F 76 / 178
PRIME MINISTER
FOR PRESS AUGUST 26, 1976
BUDGET DEBATE
The Leader of the Opposition delivered the Labor Party's
response to the Budget on Tuesday. His speech displayed
the same frame of mind, the same disregard for reality that so
damaged Australia during Labor's three years of government.
As most economic commentators have said, he is living in the
past. I regret to say that he was not in top form.
I regret to. say it because he has told everyone that he
gets " terribly distressed" when people say he is not.
Unfortunately it must be said: he wasn't. But one does
have to admit that he has raised self deception to an art form.
He claimed that under Labor " unemployment was falling"-
this from a man whose government trebled unemployment in one year.
He claimed that under Labor " inflation was falling"
this from a man whose government in its three years in office
trebled the rate of inflation.
He claimed that under Labor " the incomes of Australians were
protected against rises in the cost of living" this from the
leader of a government whose excesses destroyed the savings
of tens-of thousands of retired, whose inflation harmed
the weak, the poor and the aged most of all.
He claimed that under the Labor government there was
" irestraint on Government expenditure" this from a man whose
budgets increased Government expenditure 115%. whose
accumulated, budget deficits during his period in office
approached $ 6,000 million.
In just three years his Government reduced one of the world's
most prosperous nations to one in keep recession and stagnation.
There was no section of the Australian community that escaped
unscathed from his plans for Australia's future.
And the leader of the Opposit. io. n is unrepentant he told us
on Tuesday he would do it again if he had the chance.
Well he won't get it. The people of Australia won't have him.
Bob Hawke knows it. ./ 2
2.
Still, I am sure that he is taking some comfort from
this fact as he said in London: he is more loved as
Leader of the Opposition than he ever was as Prime Minister.
I think that is true so far as the Australian people are
concerned never bei-. re in Australian history was a Leader
of the Opposition czocsen by such a massive landslide.
But I should add that his own Party probably loves him as
much in Opposition as they did in Government. The
irrepressible Bob Hawke, kindly Kim Beazley, Sir John Egerton,
and all have expressed their feelings clearly and unmistakably.
Sir John Egerton " I could never trust-Whitlam again nor could
Australia" ( The Australian, 28 July 1976)
Kim Beazley " I would resign if I was in his position"
(, Melbourne Herald, 16 March 1976)
Dr. Cairns " The first thing the Party has to do is to get
rid of Mr Whitlam as Leader". ( Brisbane
Courier Mail, S January 1976)
Bob Hawke " The ALP doesn't belong to Whitlam ( or Barnard)
Whitlam seens to think he has an inherent right
derived from God to make a decision to put the
Party in such a dangerous situation."
( The Australian, 5 June 1975)
Mr Speaker: I do not want to mislead the House. I am not going
to accuse the Leader of the Opposition of putting forward an
economic policy. To do so would be quite unfair because as he
has said he is not much interested in econbmics.
The Government is. We have put forward a clear and consistent
economic strategy. The Budget we put forward combines economic
responsibility with social reform. It was a Budget for people.
Because it will continue to move Australia out of the economic decline
caused by the Labor Party.
Our central concern has been to attack inflation because this is
the only way that sound growth can be restored and employment
opportunities expanded. No aspect of the Budget demonstrates our
concern for people more than the attack on inflation.
Unless inflation is seen to be coming under control, there will be:
no increase in confidence in Australia's future; no increased
investment; no sustainable increase in consumption and no sustainable
increase in employment.
The Leader of the Opposition has-understood nothing. He cannot see
that in present circumstances, inflation and unemployment are
inextricably linked. He cannot understand that there cannot be
any sustained improvement in unemployment until inflation begins
to be curbed and inflationary expectations dispelled. .3/
7-
His third Treasurer understood this last year. In the Budget speech
last year he said:
inflation is this nation's most menacing enemy....... if we
fail to-control inflation, unemployment will get worse." 1
This has now been forgotten by the Leader of the Opposition.
The present Governme-n: has also recognised that excessive wage
increases are damaging Australia's economic prospects.
As the first of La'D=' s ephemeral Treasurers finally acknowledgcd,
" One man's pay pack-et!-is another man's job".
Even the present Leader of the Opposition once fleetingly on
January 1975, grasped this point. He said:
" Simply the fact is, that for every excessive increase in incomes,
the job of another man is taken". He soon lost his grip of this
unpleasant fact.
This government recognises the unpopular but inescapable fact that
in present circumstances,. rising wage costs add to unemployment.
We have put it to the Arbitration Commission and to the community.
We submitted before the Arbitration Commission that full wage
indexation locks the economy into double digit inflation.
The consequence of full wage indexation is to prevent sustained
economic recovery or a return to full employment. The Commission
is beginning to accept this. Increasingly, the trade union member
is beginning to accept this.
