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Monday, 17 September 1973
Page: 1043

Mr LYNCH (Flinders) - This Government stands indicted for its total failure to deal effectively with Australia's major economic problem, that of inflation. By its own policies it has generated a rate of inflation which is unprecedented in Australia's economic experience. In December 1972 inflation was a reducing factor of 4.6 per cent. The notional rate of inflation is now 13 per cent. That massive increase of some 300 per cent directly derives from the economic policies and reckless public sector spending patterns of this Government. Unless effective action is taken now I foreshadow that the inflationary rate will reach some 20 per cent in the months ahead, with a further escalation in interest rates, a worsening credit squeeze and the prospect of a mini budget. It is a matter of national concern that the Government has, in 10 short months, turned a basically sound economy into one characterised by instability, lack of confidence and uncontrollable demand and cost pressures.

This is a Government which has sought to promote a level of wages and salaries in the private sector which the economy is unable to sustain. It has endorsed union claims whenever and wherever possible, both through traditional channels such as the Commonwealth Conciliation and Arbitration Commission and through such new and threatening avenues as the use of Government contracts. It has used the pacesetter concept in the Public Service in order that the rapid increase in the terms and conditions of public sector employment will force up wage levels in the private sector. It has removed the 3 per cent growth limit on the Commonwealth 'Public Service. It has demonstrated a supreme level of fiscal irresponsibility by introducing a Budget which expanded public expenditure by a massive $l,938m yet imposed additional taxes designed to increase revenues by only $339m, a net expansionary impact of $ 1,599m equal to 4.2 per cent of non-farm national product. The fiscal irresponsibility of this Government is now plain. It is obvious in that only 2 weeks after bringing down the Budget the Government has embarked upon a credit squeeze policy in an endeavour to curb the level of demand. This new monetary policy is an indictment of the Budget and it is an indictment of the way in which this Government conducts its decision making on matters of major economic consequence.

Once again this was a decision taken without any consultation with Cabinet or any advice from the major economic policy departments of the Commonwealth Public Service. This was a decision taken - as the Leader of the Opposition (Mr Snedden) has so well phrased it - by the 3 blind mice, that is, the Prime Minister (Mr Whitlam) whose total lack of economic comprehension is well known; the Treasurer (Mr Crean) whose preKeynesian predilections bear no relevance to present economic circumstances; and the Deputy Prime Minister (Mr Barnard) whose major function was to ensure a Prime Ministerial majority should the Treasurer have raised any objection. Every economist has clearly pointed out the danger of depending exclusively on monetary measures to maintain equilibrium within the general economy. This is particularly true when fiscal policy is moving against rather than complementing .the objectives of monetary policy. A statement by Sir Robert Norman, the Chairman of the Australian Bankers' Association, appears on the financial pages of the 'Sydney Morning Herald' of Saturday, 15 September. He commented that the banks had long held the view that the main burden of major economic adjustments should be borne by flexible fiscal measures, with monetary policy having a supporting role. The Reserve Bank, in its annual report, commented on financial conditions in these terms:

There is scope for further tightening in financial conditions but the gathering strength of private demand suggests it would not be prudent and probably not sufficient to rely only on monetary policy to achieve the desired restraints.

But in spite of this, the Government has already shown that monetary policy is to bear the main burden of its anti-inflationary poli*cies. It is a matter of some interest to refer to the Prime Minister's election policy speech on 13 November in which he said quite explicitly and categorically:

The Liberals have not been willing to act to reduce interest rates when economic conditions would have allowed. Labor will deliberately plan to reduce interest rates wherever practicable.

Mr Whittorn - That is what he said.

Mr LYNCH - That is what he said, as my colleague the honourable member for Balaclava indicated. That promise has been totally dishonoured. We were told during the first 8 months of this Government's administration that Australians were privileged to have 'a low interest rate Treasurer' - a man who held deep personal convictions as to the economic and social desirability of low interest rates.

For all these fine professions, we now have a situation in which trading bank overdraft rates have been boosted to 9.5 per cent, the highest on record. Labor's ill-considered decision to use interest rates as the method of fighting inflation must hit the small man, the average wage earner and those persons endeavouring to purchase a home.

Mr Whittorn - They are manipulators.

Mr LYNCH - Members of the Government are manipulators. Hundreds of millions of dollars have been lost because of interest rate increases. Much of the effect of this will be felt by small investors with an increase in superannuation funds and institutional lenders. In the face of this, the Treasurer had the temerity last week in this Parliament to accuse any investor who sells bonds of manipulating the market and debasing the money standards of everyone else in the community.

Just as absurd was the Prime Minister's almost incomprehensible assertion, also to this Parliament last week, that the bond rate is determined by the Loan Council. He went further to say that the banking system determines the interest rate on mortgages. Perhaps he had forgotten his statement on Sunday, 9 September, when he said:

In the market for Government securities, the Reserve Bank will, with the concurrence of the Government, press its open market operations vigorously with the aim of significantly increasing sales of Government securities ... In the process, a sharp rise can be expected in interest yields on existing issues of Australian Government securities and, in due course, in rates to be offered on new issues. Substantial increases in other interest rates will follow as effects of the operations spread through other markets for funds.

