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Tuesday, 4 December 1973
Page: 4205

Mr LYNCH (Flinders) - On Saturday, 8 December the Government is seeking, by referendum, permanent powers over prices and incomes. In so doing it has deliberately avoided outlining how these powers would be used. It is, in effect, asking the people of this country to buy a 'pig in a poke'. The Prime Minister (Mr Whitlam) has ruled out any action to freeze incomes. The Congress of the Australian Council of Trade Unions has rejected any form of control over incomes. Under this Government additional power over incomes will not be used as a restraint but will be used to introduce quarterly wage adjustments which were previously rejected by the Commonwealth Conciliation and Arbitration Commission as inflationary.

The success of the referenda would foreshadow the re-introduction of price control as a permanent feature of Government policy in Australia. This is the Government's objective and the decision to seek powers over incomes can be regarded as nothing more than a subterfuge and a smokescreen to cloak the Government's determination to obtain controls over prices. The Opposition Parties specifically reject the application of permanent price control or conferring this power permanently in the hands of the Federal Government. We do so for a number of basic reasons.

Firstly, price control has failed to control inflation. This is true in Australia and is also the universal experience of comparable countries, particularly without accompanying incomes controls which this Government has no intention of using and no hope of obtaining. Secondly, price control results in unplanned distortions in resource allocation. Thirdly, price control is no substitute for proper demand management, supply management, and the responsible application of antiinflationary fiscal and monetary policies. Fourthly, price control powers would be abused by this Government which has already substantially abused many of its present powers. Fifthly, price control powers are unnecessary to implement legitimate short term policies since the Premiers have already indicated they are prepared to co-operate in any national plan to curb inflation.

Sixthly, price control powers will induce the Government to deal with the symptom of inflation rather than the actual cause. Seventhly, price control is simply incompatible with a consumer oriented, dynamic market economy; it must cause commodity shortages and blackmarkets. Eighthly, the implementation of price control presents unwarranted costs and overwhelming administrative overheads. Ninthly, price control entails a substantial interference with individual freedom and its long-term effects would radically alter the structure of Australian society. And finally, price control powers should not be granted to a government which absolutely refuses to demonstrate how it would be prepared to use such controls to the nation's benefit. 1 mentioned at the outset that price control cannot control inflation. The Opposition has accepted that price and incomes control, used in the context of a short term freeze, can provide a useful circuit-breaker to break down an inflation psychology and to assist a program of fiscal and monetary restraint. The Prime Minister has totally rejected this concept. But international experience clearly shows that, while the short-term freeze concept has had limited positive results, longer term and more complex programs have failed.

Australia's only real experience with price control occurred during the war and the early post-war period. Sir Howard Beale, a Minister of a former Liberal-Country Party Government, stated recently that those price controls: . . became less and less effective, their administrative cost was great and their damage to commercial and individual morality was very grave. This was too high a price for the community to pay. The clear lesson of the past is that if an attempt is made to impose nationwide price control to anything like the same extent as was imposed during and after the war, the result will be the same.'

The full social and economic costs of the price control program were at that time substantial. Major costs were caused by price stabilisation subsidies and in the administration of the Commonwealth Prices Branch. Unquantifiable, but equally real, was the cost of foregone economic growth. The eclipse of the market mechanism by pervasive and comprehensive bureaucratic controls locked in resources to their pre-war economic structure. To the extent that resources were mobile, they moved into less socially important activities. Price control in fact, kept in production firms, methods and products that would have been superseded in a system processing a more freely functioning price system. This resulted in a reduced total output of goods and services and the composition of that total was less preferable for the consumer than that which would have emerged through the normal operation of the market mechanism. There was also a very real cost involved in the loss of economic liberty of producers and consumers alike. The restrictions involved with such comprehensive mandatory price control, if exercised for a significant period, are quite contrary to the dominant economic philosophy of advanced Western nations. Problems also arose in determining the price of new products. Establishing the prices on the basis of costs involved expensive investigations into the accounting methods of particular firms. The obvious and most fundamental objection to price control as a weapon to combat inflation was that, in general, it acted upon the symptom of inflation and, at best, only very indirectly upon its actual causes. Price control has been likened, in this sense, to the act of breaking a thermometer because one is feeling hot - preventing a measuring instrument from recording what is occurring of course, does not prevent the occurrence.

Finally, one of the most socially and morally corrosive effects of price control was the incidence of black markets, key money and under-the-counter prices. Commenting on this, Sir Howard Beale said:

The Government seemed to cherish the rather naive idea that if they wanted to prevent something, all they had to do was to pass a law prohibiting it; they did not understand, as students of jurisprudence do, that in a democracy, except in grave emergency, laws which restrict the citizen too much and which are confusing and appear to be unfair, simply will not be obeyed.

