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Progress towards the three-year goals



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TREASURER

EMBARGO Immediate Release

PRESS RELEASE NO. 13

STATEMENT BY THE TREASURER, THE RT HON PHILLIP LYNCH, M.P., TO THE HOUSE OF REPRESENTATIVES, 15 FEBRUARY, 1977

1976 VAS A YEAR OF CONSIDERABLE PROGRESS TOWARDS THE THREE-

YEAR GOALS VE HAVE SET OURSELVES IN BRINGING AUSTRALIA'S

ECONOMIC PROBLEMS UNDER CONTROL.

THAT PROGRESS WAS ALL THE MORE NOTABLE WHEN VIEWED AGAINST

THE BACKGROUND OF THE MESS THAT WE INHERITED.

I DO NOT HOWEVER PROPOSE TODAY TO GO OVER THE RECORD OF OUR

PREDECESSORS.

MY PURPOSE RATHER IS TO REVIEW BRIEFLY THE ECONOMIC

DEVELOPMENTS OF 1976 AND TO SPELL OUT THE GOVERNMENT'S

CONTINUING ECONOMIC STRATEGY FOR 1977.

THE HOUSE WILL RECALL THAT THE STRATEGY ON WHICH WE

EMBARKED AT THE END OF 1975 BEGAN FROM THE FUNDAMENTAL

RECOGNITION THAT RENEWED ECONOMIC GROWTH COULD ONLY OCCUR

IF THE LONG CAMPAIGN OF BUSINESS-BASHING STOPPED AND THE

PRIVATE SECTOR BEGAN TO EXPAND AGAIN.

CONTROL OF INFLATION WAS A PRE-REQUISITE FOR AN ENVIRONMENT

IN WHICH THE PRIVATE SECTOR WOULD SLOWLY EMERGE FROM ITS

STATE OF SHOCK.

THE STRATEGY FOR RECOVERY REQUIRED MEASURES AIMED DIRECTLY

AT BOOSTING THE PRIVATE SECTOR AND CUTTING BACK ON BIG

GOVERNMENT

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VE HAVE CARRIED THROUGH THAT STRATEGY AND VE HAVE ALREADY

BEGUN TO SEE ITS FRUITS.

ABOVE ALL, THE RATE OF INFLATION HAS MODERATED SUBSTANTIALLY.

IN THE FIRST THREE QUARTERS OF 1976 THE CONSUMER PRICE INDEX

ROSE BY 3.0 PER CENT, 2.5 PER CENT AND 2.2 PER CENT

RESPECTIVELY COMPARED WITH AVERAGE QUARTERLY INCREASES

OF ABOUT 4 PER CENT IN 1974 AND 1975.

UNDERSTANDABLY, CONSIDERABLE EMPHASIS IS PLACED ON MOVEMENTS

IN THE C.P.I. AS THE MEASURE OF INFLATION.

IN FACT, OF COURSE, THAT INDEX MERELY RECORDS PRICE MOVEMENTS

FOR A SPECIFICALLY CONFINED SET OF GOODS AND SERVICES.

THE FLATTENING TREND IN THE CPI IS PRESENT, OFTEN EVEN MORE

MARKEDLY, IN OTHER PRICE INDICATORS.

IN THE FIRST THREE QUARTERS OF 1976 THE DEFLATOR FOR THE

MAJOR COMPONENTS OF GROSS NATIONAL EXPENDITURE - THE SUM

OF ALL DOMESTIC FINAL EXPENDITURE, PRIVATE AND GOVERNMENT -

ROSE BY 4.0 PER CENT, 2.7 PER CENT AND 2.2 PER CENT

RESPECTIVELY COMPARED WITH AN AVERAGE QUARTERLY RISE OF

OVER 4 PER CENT IN THE TWO PRECEDING YEARS.

THE PRICE INDEXES FOR MATERIALS USED IN AND ARTICLES PRODUCED

BY MANUFACTURING INDUSTRY CORROBORATE THIS DOWNWARD TREND.

SO DO THE PRICE INDEXES FOR MATERIALS USED IN BUILDING,

BOTH DWELLINGS AND ION-DWELLINGS.

WE KNOW, OF COURSE, THAT THE EFFECTS OF OUR CHANGED

ARRANGEMENTS FOR HEALTH INSURANCE WILL PRODUCE A HIGHER

DECEMBER QUARTER CPI INCREASE THAN IN ANY QUARTER SINCE THE

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5.6 PER CENT INCREASE OF THE DECEMBER QUARTER OF 1975.

HOWEVER, THAT "ONCE FOR ALL" STATISTICAL EFFECT SHOULD NOT

BE ALLOWED TO OBSCURE THE STEADY AND CONSIDERABLE UNDERLYING

IMPROVEMENT IN THE RATE OF INFLATION.

WE CAN SEE THIS POINT MORE CLEARLY IF WE RECOGNIZE THAT THE

BROADLY-BASED DEFLATORS WILL NOT BE AFFECTED BY THE CHANGES MADE

TO MEDIBANK LAST YEAR, JUST AS THEY WERE NOT AFFECTED BY THE

INTRODUCTION OF MEDIBANK IN 1975.

THIS IS BECAUSE INHERENT IN THEIR CONSTRUCTION IS THE

PROPOSITION THAT THE COMMUNITY HAS ALWAYS PAID IN ONE WAY

OR ANOTHER FOR ITS HEALTH CARE.

HEALTH INSURANCE DID NOT SUDDENLY BECOME FREE ON 1 JULY

1975i NOR DID IT SUDDENLY BECOME MORE COSTLY ON ACCOUNT OF

OUR CHANGES EFFECTIVE ON 1 OCTOBER 1976.

IN OTHER WORDS, THE UNDERLYING RATE OF INFLATION IN THE LATTER

PART OF 1975 WAS NOT DIMINISHED BY THE PREVIOUS GOVERNMENT'S

DECISION TO FUND THE COSTS OF HEALTH CARE OUT OF TAXATION;

AND THE UNDERLYING RATE OF INFLATION IN THE DECEMBER QUARTER

1976 HAS NOT BEEN INCREASED BY THE CHANGE IN THAT ARRANGEMENT.

OUR STEADY PROGRESS IN THE FIGHT AGAINST INFLATION HAS BEEN

SLOWLY RE-ESTABLISHING THE PRE-CONDITIONS FOR SUSTAINABLE GROWTH.

IN PARTICULAR, THE DISASTROUS DISTORTIONS TO KEY ECONOMIC

RELATIONSHIPS DURING 197^-75 BEGAN TO BE CORRECTED DURING 1976.

