PM Transcripts

Transcripts from the Prime Ministers of Australia

Gorton, John

Period of Service: 10/01/1968 - 10/03/1971
Release Date:
29/01/1971
Release Type:
Speech
Transcript ID:
2352
Document:
00002352.pdf 4 Page(s)
Released by:
  • Gorton, John Grey
PRIME MINISTER'S ADDRESS TO THE NATION (NATIONWIDE RADIO AND TELEVISION) - THE ECONOMY

TRANSCR IPT PRIME MINISTER'S ADDRESS TO THE NATION
( NATIONWIDE RADIO AND TELEVISION)
THE ECONOMY 2.9 JAN~ 19,11
You have all read much lately on the problemr, of inflation..., the problem
~ f ent rises in costs and prices and the prospects fo the future, In some
ways the matter has been a little over-diamatised perhaps, but there is nevertheless
a very real problem for discussion.
The disc-ic'sioi1 itself has resulted from two developments. First, tile
rise of 1. 9% in the Consumer Price Index during the last three months of-1970
the largest rise for some fourteen years. And secondly the likely effects on the
economy-of the Arbitration Commission's award of a 6% increase in wages an~ d
salaries a much greater increase than anyone had thought possible.
Cabinet has met this week to discuss the problem and I want to tell you
briefly how we see the present situation, and the approaches which we believe sh-ould
be made to attack the root causes of inflation. But first let me refer to tile rise
in the Consumer Pr ice Index.
We believe that too muc h has been made of this single quarter's f igures.
Much ofi the rise was due to the once-and-for-all inclusion of cost increases due to
indirect taxes imposed by the Budget on such items as cigarettes, wine, petrol and
so on. Without them the Index rise would have been about 1. 1% or a little more.
So the real rate of increase was not nearly as great as the figures suggested.
But, having made allowance for that, the rate of increase was uncom~ fortably
high and reflected a too rapid underlying rate of price increase. Now, in that
situation, of a too rapid underlying rate of price increase in that situation we are
faced with a 6% wage and salary rise which will add perhaps $ 900 million a year
to wages and salaries arid therefore purchasing power in a full year.
We will not, at the present rate of production, produce sufficient additional
goods and services to be exchanged for that additional money at constarnt pricec. It
would be fine to give buyers an extra $ 900 million a year if we were going to produce
$ 900 million worth of extra goods to sell. But we are not. Therefore, unless some
action is taken, there will be a boost to inflation. And growing inflation is one of
the worst ills from which a nation can suffer.
In considering what action should be taken Cabinet sought first to discover
the areas in which demand seemed to be growing most strongly. It appeared that
consumer spending was not growing strongly. A high rate of growth in demnand has not,
at any rate as yet, shown up in this field.
The areas in which demand is growing strongly are in the public sector
that is spending by Governments in private investment in new plant and machinr~ ery
and fi non-dwelling building construction that is on. such things as the new blocks
of offices now growing up in such profusion in twe cities of Australia. / 2

We therefore believe our first line of attaclk should be to ensure
not only a restraint on Government expenditure but a reduction in Government
expenditure this financial year.
Before I went to Singapore I issued instructions to all Departments and
to the Public Service Board that action must be taken to restrain the growth in the
number of public servants.
We are now working out reductions in the Government's budgeted
expenditure in other directions. Implementing these reductions will be
uncomfortable. Australians will not get as much as they had hoped to get
in the way of new public amenities of various kinds. But the reductions are
necessary. By reducing the demand of Governments, more is mrade available to
meet the demand of private persons.
Secondly we believe that the rate of growth of new private investment
in plant and equipment and machinery should be reduced.
And thirdly the rate of growth, and the demand pressures of new nondwelling
building construction must also be reduced.
A considerable proportion of this latter demand is said to be due to the
inflow of overseas capital for the specific purpose of building such buildings.
The Government wishes it to be known that it would prefer overseas investors
who are considering financing non-dwelling construction of this kind not to do so
until they have first discussed their plans and the dates on whichi they propose to
b . gin construction with the Treasury.
We have considered taking monetary and fiscal measures at this time.
That is restricting credit or raising interest rates still further or increasing
taxation. We do not believe that the present situation requires a lift in interest
rates, already high, and we would prefer to look forward to a future time
necessarily indefinite when other measures we take might permit a reduction
of such rates. Nor do we think that the present situation calls for a rise in taxation.
I have already said that the rate of growth in consumer spending is
not growing significantly as yet.
To increase indirect taxes at this time would therefore be to further
increase prices in an effort to reduce demand in an area where demand is not
excessive, and by adding to the Consumer Price Index it would quite possibly
stimulate an inflationary psychology.

