J. jAUSTRALIA
PRIME MINISTER
FOR PRESS 3 DECEMBER 1976.
DIAMOND VALLEY DINNER
The annivei-sary we are celebrating tonight is one worth
-celebrating., December 13, 1975 will, -go down-as one of the
really important dates in Australian history.
The 1975 election stands alongside 1949. The Australian people
made one of their crucial decisions they chose freedom,
responsibility, and constitutional government.
Members of the Liberal Party around Australia worked for that
result as never before. And they succeeded om getting the;
Liberal Party's message over to the people.
We all knew that if we failed last year, so many things
Australians valued would be damaged beyond repair
On December 13 last year, the Australian people made clear that
they believed Australia required a profound change of national
direction. In November last year, to achieve this objective we placed before
the Australian people one of the most far reaching programmes
ever proposed by a major party in Australia.
We undertook to give Australia a government which respected the right
of people to build their own lives without being told what
to do by a few people who calimed to know what was good
for everyone. We undertook to take whatever action was necessary
to defeat inflation, restore employment opportunities and put
the Australian economy on a sound footing.
We undertook to adopt a new approach to social security which
stressed the importance of directing assistance to those in
genuine need to those who had suffered most from Labor's inflation.
We undertook to implement major reforms to the Federal system
a radical reassertion of the relevance of federalism and of our
belief that government should be close to the people. / 2
We put forward a foreign policy and defence apporach
based on a realistic appreciation of Australia's security needs.
Our program me reaffirmed the vitality of the. Liberal Party's
philosophy, and established the relevance of that philosophy
to the needs of Australia.
Our top priority was the economy and in particular the defeat
of inflation. When we came to office we were faced by the worst
unemployment sincethe nineteen thirties; an actual declines in th:
gross domestic product; a depression in company profits;
a decline in business investment to its lowest level in three
years; a desperate situation in the farming sector;
an inflation rate that was fourteen percent higher than it had b.
a year before and showing no substantive indications of declining.
We were also faced by an overvalued currency which placed great
burdens on particular groups in the community manufacturers,
all exporters, import competing industries.
In this situation, we had to establish a balance between the varioarms
of policy in order to create the conditions for a return
to sustained economic growth.
In the light -of comments in recent days, the strategy we have
adopted consistently since the election bears repeating.
Its main elements are the most rigorous restraint on government
spending to rein in. the bloated public sector and free resources
to productive private enterprise; the provision of a wide
range of incentives to industry to resume expansion and provide
employmentopportunities; seizing every opportunity to emphasise
the importance of restraint in wage and salary demands. This
is essential to keep costs down and create conditions in which
employment opportunities can be expanded as rapidly as possible.
We always said that this strategy would take time that it would
be a full three year programme. The strategy we have adopted
is the right strategy. It is the only strategy which is going to
work. We have pursued it consistently throughout this year.
There are already signs that it is achieving success
in the fight against inflation. The 2.2% increase in prices in
the September quarter was the smallest increase with the exceptii
of the Meidbank quarter) since the March quarter 1973.
It is in this context that the decision to devalue the Australian
dollar must be understood. We have always been aware thnt the
Australian dollar was overvalued. Indeed, this has been almost
universally acknowledged. Costs in Australia particularly
wage costs had become out of line with those of our major
trading partners. A case for devaluation could have been made
earlier in the year.
We did not devalue because we considered it essential that the
other major arms of policy budgetary policy, monetary policy anc*
wages policy be brought to focus in the fight against inflation.
Accordingly, on the budgetary side, we reduced the rate of
growth in government spending from 23% to 11%. 1 do not recall
any significant suggestion that we should have been even
more stringent in this regard. The restraint we imposed enabled
us to introduce significant personal and company tax reforms,
including full personal income tax indexation.
A range of incentives for business expansion and to star ' t oil
and minerals exploration moving again were also introduced.
On the monetary side we have imposed considerable restraint
throughout the year.
On the wages side, wehave argued consistently before the Arbitration
Commission in every wage hearing of the absolute necessity
for restraint. In the last six year, wages in Australia's
manufacturing industry increased 130% compared with 53% in
the U. S. and 70%: in West Germany. I recall we were attacked
earlier in the year for arguing as strongly as we did.
E -ren then there were those who predicted that if the government
ba-sed its policies on economic commonsense, the result would
be confrontation with the unions.
Unfortunately, too much credence has been given to the threats of
extremist union leaders ot create further conflict.
There has been a capitulation to threats instead of economic
commonsense. Not enough weight has been given to the great
commonsense of the vast majority of rank and file trade union
members who know full well the importance of restraint at this time.
I believe most are disgusted as Australians with the disruptive
tactics of a few.
This government will not allow an unreasonable burden in the
fight against inflation to fall on wage and salary earners.
There must be an equitable distribution of the burden. All sections
of the community must behave responsibly.
As a result of excessive wage and salary increases the dollar has
remained overvalued throughout this year writh damaging effects on
our exporting industries primary, secondary, mining and import
competing industries.
These are the productive sectors of our economy the sectors that
produce the resources with which governments can provide the
services they should. These are the sectors that had been hardest
hit by cost escalation, that were not indexed to inflation.
Unlike those protected by wage indexation they were out in the cold,
and these are the sectors which devaluation will benefit.
