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Wednesday, 28 March 1973
Page: 781

Mr LYNCH (Flinders) - The Opposition recognises that inflation is, of course, Australia's major economic problem, but we on this side of the House totally reject the concept and the desirability of establishing a Joint Committee on Prices. We see such a Committee as, in a sense, a form of economic back, seat driving, and we believe that in practice and in application it will prove to be impracticable. A committee which is established to examine prices without at the same time examining wages must, in our view, prove to be ineffectual because it will be necessarily concerned with the symptom rather than with the basic cause of inflation. A committee which seeks to examine price levels in the private sector without having regard to the inflationary impact on the economy of the public sector will not have the capacity to examine the overall nature of Australia's inflationary experience. Moreover, it is a clear indication of the Government's continuing desire to denigrate private industry and, at the same time, to seek to absolve itself from its own economic responsibilities.

A parliamentary committee is, in fact, singularly inappropriate to examine questions of this type, particularly when the Government has at its disposal the expertise of Government departments such as the Treasury which have a particular competence to provide accurate and meaningful information as to the extent and the cause of this country's inflationary difficulties. A brief examination of the problems which were apparent during Mr Justice Moore's recent evaluation of the Broken Hill Pty Co. Ltd's price submissions can only demonstrate beyond doubt the difficulties and complexities inherent in any committee examination of the pricing policy and structure of a particular company or industry. The fact that the Government is seeking to establish a series of organisations and procedures designed to examine prices rather than the overall nature of our inflation problem, is evidence of the traditional outdated thinking within the Australian Labor Party that the problem of inflation can best be met by the control or restraint of prices. The major flaw in the argument that the introduction of tribunals and committees to control prices is an effective method of curbing inflation, proceeds from the premise that price control is the logical corollary of wage control by arbitral machinery. This, of course, is a fallacious and untenable proposition. Wages are not fixed in this country. Award rates in different classifications of labour are determined by the various tribunals but they are minimum, not maximum, rates. Actual wages are far above the minimum, and of course are set by market forces - the supply and demand for various types of labour.

One of the major problems in the conciliation and arbitration area in recent years has been the attempt by both employers and trade unions voluntarily to reach negotiated agreements, without reference to the concept of public interest, which they then seek to have legitimised by the machinery of arbitration. In addition, although minimum rates for various skills are determined by wage fixing bodies, individuals remain free to increase their incomes by acquiring greater skills or by their promotion to positions carrying additional responsibilities or by working overtime. The claim that wages are fixed while profits are not controlled ignores the basic differential between these 2 types of income. For the great majority of employees in industry wages are a guaranteed reward, and the wage earner knows with some degree of certainty the level of his minimum yearly income. In contrast, profits are far from certain, and the difficulties inherent in the attainment of both short and long term profit goals need no elaboration in this House. Economists generally concede that profits are the reward for risk, and those who choose to invest their money in industry must of course incur an element of chance.

The argument that wages are controlled and that, therefore, in the interests of equity, prices and profits should likewise be controlled assumes that there is one section of people who receive their incomes in the form of wages and another section who receive their income from company dividends. This assumption has, I believe, no direct relevance to the experience of a modern western economy. Company profits have very little to do with the distribution of income. The major shareholders in modern industry are no longer individuals but substantial financial institutions such as life assurance companies, pension funds, investment companies, unit trusts and so on.

Profits largely determine the level of capital investment in industry. If profits are inadequate, industry is unable to attract funds for the expansion of its activities and the introduction of advanced technologies. Before assuming office the Prime Minister (Mr Whitlam) stated that one of his major priorities in government would be to increase substantially the level of productivity. To achieve substantial productivity gains, however, it is clearly necessary to apply greater capital and technological inputs to available labour resources. Over recent years increases in unit prices have been markedly overshadowed by increases in unit labour costs, with a subsequent reduction in the rate of return on investment. It is not, in my view, reasonable to expect a continuing commitment of shareholder funds without a reasonable certainty that the rate of return will exceed the level of inflation. As inflation increases tend towards the rate of Investment return on capital, spending can be expected to decline in conjunction with a slow down in the growth of the gross national product in real terms.

