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Tuesday, 17 February 1987
Page: 82

(Question No. 4854)

Mr Cobb asked the Minister representing the Minister for Industry, Technology and Commerce, upon notice, on 11 November 1986:

(1) What has been the real percentage increase in the level of protection to local industries due to the devaluation of the Australian dollar since 1983.

(2) Have the benefits of the devaluation been revealed in (a) increased exports due to our domestic products becoming relatively cheaper to overseas buyers, (b) decreased imports due to overseas products becoming relatively dearer to local consumers or (c) exports falling less than they otherwise would have; if so, can the Minister give details.

(3) Have the disadvantages to local industries of the devaluation been revealed in (a) increased costs to inputs, (b) higher inflation and (c) other effects; if so, can the Minister give details.

(4) What is the approximate net effect of the devaluation to local industry after taking into account the benefits and disadvantages.

Mr Barry Jones —The Minister for Industry, Technology and Commerce has provided the following answer to the honourable member's question in regard to the industries covered by his portfolio:

(1) It is not possible to quantify the real percentage increase in the level of protection to local industries due to the devaluation of the Australian dollar. The impact varies from industry to industry and depends upon not only the existing level of assistance but also on a number of other factors. These include the effect of the devaluation on input costs for both imported and domestically produced goods; higher freight, insurance, and interest payments; and the flow on of higher prices to wages. These factors reduce the competitive boost to industry from the depreciation.

(2) The widening of the current account deficit as a result of the terms of trade collapse has disguised a significant improvement in export and import volumes. In the first three quarters of 1986 the volume of imports fell by 2.2 per cent compared with the same period a year earlier while the volume of exports rose by 3.3 per cent. For 1985-86 as a whole, export volumes increased by 7.1 per cent while imports increased by only 9.0 per cent. Further benefits to the trade account are expected as Australian industries adjust to their new competitive position.

(3) Local industry has been subject to direct price increases for the imported goods it uses due to the devaluation. In 1985-86 as a whole import prices rose by 13.7 per cent. Imported capital goods increased in price by 21.3 per cent, intermediate goods by 8.6 per cent and consumption goods by 18.4 per cent.

The extent of cost increases resulting from the depreciation has been limited by the willingness of overseas producers and importers to absorb some of the currency movement. Import prices have not increased as much as would at first be indicated by the depreciation.

The depreciation has led to some increase in the rate of domestic inflation. The ABS has estimated that in the September quarter 1986, for example, the direct effect of price rises for goods wholly or predominantly imported and of petroleum products was 0.66 percentage points of the 2.6. per cent rise in the Consumer Price Index.

(4) It is not possible to quantify the net effect of the devaluation, nor is it possible to explain (with any certainty) trade volume improvements solely in terms of the devaluation.

As noted above there has been an improvement in trade volumes. This reflects the impact of the devaluation but the slowdown in economic activity is also likely to have had a moderating effect on the volume of imports.