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Thursday, 22 September 1983
Page: 1190


Mr HOWARD(4.38) —On the night the Budget was delivered I said its strategy was extremely risky. Events since that night have confirmed the validity of that criticism. It is a criticism which has been echoed throughout the community and in recent days by two of our major financial institutions. In this Budget the Government has chosen an approach which involves high risks and will delay our recovery for a longer period than should otherwise have been the case. The Budget sets the wrong course for Australia. It fails to maximise the benefits which can flow from the United States of America recovery and it fails to lay the groundwork for a rise in private sector investment and employment growth. The most lethal criticism of all is that this Budget totally stands or falls by the very definition of its authors on the success or failure of the prices and incomes accord.

No fair assessment of the 1983-84 Budget will deny that the Government faced a very tough job in assembling it. The depressed state of the Australian economy due overwhelmingly to the international recession but in no small way on the domestic front to the effects of the drought and the wages explosion of 18 months ago, meant that in putting together this year's Budget the responsible options available to the Government were limited. Despite a few faint signs of recovery and despite the very welcome ending of the drought, the Australian economy remains in very deep recession. The unemployment outlook remains particularly bleak. The road back to a significantly lower level of unemployment will be a very long and difficult one indeed.

That having been said, I believe the Government could and should have done better in this, its first Budget. A proper analysis of the Budget requires an examination of the background against which it was framed. For a number of years Australia swam against the international economic tide and outperformed many industrialised countries. In the late 1970s our inflation and unemployment rates were lower, and our economic growth higher, than the average of Organisation for Economic Co-operation and Development countries. However, the combination of excessive increases in wage incomes far ahead of productivity and the lagged effects of the international recession upon Australia finally took its toll. The Australian economy suffered a severe slump towards the end of 1982. This produced a downturn in activity and a surge in unemployment beyond what had been anticipated by most at the time of last year's Budget. The deeper recession pushed up welfare payments and sharply reduced taxation receipts.

The deterioration in the economy as the last financial year wore on contributed more than anything else to the expansion of last year's deficit beyond the initial estimate at Budget time of $1.6 billion to $4.3 billion, and not the $9. 6 billion referred to by the honourable member for Ballarat (Mr Mildren). The extent of the deterioration is illustrated by the fact that in August of last year the Treasury forecast of the likely Budget deficit for this year was only $ 4.3 billion. This point needs to be emphasised. There has been much confused debate about last year's Budget and its contribution to our present economic situation. It is true that last year's Budget was more expansionary than earlier Budgets produced by the Fraser Government. It should not, however, be forgotten that the Australian Labor Party wanted an even more expansionary Budget last year and that if its advice at that time had been taken, the framing of this year's Budget would have involved absolutely horrendous difficulties.

Throughout the whole of our seven years of office, the Australian Labor Party repeatedly and consistently advocated greater government spending, larger Budget deficits and looser monetary policy. The fact, therefore, is that the Hawke Government inherited an economy and a Budget problem essentially the product of the sharp downturn which overtook the Australian economy at the end of last year . That is not to say that there were not policy failures under the previous Government. The popular criticism of the economic policies of the former Government is that they were mistakenly based upon a policy of fighting inflation first. I do not believe that such a policy is wrong. It remains, in my view, the only effective method of tackling unemployment on a permanent basis. In case those opposite imagine I am expressing an isolated view on this, they might care to hear the following from a recent issue of the London Economist in its introduction to a very well balanced review on Australia:

There is now something close to a consensus-

what a word to be used-

in the non-communist world about the right way to deal with the economic crisis that began in the 1970s and is reaching deep into the 1980s. Since the Williamsburg Summit--


Mr Howe —Labor has--


Mr HOWARD —Wait for it; do not get too excited-

in May even a reluctant Mr Mitterrand has attached himself-

and he is a socialist-

for the time being, to the Reagan-Thatcher-Kohl-Nakasone prescription. The consensus is that it is first and foremost necessary to bring inflation under control and keep it under control. Any attempt to re-expansion has to fit into that priority. Control of inflation requires rigorous restraint both on government spending (with the exception, big in America but modest elsewhere, for some more defence spending) and on wage increases.

That is not a bad quotation from a highly respected international journal. The error of the former Government was not that its policy was wrong, but that on occasions the policy was pursued with insufficient zeal and enthusiasm. However, it is quite clear that if the economic alternatives offered by the Labor Party when it was in opposition had been embraced by the Fraser Government, the problems faced by the new Labor Administration would have been infinitely greater.

