F76/ 61
EMBARGO: .8.00 p m. ), ASLI
FOR PRESS 1 April 1976
ADDRESS TO. THE INSTITUTE OF DIRECTORS
Tonight I want to set out the problems the Government
confronted on coming to office, the Government's strategy
to restore prosperity to Australia, and to show how the policies
the Government has adopted and will adopt fit in to the
basic strategy.
When we can to office Australia was facing an unprecedented
set of economic problems.
Government spending had grown enormously, financed by a
heavier tax burden on individuals and massive erosion of company
profits. We faced a deficit far above the announced deficit
of. the Hayden Budget of $ 2,800 million. Unemployment was at record
levels. Rapid inflation was eroding savings and income levels
and generating inflationary expectations. Liquidity was
excessive and the money supply was increasing at a rate of
percent per annum. or more. Consumers, uncertain about
the future, were saving a substantially higher proportion of
thleir incomes. Businesses, for reasons of confidence and
finance, were reluctant to invest.
In the view of the Government the principal source of these
problems has been appalling domestic mismanagement.
At the heart of the problem, in our view, has been the enormous
rapid increase in Government spending.
The tax burden on individuals inevitably stimulated wage
demands. The tax burden on companies resulting from the
combination of inflation, accounting practices, and the tax
system, has been eroding the nation's capital base, and
absorbing the funds needed for business. expansion. Combined with the
wage and salary costs of the previous years, there was a
major obstacle in the way of new investment.
Alongside the tax burden the Government had sought to regulate
business more and more often without regard for the costs
of this regulation or whether it was in fact achieving its
stated objectives. 2
Indeed, many people came to believe that there was a concerted
effort to undermine private enterprise in Australia to provide
the scope fcr yet further Governmient intervention and control.
Our strategy and the programme we have developed is
designed to tackle these central problems in a balanced and
predictable way.
Our broad objectives are firstly, to restrain Government
spending and on the basis of such restraint transfer
resources back to private enterprise and individuals.
In this way the real value of people's incomes can be
protected and private enterprise which provides threE out
of ' Lour jobs can have once again the confidence and the
resources to invest.
This transfer of resources is a key element in realising our
objectives of easing the pressure on wages and salaries
and creating conditions for an expansion of employment
opportunities. While providing real protection for the consumer a further
objective is to free business of unnecessary, inefficient, and
excessive regulation.
In our view private enterprise needs room to breathe, to
grow, to expand. Australia must once more become a country
which offers rewards for initiative, enterprise and hard
w~ rk.
The Government also wants to generate a climate of national
responsibility in which business and trade unions will both
act with a principal regard for the national interest.
We aim to achieve this in part by emphasising consultation
with all sections of the community and by an announced
and known strategy on the basis of which our policy decisions
will be madie. The experience of the last three years
demonstrates that unreasonod changes in policy do nothing but
impede growth, destroy confidence, and create further'
uncertainty. It is the view of the Government that business recovery and
consumer confidence are both impeded by the same fact an
anxiety about the future which it is the over-riding objective
of our policies to dispel.
Let me now mention the policy decisions and actions we have
taken and intend to take to give effect to our strategy.
Immediately after the election we took action to cut back
on Government spending and unnecessary bureaucracy and to
improve administrative efficiency. We have already made a
large number of economies in administrative expenses and
spending programmes starting with the spending of Ministers
and other M. P.' s. / 3
There is clearly a limit to the number of major savings
which can be made in the last part of A financial year
but we have already announced economies worth $ 360 million.
In terms of annual rates these economies are equivalent to
savings of approximately $ 1 billion.
We have halted the growth of the Federal Public Service. In
fact there will be 17,480 fewer people employed in the Federal
bureaucracy by the end of June than under the ceilings set by
the previous Government. The review of spending and
administrative efficiency-is continuing. At present
the Government is of course, examining all its expenditure
commitments in the course of Budget planning.
