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Thursday, 16 March 1961


Mr CAIRNS (Yarra) .- Mr. Deputy Speaker,I realize that we are now in the final stages of this debate on the want-of-confidence motion proposed by the Leader of the Opposition (Mr. Calwell), the purpose of which is to ask the House and the people of Australia to examine the Government's performance and to determine the validity of the case which the Government has tried to make with assurances of its own perfection and continued assertions that it has never made a mistake and that the present condition of the Australian economy is as good as it could possibly be. The Opposition's purpose in this debate is to ask the people of Australia and members of the Parliament to apply their minds critically to those propositions.

For some years, many people throughout Australia thought that this country was prosperous. Unemployment seemed to be gone for ever. The worker could get overtime or a second job and the businessman could rely on untaxed capital appreciation to keep him well ahead of inflation. But now things seem different. Unemployment is spreading, about 73,000 workers are registered as unemployed, overtime is disappearing, the two-job man is much more rare than he used to be, and the rate of capital appreciation has slumped very considerably. Even this situation would not really worry a great many people if they expected the usual sort of inflationary recovery. But

I think it is significant that business men in particular all over Australia do not expect the usual sort of inflationary recovery.

Why are we in this situation? What has happened? I submit that these circumstances are the result only of Government decisions. Before February, 1960, the economy was subject to a creeping inflation the pressure of which was increasing by about 3 or 4 per cent. a year. The overseas balances position was fairly well in control. If the condition in which we find ourselves to-day is the alternative to that, there is no doubt which alternative should be chosen. But that situation of February, 1960, for some reason or other, was not good enough for this Government. The balance of payments had been running into a fantastic deficit. In the financial year 1957- 58, the deficit was £174,000,000; in 1958- 59, it was £207,000,000; and in 1959- 60, it was £243,000,000- an aggregate deficit of £624,000,000 in three years!

The Government had been able to make good that deficit in part - at least in its own planning, if it had any - by borrowing overseas. But by February, 1960, overseas borrowing had been failing. At first glance, the overseas borrowing record of this Government suggests that overseas investment in Australia up to that time had been highly significant. Between the financial year 1947-48 and 1958-59, £596,000.000 had been borrowed overseas. This appears to be a great contribution to Australia's balance of payments. But that represents merely the inflow of capital. What was happening on the other side of the account, to which hardly any one pays any attention? Between 1947-48 and 1958-59, £394,000.000 had flowed out of Australia in dividends actually paid to overseas investors. This means that the net addition on the credit side of our balance-of-payments account was only £202,000,000. Furthermore, in the last three years prior to February, 1 960, a very significant situation had arisen. In 1956-57, our net gain from overseas borrowing was only £15,700,000. In 1957-58, it was £10,700,000, and in 1958-59, it was £5,000.000. Over the three-year period, our net gain from overseas borrowing fell to only £5.000,000, which was an almost insignificant figure in this context. I point out to those who claim that this record of overseas borrowing is significantly good that our net gain from overseas borrowing in this three-year period was less than that in the last three years of the Chifley Government's term of office.

With this increasing deficit in the balance of payments, and a declining net gain from overseas borrowings, the balance of payments was in a vulnerable and dangerous position, but the Government decided in February, 1960, to remove import controls. Import regulation is the one thing which has preserved the Australian economy since 1943.


Mr Roberton - Rubbish!


Mr CAIRNS - It has maintained you and your Government in office. If it had not been for import controls, the Australian economy would not have maintained the level of employment that it has maintained, and this Government would not now be in office. Import controls have been your shield and protector. In a situation in which the deficit in our balance of payments was increasing, and overseas borrowing, which was the only plug that you had for the hole through which our balances were draining away so steadily as to leave us in deficit, was declining significantly, you removed import controls. Only time will show whether a serious crisis over our balance of payments can be avoided and whether the Menzies Government can survive. If it does not survive and a crisis is not avoided, that will be because you removed import controls in February, 1960. If you are defeated, you will have committed political suicide. If you continue to do what you are now doing, you will bring your own Government to an end.


