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Tuesday, 17 September 1985
Page: 622

Senator KNOWLES —I refer the Minister for Finance to the September issue of Lloyds Economic Report, a publication of Lloyds International Ltd, in which the result of the Government's deal with the Australian Council of Trade Unions on wage discounting is said to be a further inclination by the Reserve Bank of Australia to maintain tight monetary policies. The report states:

In other words, higher wages point to higher inflation which requires tight monetary policies and a continuation of high, if not higher, interest rates.

Does the Minister accept this analysis and the inevitability of even higher interest rates in the wake of the Government's backdown to the unions?

Senator WALSH —I have not seen the publication in question but the analysis that higher wages will lead to higher inflation and higher interest rates is theoretically sound and has been empirically verified. I can give Senator Knowles an excellent example of empirical verification. In the last two disastrous years of the Fraser Government wages increased by 13 per cent and 14 per cent respectively, and inflation rose over those two years from about 8 1/2 per cent, from memory, to 11 1/2 per cent. Interest rates hit the all time record high levels in the middle of 1982 to which I have referred previously. Ninety-day commercial bank bills hit 22 1/2 per cent. Long and short term Commonwealth bonds hit 16 1/2 per cent in June of 1982.

That explosion of wages, inflation and interest rates was triggered off by the Fraser Government's abandonment in mid-1981 of centralised wage fixing. The Fraser Government decided that it would experiment; it allowed the ideologues in the Liberal Party of Australia to experiment with a deregulated wages policy and let the market sort out wages. By the standards of the Fraser Government, economic growth at that time was at quite high levels. It was at lower levels than have prevailed since this Government came to office but, by the standards of the Fraser Government, economic growth was at quite high levels. The result of that cave-in to the ideologues of the Liberal Party which wanted to experiment with its dogmas about market forces determining wage levels was, as I have said before, a wages explosion, followed by an inflation explosion, followed by an interest rate explosion, followed, of course, by the first period of negative economic growth that we had had since the early 1960s and the worst recession that Australia had had since the 1930s. One would have thought that even the Bourbons of the Liberal Party would have learned something from that experience but, regrettably, we find that they have not. Having tried that disastrous policy in 1981, the Liberal Party is firmly committed to having a re-run of it and its economic consequences, should it ever be returned to government.

Senator KNOWLES —I ask a supplementary question, Mr President. Senator Walsh has consistently refused to answer questions put to him-

The PRESIDENT —Order! Will the honourable senator ask her question?

Senator KNOWLES —I would be delighted to. In fact, I will repeat my question to which I have not received an answer. Does the Minister accept the analysis of the Lloyds Economic Report and the inevitability of even higher interest rates in the wake of the Government's backdown to the unions?

Senator WALSH —I am not sure whether `the Government's back down to the unions' purports to be a quotation from the Lloyds report. I suspect that it is more a manifestation of the spleen of the Western Australian branch of the Liberal Party. However, if any report were couched in that sort of language, its analysis would have to be highly suspect.