There is a growing recognition that excessive wage increases are not
only illusory but damaging to the Australian economy and to the
interests of workers. The trade union movement has a vital role in
determining whether the economic recovery continues and employment
opportunities expand.
Those few militant officials who inflict senseless strikes on the
co-mmunity are undermining recovery and restricting job opportunities.
They are imposing hardship on all Australians in an effort to advance
their own interests.
Strikes such as the container dispute involving rolling strikes by
several unions on the water front, the 48-hour S. E. C. strike in
Victoria, and the Medibank strike have cost Australia millions of
dollars in lost production, lost wages and lost jobs.
It is estimated that the S. E. C. strike will cost Australia $ 70 million
in lost production; $ 12 million in lost wages; 300,000 employees will
be stood down.
It is estimated that the Medibank national strike cost Australia
$ 100 million in lost wages, $ 300 million in lost production.
They have harmed all Australianys; they have harmed the unemployed
most of all.
The Leader of the Opposition has understood nothing; he persists
with the virulent anti-business mentality which his party translated
into policy when in government. 4/
The Leader of the Opposition has understood nothing he
persists with the virulent anti-business mentality which
his Party translated into policy when in government.
This irrational dislike for business was one of the factors
which undermined busin--ess confidence and investment. It is
no accident that private fixed investment in 1975/ 76 was almost
ten percent less in real terms than in 1973/ 74. It is
no accident that in 7: he Labor years the private secotr which
usually'. employs three quarters of the workforce -took up none
of the increase in the workforce. It is no accident that under
Labor billions-of dollars of minerals and energy projects
were deferred.
When he attacks business and business profits,. the. Leader of the
Opposition is attacking jobs. He is attacking the hundreds
o f thousands of small businesses which suffered disastrously under
his policies and which this Government in this Budget
has moved decisively to help.
Our decision to ease the distribution requirements for private
comapnies will be a significant assistance to many small businesses.
Our decisions on trading stock valuation adjustment will for the
first time, put a brake on the erosion of the capital base of
private enterprise erosion by inflation. The incentives we
have given to mining and oil exploration will get these vital
industries moving again, as they were before growth was halted.
by the doctrinaire approach of the Labor Party.
By attacking inflation and by offering industry tax
incentives, this Government has shown that it wishes to re-establish
a vigorous and prosperous business sector.
Only if there is business recovery will there by national
prosperity and employment for all who want to work.
The private sector employs three, quarters of the workforce Australia
needs a vigorous private secto ' r if more job opportunites are
to be created. New investment. must take place to forestall
supply bottlenecks as the economy gathers momentum New
investment in the private sector and the increased productivity
will make a major contribution to raising the living standards
of all Australians.
The Opposition would obviously have budgeted for a much larger increaso
outlay and a much larger deficit..
The Leader of the Opposition has shown that his only strategy is
to spend. He has learnt nothing. He doesn't understand that
his approach simply leads to more inflation, more unemployment.
He has an insatiable desire to throw money at problems an approach
which not only undermines the economy, but exacerbates the problems
the expenditure purports to solve. He has tried that approach..
He has failed. In Australia and overseas the lesson is clear.
Governments cannot spend their way out of recession when inflation
is running as it has been recently. To attempt to do so is
apt to lead, perhaps after a short burst of activity to a
deepening of the recession and worsening of unemployment.
There can be no better demonstration of the inappropriateness
of the traditional " pump-priming" approach in periods of rapid
inflation than to look at Labor's record. In 1974/ 75 Bud get
expenditures increased by 46 percent and the deficit rose
by almost $ 2,300 million.
In 1975/ 76 there was a further increase in expenditure of
23 percent and the deficit rose by a further $ 1,000 million
to $ 3,585 million it would have been much greater if it
hadn't been for the measures we took.
Over this period prices increased by more than 30 percent.
Yet over this same period there was negligible growth in real
output and unemployment increased by over 200,000.
Let me turn to the question of unemployment.
Opposition spokesmen have tried to create the impression that the
Budget will give rise to a massive increase in unemploymentfigures
of 500,000 unemployed by the end of the year have been
wildly bandied about.
What hypocrisy from the men who made unemployment a major problem
for the first time since the thirties. As part of this reckless
and mischievous campaign some have even gone so far as to
assert that the budget documents themselves imply a rise in
unemployment over the course of 1976/ 77.
Neither statement No. 2 attached to the budget speech nor any
other budget document implies an increase in the level of
unemployment over the course of 1976/ 77.
With employment growth expected to be more than 2 percent
and labour force growth 2 percent at most, the statement in fact
foreshadows some reduction in the level of unemployment during the
course of the year as a whole.
