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Thursday, 2 December 1976

Mr CREAN (Melbourne Ports) -I should like to say a few words about this measure. If I may say so, I think I was one of the architects of the Prices Justification Tribunal. I do not think we ever had any extravagant ideas that it would stop inflation. It was part of our election program in 1972 that just as wages have to be justified in the arbitration mechanism, equally there should be some justification on the part of those who fixed the prices of the goods and services that the wage earner was supposed to buy. The term 'justification' was used deliberately. The criteria of the Tribunal is, I think, well set out in its annual report for 1 975-76 in which it was stated:

The Tribunal's attitude to criteria is conditioned by the fact that it is concerned with prices justification, not price control, and by the fact that the Prices Justification Act contains no guidelines, criteria or tests to be observed by it.

If I may say so, we made the Act deliberately skeletal. In fact, I often said that it seemed to me that everybody seemed to know what the PJT ought to do, except the members of the Tribunal itself. This was the reason that we did not establish criteria. The annual report of the Tribunal continues:

In particular, the Tribunal believes that the legislation under which it is established is not intended to restrict companies unduly in using pricing methods which they have found most suitable for their circumstances provided they do not appear contrary to the public interests.

After all, one should be concerned occasionally about public interest. The report states further:

Thus, while the Tribunal must and does have general criteria by which it evaluates whether prices are justified, it does not believe that at this time they can usefully be reduced to a rigid code.

The Tribunal's general approach was briefly summarised in a passage in the report concerning General MotorsHolden's Pty Ltd and General Motors-Holden's Sales Pty Ltd . . . which was cited at page 20 of the first annual report of the Tribunal and which is still largely appropriate.

I think it is sensible, therefore, to refer to what is said at page 20 of the first report of the Prices Justification Tribunal which states:

In considering this case we have had regard amongst other things to the following matters as being relevant, namely whether:

(a)   the cost increases were known to have occurred rather than merely expected;

(b)   such increases were unavoidable;

(c)   such increases could be offset by greater efficiency;

(d)   sufficient accounting allowance was made for the effects of improved productivity on costs and whether in general the benefits of improved productivity were being sufficienty passed on to the consumer;

(e)   the price increase is justified having regard to the profitability of the Company including the return on investment.

I simply cite that paragraph in particular. What is now being written into the Act has been followed already by the Tribunal. I would have preferred that it had been left that way. The first report of the PJT states further

We point out that such considerations are of a general nature and should not be applied in a rigid or mechanical way.

I also was rather interested to read a document prepared by a gentleman who I understand, in one of his roles, is an economic adviser to this Government. The gentleman to whom I am referring is Dr Neville Norman, senior lecturer, Department of Economics, University of Melbourne. In the document entitled The Prices Justification Tribunal Stage Two, the learned doctor refers to the rather confusing situation that exists in Australia at the moment- that the Prices Justification Tribunal, after all, is not the only body in Australia concerned with prices charged. There are two other bodies, the Industries Assistance Commission and the Trade Practices Commission. Dr Norman states:

The IAC believes that prices of most industrial goods in Australia are set with reference to the duty-inclusive price of imported goods -

That is rather interesting in the face of the recent devaluation and the great potential there is now for the setting of new prices by Australian firms if, as he says, the firms have acted on the assumption they can set prices nearly as high as the tariff would otherwise permit. Dr Norman continues:

.   . the premise behind PJT operations is that market power and cost increases are used in a fairly simple fashion to enforce higher prices . . . than would otherwise be the case.

The third body, he states: . . the TPC acts to investigate various arrangements or practices that may be seen as preludes to the exercise of market power. The implied view of the price mechanism differs widely between the PJT and the IAC especially in reference to the relevance of cost movements. Here the theories used by the IAC dispute that movements in domestic costs in individual industries are reflected in prices; the PJT has built its operation largely on the premise that they would be.

I think that the time has come in Australia when we have to reconcile the operation of a number of economic control bodies. On one hand we have the Conciliation and Arbitration Commission which is resigned to regulate or justify the payment of wages. Wages are still the major source of income in Australia and wage earners are still the major source of consumer expenditure in Australia. On the other hand there. is the Prices Justification Tribunal. Its annual report contains some rather interesting figures on the number of firms which come within its ambit, and it states:

At the end of June 1 976, the Tribunal had 480 prescribed enterprises recorded in its register. The term 'enterprise' is here used to include single companies and 'groups' of companies as described in section 5 ofthe Prices Justification Act.

Associated with these enterprises were 4427 related companies. A breakdown of the enterprises by recent annual turnovers, according to information available to the Tribunal, is set out below.

There were 34 firms which had a turnover of between $20m and $25m, 48 firms with turnovers between $25m and $30m, 52 firms with turnovers between $30m and $35m, 44 firms with turnovers between $35m and $40m, 25 firms with turnovers between $40m and $45 m, 16 firms with turnovers between $45m and $50m, and 261 firms, close to two-thirds of the total, with turnovers of $50m or more. One can make the rough economic calculation that two-thirds of the total activity is within the ambit of those 26 1 companies and their alliances.

