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Tuesday, 20 September 1983
Page: 984

Mr MACPHEE(3.55) —I should like to refer to the second reading speech on the Salaries and Wages Pause Act Repeal Bill by the Minister for Employment and Industrial Relations (Mr Willis), and in particular, to his statement that the Government submitted strongly to the Australian Conciliation and Arbitration Commission:

that now was an appropriate time to end the wages pause and to introduce a system of centralised wage fixing based on full, six-monthly cost of living adjustments.

He went on to say that such a system was argued by the Government as being:

fully suited to the needs of our times and is clearly in the best longer term interests of Australia. It protects the real incomes of wage and salary earners.

The Government has placed before us no evidence upon which it believes that now is the time to end the wages pause and that now is the time to protect real incomes when only a few months ago in this chamber we were all told, first by the Premier of New South Wales and then by others, that the only issue facing the National Economic Summit Conference was jobs, jobs, jobs; and that still, in the opinion of most people, is the issue facing Australia today. But the Minister said, on behalf of the Government, when introducing this measure, that this is the appropriate time to break the wages pause. So, the Bill goes on to provide that the legislation introduced by the previous Government, when it began the process of implementing the wages pause, should be repealed.

I ask the Minister: What has happened to the state of the economy since the wages pause was introduced and since the Summit which justifies the Government's belief that a wage increase is now justified and what are the consequences of that policy for employment? I remind the House of what the Australian Conciliation and Arbitration Commission said in its judgment of 23 December last year. I quote from portions of the text of the President. He said:

The Commission is faced with an unprecedented situation.

Firstly, Australia is experiencing the worst economic recession since the 1930s .

Secondly, all eight Governments agree that a wages pause is necessary on economic grounds.

Thirdly, all eight Governments agree that action should be taken to freeze public sector wage and salary increases for a period of at least six months.

The text goes on to examine the other submissions put to the Commission, and the President then continues about the state of the economy:

Central to the case for a pause was the state of the Australian economy. Three main developments have affected the economy adversely-a deep and prolonged world recession, a serious drought and a substantial increase in domestic labour costs .

The world recession has resulted in a collapse in the demand and prices of our main mineral exports and has halted the resources boom. It has also produced a more protectionist international trade environment creating potential difficulties for many of our exports and our import competing industries.

The drought together with the rise in farm costs is expected to nearly halve the net value of rural production during the current year.

The sharp increase in labour costs has resulted from general increases in pay and reductions in hours since the end of indexation flowing particularly from the metal industry agreement of December 1981.

Any one of these three developments without the others might have been tolerable. But in combination they have produced the most serious economic crisis since the depression of the 1930s.

We know that people say that the world recession is starting to ease; but every second day reports fluctuate as to the extent of the easing of that recession. Indeed, the forecasts are most conflicting regarding the economies of the United States of America, Japan and European countries and especially the economies of the United States and Japan which have a very big impact on our own. It appears that there will be a series of ups and downs in those economies with each down perhaps being a bit less than the one before. But the fact is that it will not be an even recovery and we certainly will not get the benefits of it for some time. We know that the drought has ended and that certainly has eased some of the pressures that were upon us. But some of the effects of that drought and of the bushfires in terms of the costs of raw materials and other items will still be felt through our economy for some time.

The purpose of the pause, as the Commission has indicated very strongly and clearly in its judgment, was to try to ease that economic situation for the purpose of reducing our rate of inflation and unemployment. The Government campaigned in March on the basis of creating new jobs. We saw the unemployment figures the other day and they indicate that in the Government's period in office it has created in the order of 100 new jobs. Yet the Government has gone back to the Arbitration Commission urging that this wage pause not be extended but, indeed, prematurely ended. One has to admit that by the time the Commission 's judgment appears the pause will probably have been prematurely ended by about eight weeks when compared with what the Government sought.

