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Wednesday, 12 September 1973
Page: 884

Mr LAMB (La Trobe) - Firstly I would like to congratulate the Treasurer (Mr Crean) on handing down the first Labor

Budget for 23 years. It was a reform Budget. It was a commonsense Budget. It was an honest Budget. It was a reform Budget because it was framed as part of our overall program to achieve what we had promised to the electorate. This Budget demonstrates that we are a Government that keeps its promises for we have tackled that program on a broad front. Spending on education is up 92 per cent on last year and continues to be the fastest growing component of the Budget. The means test for pensioners has been removed for those over 75 years of age as the first step to abolishing the means test totally, and pensions have been increased by S3 during our first year of office. Also SI 36m is provided for our cities initiatives in 1973-74. Even so, this and other expenditure marks only the beginning.

It is a commonsense Budget because it is financed by a reallocation of moneys within the public sector and by a reallocation of moneys from the speculative and profiteering area of the private sector to the community sector. The Government has not only achieved its aims; it has also managed a deflationary impact. We have answered our critics who for years raised the bogy: 'Where is the money coming from?' It is an honest Budget because it does not pretend to do what it cannot do, that is, control inflation by itself. This Budget cannot be seen and judged in isolation from other fiscal and monetary measures taken by this Government or foreshadowed by the Treasurer. Nor can it be seen in isolation from the promises and aspirations of the Government. To criticise this Budget in narrow terms of inflation control is to be myopic in the range of understanding that is required on the economy as a whole and inflation in particular. Yet this is the fault of the Opposition which talks of the Government's inflationary gap only to display its own credibility gap of economic understanding.

Let us examine the present rate of inflation and what has caused it. Inflation is not new to the Opposition. In 1949 the Opposition won government on the promise to put value back into the pound only to lift the rate of inflation from 8.4 per cent to 13.6 per cent in its first year and to a record high, never since equalled, of 22.5 per cent within a further year. Now, with economic gymnastics that leave the experts gasping, the Leader of the Opposition (Mr Snedden) tells us that he left the country with an inflationary rate of only 4.8 per cent whereas it is now running at 13.2 per cent. He has arrived at these dishonest figures by simply multiplying the artificially low December quarter increase in the consumer price index by four and presenting it as a final figure. Similarly, he has multiplied by four the exceptionally high June quarter increase in the consumer price index to arrive at 13.2 per cent. The Opposition has conveniently ignored that these quarters are unrepresentative for evaluation of the Government's management of the economy. Until this Budget was presented the economy had been operating in an environment largely determined by the previous Government. The rises in the consumer prize index particularly in the first quarter are the lagged results of their Budget last year. Just as surely ar the high unemployment level of a year ago was the result of their stop-go Budget of 1971-72, so this flationary boom was largely caused by an irresponsible, vote designed, expansionary Budget of 1972-73. They failed to catch votes but they did bring hardship down on those on low and fixed incomes.

Inflation is not unique to Australia. It is common to most comparable industrialised countries, be they communist, capitalist, socialist or fascist. They are all struggling to contain it. Inflation is a little more complex than the Opposition would like us to believe and has some of its roots in events beyond the control of even this Government. Seasonal food prices are a case in point. Meat prices rose by 11 per cent during the June quarter propelled by export demand. Winter clothing rose by 11.1 per cent - another seasonal factor reflecting the surge in wool prices on the world market. Prices have also risen as manufacturers raised their prices and their profits before they had to justify price increases to the Prices Justification Tribunal.

The procrastination of the Opposition, its fear of planning in the long term and its sychophantry to profits have been the greatest of inflationary forces and the trade mark of its economic mismanagement. Remember the words of the former Treasurer when unemployment was at its highest for more than a decade: 'We have achieved what we set out to do'. They certainly increased the rate of unemployment but the rate of inflation actually rose. The previous Government was mesmerised by the economic model of the Philips curve which in a nutshell trades off unemployment against inflation. The fact that the rate of inflation increased even though the rate of unemployment soared showed that forces other than wage increases have been a significant cause of Australia's inflation in recent years as well as excess demand in times of full employment. The Labor Government will never increase unemployment to curb inflation. The price is too great and those who suffer most are those least able to bear that price. We question the application of the Philips curve model not only socially but also on economic grounds as it depends upon cost push factors being the major inflationary force. Even the Leader of the Opposition now recognises this. It is unfortunate for this country that the same honourable member, when Treasurer, had not been introduced to the Swan economic model which introduces the exchange rate as another variable. The pressures from his coalition partner robbed him of altering the exchange rate that urgently needed revaluation, so he was left with the unemployment trade-off.