FOR EXAMPLE, THE RECOVERY IN BUSINESS PROFITABILITY IS

EVIDENCED BY THE INCREASE IN THE PROFIT SHARE AS MEASURED

4

IN THE NATIONAL ACCOUNTS - FROM 12.4 PER CENT IN THE FINAL

QUARTER OF 1975 TO 14.4 PER CENT IN THE SEPTEMBER QUARTER

OF 1976.

BUT APART FROM SUCH DRY TECHNICALITIES AS THAT, EVERY READER

OF THE DAILY PRESS IS AWARE OF THE STREAM OF IMPROVED COMPANY

PROFITS EMERGING IN ALL SECTORS OF THE ECONOMY.

IN THE SEPTEMBER QUARTER OF 1976 COMPANY PROFITS WERE UP 39.4

PER CENT ON A YEAR EARLIER.

THIS PARTIAL CLIMB BACK FROM THE EXTREMELY DEPRESSED LEVEL

TO WHICH PROFITS WERE DRIVEN IN 1974 AND 1975 IS CENTRAL TO THE

REVIVAL OF BUSINESS CONFIDENCE, BUSINESS INVESTMENT AND,

OF COURSE, THE CREATION OF NEW JOB OPPORTUNITIES.

HOWEVER, ALTHOUGH THE PROFIT SHARE IS STILL BELOW ITS

LONGER-RUN NORM, DURING 1976 A BASIS WAS LAID FOR CORPORATE

EXPANSION DURING 1977.

AS TO ACTIVITY, AGGREGATE EXPENDITURES AND NATIONAL

PRODUCTION BEGAN TO GROW AGAIN IN 1976.

MOST STRIKING HAS BEEN THE 7i PER CENT RISE IN REAL GROSS

NON-FARM PRODUCT BETWEEN THE DECEMBER QUARTER OF 1975 AND THE

SEPTEMBER QUARTER OF 1976.

EVEN IF THERE WERE TO BE NO FURTHER GROWTH IN NON-FARM

GDP DURING THE REMAINDER OF 1976-77 FROM THE LEVEL PROVISIONALLY

ESTIMATED TO HAVE BEEN ATTAINED IN THE SEPTEMBER QUARTER, THE

FINANCIAL YEAR AS A WHOLE WOULD SHOW A GROWTH OF OVER 5 PER

CENT IN REAL NON-FARM GDP COMPARED WITH 1975^76.

INDUSTRIAL PRODUCTION HAS BEEN EXPANDING OVERALL IN RECENT

• . 5 · ■ . ’

MONTHS FOLLOWING A SHORT PERIOD OF LITTLE CHANGE AROUND

MID-1976. .

IN DECEMBER THE ANZ BANK'S INDEX WAS 9 PER CENT ABOVE ITS

LOW POINT IN MID-1975.

I AM CERTAINLY NOT SUGGESTING THAT AT EVERY TURN ONE FINDS

ECONOMIC ACTIVITY BOOMING.

THE RISE IN ACTIVITY HAS BEEN UNEVEN - AS USUAL IN THE EARLY

STAGES OF ECONOMIC RECOVERY.

AS EXPECTED, EXPORTS, PRIVATE EXPENDITURE ON DWELLINGS AND

STOCK-BUILDING HAVE ALL MADE STRONG AND CONSISTENT

CONTRIBUTIONS TO THAT GROWTH.

AN INCREASE IN PRIVATE CONSUMPTION - 4.2 PER CENT AS AN

ANNUAL RATE - WAS ALSO RECORDED OVER THE FIRST THREE QUARTERS

OF 1976.

THIS OCCURRED EVEN THOUGH THERE WAS ACTUALLY A SLIGHT FALL

IN REAL HOUSEHOLD DISPOSABLE INCOME IN THE THREE QUARTERS

TO JUNE 1976.

INDICATORS CURRENTLY AVAILABLE FOR THE DECEMBER QUARTER

SUGGEST CONTINUING MODERATE GROWTH IN PRIVATE DOMESTIC FINAL

DEMAND.

RETAIL SALES STATISTICS, AND MOTOR VEHICLE REGISTRATIONS ALSO,

FOR NOVEMBER AND DECEMBER INDICATE THAT PRIVATE CONSUMPTION

ENDED 1976 ON A MORE BUOYANT NOTE.

HOWEVER, I AM NOT SUGGESTING CONTINUED BUOYANCY BUT RATHER,

AS I SAID, CONTINUING MODERATE GROWTH IN THE ECONOMY TAKEN

AS A WHOLE

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BUSINESSES HAVE INDICATED THAT THEY EXPECT NEW CAPITAL

EXPENDITURE IN THE DECEMBER QUARTER TO BE WELL ABOVE ITS

SEPTEMBER QUARTER LEVEL.

WITH THE EXCEPTION OF NEW SOUTH WALES, CONDITIONS IN THE

DWELLING INDUSTRY REMAIN GENERALLY STRONG, AND, HAPPILY,

EVEN IN NEW SOUTH WALES SIGNS OF IMPROVEMENT IN THAT SECTOR

HAVE BEEN EMERGING.

A MOST HEARTENING AND IMPRESSIVE, BUT LITTLE APPRECIATED,

FEATURE OF THE GROWTH RECORDED IN 1976 IS THAT IT OCCURRED

DESPITE A REDUCED LEVEL OF REAL GOVERNMENT SPENDING.

THE MOMENTUM FOR GROWTH LAY ENTIRELY IN THE PRIVATE SECTOR.

REGRETTABLY, BUT HARDLY SURPRISINGLY, THIS LIFT IN DEMAND

AND PRODUCTION HAS NOT YET BEEN TRANSLATED INTO A DECLINE

IN UNEMPLOYMENT.

IN THE EARLY STAGES OF PAST RECOVERIES ALSO EMPLOYERS HAVE

BEGUN BY MAKING FULLER USE OF THEER EXISTING WORKFORCE.

AT TODAY'S MUCH HIGHER LEVELS OF WAGE AND SALARY COSTS, THERE

IS AN EVEN STRONGER INCENTIVE THAN BEFORE FOR EMPLOYERS TO

,SEEK OUT EVERY ALTERNATIVE MEANS OF INCREASING OUTPUT BEFORE

HIRING ADDITIONAL FULL-TIME WORKERS.

WE ALL RECALL THAT DICTUM OF A FORMER LABOR TREASURER THAT

IN CONDITIONS OF HIGH INFLATION, "ONE MAN'S WAGE INCREASE

IS ANOTHER MAN'S JOB".

