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Thursday, 18 February 1971

Senator WILLESEE (Western Australia) - At the request of and on behalf of the Leader of the Opposition I move:

Thai the Senate, at its rising, adjourn until Tuesday, 23rd February, al 2.55 p.m. 1 do so for the purpose of debating a matter of urgency, namely:

The unwise and panic measures of the Government in dealing with the economy which are likely lii ::m<>c disruption, hardship and to damage the national interest. 1 believe the motion we have moved today really raises a matter of urgency. Sometimes when urgency motions are moved I wonder just how urgent they are. The basis for this urgency motion has had some publicity. lt is that over the last 10 years in Australia there has been an inflation rate of about 21 per cent. However, if the rate of increase in the December quarter of last year - 1970 - were to apply for a full year, the annual rate would be 7i per cent. This I suggest is indeed an urgent matter. Of course, that increase occurred in the period before the 6 per cent wage rise was granted.

The worrying feature is that this will not be confined to one quarter or to 6 months. This rate of increase must be controlled. If it docs settle back it may not settle back to around the 2i or 3 per cent to which the economy has grown fairly inured but instead it may settle down somewhere between the old rate and 7± per cent. Some of the economists have forecast that the figure will be about 6 per cent. I suggest if it does settle down at 6 per cent it will be the old story of the weak being hit very hard, the smart boys in the community getting away, with it, and businesses that are tied up in certain contracts being badly dealt with, lt will be a very undesirable state of affairs, particularly for our export markets.

We have for a long time gone along on the very comfortable theory that a little bit of inflation is good. I cite the case of people who take out long term loans for houses. When their income is X they borrow a fixed amount of Y which is to be paid back over a long period of time. Though the X quantity improves, the Y quantity stays the same, lt is argued that this situation is good for those people. It creates a demand for labour and because of that businesses do well. The Government gets more tax because the bad aspects start to come in. Prices start to rise and, of course, wages follow the price rises. Because of all this it is said that those sort of people in our community are reasonably well looked after.

This leaves the people about whom we hear so much and about whom we are so worried. I am pleased to note that the conscience of the Australian community is being aroused and the community is becoming concerned about people on fixed incomes such as those receiving superannuation payments and pensions. Superannuants are affected eventually because, if they commit the sin of living too long after they retire, this inflationary rate starts to catch up with them. Ex-government employees get some relief because an examination of their position is made from time to time, although not nearly frequently enough. And I do not agree with the method of reviewing their position. However, that is the way it is done and they are retrieved in some way.

Those people in the private sector of the community who have not come under the modern system of superannuation obtain no relief. The modern system has something inbuilt against inflation to the tune of 3 per cent. The system is not very widely used yet but thank heaven it is starting to operate in the private sector. However people under that system receive only that amount of relief. Of course, as inflation goes on and on, governments are forced into such things as tapered means tests to bridge the gap between costs and the incomes of persons who receive only superannuation payments and pensions. Of course, the pensioners receive their increases by direct Government action.

The base problem, in my view, has been the complete lack of system. I do not believe it is good enough for the superannuants to have their situation looked at whenever the Government thinks fit. It is about 3 years since it last did so, and a lot of people can suffer in that time. The same situation applies to pensions, T believe they should be tied to the inflationary situation so that increases are automatic instead of the pensioners having to go to the Government which may be either looking towards an election, coping with a lime of depression or simply trying to avoid the problem for some other reason that is best known to itself.

Unfortunately the problem is masked fairly badly by 2 things, one of which is the 2 pay packet economy in our community and the other is hire purchase. Sometimes we might think that a person seems to be doing very well on a fairly low salary. Account is not taken of the fact that his wife is also working. So it is not only his effort that is going into the home at ali. Hire purchase also masks the situation at any given time. Sometimes the homes of these people who are on low incomes are not so much different from those of people who are getting 3 times the amount of money that they do'. Although the people on low incomes have all those accoutrements in their homes today - a television set and the rest of it - they have not yet paid for them. What they are doing is hiring them under this modern system known as hire purchase. So the socio-economic situation of families in Australia is masked by certain factors. This is nothing new. It has been occurring to an increasing extent since the end of the War.

