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Thursday, 14 May 1942

Mr SPOONER (Robertson) .- Last week, the Minister for War Organization of Industry (Mr. Dedman) made a statement concom ing the activities of his department. The House yesterday, on a formal motion for adjournment, had an opportunity to debate certain limited phases of the activities of that department. The debate was accompanied by a certain degree of heat and humour, the humour, of course, being introduced quite unconsciously by the Minister. 1 hope that the debate to-day may be on the broader aspects of the department, and that the House will pay some attention to the policy of the Government as well as to an examination of whether the department is functioning in a manner that is calculated to be in the best interests of the nation under present conditions.

The Minister's statement gave a conspicuous outline of rationalization as the honorable gentleman hopes to be able to apply it over a range of industry in the future. I say " in the future " advisedly, because so far very little rationalization has actually been put into operation. The speech contained few references to what I regard as a far more important subject under the conditions of to-day. I refer to the need for rationing, which, if properly operated, would obviate the necessity for a good deal of the harmful rationalization of which the honorable gentleman spoke. Indeed, it appears to me that it is with a view to escaping from the difficulties and, perhaps, the political complications associated with rationing, that the honorable gentleman is avoiding it, so far as he is able to do so, and is endeavouring to proceed by the method of rationalization, with all its harmful effects on Australian industry and the machinery of commerce, upon which this country must depend in the future.

I propose to state briefly the economic situation in which Australia finds itself after nearly three years of war. Particularly during the last two years, since munitions manufacture was expanded, there has been brought into being a vastly increased spending power, a very large proportion of which is in the hands of small income earners. This arises not only from the expansion of the manufacture of munitions but also from the production of all other goods that arc required for war activities. The very existence of that increased spending has resulted in a greater demand within the community for goods of a nonwar character. In turn, this has accelerated production in Australian factories, and has multiplied the amount, of money in circulation, thus increasing the difficulties caused by the increase of the purchasing power. This pervades the whole of the Australian industrial system. Whether it applies to raw materials or to parts for munitions, using the word " munitions " in the widest sense - guns, aeroplanes, or whatever else be the subject of manufacture for the purposes of this war - and whether it bc for the feeding and clothing of armies in Australia, using the word "armies" also in the widest sense - the army, the navy or the air force - there has been created an additional demand for the products of factories that are concerned in the manufacture of such commodities. The problem has been aggravated by diminution of imports, as the result of very properly imposed restrictions. Consequently, there is constantly passing into circulation, purely internally, within this country, an ever-increasing flow of money. The problem was known by the Fadden Government when its budget of September, 1941, was being framed. That Government knew that it had to deal with it in the year 1942; failing which, it took the risk, firstly, of damage being done to Australia's financial structure; secondly, of withdrawal from the fighting services of materials required for munitions, clothing, and food ; and thirdly, of withholding the man-power so essential to the nation from both the fighting services and the munitions factories. That Government decided to deal with the problem. It realized that the only constructive method of treatment was to introduce a system for the direct rationing of supplies. Unfortunately, the remedy has been left too long by the present Government to be wholly effective. The schemes outlined by the Minister for the rationalization of industry convey the impression that he is trying to construct a dam after the river is in flood. The Government's scheme would set up a competitive demand for civil requirements that would limit the capacity of the nation to employ man-power, material and finance to meet our war requirements.

Mr Calwell - How does finance come into it?

Mr Dedman - I was wondering about that.

Mr SPOONER - The honorable member should not have wondered; he is an authority on finance, as he has told us many times. The more money that circulates in the form of wages, and the more money that is used for the purchase of materials for the supply of civil requirements, the more is withdrawn from the total available to the Government for financing the war. If out of a total wages payment of £1,000,000, an amount of £200,000 be made available to the

Treasury in one form or another, then the ability of the Government to finance the purchase and manufacture of munitions must be increased by that amount. If, however, that £200,000 be expended upon the purchase of further materials for the manufacture of civil requirements, then the Government will be deprived, not only of so much man-power and material, but also of much-needed financial support. The purpose of rationing is partly to economise in manpower and material, partly to economise in the use of goods that are in short supply, but also to co-ordinate the finances of the country with the available supply of man-power and material, and to arrange for the equitable distribution of the nation's resources. The Minister should be clear in his mind that the implementing of the budget proposals depends upon the success of his department in properly rationing the expenditure of the people, thus controlling the supply of man-power and bringing back to the Treasury funds necessary for the prosecution of the war. The conditions of which I have complained set up a competitive demand. The artificial conditions arising from the over-expenditure of money may threaten the nation with a measure of inflation because of unhealthy spending at a time when the nation relies upon the issue of credit to bridge the gap between revenue and expenditure owing to war conditions.

Mr Calwell - How much overexpenditure has there been?

Mr SPOONER - According to the budget, war expenditure for this financial year was estimated at £220,000,000, but that amount has been greatly exceeded. The Treasurer (Mr. Chifley) has said so, and I heard the Prime Minister (Mr. Curtin) say in Melbourne that war expenditure this year would possibly amount to £280,000,000. It is clear that the receipts from taxation and other sources will not reach that amount, and, even after loan raisings are added, there will be over-expenditure of about £70,000,000.

Mr Calwell - Doe3 the honorable member call bank credit overexpenditure ?

