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Economic situation



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SOUTH AUSTRALIAN CHAMBER OF MANUFACTURES AND COMMERCE /' ^

LUNCHEON

, HOTEL AUSTRALIA, ADELAIDE

Friday, 28th ' February, 197 5

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Address by the Leader of the Australian Country Party:

RT. HON. J. D, ANTHONY

VTnen I was asked a few weeks ago to nominate a title for this address, I gave the one that appears on the programme - "Getting Australia Back on the Rails". Since then I ’ve thought of a better one, and it was suggested by something the Prime Minister said last weekend in Launceston, You may remember him saying he’d had a

"gut2h’l" of attacks on the Government from people in the Labor .Party and that he didn't want to hear any more "garbage" from Labor people about tariff cuts causing unemployment. In one of his franker moments. the Prime Minister said that the Liberal and. Country Parties wanted to "drag this country back - back to the stagnation and complacency we brought to an end after 23 year's of conservative rule." So perhaps a better title today would have been "Dragging Australia Back - back from the brink of disaster, back from the edge of the precipice".

X often wonder these days if a lot of people don’t in some ways long for those bad old days of stagnation and complacency when most people usually had a job and when inflation was under five per cent,, and when people were encouraged to get out and work and win rewards for their exertion. It’s quite true, of course, that there have been,

some advances in the last two years. No one would want to turn the clock back completely. But what the Australian people have to understandand what the Government is yet to learn is that there's

not much sense in trying to build a socialist utopia if, in doing so, you destroy the worth of people’s earnings and savings by inflation; if you damage investment and business confidence by doctrinaire economic policies that wipe out jobs; if you do things that make the compass of our national direction waiver, and point us the wrong way.

Mr. Chairman, before I go on to say the things I have prepared to say to you about the economic situation, I feel I cannot allow this occasion to pass without making some reference to the unprecedented events which occurred in Canberra yesterday. I hope you won’t think it's out of place for me to mention those events, but they were historic, and they did hold great implications for the institution of

Parliament and the government of this country. I ’ve been in the Parliament now for about 18 years, and I've never experienced such a disturbing happening. The fact that I found myself suspended from Parliament for 24 hours earlier this, week in no way lessens my regard for the institution, nor my concern over what happened yesterday.

To the contrary, my suspension was a demonstration of the power of the Parliament to protect itself and its standing.

The Government yesterday denied the Parliament the exercise of that power to protect itself, and in doing so brought the Parliament perilously close to breakdown. For the first time in the history of Westminster system of government in this or any c o u n t r y a Speaker ■ was forced to resign because the Government did not support him. Mr. Cope was placed in an intolerable position and he had no altefTiative but to resign because his ability to control the house had been taken away from him by the Government.

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You will be aware of the sequervc-e' of· events which occurred. Those events culminated with the Government voting against the suspension of a Minister who had been named by the Speaker. thus effectively destroying the Speaker’s authority and his capacity to remain in charge of the House. Mr; Cope did the only thing he could do in the face of this sabotage of his authority, and immediately announced he was resigning.

What all this means is that a precedent was set yesterday undei- which a Minister or a member of the House in future can defy or insult the Speaker with impunity. This must mean a serious breaking down of the standing and the authority of the Speaker, and hence a serious

breaking down of the whole foundation on which the Parliament rests -It means that the party with the numbers can take charge of the Parliament in defiance of the Speaker’s efforts to properly carry out his duties and in contempt of the Speaker’s responsibility to see that the House is conducted in accordance with the Standing Orders. This obviously has the most far-reaching implications for the Parliament

and the way it is conducted. The way has been opened for anarchy and lawlessness in the place where laws are made.

Of course, this isn’t xhe first time that the conventions, the customs, and traditions of the Parliament have been assaulted in recent times. A little while ago a member of the Opposition was the object of a certain accusation made by the Prime Minister both inside and outside the Parliament. These accusations were of a kind which for the last

250 years have always been held by the British Parliament to be a gross libel on the House and a serious breach of privilege. Yet on that occasion the Government used the weight of its numbers to prevent the matter from being considered by the Privileges Committee, knowing that

had the Committee considered it, it was virtually a certainty that the Prime Minister would nave been found to be in breach of the privilege,

Now no doubt you might feel that all these things are of little relevence to the current and urgent problems all of us in our daily lives, and to the problems the nation faces - the problems I've come to talk about today. But I can't help seeing in these abuses of the

forms of the Parliament, and the breaking down of its authority, a reflection of the wider breaking down of the institutions and values of our society, and a reflection of the weakening of our· economic base, with consequent disruption and upheaval in people’s lives. The

situation inside the Parliament is being reflected in lack of control over national affairs, and certainly over the national economy - to which I now return. .

