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Wednesday, 9 March 1977
Page: 37

Mr McLEAN (Perth) - I am pleased to be able to support the motion moved by the honourable member for Braddon (Mr Groom). I would like, firstly, to make some comments about the economy and the policy being undertaken by this Government as outlined in the Queen's opening Speech. The Opposition and a substantial section of the media seem to wait expectantly, even eagerly, for bad news. Therefore before speaking out about some of the principles behind the Government's economic strategy I would like to spend some time looking at the positive results so far achieved. Firstly, the control of inflation has been accepted by this Government as the first prerequisite for restoring the private sector, for returning the economy to more normal levels of activity and for reducing unemployment. This causal relationship between inflation and unemployment has been recognised by responsible economic institutions and governments throughout the world.

The nexus between unemployment and inflation has changed in recent times and their simultaneous occurrence is relatively new. Traditionally a trade-off between inflation and unemployment was possible. Either of these factors could be improved but at some expense to the other. This occurred during the 1960s in Australia and led to fairly predictable and workable economic policies. In the past few years this relationship has changed. We have seen record levels of inflation and unemployment occurring together. Attempts by the previous Government to reflate the economy led only to higher inflation rates, higher interest rates and higher unemployment levels. Quite obviously we live in a new economic order. No longer is there the price and wage flexibility of years gone by. The economy is now more rigidly structured, with consumers, employers, employees and governments having different attitudes and expectations. All behave much differently. All possess a greater capacity to impose their individual will on the economy, irrespective of the consequences. Ten years ago it would have been unheard of to seek record money wage increases in times of record unemployment, as is happening now. Conversely it would have been unheard of to consider massive tax cuts in times of high inflation. The Australia and New Zealand Banking Group Ltd, in its latest survey of business indicators, referred to the fact that in recent years movements in aggregate demand no longer give rise to predictable movements in prices and wages. If one accepts, as most do, that inflation is the basic cause of our present problems, then it is inflation which must be tackled.

The results to date are quite heartening. In annual terms the rate of inflation, with the Medibank component removed, was 10.8 per cent last year, compared with 16.7 per cent in 1975. In making this comparison I feel it is reasonable to omit the levy. We should be comparing fundamental economic relationships. The Medibank levy involved a political decision, a philosophical commitment to make people personally accountable for a portion of their health costs. It is not a result of economic forces leading unavoidably to higher health costs. For that reason, if one is comparing key economic indicators, such independent variables should be omitted. Other indicators show that the economy is beginning to move in the right direction. Between the December quarter of 1975 and the September quarter of last year there was an increase of Vh per cent in real gross non-farm product. This trend appears to be continuing, with industrial production increasing strongly in the last half of 1976. 1 think it is worth remembering in this context that in the last half of the term of office of the Whitlam Government real output actually fell. There was a negative rate of growth.

The demand indicators give some reason for optimism. Exports, private expenditure on dwellings and stock building have contributed to this economic growth. Businesses have indicated that they expect new capital expenditure in the December quarter to exceed the September quarter level considerably. Real private investment in plant and equipment, seasonally adjusted, responding to the Government's investment allowance, increased by 4.3 per cent in the 6 months to September, following a 3.6 per cent decline in the 6 months to March 1976. Furthermore, company profits, the basis for future investment and future jobs, increased by 26.2 per cent in the 6 months to September 1976, as compared with almost no change at all in the 6 months to March 1976. These are some of the positive aspects of the economy at present. There are soft spots, but I think we should look at some of the indicators in a realistic light. If we do we must come to the conclusion that there are some grounds for optimism at present.

I would like to place our economic strategy within the perspective of recent comments by Opposition spokesmen on the economy. The trade union movement and Labor spokesmen in general have criticised the Government for its wages policy. They have done so again today. In this context I quote from the annual report of the Reserve Bank of Australia for the year ended 30 June 1976:

In the 12 months to December 1974, average weekly earnings rose by 28 per cent, consumer prices by 16 per cent, and so real wages by some 10 per cent- cramming into 12 months the normal trend growth of real wages accruing in about 3 years- and this in a year in which average productivity fell as output contracted.

