* EMBARGO: 8.00 P . M. 7
CHECK AGAINST DELIVERY
STATEMENT ON THE ECONOMY
SPEECH BY THE PRIME MINISTER, THE HON. E. G. WHITLAM.. M. P.,
HOUSE OF REPRESENTATIVES, CANBERRA, A. C. T.
TUESDAY 12 NOVEMBER 1974
Introducing the Budget in September the Treasurer emphasised
the importance of maintaining the utmost flexibility in responding
to economic developments. The Treasurer stated: " Should the need
arise, we stand ready during the year to take action on the
expenditure or the revenue side of the Budget to give a quick
stimulus to demand and employment".
Our underlying purpose is to create conditions for
co-operation and restraint. The measures I shall announce tonight
are designed to further that aim. The Australian economy is beset
by the twin problems of rapid inflation and rising unemployment.
We share these problems with all comparable economies. The t 4o
problems are universal but their concurrence is unique in modern
times. The Australian Government, therefore, like the Governments
of all comparable countries, faces problems of economic management
of unparalleled complexity, uncertainty a~ nd difficulty. For all
governments and for most nations these are testing times. In the
final analysis the test concerns not the basic strength of national
economies and Australia's basic strength is indisputable but
the strength of nerve and will on the part of governments and people
alike. It is essential therefore that the people of Australia
should understand what is happening and why. Concern, real and
genuine concern, must not give way to despair, for the situation
is '. fficulta nd changes are occurring with unprecedented speed.
They z~ i.-e not beyond control. The problems of the rapid rise in
unemployment and continuing steep rise in prices and costs are
interlocked. The rate of wage and salary increases has easily
outstripped the rate of increase in pri * ces. The consequential
squeeze on profits has been sharp. This has in turn led to a loss
of confidence by business in its ability to obtain an adequate
return on capital in an inflationary environment.
Employees can price themselves out of the market as
effectively as business can. There are signs that this is happening.
As the Treasurer said recently, in current circumstances:
" One -an's larger pay packet may mean another man's job."-
Employt_-. s are economising on labour, scaling down their operations
and their investment and hence the employment opportunities they
provide. The rapid increase in wage costs which businesses have
experienced introduces3 an element of uncertainty in business
oalculations which greatly increases the risk involved in making
new investments.
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The Government's immediate concern must be to stop
and reverse the downturn. The decline in employment and overtime
now evident will reflect itself in a weakening of demand in the
near future. If unchecked, the downturn would begin feeding on
itself. The Government has decided therefore to provide a further
demand stimulus to the economy. The Government also intends to
take action which strikes at the root of the cause of the present
downturn, the high rate of inflation and the decline in business
profitability. What is needed is a stimulus to the economy which
increases demand whilst at the same time abating cost pressures
and enhancing private profitability.
The Government has already taken a number of decisions
on the exchange rate and on the supply of money the most recent
of which were announced on Sunday by the Treasurer -which will
substantially lift business confidence.
These measures add up to a very substantial relaxatioi
obfe commoen etaa rgyo odp oldeiacly aenads iefri nainnc itahle mcoonntdhist ioanhse adc ant hbaen tehxepye ctheadv e tob* een
in the recent past. In the past week the Governor of the Reserve
Bank has written to the banks requesting them to increase
appreciably their rate of new lending and I1 would expect to see
a prompt response by the banks. Some savings banks are already
stepping up the rate of their housing loan approvals.
The new measures I announce tonight are designed to:
Firstly, maintain consumer demand through a substantial
reduction in personal income tax.
Secondly, attack inflation by reducing the pressure for
wage in,.--ases through a substantial improvement in after tax
take home pay next year and specifically to break the wage-price
spiral by giving business a breathing space in wage demands based
on price increases in the December quarter.
Thirdly, enhance profitability by a reduction in company
tax, by requesting the Prices-Justification Tribunal to give
particular consideration to the adequacy of return on capital
and by urgently investigating the implications of rapid inflation
for the taxation of companies; and
Pourthly, support particular industries where special
problems e emerging.
The proposeL. -easures together with the announcement
made by the Treasurer on Sunday night represent decisive action
to stimulate demand and employment, to contain the growth in
money wages and to restore business confidence.