I think all of us" had been a little bit heartened lately to hear the Government making more friendly noises towards the free enterpirse sector. This seemed to be the first sign that the. Government might be beginning to understand some of the fundamental principles on which our economy works. But I must caution you against getting too carried away by the Government's apparent change of heart. If you look at what Dr. Cairns said at the Terriga.1 conference recently, when he had that remarkable death-bed conversion to the cause of free enterprise, you will find his actual words were ... "We must operate for now ...." and I emphasise those words for now " . . „ . within the system”. So I wouldn't take it for granted that Dr. Cairns' conversion is complete, or rule cut the possibility of some backsliding later on.

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I remember not long after the Labor Government came to office - one of Mr. Whitlam's advisers said that any administration that supported the making of profits could not be interested in the welfare of the working people. This adviser was not a senior one, but the comment exposed the kind of thinking that exists in the minds of people around the Prime Minister. To me it was a quite frightening ' revelation of the potential we had for getting off the rails, and there's no doubt in my mind that we did get off them largely because of this fundamental misunderstanding about the importance of free enterprise. ■ _ , .

Before business confidence returns, there has to be an unequivocal commitment on the part of the Government to a policy which recognises the basic role of the private sector in our society. The simple fact which seems to have escaped the Government is that it is not the

company that makes a profit that is the enemy of the worker, but the company that doesn't make a profit.

I am unequivocal in my support of the free enterprise system because I have no doubt that every advance in our living standards, every improvement in the prosperity of ail Australians, every forward move we make in every field must come from productive effort. There's

nowhere lse it can come from. There's only one way, in the end, of stimulating productive effort and that's by holding out The prospect of adeauate reward, and satisfaction, and fulfilment. Let's face it: to do most of the things we want to do as individuals, and as a nation, costs money. And the only source of that money is productive effort. The only source of the money the Government spends at such an alarming rate is productive effort - and that production doesn't come from the Government .... it comes from the private sector. As I said to your colleagues in Perth a few weeks ago, one of the tragedies of this nation in the last two years has been this very serious misunderstanding of the role and importance of free enterprise and profits. It is ' going to take us a long time to recover from that misunderstanding.

So in a country which we were assured would pay for its ambitious social welfare programs out of a growth rate of 6 percent, we find we now have a negative growth rate. We have very serious inflation which would be even higher but for the collapse of the beef market. The

OECD is predicting that our inflation rate in the coming year will be near the top of the list for the developed countries. We have the worst unemployement since the depression of the thirties. .

It looks as if unemployment will cost the Government a thousand million dollars this year if it continues at the present level, taking into account unemployment relief payments, grants under the Regional Employment Development scheme, retraining and so on. This means that

every taxpayer in Australia is paying $200 a year in tax towards unemployment relief. Does the average wage earner realise that every week, he pays $4.00 to support some other person in idleness or artificially-created and unproductive jobs.

Profits have been slashed - and that's bad for the reasons I spoke about earlier, as well as for the effect of falling profits on confidence, investment and technological advancement and productivity. You know all about our record interest rates, the housing situation,

our very poor productivity, our excessively high taxes.

This is a pretty depressing recital of our ills. But it is the outlook for the future which is cause for even greater concern. 1 say that because the Federal Government is pursuing a financial policy which, if they keep on pursuant it·, could make the economy explode

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into rampant inflation, I hope you won’t think I ’m being over- dramatic when'I say there is even the possibility of an economic breakdown such as occurred in Germany in the 1920's - if our policies don't change.

At the present time, Government expenditure is running ahead of receipts by over $2,000 million. That's for the first seven months of the current financial year. Although tax receipts are running far ahead of the 22 per cent forecast in the Budget, Government expenditure is up from the Budget's planned 33 pel"'

cent to nearly 50 per cent. ■

Receipts should exceed expenditure during the second half of the financial year, but even so the Budget deficit is expected to be in the region of $2,500 million.

I have been advised that if the Government's present expenditure programmes are continued next year, then the deficit will be close to $4,000 million. The implications of such a huge deficit are just too frightening to contemplate. The Government's present budgetary policy is like throwing petrel over a raging fire.

The main effect of such a huge deficit is, of course, to increase the volume of money in the economy. This is the result of the method used by the Government to finance its spending - that is by printing money and releasing it through the Reserve Bank. As we

all saw7 in the first half of 1973 , a too-rapid expansion in the volume of money in the economy creates excessive liquidity and demand, which lead to demand inflation. It's estimated that, at present, the money supply is expanding by the equivalent of 30 per cent in annual terms. This means, in effect, and in view of the negative real growth in the economy, an inflation rate of over

30 per cent. If the economy were expanding at a rate of say five per cent, then an equivalent growth in the money supply would be necessary, but any expansion in excess of this would be inflation­ ary. At present, we. have negative economic growth and a 30 per cent increase in the money supply. So the outlook is one of massive inflation - of the order of 30 per cent or more. And when

you get inflation like that, you're really moving into the area where things are right out ofcontrol. Inflation is the number one evil in Australia today, Inflation erodes savings and

discourages people from saving. This means investment falls away. And as you know only too well it's investment that's the lifeblood, of industry and. commerce. It's investment that enables productivity to be maintained and even increased.· Inflation also has the

effect of strangling the liquidity of companies through high interest rates. More significantly, inflation is the vehicle by which the transfer of wealth from the private to the public sector is carried out. Because the taxation laws with respect to such matters as stock valuation and depreciation do not take account of inflation, the profits of many companies are in fact only paper profits.

