Jj r ALI APMME
BAINISTER
FOR :? RESS 15 FEBRUARY 1977
ECONOMIC DEBATE
We have had the Wran plan, the Hawke plan, the Whitlam plan,
and now we have the Hurford plan last but not least, in a
long line of Labor plans to revive the economy that they did
their best to destroy.
Never has the Labor Party more justly earned their label as
the party of planning one after another, they put forward
facile plans, futile plans, foolish plans.
It would be hard not to have some admiration for the Opposition
for through the multiplicity of plans, there is a consistency
and strength of purpose. Their solution to every problem is
to spend up big.
It is obvious that the Labor Party has once again panicked
as the Leader of the Opposition has now admitted they panicked
in the last threemonths of 1974. " Of course we panicked",
Mr Whitlam said on the 8 February. " The Cabinet panicked,
the Caucus did, they did in the last three months of 1974."
Why did they panic because of the effects of the 1971/ 75
budget. Alan Reid has discussed that budget making process very
aptly. No wonder he is not the Leader of the Opposition's
favourite journalist. The 1974/ 75 budget as Reid describes
it " was not the product of considered overall policies. It
was more like starving men surrounding a cooking pot, and under
the eyes of an approving, and participating overlord,
trying each to spoon out as large 2 share as possible,
before the pot was emptied." ( page 181)
That budget, which contributed so greatly to the present inflation
and unemployment, was a high point in the application of
Labor's consistent philosophy. In 1974/ 75 outlays rose by
46% in a single year, and the deficit from $ 293 million in
1973/ 74 to S2600 million almost a nine-fold increase.
Unemployment more than trebled, increasing by almost 2: 00,000.
Averoage earnings rose by 22%, while. GDP did not increase at all.
The CPT rose by 171 in the last quarter for which Labor
Aas resonsible it rose by 5.60.
At the same time, business was squeezed and business and consumer
confidence undermined. In the face of this situation the*
situation that they had created, even the short-sighted Labor
Cabinet were caused to panic.
Mr lflhitlam of course, with becoming modesty, omits to note
that he had had the foresight tn panic as early as July
leading the other members of his Cabinet and Caucus by two months.
As another of the chroniclers of the Whitlam years, Paul Kelly
described the situation: After July 1974 ' Whitlam became
incredibly introverted some people said he was sulki~ ng
others said he did not want to intervene in the economiLc
debate until he had a policy to espouse. Whatever the reason,
Whiitlam retreated to The Lodge for many weeks and his Government
was left without strong leadership, in a rudderless condition,
shifting from crisis to crisis, being discredited each day.''
And what was the then P. M. doing at the end of 1974 when Caucus
and Cabinet were panicking? He was dismissing Frank Crean
because, as Treasurer, the Member for Melbourne Ports opposed
attempts to raise money through Arab money lenders He was
ignoring the questions asked by the Treasury about raising
money through unnamed intermediaries. And he was touring
foreign ruins, to get away from the ruins he had created in
Australia. On his December 1974 holidays he toured overseas
for 35 days, at a cost of $ 497,449 for his personal party alone
exluding public servants.
The manifest failure of the Labor Party's economic policies
when in Government have not stopped it from continuing, lemming-like,
on its incompetent economic path. Large numbers of them went
over the cliff at the last election and the remainder
of the Opposition is determined to follow them.
We thought that the best had come when the Leader of the Opposition
trumpeted the Whitlam five-point plan. For once it didn't involve
raising money from the Arabs and Iraquis but it had everything
else cuts in sales tax, cuts in company tax, increased tax
rebates, no Medibank levy.
The Leader of the Opposition advocated more government spending,
more artificial employment schemes, full indexation and a
variety of other schemes. In total, these would have added
$ 1,000 million to the deficit.
Thi~ s plan was soon forgotten, everyone realised that it made no
contribution to solving our economic problems. This was not
surprising. The Leader of the Opposition has told us he isn't
very interested in economics. ./ 3
ut to be dauntced the Shado,.. Freasurt-er, huntecr1 and
haunted by the Shadow ,44nistcr for-Defence, put forward tho
Hurford Plan. In the great tradition of Labor Treasurers,
and Shadow Treasurers, the Member for Adelaide announced that he
woull launch a further big spending campaign accompanied
by tax cuts. Under this scheme, Australia could look forward
to another large and growing deficit, and an outsized expansion of
the money supply to further fuel inflation. The Shadow
Treasurer proposed to " allow the money supply to increase
to the rate of inflation, plus growth."
