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Tuesday, 13 November 1973
Page: 3198

Mr HAYDEN (Oxley) (Minister for Social Security) - Members of the Opposition should be the last to moralise to anyone in this country on the conduct of economic policy. No group of people has been more responsible than were they in their long years of government for more unemployment, for more bankruptcies, especially among small business and industry, for more lost production and for more human suffering by the heavy handed demand management to which they always resorted. They are confused at the moment because they do not see unemployment lines forming in the community. That was the traditional text of their programs which they always applied. They cannot understand why new approaches have been developed. We do not accept the discredited programs which were applied by previous governments in this country.

But how can we rely on what members of the Opposition have to say? The week before last the Leader of the Opposition (Mr Snedden) was asserting that rampant inflation was a serious problem in this community, and that it was out of control and not to be controlled by anything the Government did. Last week, no doubt after talking to someone in the Melbourne Club, he decided to change his tack.

It is now recession which will be the major problem. On 23 October, only 3 weeks ago, in this Parliament trie-Leader of the Opposition said:

The economy is in a shambles. Inflation ha.' soared with no prospect of early relief.

It did not matter what we had done; it would work either moderately or too well. Now, only 3 weeks later, members of the Opposition are arguing that what we are doing is too effective. How can we rely on people who put such spurious arguments forward?

Mr Giles - You do not know what you are doing.

Mr HAYDEN - What would they do in this situation? They have made some vague assertions about demand management - about fiscal policies. Do they mean savage increases in personal income tax? They have made assertions about increased social security benefits. Do they mean increased unemployment benefits and expectations of the effects of what their program would bring about? They stutter something about cuts in government expenditure, but on other occasions they have asserted, for instance, that defence expenditure as a percentage of gross national product should be restored to the level which applied last financial year. They have asserted that there should be an increase of some $300m in defence expenditure. They have asserted that there must be an increase in pensions. I agree. We will do it. But what do they mean? Are they aware that for every $1 a week increase in pensions there is an additional commitment by the Treasury of another $50m? They are talking about expanding their discredited health insurance program to cover people now covered by the pensioner medical service. The calculations by my Department show that this will cost another $160m. So I have quickly mentioned 3 areas in which we are talking about increased expenditure of the order of $500m.

Where will Opposition members achieve their cuts? The only suggestion I have heard from them is that the Gidgealpa-Sydney pipeline which we propose laying as a public undertaking is inflationary and a project which should not be undertaken. Do they not have enough intelligence, enough nouse, to realise that the money had to be spent in the community if the pipeline were to be built; that it was to be built by private enterprise, which of course had to spend money, so that amount of money was going into circulation, in the com munity? Do they have enough nouse to realise this: To the extent that the Government raises that money internally it moderates any inflationary effects which would have come from the investment of the Australian Gas Light Co. in constructing its pipeline, because AGL proposed to raise this money overseas? Their thinking, as it has been in relation to their programs in the past, is confusing, conflicting and unreliable.

Let us look at the situation we have inherited today through no cause of ours. We have inherited this inflation which, as the Treasurer (Mr Crean) pointed out, has been largely injected by overseas influences. Let me refer to an article by Mr Peter Jonson of the Reserve Bank in the latest issue of the 'Australian Economic Review', second quarter 1973, and to his table which I commend to the shadow Treasurer. The table shows that the proportions of influences in a total of 100 per cent come from various sources: From imported influences, 61 per cent; awards, 10 per cent; cash benefits, 20 per cent; tax, 7 per cent; and spending, 2 per cent. They total 100 per cent. But nearly two-thirds of the total forces coming into this economy towards inflation are coming from external factors. Mr Jonson, who is from the Reserve Bank, I pointed out, and who used the Reserve Bank's dynamic model to do these calculations, says:

These results are quite devastating for the cost-push hypothesis;

Of course they are. They are devastating for the 2 speakers from the Opposition side who spoke before me in this debate, because those results have completely devastated the basis of the argument that they have put to this Parliament.

Let us look at the situation that we have inherited. How did it come about? It came about simply because in 1970, when the monetary squeeze applied by the Government of that time caused inflated interest rates as part of monetary management, the borrowers went overseas to get their money. They went overseas and they aggravated the inflow of capital into the country. So they undermined the whole purpose of monetary policy. If you contain the expansion of credit internally but the borrowers go outside for their money and then bring it into the country they inject increasing volumes of money internally into the economy. They are undermining completely the economic policy of the day, and that is where the seeds of the present problems were sown. If you add to this an undervalued currency, this in turn leads to speculative inflow, and we have the perfect ingredients for the problems that we have inherited. In the last financial year liquidity in this country increased by 26 per cent. Over 17 per cent of that increase occurred during the first 6 months of the last financial year, that is, before we became the Government. As anyone who understands economics knows there are lags between forces being set in motion and their starting to bite into the economy - and they are biting in right now.

The problem that we have is: How do we manage this inflationary position without causing the widespread suffering which has been symbolic of the management of the economy under successive Liberal-Country Party administrations? I can assure honourable members of this House that this Government has no intention at all of resorting to cruel, harsh recessionary policies which impose the greatest suffering and sacrifices on those least able to afford that sort of burden - the wage and salary earners and those persons who want to start a small industry or a small commercial enterprise. For too long these people have had to pay the full price of the muddling and the mess that has been made of economic management in this country under previous LiberalCountry Party administrations.

We have carried out a number of steps. They have been gradual, not panic stricken - and they will not be panic stricken. After each step a reasonable period has been allowed while we have assessed the effects of what we done before moving on to the next step. We would rather bear with a little bit of inflation - we do not like it, it causes suffering in the community - and gradually bring it back under control than to move in with a mailed fist and hammer down the economy, as was done in the past. Can there be any doubt that the problems have been injected into this economy by the mismanagement of the past? It has been pointed out, as I said, by Dr Jonson of the Reserve Bank. Let me quote Dr Porter, who is also of the Reserve Bank and who also uses the Reserve Bank's dynamic model of the economy. I had the pleasure of being present when he spoke at the New South Wales Economic Society's Winter School - curiously, held in November. He said this of his research work:

The implication - of his research work - is that if Australia had revalued earlier, say, in late 1971, then the current inflationary pressure on the Australian economy would have been markedly diminished ....

He said also:

We are thus left with the inflationary consequences of failing to revalue in 1971.

The substance of what he says is emphasised later when he goes on to say:

The main conclusion of the study is that in the first 6 months of 1973 Australia would have received about S860m speculative capital inflow. If unchecked by restrictive measures this would have augmented bank reserves by 20 per cent and, in turn this could have facilitated about $2,000m-$4,000m of additional expansion in the broad money supply, the exact amount depending on the response of the authorities and the size of the money multiplier. A marginal money multiplier of 3.3 (the average is over 5.5) would imply monetary expansion of over $2,800m, i.e. over 21 per cent over the 6 months period, or 48 per cent at a per annum rate.

What is happening with interest rates today is a direct effect of the sort of management that the Government has had to apply in this community, which became necessary because of the defects of the past. Having used monetary measures internally the Government has also had to use external monetary measures - not only appreciation and tariff cuts but also the variable deposit ratio on overseas borrowings. Without that we would be aggravating the mess which was set in train in 1970 by the inadequate approach of the economic policy makers of that period. We are clearing up the mess.

Mr DEPUTY SPEAKER (Mr Scholes)Order!The honourable gentleman's time has expired.

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