In December last year we acted to appreciate the Australian dollar, thereby restraining price increases through increased imports without affecting the volume of exports or increasing unemployment. We have found it necessary to upvalue a further 5 per cent in face of a buoyant economy and to reduce excess liquidity. The Leader of the Opposition exposes his ignorance on what is meant by demand. He is concerned with the distribution of demand rather than aggregate demand which is the sum of private and community demand, which is more important in the macro-economic sense. The Leader of the Opposition would like to cut demand. Where would the Opposition like to curb community or public demand? Would it like pensioners to pull in their belts rather than pull in an extra $3 a week this year? Would it like to downgrade education? Do members of the Opposition not realise that they partly lost the last election because they failed to spend extra money on education on a needs basis to close the gap between the poor and the rich schools? They are devoid of suggestions because they cannot cut public expenditure. They are enjoying the luxury of opposition with irresponsible statements.

The Leader of the Opposition also has overlooked the fact that increases in necessary community spending have been financed largely by an increase in government revenue from a taxation schedule his Government established and by the closing down of uneco nomic subsidies and concessions and from a reallocation of spending priorities. This Budget can be described only as mildly deflationary, as the overall Budget deficit has decreased by $22m. Yet the Leader of the Opposition, through a false equation, attempts to have us believe that this is inflationary. He is the only person I have heard make such a claim. The falsity of his equation is exposed when it is realised that he has placed total increases in expenditure in money terms on one side and only new sources of revenue on the other. He has ignored increases in revenue in money terms from the present taxation schedule. The facts can be found at the bottom of page 2 of statement 1 attached to the Treasurer's Budget speech. A better guide to the full thrust of any deflationary impact is to be found not in the absolute deficit but in the change in deficit over the previous Budget. Our change in deficit is $53m, whereas his inflationary Budget was a change to a surplus of $62Cm.

I think it is only right to say a few words on prices and incomes policies. In 1969 President Nixon inherited an inflation generated fairly quickly by excessive demand. His severe monetary and fiscal restrictions created high levels of unemployment that crippled production, and yet inflation continued. Two years later the President applied a 90-day pricesincomes freeze followed by a period of justified increases. Without analysing the differences between the United States and Australian economies, the Opposition would like us to follow the United States just as closely as we followed that nation into the Vietnam war. Yet our economies are as different as our roles in foreign affairs. There is no single cause of inflation in Australia but the Opposition sticks stubbornly to its rhetoric that cost-push due to wages is the sole cause of inflation. The rationale behind the imposition of phase 1 of the American controls was to break the expectation held by the people that inflation was inevitable and must be hedged by increased incomes and profits. The economy of the United States is largely independent and the cause of inflation largely cost-push, whereas Australia is an open economy with a significant part of its gross national product due to trade. There is more chance of breaking inflationary expectations in an economy that is largely domestic. Australia, on the other hand, experiences a high degree of imported inflation.

A successful prices-incomes policy in Australia can be exercised only if the Australian

Government has control over the increases in both wages and prices. The setting of wages in Australia is highly centralised and controlled insofar as award wages are concerned, and Commonwealth awards flow on through State determinations. However, the Australian Government is the only Federal government that does not have the power to control prices. On the other hand, it has the responsibility for achieving full employment, equilibrium of the balance of payments, price stability, an efficient use of resources, satisfactory economic growth and an equitable distribution of income. Strangely enough, it does not hold the key, the common denominator to achieve these often conflicting goals, and that is price control. In Australia, the constitition prevent the national government instituting price control. Unquestionably, the Australian Parliament should have legislative power over prices, whatever the government in power. The Australian Government can legislate on prices only in wartime under wartime controls. We are now fighting a war against inflation. The Federal Government must have the power of price control to win that war.

