A~ F 76 / 199
FOR PRESS 24 Septemiber 1976
ADDRESS TO THE SOUTH AUSTRALIAN INSTITUTE OF DIRECTORS
a Tonight I want to talk about the Government's economic strategy.
W Since -the election,, we have followed a consistent plan to
bring about economic recovery. We announced that strategy
during the election campaign last year. It is the right strategy.
It is the only strategy which holds out a real prospect
of a soundly based recovery and long term expansion of job
opportunities. The over-riding objective of that strategy is
the eradication of inflation. The longer inflation goes on,
the more damage it will do. It is the principle enemy of
all those people coming into the workforce seeking jobs.
It continues to encourage the misallocation of resources and.
it is de-stroying our international competitiveness.
The return to prosperity in Australian demands that the fight
against inflation has top priority. Our strategy is designed
to beat inflation and restore a soundly-based expansion
* of job opportu-nities. The main essentials of that strategy
are to bring Government spending under control; to provide
specific assistance to private enterprise to encourage expansion;
to encourage wage restraint through tax reforms, procedures
of consultation and submissions to the Arbitration Commission;
and encourage a national recognition of the common interests
all Australians have in controlling inflation.
Our strategy aims not at an overnight recovery. It is going to
be a long haul. There are going to be difficult moments.
The economic indicators are inevitably going to be mixed in
the early stages of recovery.
It is not going to be easy to repair the economy after the
damage done to it by three years of incompetent Government.
It is worth looking at the problems Australia was facing by
the time of the election last year. The private sector
was employing no more people than it had been three years
earlier, even though during that period the labor force had
expanded by about 370,000. Unemployment had risen to a level
not recorded in this country since the 1930' s.
Gross non-farm product in the December quarter of 1975 was still
almost S percent below its peak level recorded two years earlier.
The farm sector was in a state of collapse. The share of company
profits in national income -remained depressed at about three-quarters
2.
V of its long run norm. Real business fixed investment
had fallen in the 1) eceniber quarter to its lowest level
for almost three years. The Consumer Price Index in the
December quarter was 14 percent above a year earlier and
showed no real prospect of a sustained move down.
The Australian economy was experiencing a malaise brought
about by a Government that simply refused to understand
the nature of the Australian econonicy. We are
now on the road to recovery.
The strategy we have adopted is widely accepted in the
western world. While Australia was one of the countries
which suffered most from excessive increases in Government
spending, most of the major western countries suffered
from the same ailment in some degree.
There is now a remarkable degree of consensus and the
general economic strategy to be pursued to bring about
sustained economic expansion.
The communique of the OECD Ministerial Meeting in June
this year stated:
" The basic premise on which this strategy rests,
is that the steady growth needed to restore full
employment and satisfy rising economic and social
aspirations will not prove sustainable unless all
member countries make further progrstoad
eradicating inflation."
In the light of this agreed approach, all OECD Governments
have accepted that considerable care will have to
be exercised to ensure that economic recovery proceeds
gradually and steadily so as to avoid any resurgency of1
inflationary pressures. They have recognised that the
problem of unemployment, while a cause for considerable
concern, is not capable of a quick solution.
The OECD MN-inisterial Communique stated: ' Restoration of full
employment and normal levels of capacity in the OECD area
will be progressive and take a number of years.'
OECD countries generally have rejected broad stimulatory
action as a means of reducing unemployment.
While infLlation is the principal problem, restoring steady
arowth and reducing, unemployment is achievable not by increasing
Government expenditure but by reducing the rate of growth
of such expenditure, and adopting policies such as
lightening the tax burden and more appropriate monetary policieswhich
such restraint makes possible.
What people have come to regard as the Keynesian approach is
inappropriate in current circumstances. ./ 3
The record in Australia shois. the inappropriateness
of the traditional " pump priming" approach in periods
of rapid inflation. In 1974-75 budget expenditures
increased by 46 percent and the deficit rose by
almost $ 2300 million. In 1975-76 there was a further
increase in expenditure of 23 percent. It would have been
much greater but for the direct and indirect measurcs
the Government took over the latter part of the year.
The deficit rose by a further $ 1000 million to $ 3585 mnillion.
Over this period there was an increase o: E more than 30 percent
in prices. Yet over this same period there was negligible
growth in real output and unemployment increased by about 200,000.
Virtually all major countries have , n-ow proposed reduction in the
rate of growth of central Government spending between their
last fiscal year and their present one. In the United-Kingdom,
from 28 to 17 percent; in Canada, from 19 to 13 percent;
in Germnany, from 19 -to 4 percent; in New Zealand, from 29 to
percent; and of course, Australia, from 23 to 11 percent.
