FOR PRESS 13 AUGUST 1978
ELECTORATE TALK
On Tuesday, the Treasurer, Mr Howard, will bring down the
Government's Budget for the current financial year. I do
not wish to and cannot refer in any detail to the measures
he will be announcing. They are the result of intensive
discussion within the Government over many weeks.
Some of the decisions made have been difficult ones, but
they have been the right decisions.
The twin evils which face Australia today are the evils of
inflation and unemployment. The only way to raise employment
on a long-term sustainable basis is to beat inflation and
restore economic health.
The measures which the Government has been taking over the
past two and a half years to beat inflation have achieved
results. In the year to June 1978, the Consumer Price Index
rose 7.9 percent, which was a substantive improvement on the
increase of 16.9 percent in the year to June 1975. As a
consequence, interest rates are moving down. Economic
confidence is reviving.
The success which the Government has been having has gained
international acknowledgement from the Organisation for
Economic Co-operation and Development.
The OECD in its review of the economies of member countries
for July, pays tribute to Government incentives for their
part in sustaining private investment in Australia.
It expects the growth in Australia's Gross Domestic Product
during 1978 to be three and three quarter percent.
This is despite a generally gloomy view by the OECD, whose
forecasts suggest no substantial improvement in world
growth and little progress around the world in lowering
inflation further.
Although the long-term average annual growth in world trade
has been eight percent, the OECD expects this to be only
five percent this year and into 1979. Australia's recovery
is thus taking place against the background of a. weak world
trading situation. ./ 2
2
It is particularly important to note that the OECD is now
forecasting a rate of inflation in Australia during 1978
of under seven percent, based on the broad-based GDP deflator.
This means that Australia, in two years, has quickly brought
its inflation into line with that of the OECD average.
What we must now do, and what, above all, the Government's
policies are designed to achieve, is to drive that inflation
down further. We are determined, this financial year to have
our inflation well below that of the OECD average.
This is the only realistic option we have, in the context of
the world economic scene. This is the only way we will keep
our products competitive, gain new markets for our exports,
and attract overseas private capital to Australia.
This is the route we must take if we are to be properly ready
to gain a growing share of the expansion of world trade, when
it comes.
Some few economic critics in Australia have attacked the policies
which have produced lower inflation, advocating instead
expansionary fiscal and monetary policies. One well publicised
set of such proposals would increase the Budget deficit to
between $ 4.5 billion to $ 5 billion and finance it by expanding
the national debt.
There would have to be substantial increases in interest rates
even to attempt to finance deficits of this magnitude and the
inevitable result would be failure.
A Government doing this would increase greatly the money supply.
The effect on overseas investment in Australia would be serious.
There would be a revival of inflationary expectations and a blow
to confidence amongst consumers and investors. There would be
an end to any hope of success in sustaining a policy of wage
moderation which is crucial in the fight against unemployment
and inflation.
Such an expansionary approach has been widely opposed in business
and financial circles. I am also glad to see that Professor Corden
has pointed out the fallacies in the argument of those calling
for such a change in Government policies. In his words: " Wage
moderation is and remains the key." When I was overseas I found
no support for such action in any of the countries I visited.
The Government knows that the economic road we are on is a
difficult one. But in all plainness, I must say that if we
are to restore economic health and revive employment on a longterm
sustainable basis, there is no alternative. We must adhere
to those economic policies which over the past two years have
cut inflation in half and begun the revival of business confidence.
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