Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Australian government's attack on inflation

Download PDFDownload PDF


EMBARGO EMBARGO: ■ 3am 30 September 1978


Following is the text of the speech made by the Minister for Finance,

the Hon Eric Robinson, MP to the American Australian Association in

New York on 29 Sep 1978.

- The Australian Government regards its continuing attack on

inflation as being crucial to the maintenance of business

confidence, the creation of conditions conducive to healthy

expansion and a further reduction in interest rates.

- Strong and profitable private enterprise is the best method of

creating wealth and prosperity for Australia and employment

opportunities for Australians.

Foreign investment is welcomed and encouraged. Our policy assures:

fair treatment under clear guidelines

no interference in commercial judgements

fast and efficient consideration of proposals

assistance, if necessary, in preparing proposals.

Inflation is expected to be running at about 5 per cent by mid

1979 - this compares with in excess of 13 per cent in 1975.


Gross non-farm: product is expected to grow by about 4 per cent in

1978-79. ; .

A' significant recovery in farm product and farm incomes is


Unemployment is causing concern and is unlikely to show any

downward trend until a better balance between wages and

productivity is achieved.

Government is undertaking such official overseas borrowings as are

necessary to supplement Australia's reserves and to support the

Australian dollar.

Government is determined to follow external economic policy that

is consistent with domestic economic objectives.

Australia has a high credit rating and official borrowing program

has been very successful.

Overseas borrowing by statutory authorities in exceptional cases

is under consideration.

There are effectively no restrictions on overseas borrowings by

Australian companies at present time, (clearances are required

where borrowings take place through recognised tax havens).


- Decision by Australian enterprises whether to borrow domestically

or overseas is basically a matter for commercial judgement.

- The Government believes its set of economic policies is the basis

for a sustained improvement in the economy.

- The Government is determined to maintain its policies until the

task is done.

- It was with great pleasure that I accepted the kind invitation

from Sir Randal Heymanson to address this luncheon meeting of the

Australian American Association.

I believe it is fully understood that the Australian Government regards

the association as being of major importance in maintaining and

improving the good relations and understanding that exist between our

two countries.

Nevertheless I want to again place it on record.

Sir Robert Cotton's appointment as Consul-General in New York is

additional specific evidence of the importance that the Government

attaches to the fostering of such good relations and understanding.

Sir Robert has special responsibilities to the Prime Minister for

developing further the strong Australian contacts with business and

financial interests.

As many of you would be aware, it was originally intended that the

Treasurer, Mr John Howard, would address this meeting.

Mr Howard has asked me to personally convey his apologies to Sir Randal

and to others present today for his inability to be here.

During the past two and a half years a number of Australian Ministers,

including the Prime Minister, have visited New York.

During those visits they outlined developments in the Australian economy

and explained the basis for the economic policies that we have followed.

In any re-reading of the comments made on those occasions the

significant feature that emerges is the firm adherence to various key

elements in the Government’s general economic policy strategy.

These key elements can be stated briefly.

First, unless significant progress is made towards reducing the rate of

price increases and inflationary expectations the pre-conditions will

not be laid for sustainable growth and the restoration of full



Second, it is misleading to believe that there is a choice between price

stability or full employment. .

A reduction in inflation is a necessary pre-condition for growth and

full employment.

The policy of seeking to reduce unemployment by easier fiscal and

monetary policies is very likely to exacerbate inflationary problems in

the longer term as a result of the further upward pressure on prices and

the feeding of inflationary expectation.

Thirdly, given the economic distortions that occurred in the early

1970’s, policies should give emphasis to the re-establishment of private

sector confidence and to the stimulation of business investment.

This requires restraint on the growth in public sector expenditure.

Finally, there can be no quick and easy solution to the problems.

The approach has to be a gradual one and it has to be adhered to firmly,

encompassing all aspects of economic policy.

This is the strategy that has been and remains at the centre of the

Australian Government's economic policies.


The nature arid extent of the adherence to these key elements can readily

be seen by looking .more closely at the action taken on the various

fronts of economic policy.

