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Economic deterioration

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BRISBANE, 26 MARCH 1975. . ' '

The Australian economy is now experiencing its

worst downturn since the depression of the 1930's.

To this distinguished gathering I wish to deal

with four basic questions. First, what were prime causes

of the deterioration. Second, what is the short-term out­

look. Third, what is the long-term outlook assuming no

change in current policies. Finally, what policies should be

adopted to deal "'with· the present situation' . .

I Economic deterioration'is well known to you all.

There are currently 300,000 people in Australia registered as

unemployed and countless others who cannot get a job but are

not registered as unemployed. . The Labor Party has done

everything, and used every tactic, to draw attention away

from Australia. But the fact remains that the Labor.Government

has presided over nothing less than a social disaster. It

owes not excuses, but an unequivocal apology to the people of

this country. . " .

. Inflation remains and is variously estimated at

between 15 to 20?έ. In 1972 Australia had one of the lowest

inflation rates in the O.E.C.D. - we are now heading right for

the top. .


The profit share is at a record low, stock remains

high, and the work force, particularly in the manufacturing

industry, has been significantly reduced. ■ .

It is inexcusable that the Australian economy has

been placed in this situation. The blame lies directly with

the present Government„and the specific policy errors it has

made. It does not lie overseas, it does not lie with the

Senate or the Opposition, or the previous Government, nor

multi-national corporations, nor financial institutions which

you represent, nor anyone else. It lie’ s with the Government..

The results of Labor's policy errors were predictable

The fact is that they.were predicted.

. The consequences of excessive Government spending,

accelerating inflation, higher interest rates, excessive . . · ■

reliance on monetary policy, a housing slump - were all


The consequences of Labor's failure to do anything

to restrain wages were predicted - that is, inflation leading

to unemployment. . -

We predicted the impact of the Prices Justification

Tribunal, the deterioration in our balance of payments, the

investment downturn.

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All these things - when I said them - produced only

a criticism of me. When in October 1973 I warned that the

cutback in the money supply and high interest rates of the

credi't squeeze just imposed combined with an import boom would

lead to recession I was disbelieved.

A point to be made is that if these policies had

not been pursued - if Labor had adopted our policies (all of

them) much earlier - the Australian economy would not be in

the state it is today.

The argument that overseas influences have been a . .

major cause cannot be supported. Our inflation rate now .

compared with our previous average is greater than any other

O.E.C.D. country. . Unemployment has deteriorated further.

We have not suffered a major impact - yet - of the world

oil crisis. Our exports have not collapsed (excluding beef).

Labor's failure to understand the"causes of these

economic events, to’understand economic inter-relationships

and economic lags has lead directly to the adoption of

incorrect policies, and to the incorrect timing of policy

decisions. .

. Having described the present situation, and its

causes, let me now turn to the short-term outlook. Since .

the credit squeeze ended in October 197^» the Government has

been running a huge budget deficit. This is financed

primarily by issuing short-term Treasury Notes and by printing


money * In the three months ended January the seasonally

adjusted money supply rose by 5%. If this is compounded over

four quarters, it ivories out at an annual irate of 24%. In .

seasonally adjusted terms, this could accelerate between now

and June, depending on how much the Government is able to

spend, how it finances its deficit and trends in the balance

of payments.

I must say to you that I believe this rate of

monetary expansion is excessive. It may lead to some

apparent lift in the economy in the short-term.„ However, in

the long term, it is the recipe for later inflation and .

consequently further unemployment. . . ' . . . . ■

I believe that we are now seeing the signs of a

short-term nature which will be argued to be a recovery.

Some of these early signs are: ,

. The recovery in production in February. .

. The up-turn in seasonally adjusted employment

advertisements shown by the A.N.Z. bank’s series

. . . in early February.

* . The small rise in vacanciesafter seasonal

adjustment during February. This will be an

, important indicator to watch in the months to come.

. Preliminary indications of an increase in retail

; sales.

- ‘ ‘ . · W

. Reports of increased enquiries’ to home builders

and increased home loans. .

' . The down-turn in imports.


. Further evidence of a small up-turn in business


The real questions to be answered, however, concern

the timing of the recovery, the extent of any recovery, and

the possibility of a renewed acceleration in inflation.

I do hot see any early return to unemployment

levels that we took for granted under'Liberal/Country Party

Governments. I can remember only too well, when I was

Treasurer, the pompous complaints of Mr. Whitlam when the

unemployment rate "peaked at 2.1%" and as the inflation rate .

"surged to a massive 6%". I might remind,you that by the . . .

end of 1972 we had reduced unemployment and cut inflation to

4.5%. "

i The uncertainties arising from the prospect of

continuing high inflation and the mistrust of the Whitlam

Government's capacity to manage is delaying a recovery in

business investment.