It is the view of the Opposition that facing the Australian people at the moment is a choice-wage increases for those with a job or a further tightening of the belts, a further real reduction in wages, in order that those who do not have a job have a chance to get one. We believe that the Australian public would continue to subscribe to a wages pause for a little longer if, in fact, jobs were seen to have been created at the end of that time. As it is, we know that when gallup polls have surveyed the opinions of the public the results have shown that people have supported the wages pause just as they have supported the other actions of the Conciliation and Arbitration Commission. The Commission, at a further point of its judgment when it was looking at the economic consequences of the pause, said:

In the last 12 months-

That is really the whole of the last calendar year 1982-

Australia has experienced a substantial increase in wages and real unit labour costs at a time when there has been a marked slowing down of wage increases and inflation in our main trading partners. With the economy in recession and a further decline predicted we do not believe that Australia can now afford another round of wage increases. The effect on inflation, unemployment and business confidence could be serious indeed. We conclude, therefore, that the circumstances warrant a pause from further general increases in labour costs.

A little further on the Commission indicated why it was prepared to review the matter in six months. It said:

In the current changing economic climate it is more difficult than usual to make economic judgments bearing on a substantial period ahead. The world economic situation could change significantly in less than a year's time.

I put it to the House that the world economic situation has not changed significantly in that time. On the contrary, whilst it may be that the world recession has bottomed out and it may even be that the Australian economy, thanks very much to the wages pause and the ending of the drought, has begun to bottom out, a premature increase in wages would now only aggravate that situation and throw away the benefits of the pause. While on that subject I say that the Prime Minister (Mr Hawke) indicated to the House at one stage that he thought that there should be some increase of only 3 to 4 per cent in this calendar year but that next year it might be possible to return to a situation of full indexation. Of course, he hoped that by that time his Government's policies plus the world economic recovery would have brought about a situation in which inflation was running at a manageable level of 5 or 6 per cent. I refer to the Hansard of 10 May at page 344 where the Prime Minister, in answer to a dorothy dix question-a question from one of his colleagues which he knew of and welcomed-said:

We believe that in this context there is room for only minimal wage increases before the end of 1983, and that is the position that we will be very clearly putting to the Australian Conciliation and Arbitration Commission . . . I say further in that respect that on that basis there would be room for a return to indexation in 1984.

One has to ask what it is about the economy that has changed since the National Economic Summit Conference and since the Prime Minister said in this House in May that he thought a modest increase, a minimal wage increase, would be justified before the end of 1983. Why is he now saying that there should be, in effect, full indexation from the March quarter of this year? As we know, the March quarter commences on 1 January. One can consider that matter in a very realistic and accurate statistical sense. The wage pause was introduced on 23 December and it will be lifted, in effect, from 1 January because that is when the March quarter commences. On the Government's submission to the Arbitration Commission, that is the day on which full indexation of wages ought to start. We know of no economic justification to support that. The only consequence of that position can be that those in a job will get an increase in wages and those not in a job will have less prospect of getting a job that they might otherwise have had. The Opposition certainly supports the objectives of the Summit when it said :

. . . that it is a legitimate expectation that the income of the employed shall be increased in real terms through time in line with productivity.

But in our submission there is a very big difference between maintaining real wages and increasing real wages 'through time in line with productivity'. The Government is committed to maintaining real wages willy-nilly regardless of what that does to inflation, interest rates and unemployment, whereas the Opposition is committed to increasing real wages in line with productivity improvement while, at the same time, hoping to improve the prospects of employment for those who are now outside a job. I find merit in the view of the Confederation of Australian Industry. At the conference convened by Sir John Moore after the Summit the Confederation said:

. . . the centralised system should be based upon making a periodic assessment of the national economy in order to determine its capacity to pay higher wage increases without adverse consequences. While such an investigation necessarily involves an examination of price movements, they should not be at the heart of the system.

That is a very major point of difference between the employers, and the unions and the Government. The unions and the Government formed their prices and incomes accord. The employers were not privy to that, were not part of that, and neither at the Summit nor elsewhere have they subscribed to the indexation of wages on the basis of movements in the consumer price index. There are many good reasons why they do not. Prices of themselves do not indicate a capacity to pay wages. Prices rise for many reasons. Some of them, indeed, stem from wage increases and some from import prices which can depend upon costs in other countries-world commodity prices. Price rises can rest on various demand factors including those related to imports and certainly they can be the result of government charges as well.