YET THIS PROCESS WHEREBY TRADE UNION LEADERS HAVE BEEN

ENERGETICALLY PRICING THEIR MEMBERS OUT OF JOBS IS STILL

CONTINUING

ONE REASON FOR ANY FAILURE TO RECOGNIZE THE CLEAR PROGRESS

THAT HAS BEEN MADE IN 1976 IN GETTING THE ECONOMY BACK ONTO

A PATH OF SUSTAINABLE GROWTH LIES, I BELIEVE, IN THE

WIDESPREAD TENDENCY TO SEE THAT PROCESS ONLY IN TERMS OF THE

STATISTICS OF THOSE REGISTERED FOR EMPLOYMENT.

CLEARLY, THE PROVISION OF JOBS FOR ALL THOSE WHO WISH TO

WORK IS CENTRAL TO THIS GOVERNMENT'S OBJECTIVES.

BUT, AS IS WELL KNOWN, UNEMPLOYMENT DATA ARE NEVER AMONG

THE LEADING INDICATORS OF ECONOMIC RECOVERY.

IN THIS AS IN OTHER AREAS OF THE ECONOMIC DEBATE THERE ARE

THOSE WHO THINK THEY STAND TO BENEFIT FROM "TALKING DOWN"

THE PROGRESS THAT HAS BEEN MADE.

THE OPPOSITION, IN THIS AS IN OTHER RESPECTS, DOES NOT

WISH TO BE CONFUSED BY THE FACTS.

THOSE HOWEVER WHO PURSUE THIS COURSE PAY LITTLE HEED TO THE

EFFECTS THEIR ACTIONS HAVE ON CONFIDENCE IN THE COMMUNITY AND

PARTICULARLY, ON THOSE WHO WOULD MOST BENEFIT FROM INCREASED

CONFIDENCE - THE UNEMPLOYED.

THOSE WHO, FOLLOWING LAST AUGUST'S BUDGET AND MORE RECENTLY,

HAVE BEEN PEDDLING THEIR ALARMIST FORECASTS OF 500,000

UNEMPLOYED IN JANUARY ARE NOW DEMONSTRABLY IN THAT CATEGORY.

MUCH PROGRESS HAS ALSO BEEN MADE IN DEALING WITH THE BLOATED

PUBLIC SECTOR WE INHERITED.

MUCH MORE REMAINS TO BE DONE.

OUR OBJECTIVES IN THIS AREA HAVE BEEN TWO-FOLD.

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WE WANT TO SEE A SMALLER PUBLIC SECTOR.

WE ALSO WANT TO MAKE ROOM, BY REDUCING PUBLIC SPENDING,

TO MOVE FORWARD WITH OUR PROPOSED INITIATIVES FOR REDUCING

THE LEVEL OF TAXATION.

WE HAVE ALREADY MADE A SOLID START IN BOTH RESPECTS.

THE 1976-77 BUDGET PROVIDED FOR OUTLAYS TO GROW BY 11.3

PER CENT COMPARED WITH 1975-76.

THIS WAS IN STARK CONTRAST WITH RATES OF INCREASE OF

22.5 PER CENT IN 1975-76 AND 45.9 PER CENT IN 1974-75·

IN THE FIRST SEVEN MONTHS OF THIS FINANCIAL YEAR BUDGET

OUTLAYS HAVE BEEN HELD TO 11.2 PER CENT ABOVE THE

CORRESPONDING PERIOD OF 1975-76.

AS TO TAX REDUCTION, WE HAVE ALREADY MADE SOLID PROGRESS.

PROSPECTIVE TAX REDUCTIONS IN 1977-78 ALREADY AMOUNT TO OVER

>2 BILLION - OR OVER <3 BILLION COMPARED WITH THE SITUATION

AS WE FOUND IT.

PERSONAL INCOME TAX REDUCTIONS IN EXCESS OF $ 1 BILLION WILL

AUTOMATICALLY COME INTO EFFECT AS FROM 1 JULY NEXT.

THIS WILL BE A DIRECT CONSEQUENCE OF THE INDEXATION OF

PERSONAL INCOME TAX, INTRODUCED LAST YEAR AT AN ESTIMATED

COST TO THE BUDGET OF $1,050 MILLION IN 1976-77·

THE GOVERNMENT HAS ALSO EASED THE DISTRIBUTION REQUIREMENTS

FOR PRIVATE COMPANIES UNDER DIVISION 7 OF THE INCOME TAX

ASSESSMENT ACT AND' TAKEN A NUMBER OF STEPS TO REDUCE TAXATION

IN THE MINING AREA

THE ESTATE DUTY PROVISIONS WERE SUBSTANTIALLY EASED AND THE

NEW SYSTEM OF INCOME EQUALISATION DEPOSITS NOW GIVES FARMERS

THE OPPORTUNITY TO PROTECT THEMSELVES FROM THE EFFECTS OF

FLUCTUATING INCOME ON THEIR TAX LIABILITIES.

PRODUCTIVE INVESTMENT OF ALL INDUSTRIES IS NOW ELIGIBLE

FOR A GENEROUS INVESTMENT ALLOWANCE - WHICH, I SEE, THE

OFFICIAL SPOKESMAN FOR THE OPPOSITION ON TREASURY MATTERS

NOW SAYS SHOULD BE ABOLISHED.

MORE GENERALLY, THE GOVERNMENT IS COMMITTED TO A SCHEME,

TO BE INTRODUCED FROM 1 JULY THIS YEAR, OF TRADING STOCK

VALUATION ADJUSTMENTS TO RELIEVE 1976-77 BUSINESS INCOMES

OF SOME OF THE BURDEN OF TAXATION RESULTING FROM INFLATION.

THE GOVERNMENT HAS NOT MERELY TALKED ABOUT TAXATION REFORM

AND TAXATION REDUCTION.

IN ACCORDANCE WITH ITS COMMITMENT TO ONGOING REFORM OF THE

TAXATION SYSTEM, IT HAS ACTED.

THIS RECORD, ACHIEVED WITHIN THE SPACE OF A MERE TWELVE

MONTHS, CONTRASTS WITH THE MASSIVE TAX INCREASES IMPOSED

BY THE PREVIOUS GOVERNMENT.

WITHIN THE AMBIT OF FISCAL RESPONSIBILITY OPEN TO IT UP TO

THIS TIME, THIS GOVERNMENT HAS ACTED DECISIVELY TO LIGHTEN THE

COMMUNITY*33 TAXATION BURDENS.

BUT, AS ANY THOUGHTFUL PERSON KNOWS, WORTHWHILE TAX REFORMS

MUST INEVITABLY FORGO REVENUE.

