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Tuesday, 26 February 1985
Page: 196


Mr KEATING (Treasurer)(3.15) —The Deputy Leader of the Opposition (Mr Howard) would have to be joking, to stand up in this Parliament and condemn the Government for a performance on the economy which has reduced inflation from 12 per cent to 5 per cent, which has given us a year of record economic growth, and now a second year and looking with confidence to a third year, which has created 300,000 jobs, which has reduced unemployment from 10.4 to 8.5 per cent and which has seen a turn-around in investment and consumption and a massive 56 per cent pick-up in the housing sector over the last 18 months. For this he says he condemns us for our management of the economy.

How does it compare with his record? Negative growth for the first time in 30 years in 1982-83; squandered opportunities through the 1970s; a period of accelerated investment in mining simply blown out the window; an inflation rate of over 11 per cent; interest rates of 20 per cent. He talks about real rates of interest. Let him go outside--

Opposition members interjecting-


Mr KEATING —Just quieten the arrogant ant over there, Madam Deputy Speaker, if you do not mind.


Madam DEPUTY SPEAKER —I suggest to the House that the Deputy Leader of the Liberal Party was heard in silence, and I ask honourable members to extend the same courtesy to any other member of this House.


Mr KEATING —The Deputy Leader of the Opposition is talking about real rates of interest, yet he had people committing suicide at a 20 per cent rate of interest. We had record interest rates in this country. There is one thing about these Liberals-they cannot be made to face any shame; there is no shame in the Liberal Party. A 20 per cent interest rate and a massive increase in unemployment, from 6 to 10 per cent of the work force; back to double digit inflation; the first negative growth for 30 years; yet the matter of public importance of the Deputy Leader of the Opposition reads:

. . . doubts about the Government's ability . . . to effectively manage the economy . . .

Where do we go?

The Deputy Leader of the Opposition talks about our fudging on the exchange rates; that our actions on the exchange rate are being exposed. Who was the Treasurer who sat and let the Treasury over-value the exchange rate for years, while we had a wages explosion ripping our competitiveness apart on the way through? Why did we maintain the exchange rate system for those years? It is because the former Treasurer could not get a piece of tissue paper through Cabinet-he had neither the ability nor the guts to knock his Prime Minister over and get the Australian dollar floated, to find its equilibrium in the market place. He kept the Australian dollar overvalued, ripping the guts out of our manufacturing industries, destroying the prospects of our export industries to compete, our primary export sector.

While all of that was happening, we had a massive wages explosion, presided over by himself and the now Leader of the Opposition (Mr Peacock), who was then the Minister for Industrial Relations. He says we are fudging it up on economic policy; we are fudging it up on the exchange rate. He says we have the wrong wage determination system. We have a wage determination system which has given us two years of back-to-back wage restraint and no increase in award wages for 12 months. He has the hide to say that that so-called policy of his, which had wages blowing out through nearly a decade, was the right policy.

The Deputy Leader of the Opposition makes the point, with crocodile tears, of how much inflation will drift through the wage system as a result of changes in the exchange rate. He says that as though the conditions which currently apply in the economy would have applied under his policies. We would have already had the wage increases under his policies, right through 1984. We would not have had to wait for some move in the exchange rate to drift through wage indexation; we would have already seen our competitiveness eroded by the impact on wages of such a change, because they have no policy to deal with that. His policy is to let the powerful unions negotiate and to give centralised wage fixing to everybody else. In other words, he is saying that we should let the high points of the economy fight it out and then those massive increases will ratchet their way through the economy, as they have in the past, and in the end flow right through, as happened with the metal trades award of 1981. Eighteen months after that award even the bookmakers' clerks on the racecourses received an increase. It went through every sector of the economy. That is the wage system he implores us to have.

Instead of that, we have an accord with the trade unions, based on fair and decent wage restraint as a trade-off for growth. In other words, the unions will restrain themselves for growth and for employment. They have done that, demonstrably; otherwise we would not have an inflation rate of only 5 per cent. Yet the Deputy Leader of the Opposition says it is the wrong wages policy. The Prime Minister (Mr Hawke) happens to recognise the fact that if changes in the exchange rate over time were to impact on the wage system there would have to be some trade off. However the accord permits negotiations in regard to these factors anyway and one cannot simply assume that any change in the exchange rate would automatically drift into wages. The Deputy Leader of the Opposition then had the hide to say that the Prime Minister is negating his responsibilities to this Parliament. The fact is that this Government has brought inflation down and it is the policies of this Government, not the policies of the coalition, which will lead this country through prosperity in the 1980s.

So much for the wage fixation system. The Deputy Leader of the Opposition talks about the current account deficit. This Government is two years old. Does he think the structural problems of the economy and the current account deficit can all be laid at our door? What about the wage explosion of 1981 and Australia's loss of competitiveness? What has that done to the current account deficit? What about the impact of the massive pick-up in imports which has come as a result of this recovery? Of course that has an impact on the current account deficit, but for the right reasons. There is a lagged effect of a change in competitiveness. But, of course, everything comes in its time and with the right market mechanisms those corrections will take place. The Opposition has shed crocodile tears and wrung its hands about whether this Government can manage the economy. Nothing the former Treasurer has said throws any light upon any shift in policy on his part.