Governments cannot spend their way out of recession when inflation
is -running as it has b) een. To attempt to do so would lead,
perhaps after a short burst in activity, to a deepening
of the recession and a worsening of unemployment.
The International Monetary Fund has emphasised this in a
recent statement on the policies of the majoT-industrial
countries. It has warned that:
" Recent experience indicates that, unless the currently
high rate of price inflation is brought down and inflationary
expectations are greatly reduced, the effects of policies
aimed at stimiulating growth and employment are likely
to be short lived. Pur-suit of policies that seriously
aggravated the problem of inflation could lead to a
disorderly situation requiring sharp reversals of
course the approach is very likely to be and should
b) e a gradual one. But it would need to be
adhered to firmly."
Without the substantial restraint we have achieved in Government
spending a number of the major measures we have taken this year
to assist recovery-would not have been possible. These include
full personal income tax indexation and some of the most
important measures to assist business.
Let me mention briefly the principal specific measures to assist
business expansion that we have introduced since the election.
A 40 percent tax allowance for investment in plant and equipment,
that is available for investment expenditure by all sectors
of the economy; relaxation of conditions attaching to convertible
notes; suspension of quarterly collection of company tax
Payments; exemption of new oil discoveries from the levy on
crude oil; phasing out, over a pried of three years, of the
levy on coal exports; a greatly reduced write-off period for
mining development expenditure that will assist with cash flows
of new projects, as well as deductions for expenditure on
developing port facilities; an increase from S0 to 60 percent
in the rate of retention allowance for private companies; 4
a new system of trading stock valuation adjustment that applies
at not less than 50 percent for 1976-77 taxable incomes.
The tax reforms already introduced for both individuals
and companies along with other measures I have mentioned
have been made possible by the~ restraint we have imposed on
Government spending. Such reforms arc not only important
to recovery.
This Government believes that people know best how to meet their
own needs and that they should have the independent capacity
to do so. In a system based on high personal taxation, such as
the Labor Party supports, people become less and less able to
meet their own requirements out of their own resources, and so
become increasingly dependent on what a. few men in government
choose to provide.
At present, we have a personal tax system in which levels
are too high, which undermines incentive, and contains many
inequities.
Our objective is a personal tax system which enables individuals
to retain a largyer proportion of their earnings, which
rewards initiative, and contains incentives to responsible
independent action.
Further tax reform is therefore an important priority of
this Government.
We are confident that the measures we have taken have paved
the way to r1ccovery.
Although: in the early stages of recovery the indicators are
inevitably mixed, there are clear signs that the economy i~ s
recovering. The estimates of national income and expenditure
provide the most comprehensive and widely quoted estimates
of overall activity in the economy.
In the first half of 1976, gross domestic product seasonally
adjusted and at constant prices rose by 3.4 percent after a
fall of 1.4 percent in the December half year; latest estimates
suggest that the savings ratio is falling. The proportion of
household disposable income devoted to consuimptioln is estimated
to have increased from 83.8 percent in the first half of
1975 to 85.9 percent in the first half of 1976 after showing
little change for three quarters finally consumption expenditure
increased strongly in the June quarter; new capital raisings
have increased greatly. In seasonally adjusted terms
new raisings for listed -companies increased in the June quarter
to a record $ 576 million. compared with quarterly average raisings
of $ 296 million in the five quarters to March 1976.
New monney raised by listed and unlisted mining companies
in the June quarter was the largest amount in the
two and a half year history of -thi~ s series and almost as much
as was raised in the whole of 1975. Company reports for the last
half of 1975-76 in most cases show greater profits are being
earned. The movement inthe Stock Exchange indexes reflects
a steady return of investor confidence.
An essential element in securing this recovery will bc
continuation of wage restraint.
In our submissions to the Conciliation and Arbitration Commission
we have emphasised the very great importance of wage and
salary restraint in beating inflation and restoring employment
opportunities. In recent judgements, the Arbitration Commission has accepted
that full indexation is prejudicial to economiLc recovery.
I believe there is a very widespread understanding of this
fact around Australia. Indeed, I think it is very well
understood by a great many trade union leaders and rank and
file miembers. It is sometimes said that the Government
wishes to reduce real wages. This statement, without
explanation, seriously misrepresents th6 situation.
Let me make two points. In a realistic sense there is no
conflict whatever between the desire of everyone that real
wages should increase and the government's present strategy.
In fact, the strategy we are pursuing is the only one
which offers assurance that real wages will begin to rise again.