When we experience a sudden economic spurt such as that which occurred in the last quarter of last year, this comfortable theory no longer applies. The bad side of it is accentuated and the whole theory is destroyed. Unfortunately, the people who are hit worst are the weak people, those who are least able to absorb the blow. The people on fixed incomes are the ones who feel that lag quickest. If the pensioner is anticipating a rise in the economy of about 2i per cent in a certain 12 months, he has to wait for that 12 months before he gets it and now he should get this H per cent rise in the economy. The same situation applies to superannuants. Those people on low wages particularly are feeling that lag. They are being hit over a shorter period much more drastically and viciously because the curve is not spread as it was before.

However, some benefits do accrue. The Government benefits from these things. Because of the sudden rise in incomes it receives more taxation. For instance, last year average weekly earnings rose by S per cent while revenue from taxation rose by 12 per cent. When people quote figures which indicate that the cost of living went up by X per cent, and wages went up by X plus something, they think that they are better off. Of course, they are not because consideration has to be given to our taxation system, which has been criticised enough in this place. The moment they receive an increase in wages some of it is taken off by increased taxation.

Some businesses do all right out of this situation. People engaged in the selling of commodities do very well. The smart boys who are operating on very fast turnovers with land and share deals do exceedingly well. But, of course, businesses which are trapped into fixed commitments and fixed contracts are faced with the-situation I was talking about a little while ago in reverse. Because they have a contract they have a responsibility and they have to live up to it. From what we have read from overseas it seems that that is precisely what happened in the world famous Rolls Royce case. A sudden spurt of inflation was carried on but the company had fixed contracts to live up to.

These are some of the dangers that will arise in Australia unless the Government does very much better than it is doing at the present time. The economy has been allowed to deteriorate now for a very long time. The Government has taken the attitude of sitting and hoping, and possibly praying, that it just will not happen By shutting its eyes it hopes that these sudden bursts of inflation will go away, but of course they will not. Although nobody on the Government side likes to say so, thu signs today are at least as bad as they were "in the 1930s. In the J 930s- the depression days - we had the phenomenon of exceedingly low rural incomes and high interest rates. I suppose that the difference today is that We have the great mining boom, which has been the saviour up till now. Whether and, if so, to what degree the boom is being generated by a war economy is one of the worries in what is otherwise a very happy boom.

During the depression we saw farmers walking off farms. Today the walk-off has just started, and it will accelerate. Let us look at the situation of the wool industry. Whenever one mentions wool to an Australian, he immediately knows what one is talking about, lt is not just woollen jumpers; it is the economy and our export earnings. Wool prices had already depreciated, and they depreciated a further 20 per cent last year. We have the worrying question whether we are overproducing not only in wool but in many of the other primary products, in the light of the markets that we have.

If this is the situation and if all the inquiries and all the talks that have gone on have led to this situation, it is time a plan came down from the Government for making some sort of an orderly withdrawal from the rural industries. But so far we have waited in vain. I suppose that the debate is never ending as to whether the rapidly diminishing world demand for wool will fall to a point where wool will almost not be demanded at all. All of us in our lifetimes have seen many commodities, many forms of transport and many ways of life that we knew disappear and no longer be in demand. If that happens in the case of wool, it will only accentuate the validity of the few points I am putting before the Senate.

During the depression we had high interest rates. Today we have the same feature. Interest rates should never have been pushed to the level to which they have been pushed by the Government. This was one of the policies which the Government, in its very confused thinking of last year, evidently thought would have some effect. The Government finds itself in a very difficult situation today in view of tha expansion of mining and the very undesirable tendency for the building of city office blocks to attract far more capital than housing. This demand for capital would appear lo me to create at least a tendency to keep the high interest rates where they are. 1 believe that we can lull ourselves into a false sense of security by thinking that mining will be a panacea for all our ills, because there is a tremendously heavy overseas investment in mining. The illfated Vernon Committee made a survey of the situation 5 years ahead and made a prediction on overseas company profits. The Committee made one mistake. It said that we would reach a certain situation in 5 years, but we reached it in 4 and a bit years. The figures show that in the year ended June 1965, 20.8 per cent of company profits went overseas. In the year ended June 1969 - only 4 years later - the proportion of company profits that went overseas was 29.7 per cent. That represented just about a 10 per cent increase.