IN MY PUBLIC STATEMENT OF 19 JANUARY WHILE THE HOUSE WAS IN

RECESS I CANVASSED THE FOUR POSSIBLE WAYS OF FINANCING THE

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REVENUE REDUCTIONS INVOLVED*

. INCREASING OTHER FORMS OF TAXATION%

. SHARPLY INCREASING INTEREST RATES IN ORDER TO STEP

UP GOVERNMENT BORROWINGS FROM THE NON-BANK PUBLIC|

. CUTTING BACK HARD ON GOVERNMENT EXPENDITURES! AND

. PRINTING MONEY.

VE HAVE RULED OUT THE FIRST TWO ALTERNATIVES.

WE HAVE SAID BEFORE, AND I SAY AGAIN, THAT WE WILL NOT FINANCE

TAX REFORM VIA THE FOURTH ALTERNATIVE - PRINTING MONEY.

IN CURRENT CIRCUMSTANCES TAX CUTS CAN THEREFORE ONLY BE

IMPLEMENTED RESPONSIBLY IF THEY ARE ACCOMPANIED BY

CORRESPONDING CUT-BACKS IN THE GROWTH OF EXPENDITURE, SO

THAT THEIR RESULTANT IMPACT ON THE DEFICIT IS OFFSET AND

OUR WHOLE ANTI-INFLATION STRATEGY IS NOT JEOPARDIZED.

IN SUMMARY, THEN, THE ECONOMIC STRATEGY PUT INTO EFFECT AND

COHERENTLY APPLIED THROUGH 1976 HAS BEEN DEMONSTRABLY

SUCCESSFUL.

SOME HAVE CLAIMED THAT THE DECISION TO DEVALUE IN LATE 1976

CONNOTES AN ABANDONMENT OF THIS STRATEGY - AN ADMISSION

THAT IT WAS NOT ACHIEVING RESULTS.

NOTHING COULD BE FURTHER FROM THE TRUTH.

IN THE CIRCUMSTANCES OF THAT TIME DEVALUATION WAS INEVITABLE

AND NO RESPONSIBLE GOVERNMENT COULD HAVE ACTED OTHERWISE.

THE IMMEDIATE BACKGROUND TO THAT DECISION WAS THE PERSISTENT

SPECULATION AGAINST THE AUSTRALIAN DOLLAR OVER PREVIOUS

MONTHS AND PROSPECTIVELY

THIS WAS NOT, OF COURSE, A NEW DEVELOPMENT; IT WAS ONE

OF THE FIRST PROBLEMS WE ENCOUNTERED UPON COMING INTO

OFFICE.

SPECULATION BOTH THEN AND LATER WAS BASED ON THE FACT

THAT UNDER THE PREVIOUS GOVERNMENT, AUSTRALIAN COSTS AND

PRICES HAD BEEN ALLOWED - INDEED ENCOURAGED - TO RUN WILD.

AS A RESULT, AS I SAID EARLIER, CONFIDENCE IN OUR CURRENCY

AT THAT TIME WAS STEADILY DECLINING BOTH AT HOME AND ABROAD.

AGAINST THAT BACKGROUND I NOTE THE CYNICISM OF THE

OPPOSITION * S CRITICISM OF DEVALUATION LAST NOVEMBER.

OF COURSE, THE GENESIS OF THAT DECISION LAY IN THE

PROFLIGACY OF 197^ AND 1975.

WHAT THIS GOVERNMENT DID SUCCEED IN DOING WAS TO STAVE OFF

FOR ALMOST TWELVE MONTHS THE CONSEQUENCES FOR OUR CURRENCY OF

THAT PROFLIGACY.

WE RECOGNISED THAT THERE WERE COSTS IN MAINTAINING THE

EXCHANGE RATE IN SUCH CIRCUMSTANCES.

NEVERTHELESS, WE DECIDED TO DO SO THROUGHOUT MOST OF 1976

TO ALLOW TIME FOR OUR BASIC ANTI-INFLATIONARY POLICIES TO BEGIN

SLOWLY TO CLEAN UP THE ECONOMIC SHAMBLES WE HAD INHERITED.

AGAINST THE BACKGROUND OF INEVITABILITY I HAVE REFERRED TO, OUR

DECISION AT THE END OF NOVEMBER TO VARY THE EXCHANGE RATE ALSO

REFLECTED A JUDGMENT THAT, VALUABLE THOUGH AN UNCHANGED

EXCHANGE RATE HAD BEEN THROUGHOUT 1976 IN CEMENTING THE

TOTALITY OF OUR ANTI-INFLATIONARY MEASURES, THE COSTS OF

RETAINING IT IN THAT ROLE FOR ANY LONGER WERE BECOMING TOO

HIGH TO BE ENDURED BY THOSE SECTORS OF THE ECONOMY ON

WHOM THE BRUNT OF THOSE COSTS WAS FALLING

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I CANNOT EMPHASISE TOO STRONGLY THAT THIS CHANGE DOES NOT

MEAN THAT OUR OBJECTIVE OF BRAKING INFLATION IS IN ANY

VAY ALTERED - STILL LESS THAT IT HAS BEEN ABANDONED.

THE TASK NOW BEFORE US IS TO ENSURE THAT THE SOLID PROGRESS

ALREADY MADE IN REDUCING INFLATION IS NOT UNDULY

INTERRUPTED BY THE INFLATIONARY CONSEQUENCES OF

DEVALUATION.

THE DIRECT IMPACT OF DEVALUATION IS LIKELY TO SHOW UP

PRINCIPALLY IN OUR MAJOR PRICE INDEXES IN THE MARCH AND JUNE

QUARTERS OF THIS YEAR.

THE KEY NEED IS TO ENSURE THAT THE VARIOUS FORMS OF

INDEXATION OPERATING WITHIN THE AUSTRALIAN ECONOMY TODAY

DO NOT RESULT IN THOSE DIRECT PRICE EFFECTS FLOWING ON INTO

FURTHER SECOND ROUND EFFECTS.

ONLY IF THIS CAN BE ACHIEVED WILL THE POTENTIAL BENEFITS

OF DEVALUATION MATERIALIZE INTO PROVIDING NEW JOB

OPPORTUNITIES AND REDUCING UNEMPLOYMENT.

THOSE BENEFITS ARE CONSIDERABLE.

THE COMPETITIVE POSITIONS OF OUR EXPORT AND IMPORT-COMPETING

SECTORS HAVE BEEN RESTORED AND INVESTOR CONFIDENCE IN THOSE

AREAS RENEWED.

WITH A VIEW TO PRESERVING THESE REAL AND IMPORTANT GAINS,

WE HAVE TAKEN A NUMBER OF STEPS DIRECTED AT LIMITING THE

SECOND ROUND EFFECTS OF DEVALUATION AND ENSURING THE

MAINTENANCE OF OUR BASIC STRATEGY.

IN DOING SO WE HAVE, AS ALWAYS, HAD TO STRIKE A BALANCE

BETWEEN ACTIONS IN THE DIFFERENT AREAS OF POLICY.