In recognising the need for money wage increases and productivity increases to maintain some kind of balance, the Reserve Bank stated:

The need is for the main aims of stabilisation policywages policy, budgetary policy and monetary policy- to keep moving firmly towards restraint.

This has been the cornerstone of the Government's domestic economic strategy. It is interesting to note, in relation to the Reserve Bank's call for moderation in wages policy, that the President of the Australian Council of Trade Unions and President of the Australian Labor Party, Mr Hawke, is a member of the Reserve Bank Board. When he is wearing other hats he could hardly be called a strong advocate of wage restraint. The Leader of the Opposition (Mr E. G. Whitlam) has also sought to criticise the Government's endeavours to bring about restraint in wage and salary increases. In 1975 he clearly stated that inflation in Australia was primarily and almost solely due to wage increases and claims. So it is little wonder that Labor's socalled new economic policy makes no reference to the all important area of wages policy.

Another suggestion put forward by Opposition spokesmen in their economic policy is to reduce taxes as a means of stimulating consumer spending. This, in my view, ignores recent experience regarding consumer behaviour. During Labor's period of office, particularly in 1974, when award wages rose at record rates and the savings ratio also reached record levels, consumer spending did not react at all. There was an increase in that year of less than one per cent. All that happens is that tax cuts, when associated with government expenditure increases, lead in turn to larger deficits, higher interests rates, higher inflation rates and, of course, higher unemployment rates. Contrary to what was the case, this leads to the consumer squirrelling effect because of the known likely impact on future employment prospects. Rather than spending in order to hedge against inflation, consumers save against the possibility of future unemployment. In this respect I see tax cuts, as a means of stimulating the economy, as possibly being counter productive. But I advocate the need for tax reform on equity grounds, as does the Government. The question really is one of timing and waiting until the inflation rate comes under control.

The Opposition has stated that it would indulge in selective government expenditure increases as a means of stimulating the economy. In fact its lack of statements on wages policy, together with the recommendations for increased government expenditure and reduced taxation, have a very familiar ring. In my opinion, it is a recipe for disaster because it leads to inflationary pressures. To suggest that increased government expenditure would help to reduce unemployment is also to ignore the lessons of our recent past. This, as I have said before, may have been a useful remedy in the 1960s, for then high unemployment was generally accompanied by low rates of inflation and could be corrected without putting undue pressure on prices. That is no longer the case. Resource and commodity prices now respond to factors other than demand and resource utilisation. The period 1973-75 should have shown once and for all that massive public sector expenditure as a part of economic strategy does not necessarily reduce unemployment. Record levels of government expenditure and unemployment occurred at the same time. Further, to suggest, as the honourable member for Shortland (Mr Morris) suggested, that a government would deliberately create unemployment to reduce inflation ignores, firstly, the fact that unemployment and inflation are no longer alternatives, and, secondly, ignores the fact that under Labor record levels of unemployment did not reduce the inflation rate. In fact the relationship was the other way round. The record level of unemployment was caused by record levels of inflation. I am pleased to support the Government's present economic strategy. I trust that the Government will maintain its resolve to make the control of inflation its number one priority.

Another aspect of the Speech by Her Majesty which I support is that section in which she stated that the Government would continue to assist those people most in need. The Government's strategy of reducing the rate of increases in government expenditure has been accompanied by a genuine concern to concentrate its resources on those who need help the most. This, in my opinion, is most commendable and should be the basis of any social welfare system. I believe that if the ability to pay is used as the basis for collecting revenue through progressive taxation, it is only logical that the means of disbursing such revenue should be based on the criterion of need. Other countries which have adopted universal schemes have recently found that they are cumbersome and intractable and that they prevent maximum benefits from being directed to those most in need. Countries such as the United Kingdom and Canada, through recently published white papers, have expressed the opinion that selective benefits may better serve their needs. So I support the view that greater emphasis should be placed on anti-poverty measures as a basis for welfare action.