The Leader of the Opposition and others have taken out and dusted
down the worn-out slogan that this Government is not interested
in reducing the level of unemployment: indeed, that it is
deliberately maintaining a so-called" pool" of unemployment as
means of inducing wage restraint on the part of the trade union
movement. First, it is argued that by curtailing the -rate of growth
of budgetary spending the Government will be depriving the
private sector of much-needed demand for its output. This
demonstrates a complete lack of understanding of the Government's
economic strategy.
Neither I, nor the Treasurer, nor any other iMinister have
suggested that curtailing the rate of growth of Government spending
will not have some short-term impact on those parts of the private
sector previously supplying that Government demand.
But what those who argue along those lines conveniently overlook
is that this is only part of the total picture. The curtailment
of spending has enabled the Government to take a number of
measures which will provide a direct boost to private sector activity. / 6
6.
These have included tax cuts for both businesses and individuals.
What the A. L. P. cannot comprehend is the effect of these measures
on consumer and business confidence confidence which is
growing because of the belief that this Government will successfully
combat inflation and get the economy moving again.
These boosts to the private sector will mean that far from
causing a reduction in employment opportunities the budget will
result overall in an expansion of such opportunities.
An expansion which will be a sustainable expansion not a short-term
and unsustainable one that results from attacking the symptoms
of the problem rather than the cause.
To say that a budget that seeks to rein back inflation is designed
to create unemployment is simply to fail to recognise that unless
inflation is reined back there can be no sustained reduction
in unemployment.
The other ground for charging the Government with attempting
to maintain a " pool" of unemployed is that the call for a
reduction in real wages until the present wage/ profit imbalance is
rectified, will lead to reduced spending by consumers and, in turn,
lower production and employment opportunities.
Thus the Leader of the Opposition criticises the Government for
attempting to curb excessive wage increases. In a Whitlambsque
economic analysis, he argues that only if real disposable incomes
are increased will consumer spending be increased.
Here again, there is a. failure both to understand quite basic
propositions and, clearly, to learn anything from past events.-
It should be clear by now from experience in Australia and overseas
that under present inflationary circumstances you do not boost
consumption merely by increasing wages.
In the present inflationary situation wage increases are likely to
have the opposite effect. They fuel inflation, increase
unemployment and reduce spending.
In 1974 between the March and December quarters, real average
earnings increased by 10 percent inflation increased by 13 percent.
Consumption went up by less -than 1 percent.
The wage increases accelerated inflation. Accelerating inflation
increased uncertainty and insecurity amongst consumers.
Consumers accordingly spent less.
-Employers were forced to lay off workers. Employment fell, and
unemployment rose. This strengthened the vicious circle savings
rose further. Only in recent months has consumption increased
as wage restraint has given people more confidence that inflation
can be reduced. 2 ,7.
This Government is greatly concerned at the high level
of unemployment unemployment we inherited from those who now
sit opposite.
Our policies will, in ime, lead to a sustainable reduction
in the number unemployed. What the Leader of the Opposition
refuses to concede if indeed he realises is that it will
not be possible to rectify overnight the grave damage done
to the economy by his Government.
The nature of economies is -such that, unfortunately, there is
no such thing as a " quick fix". As we have said all along,
the job ahead of us will take time. They key to how quickly
we progress depends on what happens to inflation in the period ahead.
It used to be that the Leader of the Opposition sought scapegroats
for Labor's disasters now he denies that there ever were
disasters or scandals.
Rather than honestly evaulating their real performance in the past
and supporting a co-ordinated approach to restoring confidence,
activity and jobs Labor persists with distorting the past and
falsifying the present. The Labor Party's approach is calculated
to delay recovery and the creation of jobs for those they
belatedly profess to care for.
The Leader of the Oppos ' ition seeks to deny that recovery is
underway. Recent eventfs strengthen the Government' s view
that recovery is proceeding.
In particular, national accounts estimates for the June quarter have
become available since Budget night. Among other things,
these show * that gross non-farm product rose again in -real terms
in the June quarter following an increase of 3.2 percent in the
March quarter; non-farm product in the first half of 1976
was more than 3 percent above its level in the preceding
half year. More importantly the sources of growth in the June
quarter indicate that the recovery has been consolidating.
Whereas the March quarter increase in non-farm product stemmed
largely from a turnaround in stocks, the June quarter increase
reflected strengthening private final demand. Private consumption
expenditure is estimated to have increased by 2.7 percent in the June
quarter following very sluggish behaviour during the preceding
three quarters. Investment in dwellings continued at a healthy
rate. Investment in plant and equipment consolidated the strong
rise recorded in the March quarter. In addition, exports have
continued to grow to record levels.
But the ODposition does not want to be confused with any of these
facts.
