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Tuesday, 18 September 1973
Page: 1161

Mr LYNCH (Flinders) - The Opposition Parties reject the Constitution Alteration (Prices) Bill because this Bill is no more than a further reflection of this Government's distorted and misconceived approach to Australia's inflationary problem. The speech just made by the Minister for Social Security (Mr Hayden) is in fact a classic case of that distortion. He is of course the pretender for the Federal Treasurer's job. Having regard to the paucity of the arguments which he has put forward and his abysmal ignorance of international experience in this critical field of seeking to combat inflation, it is clear that he will be pretending for the Federal Treasurer's job for a very long period.

This Bill foreshadows a wide-ranging control on prices without concomitant action to restrain wages and salaries. It is unnecessary when all State Liberal leaders have offered to transfer this same power by constitutional reference, subject to the conditions outlined by the Leader of the Opposition (Mr Snedden). It foreshadows a reliance on price controls which is contrary to the practice and experience of every major country in the Western world. It is economically dangerous since price control alone, a form of economic back seat driving, cannot curb the problem of inflation in this country. It is an isolated and ad hoc proposal which has been brought forward without any guarantee that it represents one facet of a multipolicy philosophy. It is a misdirected approach because it deals with the symptom rather than the cause of inflation. It will provide an avenue for the trade union movement, working through the Australian Labor Party caucus, to make private sector profits the scapegoat for Australia's inflationary problem. It is a precipitous measure conceived by a Prime Minister who, in the pre- ceding 24 hours, argued strongly against that proposal in the caucus of the Australian Labor Party in this place.

On 25 August the Leader of the Opposition called for a temporary total freeze on all incomes and prices to be followed by the adoption of guidelines for subsequent moderated price and wage advance. All State Liberal leaders gave an unequivocal undertaking to meet the constitutional difficulties of this proposal by referring all necessary powers to the Commonwealth with conditions to ensure that that proposal would be implemented on the basis of equity and economic common sense. This was not a proposition advanced in isolation but as one facet of a multi-policy approach to the control of inflation. Two days later, on 30 August, the Prime Minister (Mr Whitlam) rejected the Opposition proposal. In a speech to the Chamber of Manufactures of New South Wales he said:

Our approach is one of prices justification, not price control. The emphasis in our inflationary program is on voluntary co-operation. That surely must be our first line of attack.

He then added:

Nor is it easy to see that control of prices would have helped us in the last 6 months.

Less than 2 weeks after that statement the Government has brought a Bill before this House designed to seek constitutional authority to control or freeze prices. This Bill represents a singular defeat for the Prime Minister and a victory for the Labor caucus - solidly backed by the weight of the trade union movement. It is a further example of the erratic and unpredictable way in which the major decisions of economic policy are now being determined by this Government. It foreshadows an antiinflation policy based on price control without any similar restraints on incomes. The principal executive officer of the Department of Labour, Mr Routely, in a recent paper at a major economic symposium in Adelaide, referred to the problems of price restraint in these terms:

A price justification tribunal in the absence of wage restraint would soon become a virtual rubber stamp whose main function was to record the impact on prices of preceding wage increases. Thus effective wage restraint must accompany the establishment of an effective price justification tribunal if inflationary cost push pressures are to be reduced.

Mr Routleyone of this Government's principal advisers in the Commonwealth Department of Labour, then said:

Indeed, one could go a step further and argue in the overall context of anti-inflationary policy, the chief value of a price justification tribunal is probably an indirect one. It provides the political and moral, not to say economic, grounds for the introduction of effective wage restraints and for the fairly drastic changes in the economic power of trade unions which such restraints must inevitably involve.

The statement by Mr Routley, the principal executive officer of the Commonwealth Department of Labour, is but a further indication that the Whitlam Administration is acting contrary to the economic advice of major departments such as the Federal Treasury and the Department of Labour. His view on this matter was well supported by Professor J. W. Nevile in an address to the Australian and New Zealand Association for the Advancement of Science Congress in March. In that address he stated:

In order to gain acceptance by the unions, an income policy must apply to all incomes, and hence prices, as well as wages. This is widely accepted overseas.