A more profitable business sector and rising real. wages go
hand in hand. A soundly based economic recovery is the only
condition under which consistent increases in real wages can
be achieved.
It is utter>'% short sighted to emphasise -the short term
consequences of policy without -regard to the longer term
potential. Our policy is one aimed to create conditions in which stead~ y
increases in real wages will be possible. In present circumstances,
it is the only policy which can achieve this.
The second point in this -regard, is that our policies as a
whole, when our major reforms are taken into account aim to
create a situation in which -there will be an increase
in average real disposable income during 1976-77.
Inflation will not be beaten unless there is cooperation between
all sections of the community.
If wage increases outside indexation do not remain small,
then our objectives for inflation would be more difficult
to achieve and increases in real disposable income less likely.
I do not need to emphasise here that good industrial relations
are very important to recovery. And the issue of industrial
relations extends well beyond the question of wage and salary
demands. The Government has had many discussions with the trade unions. ./ 6
I doubt if there has been a Government in Australia which
has consulted more with the trade union movement.
The Government has responsibilities in this area. So
does business.
An increasing number of businesses are making special
efforts to inform employees about the company's performance
and prospects, and to involve employees in discussions.
This is an area where the example of the best could be followed
by all to the great advantage of everyone.
The greater the extent to which employees have an understanding
of the over-riding common interests they share with employers
in a profitable and efficient enterprise, the more difficult
it will be for pointless or politically motivated stoppages
to occur.
There are growing signs that trade union members are becoming
more intolerant of political strikes caused by militant
leaders trying to undermine recovery and create unemployment
for ideological reasons.
A potentially powerful weapon has been placed in the hands of
union members dissatisfied with the performance of extremist
officials by the new secret ballots legislation.
During the election campaign last year we committed ourselves
to legislate for secret postal ballots in all union elections.
That legislation is now operating.
The climate of industrial relations will obviously influence
how rapidly unemployment is brought down.
To ease the problems of finding work in the short term the
Government is taking a number of measures. We are looking
at terms of reference for a far reaching inquiry into the
Commonwealth Employment Service. The Government believes
it is now time for the operation and procedures of the C. E. S.
to be completely reviewed. The Government has received many
reports of firms being unable to fill vacancies in areas of
high unemployment. Clearly, the C. E. S. must be geared to help
solve this problems in the best-possible way.
To assist those who cannot find suitable work where they live
and who wish to move to where work is available we have
announced a major scheme of relocation assistance.
This is one of the most enlightened measures of unemployment
assistance introduced anywhere. It is entirely voluntary. It is
wider than the scheme we for-shadowed in our election programme
last year. The Government will be monitoring it closely to see how
the scheme is working.
The Government has particular concern for the school leavers
who will be looking for jobs in the coming months. Of the
230,000 young persons who left school last year the great majority
have now found jobs. But 12.700 were still unemployed at the
end of August. / 7
On Wednesday, the Government announced the introduction
of a scheme whereby employers who take on school leavers
who have been registered with the C. E. S. for not less
than six months this year, will receive a subsidy. The
subsidy will be paid for a six month period.
We will review the operation of the scheme at the end of
January. We have also announced changes to the N. E. A. T.
training scheme, increasing certain allowances.
The difficulty a number of young people have found i n getting
jobs has greatly concerned the Government. Last week I
announced that we were establishing a Committee of Inquiry
into Education and Training. This inquiry will consider
a very broad range of matters relating to education.
Among these it will undertake the first major inquiry of its
kind into the relationship between education and the labour market.
In the course of its inquiry, the Committee will examine both
secondary and post secondary education. This, of course,
looks to the medium and longer term.
But overall, our economic strategy is designed to achieve
a reduction in unemployment by mid-1977, and it offers
-the best hope for a soundly based expansion of job opportunities.
In workzing towards recovery we are facing an enormous
challenge as a nation. The damage wrought on the economy in the
last three years has seriously set back the chance of building
a decent life for Australians. For three disastrous years myth
was more 1: flo-ortant than reality, words took the p) lace of action,
posturing fo7-r the hard slogging work of providing effective
Government. instead of helping Australians to achieve their
objectives in life government was a positive hindrance.
Enterprise was hamstrung and Government became a rapacious
consumer of the nation's resources.
Expectations were inflated far beyond the nation's capacity to
provide. Now recovery is underway.
Australia now has a Government which believes in the encouragement
of enterprise, which is prepared to set priorities and to
implement the strategy essential for recovery.
We are governing in the interests of all Australians and not just
a narrow., section of the community. Consolidating the recovery is
going to z ake hard work and determination. I am confident
that w,. e will succeed. 000000000