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Personal Income Tax
The Government has decided to reduce further personal
income tax. Honourable Members will recall that in the 1974-75
Budget it was proposed that the rate scale be restructured to
reduce income tax payable by $ 370 million on a full year basis.
We now propose to restructure the rate scale to apply to 1974-75
. income in order to reduce income tax payable by an additional
$ 650 million. In total, then, the rate scale now to apply to
1974-75 incomes involves a tax cut of over $ 1,000 million.
Additional tax relief was provided in the Budget in the
form of a rebate of dependents' allowances for low income
families and deductibility of mortgage interest payments -these
will cost the revenue close to $ 200 million per annurta.
My announcement tonight thus brings the personal incore
tax cuts provided for by the Government this year to about
$ 1,200 million. The new restructuring of the rate scale I am announcing
ton~ ight will have the effect of increasing the take home pay of
most full-time employees earning up to average weekly earnings
by about 3 per cent. There will be lesser reductions at higher
incomes. The precise details of the new rate scale are being
made available separately.
As a consequence of the changes to the rate scale
. announced in the Budget as further modified by my announcement
toniqht, there will be very large reductions in tax payable by
the erage wage-earner. Let me give two examples, both relating
to a 4riyer with a dependant wife and two children and with
other cu~ icessional deductions equal to 10 per cent of annual income.
Such a taxpayer, earning $ 100 a week, would be liable
for an annual tax of $ 568 on the basis of the 1973-74 rate scale.
The new rate scale and the low income rebate will reduce this
liability by $ 304 to $ 264, or by 54 per cent. His after-tax
pay will be about 6 per cent more than it would have been without
the tax cuts. A taxpayer in similar family circumstances earning $ 140
a we would be liable for an annual tax of $ 1,160 on the basis
of the 7 3-74 rate scale. The new rate scale will reduce this
liability $ 283-to $ 877, or by 24 per cent. His after-tax pay
will be over 4 per cent greater than it would have been without
the tax cuts. It is proposed that the new rate scale announced tonight
will be reflected in PAYE deductions on pay days after 1 January
1975. PAYE deductions made from January on to the end of the
financial year will be set at levels designed as far as possible
to give the taxpayer the whole benefit of the new tax reduction
in respect of income year 1974-75 in the January-June half year.
There will be, in consequence, an even more substantial percentage
increase in take-home pay for most employees.
Housing Loan Interest: PAYE Deductions
The scheme of housing interest deductions for income
tax purposes is to apply in-respect of interest payments after
1 July 1974 as announced in the Treasurer's Budget Speech. It
is intended that as from the first pay-day after 1 January
employees will be able to arrange with their employers for
adjustment of pay-as-you-earn instalments to allow for the effect
of the interest deduction. This will reinforce the impact of
general tax reduction by providing a further boost in take-home
pay. INFLATION
These measures are designed to achieve the first
objective I mentioned earlier namely the maintenance of
consumer demand. The substantial reduction in personal income
tax, however, bears directly upon the second objective the
attack on inflaticn by reducing wage pressures.
At present, applications are before the Australian
Conciliation and Arbitration Commission for the introduction
of wage indexation in other words, the automatic adjustment
of wages to price increases. The Australian Government will
play an active and positive role in these proceedings to support
wage indexation on the basis of full compensation for price
increases on a percentage basis up to the level of average
weekly earnings, with a flat rate adjustment for higher incomes.
The recent level of increases in wages and salaries,
bc; in terms of award and over-award rates, has been due in
part A-he need for trade unions to protect their members
agains. ubstantial future price increases.
A system of wage indexation would have the advantage
of protecting the real piirchasing power of wages anad , Aarie. s
generally. Th hearing of claii, coming from the ACT3 ; ind othcr
employee organi,, itions is to proceed during this month and in
December, and the Govrnment is hopuful fcr a " ecision from the
Commission at the earliest possible date.