Not only does this Budget lack an effective anti-inflationery strategy, but worse still, it is based upon a prices and incomes accord which, even if successful, will produce higher unemployment, and if unsuccessful, which appears highly likely, will produce an even bleaker jobs outlook. From the Prime Minister (Mr Hawke) down, members of the Government have repeatedly admitted that if the prices and incomes accord does not succeed, then the strategy of the Budget will be totally inappropriate. It is therefore absolutely crucial to know exactly what is happening to the prices and incomes accord. But that is not the end of the matter. Even if the prices and incomes accord does hang together, the Budget offers no hope of lower unemployment and does not of itself contribute to the projected reduction in inflation this financial year. In fact I believe that the best thing economically the Hawke Government will have going for it this financial year will be the continuing benefits of the wage pause which it has so prematurely and needlessly terminated.

In this context I quote from the annual report of the Reserve Bank of Australia tabled on the day of the Budget, where it said, in describing what happened to the Australian economy last year:

As production declined and unemployment rose dramatically, the link between wage increases and the level of employment became increasingly apparent, more responsible attitudes towards wage demands developed and there was widespread support for the pause in wages from about the middle of the year. This contributed to a lessening of inflationary pressure and a slowing in the loss of jobs.

In case any honourable member believes that the Reserve Bank's annual report is an apologia for the policies of the Fraser Government, let me remind the House that the present Prime Minister was himself a member of the Board of the Reserve Bank for five years and that the report from which I have quoted was delivered to his Government.

The Government is wrong to be returning to full wage indexation in present circumstances. The Australian economy simply cannot afford it. Full wage indexation will provide higher wage rises than could possibly result from a free market for labour. This must mean that unless there is a spectacular and totally unforeseen increase in economic growth, higher unemployment will result. It is an indisputable fact that at a time of falling national income the choices are clear. Either the fall in national income is distributed amongst those who have jobs, with each taking a little less in real income, or alternatively all of the fall is translated into a higher level of unemployment with those left in jobs either maintaining their real incomes or experiencing a lesser reduction. There is no alternative. The Opposition is not alone in arguing this way. It is a view widely held by many economists, endorsed by the OECD and recognised as a fact of life by the Australian business community.

It is true that there has already been a reduction in real incomes over recent months which has partly offset the unaffordable wage rises of 18 months ago. However, the point has to be understood that the state of the economy and the level of unemployment are such that unless there is a further reduction in real incomes of those in work and an absolute rejection of any notion of catch-up, more people will be thrown out of work. It will only be when the economy resumes growing at 5 per cent or more a year that we could possibly contemplate a policy of real wage maintenance without the prospect of higher unemployment. That is why the Opposition condemns the Government's support for full wage indexation in present circumstances.

The Prime Minister and the Minister for Employment and Industrial Relations (Mr Willis) continue to whistle through the graveyard about the prices and incomes accord. The facts do not justify their optimism. The agreements in the building industry cannot be reconciled with the prices and incomes accord, nor can agreements reached in the food industry. To compound matters, Mr Dolan said a few days ago that the food preservers should get the anticipated 4.3 per cent increase, which, presumably, the Australian Conciliation and Arbitration Commission will hand down tomorrow, on top of any sectional claim won by them within their own industry. The bullying ultimatum delivered by the Australian Council of Trade Unions to the Arbitration Commission last week shows what little give and take exists in relation to the accord, which is supposed to be built upon acceptance of the umpire's decision.

The Prime Minister derives obvious pleasure from what he regards as full support from the Australian business community for his economic policies. He ought to stop deluding himself. Much of the euphoria of the National Economic Summit Conference has gone as successive decisions of the Government have fallen short of the formal commitments to economic rectitude given at the Summit and repeated by the Prime Minister overseas. There is a growing belief throughout the business community that the prices and incomes accord will not succeed.

The Australian Chamber of Commerce has said that the Government is taking an enormous risk in budgeting for a mammoth deficit and has warned the Government not to be misled by media views that the business community uncritically accepts the Budget strategy. The Westpac Banking Corporation has said that the prices and incomes accord shows signs of cracking. The Council of Small Business Organisations of Australia has condemned the Budget strategy as a gamble that Australia can perhaps ill afford at this time. The National Farmers Federation described the Federal Budget as an opportunity lost and criticised the Government for not pruning the deficit further. The Confederation of Australian Industry said the Budget did not give enough stimulus for the private sector. The National Australia Bank has also condemned the riskiness of the Budget. This hardly represents ringing applause from the business community for the economic policies of the Hawke Government.

