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Thursday, 30 August 1973
Page: 697

Mr MCMAHON (Lowe) - -The Prime Minister (Mr Whitlam) has stated that in his opinion the Australian Labor Party's greatest blunder has been the Australian Security Intelligence Organisation affair. I do not agree with him. And even he must be having second thoughts by now. Labor's greatest blunder has been its general economic and financial policy, and that includes the Budget. So let us look at its economic and financial policies in some detail.

I believe the electorate will clearly show its opinion of Labor's economic blunders committed in the name of doctrinaire socialism as soon as it gets the opportunity to do so. The Treasurer (Mr Crean) admits that this Budget should not be judged on its own. All of the economic and monetary policies and measures of the Government since Labor fraudulently came into office on 2 December of last year must be considered together and their total impact evaluated. Shorn of rhetoric and propaganda what will the effects of the Budget and other Labor economic policies and measures be on the people of this country?

The Whitlam Government inherited a healthy and growing economy. The Budget of 1972-73 was accepted by most people as economically sound, humanitarian and designed to promote full employment and reduce inflationary pressures. In fact all its objectives have been achieved - a distinct credit to the right honourable member for Bruce (Mr Snedden), who was then the Treasurer, and the honourable member for Flinders (Mr Lynch), who was then the Minister for Labour and National Service. We showed that we could control inflation with low levels of unemployment Unemployment was steadily falling and inflation, as measured by the consumer price index, had been reduced from about 8 per cent to 4.6 per cent in the December quarter of 1972.

The Treasury, in its latest annual survey, expressed the opinion that by December 1972 there was good reason for optimism as to the future course of prices. It went on to say that such views were rudely shattered early in 1973. By way of contrast, the rate of consumer price increases has risen to an alarmingly high level of between 12 per cent and 13 per cent and the prospect is that this rate will be sustained. In a veiled but complimentary way the Treasurer admitted that non-farm production at constant prices rose by over 5 per cent and was growing at a faster rate by the end of the year. This was a good performance.

The growth of non-farm product at constant prices seasonally adjusted - that is a technical term - within the year was considerably higher. In the first half of 1972-73 the seasonally adjusted annual rate of growth was 6i per cent and there was an acceleration in the second half. These figures make novel and interesting reading now. I wonder how many people believed they were anywhere near as good or as high as this on 2 December 1972. I was not one of them.

During 1972, as a political tactic, Labor deliberately exaggerated the significance of the trends in unemployment and forecast that it would grow during 1973 to a figure in excess of 18,000. In fact, it is now down to about 76,000, that is, 1.34 per cent of the work force of 5.7 million after taking account of the phasing down of relief work in country areas. Labor was persuaded by its own false political propaganda and came to the conclusion that this country was in for a depression. Since then it has acted as though its political tactics were a correct interpretation of economic trends and it took action to stimulate the economy at a time when no stimulus was needed. Labor's official forecasts turned out to be wrong, seriously wrong, despite Treasury warnings. And the policies it adopted to meet a ficticious set of circumstances have turned out to be wrong too, and will undoubtedly prejudice its electoral prospects.

Before speaking about these policies let me identify the 2 extremely serious and related socio-economic problems this country faces today. They are the worsening combination of demand and wage cost inflationary pressures and the serious increase in industrial disputes, strikes, loss of working days and wages and industrial lawlessness in the relentless search for wage and salary increases beyond the capacity of industry to pay.

Let us first look at the problem of demand inflation and the necessity for demand management in the conditions existing in Australia today. In his task force report Dr Coombs said:

Already labour is becoming scarce. So far, rising expenditure has been matched by an increasing flow of goods and services. Nevertheless there are limits to the possible supply of goods and services and we are close to them.

By now the limit has been reached. Under these circumstances the test of statesmanship and sound economic management lay in ensuring that the growth in internal demand did not exceed the availability of total resources. But Labor washed its hands of any attempt to control inflationary pressures through budgetary action and hared off in the opposite direction. The sensible application of Keynsian economics demanded that increases in Government expenditure, particularly public works expenditure and building contracts, be kept to a minimum and that there should be a considerable domestic surplus in the Government accounts.

In this context the huge increase in Government spending and the consequent growth in the demand for goods and services in the marketplace were of critical importance if a serious attempt to control inflationary pressures was to be made. In fact, Government expenditures are expected to increase by $1938m or very nearly 19 per cent - an extraordinary large increase, particularly at a time when the economy is working at full pressure.