The Government is aware that tbrrr ri-dy be an understandable
iL t-' ng amongst employees that too long a period will pass before
the i csion is able to announce its decision. The Government
will, thi. efore, -make submissions before the Arbitration Commission
to the effc. t that the changes in the rate of income tax, announced
in my statement ton. should be regarded by the Comiaission as
compensation for the increase in the cost of living which is
expected for the December t 1974. In other words, the
Australian Government will be submitting to the Com-ission, in
connection with the most appropriate date for the introduction
of cost of living adjustments, that the anticipated increase
in the Consumer Price Index for the three months October, November
and December 1974, will be compensated for by the increases in
take-hox: pay resulting directly from the reduction in personal
income tax announced this evening.
The Government expects that the trade union Imovement,
in the interests of its members, will co-operate with it by
seeking the introduction of wage indexation in a way that will
minimise inflationary pressures and avoid unjustified wage
claims. Increases based on price movements in the December
quarter, whether by arbitrated decision or by agreement would,
in the Government's view, not be justified. Present trends
suggest that the commencement of a system of wage indlexation
would be fair and reasonable if it began with the Consumer Price
Index . figure for the March quarter 1975.
The Australian Government will put to the Commission
that it should take particular account of the tax reductions
which are designed to protect the take-home pay of employees.
To introduce cost of living adjustment on the basis of price
increases in the present quarter would involve double countingit
would continue the dangerous cost and price increases
harmful not only to the whole community but to the employment
prospects of wage and salary earners.
Inflation must be restrained to protect jobs as
much as anything else. We will be making it clear wherever
possible that money wage restraint is essential. Employees
and their representatives will be fortified in the knowledge
that steps are being taken in other areas to maintain and advance
real living standards. The re-introduction of cost of living
adjustments would ensure that the real wages of employees are
protected in the years ahead. In the transition period the
Government tax cuts will preserve the value 6f their take-home
pay. The Budget tax cuts took effect in PAYE deductions this
month January pay packets will in addition reflect broadly
double the cut we have now made in the rates announced in the
Budget. Those employees arranging with their employers for
adjustment of PAYE instalments to allow for the effect housing
interest paymel-. : s will enjoy a further increase in take-hom-e pay..
These benefits and the submission to be made to the
Arbitration Commission about the appropriate date for commencing
col-t of living adjustments, are actions and proposals which
e,. sentially go hand in hand and are meant to be related to each
other. They will give the business community a brea-thing space
from claims whilst ensuring that real wages are more than
maintaine). We have to break the vicious circle of prices chasing
wages and w-ges chasing prices.
The Government is concerned that all employee organisations,
all of Australia's employE-o-. ' Thould understand an&. be fully
informed of the Government's policy on pay fixation and related
issues. The policies outlined in the Budget and thzo new measures
announced tonight will improve the real wages of employees and are
in this sense an-alternative to wage claims. This approach will
be discuISsed with employee organisations of all types and needs
to be explained to all trade union members. In looking at the
Government's proposal to offer a tax cut in compensation for the
cost of living changes for October, November and December of this
year, it must not be overlooked that under this Labor Government
wages and salaries have, in fact, more than kept pace with price
increases.
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The past year has been a year in which very substantialV
wage claims have been granted. In the 12 months to August 1974,
the average award rate has risen by 43 per cent for adult females
and by 27 per cent for adult males. The latest Consumer Price
Index figures available show an increase in prices of 16 per cent
in the year to the September quarter 1974. The important fact is
that, despite a period of rising prices, wage earners have had a
good increase in their standard of living in that time.
I intend to encourage a program of visits by Ministers
and Government Members of Parliament to speak at trade union
forums. They will outline the policies and objectives of the
Government. This program of visits is in keeping with the
principle of consultation and discussion which trade union
organisations have often emphasised as being desirable.
The visits to trade union organisations will be a twoway
process, with Ministers or Labor M. Ps also receiving
comments and questions on matters of interest and concern. It
is expected that visits will be made to a variety of employee
organisations including Trades and Labour Councils in each State,
White Collar and Public Service Organisations, Annual Conferences
of trade unions, Federal and State Executive meetings, and also
meetings of rank and file members during factory lunch-time periods
etc. Members of this Government have, of course, addressed
many such gatherings. The opportunity which the Government's
new proposals gives us to break the wage-price spiral requires
a more systematic effort in the areaof contact and consultation
with trade union organisations.