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FOR EXAMPLE, THE GOVERNMENT COULD HAVE SOUGHT TO DEAL WITH

THE IMPACT OF DEVALUATION ON DOMESTIC LIQUIDITY BY PLACING

A TOTAL EMBARGO ON THE ENTRY OF FUNDS FROM OVERSEAS - BUT

THIS WOULD HAVE CHOKED OFF INVESTMENT AND DAMAGED RECOVERY.

AGAIN, IT CLEARLY WAS NOT POSSIBLE TO CUT BUDGETARY

EXPENDITURES OVERNIGHT IN THE AMOUNTS THAT WOULD HAVE BEEN

REQUIRED.

AS i RAVE SAID, WE CHOSE A MORE BALANCED APPROACH.

IN THE EXCHANGE RATE FIELD ITSELF, WE HAD FIRST TO ACHIEVE

THE DESIRED INITIAL IMPACT ON SHORT-TERM CAPITAL FLOWS

BY THE LARGE DEPRECIATION OF 17.5 PER CENT.

WE DID ACHIEVE THAT DESIRED RESULT AND ENDED THE SPECULATION.

SUBSEQUENTLY, UNDER THE NEW ARRANGEMENTS FOR MANAGEMENT OF

THE RATE WHICH NOW OBTAIN, WE HAVE MADE A SERIES OF UPWARD

ADJUSTMENTS TO THE RATE WHICH HAVE NOW REDUCED THE

EFFECTIVE DEVALUATION FROM THE 26 NOVEMBER LEVEL TO

12.45 PER CENT.

WHILE MAINTAINING THE FUNDAMENTAL PURPOSE OF OUR ORIGINAL

DECISION, THESE ADJUSTMENTS HAVE HAD THE EFFECT OF

MINIMIZING THE EXTENT OF THE TIGHTENING NEEDED IN THE

OTHER ARMS OF POLICY. -

WE HAVE NONE THE LESS ALSO MOVED TO TIGHTEN UP THOSE OTHER

POLICY INSTRUMENTS.

AFTER DEVALUATION, WITH PROSPECTS FOR EASIER DOMESTIC

FINANCIAL CONDITIONS FLOWING FROM THE UNWINDING OF THE

PREVIOUS BUILD-UP IN "LEADS.AND LAGS" AND THE RENEWED

INFLOW OF OTHER FORMS OF CAPITAL, THERE HAS BEEN A CONTINUING

NEED TO CAREFULLY RE-ATTUNE THE MONETARY INSTRUMENTS.

THE OBJECTIVES OF THE GOVERNMENT'S MONETARY POLICY REMAIN -

NAMELY, TO ENSURE THAT ADEQUATE FINANCE IS AVAILABLE TQ

UNDERWRITE THE RECOVERY WHILE, AT THE SAME TIME, FINANCIAL

CONDITIONS BEAR DOWN ON INFLATION.

SINCE THE DEVALUATION WE HAVE MOVED, IN A MEASURED WAY, TO

MAINTAIN THAT APPROPRIATE DEGREE OF MONETARY RESTRAINT .

WITHOUT WHICH OVERABUNDANT LIQUIDITY WOULD BOTH STIMULATE

EXPECTATIONS OF ACCELERATING INFLATION AND PROVIDE THE

WHEREWITHAL TO VALIDATE THOSE EXPECTATIONS.

A NUMBER OF STEPS HAVE BEEN TAKEN TO LIMIT THE INFLOW OF

FUNDS FROM ABROAD WHICH, UNRESTRAINED, WOULD HAVE ADDED

EXCESSIVELY TO DOMESTIC MONETARY EXPANSION.

THE APPRECIATION OF THE EXCHANGE RATE OF THE AUSTRALIAN

DOLLAR IN A NUMBER OF SMALL ADJUSTMENTS IN DECEMBER, TO

WHICH I HAVE ALREADY REFERRED, WAS ITSELF IN ACCORD WITH THAT

ON 14 JANUARY I ANNOUNCED NEW AND STRENGTHENED RESTRICTIONS

ON OVERSEAS BORROWINGS, DESIGNED TO PERMIT THE CONTINUATION

OF BORROWINGS FOR HIGH PRIORITY CAPITAL PURPOSES AND TO BEAR

LESS HEAVILY ON LONGER-TERM BORROWINGS FOR OTHER PURPOSES

BUT ESSENTIALLY DIRECTED TO CHOKE OFF EXCESSIVE ADDITIONS

TO PRIVATE SECTOR LIQUIDITY.

THESE MEASURES ARE DESIGNED TO BEAR LESS HEAVILY ON SOME

SECTORS THAN ON OTHERS.

A KEY ELEMENT IN PREVENTING THE DEVELOPMENT OF TOO EASY

FINANCIAL CONDITIONS IS TO ATTRACT MORE FUNDS FROM THE

NON-BANK PRIVATE SECTOR INTO COMMONWEALTH GOVERNMENT

SECURITIES

15

ACCORDINGLY, GOVERNMENT SECURITIES WERE MADE RELATIVELY

MORE ATTRACTIVE.

INITIALLY, YIELDS ON TREASURY NOTES WERE INCREASED AS A

FURTHER NUDGE IN THE DIRECTION OF PREPARING FOR THE

SEASONAL LIQUIDITY CONTRACTION WHICH WILL COMMENCE A

MONTH OR SO FROM NOW.

SUBSEQUENTLY, IN THE LIGHT OF THE STRONG DEMAND FOR

TREASURY NOTES, THREE SMALL TECHNICAL DOWNWARD REVISIONS

IN YIELDS WERE EFFECTED.

IT IS A UNIVERSAL OBJECTIVE TO REDUCE THE LEVEL OF INTEREST

RATES AT THE EARLIEST OPPORTUNITY.

BUT NO GOVERNMENT CAN ACHIEVE THAT UNLESS IT CAN MAKE

SUSTAINED PROGRESS IN BRINGING INFLATION UNDER EFFECTIVE

LONG-TERM CONTROL.

MEASURES HAVE ALSO BEEN TAKEN TO PREVENT EXCESS SECONDARY

CREDIT CREATION.

TO THIS END, OVERALL DOMESTIC FINANCIAL CONDITIONS WILL

CONTINUE TO BE CLOSELY MONITORED BY THE AUTHORITIES.

SOME DISCUSSIONS HAVE BEEN HELD WITH, AND GUIDANCE GIVEN

TO,MAJOR FINANCIAL INSTITUTIONS WITH REGARD TO THEIR

LEVELS OF NEW LENDING.