He is thereby proposing an expansion almost identical
to the one which so significantly fueled inflation in the
Labor years.
From 1973/ 75 real gross domestic product grew at an average of
2% per year, and inflation at 16% per year and the volume
of money grew at 17%. It is obvious that the Shadow Treasurer
has gone back to the policies which caused economic chaos,
which caused inflation, which caused unemployment.
He is advocating the complete irresponsibility of the Labor
years. The Hurford Plan advocates the resurrection of the
artificial employment scheme that the Labor Government
itself made the decision to abandon. The Hurford plan suggests
that investment and depreciation allowances be abolished.
It is clear that the Labor Party is in effect not only advocating
policies which will fuel inflation, but which also stop economic
growth. The tax increase that it involves would end the
significant upturn in business investment in 1976. It would be
a return to the position which existe,[ under Labor. A situation
in which growth stopped, and investment in plant and equipment
declined two years out of three.
The " Plan" advocated that there should be a cut in indirect
taxes. Here I am afraid even the Shadow Treasurer's otherwise
iron-clad credibility is stretched rather thin.
The Labor Party, now the champions of reducing indirect taxes,
in their three years increased their receipts from indirect
taxes from $ 2.6 billion to $ 4.7 billion. Their last budget
the much vaunted Hayden budget, greatly increased the average
Australian's indirect taxes. The duty on a packet of
cigarettes was increased by 6 cents; the duty on beer was
increased by 4 cents a ten ounce glass.
Cuts in indirect taxes would compromise the fight against inflation
for very little positive return. There is, however, one
element in the Hurford Plan that I must admit I am attracted
to, if only it were possible. The proposal that, while allowing
an unrestrained increase in the money supply, a more aggressive
approach could be adopted to selling government bonds without
increasing interest rates. If the Shadow Treasurer can expand
on low this could be done, he would dwarf all other economists past
and present, and not only Australia, but the rest of the world would
be in his debt and we would not be slow to acknowledge
his achievelment./ 4
Hle could then rest on his laurels and do something
eas~ y like inventing a perpetual motion machine.
The Hurford plan is as interesting for the things it omits,
as for the things it includes. The subject that is not
mentioned is wages policy. This leaves the disinterested
observer with a number of possible conclusions to draw:
Labor has no wages policy, Labor does not regard wages as
relevant to a statement on the economy. Or are we to assume
that the Shadow Treasurer disagrees with this aspect of the
Whitlam Plan?
The Leader of the Opposition, as honourable members will remember,
in his plan called for full wage indexation a policy that
would further fuel inflation. On a television interview towards
the end of last year, however, the Member for Adelaide
did not think full wage indexation was appropriate.
It may be, that in their usual gentlemanly fashion, the members
of the Opposition have agreed not to inflame conflicts within
their party by ignoring wages policy. The minor problem of
wages policy aside the approach the Shadow Treasurer is
advocating is the same approach that the A. L. P. adopted when it
was in Government.
This approach which brought with it inflation and unemployment
a policy which brought with it increases in inflation, excessive
increases in wages, increases in unemployment.
One thing must, however, be conceded to the Member for Adelaidehis
almost disarming candor. In this morning's " Canberra Times"
he conceded that " The dangers in Labor's approach is the possibility.
of further prolonging of inflation." But as he continued:
" The Labor Party Parliamentary executive was well aware of this
when preparing the proposal."
What makes tI' HLhr'F(' rL. I'. 1 even -more absurd than it appears
to be on its face, is that it is made at a time when the indicators
of economic recovery are firming.
Take inflation first. In the final year of Labor's administration
calendar 1975, the rate ( based on aggregate expenditure
deflators) was 17.2%. In the half year ending September 1976
inflation was running at an annual rate of about 10.5% O.
Consider growth. In its last year of office, Labor presided
over the physical decline of most of the productive
output of the economy. In calendar 1975 gross non-farm
product fell. By September 1976 we had reversed that disastrous
position. In the September quarter real gross non-farm product
was, as shown in the national accounts, above the level
of the previous December quarter.