The Opposition believes the Government should have continued the wage pause at least until the end of this year and at the very most should have returned to partial wage indexation in 1984. This would have made a much greater contribution towards stemming the loss of jobs than will the path chosen by the Government. The Prime Minister could easily have used the undoubted authority and goodwill of a newly elected Prime Minister to secure an extension of the wage pause. The Opposition does not believe that the wage pause could have been continued in perpetuity. That has never been our position. We have always recognised it to have been an emergency initiative in an emergency situation.

I have indicated before that I believe we need a more flexible and market- sensitive system of wage fixation than has ever prevailed in the past in Australia. I do not believe that we can prevent the recurrence of a wages explosion unless we are to overturn the principle of comparative wage justice which has been at the heart of our wage fixation system for so many years. It is inconceivable that if economic recovery occurs those in the community who can secure wage increases above the average will not do so. They have always done so in the past. They will do so again in the future. The Government's wage fixation system will not stop this happening.

What will be wrong, however, will be the transmission of those above-average increases via a rigid wage fixing system to the rest of the work force and into areas where industry is clearly unable to meet increased wages and salaries. Until we have greater flexibility and until we have a system which recognises the great variation in the capacity of various firms throughout this country to pay, we are doomed to repeat some of the mistakes and failures of the past.

Despite the attempts of the Government to portray the Budget as disciplined and responsible, it is undeniably based upon a very expansionary fiscal approach. The Budget deficit represents 4.7 per cent of gross domestic product. The total public sector borrowing requirement will be between 8 and 9 per cent in 1983-84. This is the largest public sector borrowing requirement for more than a quarter of a century. Over the seven years of the Fraser Government the average increase in spending in real terms each year was less than 2 per cent. Spending in this the first Labor Budget will rise by no less than 7 1/2 per cent in real terms. The deficit will exceed last year's deficit by more than $4,000m. The Budget deficit should not have been more than $7,000m.

The hypocrisy and sheer dishonesty of the Government's repeated claims over many months that it inherited a difficult fiscal position as a result of the former Government's alleged deceit is totally disproved by the Budget figuring. This is not just because its revised growth figures from the unreal levels that were used in the March forecast have added $1.4 billion to revenue. Moreover, the Government claims to have excised $1,200m of spending from a continuation of the former Government's expenditure programs. One would have imagined, given the repeated expressions of concern, that those savings would have been applied to a reduction in the Budget deficit. But no, having saved $1,200m the Government proceeded to spend an additional $2,500m on programs of its own.

That single act gives the lie to so much of what the Government has said over recent months. It is ironic indeed that if the Government had not spent that additional $2,500m this year's deficit would have been almost precisely $6,000m, a figure frequently derided by the Government in recent months. The Government has not laid the groundwork in this Budget to reduce the size of the structural deficit.

The Government has indulged itself in a grand delusion about recent falls in interest rates. They are undoubtedly welcome, particularly in the housing area. However, it cannot be disputed that interest rates have fallen for the wrong reasons. They have not fallen as a result of the superb economic management of the Hawke Government. They have not fallen because the Government has reduced its demands on our money markets for finance. They have fallen because of the depressed state of the Australian economy, combined with a very relaxed monetary policy. However, a reversal of interest rate sentiment abroad, particularly in the United States, or a revival of business demand for funds here in Australia- which, after all, is meant to be the goal of the Government's economic policy- will lead to a re-emergence of upward pressure on interest rates.

The Budget has been built upon a prices and incomes accord which is already crumbling. It has not created the conditions for increased private sector investment so crucial to economic and employment growth. It has in many respects worsened the risks which now confront the Australian economy. Such is the delicate balance of those risks that the Government has admitted that if the world economic recovery is stronger than presently forecast our position will be in even greater peril. In other words, if the world does better we could well do worse. There could be no sharper judgment on the inadequacy of the Government's approach. Mr Deputy Speaker, I therefore move:

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

'whilst not opposing the passage of the Bill, the House-

(1) rejects the Budget strategy because it takes excessive risks with the Australian economy by depending on the crumbling wages accord with the unions and, even if successful, will result in-

(a) increased unemployment;

(b) inflation rates more than double those of our major trading partners;

(c) upward pressure on real interest rates;

(d) an increase in the structural public sector deficit at the expense of the private sector, and

(e) further severe falls in private sector investment, and

(2) condemns the Government for having persistently made false promises of tax cuts and other benefits which it is now breaking in this Budget'.


Mr DEPUTY SPEAKER (Mr Millar) —Is the amendment seconded?


Mr Sinclair —I second the amendment and reserve my right to speak at a later stage in this debate.