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Wednesday, 29 August 1973
Page: 527

Mr MALCOLM FRASER (Wannon) - I support the amendment moved by the Leader of the Opposition (Mr Snedden) so ably last night. This Budget is seen as an instrument of social and political reform. It effects a substantial transfer of payments from the productive sector of the economy to welfare, social services, health and education. The House will generally welcome efforts to relieve real hardship, and the extent of the Government's efforts in this area need to be measured by the fact that $ 1,396m of the total of $l,938m additional expenditure, or 72 per cent, is going into these areas. This is an enormous increase especially when measured against the increases in recent years. Up to 1965 the total expenditure in these areas was under $l,200m. By 1972 it had grown to just under $2,900m and this Budget will bring the total to $3,4 18m. This is the most substantial positive feature of the Budget. It has been achieved at the expense of many other factors and I intend to examine two of them. Firstly, I will examine the Budget's impact on inflation, and secondly, its effect on continued growth, its prejudiced and sectional approach to rural communities.

I deal firstly with inflation. The Budget is based on a 13 per cent increase in average earnings, on a $ 1,938m or 18.9 per cent increase in government expenditure. By subterfuge the Budget is dragging nearly $600m from the private sector to the government sector of the economy. The Budget is based on an overall deficit not far short of $700m and a domestic deficit of over $160m. If honourable members want to compare those with the deficits of last year, the very different financial circumstances between the 2 years need to be noted. Based on these factors it is clear that the Government has renounced Budget policy as an instrument or a weapon to be used against inflation. On the contrary, the Budget will add markedly to inflation. Increased government revenue of $ 1,960m or over 20 per cent will not deter inflation because 17 per cent or $l,600m is financed through inflationary income expectations, through wage increases putting people into higher tax brackets. For example, personal tax receipts are up 27 per cent or nearly SI, 100m and this shows the Government's vested interest in continuing inflation. This is the main reason the Government refuses to act responsibly over inflation. It is my firm view that inflation in the last quarter of this year will reach an annual rate of 20 per cent.

If anyone doubts this he needs to look at the indicators. June building approvals were 54 per cent above the equivalent level for 1971-72; average weekly earnings in the June quarter increased by over $10; job vacancies have been rising rapidly at a time when migration has been restricted in a way which is already jeopardising the progress, development and expansion of certain industries. In the last financial year the volume of money increased by $4,500m or 26 per cent while the volume of production increased by only 5 per cent. There can be only one result from that, a very significant increase in inflation. Some people try to measure the inflationary impact of the Budget by the ratio of the total deficit to receipts, and in this Budget that ratio is over 6 per cent. This is far too high. In 1969-70 it was .1 per cent and in 1970-71 it was .9 per cent. In 1971-72 it was 2.1 per cent. Last year in very different circumstances, again when the Government of the day was 'being urged to stimulate the economy, it was a little over 8 per cent. This year it is 6 per cent in circumstances that are already highly inflationary. This is, however, an unfortunate standard to use - even though it has been used by a number of economists - because the higher the expectation of inflation the more respectable a highly inflationary deficit then appears to be. But even using that standard the measure shows the Budget to be highly inflationary.

There are still many social evils in inflation which we tend to forget. There is the arbitrary redistribution of wealth which penalises those who are weak and cannot defend themselves. It can spell death to many exporters and it leads under present circumstances to inflation psychology. People plan for it and by planning for it they make inflation inevitable. The Government is significantly to blame for this. It becomes a disaster when people lose confidence in money and when they refuse to hold it. It leads to speculation in land and housing, to spending on goods that otherwise would not occur. At 20 per cent inflation, that inflation psychology has certainly arrived. But lest the Government try to blame its predecessor it ought to be noted that in the 5 years to 1969-70 the consumer price index increased by a fraction over 3 per cent and in the 3 years to 1972-73 by under 6 per cent but it was easing at the end of last year before the general elections. In the March quarter this year it was going at an annual rate of 8.4 per cent; in the June quarter 13.2 per cent; and in the next quarter - the last quarter for this year - it will be 20 per cent. I make that prediction with the greatest degree of confidence. That has occurred within the life of this Government because of the policies of this Government.

The Government has said that prices cause inflation. They can be an element but from the December quarter 1970 to 1972 adult male wages rose by over 21 per cent, average weekly earnings rose by over 22 per cent, the consumer price index increased by under 12 per cent and gross operating profits of companies increased by a fraction over 12 per cent. So in those years at least it was not prices that were providing the main stimulus to inflation. The causes are many sided. They include wages moving ahead of productivity as they have and as they are likely to because as we get wage determinations in the more productive industries these tend to flow through to the industries that are less productive. So wages are likely to continue to move ahead of productivity until there is a greater growth of productivity. It is necessary at this point to show that those who work in an industry participate in and benefit from increases from productivity and to have them understand that the advantages do not just accrue to the employer.

The economic power of sectional interests can be a significant inflationary cause and here the changing relationships of the great and powerful amalgamating unions and employers can be a significant factor in causing inflation. The position of the service industries which have absolute protection from overseas competition and whose costs are often increased by direct government taxes, adds greatly to inflation. Most powerfully of all, the increase in Government spending in todays circumstance is the greatest inflationary factor of all.

