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Wednesday, 12 September 1973
Page: 888

Mr EDWARDS (Berowra) - I support the amendment moved by the Leader of the Opposition (Mr Snedden). The honourable member for La Trobe (Mr Lamb) said that this was an honest Budget. He referred to a 92 per cent increase in education expenditure but he omitted to draw attention to the takeover of tertiary education by the Commonwealth, which provides a significant component of that increase. I am sorry that I have not more time to deal with some of the other inadequate statements of the honourable member. We have heard a great deal in this debate along the line that the Budget will effect a large transfer of resources to the public sector.

This is clearly a primary objective of the Government but it is not the only objective that the Government is pursuing. That is an important point because it is linked directly with the key issue of the Budget, that is, that contrary to the argument of the honourable member for La Trobe this Budget does not combat inflation.

I have no hesitation in conceding that the Budget contains a wide range of appealing social measures such as increased spending on education, the beginning of the school dental scheme, increased pensions - but not sufficient to keep up with the rising cost of living - and welcome initiatives in the field of urban and regional development. But the greatest social benefit that the Government could implement would be to combat inflation. That would give substance and not illusion to higher pensions and real value for money in return for the sums allocated to other and important purposes such as the new growth centres, city transport, sewerage and so on. However, the Government not only does not make in this Budget a serious attempt to fight inflation. I go further and assert that it is not able to do so, which is a serious statement to make. It is unable because it is seeking to pursue 2 broad objectives which inevitably come into collision; at least they do when attempts to reach them are pushed too hard and too quickly.

The first of the 2 broad objectives is rapidly to expand the public sector by direct spending on goods and services, education, hospitals - or at least one hospital, in Parramatta - health services and the cities, but not defence. The promise to maintain defence expenditure at about 3.5 per cent of gross national product is not kept. I repeat that the first objective is rapidly to expand the public sector both by direct spending and transfer payments, increased welfare and social service benefits. The second objective fostered by the Government is to lift incomes, the wages and salaries, the real private spending power of the electorate which the Government professes to represent. I refer to the ordinary man in the street and his family, with their legitimate aspirations for a better house, a better car and 2 or more of them, and enough money not to have to pinch and scrape to clothe the kids and so on.

No one denies the importance of that second objective, but how much store is the man in the street prepared to put in the rhetoric of the Treasurer (Mr Crean) about our being much better at selling cars than providing decent public transport services. At least the Treasurer has adapted the familiar Gailbraithian line that we are better at producing cars than we are at providing decent roads on which to drive them. His is the up-to-date, more with it 'Down with the freeways'. However, I suggest that Mr Average Bloke is also very interested in roads. The latter will say: Better public transport is good thinking but my own decent car comes first, and after that my second car'.

Like the Treasurer, I do not want to labour the point but honourable members should make no mistake. The conflict is a real one. Perhaps it is personified by the Minister for Social Security (Mr Hayden) and the Minister for Urban and Regional Development (Mr Uren) who are keen on an enlargement of the public sector, and maybe the Minister for Labour (Mr Clyde Cameron) as the high priest of high wages, shorter hours and longer holidays, in pursuit of the other objective. So I stress again that the Government wants to enlarge the public sector by spending up on social welfare, city development and the rest, and Mr Clyde Cameron, together with, the broad mass of the electorate in a perfectly legitimate way, wants higher incomes and more money for the goods and services they choose to acquire; in short, they want more real private spending power. I contrast these objectives of enlarging the public sector, of spending up in the public sphere, and the perfectly legitimate aspiration of the broad mass of the electorate for higher incomes for more private spending capacity.

In his Budget Speech the Treasurer said that the priorities were all wrong. To whose priorities was he referring? Was he referring to the priorities of the Minister for Social Security for public sector spending or of the Minister for Labour for the private sphere? The Treasurer said that the priorities were all wrong and the Budget shifts the emphasis to the public sector. A series of Government supporters have stressed the fact that this Government will enlarge the public sector. 'But will it? I would not bank on it. The Treasurer is clearly reasoning that the Budget provides for an increase of expenditure of the unprecedented order of 19 per cent. With inflation at 10 per cent built into the Budget he might reason that that should do the trick. A 10 per cent price and cost rise would still lead to real expansion of the order of 9 per cent That is greater, even with considerable economic growth, than the economy overall can possibly expand. The economy cannot expand in real terms - in terms of actual goods and services produced - by more than about 6 to 7 per cent, which is the Treasury estimate. We will be lucky to realise that target even with increased imports. If the public sector goes up by 9 per cent the private sector must increase by significantly 'ess than that - perhaps of the order of 5 per cent.

How is this to be achieved? The Government will not increase taxes', affirmed the Prime Minister (Mr Whitlam); but taxes have been increased overtly through the hardy perennials of increased taxes on cigaretes, spirits and petrol. This is a real blow to the man in the street, perhaps raising the price index by the order of 1 per cent Taxes have been raised less overtly in the decision to commence to move towards a system Df collecting company tax by quarterly instalments. That will be of assistance to economic management when implemented but it means - I do not know how far the business community is awake to this - that a business will be up for about 125 per cent of its normal tax bill in this calendar year and at least that much again next year. That will have a pretty hefty impact in the approaching conditions of monetary restraint and for some businesses perhaps will cause a difficult liquidity problem.

