Some Lessons of the Fraser Years

The Fraser Government stood for the right objectives, but failed to pursue its goals vigorously enough. This is the major lesson of the Fraser years.

Throughout the period when Mr. Fraser was Prime Minister, the I.P.A. was the United States and Great Britain,, were probably influenced by the initial often a critic of the Governments successes of the "Fraser experiment". policies. This was generally not because we disagreed with what we understood to be the main thrust of those policies, but Mr. Fraser provided because we were concerned that unless Australia with quite that thrust was more strongly pursued, remarkable leadership during the economic problems Australia faced would persist and even worsen. a time of exceptional Regrettably, this has happened. economic difficulty.

To say this is not to deny that Mr. In 1975, he .offered Australia a Fraser provided Australia with quite dramatically different alternative to the remarkable leadership during a time of exploding spending programmes of the exceptional economic difficulty. Few Whitlam era. The main features of his Prime Ministers have had to cope with proposals were: such a serious collapse in world trade and none with the twin evils of high inflation • stopping the growth in government and high unemployment. That Mr. Fraser spending and cutting back the size of was able to maintain the stability of his the public sector to free resources to Government, the unity of his Cabinet, private enterprise; and lead his party to three election " reducing the burden of taxation on victories in such a period, alone marks both individuals and businesses and him out as one of Australias great Prime protecting their incomes against the Ministers. On the world stage, he gained a ravages of inflation; personal respect and authority achieved " cutting back excessive regulations and by few, if any, other Australians in our bureaucratic controls on enterprise, history. and giving more scope to market forces in major areas of government activity; His achievements, indeed, go beyond strengthening the responsibility of this. At a time when other countries were State Governments and reducing the failing to face the need to cut back over- centralisation of government in government spending and encourage the Canberra; productive sector of the economy - slowing the growth in real wages to private enterprise -- by reducing taxes realistic and sustainable levels; and regulation, Mr. Fraser correctly reducing the power of unions to identified the solution. It is not too much compel higher wage costs, and to say that other countries, particularly providing them with incentives to

14 IPA Review — Autumn 1983 exercise wage restraint in the form of budget to G.D.P. until the 1982/83 lower taxes and income supplements. budget was overwhelmed by the world recession and drought. In the view of the I.P.A., as far as it went this was a sound approach. Indeed, To its lasting / credit it exercised the it remains the only approach which can tightest financial controls of any restore Australia to economic health. It is of recent times. an approach we will be urging on the new Over the period 1975-83, Federal Budget at every opportunity spending grew by only 2 percent on — for it goes beyond party philosophy to average, per year in real terms, compared basic economic rationality. to 10 percent under the , and 4 percent under the National attitudes Holt, Gorton and McMahon The main gap in the Fraser programme Governments. Though not enough, it is was the lack of any consistent means of an achievement which must not be getting across the message that underestimated. During this period, fundamentally our problems arose out of however, the Fraser Government received national attitudes, and that government little support from the States, even from alone did not have the means of solving State Liberal governments. It is clear that inflation and unemployment. at the State level, the still Paradoxically, a government that urged has much to learn about economics. "smaller government", nevertheless During this period of restraint relied too heavily on the assumption that Australia resumed reasonable economic government action alone could cure our growth. Employment picked up markedly economic ills. after 1977 and unemployment began to Great nations are made not by come down. While a range of factors have governments, but by the people to be taken into account in a satisfactory themselves. The I.P.A. has consistently explanation of these trends, they do show urged a process of national education and that pump-priming government spending we welcome that emphasis in Mr. is in no way a necessary condition for Hawkes programme which stresses the restoring economic growth and reducing need for a broad national understanding unemployment. of the causes of our economic problems. The I.P.A. believes that the benefits of It is important, however, that if economic this approach would have been much recovery is to occur, it be based on a greater if it had been more stringently and sound understanding of the realities of consistently applied. Given the inevitable economic policy. (and even indexed) growth in large sectors The Fraser Government slowed, but did of budget spending, this would only have not reverse, the growth of government been possible if whole programmes had spending in Australia. Relative to other been handed back to the private sector, countries it achieved marked success in and if the indexation of certain welfare reducing the rate of growth, and in its benefits had been ended. In its current own sphere of government, the Federal work the I.P.A. will be examining the level, it actually produced a decline in the areas where it is most important that this overall proportion of the government be done.

IPA Review — Autumn 1983 15 economic health that real levels of We welcome that emphasis in taxation must be reduced, both for individuals and businesses. By holding Mr. Hawkes programme down the growth in spending, the Fraser which stresses the need for a government slowed the rise in taxation. broad national understanding But the tax burden has increased and of the causes of our economic continues to increase, and our prosperity suffers accordingly. Punitive tax problems. avoidance legislation (which, under the circumstances, we supported) and the The most significant policy failure -of search for new taxes are the inevitable the Fraser Government — and the one consequences of further increases in the which more than any other probably size of government. The Australian contributed to its defeat -- was the failure community simply does not accept that of its wages policy. The gross imbalance government services constitute a "social between wages and profits which opened wage" which compensates for lower rises up in the Whitlam years was partially in wage and salary incomes. People want restored in the period up to 1981, but to spend more of the money they earn, for from that year a new wages explosion the very good reason that they believe took place which, allied with the shorter they know their own needs better than hours campaign, destroyed the governments. No government which fails profitability of many companies and led to recognise this will be long-lived. to greatly increased unemployment. Throughout this period, the I.P.A. urged The difficulty the found in a more imaginative approach to achieving coming to grips effectively with the wage restraint — and indeed restraint on budgetary and economic problems facing all incomes. The governments wages Australia — despite the leadership of one pause was a laudable and necessary of the strongest and most determined initiative but it was too long delayed. The Prime Ministers in our history — shows refusal of the Labor Party and the the true magnitude of those problems. We A.C.T.U. to support direct restraint on have cause to be grateful to Malcolm wages was irresponsible. The Hawke Fraser for the course he set and the degree Government now faces a great of control he managed to implement over responsibility to achieve this wages the bloated public sector. We have cause restraint. If it fails to do so, the disastrous for foreboding in the fact that even he was results which would follow for inflation unable finally to get on top of the and unemployment will undermine the inflationary incomes push. Unless this new government before many years have problem is solved the path for Australia elapsed. must be inexorably down in a spiral of renewed inflation and mounting Reduction of real levels of tax unemployment. This is the great challenge We have also seen it as fundamental to now facing the Hawke Government.

16 IPA Review — Autumn 1983