State and Federal government Budgets are currently imposing charges on industries which simply cannot be absorbed into their cost structure any more. The natural tendency of industries when they are competing in a recessed economy is to absorb their cost increases as much as they can. They do that by shedding labour as much as they can rather than putting up their prices and being uncompetitive. But they reach a point where they cannot shed any more labour and they have no option but to put up their prices. That does not indicate a capacity to pay higher wages. It indicates only that in order to survive they must increase their prices. Very rarely in our experience as a country have profit margins been of such an order that they really had a capacity to pay wages of the sort claimed by the trade union movement. We have the difficulty that, while the Government gained the agreement of the organised employers to a return to a centralised system, it did not gain their agreement to indexation of wages under that system. The position of the employers has always been that wages ought to be increased in line with productivity improvement, and that is the Opposition's position on any sound economic basis. It has to be acknowledged that national productivity improvement alone can justify increases through any national wage case mechanism without a further worsening of inflation and a further worsening of our industry's capacity to employ people.

In the Government's view, so it seems, the Commission should look at only one economic indicator, that is, the movement in the consumer price index, and it should automatically adjust all wages by the same percentage. Never mind about movements in output, consumption, investment, exports, imports, international competitiveness, employment, unemployment, labour costs, interest rates or productivity improvement. The Government tells the Conciliation and Arbitration Commission: 'Forget about all the other domestic factors and conditions in the rest of the world. Simply go ahead and be a rubber stamp. Increase wages across the board, automatically, every six months in the light of movements in the consumer price index'.

One of the problems which the Government faces is that of educating employees, educating members and officials of the labour movement. This is the difficulty. In the previous period of indexation it created the expectation that wages would be fully adjusted for movements in prices. The indexation system implied that regardless of the state of the economy there was some entitlement to full adjustment of wages for movements in prices. Whenever there was a decision granting less than full indexation the unions took the attitude that they had been short changed. That is the situation which the Government has created for itself. To a large measure the Prime Minister, when he was President of the Australian Council of Trade Unions, helped to create an expectation that makes it industrially unrealistic, in the Government's assessment, to do other than grant a wage increase now even though the economic rationalists in the Government, including the Prime Minister, know that that will harm our prospects of economic recovery and make much harder the attainment by the Government of its objectives of creating 500,000 new jobs in the life of this Parliament. In any rational world there is no way that we would return to any form of quasi- automatic adjustment of wages for prices.

That is the bind in which the Government has got itself and, sadly, the people of Australia. While many people wrongly equate the centralised system with indexation, the two are quite distinct. There is no way, in our submission, that indexation should be contemplated by whatever means it is to be introduced. Also , I do not believe that the statutory obligations of the Conciliation and Arbitration Commission would enable it, on any more than one or two occasions, to comply with the Government's requests. What the Government does is to put the Commission into an extremely difficult position. It will be accused of formulating its own economic policies contrary to those of the Government if it does not heed the Government's wishes. At the same time it has a statutory obligation to consider the economic consequences of its decisions, especially regarding unemployment. It behoves the Government to bring that information before the Commission.

The Government speaks with several voices on this issue. Recently, at the National Press Club the Treasurer (Mr Keating) said that inflation is the cruellest, the most indiscriminate tax of all. At present the Government is advocating, through the Conciliation and Arbitration Commission, a further biting of taxation, taxation by inflation. There is no way that indexation is going to improve the real economic position of the people who have received it. It is far more likely to make employees worse off because an economic system can distribute only what it makes, what it produces. At the moment it would be a false increase, a money wage increase, to index merely because there have been price increases when there is no profitability and no capacity to pay those wages. Productivity is the only means whereby we can increase real wages. On that basis we believe that the Government has an obligation to use its much vaunted special relationship with the trade union movement to try to educate the leaders and members of that movement to understand the importance of productivity improvement.

