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Wednesday, 30 October 1996
Page: 4763

Senator McGAURAN —My question is to the Assistant Treasurer. Does recent data suggest that Australia has settled into a low inflation environment and in such an environment are high wage and salary increases appropriate? What could be the result of excessive pay increases and should appropriate restraint be shown by all sectors of the community?

Senator KEMP —I thank Senator McGauran for that important question. As he said, there have been very good signs that Australia is settling into a low inflation environment. Of course, this was confirmed by the recent CPI numbers released last week by the ABS. Underlying inflation for the September quarter was 0.5 per cent, down from 0.8 per cent in the June quarter. Underlying inflation for the year to September was 2.4 per cent, in the middle of our target of two to three per cent on average over the economic cycle. The budget forecasts of course that inflation will continue to be at low levels for this year.

These low inflation figures are very welcome indeed. They provide the opportunity to take the pressure off interest rates, getting higher investment and more growth. With inflation low, employees no longer need to negotiate big wage and salary increases simply to maintain their buying power. As the Treasurer said:

Wages no longer need to chase prices.

What Australia cannot afford in terms of interest rates, investment and jobs is for high wages growth to jeopardise the maintenance of low inflation. In an ever more competitive world, a firm cannot pass high wage increases on to consumers as it will lose market share.

Senator Robert Ray —Page 2.

Senator KEMP —As you know, Senator Ray, and I am glad that you are agreeing with me. High wages growth therefore risks firms having to lay off workers. A temporary gain in wages is no substitute for more secure employment.

Senator Robert Ray —Page 2; this is what the Treasurer said yesterday.

Senator KEMP —As I said, a temporary gain in wages is no substitute. For employees, employers and the general community wage restraint is vital. I say that this wage restraint should be exercised by all sections of the work force.

Opposition senators interjecting

The PRESIDENT —There have been far too many interjections on my left and this should cease.

Senator KEMP —As I was saying, it is unfair for corporate executives to enjoy excessive wage increases while demanding wage restraint on the shop floor. The way to achieve good wages outcomes and good employment outcomes is through all sides showing restraint and a spirit of cooperation.

I also point out that wage restraint does not mean static real wages. Rather, the path to better living standards for employees is not to chase high wage claims that firms cannot afford, but to seek out higher real wages through productivity growth. Higher productivity is a key objective of this government; higher productivity through the IR reforms we have negotiated with the Democrats; and higher productivity through micro-economic reform in all areas where reform notably stalled under the Labor government.