IN ADDITION, THERE HAVE BEEN THREE INCREASES OF ONE

PERCENTAGE POINT EACH IN THE.STATUTORY RESERVE DEPOSIT

RATIO SINCE DEVALUATION AND ANOTHER IS TO BE EFFECTED ON

21 FEBRUARY.

16

THESE HAVE HELPED TO CONTAIN THE GROWTH IN THE MARGINS

OF FREE LIQUIDITY OF THE MAJOR TRADING BANKS - THAT IS,

BEYOND THE MINIMUM L.G.S. RATIO WHICH THEY ARE CURRENTLY

REQUIRED TO OBSERVE.

IN ORDER TO AID THE EFFECTIVENESS OF MONETARY MANAGEMENT

BY REDUCING WITHIN-YEAR SWINGS IN LIQUIDITY, IT HAS BEEN !

DECIDED TO BRING BACK INTO OPERATION IN 1977-78, AND

FULLY TO RESTORE IN 1978-79, THE SYSTEM UNDER WHICH COMPANY

TAX IS COLLECTED BY INSTALMENTS.

THE IMPROVEMENT IN COMPANY PROFITABILITY, TO WHICH I REFERRED

EARLIER, HAS IN ANY CASE DIMINISHED THE NEED FOR THIS KIND

OF INTERIM ASSISTANCE.

THESE NECESSARY ADJUSTMENTS TO THE MONETARY INSTRUMENTS

HAVE BEEN EXECUTED WITH CARE AND WITH CLOSE REGARD TO THE

NEEDS OF THE COMMUNITY FOR ACCESS TO CREDIT. "

THERE IS OF COURSE NO SUBSTANCE IN THE TIRED OLD CLAIM

THAT THESE ACTIONS WILL LEAD TO A "CREDIT SQUEEZE" IN THE

JUNE QUARTER. .

ON THE CONTRARY, THE FINANCIAL SYSTEM IS PROBABLY BETTER

PREPARED TODAY FOR THE IMPENDING LARGE SEASONAL DRAIN OF

FUNDS THAN IT HAS BEEN FOR MANY YEARS. .

THE MONETARY AUTHORITIES HAVE BEEN EXPLAINING THE

PROSPECTIVE SITUATION IN DETAIL TO FINANCIAL INSTITUTIONS

WHICH WILL BE HANDLING THE LARGE FLOWS OF FUNDS INVOLVED.

THE VERY SUBSTANTIAL NON-OFFICIAL HOLDINGS OF TREASURY

NOTES - OVER $2.6 BILLION - WILL SERVE TO SMOOTH THE

LIQUIDITY RUNDOWN

17

THE MINIMUM L.G.S. RATIO OF THE TRADING BANKS, WHICH IN

JANUARY OF LAST YEAR WAS TEMPORARILY RAISED FROM 18 PER

CENT TO 23 PER CENT, WILL REVERT TO 18 PER CENT AT THE

END OF MARCH AS PLANNED.

IN OTHER WORDS, JUST AS THE LIQUIDITY DOWNSWING IS GETTING

QivDER WAY AN AMOUNT IN THE ORDER OF $850 MILLION WHICH THE

BANKING SYSTEM IS NOW REQUIRED TO MAINTAIN IN THE FORM OF

L.G.S. ASSETS WILL BECOME AVAILABLE TO ASSIST THE BANKS IN

MEETING THE SEASONAL DRAIN ON THEIR FUNDS.

IN SHORT, UNLIKE 197^, THERE IS NO REASON TO DOUBT THAT THE

JUNE QUARTER WILL BE TRAVERSED SATISFACTORILY.

FOR THE LONGER TERM, THE TASK OF POLICY IN CONTAINING THE

GROWTH OF THE MONETARY AGGREGATES REMAINS.

IN THE BUDGET SPEECH IT WAS SUGGESTED THAT GROWTH IN THE

MONEY SUPPLY BROADLY DEFINED (M3) IN THE ORDER OF 10-12

PER CENT DURING 1976-77 COULD BE APPROPRIATE IN THE

CIRCUMSTANCES AS THEY WERE THEN ENVISAGED.

THE CHANGE IN CIRCUMSTANCES RESULTING FROM DEVALUATION HAS

MADE IT NECESSARY TO REVIEW THAT ESTIMATE IN THE

COURSE OF THE POLICY ADJUSTMENTS I HAVE JUST BEEN DESCRIBING.

THERE WILL BE TIMING LAGS BEFORE THE EFFECTS OF THOSE

ADJUSTMENTS ARE REFLECTED IN THE STATISTICS.

IN THE LIGHT OF THE SOMEWHAT HIGHER REAL GROWTH RATE NOW IN

PROSPECT FOR 1976-77, AND THE TURN-AROUND IN AUSTRALIA'S

EXTERNAL ACCOUNT FLOWING FROM DEVALUATION, THE ORIGINAL

10-12 PER CENT RANGE MAY, DEPENDING ON HOW CIRCUMSTANCES

18

u n f o l d , in d u e c o u r s e h a v e t o b e r e v i s e d m a r g i n a l l y

UPWARDS.

WHAT WILL BE IMPORTANT - AND WHAT WE PROPOSE TO ENSURE -

IS THAT THE RATE OF GROWTH OF THE MONEY SUPPLY SHOULD

CONTINUE TO COME UNDER FIRM BUT STEADY MODERATION AS

1977 WEARS ON.

I TURN NEXT TO THE AREA OF FISCAL POLICY.

ALTHOUGH FOR OBVIOUS REASONS ATTENTION SINCE THE DEVALUATION

HAS BEEN CHIEFLY CONCENTRATED UPON THE DOMESTIC LIQUIDITY

EFFECTS OF THE TURNAROUND IN THE EXTERNAL CAPITAL

ACCOUNT, THE MAIN CONTINUING SOURCE OF LIQUIDITY GROWTH

IS STILL THE BUDGET DEFICIT.

MONETARY MANAGEMENT PROBLEMS IN THE POST-DEVALUATION PERIOD

THUS UNDERLINE THE NEED FOR CONTINUED AND INDEED ENHANCED

EXPENDITURE RESTRAINT.

EXPENDITURES ARE THEREFORE BEING MONITORED CLOSELY AND

THE GOVERNMENT REMAINS DETERMINED TO HOLD THE INCREASE IN

TOTAL OUTLAYS WITHIN THE 11.3 PER CENT PROVIDED FOR IN

THE BUDGET.