In addition, mines are particularly vulnerable to the cost squeeze. Although to a lesser degree, they can experience the same difficulties as those 1 mentioned in the case of the Rolls Royce company. They contract to do a certain job at a certain price, and they are pegged to that. Also, contracts do noi last forever. The mining contracts will have to be rewritten in the future. I suggest that when these contracts are being rewritten and the Japanese and other people are buying our raw materials the scene will be vastly different from what it was when they first entered into these contracts a few years ago, in view of the tremendous expansion in the countries concerned.

Merely in passing, let me say that this rate of interest should never be related in any way to the rate of interest for housing. The Government tried to dismiss this argument some time ago, when the increases in housing interest rates were made, by saying: 'After all, this means only another SI a week'. That is the sort of thinking that has brought the Government to the situation in which it is today in the economic field. That sort of thinking is just not good enough. That sort of thinking says that as long as building is going on, whether it is of office blocks or anything else, it is all right. That sort of thinking, if it is projected even 12 months ahead, will obviously bring about social difficulties which in turn will create more difficulties for whoever is in power at that time.

The Government ought to ask itself one question, namely: Whose inflation is it dealing with? It is not much good trying to blame Labor governments. It is not much good trying to say that these are Socialist theories on which we are now foundering. The Government has been in office for 21 years and in that period we have been in somewhat similar circumstances, lt made tremendous mistakes in the early 1950s. It also made the awful mistakes of the credit squeeze in the early 1960s. There has been no sustained effort. Recently we read that the prices of about 2,000 grocery items had been reduced. The very first thought I had was: How did the prices get up there in the first place?

Then we have the Public Service cuts. As I see it, what the Government is saying to the Public Service is this: 'No overtime will be worked until after 30th June: travel has to be stopped; and there will not be replacements of staff'. If - I underline that word - the Government has been administering the Public Service at the optimum level of efficiency, these things should never have occurred in the first place. The Government should never have been putting on more staff than it needed. Public servants should not have been working more overtime than they needed to. The Government should not have had people running around the country if it was not absolutely necessary.

On the other hand, if the Public Service was operating at the optimum level of efficiency, all the Government is doing now is delaying things until a time when they will cost more money. If certain work has to be done, it is not very much good saying: 'Let us put it off until after 30th June'. If a conference must be held, it is not very much good saying to people: 'Let us put it off until after 30th June and then you can travel to Perth, Hobart or wherever the conference is to be held'. This reminds me of an old saying that I used to hear when I was a child. I would say: 'I am sorry I did it', and my mother would always say: 'If you had not done it in the first place you would not have to be sorry now'. If the Public Service had been operating as efficiently as we had been led to believe, the Government would not have to do these things now. Similarly, if the vendors of the 2,000 grocery items had kept to what was a reasonable rate of profit, they would not now be in the situation of saying - and making a great gimmick out of it - that they will reduce their prices.

Inflation is always a worry in a modern community; let me concede that, immediately. At a Press conference on 25th March last year - not quite 12 months ago - Mr Gorton finished up by saying that his desire was to have balanced growth and the avoidance of significant inflation for the foreseeable future. A point of interest is that even at that time the Treasurer (Mr Bury) was warning that an inflationary trend was developing. He pointed out all the various reasons.- He said that there would be a tremendous increase in interest rates. He mentioned one or two other things. So there seemed to be a divergence not of economic thought but of political thought between 2 senior men in the Government. In spile of what Mr Gorton said, the Budget brought down last August was obviously inflationary.

What always happens in these cases - it happened very markedly in the Budget - is that the weak become worse off. This is an inexorable law. This is the inexorable way things work when an inflationary situation is created and there are these sudden spurts. It is bad enough when inflation is controlled, although whether you ever control inflation I do not know. Again, it is bad enough when you can assess what the rate of inflation will be. It is worse when that cannot be done. Even at that stage the Government was not short of advice.

