Finance Minister talks of “complete freeze”

Press, Volume CXI, Issue 32541, 26 February 1971, Page 2

Finance Minister talks of “complete freeze”

WELLINGTON, February 25. The prospect of a “complete freeze, regardless of the consequences,’* in the New Zealand economy was held out today by the Minister of Finance (Mr Muldoon), in the event of the failure of present Government plans for stabilisation.

/New Zealand Press Association)

Mr Muldoon recorded his personal reservations about current wage restraint plans: “On balance, but by a very small margin, and with considerable uneasiness, I have given my support to the action that is proposed.”

The Minister’s comments were made in a speech prepared for delivery to the Tasman Pulp and Paper Company’s management development programme at Rotorua.

But the Prime Minister (Sir Keith Holyoake) said later that the prospect of a complete freeze had not been discussed by the Cabinet This was Mr Muldoon’s personal view, said Sir Keith

Holyoake. "It has not been discussed—except, I suppose, casually from time to time, and I have no memory of even a casual discussion.” Mr Muldoon said: “The proposals which are shortly to go before Parliament provide for a phasing out, or deescalation, of the present dangerous situation. "I say immediately that I, as Minister of Finance, am not happy to contemplate the kind of increases, both in wages and in costs, that are envisaged for the current year. “These increases will further damage the economy, and I would much rather that they did not occur. “Taking a realistic view, however, it appears clear that any attempt to move back more rapidly to a stable situation would create pressures which could do more damage than the method which is being adopted. "On balance, but by a very small margin, and with considerable uneasiness, 1 have given my support to the action that is proposed. "It is in tyo stages. The first is a voluntary stage, which will end immediately it is seen to be not working. "If the mandatory scheme which would then operate also appears to be failing, there would in my mind be no alternative to a complete freeze, regardless of the consequences. "I hope, and at this point

I believe, that the scheme that is proposed will be effective. “I hope that it will have the unanimous support of Parliament, at least in principle, if not in detail.” Earlier, Mr Muldoon traced the inflation now causing concern back to the 5 per cent wage order of 1968.

“I said at the time that the 5 per cent order was too high, and that it would cause damage. Nothing that has happened since suggests that I was wrong. “Indeed, my comments, which were widely criticised at the time, considerably understated the case. “With that 5 per cent order, the dam broke, and costs which had previously been absorbed were passed bn in price rises, together with the cost of the general wage order. “This led directly to a period of direct bargaining between unions and employers, which accelerated into the leap-frogging and cost-push inflation which made 1970 the worst year in our recent economic history. “It is no good my saying ‘I told you so,’ because I could certainly not forecast

the extent to which this situation developed, but there are lessons which we must learn from the experience. “It is perfectly clear that in our type of country, many, if not most, employers, will be unable to resist direct union demands when the alternative is a strike which will tie up their plant for an indefinite period. "Setting off the cost of increased wages, which in many cases can be recovered in full, against the loss which can never be made UP of a plant shut down, in many cases provides the obvious .answer that the claim should be met. “In many cases, claims which were simply an initial bargaining position have been met in full, to the astonished delight of the trade union concerned, but to the consternation of other trade union leaders, who are put in the position of being less effective on behalf of their members than the union in question.” Mr Muldoon said he did not absolve any employer from responsibility for the consequences of his actions on the economy as a whole or on other employers in related industries. “The situation which developed last year, however, was suicidal. And there is no doubt in my mind that the ultimate responsibility rested with the Government to take corrective action.

"In this situation, the State has a clear duty to act, not just to protect the employer, but to protect the economy and the welfare of all its citizens.

“I know . . .. that these views are shared by the responsible people who make up the majority of the representatives of both sides. “Some may be put under massive, even intolerable, pressures by virtue of their position. “But being intelligent and sensible men, they know that in the final analysis these situations must be dealt with.”