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Tuesday, 14 October 1975
Page: 2043

Mr HAYDEN (Oxley) (Treasurer) - The Opposition's spokesman on economic affairs, the Deputy Leader of the Opposition (Mr Lynch) has, as is characteristic for him, painted a rather grim picture about the state of the economy. Even the most encouraging indicators encourage the worst sorts of predictions from him. He paints his pictures with pitch all the time. I rather gathered from the way in which the Deputy Leader was speaking todaythis is an observation in passing- and from the comments that he has made on other occasions that it is his intention to campaign at any future election on the basis of the slogan: 'Eliminating Government waste, no matter what that costs '. If I may take up the point about costs to which I will return a little later, it is all very well for an Opposition to indulge in the luxury of saying what should not be and what ought to be, but there is a bridging between the two, and that is where the proper course lies. This is a discipline which the Opposition must face up to as much as anyone else in this community. We have to explore the possibilities of bridging the two, what ought to be and what ought not to be. Unless there is a statement of the general purposes which will be followed in trying to bridge these 2 areas, statements such as that which we have just heard from the Deputy Leader of the Opposition are perilously close to being stigmatised as empty moralising.

Let us have a quick look at some of the proposals made by the honourable member. Let us look first of all at the gist of the line that he has been developing. The Deputy Leader says that I have not recognised the difference between fiscal and monetary effects in economic management. Well, I will not waste time saying 'Yes, I do', while the honourable member replies 'No, you do not'. What I would like to point out is that the weakness of his assertion is obvious by the line which he consistently takes, a simple monetarist's line. All he ever seems to do is to look at the financial statement for each month, study the deficit, make some very rough- crude, if you like to use a more appropriate term- calculation and draw a conclusion about the effects of money supply. This is a very simple- misleadingly somonetarist 's line. He does in fact ignore possible fiscal effects. He does in fact ignore wage push. He does in fact ignore external account effects.

Most of all, even in the monetary sector, he ignores the velocity of money movement, which is very important at present. The velocity is rather slack. On the projections, as I interpret them, it will remain that way for some time. So, looking at a deficit at a certain level, in certain circumstances, and then comparing with a deficit at another time under different circumstances is totally misleading, if one ignores the velocity of money movement, which is something that the Deputy Leader of the Opposition has done.

Let us go back over what the Deputy Leader said today and what he has said on other occasions because what the honourable member has raised today is an unwilling old horse that he tries to flog to life every two or three weeks. He is undeterred by the fact that all the responsible Press- that is, with the exception of the Rupert Murdoch group- has been critical of this simplified and misleading line that the Deputy Leader is absorbing from his advisers. He started off a little earlier in this session multiplying the monthly deficit in July by twelve. He obtained quite dramatic headlines through this simple arithmetical exercise by pointing out that 12 times the July deficit meant that there would be a deficit of more than $9,000m at the end of the financial year. Along came the figures for the August deficit. If the deficits for July and August were added together and multiplied by six, the result was an annual deficit of a little more than $6,000m. The figures were on the way down. The Deputy Leader of the Opposition felt a little uneasy about that figure. Although some of his colleagues used it, I do not think that he quite did.

Well, the honourable member can multiply the figures for the September quarter deficit, if he likes, by four and he will get an annual deficit of a little over $7,000m. He can do that if that is the way he wants to work. This is as useless as his general statements on economic affairs and his particular statements when he multiplies the deficit in July by twelve to achieve the deficit for the financial year. Such an exercise ignores the seasonal movements in the general fiscal monetary picture in this country, particularly the budgetary picture.

The fact is that the deficit for the September quarter last year was higher than the deficit for the September quarter this financial year. But what is the more relevant measure is the September quarter deficit as a proportion of total deficit. If one looks at this figure, one gathers a clear impression of the way in which the budgetary measures are working and the general fiscal monetary measures are operating. On that basis there has been a fairly consistent pattern and historical bahaviour with respect to these factors. For instance, the September quarter deficit this year as a proportion of total deficit is 0.7.

Mr Lynch - What will the end of the year deficit be?

Mr HAYDEN - Last year the proportion, which was a phenomally low one, was 0.4. In the previous year for the same period it was 3.4. But in 1970-71, when the Deputy Leader's Party was in government, the figure was 43.2. These comparisons are quite misleading because they do not indicate what the picture will be at the end of a 12-months period.

I really do have to repeat what I have already pointed out in this House on an earlier occasion in the past couple of weeks. There is no conspiracy on the part of this Government in its statement of budgetary management measures and their effects. In the second-last paragraph of Statement 2 in the Budget papers attached to the Budget Speech, at page 2 1 , is set out quite clearly the fact that there is a possibility that the increase in average weekly earnings will be less than was projected when the Budget was drawn together and that, if this occurs, receipts will fall short obviously of what we are expecting and with expenditures held at the proposed levels the deficit will be greater.

Mr Lynch - How much greater will it be? How much will receipts fall short?

Mr HAYDEN -The document continues:

Of course, a greater deficit in those circumstances . . . would not carry the same policy implications as it would in other circumstances.