The final consequences of this situation can only be the diminishing capacity of the economy to pay for higher real wages and the diminishing real benefits derived from social welfare programs. In addition, it is increasingly true that due to the concentration of capital and the consolidation of small companies into corporations, profitability levels are now very closely associated with the general economic circumstances prevailing at a particular time rather than the entrepreneurial expertise of a particular company. Excess profits cannot be justified in any circumstances but a community must stand to benefit from a fair and real level of profit return. Enterprise will be encouraged, industrial growth will be accelerated and productivity will be enhanced. The freedom of business to determine its prices is the central feature of economic systems characteristic of all Western countries where people enjoy living standards far in advance of those in economies where no such freedom exists.

Our recent inflationary pressures cannot be ascribed to the existence of excess demand in the economy. In recent years most economists have accepted that the problem has been caused by cost push factors. Economic indicators comparing levels of demand, prices and earnings clearly show that the acceleration in earnings has been coincidental with the acceleration of inflation rather than with those factors associated with demand. An examination of the movements of the components of the implicit price deflator for gross non-farm products - unit labour costs and unit profit margins - demonstrates clearly that the impetus in the acceleration in prices has not emanated from unit profit margins. The movements in prices and unit labour costs were generally in line with each other until 1968-69 but since that time unit labour costs have risen at a much higher rate than implicit prices. The figures demonstrate that the acceleration in labour costs has preceded the acceleration in prices and that the increases in labour costs have been of greater magnitude than the increases which have occurred in the price area. The argument that inflation is due to profit push, that is, prices rise essentially as a consequence of attempts by producers to increase their profit margins and that wage rises represent merely an effort to restore relative equity, cannot be sustained by fact. During the last 4 years total wages and salaries have increased at over twice the rate at which private business income, excluding depreciation and interest, has increased.

In spite of the overwhelming evidence concerning the causes of our inflationary problems and the well documented failure of prices policies adopted by other countries, this Government remains intent upon establishing a series of tribunals and organisations to examine and control prices in a vacuum, of course, without reference to the essential labour input ingredients. At the same time the Government has committed itself to a heavy program of expenditure and to the support of unpredecented levels of industrial concessions which include a 35-hour week, 4 weeks annual leave and equal pay. No responsible government in this country can seriously expect to address its mind to the question of inflation if its own policies entail such massive inflationary consequences in themselves. The Opposition believes that the Government has a primary responsibility to appeal for restraint throughout the general community in the interests of the total community and particularly the wage and salary earners who work within it. The Government must ensure the continued maintenance of an arbitration system wherein these wage and salary demands which are clearly inconsistent with the national interest can be effectively challenged. To argue that we should look simply at the question of prices and not simultaneously at the question of wages is to treat the symptom of inflation rather than the cause. Because of this the proposed committee will be unworkable; it will prove to be impracticable because it will be unable effectively to address its mind seriously to the essential question of inflation. Therefore, in terms of the proposal before the House and the alleged logic of the case which the Government has put, the Opposition parties reject the concept of the committee because of its impracticability.

We believe that the thinking upon which the concept is founded is erroneous. We believe that the function of the committee would be wholly inappropriate to the task with which it is charged and that it is nothing more than a simple veneer, a cosmetic device brought down by the Government which can have no directly useful function in the control of inflation in this country. Having said that I want to make it perfectly clear that although we reject the concept of the committee and believe that it is totally impracticable and simply will not function effectively, we on this side of the House are not prepared to allow the Government to make this committee a creature of Labor Party policy. For that reason, without obstructing the working of the committee in this House by a vote of the

House, we are certainly prepared to be directly involved in the operation of the committee although, as I mentioned before, we have very serious doubts as to its short and long term impact. We believe that its workings will be totally impracticable as a remedy to the problem it seeks to solve. Equally we believe that the committee must address itself to the question of the public sector and not simply the private sector and I seek leave to move in that context 2 amendments together which have been circulated to the Government.

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