If the investing public and the business community have had to rely on the vacillations of the Prime Minister and his Treasurer on the question of this new monetary policy, it is no wonder that confusion and lack of confidence have been the result. The Australian public and the share and money markets in particular are today concerned, confused and apprehensive. It is the Government which has brought about that sense of concern and confusion which is felt not simply by the share markets of Australia but also by the investing public everywhere in this country.

But, the confusion does not stop here. We are told that there is a move to adjust the implementation of monetary policy. Apparently the move originates in the Labor Caucus from a strong group which feels that the Government should try to achieve lower interest rates in order to help Labor voters. We are told - again through the Press and not in this Parliament - that the following motion was referred from Caucus to the Caucus economic committee and for decision by the Cabinet today:

That the Government direct the trading banks through the Reserve Bank to apply to home mortgages a selective exemption from the general increase in interest rates brought about by the increasing bond rate to avoid adding to the cost of servicing bank borrowings for new mortgages or existing mortgages.

That the Treasurer's proposed extra banking legislation based on the corporation power be introduced as expediently as possible to provide a mechanism where liquidity in finance companies, merchant banks, building societies and other institutions can be varied on the statutory reserve deposit principle by requesting that a percentage of funds be deposited with the Reserve Bank.

Surely this is an appalling way for a decision of major economic policy to be taken. It indicates clearly that this Government cannot induce even its own party members to pursue a policy of support for its newfound monetary policy. If there were any doubt as to the general reception to that policy throughout Australia one needs only to turn to some of the editorials in major newspapers. The Sydney Morning Herald' of Friday, 14 September, had this to say in its editorial:

The Labor Caucus has had its victory. Now let it count the appalling cost. The Government's reputation for responsible economic management lies in tatters. Its revaluations of the dollar, its cut in tariffs and its credit squeeze suggested a Government that was decisive and courageous in economic policy. Of course there were short-term political costs involved, but the Government was beginning to lay the ghost of the longheld electoral suspicion that 'Labor administrations are fundamentally incapable of managing the economy. Caucus has done its best to demonstrate that the suspicion is all too well-founded.

Mr McLeay - It is economic irresponsibility.

Mr LYNCH - That is so. A similar line was taken in the editorial of the Melbourne Age' dated 14 September. The article stated:

First shock - now utter confusion. If the Federal Government does not move quickly to clarify and correct - complete chaos will come next. Shock was the widespread reaction, although not of the more perspicacious, to the Government's dramatic moves on Sunday to lift interest rates 'sharply' in a major attack on inflation. The confusion was vastly intensified by the vote of the Parliamentary Labor Party on Wednesday, against the advice of the Prime Minister and the Treasurer, to hold down interest rates on housing loans. How this can be done - if indeed, it can and will be done - without throwing the money market into convulsions and defeating the purpose of the anti-inflationary exercise has yet to be explained. Mr Whitlam's attempts to do so at question time in Parliament yesterday did not reveal either a profound understanding of the problems or a satisfactory guide to the Government's intentions.

The Prime Minister did not have a clue. The reason is that this Government has not been prepared to put or has not been able to put before the Australian people a comprehensive economic policy. In announcement after announcement we have seen expressed a policy which is fragmented, piecemeal, divisive and in no shape or form representative of a multi policy approach to fighting inflation throughout this country. A detailed and coherent economic policy has of course been provided in this House by the Opposition parties. A sense of effective national leadership is required but it has not been provided. A comprehensive policy is required but has not been provided. We believe that this country requires at present a policy of effective demand management which encompasses the major instruments of economic management available to the Government, specifically designed to dampen down the aggregate level of demand and so to reduce cost pressures. Yet all we hear from the Treasurer and the so-called economic experts on the Government front bench is a fragmented and piecemeal policy.

We believe that the present policy should provide for a marked cutback in the rate of growth in the Commonwealth Public Service. An independent senator recently said in the Senate that the Government's policy in respect of the Commonwealth Public Service is ensuring that the fat cats breed like rabbits or like mice. Of that there is no doubt. It is clearly undesirable for employment levels in the public sector to increase at a rate of almost double that applying to the .private sector. The comprehensive policy of which we have spoken clearly must comprehend the rejection of the principle of flat rate wage increases in the Commonwealth Public Service and outside of it. It must also comprehend a responsible role in respect of the Commonwealth Conciliation and Arbitration Commission, the rejection of this Government's continuing indecision concerning migration, the promotion of a more competitive business environment. All these policies must be supplemented by an effective incomes prices policy of a type which this Government has rejected and will continue to reject to its cost. The Labor Party's economic policy does not meet the major requirements and demands of sound economic management but represents a mammoth faiure by this Government to meet Australia's economic and social needs. It stands indicted by this House and by the people of Australia.

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