More importantly than these measures or some of the other Coombs dismantling or culling operations that appear in the Budget, taxes have been raised by the more than proportionately increased tax take as average earnings rise by an anticipated 13 per cent. That is an increase in taxation which economists call the real rate of taxation. This was forcibly illustrated in the examples given by the Leader of the Opposition (Mr Snedden) who showed that as the earnings of an employee receiving average earnings go up by 13 per cent the tax take will increase from 14 per cent to something greater than 16 per cent of his earnings. A person receiving $150 a week will experience an incerase of from 20.7 per cent to the order of 23 per cent. That is the tax take as a proportion of income. So, in this way, there is an increase in income tax. It is an increase which I would judge is probably against the swing middle income voters who put the Government into office. I base this on the fact that the rate of change in the current schedule of marginal rates of income tax is more rapid in the vicinity of the level of income received by the average wage and salary earner than on the higher income levels. So, as was stressed by my colleague the honourable member for Sturt (Mr Wilson), there has been this increase in income tax.

The story does not and cannot end here. This is the hub of the matter and underlines the key point that the Government has not recognised or acknowledged the very great difficulty of effecting a significant shift in the pattern of resource use in conditions of full employment. Will the wage and salary earner acquiesce in this situation? Will he take lying down this, in effect, confidence trick so clearly illustrated in these figures? There is an increase in gross pay of the order of 13 per cent but the wage earner is then slugged by increased taxation. When this happens the 13 per cent increase is reduced to a smaller effective increase and what is left is all but completely cancelled out by the rise in prices written into this Budget. Will he take this lying down in this overheated economy, urged on by the Minister for Labour and with the pace setting Commonwealth Public Service out in front showing the way? I suggest that the answer is that there is not a chance. I would warn the Government that as part and parcel of the private sector in effect rising up to defend its share of the cake, with private consumption expectations and aspirations in the vanguard, if the rise in average earnings is held to just 13 per cent - they were up I2i per cent in the recent June quarter on a year ago - it will be some achievement, if not almost a miracle. If, in its turn, the public sector, finding it needs to spend more money to achieve its target purposes, does spend more money, the whole thing will be 'on' with a vengeance and inflation, with all its attendant social and economic ills, will accelerate.

What is the end point? I would say to the Government, despite the protestations of the Treasurer, that if the Treasurer succeeds, when this time next year the whole process is added up, in expanding the public sector proportionately by 1 percentage point, I believe he will be lucky. I urge the Treasurer and the Government to take note, firstly, that in conditions of full employment and resurgent private demand, which is the position now, with vacancies in excess of registered unemployed - a truly full employment or over-full employment situation - a significant enlargement of the public sector cannot be achieved without an increase in tax rates carefully and honestly explained to the electorate. I recall a speech some months ago by the Minister for Social Security who said this straight out.. He was honest about it.

Secondly, I would say that the course that the Government is presently embarked on, without truly draconian measures of monetary policy, will lead to an acceleration of inflation unprecedented and not tolerable in this country. Last weekend we had measures of monetary policy announced. This will result in a rise in interest rates. Perhaps this is just the beginning of the rises that may be seen. When the effect of that policy starts to show up in increases in mortgage repayments, when the bond rate goes up to 8i per cent and when the lending rates of institutions such as building societies and insurance companies operating in this field go up to 10 per cent or more, the man in the street and in particular those people who were led by election promises to expect not higher mortgage repayments on their houses but an effective reduction as the interest component in that was to be made tax deductible, will rise up in anger at the actions of this Government in seeking not to attack inflation in this Budget but in this way to throw the whole weight of attacking it onto monetary policy.

I urge the Government to take stock of its spending plans. The honourable member for La Trobe asked honourable members on this side of the House to nominate what expenditure they would cut. I do not propose to enter into that process, because it is the Government's responsibility. Perhaps the Government could start with the pipeline. The Government will have to cut its spending plans or - perhaps this is not so far off - introduce a mini Budget to increase tax rates. One or other of those ways is the only sound course for demand management which, as the Leader of the Opposition said, quoting the Organisation for Economic Co-operation and Development, is at least 60 per cent of the inflation control problem. Contrary to the assertion of the honourable member for La Trobe, I suggest that the Government will have to work in cooperation with the Premiers of New South Wales and Victoria - not necessarily with Bjelke-Petersen - and its Labor counterparts in South Australia, Western Australia and Tasmania, to institute a freeze on prices and incomes and indeed hours of work with a view to breaking the inflationary expectations building up in this country in a truly alarming way. The Government does not want to do it because it shies off the task of controlling not only prices but also incomes. But every day this is becoming more and more essential as these expectations build up. In conclusion I ask the Government whether it can be serious about inflation.

Mr DEPUTY SPEAKER (Mr Scholes)Order!The honourable member's time has expired. The remarks he made after the expiration of his time will not be recorded.

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