PRIME M I NISTER 6

FOR PRESS 27 FEBRUARY 1977

EMBARGO: APPROX: 7.00 p.m.

ELECTORATE TALK

The rate of inflation in Australia came under scrutiny in the  Federal Parliament during last week, following release of the  December quarter Consumer Price Index,. .

One clear and irrefutable fact emerged - the underlying rate of  inflation in Australia has shown a sustained and measurable  decline. The facts show that we have been getting on top of  inflation. They show that our policies of government spending  restraint and the transfer of resources to private industry are  the right policies.

For the 12 months of 1976 the Consumer Price Index - excluding  Medibank - was 10.8 percent. This was the lowest increase for  four years ... and 50 percent lower than the 1975 figure.

The statisticians figure for the December quarter increase in the  C.P.I. was 6 percent. However, as Australians know this figure  included 3.2 percent for the cost of the Medibank levy and  other health costs.

For the quarter there was an underlying increase in the price  of a nominated range of goods and services by 2.8 percent.

Although inflation in Australia is significantly less than it was  12 months ago, it is still far too high. It is for this reason  that the decisions coming from this week's national wage case  will be critical in our fight against inflation. The Government  will be presenting a strong and detailed argument for the  maximum possible restraint in wage increases.

The main cause of inflation in Australia over recent years, for  which we are still paying, was excessive wage and salary demands.  Australians know that wages have gone up dramatically in the past  few years. We also now know that the extra money that fills pay

packets has not enabled people to buy more goods and services.

Normally, wage increases can be responsibly financed by increases in  productivity. A company increases its output, improves profit, and  is able to pay increased wages.  Until recently, however, there has  been very little growth. In its last year of office,  Labor

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presided over the physical decline of most of the productive  outout of the economy. In these circumstances wage increases .   had the effect of increasing inflation. This in turn lead  to cutbacks in business activities - at the expense of jobs.

I have said before - as have people* like Mr Crean and Mr Whitlam -  that one man's pay increase in another man's job. That is still  the rule.

Today many Australian companies are returning to profit. They are  starting to compete more aggressively in the marketplace.  They  are planning ahead with renewed confidence.  They have faith in  this nation's capacity to recovery from economic depression. But this new spirit, and new optimism which is being translated into  positive investment decisions, will be destroyed if these companies

are forced to feed large parts of their profit back into paying,  excessive wage increases.

These companies now have the opportunity to put profits back where  they belong - and that is, back in the business. They can put  profit into new plant, new processes, and expansion programmes -  which in turn will lead to greater production and more jobs.

It is only in these circumstances that the great producers and  employers of labour will be able to grant wage increases without  destroying their business.

Until then, the employer - the man who takes risk with his  capital - must be given a fair go at recovering his profit  and using it to put back into his business. It is for this  reason that the need for wage restraint at this time is utterly  critical. It will remain crucial for quite some period.

The Treasurer and Minister for Employment and Industrial Relations  have already told Parliament that the Federal Government will be  pressing'the need for the maximum possible restraint in awarding  any wage increases before the Commission.

In this regard, it was interesting to note Mr Hawke's comment that  the ACTU would be pressing for a full 6 percent flow on of the  C.P.I. into wages. His call for the full flow on is utterly  irresponsible. It is not a call that would be supported by the  unionists he purports to represent.

Mr Hawke's pleas for the full flow on amount to nothing less than  a call for higher inflation, higher and continually increasing  unemployment and a shattering of business confidence. ’ His public statements will not distract the Government from acting

in the national interest.

Australia today is growing stronger. We have made a good start  in our economic recovery. It is imperative that the gains we  have made are not frittered away or destroyed.

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