Senator Sir Magnus Cormack - O'd I hear you say that you cannot control inflation?

Senator WILLESEE - No, I said that I did not know that the Government had ever really controlled inflation; but I do not want to be too specific about the word control'. I suppose that one can say that inflation is controlled if it is kept down to 2 or 3 per cent. I think that is acceptable rather than controlled. Doctor Hall of tha Australian National University wrote an article dealing with the Budget in the 'Australian Financial Review' of 25th August. The heading was : 'Slowdown at First; More Inflation Later. That is pretty definite. There are no doubts about it. In the final paragraph of the article Dr Hall said: ti is probable that in terms of current economic diagnosis it contains "a serious error of judgment. Because it refuses to face up to the difficult problem of controlling inflation as an issue in its own right, it will contribute to an intensification of the structural distortions which are beginning to plague the economy. The reader is invited to draw his own conclusions about the quality Of the Government which has, produced this set of results.

That was the immediate reaction. It was the reaction of the Treasurer before the Budget was brought down. It was in Mr Gorton's mind when he talked about this in March of that year. In 1964 - that reminds me of my age, incidentally - in this chamber 1 moved an urgency motion on behalf of the Australian Labor Party relating to inflation existing at that time. Although those were not such worrying times, we were pointing out that inflation was too consistent and that the Government would face troubles sooner or later. lt is interesting to read some of the things that we said on that occasion. I want to mention them because I hope that the honourable senators opposite who reply in the debate do nol revert to the argument that was used on that occasion. Mr Menzies - 1 am sure all honourable senators remember him - was doing a broadcast on one occasion and with his usual modesty he headed a paper: 'Rising Prices - The Answer'. One of the things he said was:

We propose to present to Parliament a Bill to impose an excess profits tax.

Then he added:

This is a novelty in time of peace.

The novelty of the situation must have overcome the urgency of the situation because we still do not have an excess profits tax.

Senator Sir Magnus Cormack - What was the date of the debate?

Senator WILLESEE - It was 23rd September 1964. Although this is somewhat out of context let me mention that I dealt with several suggestions that the Govern ment might adopt. This is what [ said regarding price control:

I am not suggesting that it is necessary or desirable to introduce price control as we knew it during the war. At that time full rate price control was justified. There could be no objection to the Commonwealth Government saying then that the people who were not in uniform had to make sacrifices. But for the Commonwealth Government., standing as it does on the edge of inflation, it is complete foolishness not to arm itself with the power lo impose price control to the extent considered necessary from time to time. Even the fact that the Government had armed itself, wilh this power would aci as a deterrent to the business community.

In his reply the then Leader of the Government in the Senate said:

The proposition before us clearly indicates to the people of Australia that the Opposition is still immersed in the financial policies and doctrines of the past. The Opposition has learned nothing from its years of defeat, lt clings with almost pathetic allegiance to the Socialist dogma of price control.

I leave honourable senators to judge whether I. said that. That is why I say that if this debate is not serious then all of the utterances of the Prime Minister over the past few weeks are absolute nonsense.

Senator Sir Magnus Cormack - 1 am seeking information and your opinion. To what would you ascribe the failure of the Prices and. Income Board in the United Kingdom to hold down the cost- demand inflation?

Senator WILLESEE - I do not know enough about the whole situation to answer that. 1 am not claiming, nor have L ever claimed, that price control is a panacea but I think that some of the things that I hope to mention - I do not think I will have time to do so if I continue to answer interjections - could make a contribution. We have often heard it said that inflation in other countries of the world is worse than it is here. That is not the answer. I am not worried about other countries of the world.

Senator Sir Magnus Cormack - I am not talking about other countries.

Senator WILLESEE -No. I am not referring to the honourable senator. This is what happened in the debate in 1964. We are told about other countries but we do not know the whole story of other countries. The Government has berated the trade union movement and has said that price control is an indirect kind of suggestion to the Commonwealth Conciliation and Arbitration Commission that it should do this, that or something else about wages. The Government has done something about the public sector only in the part of the Public Service with which I have dealt already.