In short, the history of price control demonstrates that it had only a very limited success; and then only under the particular exigencies of war-time conditions which generated a national concensus - a situation which does not exist today. It carried with it obvious losses in efficiency, loss of individual freedom and substantial direct costs, as well as delaying action to deal with the cause of the inflationary problem. It was, in fact, a Labor Government, in the full knowledge of the adverse effects to the post-war economy of price control which sought a continuation of powers over prices in 1948. That Labor Government sought the powers in the same way - by Commonwealth referendum. The referendum held then was subject to a decisive rejection by an electorate which had first hand experience with the manifestations of price control. This is a different Labor Government but it retains the same fallacious and anachronistic attitudes to price control as its ideological predecessors. The

Australian Financial Review', in an editorial on 19 September, headed 'The Myth of Price Controls' said, in part:

Power over prices is a temptation best kept out of the hands of politicians: inevitably, it tends to be exercised on basic products, such as bread or steel, or on large companies (such as ones with annual turnovers of more than S20m).

The natural effect is to discourage companies from getting involved in basic items, and to restrict the capacity of larger companies for new investment. It is hard to imagine a better recipe for the creation of a milk-bar economy.

The old-line Labor politicians seeking to recreate the climate of direct controls which existed a quarter of a century ago might try remembering the position the ALP Government was in in 1947 - just 2 years away from a landslide defeat, to be followed by 23 years on the Opposition benches.

The present Government's muddled approach to the whole question of an incomes-prices policy has been apparent from the start - a series of fiascos with the Federal Caucus and a series of debates in this House in which the Government avoided in each case attempting to outline any form of policy to justify seeking powers over prices and incomes. The whole episode has culminated in the extraordinary saga of the Winter report. Commissioned on 8 November and tabled in this House some 2 weeks later, the Winter report has been dispatched by the Prime Minister to the Industrial Peace Conference. This report had the specific objective of advising the Government how it should 'exercise powers granted to it in each of the three possible outcomes, and how they would be related to more general economic and fiscal policies'.

In the first instance, the report simply fails to provide that advice. It consists of a series of loose and unsubstantiated assertions and quotations without any semblance of detailed argument, authority or evidence. As a blueprint for Government action that report is a manifest failure. But the fault lies with the Prime Minister in seeking answers to a complex problem in a short period of some 2 weeks. It is, in fact, quite indefensible to propose sweeping new constitutional powers and then to commission a 2 week report to determine how those powers could be used. This is a report prepared by a former trade union official with no recognised economic expertise. It was prepared with the eager and pressing assistance of the Prime Minister's coterie of personal economic advisers. If nothing else, the Winter report highlights the political nature of the referendum proposals brought down by this Government.

The referenda on 8 December will be determined by an electorate which is largely unfamiliar with the dangers of price control policies. Further, it will be determined by an electorate which has been subjected to a program of misleading propaganda by a Government which has promised that price controls will curb inflation. This, of course, is an extreme irresponsibility by the present Labor administration. Inflation remains Australia's major economic and social problem because the Government has simply failed to take the correct form of action. Dr Paul McCrachen, the former Chairman of President Nixon's Council of Economic Advisers, summarised the United States experience with price control in these terms:

They will be at least ineffectual and at worst harmful to the economy unless we have noninflationary monetary and fiscal policies.

What must be emphasised is that international experience with incomes-prices policies has not been encouraging. But even their limited success has been on the basis of policies which have been directed towards achieving restraint over both prices and incomes. In a recent publication entitled 'Stagflation and Wages Policy in Australia' Professor Don H. Whitehead sums up, I believe, the views of most Australian economists in these terms:

The disadvantages of both comprehensive and selective price controls explain why they have not been advocated by economists as a long run method of curing cost inflation. In contrast many economists have suggested the desirability of controlling wages.

Professor Michael Parkin, a visiting research economist with the Reserve Bank, who has widespread international experience, and who is a recognised world expert on prices-incomes policies, expressed similar views on 'Monday Conference' on 19 November, when he stated:

I first of all don't believe that it's sensible to attempt to control inflation by using either direct controls on prices or direct controls on wages, or both; both those policies are fundamentally misguided and are going to miss the central problem, therefore, I hope that the referendum in December - both parts of it - are not carried. That would be my own hope.

We challenge the Government, in this debate, to demonstrate its overall program to deal with inflation; how powers over prices and incomes would be incorporated into that program; that prices and incomes powers would have only a temporary role within that program; that discrimination against particular groups in the community and action against individual freedom of choice are not its intention; and to state that it will take a responsible lead by reducing the extravagant growth in public sector spending. Price control is no answer to Australia's inflationary experience. The Government's total inability and incapacity to justify powers over prices in itself attests to this fact. It is vital, in the best interests of the people of this country, that the referendum proposals put by this Government should be decisively rejected on Saturday, 8 December.

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