I turn now to the other aspect of sound budgetary practice - that is. the Budget accounts and surplus or deficit financing. In fact, there will be not a domestic surplus but an estimated deficit, estimated as at the date of the Budget at $162m. Labor keeps harping on the fact that at the beginning of this financial year, 1973-74, it starts with a lower domestic deficit than the previous government finished with at the end of Budget year 1972-73. It fails to realise that this is a different ball game with different rules. We as a Liberal-Country Party Government started the Budget year 1972-73 with an estimated domestic deficit of $60m. This was at a time when some stimulus was necessary. Labor finished up that fiscal year in June 1973 with a domestic deficit of $2 15m when none was needed. In my opinion, in the present conditions we will be lucky if the deficit for 1973- 74 as a whole can be kept to $400m or $500m, unless there is swingeing taxation and a severe credit squeeze immediately after the Senate election.

Let me now look at the second basic cause of inflation - wage-costs inflation. The increased inflationary demand pressures will be seriously aggravated by the percentage increases in average weekly earnings in excess of productivity. Wage-costs inflation is an indepedent in the inflationary equation and can and does compound the inflationary effects of demand inflation. Hidden away in the fine print of the Budget Papers, in Statement No. 2, is the assumption that average weekly earnings will rise by 13 per cent this financial year and that productivity may rise by 2i per cent to 3 per cent, which could lead to minimum rates of inflation reflected in the consumer price index of about 10 per cent to 11 per cent. Both of these assumptions are subject to very serious qualifications and may turn out to underestimate the increase. I will mention four of the six qualifications.

Firstly, whilst the Budget may not be properly described as a hone Budget, it will have horrible results in the private sector. Expectations about economic prospects must be affected, with a deadening effect on investment and the introduction of new technologies, particularly in the mining industry. Secondly, a new round of wage negotiations will take place early in 1974 before we have completely absorbed the increase awarded in the national wage case of 1972-73. Already union leaders are stating that they will not be taken in by the 'money illusion' and will expect wage increases to cover rises in both consumer prices and productivity and to pick up the backlog. The year 1973 promises to be a torrid one on the industrial front. Mr Laurie Short, the General Secretary of the Federated Ironworkers Association, who knows what he is talking about, said:

Wage demands for $10 a week or more are very common these days. Demands for $20 could become quite commonplace in the future.

He went on to say - I and, I believe, all my colleagues can confirm this:

In today's climate a government which shows itself unwilling or unable to do anything about inflation Will suffer the same fate as a government unwilling or unable to do something about unemployment.

The Labor Government has, as I have said, washed its hands of any attempt to control inflation through the Budget and will suffer the fate of rejection by the electorate when it next has the opportunity to vote.

Thirdly, increasingly strong pressures are developing in the labour market and are, with growing inflation, creating the ideal conditions for even bigger wage demands. Fourthly, in combination, Labor policy decisions involving ever growing Government expenditure, Public Service wage and salary increases, increases in the size of the Public Service and Government advocacy of agreement by the Arbitration Commission to maximum wage demands have caused a psychology of expectation. The expectation is that rising prices will intensify and debase the currency and that it is better to spend now than to save for the future.

There is another side to this picture. Labor is scattering its shot indiscriminately. Not only is it stimulating, inflationary pressures; it is also blasting away at the sources of savings and of production. The consequences of these actions must be understood. Few people outside the Labor Party will doubt that our future development and progress depends on the continued expansion of the marketable resources of the community. That means emphasising expansion of the private sector, not the public sector as advocated by the Treasurer.

So I now answer the 2 crucially important questions. The first question is: by how much will prices of such things as food, clothing, housing, rates and taxes and transport rise as a consequence of Labor Parly policies and increases? In my view we will be extraordinarily lucky in this extremely lucky country if we get away with a consumer price rise of less than 12 per cent or 13 per cent.

The second question is: Where does Labor strike next? As the Treasurer has said, this Budget is only a beginning and is designed to clear the decks for the years ahead. The spending spree within the Government sector will go on. The private sector will be still further constrained.

There can be little doubt that the next move by the Labor Government will be through monetary and interest rate policy - that is, to impose a severe credit squeeze, with the sopping up of the money supply to private individuals and corporations and wish substantial increases in interest rates. We have tried this before and it did not work outside the context of prudent Budget policies and rises in average earnings more appropriate to rises in productivity. So we must look further. If, as seems probable, the Labor Government is window dressing in preparation for a Senate election next year - and possibly a House of Representatives election too - it will, after the elections, introduce a real horror Budget to make up the deficiencies by taxes.