What are the things that the Government not only can do now but could have done over the years? In 1964, Mr Menzies suggested that there should be an excess profits tax - I am not suggesting that he made the suggestion lightheartedly - and at that time the basic wage was £7.2.0, or S 14.20 in the present currency. Surely to goodness there is some argument for it now. I suggest that it would be better to have an excess profits tax than a flat rate of tax on high incomes. Surely there would be then a finer tuning of the economy to take off excess profits rather than allow the high profits to which we have become accustomed. On the matter of the wage freeze, the Government's pleas to business will not mean anything because the business community, by and large, has an inbuilt regard for and some benefits to get from increased prices.

The Government already has passed a law in relation to restrictive trade practices. We mentioned that aspect in the previous debate. All I can say to the Government is this: 'Stop the shamming. Get moving into the field of collusive tendering by close combines because that is keeping up artificially the prices of all sorts of things in Australia.' I noticed the other day that Mr Bannerman, the Commissioner of Trade Practices, said that collusive tendering - I think it is called a 'trade arrangement' - is registered in private. These arrangements are supposed to be for the public good. If they are for the public good what are the companies worried about? Why do they not bring the arrangements into the open?

I turn now to tax avoidance. There is a certain section of the community which gets tax cuts because the Government has written into the Act deductions for such things as advertising and has permitted the splitting and spreading of income - the old swindle sheet that we all know so well. The control of all of these things is within the Government's power. Surely the whole question of advertising could be looked at under the powers of the Commissioner of Taxation. The Government has no control over the amount of profit that can be made on internal trading on the Stock Exchange. Then there is the ipso facto system, as I mentioned the other night, by which we say: 'Wages have gone up by $X; prices will go up by $X.' There is no reason for that in a technological age. The Commonwealth Government should take a stand and try to break that nexus and the automatic acceptance of the situation. It has been done in other countries of the world. It should be done here. There could be encouragement in the way of research or perhaps by granting taxation concessions in certain areas - that would have to be examined - in an attempt to dispose of the psychology by which it is accepted that when wages go up prices must go up immediately.

Hire purchase has sunk out of sight. If the Government took the power to control credit and sent those people, who at present are lining up at hire purchase offices for loans on which they pay exorbitant rates of interest and hidden charges, and suffer the heartbreak of losing the goods if they get into trouble, back to the legitimate banking system it would be attacking high costs in Australia with no detriment to the legitimate business community. As to price control, I merely repeat today that it is not something which can be done without taking additional action, but the other things that I have mentioned can be done without the necessity for additional action. The Government should arm itself with the necessary power to use as a threat - to have the power within its control. If the Government does not believe in price control but believes in laissez faire and believes that there should not be any restrictions, it does not have to use the power but the fact is that it would be a tremendous deterrent to those people who are doing the things which are pushing up prices in Australia.

We have said in our statement of the matter of urgency that the measures which the Government has taken are unwise, that they will cause disruption and that the last position could easily be much worse than the first. In the fast moving economy of today I issue the warning that that could happen very much sooner than the Government expects. Because we have grown up over the past few years in a period of full employment I do not believe that a sudden twist of the wheel could not take us back to the situation of unemployment which was the classic remedy of the Liberals in the 1950s. They used to say that unemployment was a good thing, but even the Liberals have learned that although it would cure inflation for a short period they would not be in office to administer it. Neither would any other Government that allowed the situation to drift to that extent.

The present sectional attack of the Government merely cuts down spending in the public sector whilst Government supporters aim their shafts and arrows at the trade union movement. That is a sectional attack. As Senator Murphy pointed out, finally the Government will damage the national economy. This must not happen. The Government could best control the situation by abandoning its past shiboleths and using the weapons I have mentioned. They are available at the Government's command. It is completely useless to attack one section of the community. I invite Government supporters to consider how much stronger the position of the Government would be in claiming that wages need to be controlled because they are the cause of all our troubles - which I completely deny - if it attacked the rest of the community and, for example, cleaned up the Stock Exchange. The Government would be in a much stronger position if it directed its attention to the excessive profits of companies and removed the anomalies in the present taxation system. I recommend to the Government that it at least try some of the moves I have outlined.

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