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Transcript 2407

ASSOCIATED CHAMBERS OF MANUFACTURERS OF AUSTRALIA - PRESIDENTS' LUNCHEON - PARKROYAL MOTOR INN, CANBERRA - 21 APRIL 1971 - SPEECH BY THE PRIME MINISTER, MR WILLIAM MCMAHON

Photo of McMahon, William

McMahon, William

Period of Service: 10/03/1971 to 05/12/1972

More information about McMahon, William on The National Archive website.

Release Date: 21/04/1971

Release Type: Speech

Transcript ID: 2407

ASSOCIATED CHAMIBERS OF MANUFACTURES OF AUSTRALIA
PRESIDENTS' LUNCHEON
PARKROYAL MOTOR INN, CANBERRA 21 APRIL 1971
รต pieech by the-Prime Minister, Mr. William McMahon
Mr. Chairman and Gentlemen
Now, I am not one of those who believe that we should take too unhappy a
view of our future. But I do want to emphasise, and I keep on emphasising it as
often as I can, that the major difficulty that we face today is inflation, and that we
have to keep the forces of inflation whether they are the cost-push type
or demand type we must keep both of them, not only under constant review, but
I think we also have to keep them under constant control.
Well, what then about the economy?
As I see it, we have some difficult areas. It is not the consumption area, it
is not our balance of payments. It isn't in terms of liquidity because in the last few
days, as we forecast in a recent " No Confidence" motion we forecast then that we
would Improve the liquidity position of the banks, not so that they could expand
activities but so that the activities of industry would not be reduced.
In other words, we have a feeling that while we have inflation, we don't want
to strangle the economy in the process of trying to find a cure, but we want to
gradually try and bring inflation under control. While at the same time to permit
expansion of the kind that we want round about 5-1% per annum to keep on going
and to permit us the increased production out of which better standards of living
can be sustained. So we are not worried about every section of the economy. We can identify
three or four problems. The first one is, of course, in capital investment in plant
and equipment and we have taken what we regard, at least for the time being,:. the
necessary precautions here.
The second one and it doesn't really affect you people to a great ext ent
is in commercial and industrial buildings. And here even in the last few days, I have
been advised by the constructing people that they will be able to come to grips with
their own problem because they are probabl,. over-built, particularly in office
capacity which is now too great the rents are falling and there is an automatic
reaction and consequently Government Intervention isn't justified. / 2

But the real problems that we face, and these are two that I want to emphasise
to you are Government expenditure Commonwealth and States. What we are doing
is preparing the way now for the next Budget, and second what we have to look at' is
the wage increase or the increases in average incomes or average earnings. Because
we believe, and I am sure that this is true, that if it had not been for the 6 per. cent
increase in the national wage case, we wouldn't have had any serious problems to
face at all. In otherwords, we could have looked somewhat benignly at the
development of the economy and we wouldn't have been looking to the next Budget to
ask ourselves the question " How do we keep back demand inflation and how do we
ensure, not only in terms of our international trade in commodities and in processed
materials, but also so far as our primary industries, how do we stop them getting
involved any more heavily in the cost and price squeeze?"
So these are the real difficulties. I want to emphasise to you that we must,
and you must, keep inflationary pressures under control. And I hope that you don't
think that because of some chaniges that we have made in the last few weeks there
can be any lessening of the activities of the businessman to see that his costs keep
within acceptable limits and that where you have the capacity and I know that in
all cases you haven't got the capacity but where you have the capacity, you do keep
your costs from rising.
Wages, particularly arbitration and over-award wages, are, I believe somethings
that are extremely difficult to handle, and we and you must be active before
the Arbitration Commission and in other sources to see that wages are kept within
reasonable limits.
Now, I suppose it can be argued that because there was a fall in the consumer
index from 1. 9 per cent in the last quarter, the quarter before last, of 1. 1 per cent,
there might be some easing. And you could be fortified in this opinion, too, if
you felt that there was some almost imperceptible easing in the labour situation in
the past few months. But I want to assure you that whilst there was this almost
imperceptible change, it is so small, and against the context of very heavy pressures,
that we don't think we can ease up in our control of inflationary forces at all.
I think some people might perhaps say, " Well you eased up. You gave the
pensioners, in the case of the married couple a $ 1 increase; in the case of the
single person, 50 cents.
I have to answer that by saying I could never see for one moment that the
pensioner, the people on the maximum rate pension, ought to pay the penalty because
wages are rising somewhere else. Consequently, I would have regarded as the
strongest of strong moral obligations that these people should receive help.
Equally, too, with the States, I am a little baffled by the opinion that is being
expressed that it could be inflationary. We don't think it can be and the highest
technical authorities that advise me don't think it has got any substantial influence
at all, because what we have done is to reduce our surplus in our internal accounts
and to reduce the deficit that exists due to the funding operations of the States in
their accounts.