The ] L i. vate Sector
xhe third objective I stated earlier is to restore
business confidence by enhancing profitability. The Government's
decision to cut personal taxes for some wage increases is
particularly sicnificant for the private sector, both in terms
of costs and demand.
Business profits are being adversely affected by
flagging demand and by the effects of inflation on cash flows
and the replacement costs of assets. One consequence of declining
profitability of business generally has been that the capacity
and williingness of business to undertake new investment have been
eroded. The Government recognises these problems and is
determined to correct Lhem. The measures I have already
announced should adequately deal with the decline in demand,
even if, as is always the case, their full impact will be felt
only after a lag. However, ultimately these measures will be
ineffective unless they are accompanied by restored business
confidence and profitability. It is an essential part of the
Government's present strategy that we should stop the profits
slide, restore confidence and encourage renewed private investment.
7" 7
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The Treasurer announced in his Budget Speech that the
rate of tax on both public and private companies in 1974-75, in
respect of 1973-74 income, was to be 47 per cent. The public
company rate was already at that level and, as foreshadowed in
the 1973-74 Budget, the private company rate was to be increased
from 45 to 47 per cent to bring the private and company rates
together. The Government has now decided that the rate on public
and private companies in respect of 1973-74 income will be
per cent instead of 47 per cent. The public company rate will
therefore be reduced to 2 per cent below last year's level, and
the proposed increase in the private company rate will not take
place. The Budget proposal would have applied a common rate to
public and private companies; that will still occur, but the
common rate will be 45 per cent and not 47 per cent. A consequential
reduction will be made to the rate on 1974-75 income of a
superannuation fund that does not observe the 30/ 20 rule.
The 1974-75 financial year rate for taxable income of co-operative
and non-profit companies in excess of $ 10,000 will be 45 per cent
in lieu of 47 per cent.
Prices Justification Tribunal
I now turn to the continuing role of the Prices
Justification Tribunal. Since the Tribunal came into operation
in August 1973, it has played an important part in our efforts
to curb inflation. I believe that it has been very effective
in concentrating the attention of companies on the need to restrain
cost and pr. ice: increases C mpanies with wage and other cost
increases in the pipe-line are now finding that these increases
ar,. -eing. examined more critically than they may have expected.
Thert -a be no doubt that the Tribunal has been successful in
restra_ _ ng prices below the level to which they would have risen
if the Government had not established the Tribunal.
The inflationary problem is now more complex than when
the Tribunal wds established. Rapid inflation is now accompanied
by rising unemployment and a falling away in the private investment
on which economic growth and our continued prosperity greatly
depend. One of the problems is that, in Considering new investment
pro4* Acts, business is concerned about the prospects of maintaining
wortnv. " le returns, not just in the immediate future, but over the
whole eco'-mic life of the investments concerned, subject, of course,
to normal market risks. The rapid inflation that we have experienced
has added to the un. rtainties.
I am therefore writing to the Prices Justification
Tribunal to indicate the Government's view that, in the present
economic circumstances, it should now give particular attention
to the problems of sustaining and stimulating an adequate level
of private investment and of maintaining rates of return on capital
which will induce the new investment required to maintain economic
growth and employment.
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The Tribunal will1 of course continue to act in accordance
with its statutory responsibilities to ensure that prices are not
set at levels which are higher than are properly justifiable and
that companies are not passing on in priL'ces avoidable increases
in costs.
Tax Inquiry It is well known that rapid infl~ ation has a distorting
effect on the taxation paid by persons and, in some circumstances,
companies. The Government recognises that companies can be
adversely affected by taxation treatment of depreciation and st-ck
valuations. The tax measures I have announced tonight are direted
towards meeting a particular situation but, in the longer run, it
is important that attention in depth be paid to the question of
whether there ought to be any changes in our taxation system to
take account of the effects of inflation.* Accordingly, the
Government proposes to appoint a panel to report, by May 1975,* on
questions relating to the effects of inflation on taxation paid by
persons and companies. Membership of the panel and the detailed
terms of reference will be announced at a later date.
