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Tuesday, 13 November 1973
Page: 3191

Mr SPEAKER -Is leave granted? There being no objection, leave is granted. (The document read as follows) -

The measures we are proposing today have to be harsh until we get more effective means of regulating this quota, the volume of money.

We have faced an increase in the price of housing this year. The price of a house at the end of this year is likely to show an increase of 15 to 20 per cent on the price at the beginning of the year. I think at least it is a moot point whether it is better to pay 6 per cent on 120 units of currency when previously it was 6 per cent on 100 units, or to pay 7 per cent and keep the number of currency units involved to 100. This is what we are endeavouring to do by applying the drastic measures we have. Nobody does this willingly. I still go on record that in my view it would be better for a community as a whole if interest rates were lower than higher. But interest rates involve equity as between lenders and borrowers and you cannot just suddenly by means of a moratorium say that overnight all rates will be set at certain levels. We have not the power to do that. I am not necessarily sure that it would be a good thing to use it if we had it. But in the absence of any better mechanism we have applied the measures we have. People talk about using fiscal control and monetary control, and when they are used everybody criticises them. I do not want to say anything more than that.

Mr Crean - They are very sound words if you analyse them.

Mr LYNCH - The Treasurer alleges loosely that they are very sound words. He must stand indicted for that statement which honourable members can read in Hansard. It is a direct contradiction of the statement of the Prime Minister (Mr Whitlam) of 9 September that all interest rates would ultimately be set by the Government through the open market operations of the Reserve Bank. It makes a nonsense of the Treasurer's foreshadowed legislation to control non-bank financial institutions. In short, this is typical of the muddled and inadequate performance of the Treasurer whose policies have added hundreds of dollars to the annual commitments of average home purchasers.

This is a Government which came to power promising low interest rates. To say that these measures have been applied in the absence of any better mechanism is simply untrue. This is a deliberate policy to squeeze the private sector in an effort to compensate for this Government's profligate fiscal program.

Despite a series of monetary measures, the increase in the volume of money for the year ending September 1973 was recorded at 26 per cent. For the September quarter the growth was 7.2 per cent compared with 6.8 per cent in the corresponding period in 1972.

If overseas influences were an important contributor to the current inflationary situation, balance of payments must have been an important influence in the growth of the money supply. However, the Treasury Information Bulletin also shows that there was a net apparent outflow estimated at $59m in the September quarter, which more than offsets the current account surplus of $41m. In the first 9 months of 1973 there was an overall deficit on balance of payments of $305m.

The balance of payments had a negative effect on the money supply during the September quarter and during the whole period that this Government has been in office. During these periods the Reserve Bank has been a net seller of foreign exchange and therefore external influences have had a negative effect on the total monetary base, and thus on the total volume of money.

The reason for the increase in the money supply is the greatly increased domestic deficit of the Commonwealth Government, and the reluctance of the banking system in particular to increase their holdings of government bonds.

The Government is now attempting not to decrease its own deficit, but to force the private sector to finance its deficit spending through greatly increased subscriptions to Commonwealth bonds. The inevitable result of this unbalanced approach has been a massive rise in interest rates, and the Treasurer refuses to to say whether the process has ended.

The degree to which the Treasurer may seek to blame overseas pressures can only denote the ineffectual nature of his own policies since, as interest rates continue to ease overseas, in Australia they continue to rise indicating that in the development of corrective policies Australia is lagging behind the world's developed nations.

What is occurring is a trade-off between monetary policy and fiscal policy. The fact is that the extent of the Budget deficit requires a higher level of interest rates in order that the Reserve Bank can sell sufficient bonds to hold down the rate of increase in the money supply. Because of deficit financing the Government has sought to increase interest rates of offset the fiscal stimulus.

In short, the Australian economy is faced with a situation in which inflation continues at an entirely unacceptable level because the Government continues to pump money into the economy and to use interest rates to cut back private sector spending.