Mr Hasluck - The honorable member is supposed to be addressing the Chair.


Mr CAIRNS - Why was this fantastic decision to remove import controls made? I know that the two humorous Ministers who have interjected will not regard what I am saying as significant.


Mr Roberton - The honorable member ought to know that he is supposed to address the Chair.


Mr CAIRNS - The Minister is an unpleasant old gentleman. I repeat: Why was this fantastic decision made? I think that international factors were involved. There was some undertaking about the General Agreement on Tariffs and Trade - something in the air, which was of no significance for Australia one way or the other. Then there are export seekers in commerce, and in the Department of Trade perhaps, who want to create an international atmosphere in which Australia will be regarded as releasing and freeing her trade. They hope that as a result she will be able to get her goods into certain other countries. But those countries will not buy our goods for reasons such as that. They will buy them because they need them. I can see no reason which is not purely doctrinaire for this fantastic decision in February, 1960, to remove import controls. The Government now says that there are other reasons. It says in 1961 that import controls are arbitrary and corrupt.


Mr Duthie - Who changed the minds of the members of the Government?


Mr CAIRNS - Who changed their minds about that? They now say that import controls are arbitrary and that nobody likes arbitrary controls. But credit restrictions are arbitrary. You have changed from one set of arbitrary controls to another. The difference is that the first set of controls was working and that the second is not. No one likes controls to be arbitrary, but they are. A country like Australia has to adopt arbitrary controls; let us stop living in a make-believe world. And what about the corruption that the Government now acknowledges? When we suggested from time to time that there was corruption in the field of import controls, the Minister for Trade (Mr. McEwen), with a great show of false indignation, denied those suggestions in this chamber. Now, of course, import controls have been removed - because there was corruption, the Government says. If there was corruption, why did you not deal with it in the proper way? Why did you not put somebody in court for once?


Mr DEPUTY SPEAKER - I remind the honorable member that the Chair has nothing to do with import controls and the other matters about which he is speaking.


Mr CAIRNS - I suggest, Mr. Deputy Speaker, that this debate has everything to do with those matters.


Mr Hasluck - On a point of order: 1 have noticed, Sir, as you have noticed, that the honorable member is persistently using the word " you " although he does not apply it to the Chair.


Mr DEPUTY SPEAKER - I think that the honorable member for Yarra has mistakenly used the word " you " referring to the Government. I remind him that he should avoid doing so and that he should address the Chair.


Mr CAIRNS - I am trying to make my statements precise, because otherwise the Ministers opposite do not understand them.


Mr DEPUTY SPEAKER - The honorable member should remember to address the Chair.


Mr CAIRNS - In the situation which I have mentioned the Government substituted for import controls an increase of 10 per cent, in the sales tax on motor vehicles. That increase applied for only 98 days, and it may be said to constitute the shortest-lived tax in the history of the Commonwealth. The Government substituted credit restrictions also, presumably because they were less arbitrary. The aim was to cut income and imports. You do it this way. By credit restrictions you ensure that business and industry have less money to invest. That causes unemployment, which cuts the income of the people who lose their jobs. These people do not have enough money to buy imported goods, and so imports are cut. You correct your balance of payments, but you do it at the expense of the 73,000 people who have been put out of work. You do it at the expense of the people who cannot get money with which to build houses. Under the Government's policy, the impact is felt by a particular section of the community, but if controls were applied to imports the impact would be spread evenly over all the community.

The Government chose the course that it has adopted, and some fairly striking contradictions came to light. First, the Government said that the production of motor cars was too high, and an additional sales tax was imposed to cut production. But as soon as the tax began to take effect, the Government removed it. The Government's aim was to cut the production of motor cars. As soon as production began to fall, the increased sales tax was lifted. In Victoria the number of new car registrations for the first month of this year fell by 40 per cent. Presumably the Government wanted that to happen. The brightest aspect for the Government was the fact that the number of ambulances and hearses registered in Victoria in January increased.