I have already mentioned the attitude of people - the inflation psychology which is present in the Australian community' at the moment and for which the present Government is responsible. There are of course external factors such as the balance of payments but these matters are not as significant as the domestic features which are within the hands of this Government to control if it has the will. But when we look to see what the Government has done we see that it has revalued the currency twice. It has established the Prices Justification Tribunal; it has increased the calls to statutory reserve deposits and it has lowered tariffs. These measures cannot and will not be successful while the underlying conditions for inflation remain. These measures are aimed primarily at prices and this sometimes is a cause and sometimes a symptom of inflation and as I have shown in the present circumstances certainly not the main cause of inflation. This Government will not act to relieve the pressure of inflation while people accept inflation or while it is more politically popular to ride with it than it is to defeat it. The question to be asked is whether or not 20 per cent inflation will be sufficient to cause a national cry of anger against the policies of the Government. We are now well in the realm of South American economics.

Short of a situation of extreme inflation psychology when people's faith in currency is utterly destroyed, the underlying cause of inflation has been and is expectations outstripping national resources. Whether the pressure be demand pressure alone or whether it be pressure on wages, or a combination of the two as it now is, it is promoted by different groups seeking a greater share of national resources - often at the expense of others. The competition can be between government and private expenditure, between wages and profits, between welfare and productive resources or maybe between governments themselves. This Budget does nothing to reconcile that competition. It does nothing to allay the false view that unlimited expectations can be fulfilled; that restraint is an outmoded and old fashioned view.

If inflation is to be cured expectations of governments and of people must be brought back to reality. We cannot spend our own money and give it to the government to spend, too. While it is in power the Government must choose. It has abdicated. It is not prepared to show restraint in its own expenditure, nor is it prepared to require restraint of others. The Government is dedicated to increased welfare, but it does not realise that increased welfare and better provision for the disadvantaged can come only from increased productive resources. It is not possible merely to transfer resources from the productive sector to welfare without destroying our capacity to meet national aspirations for the disadvantaged in the areas where compassion must be shown. The Government's policies are opposed to growth and thus in the longer term they will defeat their own objectives. We have only to look at the policies relating to the mining industry, the changes in tax, the no equity suggestions made by the Minister for Minerals and Energy (Mr Connor) and the provisions for overseas investment, the 25 per cent rule. Investment has been hit by revaluation and by tariffs.

In the rural sector 2 disastrous and stupid decisions have been made, amongst others, which will make it much harder for farmers to meet the exigencies of drought, and the special provisions to encourage fodder conservation on the farms and water conservation in the driest continent in the world have been wiped out completely and utterly. That is a stupid and ridiculous position for the Government to take. The attitude that a high level of overseas reserves is a sin is also something which the Government has adopted. But here the Minister for Secondary Industry (Dr J. F. Cairns) has adopted a somewhat different view and one with which I would largely agree. He has pointed out that the trading surplus could well be short lived, and high commodity prices have all peaked together and that this is highly unusual, and that the impact of currency and tariff decisions is uncertain and that these matters have not yet worked themselves out. He might have added the other factors that I have mentioned which are against growth in the economy.

The Minister for Secondary Industry mentioned the advantages of high reserves. He has pointed out that they free us from the constant pressure of balance of payments in our domestic policies, that they free us to expand our economy, that they free us to deal with overseas ownership and control, that they free us to pay off overseas debts if we want to do so and they free us to invest overseas. He has pointed out that we should not be negative, as the Government is, but that we should be constructive and positive in overcoming the problems concerning overseas investment and overseas reserves. He has pointed out that the loss of exports as a result of the Government's decisions could well increase the costs to a number of industries by about 10 per cent. The Prime Minister (Mr Whitlam) has said that he wants a growth rate of 7 per cent. It has averaged about 5 per cent over the last 10 years and this has been the result, over 10 years, of policies that encouraged growth. In circumstances in which the Government will not encourage growth but will inhibit it, it is quite certain that the Prime Minister's figure of 7 per cent cannot and will not be reached, particularly when there is an impetus from the Government itself for shorter working hours and for more leisure, coupled with the other matters concerning overseas capital, minerals and rural industries.

Some people are now saying that growth is opposed to quality; that if we have growth in the Australian economy we cannot have quality in the environment, in the cities and in the countryside. I firmly believe that growth is essential to quality of life in Australia, quality in the environment, quality in welfare services and quality in compassion for those who need assistance and those who need help. Growth in fact results from policies that improve welfare because if we want a better life we need greater resources in order to provide for that better life. Those who oppose growth point to the possible exhaustion of resources. I believe that those who use that argument are using an argument that is as old fashioned and outdated as it was when it was first used some centuries ago. Changing technology can often overcome shortages of a particular commodity in one area or another. Those who use this argument always point to known reserves. They do not realise or take any account of the fact that there are significant reserves not yet discovered. We have only to look at examples of what has occurred within Australia to realise the falsity of this argument. For a long while iron ore exports from Australia were prohibited because we thought our reserves were limited but now they are permitted. Our reserves are immense but, as immense as they are, they represent about 2 per cent of known world reserves. One could list other metals and minerals and point to equivalent circumstances in many instances. I do not believe the world will run out of resources.

I believe that those who suggest that Australia has reached a minimum population are utterly pessimistic about the future. Some honourable members in the ranks of the Government adopt that particular approach. Whether it is intended or not, the policies of the Government certainly move in that direction. Its policies will run down the dynamic of progress and will prevent the expansion of the Australian economy. We see it already in so many areas of activity. The Government's policies will be self-defeating. Its policies will wind down the forces of progress. The Government promised many Australians a better life for less work. That promise is as shallow as the philosophy upon which it rests and as worthless as the gibber stones in the desert.

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