On the other hand, if one is talking about the consumer price index, for the most part we are talking about retail prices. Many of the prices that the Prices Justification Tribunal is concerned with are not so much retail as wholesale prices. In fact, had I had my way in regard to the Tribunal I would not have put retail pricing within its ambit. I believe retail pricing is better controlled in the hands of the States. This simply shows the difficulties we have in a federal system. It is all right for the Government to take great unction to itself about new federalism and saying that it is neatly encompassed in giving back a little of the income tax to the States. The variety of economic activity in Australia is diversified. There are 2 important places still as far as prices are concerned and they are the cities of Sydney and Melbourne. I have long believed that State governments have been very recalcitrant in not doing anything in the great arena of retail pricing. After all, what can be done in Canberra about the prices in the supermarkets of Melbourne or Sydney? Perhaps Mr Wran will be able to set a leading example in this direction to the State of Victoria.

I believe that the time has come when there has to be some co-operation and cohesion between the various mechanisms operating in Australia. After all, we set up the Restrictive Trade Practices Commission because of the belief that the community, while applauding the virtues ofthe market system, knows that in practice it does not operate. The big operators are very big and the small operator has very little chance in the face of the existence of the big operators. One of the means of slightly mitigating things in favour of the small operator is to have restrictive practices legislation. I regard as sheer nonsense the views uttered at the level of government at the moment about inflation causing unemployment, as though the whole of the unemployment in Australia would go away tomorrow if by some miraculous means we were able to eliminate inflation. The structural problems inherent in Australian industry are not being looked at at the moment. It may be a sort of truism that people are not going to invest more in a particular aspect of industry because they cannot get a high enough price for what they sell to recoup their costs, including their capital costs. For a firm to come along and merely say that if the Government lets it have the price it will guarantee to re-invest, in my view is not a sufficient sort of test.

I must say, from reading in detail over a period some of the cases of the Prices Justification Tribunal, that that Tribunal, in granting companies a profit kind of assumption, at least wanted to be assured that the investment was going to take place. On the other hand I think we have come to a stage in Australia now where occasionally we have to say that maybe it is time we stopped expanding investment in certain industries and encouraged it in others. These seem to me to be the kind of things we have to begin to work out between the 3 bodies.

We have the Industries Assistance Commission to encourage and assist Australian industry. Now we have the great riddle presented by the Jackson Committee which tells us that if manufacturing industry is to have much of a future it has to have it in export industry rather than in local industry. Until the recent devaluation, at least, it was pretty hard to come up with likely successful candidates to expand exports of manufactures in Australia in the foreseeable future. I am not too sure that altering the currency ratio by the stroke of a pen is going to produce the miracle either as far as manufacturing is concerned. It may be that in Australia we will have to reconcile ourselves to manufacturing being a smaller total provider of total employment in the future than in the past. We ought to be planning where the jobs are to be found for those who want to seek them. I have long said that in this country we have been training people to do jobs that will not be available and nave not been training them for jobs that are necessary for the future. I suppose that involves getting down to a study of the education system in relation to industry and its needs.

The Government has gone through traumatic experiences. It has been very nice for it in the last 12 months to blame everything that has gone wrong on the fact that we had a different government for the last 3 years. I have said over and over again that the problems in Australia are not essentially different from the problems in the United States of America, in West Germany and in the United Kingdom, to take only a few examples. The problem is that increasingly the pattern of industry in the manufacturing arena is large scale with a tendency to have more in the service and tertiary fields. I have had it thrown back at me for saying, as I did on one occasion, that one man's increase in wages may be another man's job. Nevertheless increases in wages are going on in some areas. The fact that the wage is as it is, at the margin, and may preclude an additional one or two people being taken on is not the answer to the 400 000-odd people in Australia who are out of work.

I think we delude ourselves by using easy sorts of slogans, just as I think the views of honourable members on this side are rather exaggerated at the moment in thinking that there will be some immediate impact on prices in Australia because of the devaluation. If one looks at what is imported into Australia one finds that producers ' materials are 40 per cent of total imports and that capital equipment is 29 per cent of total imports. About II 10ths of what is imported into Australia is the potential for new investment in industry in Australia. That is where the hurt will be as a result of devaluation. After all, the Government was claiming that it wanted to stimulate investment. Insofar as investment means new capital equipment, a fair part of which unfortunately still has to be imported, it certainly will be dearer in future by something like 17½ per cent to 20 per cent, and therefore not so likely to be attractive. This is independent of any action of any body such as the Industries Assistance Commission, the Trade Practices Commission or the Prices Justification Tribunal.

I think it is time that the economy of Australia was looked at as a whole. I suppose the majority of people, fortunate or doomed, in the next 30 years will be employees in either the private or the public spheres. They will be wage earners. On the other hand I still believe that the greatest stimulus to expanding economic activity in Australia is a rise in real consumer income. The Government is caught between those two. Wages are a cost but there is also the customer to be considered. A government has to tread the very narrow path that leads between right and wrong or between bad and good economic common sense.

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