This is nothing more than a circular policy. Fiscal policies arc working against, rather than complementing, the objectives of monetary policy. As long as the Government continues with its present pattern of public expenditure, interest rates will have to be forced to higher levels before they have a corrective economic effect. Unfortunately, the corollary of a monetary policy at odds with fiscal policy is that when its effects eventuate, they are severe. The Government must face the fact that restraint in public expenditure is clearly required. Its principal economic advisers have advocated the adoption of fiscal policies. However, it is a matter of concern that the Government apparently proposes that any fiscal measures will not incorporate restraints on spending but increases in income tax. The move to increase personal tax has been publicly advocated by a significant number of well-placed persons within the Australian Labor Party. I refer to the president of the Australian Labor Party and president of the Australian Council of Trade Unions, Mr Hawke, more recently the Acting Treasurer and also, of course, the Government's principal economic adviser, Dr Coombs. The Opposition believes the Australian public should be aware that this is a Government which is willing to exact the highest price possible in order to finance its spending program.

Mr Scholes - All you want to do is increase unemployment.

Mr LYNCH - Is the honourable member for Corio supporting an increase in taxation?

Mr Scholes - I am saying is that all you want to do is create a pool of 200,000 unemployed, as you did last year.

Mr LYNCH - I draw to your attention, Mr Speaker, firstly that the honourable member for Corio is out of his place, and is interjecting as usual. If he is willing to make an indepth comment on the question of taxation, let him either affirm the statement made by the President of the Australian Labor Party, or, conversely let him deny and reject it, for at the present time the honourable gentleman and his colleagues are very much sitting on the fence with both ears pinned to the ground.

Mr Scholes - Mr Speaker, on a point of order. In view of your ruling that interjections are out of order - I acknowledge your ruling - is it not also out of order for the honourable member to address his remarks to a member of the House and not to the Chair?


Mr LYNCH - I am addressing my remarks through the Chair. Even without an increase in the level of the nominal taxation rate, the massive increase in the effective rates of income tax are likely to cause a decline in the community's propensity to save and incentive to produce. This can have no other effect but a slow-down in the real growth rate. The Government's stubborn refusal to reduce Federal spending has necessitated an over reaction in respect of monetary policy. Official interest rates are now set at the highest levels in history and yet interest rates throughout the community are continuing to creep upwards. Quite apart from the effects of this policy on investment, the sharp rise in the cost of housing finance is having serious effects on lower and middle income earners.

It is in the area of housing finance that Labor's economic ineptitude is most evident. That is more than a little ironic, as this is one of the areas in which Labor chose to make some of its most extravagant election promises and, characteristically, it is also one of those significant areas in which it has failed to keep faith with the electorate. Since Labor came to power it has never been more difficult for the working man to finance the purchase of his own home. Under the Liberal-Country Party Government, however home ownership was within the range of the vast majority of wage earners. The Caucus apparently is prepared to force the Government to provide a differential interest rate in the housing sector. The Government's failure to set out in a definitive manner what its intentions are is clearly creating considerable uncertainties and manifold confusion among home buyers. In the year to June 1973, the average Australian home loan was $14,000. As a result of an increase in interest rates from 8 per cent to 9 per cent enforced on building societies, a home buyer is now paying $117.49 a month on such a $14,000 loan repayable over 25 years, compared with SI 08.06 previously, an increase of 8.7 per cent. However, in the present market climate a loan of at least $16,000 is required to purchase the same house as could have been purchased with a $14,000 loan in 1972-73. Repayments on this loan are calculated at $134.28 monthly, an effective increase of 24.3 per cent - a staggering $26.22 a month.

As the Treasurer has pointed out there is, in fact, no simple and expedient answer to inflation. However, it is increasingly obvious that unless the Government is prepared to adopt a balanced set of policies inflation will not be curbed and the prospect of an economic slowdown and a period of stagflation will result. The Opposition has continually urged the Government to adopt a balanced multipolicy approach combining basic fiscal and monetary measures with supplemental action to restrain wage and salary increments, and to ease the labour market. A balanced set of economic policies would lessen the risks of adverse reaction to the present credit squeeze policy. Given the disadvantages of high interest rates or the problems of differential interest rates the task is to reduce the overall structure of interest rates. But this cannot be achieved without complementary fiscal measures. This Government stands indicted for its failure to take corrective fiscal measures along with those supplementary policies to which I have specifically referred.

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