All of these industries have been hit by the escalation of costs in
Australia, and job opportunities in these industries have been
restricted as a result.
The situation we faced last week was that despite substantial
overseas borrowing by the government,' our international reserves
fell by $ 1,000 million in the last twelve months. / 4
The loss of reserves accelerated in the last few months,
declining by over $ 500 million in two months.
The prospect was for an unacceptable outflow of capital in
December and early January.
Last week the Government's official advisers jointly presented
two options to handle this situation: Further international
borrowings, of around $ 1,000 million, or devaluation.
The government could not accept a situation where uncertainty
and speculation would be sustained. We were not prepared to put
Australia into hock for another $ 1,000 million with no assurance
that this would be sufficient.
Devalua tion was therefore-the only responsible option open to us.
As I said before, it is a most serious matter when a government
is forced to take an action of this kind. It indicates how
severely rising internal costs principally from wage and
salary increases we cannot afford have eroded our international
position. It demonstrates not that our anti-inflationary strategy has
been wrong. Rather it shows the necessity for pursuing that strat
with even greater vigor than before.
Devaluation is a recognition of the reality of our situation.
It will unquestionably assist those of our industries most
damaged by the overvalued dollar. It can therefore have
positive effects. Investment projects which have been deferred
can now get underway with their job and income creating potential.
Mining and exporting industries generally which made such an
important contribution to Australia's prosperity will now have
thier position considerably strengthened. The disastrously
depressed farming sector the gravity of whose position
is often under estimated will obtain an improved position in
world markets.
The competitive position of manufacturing industry competing
with imported goods will be strengthened, and the benefits
of this will flow on to all those dependent on a vigorous
manufacturing sector. Employment opportunities can increase.
These&. industries have taken far too many shocks in the last
few years the Whitlam Government's 25% across the board tariff
cut, inflation, and unrasonable cost increases.
The Government will not take action without proper examination.
If these : re areas where tariffs are operating, and there is not
domestic production, the government willbe looking to see what
can be done. This applies particularly to imports of producers
materials and equipment.
As there is a transfer from imports to domestic production,
production runs in Australia should increase. This should give
Australian manufacturers an opportunity to contain costs.
They have a great responsibility to do so.
The prosperity of these sectors is vital to us all, and the flow
of benefits will spur recovery.
But that will not occur if costs continue to rise, unreasonably,
if inflation does not continue to be controlled.
To ensure that this devaluation is a positive element in economic
recovery, it is therefore essential that our anti infla. tion
strategy be pursued relentlessly.
We intend to bring the other arms of policy budgetary,
monetary and wages policy even more firmly to bear in the fight
against inflation. An immediate review of all government programmes
is being initiated. This review will identify areas where further
savings can be made by the deferrment of expenditures.
Undoubtedly this new stringency is going to mean the deferment
of some projects. It would not be necessary if wage and salary
demands had been adequately restrained. On the monetary side,
it is unfortunately necessaty to increase interest rates.
The Australian savings bond has gone up 0.2% to
The Bank has completed action to establish a new regime of
government bond yields of 0.5% at the short end and substantially
less than that at the long end. The volume of lending by
financial instituttions will also be closely monitored to ensure
that the growth in lending comes back from recent excessive levels.
The wages front and industrial relations are obviously vital.
Restraint is essential. The Government will take every possible
action in its power which can contribute to wage, salary and
price restraint. Let me state the Government's position so that
there can be no possible misunderstanding.
Inflation is the enemy Australia must defeat. It undermines security
destroys the values of savings and incomes, hinders the expansion
of job opportunities, erodes our position in teh world, and
in the end, eats away at confidence in our institutions.
We are going to beat inflation.
We are going to do whatever is necessary to beat inflation.
This is a time when every Australian has to ask themselves
what they are prepared to do. The Government cannot do this
job alone. In 1975, Australia had the third worst strike record
in the western world. This is what is damaging our country more
than anything else the utterly selfish pursuit of advantage,
regardless of its costs to other members of the community.
An increasing number of people are prepared to stand up and sayno
they will not strike without good reason, and they will not
go along with those who urge disruption and conflict.
This week's decision forced us to face again the fundamental question
where do we want Australia to go?
Throughout this year we have acted to help those damaged by inflation
The family allowances scheme has brought thousands of families back
out of poverty; we have restored an expanded home savings
grant scheme to help young couples close the deposit gap).
We have initiated a housing allowqance voucher exp~ eriment to
expand the choice of low income families. We are adjusting
pensions automatically to compensate for price rises.
WE have indexed personal income tax to put an end to
un-legislated tax increases. We have increased the real value
of spending on education to expand opportunities.
We have also begun the major task of decentralising government
power. We have legislated for a federal ombudsman to protect
citizens against officials. We have introduced mandato~ ry
secret postal ballots for all union elections.
These are all important Liberal measures which will be
lasting achievements of this government. Above all, however,
we will be judged by our capacity to restore economic health to
Australia. That is the battle we have been fighting since we were elected.
Our strategy has already achieved significant results.
And it is the right strategy.
In the battle against inflation we need the support of
every person who believes in a free and democratic Australia.
The strategy we have pursued t: hroughout this year is the only
one which will work. In the light of devaluation we will be
pursuing it harder than ever.
We knew this-fight: would be tough. It is tough. It is going
to be tough for a long time. It is a fight we are going to win.