Another post for something that I missed the other week when I was on holiday, but which is important enough to revisit. Fifty years ago, on 18 July 1973, the Whitlam government announced an immediate cut of 25% in all of Australia’s tariffs on imported goods.
Since then, most of our protective tariffs have been reduced further or abolished entirely. But at the time protection was a major feature of the Australian economy, as manufacturers sheltered behind the tariff wall. Gough Whitlam’s action was the first serious breach in the system that had been in place since the earliest years of federation.
In an article in the Conversation, which drew my attention to the anniversary, Alex Millmow explains:
Going to the tariff board and asking for extra tariffs, whenever it looked as if your prices might be undercut by imports, had become a reflex action for Australian businesses. … Tariffs were good for business owners, although bad for their customers, who had to pay much higher prices and often got worse goods.
In trying to break this cycle, Whitlam, as he says, took “the first steps in a neoliberal [that word again!] direction that characterised western governments of the 1980s.”
Two aspects of the story, it seems to me, are especially noteworthy. First, which Millmow doesn’t mention, was the reaction of the opposition Liberal and Country parties. Although they sometimes tried to portray themselves as the supporters of free enterprise, what they showed in this debate was that they were supporters of business, and that this was not at all the same thing.
The opposition bitterly attacked the tariff cut, and used it as the centrepiece of a number of its campaigns against the government – including notoriously the Bass by-election of June 1975, which the Liberals won with a swing of more than 14%. A number of Liberals had already been having second thoughts about protection, but their voices were ignored as the party seized on the issue to attack Labor as anti-business.
No doubt that political imperative contributed to the lack of movement on the issue when the Coalition returned to government. The high tariff regime remained in place under Malcolm Fraser, and free traders were a minority within the Liberal Party well into the 1980s. Given Australia’s long history with protectionism, the shift to freer trade was always going to be traumatic for the Liberals, but the fact that Whitlam, their biggest bogeyman, had taken the first step made it all the more difficult.
The second thing, which Millmow notes in passing, is the fact that the government framed the tariff cut not just as a benefit to business efficiency or consumer welfare, but as a weapon against inflation, which at the time was starting to increase alarmingly.
In this, of course, it was completely wrong. Inflation is a monetary phenomenon; cutting tariffs reduces the prices of imported goods, but the money doesn’t disappear – the consumers can just spend it on other things instead, pushing up their prices. But the sense that it had done something for consumers in this way probably helped the government to take its eye off the monetary front, with disastrous consequences.*
Although it may have acted in part for the wrong reasons, and although it later became a byword for economic incompetence, there’s no doubt that the Whitlam government did the right thing in relation to tariffs, laying the foundations that Bob Hawke and Paul Keating would later build on. Fifty years on, we live in a richer Australia as a result.
.
* It was the flip side of the previous Labor experience with economic crisis, in the Great Depression. Then the Scullin government had been torn apart by the conflict between its inflationists, who wanted to revive prices and employment by printing more money, and the protectionists, who wanted to increase the already high tariffs.
The World is Not Enough 