COMMONWEALTH OF AUSTRALIA
SPEECH BY
The Rt Hon. W. McMAHON, M. P.
ON
APPROPRIATION BILL ( No. 1) 1971-72
Second Reading
( Budget Debate)
[ From the ' Parliamentary Debates', 7 September 1971]
Mr McMAHON ( Lowe-Prime Minister)
( 8.26)-This is the twenty-second Budget
since the Liberal-Country Party Government
took office in 1949. Since then we in
Australia have enjoyed a period of sustained
economic growth combined with full
employment which has not been rivalled in
any previous period of our history.
Let me illustrate by reference to the
progress we have made in the last decade.
Ten years ago our gross national product,
at constant prices was around $ 17,000m.
Last year it was $ 28, OO0m-an increase of
about 60 per cent or an annual rate of
increase of over 5 per cent. Ten years ago
our workforce was less than 44 million. It
is now over 51 million-a growth of about
per cent. Our international reserves
have more than doubled and now stand at
over $ 2.3 billion. These facts, I suggest,
speak for themselves.
We are, I agree, now facing problems
because cost and price inflation has recently
gathered pace. In the interests of the whole
community, we have to tackle -these problems
and tackle them now. But they need
to be handled in a way which will assist,
rather than impede, our long-term growth
goals. And a co-operative effort is needed
by every group of Australians. We have
one very important economic problem that
the Treasurer ( Mr Snedden) highlighted in
his Budget Speech. Our over-riding
economic purpose in this year's Budget was
14327/ 71 to combat inflationary pressures. We are
well aware that the inflationary process is
most complex and that there are important
elements which the Government's fiscal
and monetary measures do not influence
directly. Wage rates, for example, are largely a
matter for the Arbitration Commission and
for employer and employee relationships,
although the Government can play a role
by trying to ensure that the general
economic climate is not conducive to the
making of wage awards that exceed increases
in productivity. The problem we
faced in framing the Budget was therefore
to try to reduce inflationary pressures in
those areas where the Government can
have a direct influence. As I said iin the
House on 18th February, we have to
distinguish between cost inflation and
demand inflation. I wish that this distinction
could be made abundantly clear,
because of all the speeches I have heard
in this House and of many of the comments
I have heard too, few have been
able to draw this distinction effectively.
Mr Foster-Yoyu are never in the
chamber to -hear speeches.
Mr McMAHEON-But I listen in on the
radio. In any event, I disappear the moment
I see you.
I pointed out then that we were not faced
with overall demand inflation of the classical
type, except in three areas, namely, private
building and construction, private investment
in plant and equipment, and Government
expenditure. Here there was excessive
pressure on resources. In addition, more
recently the strong rise in the potential for
demand inflation through increased personal
consumption expenditure gave us cause for
concern. in circumstances where prices
had already been increasing much too
rapidly, we felt that it would -have been
irresponsible to risk the possibility of superimposing
excess demand on wage inflation.
To guard against the development of undue
demand pressures, we therefore judged that
it was necessary to restrain the growth in
Commonwealth expenditures by severely
pruning departmental proposals and we decided
also that we had to raise additional
revenues. These are in the nature of fine
tuning adjustments which must be seen in
proper perspective.
After allowing for the transfer of payroll
tax to the States the Commonwealth's
domestic outlays are estimated to increase
by $ 900m in 1971-72--only $ 90m less
than in 1970-71. Similarly, receipts are
estimated -to increase by only about S lO0m
more than last year. In technical terms-
I have to emphasise the word ' technical'
because it has a technical meaning-these
measures imply an increase in the overall
domestic surplus of $ 170m. Combined with
a restrictive monetary policy I have little
doubt that they have -helped considerably
in reducing the risk that excess demand
inflation would develop. But these measures
will not in themselves prevent the continuance
of the -strong overall economic
growth that we have been experiencing in
recent years. It is nonsense -to suggest that
they will result in mass unemployment. In
the normal course of events registrants for
employment will rise to a seasonal peak
in January of next year. With the addition
of school leavers, it would not be at all
surprising if unemployment exceeded
100,000 at that time. That would only be
slightly in excess of the numbers that were
registered in January this year. I want to
assure the House that we remain firmly
committed -to the maintenance of full
employment and -that the Government will
be keeping a very close watch on trends
in the private sector to see whether they
develop along the lines forecast.