ON 16 DECEMBER.I ANNOUNCED THAT, FOLLOWING A FURTHER REVIEW

OF THE 1976-77 ESTIMATES, THE GOVERNMENT HAD DECIDED

UPON SAVINGS OF $250 MILLION. '

THESE SAVINGS ARE TO BE ACHIEVED MAINLY BY DEFERRING

EXPENDITURES AND BY ENSURING THAT EXPECTED SHORTFALLS OF

EXPENDITURE ON A VARIETY OF ITEMS ARE IN FACT REALIZED

AND NOT UTILISED FOR OTHER PURPOSES

THE GOVERNMENT IS SEEKING TO ACHIEVE FURTHER SAVINGS OVER

THE REMAINDER OF 1976-77 WHEREVER IT IS POSSIBLE TO DO SO.

BECAUSE OF THE SUCCESS OF MANAGEMENT IN THE STAFF CEILINGS

AREA, THE PUBLIC SERVICE BOARD RECENTLY ADVISED THE

GOVERNMENT THAT TOTAL STAFF IN THE PUBLIC SERVICE ACT

AREA OF COMMONWEALTH EMPLOYMENT IS EXPECTED TO BE UP TO

700 LOVER THAN THE CEILING EARLIER DETERMINED BY THE

GOVERNMENT.

AS I ANNOUNCED ON JANUARY, THIS LOVER FIGURE HAS NOV

BEEN TAKEN AS THE NEV CEILING OBJECTIVE FOR END-JUNE 1977.

THIS MORE DISCIPLINED AND RESPONSIBLE APPROACH TO GOVERNMENT

EXPENDITURES WILL BE CONTINUED IN OUR DELIBERATIONS OVER

THE MONTHS LEADING UP TO THE 1977-78 BUDGET.

WE SHALL BRING THE SAME RESPONSIBLE APPROACH TO THE TIMING

AND MAGNITUDES OF FUTURE REDUCTIONS IN TAXATION.

IN THIS CONNECTION I NOTE THAT THE OPPOSITION HAS RECENTLY

LENT ITS SUPPORT TO CALLS FOR IMMEDIATE TAX CUTS AS WELL AS,

IN ITS CASE, AN INCREASE IN PUBLIC EXPENDITURES.

THIS IS REMARKABLE.

THE OPPOSITION APPEARS TO HAVE FORGOTTEN THAT THERE IS NO

AUTOMATIC NEXUS BETWEEN ECONOMIC ACTIVITY ON THE ONE HAND,

AND TAX CUTS AND INCREASED GOVERNMENT SPENDING ON THE OTHER.

AS BRITAIN·S PRIME MINISTER, MR CALLAGHAN, SAID IN HIS

SPEECH TO THE BRITISH LABOUR PARTY CONFERENCE ON 28 SEPTEMBER

LAST - AND I QUOTEt

"WE USED TO THINK THAT YOU COULD JUST SPEND YOUR

WAY OUT OF A RECESSION AND INCREASE EMPLOYMENT

BY CUTTING TAXES AND BOOSTING GOVERNMENT

20

SPENDING. I TELL YOU IN ALL CANDOUR THAT THAT

OPTION NO LONGER EXISTS AND THAT INSOFAR AS

IT EVEN DID EXIST, IT WORKED BY INJECTING

INFLATION INTO THE ECONOMY."

WE MIGHT BEAR IN MIND THAT THE PROBLEMS WHICH NOW CONFRONT

AUSTRALIA ARE THE PRODUCT OF THOSE VERY SAME QUACK REMEDIES

NOW ADVANCED BY THE OPPOSITION.

THEY ARE THE "REMEDIES" WHICH IT APPLIED IN 197^* WHEN, IN

THE WORDS OF ITS LEADER IN HIS RECENT "CURRENT AFFAIR"

INTER-VIEW, THE THEN CABINET PANICKED AND SO DID MOST

MEMBERS OF THE CAUCUS.

I ASSURE THE OPPOSITION THAT WE HAVE NO INTENTION OF

FOLLOWING THAT EXAMPLE. .

AGAINST THAT HISTORICAL BACKGROUND, HOWEVER, CALLS BY THE

OPPOSITION FOR A NEW PACKAGE OF STIMULATORY MEASURES AT THIS

TIME CAN BE BEST DISMISSED AS A LURCH BACK INTO THE

POLICY ERRORS OF THE PAST.

IN THE TERMS OF THE CAPTION TO THE RECENT PICKERING CARTOON,

WHAT THE OPPOSITION IS SAYING TO THE AUSTRALIAN PEOPLE IS:

"WE GOT YOU INTO THIS MESS AND, BY GEORGE, WE'LL GET YOU OUT"

SINCE DEVALUATION WE HAVE THUS MOVED, IN A MEASURED AND

PRAGMATIC WAY, TO ADJUST BOTH MONETARY AND FISCAL POLICIES.

BUT, AS I HAVE STRESSED IN THIS HOUSE PREVIOUSLY, THE BEST

SETTINGS OF MONETARY AND FISCAL POLICIES CAN BE THROWN OFF

COURSE IF DEVELOPMENTS IN THE FIELD OF WAGES POLICY ARE OUT

OF KILTER WITH THE ANTI-INFLATION OBJECTIVE.

SINCE COMING TO OFFICE THE GOVERNMENT HAS, FIRMLY AND

CONSISTENTLY, POINTED TO THE CRUCIAL IMPORTANCE OF

WAGE RESTRAINT FOR THE SPEEDY WINDING DOWN OF INFLATION;

FOR THE RESTORATION OF CONSUMER AND BUSINESS CONFIDENCE;

FOR THE RESTORATION OF THE PROFIT SHARE; FOR THE

SAFEGUARDING OF OUR INTERNATIONAL COMPETITIVE POSITION;

AND ABOVE ALL FOR THE PROVISION OF JOBS FOR THE GROWING WORK­

FORCE.

DEVALUATION HAS, FOR THE TIME BEING, STRENGTHENED OUR ·

INTERNATIONAL COMPETITIVE POSITION, TO THE BENEFIT OF OUR

EXPORT AND IMPORT-COMPETING INDUSTRIES.

BUT WITH EXTERNAL POLICY NOW SHOULDERING LESS OF THE BURDEN

IN THE FIGHT TO GET ON TOP OF INFLATION, WAGES POLICY, AS

WELL AS FISCAL AND MONETARY POLICIES, MUST PLAY A GREATER

ROLE THAN PREVIOUSLY IN SHOULDERING THAT BURDEN.

WITHOUT TIGHTENING UP ON THE WAGES FRONT, AS HAS BEEN DONE

IN THE OTHER ARMS OF POLICY, THE INFLATIONARY PROBLEM WILL

WORSEN.