The fourth group of measures which I wish to mention
this evening invovles support for particular industries where
special problems are emerging. The Government is concerned to
preserve employment opportunities whilst ensuring that these
interests are balanced against the nation's longer term economic
interests. Housing The Government has decided to increase further the
availa Lity of finance for housing.
I mention that the Government has already approved no
less than $ 310 million for welfare housing purposes in 1974-75
and, after carefully reviewing the situation in Queensland, we have
now agreed to provide a further $ 8 million for welfare housing in
that State. These funds, which include $ 127 million to be channelled
primarily through terminating building societies, are over 40 per
cent more than those made available last year.
In the private sector considerable scope for increased
lendinñ, for housing by the savings banks was provided in early
Septembez with the amendments to the Banking ( Saving Banks)
Regulations. At the same time the savings banks were requested
to increase their lc7, n approvals for housing.
These amendments ha--e enabled the savings banks to increase
substantially their lending for housing and, on present indications,
loan approvals by the banks in the December quarter could be as much
as 50 per cent higher than in the September quarter.
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In addition to the stimulus being provided to housing
activity in both the public and private sectors by these measures,
we consider there is a need to further supplement the flow of
finance for housing. Accordingly, we now irntend to introduce
legislation at an early date to appropriate $ 150 million to the
savings banks for lending for housing.
The detailed arrangements will be discussed with the
savings banks but the funds will be provided directly to them
by the Government on terms and conditions to be agreed with the
banks. They will be lent by the savings banks on the same terms
and conditions as apply to normal savings bank -loans financed
by the banks from their own sources. They will be available to
men and women for the acquisition or erection of homes and for
extensions to existing homes.
I should make it clear that we gave careful considerat. i' 7n
to the possibility of channelling some of these funds through'the
permanent building societies. However, in view of the more even
geographic spread of savings banks and for ease of administration,
we have decided to limit the scheme to the savings banks. The
permanent building society movement has the Government's full
support in the role it is playing in provjiding home finance and
we hope that societies will be able to expand lending from their
own resources. The purpose of the additional $ 150 million is to provide
an additional quick-acting stimulus to activity and employment
in the home building industry. The funds made available to them
under this measure will be used by the savings banks to increase
further their rate of housing lending beyond the increased rate
th, have already been asked to achieve following bhe recent
amenu -ts of the Banking ( Savings Banks) Regulations.
The measure will provide an appropriate additional
stimulus to the building industry at this time. It is a shortterm
measure neared to current circumstances. The Co%;-rrrnevt is
determined, however, to avoid a return to the boom conditions
which were beneficial neither to the community nor to the industry.
Home builders can plan ahead w ' ith confidence that the
vernment intends to ensure that loans w b~ e available to
:. ome purchasers and that the significant increase in take-home
pa. -~ articularly from home interest tax deductibility, will
7 enabj. L,. lirchasers to service their loans.
Motor Vehicles The Government has been considering the long-term
future of the motor vehicle industry for many months. The
public debate and inquiry has been more open and intensive
than any other industrial decision making process.
I am pleased to announce that the Government has
approved in principle a long-term motor vehicle policy. In
essence, the existing motor vehicle plans will be replaced
by a single, simplified, lower content plan which will encourage
longer production runs by both vehicle manufacturers and component
producers. In addition, the Japanese motor vehicle industry has
been invited to examine the new policy with a view to expanding
its operations in Australia. As part of the long run policy and
also because of the very high level of car imports ( comprising
over 40 per cent of registrations), relevant import duties will
be generally increased by 10 per cent. These duties will be
lowered again when imports fall to or below 20 per cent of
registrations over a designated period. Details of the proposals
will be announced in a separate statement.
This decision should have an immediate effect but I wish
to emphasise that this effect will occur within the context of
a long-term plan for the development and rationalisation of the
industry. Textiles* The Government has paid particular -attention to the
present difficulties of the textile industry. It has established
th, " 1exti' les Authority within the Industries Assistance Commission
to " nine cases, under the GATT arrangement regarding international
trade textiles, for restraints by countries exporting textiles
to Australia. Following the Authority's first report in July,
restraints have been negotiated for a wide range of knitted and
woven apparel. I have just received the Authority's s:: cond report
covering yarns, knitted fabrics and towelling and will announce
action on this in the very near future. I expect to refer further
textiles matters to the Authority later this week. At the same
time the Commission is reviewing the whole of the long-term
tective requirements of the Australian c?. bthing industry.
m. L-e textiles industry is, of course, vitaliy important to the
e'-c-n my of a number of country areas and the Government has
recel1announced a scheme of special assistance, including the
direct pc;_ ment of subsidies, to firms which have been affected by
certain Government decisions.
