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Tuesday, 10 September 1985
Page: 345

Senator KNOWLES(4.53) —I remind the Senate of two basic facts. Firstly, last week's sweetheart deal between the Hawke Government and the Australian Council of Trade Unions can only fuel wage inflation and, therefore, increase inflationary expectations. Secondly, the inevitable consequence of this will be a further rise in interest rates to the detriment of home buyers, small business and primary producers. I found it quite amazing, yet interesting, that Senator Richardson could spend nearly a third of his allocated time talking about the Liberal Party and our Leader, John Howard. Obviously he was rather short of things to say about his Government's record in relation to the matter of public importance which is before us but, of course, that is understandable.

It is quite amazing that Senator Richardson should be worried about our concern for small business when this country is confronted by big government that leapt into bed with big unions and big business. I think it is quite amazing that no one on the Government side has yet spoken on the subject matter of this matter of public importance, which covers the disastrous consequences for interest rates of the wages push by the ACTU. It will be very interesting to see whether the Government's final speaker will cover this area or whether he will continue to pursue the angle of industrial relations.

This Government cannot avoid the fact that it has retreated from its original pledge to ensure that the effect of devaluation of the Australian dollar would be discounted in future wage rises because it is placing a higher value on its tradeoff with the ACTU than on the general welfare of the Australian people. This Australian Labor Party Government will cause this country to suffer some inevitable consequences of its gutless decisions. I would like to detail some of those. The Government's failure to achieve full discounting will erode the benefit devaluation has given us-the competitive advantage it gives to our struggling export industries. When we look at the dispute at the Mudginberri abattoir it is obvious that this Government really does not care too much about the export industries either. This display of weakness will only cause the international financial community to pass further judgment on the state of the Australian economy. The next such display of collective horse sense, unwelcome as it might be for the Hawke Government, could see the value of the Australian dollar fall to something like 50c against the United States dollar. In order to retain investment funds within Australia interest rates will have to rise further.

This situation is in addition to the purely domestic consequences of the retreat from discounting. The Hawke Government refuses to acknowledge that the whole pattern of across the board wage increases, which by their very nature ignore the capacities of individual industries or, for that matter, employers to pay, will result in cost rises being passed on to the consumer. This, in turn, will boost both the consumer price index and, equally importantly, the expectation of continued high inflation that pushes up interest rates. No doubt the Hawke Government, like any socialist government in economic difficulties, would like to ignore these economic facts. However, no government as yet has learned to repeal the law of supply and demand.

The Hawke Government would have us believe that the accord is of inestimable value to Australia and that its preservation is worth a few nasty economic consequences. This celebrated accord, however, is nothing more than a trade off between a Labor government and one sectional interest, the members of which happen to be its political paymasters. This is acknowledged by Peter Dawkins and Richard Bandy when writing in the Australian Economic Review for the second quarter of 1985 regarding the wages policy of the accord. They support the contention of the Federal Liberal Party that other interest groups-farmers, small business, the self-employed, the jobless and the smaller States-will have their rights trampled on. The sum total of the equation is that the Australian people lose out with them. Dawkins and Bandy state:

The basis of the accord is the power of the unions. On this issue the leaders of the ACTU are quite explicit. They see it as broadening their influence into other areas of society than simply wages and conditions of employment.

Put simply, this means that the accord is not a device to protect the living standards of employees but a vehicle for aggrandisement of trade unions and those who run them. Only a few weeks ago the Hawke Government was warning us about the inflationary consequences of wage rises without discounting. That is interesting, and I would like to quote some of the things the Prime Minister (Mr Hawke) said as recently as 31 July. He was reported as saying that Australia faced an inflation rate of 8 per cent or more in the next year. He also admitted that this would be double the inflation rate of our major trading partners. Mr Hawke equally understands the connection between inflation and interest rates. He said:

I have heard it said that inflation to the economist is as sex to the novelist: Both are associated with a rising rate of interest.