Another contradiction is seen when we look at the operation of the credit squeeze, which was designed to cut the rate of commercial building. The rate of commercial building was too high, the Government said, and the credit squeeze would be used to reduce the rate. But what happened? Commercial building is significantly financed from shares and from reserves, and so it continues. The Government said that it did not want to cut the rate of homebuilding, but the credit squeeze is cutting the rate of home-building because the building of homes is financed through the bank lending structure. So the Government is achieving exactly the opposite of its aim. The Victorian Minister for Housing has stated that the rate of home-building has fallen by 25 per cent, and is still falling, but there is no indication that the rate of commercial building is falling at all.

Let us look at another contradiction that is involved in the Government's position. Let us deal with tax concessions designed to encourage exports. As the Deputy Leader of the Opposition (Mr. Whitlam) said when he spoke on this motion, when doctors fall out who is to decide? If by reducing the pay-roll tax in respect of companies engaged in export industries you succeed in exporting more iron, steel, timber and paper, what will happen? There will be less iron, steel, timber and paper in Australia, and in view of the demand for those things we will have to import them in order to fill the gap. This is shown clearly by the statistics. Comparing the last six months of 1959 with the same period of 1960, we find that the value of steel bars and rods imported into this country rose from £2,200,000 to £7,300,000. The relevant figures in relation to ferro-alloys are £1,100,000 and £2,200,000. For pipes the figures are £888,000 and £1,800,000. The value of tin plate imported rose from £1,700,000 to £4,000,000 in the relevant period and the value of other plate rose from £1,600,000 to £14,200,000. Structural steel worth £357,000 was imported during the first period in question compared with imports to the value of £2,800,000 during the second period. The value of the imports of all the materials to which I have referred increased from £7,800,000 to £32,000,000 in the relevant period. If by its tax concessions the Government succeeds in increasing exports from this country, we will be forced to import more goods. So how can the tax concessions benefit our balance of payments?

It is clear that the Government has failed and will continue to fail. The present situation exists, I submit, because of an absence of controls where they are needed and, in particular, because of an absence of controls upon imports, where they are essential. The Government has failed because its methods are contradictory in effect and cancel out each other. It has failed because some of its controls do not achieve the ends for which they were designed. The Government has failed, in effect, because it has relied on monetary policy and because it has relied on a tax and expenditure policy. It proposes to use at some time in the far distant future antitrust laws.

For some years the Australian Labour Party has said that a policy of this kind must inevitably fail. Recently distinguished economists in other parts of the world have supported Labour's view. One such person is Professor J. K. Galbraith, who is the economic adviser to President Kennedy. In a book published only a few months ago, Professor Galbraith said -

The less reliance we place on monetary policy, the better off we will be.

Monetary policy is the keystone of this Government's policy. Professor Galbraith continued -

Tax and expenditure policy will not of itself bring stable prices.

The Government has added a tax and expenditure policy to something that it should not rely upon. Professor Galbraith stated further -

There is no hope for an inflation remedy in the anti-trust laws, old or new.

Not only does the Australian Labour Party say that the Government's policy of controls is impossible and will not succeed, but it has been joined now by probably the leading thinker in the field of orthodox economics - Professor J. K. Galbraith. We can, I submit, be satisfied that the Menzies Government has failed.

When the people are thinking of this matter at a time when a want of confidence motion is being debated, they need to look also to the Opposition. What would Labour do? That becomes a relevant question. I feel that Labour's policy may be deduced from the circumstances in which we are placed. I feel that Labour will guarantee that fluctuations in the balance of payments will not be transferred into unemployment and low incomes in Australia. Labour will use selective import restrictions to ensure full employment and expansion and will ensure, by an effective system of selective import regulations, protection for Australian industry.


Mr Turnbull - That is socialism.