Some people have expressed disappointement that the budget, for
them lacked excitement although conceding that it was proper and
responsible. It is true that by the standards of recent years this budget lacks
the element of theatre so characteristic of the Leader of the
Opposition. / 8
An increase of only 11 percent in the rate at which this
Government proposes to spend taxpayers money in the year ahead has a
certain lack of panache compared to the 46 percent
increase of only two years ago, or even the 23 percent increase
of last year.
A proposed deficit of only $ 2,600 million shows, in the minds
of some, a certain lack of. imagination compared with the
prospective figure of about $ 4,500 million or more with which
we were confronted at the time we took office.
It is true that by contrast with, say, last year
we have not sought to levy an additional $ 750 million's worth
of indirect taxes.
In fact, we have taken the very dull course of not raising
any major tax at all.
This is just one more aspect of the Budget's concern for people.
Anyone in touch wvith what is -happening in Australia will know
that taxation has become a major problem for individuals,
families and business. This Government is committed as we have
already demonstrated, to a continuing programme of major tax reform.
We have introduced full indexation of personal income taxes. We
have begun the implementation of reforms in the area of business
taxation. Our concern' in this area will be a continuing one.
The reforms already introduced by this Government extend far
beyond the vital area of taxation. We have had particular regard
to the damage the. Whitlam policies did to the weakest sections
of our community. Our approach has been to increasingly concentrate
assistance on those most in need. The family allowance scheme
has been the greatest single reform since Federation to assist
families in poverty. Pensions and benefit adjustments for
inflation will now be automatic. A more equitable income test
has been introduced for pensions. Medibank has been reformed
to contain costs and provide choice. A,. newv home savings grant has been
introduced. Real expenditure on educational programmes has been
increased. An imaginative experimental scheme to provide greater
housing choice to those on low incomes will be undertaken.
Handicapped children's allowances have been increased by to
This has been made possible by our economies in other areas.
Triennial funding for universities has been restored.
Beyond these measures we have acted to end one and for all the
drift of all power to the Federal Government by our historic
Federalism reforms.
The Leader of the Opposition simply does not understand that a
nation is weakened, not strengthened by a central Government which
seeks, to dictate in every area of national life.
Australians are facing an enormous challenge. The Whitlam Government's
policies for the public sector set back the chance of building a
decent life for Australians by years. 9
Myth was more important than reality, words took the place
of action., posruring for the hard slogging work ' of providing
effective ( Cnvernment. Not only did Government fail to achieve its-objectives
under'Labor. It positively hindered individual .; Australians
from achieving theirs. Families struggled to afford a place to
live, to meet the rising costs of education, to find and keep
a job, to afford the pri! ces at~ the supermarket, to prote~ ct
the value of their savings.
This Government is not a-mbiguous about the role of the public sector.
An effective public sector is an essential condition for the building
of the kind of country where every Australian rich and poor
can live with dignity and self respect. An effective public
sector is one which encourages productivity and investment which
encourages enterprise to increase the nation's wealth. I and
cxpand opportunities. An effective public sector is one which gives
taxpayers value for the money they are rquired'to spend on it.
An ef fective public sector is one which can devise programmes
which work, and enables Australians to be more effective in
achieving their goals, me eting their needs. An effective public
sector is one which acts to improve the position of the poor and
disadvantaged not undermine it. It must expand people's
capacities, not trample them underfoot.
Of course, Government expenditure on roads, transport, education,
hospitals, is vital. This is trite and obvious. It is not
some profound new discovery of the Leader of the Opposition. It was
not even new in 1972. All Australians are agreed on this.
Unquestionably, some worthwhile programmes have had to be
curtailed. There is much more that can, shouldl, and will be done
in many areas of need. For Labor, constant reiteration of need
in these areas about which there is no argutient had become
a substitute for facing up to any of the really difficult questions.
Responsible Government must have the courage to set priorities, to
choose to tell people frankly and openly what is possible and
what is not.
The Government must set priorities in public spending -applause
for limitless promises is dearly bought as we have seen.
Government must weigh increases in Government against private
spending by individuals, families and private enterprise.
The Leader of the Opposition acknowledged in passing that private
incomes were important. He does not see or does not care
that an excessive tax burden not only erodes incentives,
it makes Australian families increasingly dependent on what
politicians choose to provide. The simple fact is that he
prefers his plans to theirs. Australians had to surrender their
priorities to his.
The sad, the tragic fact is that both Government programmes and the
hopes, expectations and plans of individuals, have had to
be curtailed because our national resources have actually been
diminishing rather than expanding.
Because for three years we had a government which had neither the
commonsense nor the courage to set and keep to responsible
priorities. This budget has beerr a reforming document which will set
Australia firmly towards prosperity.
It provides jobs, restrains taxes, encourages enterprise
and helps those in need.
It is the kind of budget which as many commentators have
recognised Australians voted for last December.
It is the kind of Budget which will help build the kind of
Australia we all want to see. 000ooo000