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Thursday, 22 August 1985
Page: 169

Senator PETER RAE —My question is addressed to the Minister representing the Treasurer. Does the Minister agree that should wage discounting not be accepted by the Australian Conciliation and Arbitration Commission at the next two wage case hearings the Government's only real option will be a tighter monetary policy leading to higher interest rates and even more unemployment? Will the Minister ensure that the inevitable result of failing to discount will be fully and forcefully explained to the Australian Council of Trade Unions when it meets with the Government prior to the September hearing of the Conciliation and Arbitration Commission?

Senator WALSH —I am not sure whether I will be directly involved in any such meeting with the ACTU, so I cannot guarantee that that suggestion will be forcefully put to the ACTU. But I will certainly pass that on to the Treasurer, the Prime Minister and Mr Willis, who I expect will all be directly involved. If the Commission rules that there should be no discounting for the devaluation induced component of the consumer price index increase, it can be expected that the rate of inflation in this year and in the year after will be somewhat higher than it would otherwise have been. Indeed, as I said yesterday, the inflation forecast built into the Budget Papers does assume that there will be no discounting. The Government had to make a somewhat arbitrary decision, if you like, as to whether it would write in that figure or alternatively, a discounted figure.

At the very worst, if there is no discounting the rate of inflation could not be expected to exceed that forecast in the Budget; that is, for June 1986 or June 1985 I think the figure was 8 per cent which, I might add, is very much below the 11 1/2 per cent inflation rate which prevailed when this Government came into office and lower than the inflation rate in all but one of the seven years in which the previous Government was in office. For all but one of the seven years and three months that the discredited former Government was in office Australia's inflation rate was higher than the worst likely outcome for this Budget. These things should be seen in proportion. At the worst, the record that this Government is likely to establish in this financial year will be better than the record of the Fraser Government in six of the seven years that it was in office.

I do not think that the hypothesis which Senator Rae put up is the only option. If the Arbitration Commission makes a decision not to discount, obviously that is something which the Government will have to review. One thing that I do not believe this Government will do is fall into the futile trap that the previous Government fell into and adopt a sterile policy of doing nothing but screwing down economic growth in order to attempt to contain inflation. In the end, of course, it is a matter of record that the discredited former Government failed miserably to achieve either of those objectives. It screwed down economic growth in an attempt to control inflation. It ended up killing economic growth all right but it did not control inflation. This Government has both accelerated the rate of economic growth and reduced the rate of inflation.

Senator PETER RAE —I ask a supplementary question of the Minister. I asked: `Was not the only real option a tighter monetary policy leading to higher interest rates and unemployment'? Is it not a fact that at the moment the Government is engaging in tight monetary policy which is forcing up interest rates to the highest level of real interest rates that this country has ever experienced as a nation? Is it not a fact that that is already the precedent set by this Government?

Senator WALSH —I am trying to remember what the interest rate was in the desperate dying days of the Fraser Government. About six months before that discredited Government was swept from office, short term interest rates hit 20 per cent; that is, almost double both the inflation rate and the unemployment rate over which the previous Government presided. It is the Government's view, and it has been stated very firmly, that the interests of the economy and the nation as a whole would be best served if the devaluation induced component of the consumer price index were discounted from the wages increase in the next national wage case. Even if that does not occur it does not necessarily mean, as Senator Rae seems to assume, that there will be, for all time, a higher rate of inflation. Even if the Government's argument is not accepted by the Commission there will be, in time, because of productivity growth, no increase in real labour unit costs. I am afraid that I do not have the precise reference here, but somewhere in Budget Paper No. 1 there is a table which sets out, over the previous 14 years, average real unit labour costs; that is, labour costs adjusted for both inflation and productivity gain. At present that real unit labour unit cost index is below 100-the base was the period 1966-67 to 1972-73-and is lower than it was in the entire period that the previous Government was in office.

The PRESIDENT —I do not wish to detract from the right of honourable senators to ask supplementary questions, but I point out that of seven questions asked so far in this Question Time five have had supplementary questions and answers thereto. This does consume a lot of time. I merely mention the matter and draw it to the attention of honourable senators.