The Bill before the House, far from seeking union endorsement for a balanced and equitable approach to the determinants of inflation, effectively denies any comprehension by the Government of the role which wage and salary increases play in the inflationary spiral in this country. The Prime Minister himself has sought to purvey a public impression that he has a guarantee from Mr Hawke that if the Government asserts measures to control prices the Australian Council of Trade Unions will accept wage restraints. That impression must be totally undermined by the Prime Minister's naked admission in question time yesterday that, in his discussions with the President of the ACTU, the question of wage restraint had been subject to a mere, 'passing reference'. How a passing reference can be translated, even in the machinations of the Prime Minister's mind, into some form of guarantee by the trade union movement is beyond comprehension. It is surely blatant dishonesty to assert it as such.

This is a Bill introduced by a Government which has not once made any move to seek a restraint on incomes but has, in fact, sought to encourage increases in incomes in this country at every opportunity. In fact, the Government's own policies in seeking to exaggerate the extent of salary and wage increases throughout the community have been a major determinant in the present rate of inflation in Australia. It is indeed surely a form of economic madness to assert that price controls will restrain the rate of inflation when other policies are directed, not towards the restraint of incomes, but towards their continued rate of increase. Professor J. O.. N. Perkins of the Melbourne University said in his recent book entitled 'Billion Dollar Questions':

But the essence of a prices and incomes policy is that some restraint should be placed on wages and salaries, together with price increases. In fact, adequate restraint on incomes would hold down price increases, though price restraint without adequate income restraint would not work.

As I said at the outset - and I challenge the Minister for the Capital Territory (Mr Enderby), who will follow me in this debate, to refute it - no comparable country in the western world has attempted to base an antiinflationary policy on price control alone.

Mr Enderby - No comparable country has a similar system of wage control.

Mr LYNCH - International experience denies what successive speakers on the Government benches have said in relation to this point. The Minister for Social Security and the Minister for the Capital Territory, who is acting in his usual jabbering and incompetent manner, know that they cannot deny the total logic of this proposition. Let me take the Minister for the Capital Territory and Government supporters through the experience of major countries in the western world. Each phase of the new economic policy for the United States, originally announced by President Nixon in August 1971, has included controls and guidelines for both incomes and prices. All restraints imposed by the United States Administration have been balanced between incomes and prices as they continue to be now during phase IV of that major program.

Turning away from the USA, this is equally clear from an examination of the approach adopted by the United Kingdom Government in November 1972. In its program for controlling inflation it instituted a freeze on prices, which included prices and charges for goods and services supplied to the home market, whether provided by the private or public sector. The incomes freeze applied to all increases in incomes, including rents and dividends, and terms and conditions of employment. Increases in earnings resulting directly from additional effort, output or genuine promotion constituted the only exception.

In New Zealand the recently elected Labor Government awarded a general wage increase of 8.S per cent at the beginning of August but simultaneously implemented a wage freeze which is to apply until 30 June 1974. In conjunction with the wage freeze, the Government pegged prices for a 30 day period. The Canadian Government experimented with a system involving price and wage guidelines in 1969-70. Although the policy at no stage became firmly established, with all parties cooperating the Canadian Prices and Incomes Commission continued in existence until the end of 1971 essentially in a research and educative role. However, the Canadian Government emphasised its strong belief in a balanced approach to incomes and prices restraint and has indicated its readiness to impose wage and price controls again if considered necessary.

The Minister for Social Security unfortunately made reference to the experience of some of the smaller European countries. If he had bothered to study the score of those countries he would have found among the smaller European countries that Austria, the Netherlands and Norway - the situation in which was distorted by the Minister - have had extensive experience, with permanent systems of price surveillance, but within the framework of a wider incomes policy.

In West Germany, the Government incomes or wages policy has followed a different course from that in many other European countries. In that country there has been an emphasis on wage determination and a reliance on voluntary co-operation rather than compulsion. Nevertheless, a wage policy has been officially regarded as an important supplementary aid to policy in the range of fiscal and monetary policies on which the Government has primarily relied. In France, which was misquoted by this Minister, the Government's prices and incomes policy has, in recent years, been characterised by the use of various forms of price controls supplemented by the use of wage controls in the public sector. The Government's wages strategy has been to intervene directly in wage fixation in the public sector with the intention of directly influencing private sector wage settlements. The strategy adopted by the French Government is in direct contra-distinction to the pacesetter principle being pursued by the Labor Administration in Australia.