In order to expose still further the absurdity of the Government's position I refer the House to a document which was produced by the Legislative Research Service of the Department of the Parliamentary Library. It is Current Issues Brief No. 7 1983 and it is entitled 'The CPI and Wage Indexation'. I strongly commend it to the House because it shows the folly of indexing wages in accordance with the consumer price index. Australia has persisted for far too long with the myth that somehow or other the CPI measures the real cost of living. It does not purport to do that. Whatever the pros and cons of the regular cost of living adjustments, it is absurd to increase wages and salaries in line with an index that takes no account of increased government services to the community. It is tantamount to paying wage earners extra to compensate them for the extra services provided by the Government. If the Government is going to move its taxation mix more towards indirect taxes it has no option but to exclude indirect taxation from the CPI basket. This is made all the more urgent by the decision of the Government to index excise duty twice yearly. The alternative is that, through the Government's commitment to full wage indexation , Australia will be condemned to a return to the wage-price spiral, with even more disastrous consequences for inflation and unemployment. This is so at a time when other countries have not only reduced their real wages but also, in some cases, have increased their hours of work. The absurdity of the current position is exposed by the increase in petrol excise. This increase will add substantially to the costs of many employers and will reduce their ability to pay wages at the current levels. To increase wage levels as a result of this very same increase is not only incongruous but also will have a very serious and adverse effect on employers.

I ask the Minister for Employment and Industrial Relations, if he intends to reply in this debate, to comment on that matter and on why it is that the Government relies upon the consumer price index, which is a basket of goods that are weighted in accordance with what some people purchase but which is not, on any sound analysis, a guide to the cost of living for the purpose of even taking account of price increases, let alone doing so automatically. The Prime Minister says that his Government is clearly going to move a little along the indirect tax line and has now indexed excise duties. Yet in an interview on 26 August in the Age, he stated in relation to his Government:

. . . won't ask the Arbitration Commission to discount national wage rises for the impact of indirect tax increases.

One gets the impression that the Treasurer is flirting with the idea of moving to a broad indirect tax base. If that is not to be discounted, not only will there be some inflationary impact from the move to indirect taxes but also it will be compounded by wage indexation in accordance with the CPI. If ever there was double discounting that is it. It is guaranteed to worsen the state of our economy.

Before concluding my remarks in this debate, I come back to the economy. The most recent reports from several of our banks, including the Westpac Banking Corporation, state that there are ominous signs that the agreement between the Government and the unions is fraying at the edges and that the whole rationale of the Budget is very shaky and very risky indeed. In those circumstances I believe that the Government ought to go back to the Conciliation and Arbitration Commission and obtain, more literally than it has so far done, the signature on the dotted line of the unions which are now saying to the ACTU: 'Pay up or else. ' The President of the ACTU, in the Age on Monday this week, is reported to have said that the rebel unions should get a wage case rise. That flies in the face of what the Secretary of the ACTU said last week. Mr Deputy Speaker, while the Opposition does not oppose this Bill it wishes to move an amendment to the motion, without denying a second reading, because of its concern about the state of the economy. Before moving that amendment I remind the House that the other side of the previous Government's wage pause program was the setting up of a wage pause job creation program with the moneys saved from the public sector which otherwise would have gone on in estimated wage increases. It will be recalled that we saved $300m from appropriations, and we appropriated those funds to special employment-related programs which covered public housing and an array of other matters to assist unemployed youth and older workers-males and females-and a variety of people who were seen to be disadvantaged in getting employment.

It is a sad fact that the State governments were not pulling their weight as well as they might have done in carrying out those guidelines and in using that money effectively. We now find that the wages pause is to be repealed. Many of the State governments have not helped the Federal Government to achieve the result it sought. In fact the Federal Government has now introduced a very similar program which probably has the same dismal prospect of success. While it talks of job creation programs it will find that it will be unable to carry out those programs effectively because of a lack of imagination and capacity within the States. At the same time it adopts a course of action designed to worsen inflation and unemployment. Without opposing the Bill, the Opposition moves:

That all words after 'That' be omitted with a view to substituting the following words:

'whilst not declining to give the Bill a second reading, the House is of the opinion that-

(1) wage increases ought to be granted in accordance with the capacity of Australian industry to pay those wages;

(2) price increases of themselves do not indicate that capacity;

(3) wages ought not to be automatically indexed following movements in the consumer price index; and

(4) in view of the continuing economic recession, the forecasts made at the National Economic Summit and recent analyses of the economy, the Government should have used its self-proclaimed special relationship with the trade union movement to have the wage pause extended in the interests of economic recovery and job creation and the Government should be condemned for its failure to do so '.

Mr DEPUTY SPEAKER (Mr Drummond) -Is the amendment seconded?

Mr Braithwaite —I second the amendment.