Our concern must be to try to provide aa
-economic climate in which economic growth can proceed without excessive cost
and price increases. Left unchecked, the
rate of price increases would soon erodc
the gains we propose for pensioner and
other social welfare recipients. it could also
jeopardise the strong economic growth we
have enjoyed in recent years. It could
threaten our export industries. It could limit
-our -ability to improve the quality of life
in Australia. In the final analysis, of course,
the prospects for controlling inflation will
be affected, as I have already said, by
community attitudes-not by any single
group in the community, but by the coinmunity
as a whole. Recent experience
overseas suggests -that once a cost-, price
spiral is permitted to get a foothold in an
economy, the measures then required to
combat it successfully are very difficult
to devise and decidedly less palatable than
those contained in this Budget. Our aim
is to prevent such a development in this
country. Till now I have referred mainly to
measures aimed at demand control. But
it is wrong to suggest that -the Government
has ignored the problems of cost pressures.
The Treasurer referred -to a variety of
measures which are being taken outside the
immediate Budget context -and which arc
aimed at reducing these pressures. It should
however be recognised that the full year
effects of wage and other cost increases
which took place during 1970-71 will continue
to be reflected in the economy for
some time. The levels of -average weekly
earnings and the consumer price index,
for example, are already considerably
above their average levels in 1970-71. This
undoubtedly will be reflected in statistics
during the remainder of 1971-72, no matter
how effective the Budget and the Government's
other measures may be in containing
future cost increases.
Now let us speculate about what the
Leader of the Opposition ( Mr Whitlam)
and his colleagues might do to solve the
problem. The Leader of the Opposition
says he notes many things which are not
causes of inflation. He says that wage increases
are not the cause of inflation. I will
refer to these in a moment. He also says:
Great sectors of our secondary industry have
not contributed to inflation.
The rural sector is not contributing to
inflation; and clearly he believes that
Government spending is not the cause, since
he wants the Government to spend much
more on a whole range of projects. Moreover,
as company incomes increased very
little in the last financial year, presumably
he does not find the cause of inflation in
that area. What then is the cause in his
view? It is important that not only we
but all members of the Australian public
should know. Having excluded so much,
he leaves us in the dark as to what his
analysis is and what the real causes might
be. The Leader of the Opposition does, it
is true, give us a most significant hint as
to his views when he accuses the Government
of refusing to acknowledge-and here
I quote his own words-' the inevitable connection
between rising prices and demands
for increased wages.'
I repeat his words ' The inevitable connection
between rising prices and demands
for increased wages'. Does this mean that
after all, he accepts wage increases as a
cause of inflation? The words may be
ambiguous. He is strangely silent. I accept
his silence as meaning that he does accept
wage increases as the cause. The fact is,
of course, that wage and salary earners
have increased their share of gross national
product. In 1970-71, wages, salaries and
supplements accounted for nearly 55 per
cent of gross national product; much above
the proportion in 1969-70, when it was
52.4 per cent, and in other recent years.
The Leader of the Opposition refers also
to ' half an income-price policy' under which
be suggests the Arbitration Commission has
the job of keeping wages and prices down.
He should know, as a once potential lawyer.
that the Arbitration Commission has power
to set only minimum wage rates which in
peither theory nor practicei amounts to
setting actua3 wage rates. This is reflected
in the fact that average weekly earnings
have consistently increased much faster
than award rates; for example, in the year
to the June quarter 1971 by over 13 per
cen~ t as against 9 per cent in the corresponding
period last year. The truth is that the
Leader of the Opposition is unable to provide
any analysis of the causes of inflation.
Not unexpectedly he is therefore completely
silent on the crucial question of what should
be done to control it. We do know that
he criticises the Government for not spending
enough. In almost the same breath he
complains that the burden of taxation ' s too high. He cannot have it both ways. So
we are left to the conclusion that Mr
Whitlam's cure for inflation is to increase
Government spending and to reduce taxation.
