mentioned action taken by the Government which has worsened the economic problems which have occurred particularly through inflation. To Medibank and devaluation we must add the forcing of the States to increase their charges. The Statistician has included in his statement a reference to that matter. These conservatives who govern us and who want to dismantle the public sector are doing so only at the national level. The State governments realise that people will not put up with too much in the way of reduced services. So the States have been forced to the greatest extent possible to fill the gaps which have been created by this national Government, and that means picking up the tabs and picking up the payments. That means that State government charges have increased enormously. That is another factor in the cost of living increase. It is another way in which this Government, by its actions, has caused an increase in the rate of inflation. I refer the House to the Age of 30 December. Maybe I will have time to return to it later. The article to which I wish to draw attention is headed 'How Costs went up in '76 ', and it reads:

Victorians paid more this year for everything from houses to haircuts.

Up went rates, gas, electricity, food, rail fares-even the cost of an ambulance to hospital. Car prices rocketed.

So it goes on. So many of those price increases listed m that article are, of course, State government charges. The increases in State government charges have been forced on those State governments because of the activities, the actions and the policies of the national Government. What of the Government's other policies-policies which, unlike the ones mentioned previously, are at least claimed by this Government to be aimed at controlling inflation? I refer to restrictive monetary policies and cuts in government spending, which have been the cornerstone of the Government's so-called attack on inflation- its unsuccessful attack on inflation.

I shall deal first of all with cuts in government spending. I suppose it is reasonable to assume that any government that incorrectly diagnoses the causes of a problem will get the cures wrong. This Government has so convinced itself incorrectly about the effects of public spending that it has painted itself into a corner. It has begun to believe that cuts in government spending can be equated with cuts in inflation rates. Of course, when demand pressures are causing inflationand government demand is a significant part of that total demand- cuts in government spending, like cuts in anybody else's spending, will lower aggregate demand and hence lower inflationary pressures. But does anybody pretend that in Australia today we have problems with excess demand? The only sure thing that will follow cuts in government spending in an economic recession such as the one we have now is a rise in unemployment. This brings us to the simple crux of the Government's policy: Record high levels of unemployment are being used as the Government's main anti-inflationary weapon.

A restrictive monetary policy is very much like cuts in expenditure. Cutting the money supply does not automatically mean cutting inflation. Restrictions in the growth of the money supply below the long term equilibrium level are just as likely to reduce output and add to unemployment as they are to check rates of price increases. In this area too, any success the Government has in checking inflation will be at the cost of higher unemployment. The basic difference between the Government and the Opposition on matters of short term economic management can be seen in our respective attitudes towards unemployment. The Opposition regards the present official high level of unemployment, understated as it is in the statistics, as totally intolerable. We believe that something must be done about it and that action can be taken to alleviate unemployment and at the same time lower the rate of inflation. But even if we look at the Government's focusing on inflation, the figures today show that its policies are disastrous and that the success of those policies is non-existent.

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

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