Restraining Government expenditure is an enormous task. These
measures will ba essential steps in our strategy of recovery.
I ~ do not wish to pretend that the cuts in Government spending
will be easy or painless. The Government is fac~ ing very
difficult decisions. Responsible and determined choices will
have to be make. Australia simply cannot afford all the
programmes politicians tend to promise.
The truth is that in order to bring inflation under control
and expand productive employment the Government has to face up
to these problems. If we succeed in this, Australia can
once again be the great country we know that it is.
I want it to be very clearly known that the Government
places priority at this critical time on stopping the erosion
of individuals and business incomes through inflation.
We have-undertaken to begin the implementation of personal
income tax indexation and inflation adjustments in the
company tax area. We want to assure all Australians that there
will be the restraints we have undertaken so that the largest
possible step towards tax indexation can be taken.
Tax indexation serves to assist in preventing the erosion
of peopl&' s incomes. By contrast money wage rises in line
with past price increases simply stimulate more inflation and
erode investment funds.
Restraint in Government spending has been accompanied by measures
designed to facilitate investment and reduce the cash crisis
for many businesses.
These measures incliude the 40 percent investment allowance.
This allowance is a long-term policy which will boost Australia's
future productive capacity. So that businesses can-plan securely
on the basis of the measure, we have announced that the allowance
has been introduced for a 7 1/ 2 year period beginning 1 January
this year, at a rate of 40 percent for the first 2 1/ 2 years
and 20 percent thereafter. Neither this, nor any other
policy is going to produce overnight miracles. But there is
no doubt that it is going to provide a strong indiicement
to private sector activity.
A second measure towards the objective of easing cash
flow problems has been the suspension of quarterly tax
instalments.
Every sector of the Australian economy is interdependent
and we have taken a number of measures to assis; t rural*
industry on the basis of IAC reports.
As an expression of our detarmination to free business of
unwise and-unnecessary regulation which is not in the public
interest we have this week announced an inquiry into the
operation of the Restrictive Trade Practices legislation.
In the area of monetary policy we believe it is important
that the Government's long-term intentions for the growth
of the money supply should not be in doubt.. There is a
clear, demonstrated relationship between excessive growth of
the money supply and high rates of inflation. Unless the
Government is prepared to tackle this problem there is no
hope for a reduiction of*. inflation. in the medium and long term.
W introduced earlier this year a comprehensive and flexible
monetary package which has already'set us on course to
achieving this objective. However, it is clear that the
changes in money supply bought about by the policies of the
previous Government did great damage to business.
Out appraoch will ensure that the private sectors will have the
ability to finance economic recovery. Normal seasonal needs for
liquidity in the coming months will be met.
The Government is determined to do its part in the fight
against inflation. But the Government cannot win the battle
against inflation alone.. Australians will show, the kind of
people they are by their preparedness to cooperate in the
fight against inflation. In such a vital national effort, no
section of the community can afford to look at-its own
interests in isolation.
One fact has emerged v-ery clearly from the experience of
the astLhre yers al sections of the Australian communi-ty,
all sectors of the Australian economy, are interdependent.
At any one time the total resources of Australians are limited.
One section of the community cannot greatly increase its
share except at the expense of other sections; ' decisions
taken by one group affect many others who have no say in those
decisions. Powerful trade unions can only greatly increase the real
resources going to their members by eroding the value of
incomes and savings of the weaker sections of the community,
or by absorbing resources which could be used to create jobs.
Large companies have to keep in mind that decisions they
take with respect to their own employees may have repercussions
far beyond their own business. Such companies have. a
responsibility to consider the consequences of those decisions.
They ignore this responsibilty at their peril.
Government has a responsibility to ensure that its programmes
do not unnecessarily absorb resources which are needed by
individuals and families to meet their own needs. When the
Government fails to take this into account, it directly
encourages pressures for higher real wages.
Every part of the community, every institution concerned
with economic life, has a responsibility to help bring
inflation under control and expand employment opportunities.
