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Tuesday, 13 November 1973
Page: 3190

Mr LYNCH (Flinders) - The Opposition has brought forward this motion today because of its deep concern at this Government's failure to adopt a balanced set of policies to combat the current level of inflation which, notwithstanding the measures taken by the Government, continues unabated. We specifically reject the present undue reliance on monetary measures because it is ineffectual and carries with it the dangers of harmful adverse reactions in the medium term. We place on record our condemnation of the Government's failure to take corrective fiscal measures together with supplemental policies to restrain wage and salary costs; to ease the labour 'market; to curb the growth in the Commonwealth Public Service; and to reduce the level of industrial unrest. The simple fact is that the Government has the responsibility for the present level of inflation. It must accept that responsibility. It simply cannot continue to neglect its clear obligation to co-ordinate all available economic instruments in order to confront the problem. After almost one year in government the blame for economic mismanagement lies nowhere except with the Government's own policies.

The Reserve Bank, in its 1973 annual report, stated:

There is scope for further tightening in financial conditions but the gathering strength of private demand suggests it would not be prudent and. probably not sufficient to rely only on monetary policy to achieve the desired restraints.

That statement has been proved to be correct. It is a matter of great concern that the Government continues to pursue what can only be described as an unbalanced and ineffectual approach to inflation. Economists have increasingly pointed out the dangers of overdependence on monetary measures to maintain equilibrium within the economy. The fact is that the main burden of major economic adjustments should be borne by flexible fiscal measures with monetary policy having a supporting role.

In the 11 months since Labor came to power, interest rates have spiralled to levels far beyond the range of previous Australian experience. The Labor Government's pursuit of its extravagant policy aims has induced the spiral. Constrained by ill-considered and inadequately researched electoral promises, the Government has been unable to co-ordinate its fiscal and monetary policies and, having introduced an inflationary fiscal policy, it has placed disproportionate weight on monetary control in a vain effort to control inflation. The interest rate policy so conceived has been in itself de-stabilising and has, in fact, tended to counteract the Government's other attempts at economic control.

It is a matter of record that rising interest rates are as much a symptom of inflation as an attempt to control it. Empirical evidence supports the views of many eminent economists, including Professors J. R. Hicks and Milton Friedman, and of course Lord Keynes in earlier years, who have stated that rising interest rates anticipate burgeoning inflation. Put another way, this means that expectations of future price movements play a substantial part in promoting interest rate changes. But by using interest rates as a primary tool of economic management in a period of unfettered inflation, the Government is obviously placing excessive pressure on this already over-worked mechanism, producing the present circumstances in Australia today, with soaring interest rates adding significantly to the general cost structure, inducing further waves of cost-push inflation. The response of the Treasurer (Mr Crean) to the nature of Australia's economic difficulties has been an exercise in vacillating apologia. He has steadfastly refused to confront the task of economic management with a set of strong and bal.lanced policies. He has, in fact, been prepared to preside over the most draconian monetary policy since Federation. The inadequacy of the Treasurer's comprehension of this subject is best illustrated by his statement during the course of a similar debate on 17 September. In order to save the time of the House, I ask leave to have that statement incorporated in Hansard.

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