The Treasurer hinted at such a move in a recent television interview when he said that, because the Prime Minister had indicated that during the first year of the Labor Government he did not propose to increase the income tax, he had ; not been able to do so. The Prime Minister did not use the 'during the first year of the Labor Government' part of the statement. We cannot ignore the impact of the recommendations in the Coombs 'search and destroy' mission. Thirtyfour of his suggestions have been included in the Budget. The remaining suggestions are now being considered. The report is comprehensive, sadistically but well compiled and easy to read. It will repay careful reading by those interested in the future. Lastly, as we know from past experience, the Labor Party has an emotional attachment to direct controls. Of this we can be certain: As Labor pursues its policies and impulses without thought of the consequences and the effects on the lives of individual men and women and on the productive development of this country, while Labor is in office we will be compelled to live under the continued threat of worse to come.

There is one other matter to which I want to refer in some detail. It involves a question of personal integrity and political morality. It involves the credibility of leadership. In his policy speech the Prime Minister said:

The huge and automatic increase in Commonwealth revenue ensures that rates of taxation need not be increased at any level to implement a Labor Government's program.

The Tales for which the wealthier sections of the community,, including companies, are liable are already high enough.

Later in the speech he said:

The most pressing need in the tax field is to retard the trend by which inflation has forced lower and middle income earners into the high tax bracket. . . . Modest income earners of, say, $6,000 are being taxed at rates appropriate for very high income earners by 1954 standards.

These statements were given considerable publicity during the election campaign. Despite this, the Budget in Statement No. 5 unashamedly says:

On the basis of 'existing' rates of taxes and other charges it is estimated that total receipts in 1973-74 would amount to $11, 142m - an increase of 17 per cent on actual receipts in 1972-73.

Taking into account the effect of the 'new' measures announced in the Budget Speech receipts for the year 1973-74 are estimated to be $ 11,481m, an increase of $339m and of 20.6 per cent on actual receipts in 1972-73. In a full year the increases in tax as a result of the new measures will be $650m.

This is one of the many policy promises that have been wilfully dishonoured and deserve censure. It is a sorry day in the political life of this country when promises made in the policy speech and confirmed again and again in the political campaign were callously dishonoured because Labor preferred to introduce extravagant new policy measures which could easily have been deferred for a more suitable occasion, as Dr Coombs has suggested.

Let me sum up my reactions and, I think, the considered reactions of large sections of the community. I do not remember so many garrulous and superficial rehearsals of a Budget as there have been on this occasion. And the process of 'top of the head thinking aloud' still continues to create further uncertainties and doubts. But pre-Budget leaks inspired or not inspired were daily and even nightly nightmares. The propaganda tap was turned full an and those who cared to listen or read were either bemused or drowned with doubts. It was a comic affair but it will have a tragic finale.

The Prime Minister assured the nation that the promises in the policy speech determined labor policy. They would not be affected in the life of this Parliament by the Labor Party platform or new decisions of the Labor convention. Yet promise after promise in the policy speech have been callously, arbitrarily and cynically dishonoured. I have mentioned the wilful dishonouring of the promises made in the policy speech that increases in Commonwealth revenue ensures that rates of taxation need not be increased at any level.

I add the shabby trick played on home builders by excess spending on housing in the public sector and its stated intention to intro- duce early in the new year an interest rebate scheme which must increase demand, drive up prices and affect the interests of the young married couples, particularly in the outer metropolitan areas of Sydney and Melbourne, that is, in the electorates which voted strongly for the Labor Party in the last election.

I go further. Despite the election undertaking of Mr Beazley that all children whether at state or private schools would be equally the concern of the Labor Government, Labor, without a whimper from the Minister for Education, has blindly followed the Karmel recommendation of discrimination against the independent schools in certain classifications.

Farm industries have been mercilessly penalised in many cases without rhyme or reason, except that the farmers do .not live in the outer metropolitan areas of Sydney or Melbourne. The mining industries have been battered senselessly and without thought to the impact of Labor's action on future growth. For all these reasons I am sure that the electorate as a whole will reflect its disenchantment of Labor and its desire for a change as soon as it gets the opportunity to do so at the polls.

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