Mr CAIRNS - If Government supporters can do nothing more than raise the cry of socialism, they must be bankrupt of ideas. Labour's policy is fundamental to a healthy expanding economy. The Government's stop and go policy, resulting in this fluctuating and vulnerable economy, is not socialistic. It is an utterly stupid policy, and is not good enough for the 1960's. I feel that Labour will turn its attention to import replacements. It will not dabble in silly schemes of tax concessions designed to encourage exports - schemes that are unrealistic and will never work. Labour will concentrate on import replacements. In 1958-59 industries were allowed tax-free depreciation allowances amounting to £475,000,000. That amount represented 7.7 per cent, of the gross national product, and a few years earlier the figure had been only 3.8 per cent. That enormous and growing volume of allowances is allowed on some accounting basis. I submit that depreciation allowances must be geared to investment and that the kind of investment that we need to gear them to is investment that will replace imports. Our steel production capacity must be increased far beyond the level to which the Broken Hill Proprietary Company Limited is prepared to expand it. Chemical and engineering capacity must be expanded, and it will not be expanded if the Government allows depreciation allowances to accrue in the accounts of companies and be reflected in capital gains and appreciation as much as in investment.

I shall now refer to internal finance. Experience in all economies shows that money must flow evenly and that fluctuations are harmful. Money must flow to where it is needed to achieve national priorities. That has not been achieved in Australia. This problem has not been faced up to. It is no good for supporters of the Government to say that it cannot be faced up to. The future of Australia depends upon our facing up to this problem. For many years most people thought that those aims had been achieved by the 1945 Chifley banking legislation, but it is now clear that that legislation is not sufficient, because of the development of the so-called fringe institutions, which are now lending perhaps as much as 80 per cent, of the money that is lent in Australia. I believe that the Government has permitted those institutions to escape from control. Labour would bring them under control. Dr. Coombs, Governor of the Reserve Bank, says that the centra] bank has been made impotent because of this situation. I believe that when Labour comes to office it will subject those lending institutions to a fair, reasonable and satisfactory control. If they challenge our action in the High Court, saying that it is unconstitutional, we will go to the people and ask them to decide between us and those companies.

The Government appears to have just discovered the loose overdraft system. Overdrafts are given to people and they draw a certain proportion of them. We were told last year that the proportion was about 55 per cent. The Government, because of this looseness, did not know that £150,000,000 of credit would be put into the economy last year. The Treasurer (Mr. Harold Holt) came into the House and said in his Budget speech, "This is something, for which we did not plan ". Where did the money go? How long did it take him to find out? Overdraft policy must be regulated carefully. Labour would not use an interest-rate policy, forcing up on a ratchetlike system the cost of lending from the bottom to the top. We would regulate the fringe institutions and we would selectively regulate the trading banks.

The last point I wish to make, Mr. Speaker, is that inflation is disproportionate and distorted development or expansion. Dr. Coombs, Professor Galbraith and other people who are thinking objectively have recognized that under capitalism, in conditions of full employment, there is a section of the economy which can fix its own prices. The section which has the power to do that comprises the large and strong firms, as Professor Galbraith calls them. These large and strong firms can fix their own prices and there is no price competition in that section. The very essence of the system, the main reason for its existence, has disappeared; price competition has gone. These large and strong firms work on a cost-plus basis. That situation has to be dealt with. I believe that it can be dealt with, first, by changing the tax structure, by placing sales tax on the basis of selling expenses and not on manufacturing expenses. There is efficiency in the factory system. The reason for inflated prices is that the selling and advertising system is inflating the price structure. The tax system should be directed into that field in order to discourage that development.

Finally, Mr. Speaker, price competition can be given to such monopoly sectors only by public enterprise. Commonwealth Oil Refineries Limited must be restored so that oil can be bought at the best price in any part of the world and made available to Australian consumers. The Commonwealth Serum Laboratories must be freed from restrictions so that they can compete with the chemical monopolies. Australia needs a Commonwealth insurance corporation to compete with the private monopolies in the insurance business. We also need to extend the Australian National Line so that the Southern Cross can be carried on the oceans of the world.

Mr. SPEAKER (Hon. John McLeay).Order!The honorable member's time has expired.

Question put -

That the motion (vide page 90) be agreed to.







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