But the honourable member, through confused and muddled thinking- no doubt from the confused and muddled advice from his advisers- is trying to extrapolate from this statement to a statement which I made in the Budget Speech that if we had budgeted for a deficit of approximately $5,000m on the basis of the framework that we had drawn together and enunciated in the Budget speech, this would have been a prescription for quite dangerous inflation. It would have been possible for a deficit of a higher order than we proposed in the Budget to arise if receipts fall short of what we had expected. This could occur if we were being successful on the wages front. A higher deficit than the one that we have set in the Budget would result in that situation. A lower level of receipts than we set would have a higher level of costs which in turn would create a completely different context in which budgetary operations or management must take place. Surely that is an obvious and simple proposition that even the Deputy Leader of the Opposition can understand.

The Deputy Leader of the Opposition has interrupted on several occasions asking exactly what level of deficit will arise. He has done this on previous occasions, always demanding to know exactly with the finest degree of precision how the deficit would be funded. I pointed out to him then that it was not possible to give that sort of precision. His Government reached that conclusion when it was in office. We have reached that conclusion as a matter of sensible economic management. Any government subsequent to this one will reach the same conclusion for similar reasons. I do not care to say that the deficit will be of a certain order at this point merely because the rate of increase in average weekly earnings has shown a considerable abatement. That trend may well reverse. I will be disappointed if that occurs. But it may well reverse. We will do everything we can to restrain that trend.

All I can say at this point is that we have been significantly successful in restraining the rate of increase in earnings. Some problems arise in economic management because receipts fall short of what was expected. But that is a far better situation for economic management than the one we outlined in the course of the Budget. These conditions are well known. I have previously mentioned that at page 40 of the statements attached to the 1969-70 Budget Speech a similar sort of warning was given to that which is expressed in statement No. 2 of the papers attached to the current Budget Speech. In 1970-71, 1971-72 and 1972-73, at pages 45, 11 and 10 respectively, similar warnings were expressed. I cannot understand how a simple economic proposition, such as this, persists in eluding the understanding of the Deputy Leader of the Opposition, the man who proposes that he should be the alternative economic manager of the affairs of this country. How can he be taken seriously when he so consistently makes foolish statements in this House, exposing a total ignorance of the simple fundamental principles of economic understanding? How can he be taken seriously when he does not understand these simple propositions? If he does not understand them it means that in no time at all he would cease to be- if he ever were- a man of independent judgment and of independent decision making in the economic management of this country and in the hands of his advisers.

I move on quickly to a couple more points. For instance, the Deputy Leader of the Opposition referred to the use of financing from the Reserve Bank of Australia to fund the deficit. I would have thought that that was a perfectly obvious sort of measure to use when one is deficit financing as we must at the present time. I believe he stated a figure of borrowings from the Reserve Bank of $848m. What he forgot to mention was that $795.7m in treasury notes was withdrawn from circulation in that time. That amount was retired. This is further evidence of the honourable member's confused efforts to try to understand how the balancing goes on in the financial transactions of the nation's affairs.

But let me move from that matter to the more important point. The honourable member proposes that he should be taken seriously as the economic manager of the affairs of this country. He proposes that the Liberal-National Country Party coalition should be given the opportunity to administer the economic affairs of the nation. What sort of economic management do those parties propose? We heard during the speech of the Leader of the Opposition (Mr Malcolm Fraser) on the Budget that it would be the proposal of the Opposition as a government to cut government expenditure, to minimise the level of money supply, by $ 1,000m or 5 per cent. That does not sound too bad on the surface but there are a few arithmetical exercises the Opposition did not go through to show how severe that cut would really be. Let us not stop at $ 1,000m because the Deputy Leader of the Opposition had lifted the deficit to around $4,000m before he finished. To be charitable, let us settle at $3. 5m as the level the honourable member is talking about. That is another $700m. We are therefore talking effectively of a cut of about 8.5 per cent to control money supply their way. The cut, however, becomes much greater than that. It becomes about 12 per cent when allocations of finance to the States are withdrawn from the Budget because those amounts cannot be reduced. They are about 38 per cent of the total budgetary outlays.

So we are talking of a cut of about 12 per cent on Australian Government outlays. Where are those cuts going to fall? The Leader of the Opposition outlined some $500m in this area. On the figures stated today by the Deputy Leader of the Opposition at least another $ 1,200m has to be accounted for. Let us take a cut of some 12 per cent and look at education. What would this cut mean to education? It means that the cuts have to fall on recurrent expenditure largely because capital expenditure has been cut back to the bone. It also means that these cuts would have to fall in the second half of this financial year. The total outlays for the 3 commissions, universities, colleges of advanced education, schools and for the commission on technical education this year are of the order of $1,4 10m. A cut of the order of 12 per cent is about $ 169m which must fall in the second half of the year on recurrent expenditure. That, however, represents a cut of some 24 per cent on recurrent expenditure. It would represent the most massive lay-off of teachers imaginable. It would be somewhere of the order of 3000 school teachers or from 7000 to 7500 academic and non-academic staff members being sacked from universities. It would represent some 800 academic and non-academic staff members being sacked from colleges of advanced education. It would mean that at universities some 25 000 fewer entrances would be offered or at colleges of advanced education some 10 000 fewer full-time entrances would be offered.

I ask the Opposition to come clean. Let us have a clear statement as to what is its economic policy because it is proposing to cut back expenditure levels. The Opposition is proposing to reduce that Budget deficit not by $ 1,000m as it originally indicated but by something like $ 1,700m. That represents a cut of some 12 per cent on Australian Government outlays. In the area of education alone it represents a cut of some 24 per cent.

Mr DEPUTY SPEAKER (Dr Jenkins)Order!The Minister 's time has expired. .

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