IN THAT EVENT THE VERY REAL GAINS WHICH DEVALUATION HAS

BESTOWED ON OUR EXPORT AND IMPORT-COMPETING INDUSTRIES

WILL BE QUICKLY DISSIPATED AND THE ENHANCED JOB OPPORTUNITIES

WHICH THAT, IN TURN, WOULD HAVE PROVIDED WILL NOT MATERIALIZE. ■ - V : ' "

INDEED, IF THE INITIAL DIRECT PRICE CONSEQUENCES OF DEVALUATION

ARE ALLOWED TO FLOW THROUGH INTO HIGHER WAGES AND THEN BACK

INTO HIGHER PRICES AND SO ON, IT IS NOT ONLY OUR EXPORT AND

IMPORT-COMPETING INDUSTRIES THAT WOULD SUFFER.

THE WHOLE ECONOMY WOULD FEEL THE EFFECTS.

THE VERY REAL PROGRESS OVER THE PAST YEAR TO GET ON TOP OF

INFLATION WOULD BE PLACED IN JEOPARDY

AS THE OECD SURVEY ON AUSTRALIA RECENTLY PUBLISHED SAID,

"IT IS ALSO ESSENTIAL THAT THE ADJUSTMENT OF WAGES TO

INCREASES IN THE COST OF LIVING SHOULD BE ONLY PARTIAL".

THE UPWARD THRUST TO THE INFLATION RATE WHICH, FOR EXAMPLE,

FULLY INDEXED WAGE INCREASES NOW WOULD INEVITABLY INVOLVE

WOULD AGAIN BEGIN TO DISTORT THE CONSUMER SAVING RATIO

AND THE WAGE-PROFIT SHARE WHICH, A S T HAVE SAID, WE HAVE

GONE A LONG WAY TO CORRECTING.

ECONOMIC RECOVERY WOULD BE HELD BACK AND MORE PEOPLE WOULD

FIND THEMSELVES OUT OF WORK - AND OUT OF WORK FOR LONGER

PERIODS.

THIS IS NOT AN ATTRACTIVE PROSPECT.

WE SHALL BE STATING OUR POSITION ON THIS MATTER FULLY IN

THE NATIONAL WAGE CASE WHICH IS EXPECTED TO COMMENCE WITHIN

A FEW WEEKS AND I DO NOT PROPOSE TODAY TO FORESHADOW OUR

SUBMISSION IN DETAIL.

I MAKE IT CLEAR HOWEVER, THAT IN THE FORTHCOMING NATIONAL

WAGE CASE, IN SUBSEQUENT NATIONAL WAGE CASES, IN INDIVIDUAL

INDUSTRY CASES, IN THE AREA OF COMMONWEALTH EMPLOYMENT,

AND IN EVERY OTHER WAY OPEN TO IT THE GOVERNMENT INTENDS,

IN THE PERIOD AHEAD, TO PRESS VERY STRONGLY INDEED FOR A

MAXIMUM MEASURE OF WAGE RESTRAINT.

IN THESE REMARKS I HAVE SET OUT CLEARLY THE REAL PROGRESS

MADE DURING 1976 IN MOVING AUSTRALIA BACK FROM THE

PRECIPICE WITH WHICH, LITTLE MORE THAN A YEAR AGO, IT WAS

22

CONFRONTED

23

I HAVE SPOKEN ALSO OF THE RECENT PROCESS OF POLICY

ADJUSTMENT IN THE POST-DEVALUATION SITUATION.

WHAT THEN OF THE PERIOD AHEAD?

THE SUBSTANTIAL PROGRESS VE HAVE MADE DURING 1976 IN CORRECTING

THE ECONOMY·S COURSE HAS HINGED ON THE SUCCESS VE HAVE HAD IN

COMBATING INFLATION.

THE CORRECTNESS OF THIS STRATEGY HAS BECOME INCREASINGLY

APPARENT.

AGAIN, AS THE OECD SURVEY ON AUSTRALIA SAID: "THE STRATEGY

FOLLOWED BY THE AUTHORITIES VAS VIRTUALLY THE ONLY POSSIBLE

ONE IN THE CONDITIONS APPLYING".

OUR POLICY OVERALL - OF CONTINUING THE FIGHT AGAINST

INFLATION - REMAINS UNCHANGED.

THE FUTURE COURSE OF WAGES WILL BE CRUCIAL IN THIS REGARD.

SUCCESS IN PREVENTING THE UNAVOIDABLE DIRECT PRICE EFFECTS

OF DEVALUATION FROM SNOWBALLING INTO A RENEWED INFLATIONARY

CYCLE WOULD ENSURE THAT THE GROWTH WE HAVE BEEN EXPERIENCING

WOULD CONTINUE TO STRENGTHEN AND CONSOLIDATE.

IN THAT CASE, THE OUTLOOK WILL BE FOR CONTINUED GROWTH IN

DEMAND AND EMPLOYMENT OVER THE COURSE OF 1977.

CONSUMPTION, PRIVATE INVESTMENT, EXPORTS AND INVENTORY

CHANGES SHOULD ALL CONTRIBUTE TO THAT GROWTH.

THE NEED FOR CONTINUED RESTRAINT OVER GOVERNMENT EXPENDITURE

WILL MEAN THAT GROWTH IN TOTAL PUBLIC SECTOR SPENDING WILL

REMAIN LOW

k

... 2 k . ' . . ■ · .

AS ALREADY ANNOUNCED THE GOVERNMENT HAS DECIDED THAT IN

1977-78 BUDGET OUTLAYS WILL BE KEPT WITHIN ZERO "REAL"

GROWTH AND THAT THE DEFICIT WILL BE REDUCED.

IN ADDITION, ACTUAL AGGREGATE STAFF NUMBERS AT END-JUNE

1977 WILL BE THE CEILING OBJECTIVE FOR PUBLIC SERVICE ACT

EMPLOYMENT IN 1977-78.

SO FAR AS 1976-77 IS CONCERNED, THE OVERALL RISE IN NON-FARM

PRODUCT SEEMS LIKELY TO EXCEED THAT FORESEEN AT THE TIME OF

THE BUDGET.

FURTHER AHEAD, THERE IS EVERY PROSPECT FOR CONTINUED HEALTHY

GROWTH PROVIDED INFLATION IS CONTROLLED.

AUSTRALIA IS ON THE PATH TO RESTORED PROSPERITY AND

OUR POLICIES HAVE BEEN CENTRAL TO ACHIEVING THAT.

THERE IS STILL A LONG WAY TO GO.

NOT MERELY AS A GOVERNMENT BUT AS A NATION, WHAT IS NEEDED

FOR THE PERIOD AHEAD IS STEADINESS AND RESOLUTION AS WE

GIVE OUR POLICIES TIME TO WORK.

IN 1977 WE SHALL BUILD FURTHER UPON THE REAL PROGRESS

ALREADY RECORDED IN 1976.