‘ It is essential that economic recovery is based

on increased investment spending rather than on increased

consumption spending. Without renewed investment we will

certainly limit our capacity to increase productivity and

undertake the growth that will be necessary to sustain gains

in living standards.

Productivity gains have already been hampered by

the serious investment dawn-turn. The continuation of this .

situation will make the control of inflation so much more

difficult because we will lose a period of equipment and

technology progress which Λ/ill take time, to recover.

The short-term outlook, then, is this - some lift

in economic activity and some reduction of unemployment, but

not to. previous levels. ·

Because the Labor Government has so far failed to

implement adequate policies to tackle inflation and unemploy­

ment I see no improvement in the longer term in respect of

either. The Government's failure to Understand the impact :

of excessive Government spending and the excessive rate at

which th^ money supply is now expanding point to a further

take-off in inflation later this year or in 1976.

This Λ/ill, eventually, lead to another unemployment /


It Λ/ill eventually lead to even higher interest

rates. . ·

It Λ/ill, eventually, make a fundamental recovery

in the economy even more difficult to achieve. I

I Λ/ould like to draΛ/ your attention to words Λ/hich

I stated; in August of 1973» in my reply to the first Labor

Budget - they Λ/ere valid then and I use them to convey an

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important warning now.

"The longer inflation runs the more drastic must

be the cure. History shows this . ... after the

economic surgery to stop inflation we can resume

' gro'wth - but that which is lost during the cure

is lost forever." .

The major imperative today, therefore, is to

implement an economic programme which is designed to tackle

both inflation and the unemployment/investment/growth problems.

Inflation must be tackled by responsible budgetary and

monetary policies. This can be made to work more readily

and more effectively by measures dealing directly with the

wage-price spiral. Employmentgrowth and investment will

be restored only if confidence is returned to the private


This will require a fundamental change in the out­

look and policy of Government„ The philosophy of the 197^

Budget Speech - to use the private sector down-turn to transfer

Resources into the public sector - has not been abandoned.

... There-has been no positive action to curtail Labor’s

planned expansion of the public sector and the public deficit

now in prospect is of massive proportions.

Those of you who may have gained some recent .

reassurance from Mr. Whitlam1s latest overtures to the private

sector will be interested in these words.


' "I give you this assurance: Nothing we do either

in our fight against inflation or in our general

economic polotics, will do anything to damage the

underlying strength and prosperity of Australian

industry. We are pledged to your growth and

. "success. " '

Words spoken - by Mr. Whitlam - not recently, but

in this city on 1 October 1973. . .

The only common feature of inflation in Australia

with overseas countries has been that communities have .

placed demands on economies, and on Government, . which have

not been sustainable in real terms. They may appear to be

answered in money terms. ' ·

The industrially advanced countries of the world

have become consumer societies. Australia is no exception

to the developments of ever increasing community expectations

These expectations put demands on Governments which the

community in general accept as being essential and possible.

The urge to satisfy these demands leads to constantly

excalating public spending and the adoption of fiscal and

monetary expansionary measures by Governments. When these

measures advance beyond the:real capacity of the community

to build and to pay then inflationary forces are released.

The time has now come in Australia when no . .

political party can responsibly capitulate to demands on.

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Government merely to gain or retain office. The economic

programme which the Opposition developed under my leadership

rests on the conviction that Government should create an

environment for achievement and advancement and that our

collective progress is dependent on the effort, skill and

success of individuals. Only by their success can a

reasonable expectation be fulfilled without excessive inflation

or damage to our political institutions.

As Leader of the Liberal Party, I developed

policies, particularly economic policies, which gave recogni­

tion to these principles. . . . . . . . . . .

The 60 page budget paper on the economy which I

released ! on 10 February this year is a programme designed

for advancement and achievement in contrast to the present

failure and uncertainty.

Finally, I wish you all here to know that I have

a complete and total committment to the interests of the

Liberal ...Party and that 1 will, without any qualifications

whatsoever, do all within my power to contribute to a

single entity and unity of purpose of the Liberal Party.

The unity of purpose which we must achieve is

the defeat of the Labor Government. The Government has .

shown itself totally unable to manage the economy and is

thereby endangering the standard of living and achievement of

the Australian people. The philosophy upon which the Labor

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' . 1 0 . '

Party is built is unacceptable to me because of its determina­

tion to achieve public oxmership and the crippling of the

private sector. I do not believe that this is in the

interests of the people of Australia.

" The fostering of individual achievement and success

through the encouragement of incentive, enterprise and reward

for work, which I have so heavily emphasised is our only

path to follow. .

1 will do all in my power to encourage those

feelings to be directed vigorously to the Liberal Party’s .

success. ·'·'·â– ·'·’ ....."·;·· ' ’ ' · ■ ■ ' ’ · · · . .