I have briefly adverted, only because of the real pressure of time, to the experiences and policies adopted by the governments of countries broadly comparable to Australia in order to emphasise one major factor which the

Minister for Social Security either does not know - and if that is the case he stands indicted by this House- or, if he does know, has put before this House a totally distorted impression which international experience and fact certainly bears out. While there have been widely differing strategies towards the control of both prices and wages, no Government of a country comparable with Australia has been prepared to concentrate on one side of the economic spectrum to the exclusion of the other. The Australian Prime Minister, regrettably, in view of the public interest of this country, apparently is prepared to make this country the sole exception to international practice and experience.

The Government has already demonstrated the tragic results of an unbalanced economic policy. The refusal to adopt responsible fiscal policies has resulted in an almost total reliance on monetary policies to control demand. This is clearly a fallacious economic strategy and will result necessarily in a severe form of credit squeeze. The Bill before the House foreshadows yet another policy instrument to be applied without any real concept of a balanced economic program. In his report on inflation the Secretary-General of the Organisation for Economic Co-operation and Development, an important economic and prestigious consultative group in the western world, totally ignored by Government supporters, said:

An effective price incomes policy, it is true, implies - almost by definition - that consideration of the common interest has to some degree been injected into individual wage and price decisions.

In other words, a complementary concept, not an emphasis on one to the exclusion of the other. This legislation clearly takes no account of the concept of common interest and, in fact, a Government which seeks to rely on price control alone must necessarily assume that wage and salary demands are, in themselves, expressions of the common interest. This is just as contrary to fact as the proposition that price rises by firms are also expressions of the common interest. The whole basis and objective of incomes-prices policies is to make income claims by different sectors of the community compatible so that they may be reconciled without inflation. The evidence is inescapable that it is possible to have inflation without generalised excess demand as the result of excessive but successfully pursued income claims by labour, or business, or both. These groups make income claims, based on expectations as to the future inflation and income movements for other groups and often backed by considerable market power, which are inconsistent with a stable price level in Australia. Inflation merely accommodates these income claims by raising the monetary, but not the real, value of total output. Incomes prices policies aim to alter these money income claims through education, the stimulation of community responsibility and more importantly by modifying expectations as to future inflation and movements of other groups' incomes. But a prices policy alone cannot fulfil this role. Furthermore, as has been pointed out consistently and time and again by the OECD, the major aim of income-prices policies is to control the inflation of costs. Such policies of course cannot for long suppress price increases if unit costs are persistently rising. If this Government is given the power to control prices and as a consequence of union pressure throughout this country imposes controls, the result must be obvious. Because no concomitant restraint will be placed on wages unit costs will rise steeply. As unit costs rise profits will come under severe pressure and fall sharply. In this circumstance there will be a consequent decline in private investment expenditure, a fall-off in economic growth and a decline in national productivity. These are the classic economic manifestations of a policy of the type which this Government is seeking to bring before the people of Australia. This prospect is absolutely inconsistent and totally at issue with the Government's promised socalled national growth rate of 6 per cent to 7 per cent and its objective of increased productivity.

I refer finally and briefly to a recent paper given to the Australian and New Zealand Association for the Advancement of Science Congress by Professor Arndt of the Australian National University, a name that is not lost on the Australian Labor movement in this country. He said:

It would be optimistic to imagine that appeals on behalf of old age pensioners or the lower paid workers will make a significant impact on wage demands so long as most wage and salary earners believe what is wrong with the distribution of income is the large share going to profits. Few wage earners in any western countries are impressed by, or even comprehend, the various functional roles assigned to profits by economists - as a reward for risk-taking, as the necessary supply price for scarce entrepreneural and managerial talent, as the prime mover of a free market economy or, in the form of corporate saving, as a major source of finance of capital formation.

This Bill is in fact an attack on the general community. I say that because it is the private sector which generates the wealth on which the public sector relies for its growth and the funding of social welfare programs. We cannot have real advances in the public sector without real advances in the private sector where that wealth is built, founded and fostered. A generalised attack, as we have seen in this House, on profit margins for short term political expediency is not the answer to inflation and neither is it the basis for Australia's continuing growth and prosperity. The Opposition parties reject the Bill before the House.

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