What is the alternative that now exists to those who advocate a prices-incomes policy without change in the distribution of power between the States and the Federal Government? If we have separated powers working in opposite directions the inflation could well be aggravated or bring about unnecessary profit squeezing. The Leader of the Opposition promises us the co-operation of the Liberal Premiers to carry out his phase 1 program. He is caught in a cleft stick because he will not agree to referring essential powers to what he terms a centralist government. What confidence can we have in his Liberal Premiers in a fight against inflation if they cannot agree with the Australian Government on the need to control land prices through a land price stabilisation scheme funded by joint land commissions? What confidence can we have in his cohorts if they see co-operation in terms of centralism and will not refer any powers over prices to the national government? They have nothing to lose, for it is a power they have never exercised. In their battle to protect State rights, they have entirely forgotten the only rights that matter - the rights of the people, a right to expect protection from inflation.

There will be no justice in a system that can restrict increases in wages via the Arbitration Commission and places no restriction on profits. Unless profits and prices can be controlled or modified, working people will be justified in treating any program with suspicion. The Opposition gives those on salaries and wages no reason to lift that suspicion. Any percentage increase in profits over a percentage increase in wages leaves the mass of Australian people worse off. The present distribution of the nation's wealth is not equitable; 90 per cent of the Australian people earn through wages only 63 per cent of the nation's wealth, whereas the remaining 10 per cent receive 36 per cent of the gross national product through profits. Any further shift in sharing in favour of the owners of production cannot be tolerated.

There may be arguments about the economic effectiveness of a prices-incomes policy but there can be no question that if they are to be effective they must be immediate and unchallenged. But I believe the Opposition, with its phase 1, phase 2 program, has put the cart before the horse. Studies of overseas pricesincomes policies show that success depends upon regulation of the economy before the imposition of any prices-incomes policy, and not afterwards. If this does not happen, the policy does not work and prices still rise. Furthermore, when the policy is relaxed there is a great likelihood of galloping inflation occurring immediately afterwards. The economy must be regulated and inflation slowed by curbing excess demand, increasing competition in the business sector and balancing external trade and the rate of exchange before any prices-incomes policies can be employed. Nowhere does the Leader of the Opposition tell us what machinery and administration he would create to implement a prices-incomes policy. He is also silent on details of his proposed economic regulation that he collectively titles phase 2. But of course this regulation is already in existence, prepared and brought to maturity since this Government came to office. While the Leader of the Opposition proclaims his new, bold, radical but questionable initiatives, the Government has already put a more feasible plan into gear.

Firstly, we recognise that there has always been a restriction on wages as increases have to be. justified in the eyes of the Conciliation and Arbitration Commission. Secondly, we have established the Joint Prices Committee and the Prices Justification Tribunal to restrain unjustified prices increases. The Tribunal has the task of examining cost structures and the degree of competition in the market, and of submitting profits to a proper test. The Constitution may prevent us from introducing what the people want - price control - but if the Tribunal shows that any increases in prices are unjustified the Government will not hesitate to use its fiscal and purchasing powers to drive prices downward. This approach has the added advantage of avoiding any misallocation of resources or the creation of a black market price system that often accompanies overrestrictive price controls.

Thirdly, on the productivity side which is a measure of efficiency we will strengthen the Restrictive Trade Practices Act, an anaemic legacy from the previous Government. Cutting tariffs by 25 per cent has removed excess protection so that industries must compete more vigorously with increased imports, with obvious benefits to the consumer. The 20 per cent increase expected in imports, valued at about $800m, will also have a moderating effect on inflation by easing bottlenecks in domestic productive capacity. Undoubtedly the lack of control on credit and liquidity exercised by the previous Government has contributed to the current level of inflation. During 1972-73 the volume of money increased by 25.7 per cent compared with a 10.5 per cent increase in 1971-72 and 6.8 per cent a year earlier. A change in government in December also marked a change in the rate of increase in the volume of money. During the last 6 months it increased by only 7.7 per cent compared with a staggering 18 per cent in the previous 6 months under the previous Government. The last revaluation and proposed increase in interest rates will mop up further excess liquidity, but it is becoming increasingly apparent that the Federal Government must expand its control over fringe banking institutions if it is to control liquidity completely.

Mr Speaker,the Government has complemented fiscal action with a continuous and flexible monetary policy that adds up to an attack on inflation across a broad front without the disadvantages of widespread unemployment. But the full benefit can be achieved only if the Australian Government receives full cooperation from the States. Many words have been spoken by the Leader of the Opposition about promised co-operation from non-Labor State governments. Now is the time to turn words into action. I commend the Budget to the House.

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