This is just the kind of cure we must
avoid if we are to make any kind of attempt
to cure inflation. As I have said, it is the
Government's firm belief that the only
responsible course of action was to bring
down a Budget designed to prevent the
development of excessive demand inflation,
superimposing itself on the existing cost
inflation. I make it clear that our policy
continues to be a flexible one, responsive
to change and able to make adjustments
needed to sustain full employmeot and
economic growth. It is, of course, entirely
possible to adopt a less restrictive monetary
and fiscal policy if circumstances make that
necessary. Mr Deputy Speaker, I want now to
emphasise another important aspect of our
policy. We have been able to take positive
action to meet the various high priority
needs of the community, despite the need
to restrain Government expenditure to combat
inflationary pressures. The Budget in
fact provides for substantial increases in
social welfare, defence, education and the
arts, assistance to rural industries, and other
areas of essential activity. The responsible
Ministers will explain in detail those parts
of the Budget which involve their own
portfolios. But let me just mention social
welfare as one example. Reference has been
made to a fundamental reappraisal of social
services which I said the Government would
undertake. The Government looked at
various possible measures in the social welfare
field. We decided, as I shall outline
in a moment, to take action in the areas
of greatest need. If the Opposition wants to
say that this policy was wrong and that it
does not believe that those in the greatest
need should receive the greatest assistance,
it is up to -the Opposition to tell the Government
and up to it to make it positive to
the Australian people. It is all very well
for the Leader of the Opposition to say
glibly that the cost of paying pensions to
all Australians would be no more than
S300m. The fact is that, on the basis of
present eligibility for age pensions, the cost
would be about $ 440m. Now where would
that money come from? Where did he get
his figures from? What taxes would the
Leader of the Opposition increase? Until
these questions are answered one must
regard any propositions put by the Leader
of the Opposition with extreme doubt.
Unlike the Leader of the Opposition, my
Government has acted responsibly by
matching its welfare programme to what we
have judged can reasonably be raised from
taxation and other revenue sources. Frankly,
Sir, I di d not think that we could increase
revenue at all other than in the way in
which we have done so. I did not want
to touch to any extent, and neither did my
colleague the Treasurer, indirect taxes which
could clearly write themselves into the consumer
price index. I repeat: We have helped
where we thought the need or poverty was
greatest. The increase of S$ 1.25 in the standard rate
of pension and of S1 for each married
pensioner provides a substantial improvement
in the purchasing power of recipients.
Taken with increases which were made
last year and in April this year, there has
been an increase of about 11 per cent in
both pension rates since September 1970.
The consumer price index rose by about 5
per cent in the year to June 1971. Therefore,
there is a pretty healthy margin of
approximately 6 per cent that can improve
the real standards of the pensioners themselves.
So clearly, I think, we can take it
that those most in need have received the
benefits and they have received considerable
gains. A further most significant measure was
the increases granted in the additional
pensions payable where a pensioner has
dependent children. In addition, we have
increased child endowment by 50c a week
for each child under the age of 16 in
excess of 2 in a family. These increases in
pensions, child endowment and other social
welfare and repatriatiori benefits should
ensure a welcome improvement in the
standard of living of those dependent on
them, even after allowing for the faster rate
of price rises. Mr Deputy Speaker, I have
pledged my Government to do all within
its power to eliminate pockets of poverty.
This is and will remain our humanitarian
aim. Our concern for the needy is
unqualified. We will continue to keep
measures to increase our help constantly
under review.
The Leader of the Opposition has moved
to condemn the Budget on the ground that it contains no proposals to balance the
finances and functions of the Commonwealth,
States and local government.
Obviously, the Leader of the Opposition,
could not have written the speech. Obviously
he could not have been guided by
any person with a knowledge of the contents
of the Budegt itself. The fact is that this
Budget recognises the undertaking I gave
when I came to office that I would give
priority to making sure that the Federal
system worked effectively. My two conferences
with the Premiers in Canberra have
resulted in a significant improvement in the
States' financial capacity. First, my col,~
leagues and I reached agreement with the
States on a growth tax which is theirs to
levy and which will give them an important
addition to their revenue raising resources.