But the taxation paid on these profits is very real, as are dividends. The result is that many companies are in fact drawing on reserves or capital to pay tax. Similarly with income tax. Through the operation of the progressive tax scales, a far greater proportion of salaries and incomes is being transferred to the Government. In the first seven months of this financial year, ’

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net personal income tax receipts rose by 55.7 per cent compared with the s=ir.v. period last year. One of the real dangers of inflation is that wages and costs for our export-earning industries will rise to such a lev'el that they cannot compete in world markets. Most basically, however, inflation destroys the fabric of cur whole society. Money is a measure of- value, and prices and wages are a measure of the value we place on our own work and effort. Inflation will systematically destroy our society. Unless we do everything

in our power to bring it under control, the future does net look very bright. I do not make these statements lightly. But I feel I have a duty to alert people about the direction in which we are heading, however unwilling they may be to listen to such unpalatable talk. "

There seems in many people's minds a blind faith in "the lucky country" - the country of vast mineral wealth. This is a myth - and a pernicious one. Australia does have vast potential as a result of our rich endowment of natural resources. But there is no such thing as an inherent, unshakeable strength in the economy. The

economy of a nation is only as strong as the effort that's made to develop and maintain, it. It is by sound management and careful nuturing of the economy that strength, stability and progress are achieved.

In December, 1972, the Australian economy was one of the·. strongest in the world, with low inflation and full employment. The healthy state of the Australian economy at that time was the result of sound economic management and the pursuit of sound policies

Our style of management may have lacked the appearance of brilliance, but 1 don't think sound management is a matter of •spectacular achievements cr grand schemes; it's a matter of judge­ ment and day-to-day care in building up and strengthening an

enterprise - an enterprise like the ones you manage, or the national enterprise. -

The basic assumption which seemed to underlie the Labor Party's election campaign in 1972 was that the Australian economy was so inherently strong there was no need to worry about such dull matters as economic management. There were lavish spending programmes with no regard to the other side of the balance sheet. Now the chickens

- in the form of inflation, unemployment and all the rest - have come home to roost. . · · ' ' . ' · ·

I come back to investment. The major aim of economic policy today should be to encourage investment. Investment, I repeat, is the lifeblood of industry and business. It is the basis of expansion, and creation of employment opportunities. It is also the key to increased productivity. But investment will only take place if people are confident and if there:are adequate incentives

to encourage, industry to embark on programmes of expansion once again. For this to happen, there must be a recognition that profitability is vital.

Recently, the Liberal and Country Parties published a detailed e assessment of the economy and put forward policies which we believe ' will help remedy our economic problems.

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I won't go into details of these policies here, but they ere basically designed to stimulate investment, restore profitability and . productivity, and attack inflation by pursuing sane budgetary policy.

. The serious expansion in the money supply which is occurring at present as a result of excessive Government spending must be brought under control. It is imperative that the Government slow down the rate of growth in spending. Government spending is the only major' factor in the economy which can at present be varied: there is no

longer any scope for policies such as raising interest rates or increasing taxation. The Prime Minister's announcement that the Government would limit its expenditure was simply a farce. Nearly every Minister has denied that the exit-backs will take place in his Department. The Opposition has called for meaningful cuts in Government expenditure which will enable the private sector to expand and create jobs. ■

The task of putting our economy back onto its right course, back on the rails, will not be easy. It is one. of the most insidious effects of inflation that the cure can often be worse than the disease. I'm talking about the dilemma which inflation poses for policy makers: with inflation at 20 per cent, it is necessary tc expand the money

supply at a rate xvhich enables economic activity to be carried on at the inflated prices which prevail. If there is a severe cut back in the money supply, then a credit squeeze and slump will be the result.

On the other hand, while the money supply continues to expand in line with inflation, there will be no lessening of the inflation rate. The clear implication of this is that the task of bringing inflation xmder control, yet at the same time not causing a severe contraction

in the economy, is an extremely difficult one. That's why I say that, because Government spending is virtually the only major economic variable where reductions can be achieved, this is the area in which the Government must act. ·

Of course it's not popular to restrain Government spending, but I know from my own experience in Government that you have to do a lot of things that are unpopular. The real danger is that the Government will attempt tc buy its way out of the present difficulties and bring about a temporary economic xipturn which might seem to be an

improvement on the present situation. But, such a policy would only store up even worse problems for the future.

Could I end by saying this: Australia won't get out of its ■ · economic difficulties quickly. It. won't get out of them at all without an understanding by the whole community of the fact that our problems are very much of our own making. If political leaders keep telling the people that we are simply the victims of international

inflation, and that every other country is in the same boat, then . our will and our determination to try to do something will be snapped and destroyed.

What we need is the great "mood of unselfishness" Sir Robert Menzies spoke of a little while ago. This is a fight that won’t be won unless every one of us is in it.