He talked about the 1984 Budget as though there was something wrong with it. I have told him over and over again-he will not listen-that the smallest deficit is not necessarily the right deficit. We do not accept his view about dragging activity out of the economy too quickly. We will not cop that. The difference between his policies and ours is that the Government has its policy settings cast for growth. It is not just a government with a growth rhetoric; it has its fiscal and monetary policy settings cast for growth, backed up by a prices and incomes accord. We are not, as is the Opposition, advocating a contractionary fiscal policy and a monetary policy which will lead to a credit squeeze. The former Treasurer is advocating that we chase the 8 to 10 per cent target at a time of enormous upheaval in the relationship between the monetary aggregates and the gross domestic product as a result of this Government's historic deregulation of the financial system. He would have us mindlessly, foolishly and irresponsibly chasing a fictitious and cosmetic number, leading to a credit squeeze in this country and stalling growth, all because he is an unreconstructed monetarist. He always copped the view of the former Secretary to the Treasury and others who dominated his economic thinking during the 1980s. He will not accept that there is a basic difference in our philosophies. This is a government with a policy cast for growth; it is not a policy cast for the ideological obsessions of people in the Liberal Party or the business community. The results are there for everyone to see.

Look at the Opposition's performance in the election campaign. It said that it believes in smaller Budget deficits, but we found over $1,500m of new policy. There was the $500m of the Deputy Leader of the Opposition and the $500m of the Leader of the National Party of Australia (Mr Sinclair), and then there were all sorts of other announcements around the place. Opposition members could not keep a fiscal policy together if they tried, yet they are trying to tell us that there is something wrong with our Budgets. Last year we could have brought in a Budget deficit of about $5 1/2 billion if we had not provided a tax cut. But the tax cut has given us wage restraint, amongst other things, as well as the pay back of some fiscal drag. The result is that we have a 5 per cent inflation rate for the first time since 1972. So where do Opposition members get off in telling us that our policies are wrong? They should not kid themselves about what members of the business community think; they should just go and talk to them. They should just pick up the newspapers and look at the restoration of profits across companies. Do honourable members opposite really think anyone in Australian business seriously believes that the Liberal Party of Australia has any policies to give non-inflationary growth to this country? No one in business does. The business community has given members of the Liberal Party up. It has sold them out because they are not worth supporting. They have no ideas. They are bums when it comes to economic policies. The business community knows that they are bums and it will not wear them. I make that point very clear.

I just want to make a couple of points about monetary policy because I have heard the Deputy Leader of the Opposition railing whenever he can-on 2GB, 2UE or to any one who will listen to him-about what is wrong with the monetary aggregates.


Mr Howard —You obviously monitor it fairly closely.


Mr KEATING —We get it back. We have to read everything. We see it all. The fact of the matter is that the Deputy Leader of the Opposition, the great monetarist, the man who believes in monetary targets, never hit a monetary target once in five years as Treasurer. That is the first thing. The second thing is that this Government brought the money supply on target in 1983-84, despite $4 billion of capital inflow. We were issuing bonds as if they were going out of style through 1983-84 to get to that monetary target. Even though we have an incomes policy in place we do not accept the view that we do not have to worry about monetary policy, that monetary policy can just be lax and that money can swim around. We do not accept either the religious relationship between the precise increase in monetary growth and inflation. We fixed upon a neutral monetary policy, a neutral firm monetary stance throughout 1983-84, and we are prepared to do the same thing in 1984-85. When the Budget came down in 1984-85 we said that we would look to adjustments for growth and if there was more growth mid-year than we thought, we would adjust the target up for growth and we would adjust it for re-intermediation. But what we did not know and did not say, because we were not aware of it at the time, is that not only have we had re-intermediation but also we have had intermediation. In other words, there is now much more activity in the financial sector in terms of the reflection of monetary growth relative to a given level of activity in the economy. The relationships between the monetary aggregates and gross domestic product have changed as they have changed in the United States of America. When Paul Volcker announced shifts in monetary policy three years ago he copped the same sort of nonsense that I have copped from the Opposition as a result.

The fact of the matter is that this Government is not abandoning monetary policy. We are prosecuting a firm monetary policy but we have set aside the target in this period of uncertainty because M3 and the broader M's are no longer a reliable guide to what is happening between monetary activity and activity in the economy. If the Deputy Leader of the Opposition thinks he can score some cheap debating point by trying to play upon some obsessions in the business community about monetary policy, he has another think coming, because the business community can make its own judgments. It knows where interest rates are. It knows whether policy is firm or not. It knows that the anti-inflation stance of this Government is without peer in this Parliament.

In terms of fiscal policy the Government is committed to the trilogy. It is committed to it at Cabinet, Ministry and Caucus levels. As well as that, we have said that we will see a money reduction in the deficit in 1985-86 over 1984-85.


Mr Howard —A money or real?


Mr KEATING —A money reduction in the deficit-m-o-n-e-y.


Mr Howard —So the Australian Financial Review editorial is right?


Mr KEATING —No, the Australian Financial Review editorial today was wrong. It is not the Treasurer and not the Governor-General. It is a money reduction in the deficit.


Mr Howard —No, the Governor-General's Speech was wrong.


Mr KEATING —Oh, God!


Madam DEPUTY SPEAKER —Order! Would the Treasurer please ignore the interjections.


Mr KEATING —Madam Deputy Speaker, the result is that it is by far the most disciplinary fiscal policy that any government has ever been encouraged to undertake, compared to the grab bag policy pursued by my predecessor. As I said at the start, the Deputy Leader of the Opposition getting up here, without shame on his face, and initiating such a matter of public importance with his record and the record of his Party, in the face of this Government's record, is really stretching credibility to unbelievable ends.