Not only does Australia according to a recent World Bank survey have a more equal distribution of income than almost any other country in the world but also I believe there is merit in the suggestion that Australia's adoption of a basically selective approach to welfare is largely responsible for the fact that the incidence of poverty in Australia is lower than in any country with the possible exception of the Scandinavian countries. This approach to welfare allows a greater degree of flexibility for the Government to address itself to new areas of need as they arise.

The Henderson inquiry into poverty in Australia recognised, for example, the plight of large low income families and the Government immediately introduced the family allowance scheme in order to provide greater help to those who needed it most. Under the previous tax rebate system the greatest benefit went to those who needed it least. I hope that the Government will continue to move into other areas of need as and when they are recognised. In particular I again support the need for assistance to lone fathers. This is a matter which I have already discussed in the Parliament at some length. I also return to the need to up-date the various subsidies which are available under the Homeless Persons Assistance Act which have not been increased at all since the Act came into force. These and other areas of need I feel sure can be better catered for by the flexibility which is inherent in the Government's needs based welfare policy.

The only other matter I wish to raise at this time is the question of tax reform, particularly for elderly citizens and married couples who receive a part pension. In the latter part of 1976 thousands of age pensioners who were not solely dependent on the pension for their income received greatly increased tax assessments for the year 1975-76. Outside the issue ofthe economy, I believe that this is one of the biggest social issues in Australia today. I have been inundated with complaints from pensioners who are facing tax assessments which represent a doubling, trebling or even quadrupling of their tax liability. Many are facing commitments they either cannot meet or if they do meet them they will drastically have to change their life styles. The amounts involved are substantial and, because they were not budgeted for by these people who live on tight budgets, this problem has created widespread distress. I stress that these problems stem from the 1975-76 financial year and not from the policies of this present Government. I think this is one of the more unfortunate legacies of the Labor era, and particularly of the 1975 and earlier Budgets. I am prepared to be charitable and to give the Opposition the benefit of the doubt. I do not think that these difficulties were fully envisaged by the Labor Government and I think that they may even have got under our belt. Although this problem was created between 1973 and 1975 it did not emerge fully until the latter part of 1976.

Briefly, the history of the problems stemmed from the previous Government's decision to tax age pensions. This was a step which was taken in conjunction with its policy to abolish the means test. Abolition of the means test is a matter over which there is still a great deal of debate. There are strong arguments for and strong arguments against but it involves a political decision. Both of the major political parties in Australia have this principle firmly wedded with their policies. Notwithstanding that, if the abolition is proceeded with it is generally accepted that some claw-back through taxes is necessary in order to preserve some element of the criterion of need. I think that is a reasonable proposition, but much depends on how it is done, and this is where the problems emerge.

One problem, of course, is that only some age pensioners benefited from the abolition of the means test and they were the people of 70 years and over. But all pensioners, except those fully dependent on the pension as their sole source of income, suffered from the taxing of the pension, particularly after the age allowance was abolished. Further difficulties were created by replacing concessional deductions with the general rebate in the 1975 Hayden Budget. Perhaps most important of all, increasing pensions, which are now automatically adjusted, and increasing superannuation payments, in the absence of tax reform, have meant that all pensioners with substantially increased money incomes but not increased real incomes have been confronted with higher marginal tax rates, and this has placed thousands of elderly Australians in a very serious financial position.

Although the problem was created by the previous Labor Government it is no good simply apportioning blame. That is of small comfort to the people involved. I hope that the Government will investigate the severity of what is a quite complex problem. I am not recommending special tax treatment for aged people solely on the basis of age and without reference to need. But I suggest that the living standards of this very large cross-section of people have only recently been adversely affected by the fiscal events of earlier years. I ask the Government to examine this matter and, if necessary, consider appropriate reforms to redress this situation. I have pleasure in supporting the motion moved by the honourable member for Braddon.

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