To increase income taxes at this time would, again, be to tackle demand
in an area where demand is not now excessive. It would not strike at the root of
the tzouble, and its financial effects over a quarter of a year would be minimal.
We do not reject these economic weapons and say we will not use them
at some future time if it is necessary. If it is necessary, and useful in tackling
the problem, we will use them however unpopular that may be. But we do not
believe that to use them now would be of help. And we do not believe indeed that
at any time the use of this-Tclassic weapons against inflation would of itself and
alone solye our problems.
Having said this, and having indicated some of the actions the
Government will be taking to reduce demand in the sectors which are growing too
rapidly, I come to what constitutes the major threat of inflation.
No matte: what action a Government takes no matter how severely it
taxes or how ruthlessly it cuts Government spending no matter how it seeks to
redirect resources if that is what it wishes to do it will not be able to beat
inflation if wages and salaries rise more quickly than production. Demands for
over-award payments, for extra holidays, for additional holiday pay, for shol-ter
hours can only be met in one of two ways. Either the amount of goods and
services producei is increased sufficiently to enable these requests to be met
without inflation or the requests are met at the cost of inflation which ultimately
destroys the benefits sought and leaves us all worse off.
Price control, imposed by Governments, is no answer to this problem.
It is superficially appealing, but in fact all our advice is, and our beliefs are, that
it is not an answer to the problem. There is a limit to the extra costs which
et: . ployers can absorb before passing on cost increases by increasing prices. The
inexorable fact is that if we try to pay higher wages without providing an
equivalent increase in production we will have inflation. And yet this course is
the one that Australia has been following and this approach is the real inflationary
threat to Australia. Given our present Arbitration system and State Wages Tribunals, control
of this situation is not now entirely in the hands of Governments. Yet Governments
can do something to combat the over-award payments now being negotiated by
employers. At present, employers are able to buy industrial peace by conces * sions,
the cost of which they know they can pass on to the consumer. it can be made more
difficult to pass on extra costs.
Increased internal competition wouild help. And internal competition can
be increased if the High Court upholds the validity of the present Trade Practices Act,
both interstate and intrastate. If it does uphold the validity, the Act can be
strengthened and lead to more internal competition. If the Court holds the Act in part
invalid, then we will have to consider approaching the Australian people and asking
them to give us more power to make the Act wholly valid.
Further, external competition with industries in Australia when internal
prices rise unduly in those industries because of costs, due to over-award payments
and other concessions negotiated by employers in those industries, will have to be
considered.

And now I sum up. There has been a tendency to over-dramatize the
present inflationary situation. But there is a real threat of inflation inherent in
the underlying demand and in the recent Arbitration Commission Award, in State
Wages Tibunals Awards, and in increased over-a-ward payments which might be
expected to flow on from that.
We propose to take action against demand inflation by reducing
Government spending, by encouraging postponement of private investment in
plant, by discouraging the present rate of construction of non-dwelling
construction such as office buildings and by other ancillary actions of lesser
importance which we have in mind. We will seek to increase internal competition
and to examine cases where competition from external sources might be justified,
so as to make it more difficult for employers to concede union demands.
We are prepared in the future to take any further action which may be
considered necessary to play our full part in beating inflation. But unless wage
fixing authorities, unions and employers, also play their full part, our actions in
the future by the classic weapons of taxation and reducing demand could impose
more hardship than would otherwise be necessary and not have the oorrective
effect -which they would otherwise have. What we seek in Australia is production
which increases yearly and wages and salaries which also increase yearly but not
faster than production, so that there can be a real increase in living standards.
In the present employment situation full employment with the
growingr public demand for more Government services, it will be'uncomfortable
tc achieve this. Many things for which an admirable and persuasive case can be
made out may have to be postponed. But in the long run we will all be better off.
We all have a part to play in attaining that goal. And for its part, within the
Lirnitations the law imposes on it, the Government will play its full part.

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