In the return to a non-inflationary prosperity the role of
the Arbitration Commission is of major importance.
Wages must be at a level that the economy can pay at a
level which will not add to inflation and unemployment.
The Government has a responsibility to put its views on the
economy to the Commission in strong terms. Other parties
have a similar responsibility.
Ultimately of course, the decision on any particular case
is the Arbitration Commission's. But in reaching its
decision the Commission itself must take into account the
general state of the economy and social justice.
Justice in present circumstances is on the side of those
thrown out of employment by excessive wage increases.
Business leaders, leaders of the trade union movement, and
Governments all have a critical role to play in the
control of inflation and the revival of employment opportunities.
I believe there is a growing recognition of this fact
throughout Australia.
Great numbers of people on the shop floor are becoming
aware in a way they have not been before, that money paid
in excessive increases in wages and salaries is not available
to creaite new jobs, or even to support existing jobs. In fact
many rank and file members of trade unions are probably more
aware-of this fact than some trade union leaders. one of the
most important contLributions that can be made to economic
recovery by business is to encourage a greater awareness of
this basic fact.
I do not need to emphasise before this audience how critical
industrial relations are to bringing inflation under control.
There can be no stronger foundation for good industrial
relations than widespread understanding of the true nature of
the problems that face us.
Talking about the need for a national cooperative effort has
to be matched by cooperative action. Effective cooperative
action has to be based on frank discussion, mutual consultations. / 6
Some companies have very good procedures for discussing
matters with employees. This is a time more than ever,
when the example of the best should b2 followed by everyone.
If employees can get a ciear picture of the impact of their
wage and salary demands on their own firm, I have no doubt
that people will wish, of their own account, to act with
great responsibility.
There is no substitute for direct and frank face to face
discussions and exchange of information to build a spirit
of understanding and cooperation.
For many years now, those who believe that the free enterprise
system is best for all Australians have been less active than
we should in puttinq the case. TJ-hat is one reason why we
have suffered the experience of the last three years.
It is good to see that an increasing number of people are
taking action to ensure that there is a growing appreciation
of the common-interests of everyone in a profitable and
efficient private sector.
1believe-it is important to remember that understanding
is advanced not only by the availability of high quality
objective material but even more importantly by relations within
the particular-firm and by the effort that management
makes there. It needs to be explained clearly that new
plant, new equipment,, new jobs, are created out of profits.
It also needs to be explained that in a country like Australia,
profits are very widely distributed directly-to shareholders
and indirectly to the millions of holders of insurance and
superannuation policies.
There needs to be a much clearer understanding of the central
role of private enterprise in providing through taxation,
the resources for Government to spend on such. things as
social welfare, education, roads, defence and -so on.
In the current year, for example, private enterprise will
directly contribute ( through company taxes over $ 2,000 million
to Government more than enough to cover the entire expenditure
of the Commonwealth Government on education.
Real expansion in social programmes which is not financed
simply by transferring resources from some other group in the
community must be financed out of growth. Real growth
depends on a healthy and vital private enterprise.
Private enterprise does not merely provide the resources which
Government can-use to improve its provision. A healthy
private enterprise is an essential part of the life Australians
value. Private enterprise provides the greatest opportunities. it
provides a choice of rewarding jobs, a choice of products and
a choice of services, / 17
L
It is the system which gives the man in the street the
greatest control over what is produced. In this sense,
it is the most democratic system the system which is
most compatible with the freedom Australians value.
Under the Labour Government, the survival of private
enterprise was endangered. We were well on the way to
a conformist, centralised society in which the real wealth
of Australia, the productive energies and initiative of
the Australian people were suppressed.
The strategy the Government has adopted, the measures we
have already announced, and will announce in the coming
months, will ensure that that does not happen.
I am confident that our approach is already providing
a solid basis for the revival of prosperity in Australia,
and for the development in Australia of a society in which
the interests of all Australians are truly served.