Private invos tment subje~ ct to the Gov rnmeit s invcstmeut
allowance rose in real terms by 4.3% 0 in the September half-year
of 1976 compared with the previous half-year. This is the allowance
which Labor says was ' only marginally useful."
Since September there is evidence of further firming in
production. In the December quarter, production of 23 of the
31 items for which statistics are available increased on a
seasonally adjusted basis compared with the previous quarter.
In the December quarter the value of approvals for factories
shops, warehouses, and other business premises was up by
36% compared with the same period a year earlier.' In December
the value of retail sales was 13.5% above the corresponding
m1onthi in 1975.
This recovery has seen the beginning of a reversal of the
distortion of the profit-wage share which took place under Labor.
Wher. we took up office, the ratio of gross operating surplus
of trading companies to gross non-farm product at factcor
cost was 12.4%. In the September quarter 1976, the ratio was
14z%-still below the long run norm, but nevertheless. in the
process of recovering. There is, inevitably, a delay before
these recovery trends are reflected in greater employment.
To begin with, C-s>;,' 11O Shed less staff, then provide more
overtime working for existing staff. But the decline int
emp -oyment opportunities which was proceeding under Labor
has been arrested.
Finally, we have laid the foundations for continuing sound
expansion of production, investment and employment.
We have removed the arbitrary taxation bias introduiced by Labor
a -gainst the mineral industry, and the benefits in terms of
heightened exploration, discovery and development are now being seen.
Labor killed off the search for oil in Australia at a -time when
further discoveries were vital to our future. I am glad
to ' report that with the abolition of the $ 2 a barrel levy on
oil from new discoveries and the tax incentives announced in the
last budget, oil exploration has revived. Last year 21
exploration wells were drilled throughout Australia. This year
the number is expected to be up to 44.
In the private sector we have encouraged investment not
damned it and penalised it. Under the new exchange rate mining
companies will enjoy better opportunities to maintain and increase
their share of world trade in minerals. Manufacturing companies
will si! Pilarly be in a stronger position to compete both on
the domestic market and in international markets. Investment
opportunities will continue to grow, leading to higher
employment. The policies underlying this improvement included a very deliberate
ree. uction in the -rate of government spending, the holding of the
rate of increase in money supply to levels consistent with a
progressive reduction in the rate of inflation, and a major
refoc--i in thc perso: nal and income tax systems based on
indexation and cost of sales valuation adjustment.
The taxation reforms which we have made will amount to over
$ 3000 million by'the end of the second year of operation.
Those who look to overseas experience and believe that other
nations particularly the U. S. and Japan are moving ahead
faster than us in tlicfield of tax reform, should look at the
facts clearly. No major tax reductions have been made or
foreshadowed in Japan. The proposed but not implemented tax
cuts in the U. S. the " once only" rebate are equal
to less than $ 200 million if transposed to Australia.
Compare the $ 990 million saving to taxpayers we brought about
with tax indexationin 1976/ 77 and the $ D050 million savings anticipat.
for 1977/ 78. We have always been, and still are, the first to
point out that the inflationary momentum built up into our
economy through the Labor years must be removed before the
expansion I have referred to can be regarded as having taken
firm roots.
The Government is us-ing the arms of economic policy to continue
the fight against inflation and continue progress towards sustained
economic recovery. Policy action is being taken in all major
areas monetary, budgetary and ~ wages.
The policy of monetary restraint we are iuirsIIIc has led to
adjustments to Government security yields and raising the statutory
reserve deposit ratio. Prevention of over-rapid expansion in
credit will curtail inflation.
Selection controls on capital inflow are now preventing an
inflationary surge of capital for non-essential purposes.
Fiscal restraint required further cuts in Government spending
and a commitment to zero real growth in the next financial year.
Public service ceilings will be reduced by a further 700 by the
end of this financial year.
The wage restraint necessary to facilitate a reduction in the rateof
inflation and provide jobs for all those who want to work will be
pursued in the next national wage case.
Ash ae sidgood progress was made through 1976. We are
goingy to build on that achievement in 1977.