When the current Government returned to office in late 1975 it

immediately set about the task of cutting back on the rate of growth in

Government expenditure and maintaining a firm grip on the size o f ?the

budget deficit.

Both expenditure growth and the deficit had got badly out of hand Lin the

preceding two years.

Experience in Australia and elsewhere had shown that total demand in the

economy was hindered, not helped, by excessive growth of Government


Apart from the general undesirable consequences for consumer confidence

and spending it had particular adverse effects on private business

investment which was central to sound economic growth.

The results of the Government's substantial efforts in the fiscal policy

area are evidenced by the slowdown that has occurred in the rate of

increase in total budget outlays.


In 1977-78 Budget outlays increased by 11 per cent compared to 17 per

cent in 1976-77.

This policy of restraint in expenditures was carried even further in the

Budget brought down last month.

The projected increase in outlays in 1978-79 of only 7.7 per cent

represents the lowest increase for tj?n years.

This achievement was all the more significant because when the

Government started its budget process it was faced with forward

estimates of expenditure that implied, on the basis of existing tax

rates, a deficit of the order of $6 billion.

The final Budget deficit estimate for 1978-79 is just over $2.8 billion

involving a cut of over one half in the growth of outlays as initially

seen in the forward estimates.

This $2.8 billion deficit represents a reduction of around $500 million

on 1977-78.

In reining in the rate of growth in public sector spending, the

Government has emphasised, both implicitly and explicitly, the

importance it attaches to free enterprise and to the re-enhancement of

the private sector.


While the recent Budget contained a number of tax measures in the

interests of responsible economic management, expenditure restraint has

created scope for assistance to the private sector through a number of

important taxation measures of the past few years.

This includes the indexation of personal income tax and the introduction

of a new standard rate taxation system.

Various measures - such as the investment allowance for private

industry - have also been introduced to stimulate private investment.

The stance of fiscal policy has also been important to the Government's

monetary policy strategy of moderating the growth in liquidity and

monetary aggregates.

The Government's objective has been to create more stable financial

conditions conducive to sustainable growth.

The announcement and achievement of successively lower rates of growth

in the money supply over recent fiscal years have not only contributed

substantially to stability and greater certainty in financial markets

but have also made an important contribution to the success of

anti-inflation policy.

Firm control of the growth of the monetary agggregates remains for us a

central policy objective.


This policy of monetary restraint is not a policy of depriving the

private sector of adequate funds for a sustainable recovery in activity.

The Budget is consistent with a projected growth in the volume of money

of 6 to 8 per cent over the course of 1978-79.

This compares with actual growth of 8 per cent over 1977-78.

Both figures are a far cry from the 20 per cent prevailing in 1975.

On the wages front the Government has intervened directly, vigorously

and continuously in major wage hearings to bring about a moderation in

the rate of wage increases. '

In submissions to the Conciliation and Arbitration Commission the

Government has emphasised the inter-dependence of economic recovery and

wage restraint. ,

The Government would like to see greater weight placed on these views by

the Commission. ·

However, the very recent decision of the Conciliation and Arbitration

Commission for six monthly instead of quarterly wage hearings, while not

in line with the Commonwealth's submission for annual hearings, is a

move in the right direction.


It will assist the Government in its objective of reducing the rate of

growth in wage costs with consequential beneficial effects on the rate

of inflation and new job opportunities.

At the same time, the Government will continue to press strongly its

views on wages policy.

The most notable achievement - and which I have emphasised has been our

central goal - has been the substantial reduction in the rate of


Prices have decelerated to a rate of increase less than half the peak

reached in 1974-75.

The rate of inflation, as measured by the Consumer Price Index, had

fallen to 7.9 per cent for the year to June 1978.

A further steady slowing in the rate of inflation is expected with an

annual rate down to around 5 per cent by the middle of next year.

Lower inflation has given a boost to the process of restoring private

sector confidence, both of consumers and of businesses.

It has improved the outlook for private capital investment in

Australia - both from domestic and external sources.


It has improved the prospects for overseas trade.

It has contributed to the expectations of a further lowering of interest


In short, policies have set the stage for developments which were

described in the following terms in an editorial commentary in Barron's

Weekly in June of this year:

"Down under, its onward and upward".