Beef Another industry in which there is very great uncertainty
at the present time is the cattle industry. We are aware of the
very severe problems which have been caused by the closing off of
many overseas markets. We are examining as a matter of urgency
representations we have received from the industry seeking help
for those producers who have been hardest hit by these developments.
Any such assistance of course needs to be administratively feasible
and directed to those least able to meet current problems.
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Loan Guarantees The Government's adjustment assistance program is
designed to assist firms to restructure their activities from
uneconomic to economic areas of production. Loan guarantees
are an integral part of the structural adjustment assistance
measures announced on 23 April 1974. Like the Government's
other structural adjustment measures, they are available to firms
adversely affected by prescribed structural changes under the
criteria announced on 23 April 1974.
It was the Government's original intention to
introduce legislation providing for loan guarantees with the
legislation to establish a Structural Adjustment Board.
However rather than wait for the legislation to establish the
Structural Adjustment Board, which will take some time to prep':.
the Government has decided to introduce separate legislation
providing for loan guarantees in the current Parliament session.
Conclusion The Australian Government fully recognises the crucial
importance of the private sector in the development of Australia.
It is not just the importance we attach to the private sector as
the greatest source of employment. We are deeply aware that in
a mixed economy such as ours the prosperity of the private sector
is basic to the Government's social objectives. The program of
social reform embarked upon by the present Government cannot be
achieved without a strong and growing private sector. Nothing
could be further from the truth than that we are anti-business
or stile to business; we recognise the interdependence of all
secto f the economy.
It is no solution to our current problems, as some would
have it, that we cut Government spending. If we were to take such
a decision now we would risk aggravating unemployment-, not to mention
undermining the confidence of that section of the business sector
which depends on Government orders. A reduction of Budgetary
expenditure would of necessity have a primary impact upon areas
which provide demand for products of the private sector. Cuts
in Government spending will simply aggravat: . jur present problems.
Our program of government expenditure has been achieved without
excc-"-ive increases in the number of public servants. The staff
ceilin, ' ontrol on the Australian Public Service will be retained
in a modi-ed form. This will be the subject of a separate stazement.
Further, an. it cannot be stressed too often, the
quality of life in Australia the real standard of living of all
Australians cannot be main-ained, let along rai. ed, unless
governments accept responsibility for community services which
individuals can no longer provide adequately for themselves.
L^
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Mr Speaker: The Government will have to maintain its close
surveillance of the economy and retain its flexibility for
the months ahead. We believe the new stimulus to the economy
is appropriate to the problems we face. We must be wary of
the possible re-emergence of excess demand pressures within
our economy. The new measures announced tonight are designed
to ensure that the private sector* continues to grow.
Equally we believe these measures, building upon
the continuing program expressed in the Budget, provide a
sound basis for co-operation with all sections of the community
and between all sections of the community in the undoubtedly difficult
days which lie immediately ahead. The requirements of a mixed
economy in a democratic society are never simple, never easy.
The whole nature of such a society involves a tremendous range of
competing choices in making decisions the decisions made bygovernment,
the decisions made by organisations, the decisions
made by individuals. The pressures created by these competing demands are
now world-wide. Not for the first time, aLn Australian Labor
Government finds itself in power at a time of profound international
difficulty. As in those other times, the spirit of the nation is
as important to ultimate success as the policies of the elected
government. Quite apart from their economic thrust, the measures
I have announced tonight are aimed at strengthening the spirit
of national co-operation and confidence, by . showing Australians
that they have elected a government firm and vigorous in meeting
the challenges of our time difficult times indeed, yet like allsuchi
time-s, a test for the essential great qualities of this nation,
a tes* which together, Government, Parliament and people, I am
confidt-at we shall meet.