The Treasurer (Mr Keating) in presenting the Budget last month admitted a rise in the Consumer Price Index of 8 per cent this year and a worse inflation rate than that of our trading partners. Both then and at the National Press Club on 21 August he affirmed the commitment of the Hawke Government to full discounting. I wonder what has happened. Last week, however, we were told that there will be no discounting in the September wage case and 2 per cent discounting next March. Well, that is a slight turnaround, is it not? The Treasurer is left with voicing a pious hope that this cave-in `will have virtually the same beneficial effect on inflation outcome'. At the same time the ACTU has had another win over this spineless Government. It has been conceded 3 per cent of its 4 per cent productivity claim-a claim that will, of course, be visited on productive and marginal enterprises alike. Clearly, in any so-called compromise the Government is making the concessions, but the Australian community foots the bill both in job losses and particularly in higher interest rates.

We need to look carefully at what is happening to real interest rates under this Government. My colleague Senator Messner covered much of this in his address, but I think some of it bears repeating. In March 1983, when this Government took office, the real interest rate-the difference between the interest rate and the rate of inflation-was 1.4 per cent. Last July, only just over two years later, real interest rates stood at 6 per cent even though nominal interest rates were much the same. Australia's real interest rates are the highest in the Western world. A survey of 26 July which appeared in the Australian gave us a real interest rate that was 2 per cent higher than the rates in Britain, Japan and the United States and double those of France and West Germany. The Commonwealth Bank in June stated that real interest rates were at their highest level for a century and that `interest rates would continue to embody a premium based on higher inflationary expectations'.

Professor John Hewson of the University of New South Wales predicted last month that unless wage and monetary policy changed drastically there was no chance of interest rates easing. The bond rate would be running at 14 per cent by the end of this year. The subsequent capitulation by the Hawke Government will make that prediction even more certain. These rises in interest rates have occurred before the full inflationary effect of devaluation has made itself felt. It is inevitable, therefore, that the impact of interest rates on the Australian community, especially home owners, will increase. No honourable senator should delude himself or herself that home buyers can be insulated from this general rise in interest rates. Home loan rates are already on the rise. Maintaining ceilings on home loan interest rates cannot in the longer term protect the mass of home buyers. As interest rates in other areas continue to rise there will simply be fewer funds for home buyers and available funds will be rationed.

Senator Messner —That is right. It is already happening.

Senator KNOWLES —That is exactly right. This is all part of what this Government sees as redistributing wealth across the board. We believe in creating wealth. This Government believes quite firmly in redistributing wealth. No actions by any government in regulating the home loan sector will prevent Australia's home buyers from suffering from this Government's weakness. Not only has this ALP Government failed to put the interests of ordinary Australians above its political imperatives but also the ACTU has betrayed the very people it purports to represent. The leaders of the ACTU cannot grasp the fact that the workers whom they want to protect from discounting are in many cases home buyers who will suffer from the high interest rates spawned by wage inflation.

However, we should not be surprised. The ACTU, in blindly seeking to maintain real wages at all costs, has given no thought to workers in marginal enterprises who stood to lose their jobs in consequence. The whole philosophy of the ACTU and those who stand in this place and apologise for it is to elevate the powers of unions and worry less about the real welfare of unionists, let alone other Australians. That was made sadly clear to all of us once again during the Mudginberri abattoir dispute when Mr Crean went on the record as saying that the so-called rights of individuals were of less account than the collective rights of institutions-powerful, greedy unions who trample on their own members as much as the general community.

What the ACTU is out to preserve is not social justice but privilege. Bill Kelty told the Socialist Forum that the accord had provided Australian unionists with benefits unmatched anywhere else in the world. We might dispute whether unionists benefit in the long run, but we can agree that the union movement in Australia secured a uniquely privileged deal through the accord. By surrendering control of economic policy to the ACTU, this ALP socialist Government has condemned Australians to increasing interest rates. Ultimately, however, the Government will be forced to respond to the inflation unleashed by its deal with the ACTU. Its response will have to be a tight monetary policy, again keeping high real interest rates. How ironic that the ACTU bosses who attack the principle of monetarism should by their actions and in collusion with this Labor Government inflict the most negative consequences of monetarism on their own members. I should be very interested to hear what this Government has to say on this subject in preference to that of the industrial relations which it has pursued this afternoon.