Overall gross domestic product is projected to increase in real terms by

something over 4 per cent in 1978-79.

Consumer spending is expected to grow at a healthy pace with a recovery

in farm incomes and changes in the personal tax schedule adding to real

disposable incomes.

A further reduction in the saving ratio is also seen.

Private business investment, on the basis of forward indicators, should

strengthen further following the more buoyant performance of last fiscal


A return to more stock rebuilding in 1978-79, following an earlier

rundown, is also expected to strengthen the growth of production.


While great progress has been made in correcting fundamental faults in

the economy there are still problems to be solved.

In particular, the persistence of a high level of unemployment is of

major concern to the Government.

While sustainable growth in demand and output is being fostered through

the control of inflation a lasting reduction in unemployment can only

come about when the distortion between real wages and productivity is


Only with a break through on this front could a significantly brighter

outlook for unemployment be expected in the current fiscal year.

On the external front we are faced with a moderate growth scenario for

the world economy that will constrain export performance.

However, average export prices are expected to show useful increases.

With imports likely to rise with spending and stock accumulation the

current account deficit could show some increase over 1977-78, although

as a proportion of GNP it will remain at a comfortable level.

The Government's economic policies and the general improvement in the

investment climate also provide the basis for confidence about a further

strengthening in private capital inflow.


Let me concentrate for a few^minutes on the subject of capital inflow

into Australia.

First on private capital inflow. .

The encouragement of a climate favourable to foreign investment in

Australia is an important objective of the Government's policy.

We welcome foreign investment because of the considerable contribution I

such investment makes to Australian development and prosperity.

When the Government announced its basic policy on foreign investment in

April 1976 it was concerned to establish a stable investment climate in

which overseas investors could plan their future operations in Australia.

In developing guidelines in connection with foreign investment it was

concerned to: .

. remove any confusion and uncertainty /

. ensure consistency and fair treatment, and

. avoid an excessively rigid set of rules.

I believe these aims have been achieved.


The basic approach of the general policy is to look at individual

foreign investment proposals to ensure that they harmonise with

Australia's interests and, in particular, with the Government's

objective of offering Australians the opportunity of participating in

the development of the economy.

With a few exceptions where overseas investment is restricted,

individual proposals - takeovers and new projects - are considered

against broad criteria that take into account economic, social and other


I believe that this general policy on foreign investment has also

achieved wide acceptance both within Australia and overseas.

It was against this general background that earlier this year the

Government reviewed foreign investment policies and exchange control

procedures governing capital inflow to ensure it was serving its

intended purpose.

Not unexpectedly, the review suggested that no fundamental changes to

the basic objectives of the policy were necessary.

However, experience had shown that various procedural requirements could

be relaxed with significant benefit to all concerned.


In summary we .

- raised the threshold for examination of investment proposals to

' increase the efficiency of the screening process

- streamlined exchange control procedures.

In addition, we modified the guidelines so that partly Australian owned

foreign companies could proceed more easily with their investment plans.

These modifications to the guidelines provide special incentives to

foreign companies with a substantial level of Australian ownership to

introduce additional Australian equity.

They are incentives and in no way is the Government suggesting or

expecting companies to "naturalise".

It is a matter for the commerical judgement of the company.

However, for many companies the arrangements could be attractive.

In short, the Government has made great progress developing a favourable

climate for investment in Australia.


It has a foreign investment policy which assures all foreign investors


. fair treatment under clear guidelines.

. no interference in commercial judgements.

. assistance in preparing proposals that will meet the requirements

of the policy.

. fast and efficient consideration of the limited number of

proposals that are subject to screening.

It is particularly important that these factors should be understood

clearly by business and financial interests in the United States.

Since the 1950’s the United States has been Australia's major source of

private overseas investment.

There are now more than 675 United States companies represented in


In the short-term, figures released by the United States Department of

Commerce Show that fixed capital expenditure by United States affiliates

in Australia is estimated to increase by 21 per cent in 1978.