Mr SPOONER - I have not called bank credit anything; I have not used the term. I said that expenditure this year will exceed revenue by about £70,000,000. That must be financed, and Parliament is prepared for it to be financed, as are those who are advising the Government; but the responsibility is upon Parliament and the Government to see that measures are taken to provide the checks that will prevent the rise of unreal and artificial conditions. "We must ensure that there shall be withdrawn from circulation such sums of money as will provide proper security for the issue of whatever short-term credits may be necessary to meet the needs of the situation. We are now approaching the 30th June, and it is quite evident that the financial difficulties of the year which will begin on the 1st July next will be much greater even than those of the year now drawing to a close. The gap which must be bridged this year between receipts and expenditure will be much wider next year. Those of us who, in the past, have urged that the nation's resources should be used during periods of depression and in times of emergency must accept the responsibility of seeing that our policies are applied in such a way that there will be no unfortunate repercussions. If there be such repercussions, then many of the advantages which we are fighting to retain, many of our cherished possessions, will be lost during the postwar period, and those who will feel the loss most are the people who are being carefully guarded under the Minister's present proposals.

I have stated the position in this way in order to indicate that present conditions will, if suitable steps be not taken, diminish the nation's capacity to wage war and may, at the same time, threaten the solvency of the country. Surely these are matters which demand consideration from the Government!

There are two methods of dealing with the problem, and I propose to analyse them. I shall call them the direct method, and the indirect method. The direct method is that which the Minister has chosen, up to the present, not to use; and the indirect methods are those which he outlined in his speech last week, and others which various Ministers have indicated as being government policy. One of the direct methods is to tax more heavily than at present the lower and middle ranges of income, so bringing into the Treasury in cash increased revenues, and withdrawing that amount of money from unhealthy circulation. A second method is to introduce a rationing scheme that will compel substantial reductions of the consumption of civil goods, and force people to save money which is now being used to aggravate our economic difficulties. No system of rationing is sound unless it covers the whole range of public spending and -prevents people from diverting their expenditure from one channel to another. If these direct methods were adopted, the Government would bring into consolidated revenue a larger sura of money than at present, and increase deposits in the Commonwealth Savings Bank, subscriptions to Commonwealth loans, and purchases of war savings certificates. Those sums would extend the capacity of the nation's bank to use shortterm credit, wherever it is necessary, with greater security, and to meet the requirements of the Government. But these direct methods present political difficulties. They need tobe understood by the people, and a government which introduces them may suffer frommisunderstanding on their part. It is not easy to put into operation complicated schemes of rationing and taxation and convince the people that, in their own interests, these direct methods are necessary. For that reason, the direct methods have not been used by the present Government in the way in which they should have been employed.

Mr Calwell - The previous Government did not use them, either.

Mr SPOONER - If the honorable member wishes me to analyse the history of Commonwealth finance during the last two years, I shall not oblige him now. It would involve a recounting of the history of the budget of 1940-41, and the efforts which were then made to increasetaxation on certain ranges of income. At present, I am dealing with what is the right thing for the Government to do to-day. The honorable member should bear in mind that the financial difficulties of Australia developed very strongly during 1941. The production of munitions began in real earnest in 1940 and towards the end of last year, increased expenditure resulting from that and from other formsof manufacture, commenced to have a marked effect upon the monetary circulation, man-power and materials.

Mr.ROSEVEAR. - The previous Govern ment was guilty of mal-distribution of workn or war requirements.

Mr SPOONER - Whether or not one State received a little more work than another does not matter now. If mistakes were made, we should be happy to forget them, and realize that the only thing which matters to-day is to keep Australia on an even keel.

A few moments ago, I mentioned certain indirect methods which the Government and the Minister have chosen as being easier to put into operation than the direct methods. There are indirect methods of controlling production and finance. For example, bans have been placed upon the investment of money, and the purchase of property. At first, those restrictions were complete and thorough, but they were withdrawn and re-issued in another form. Obviously, the Government recognized that they were unsound and unfair, and would have unexpected repercussions. The restrictions also affected the capacity of some people to carry on their normal lives, and had the disadvantageous effect of conferring benefits upon other sections of the community. Control of investments and the purchase of property was an effort to make up by a flow of moneys from one end of the financial system for the losses that resulted, because the Government was not prepared to act, to moneys from the other end of the system. Increasing restrictions have been imposed upon the building trade. Some of them were necessary and advisable, because of the necessity to conserve man-power and materials. But the degree to which the restrictions have been used as an ancillary method of strengthening the financial system was probably unnecessary at this stage.

Mr Calwell - The honorable member was a member of several committees which drafted those regulations.

Mr SPOONER -I had no hand in drafting the regulations that restricted building. In this matter, I do not wish to be misunderstood. I agree that there is a need for substantial restrictions of building, but I do not consider that the drastic restrictions which the Government introduced were necessary.

The Government announced a proposal to limit profits to 4 per cent. That policy has not yet been put into force, but if it be implemented it will cause untold harm in Australia because it will divert the money flow at the wrong end of the financial system. The purpose of the policy is to divert the whole of the flow from one end, instead of equalizing the flow from all branches of the industrial system. Efforts have been made to peg prices throughout the Commonwealth. With price fixation, 1 am entirely in accord. 1 regard the fixation of prices, on the whole, as one of the major achievements of the previous Government. Overlooking possible mistakes here and there, I consider that the system, taken by and large, has been very successfully operated without endeavouring, by artificial means, to peg prices at certain dates. Finally, the Minister for War Organization of Industry (Mr. Dedman) last week announced an expensive and comprehensive scheme of rationalization of industry.

Those are some of the indirect methods of controlling the conditions which I described earlier in my speech. So that I shall not be misunderstood, I emphasize that some action is necessary to control investments, restrict building and limit profits. But profits have already been limited by the war-time company tax. Price fixation and some rationalization of industry will be found necessary. There should be a properly co-ordinated and balanced system of putting these schemes into operation. As we apply rationing, there should bo some measure of taxation of the lower groups of income.

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