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The cost of labor's proposed price control

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Leader of the Opposition I ( i o




The Opposition is totally opposed to Labor's bureaucratic price controls. At best they will have little real effect. In this case they will be a needless - and costly - addition to the regulatory burden on

industry. At worst - and I fear the worst could easily happen - they could pla.Ce our tentative recovery at risk.

The most urgent need in Australia today is to return the economy to sustained growth.

This is the only solution to the tragic unemployment problem which is placing our social fabric under such terrible pressure.

This is the only way to restore the growth in incomes and opportunities so vital if Australia is to remain the "Lucky Country".

A strong private sector is essential to these objectives.

A private sector which has sufficient confidence in the future to start investing in the future.

A private sector which is sufficiently profitable to be able to create permanent jobs.

For let there be no mistake about it. If firms do not expect to make profits, they will not wish to employ more people. In a very real sense, a return to reasonable levels of business profitability is vital to the interests of the unemployed.




As the Government's best economists recently expressed it:

"An improvement in unemployment will take some * time to emerge - and whether, given time, it

does emerge will depend upon the re­ establishment of an adequate level of profitability" (Budget Paper No. 1, P . 54).

But the Government itself sees things differently. For what other consequence can effective price controls have than:

- to reduce profitability

- to reduce investment

- to reduce employment?

The Government says price control will strengthen its wages deal with the unions. It believes its power to impose penalties on firms will satisfy intransigent unions for whom there are no penalties. But already, only weeks after it was introduced, wage indexation is under pressure. Already it is clear that indexation will provide the floor -

not the ceiling - to wages growth.

What then, will be the real effects of price control?

First, crucial business decisions may now require bureaucratic approval - approval by lawyers, public servants and academics, who know nothing of business realities. The proposed Prices Surveillance Act appears to cover any corporation - including banks - involved in interstate trade. All sections of the economy could be affected. The only major exception appears to be State Government authorities. Authorities which often have statutory monopolies; authorities often free of the competition faced by the private sector;

authorities which are passing massive price increases on to industry.

Second, firms will have to wait and see whether they will be allowed a commercial return on investment. The proposed new Act apparently endorses sufficient profitability to permit an "adequate" level of investment. But it makes

no attempt to define what is "adequate". Will we see a return of November 1974, when Prime Minister Whitlam was forced to direct the P.J.T. to relax its decisions, which were:

crippling profitability

eroding incentives

and stifling investment?

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The last thing we need now is instability and uncertainty. But that is just what this Government is giving us. For what firm would invest now, before it knows whether the proposed Prices Surveillance Authority will be

- an irritating, but useless paper tiger

- or a voracious leech, sucking out business profitability and incentive.

Third, the proposed Prices Surveillance Authority could discourage the Investment in new technology so vital

- to the updating of our traditional industries

- and to the improvement of our international competitiveness.

Firms make such investments only if they expect them to yield higher profits. But if the P.J.T. is any guide, the price controllers will use productivity gains as an excuse for forcing firms to absorb cost increases. This will

- discourage investment in new technology

- reduce international competitiveness

- and create a new set of lame duck industries.

And the awful irony is that Labor will then point to these failing industries as demonstrating both the

- failure of our private enterprise system

- and the need for still more Government intervention. -

Price control is a major, step down the road to socialisation of the economy.

Fourth, price control will be extremely time consuming for the industry. Senior management will be bogged down in submissions, notifications, negotiations and inquiries. No longer will such managers spend their time

- seeking our new markets

- developing new products and processes

- working out how to create the new opportunities needed for the employment of more labour.

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Instead, they will have to become experts in the art of manipulating bureaucrats. A skill which may be vital to business survival when Labor is in power. But a skill which will do nothing to solve our fundamental economic problems.

Fifth, price controls will exacerbate divisions in our society, and replace consensus with suspicion. Employees will quickly see how easy it is to side-step wage controls

- anomalies increases can be granted

- jobs can be re-classified

- improvements in fringe benefits or working conditions can be made.

Unless employers also try to side-step price controls

- perhaps by varying product quality

- or by withdrawing minor services previously thrown in for free,

they will face a debilitating profit squeeze.

Controls will inevitably beget attempts to avoid the controls. This can only draw the Government more heavily into what should be non-Government decisions. It can only foster attitudes of suspicion and hostility which are the complete antithesis of consensus. ·

The Government will blame the unions and the employers. But it is the Government's obsession with regulating the economy which is the source of the problem.

Finally, price controls will probably make inflation worse, not better. The imposition of price and wage controls is a sure sign that the Government wants to inflate the economy. For they permit the Government to do this while

giving the impression that they are doing something to control inflation. This strategy can work for a short time. But the lid can be kept on a boiling pot for a limited time only. Eventually, it will explode

- and the damage can be considerable.


Labor is forever saying that is policies will not hurt the private sector. But its obsession with price control shows there is a gaping chasm between its rhetoric and reality.

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It just does not understand that sustained growth will only occur if our private sector '

- is not prevented by Government from earning a commercial return on its investments

- is not squeezed between control of prices and indexation of wages

- is not hampered by bureaucratic meddling in its most crucial decisions.

The Opposition recognises that what business needs is to be left to get on with its job. Business doesn’t want controls. It wants to be left to confront the competition which will control its prices more effectively than any meddling bureaucrats.

And it wants a stable, consistent and sensible set of Government policies which provide a sound underpinning to private initiative and enterprise.

That is what a Coalition Government will offer. That is what will get business investing and creating jobs again. That is what will provide a prosperous and secure future for all Australians.

22 NOVEMBER, 1983