This increase is. double the rate estimated for United States expenditure



We are hopeful that United States interests will continue over the long

term to see Australia as an attractive and profitable place for


I turn now to official overseas borrowings.

Given the improvement in Australia's economic performance and pending

the resumption of a more normal rate of private capital inflow, the

Government is undertaking such official overseas borrowings as are

necessary to supplement Australia's reserves and to support the

Australian dollar.

That position has been generally welcomed as evidence of the

Government's determination to follow an external economic policy that is

consistent with domestic economic objectives.

This attitude has been confirmed by the success of the official

borrowing program that has been undertaken.

In turn, this success has confirmed the high credit standing of


The New York market has, of course, figured prominently in the program.

The Government is very much aware of the professionalism which investors

in the New York market bring to their investment decisions.


It is therefore particularly pleased by the confidence in Australia

shown by United States investors.

If I may say so, the confidence is well placed.

An aspect of official overseas borrowing that I believe has created

significant interest in New York and other financial markets relates to

recent developments in the area of borrowing for infrastructure


I am referring specifically to proposals for special additions to the

normal annual "semi-government" borrowing programs and for overseas ,

borrowings by statutory authorities.

I emphasise statutory authorities because the arrangements do not relate

to borrowings by State Governments themselves.

While a detailed statement on this matter was made by the Treasurer in

June of this year, there are several important points that I want to

make on this subject that put the situation in perspective.

These points are made against the background that Australia is a

federation like the United States with the Federal Government and the

States each having their responsibilities. ‘



First, special additions to programs under these arrangements will only

be made in exceptional cases.

Secondlyi if special additions are agreed to then the borrowings/ will

not necessarily take place overseas. .

The Government and authority concerned are to use their best endeavours

to obtain funds within Australia.

However, in exceptional cases, approval for an overseas borrowing may be


It is clearly recognised that in consideration of proposals for an

overseas borrowing the Commonwealth will take account of the potential

implications for domestic monetary policy and external policy.

This is consistent with the Commonwealth's responsibilities for overall

economic management.

It is relevant in this regard that under the relevant voting

arrangements the Commonwealth's approval of a proposal is required.

A number of proposals that States have put forward on behalf of their

authorities are currently under consideration.



Returning to the major thrust of my comments today, any examination of

economic prospects in Australia must necessarily take account of the

general world economic situation.

This was the subject of close examination at the annual meetings of the

' IMF and World Bank that I have just attended in Washington.

Meetings at which, I should mention, we reached an important consensus

on a general increase in IMF quotas and the allocation of SDRs, with

some changes in the characteristics and uses of SDRs.

It would be easy to feel despondent about the world economic outlook.

Growth has been steady rather than rapid.

Unemployment and inflation are still too high.

The external positions of several countries are still of concern

as are protectionist tendencies. -

However, there has been some underlying improvement.

Results have been achieved.



Australia has never believed that a correction of the situation that had

developed could be achieved quickly.


In my address to the Washington meetings I emphasised the importance of

appropriate economic policies in determining how the situation will ■ © : < · ' ■ · ■


In particular, I stressed that the world economic climate will be much

more conducive to higher rates of growth if we can further slow down

rates of inflation in the world and overcome the associated distortions

If this occurs we should also expect a more balanced international

monetary situation and an easing of protectionism.

It goes without saying that we are hopeful that the growing consensus

for this broad policy approach develops further.

If it does, I believe that we can feel much more optimistic about the

future. -

To summarise, Mr Chairman, Australia has made significant progress in

defeating inflation and paving the way for a return to full economic


The foundation has been laid for the fulfillment of the very bright

economic prospects for Australia that were disappointingly interrupted

in the first half of the 1970's.


It remains firmly committed to an anti-inflationary policy strategy.

It will continue to pursue economic policies that create the climate for

sustained economic growth.

This involves responsible and sensible fiscal and monetary policies.

It means continued strong efforts on the wages front to correct the

imbalance in the labour market.

By pursuit of these policies we are confident that the greatly improved

climate for investment in Australia will continue to improve.

There is an important role for United States investors in Australian


We look forward to a sharing of opportunities.