Second, on top of the normal grants that
they will receive under the -improved
financial arrangements settled last year, we
have provided special assistance of
to help the States cope with their 1971-72
Budgets. Third, while recognising the need
to restrain the growth in capital spending
by governments, we agree to support a
substantial increase in the funds available
to the States for expenditure on capital
works. Fourth, in transferring payroll tax
to the States, we agreed to meet the cost
of exempting local authorities from the
tax where it applies to their non-business
activities-a move which has been widely
welcomed by local government authorities
throughout Australia. I now ask the question:
How many members of the Opposition
know of the amount of funds that
have been made available to local government
authorities? if they do know, why
have they not referred to it in any one of
their speeches? Certainly, the Leader of the
Opposition did * not appear to have any
knowledge of this innovation or the extent
of it. The Government has taken these
steps to improve the financial capacity of
the States and their authorities. We did so
because we recognise the important responsibilities
which they have in providing basic
services to the citizens of this country. The
Labor Party, as we all know-this side and
the other side-gives lip service to the role
of the States. But we all know that what
it would like to do is to take over the
services provided by the States and run
them from Canberra and to abolish the
States if it had the constitutional capacity
to do so. We believe, however, in a cooperative
federalism, in which full recognition
is given to the role of the States in
providing the educational, housing, health
and other facilities that are so important
in improving the quality of life. ( Extension
of time panted.)
The plain fact is that nearly $ 3, OO0m, or
over one-third of this year's Budget, has
been set aside to assist the States in providing
these facilities. Portion of this assistance
takes the form of grants for specific
purposes, but some $ 2,300m is available to
the States for expenditure as they see fit.
To suggest that this Budget excludes all
mention of cities completely overlooks the
fact that the major portion of this assistance
would be expended by State governments
in their cities. The Commonwealth
recognises that State governments are being
faced with demands for improvements in
every field of their activity. With our help,
an increasing proportion of national
resources is being devoted to the provision
of Government services in the State and
local sectors. It is inportant, too, to bear
in mind, however, that the resources of the
community drawn upon by all the government
instrumentalities that service the
community are necessarily limited. Just as
we have had to limit spending in fields of
Commonwealth responsibility, so too are
there limits to the assistance we can pro,-
vide to the States to improve their services.
But there is no doubt, Mr Deputy Speaker,
that the increased financial capacity of the
States will do much to help improve the
quality of Australian life. So, too, will the
action which the Commonwealth is taking
directly in many fields. 1 ' have already
mentioned our social welfare programme.
We are also making substantial contri-butions
to Aboriginal welfare, -to education and the ' arts, and we have established a
department whose functions include examination
of environmental problems. All this
is part of our effort to give national leadership
and secure national unity.
Mr Deputy Speaker, this Budget is a
positive one. It is a Budget which will help
us achieve our great national aims of economic'
strength and prosperity, social welfare,
and security. It will oontribute to a
general improvement in the quality of life.
There are some people who seem blind
to our economic progress, and the real
nature of our problems. They relish playing
the role of prophets of gloom. Some
talk of a stagnant economy. Some see
unemployment rising in an uncontrolled
way. The Leader of the Opposition professes
to see the Budget as a divisive political
exercise. People who talk in this way
seem to be mesmerised by the immediate
problems of the day. It is true that some
of these problems-such as the current
problem of inflation-have to be taken
very seriously and solutions have to ' be
found for them. But such problems should
be kept in proper perspective. It is nonsense
to suggest that mass unemployment
is just around the corner. Our record in
maintaining full employment is second to
no other country in the world. We have a
strong economy; an economy with enormous
and exciting potentialities for future
growth; providing only we act responsibly.
People who suppress or distort these facts
do no service to Australia. The sooner we
learn to ignore them the better it will be
for the development and prosperity of this
country and the better we will be able to
do for every single class of Australian
citizen.
W. G. MumvA, Government Printer, Canberra
14327/ 71-2