And if it might be that the banks do-get an increase in liquidity, we offset
that because as I said a few moments ago, when we were discussing the " No
Confidence" motion on the Budget, we anticipated that there would be an increase
in liquidity in the June quarter and we have only increased the liquidity by half the
amount we intended prior to the time when we gave the States the extra $ 48 million,
$ 43 of which was to reduce their own funded deficits.
So similarly you find that the technical experts who are advising me are
giving me the kind of advice that I believe is not only in one. case morally right;
in the other I believe creates a position so tha' the States themselves will be able
to face their 71/ 72 Budget on a much more sensible basis than before.
What we are doing is to help those that need help not to slow down the economy
because economic growth is of critical importance to us and then to see that
whatever remedial measures that we take outside the wages system are spread over
as wide an area as is possible.
I know that I have given you this information and I have done so very very
quickly, but in a speech like this you honestly don't get the opportunity to set out
in detail what you are thinking or what the path ahead might lead to.
The second point that I want to mention to you, and I think it proper that I
should do this, is to say something to you about tariffs. I want to emphasise to you
as one who has been on the relevant Tariff Committee of the Cabinet for more years
than anyone else, and as one who has read, I believe, very nearly every tariff
report that has been presented to us over the course of the last fifteen years, that
I am not one who speaks to you I can't speak to you as a technical expert but I
do speak to you as one who is fairly well informed about the tariff mechanism of his
country. Not like Alan Westerman, who was one of the great members they had on
the Tariff Board, but at least I can speak with a considerable degree of Ministerial
authority. What I want to emphasise to you is this. First, we ourselves as a Government
no matter what might have been said in critical quarters in the last year or so, will
maintain control of the' tariff mechanism itself. -And we will maintain control of the
final decisions that-v-e muade because whilst the Tariff Board itself can make
recom mend ations', it is we alone who can make the actual decisions themselves.
Andi I say that we -will give it special attention.
I have established a tariff committee . of the Government. Now it is a pretty
high-powered one, with people who will be able to read the reports, and who go into
the Cabinet Committee with the advice of their own Departmental officials. And
what I can assure you about is not only will we take into consideration the social
consequences of action, but we know that if we are to grow and particularly ensure
that productivity has to improve, then it is up to us to ensure that manufacturing / 4

~ 4.
industries not only remain competitivebu -he ideals of being economic and efficient
will be one of the bases on which we will make up our.. minds-on-what should be done.
The point I want to make to you is this :-of course tn the interests of this
c ountry we have to regard the manufacturing industry as a tremendously important
section of the community and the one where we have got to get productivity increases
if we are to be able to sustain increasing wages and increasing standards of living.
Our Chairman a few moments ago, did ask me a question relating to meetings
with manufacturing industry and other groups of industry as well. The opportunities
will be there for you to present your views to us. We will change the procl-2Iure
considerably on this occasion.
After discussion with the various authorities the manufacturers, the
primary producers, the construction experts, the Manufacturing Industries Advisory
Council, the Export Development Council and others I am fairly certain that you
will find that on the n ext occasion before the Budget discussions commence, we will
arrange, on a much more individual basis say with the manufacturers alone or
with their associated industries we will arrange for discussions vi th them.
Secondly, we will give you much more time. It won't be a question of coming
there and reading out a document with us scratching our heads and wondering what it
is all about and seeing a bewildered look on Harold Herford's face.
We will give you plenty of opportunity to present your views. Ard what is
much more important, I hope that we will be able to cross-examine you and find out
what the manufacturing industries are thinking, and what they think can be don~ e in
the best interests of their own industries and through supporting their own industries,
the best interests of the Australian community.
So you have the chance. I think we will only meet once a year from now on, but
at least the time available will, I hope, be at least as good as you would have-on the.
two meetings that you would have throughout the year.
This I think will bring us together. You know our problems. We will know
yours, but above all, I believe we will be working in the interests of the Australian
community and we will be working in the interests of trying to push up productivity.
And could I point out this to you about.... because I had mentioned the
industrial position and I have now brought in this question of tariffs and of your
own industries. Within the course of the last few days I have been looking at the
wage rises that have occurred in Japan and of the productivity increases that have
occurred. What has surprised me because I have so frequently put the argument
that whenever increases in wages grow faster than increases in productivity,
then of necessity you get an inbuilt inflationary pressure.
And I have said over and over again that I think according to that single
factor alone, we have got an inbuilt inflationary pressure of something of the
order of 5 per cent. I don't mention the exact figure because I believe it possibly is
a little stronger than that. But of all the indexes that we take, particularly what
is called the Paasche index, it is obvious that on discounted gross national production
figures, that there is an inbuilt rate of inflation of at least 5 per cent. 0.

But nonetheless the argument that I want to put to you is this can be conquered
if we get productivity high.
The Japanese wage increases are about 10 per cent per annum much bigger
than ours but because they have a productivity increase in excess of 11 probably
in some years a little higher than that, they are able to absorb them and that is
why in international company, they are able to better than compete with other
countries in the world.
We are not in that position because in the case of our primary industriet,
our rural industries they can't have productivity increases of that kind, but ever.
if they did, the international level of commodities prices spread over a wide area
isn't sufficiently great to permit them to take the increase in costs.
Now the only other point that I would like to make to you is this. I haven't
had the opportunity to come and talk to you as much as I did in other years, and to
get the benefit of the advice that you were able to give.
I can assure you that in the days when I did have the opportunity to talk to
the manufacturers, I was probably as well versed and as well informed on
manufacturing problems, and consequently of the problems of the w~ iole economy
as any other person in Cabinet.
I want to assure you, and particularly you Mrl. Chairman and those of my
friends that I have just spoken to, that my door is usually open.
I welcome opportunities to talk to you. I don't welcome them to talk to you
as I mentioned a few moments ago on a personal basis. But I do welcome them
because I know that if we can co-operate, you and I I representing the Government
and my colleagues and you representing great industries that are increa singly
making this country powerful and great. Permitting us, too, to compete in
international trade and to do so successfully, permitting us to grow at a rate of
gross national production in real terms of 5-f per cent. Believe you me, if we can
co-operate together with the mining and the other industries we can make
our contribution to greater productivity, then I won't be so worried about inflation.
The day hasn't come yet, but if we can co-operate, we can make a lasting
contribution to the increasing greatness of this greatest of all countries.

Transcript 2407