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Thursday, 9 May 1957

Sir ARTHUR FADDEN (McPhersonTreasurer) - by leave - A year ago, when the first annual economic survey was presented to the Parliament, we had just passed through the critical stages of an inflationary phase and it was beginning to appear that action by the Government, culminating in the legislative and other measures of early 1956, would succeed, finally, in reducing the pressure on resources. The promise of a more balanced economic situation, which was then detected, has since become a reality. We have now moved to a situation where, in aggregate, internal supply and demand appear to be in approximate balance. Labour demands have levelled off; prices and wages are, generally, more stable. Overall, employment and output have been maintained, though some adjustments in the pattern of production and the distribution of labour have occurred. Furthermore, and most significant, the balance of payments has swung sharply in our favour.

We are entitled to draw a good deal of satisfaction from this great improvement in the economic position, especially when we contemplate the difficult and uncertain prospect which faced us scarcely more than a year ago. Indeed, we can, with high confidence, look forward to a period of continuing prosperity and progress, provided always, of course, that we safeguard the stability which has been achieved. For thisreason, we cannot afford to set aside caution and restraint in the matter of demand on total resources. Although inflationary pressures have, for the moment, abated, there is to be found in the present situation a potential for renewed inflation which could upset the internal balance we now enjoy, and pose a further threat to costs and prices.

Higher export receipts and rising wage rates will, directly and indirectly, provide a stimulus to domestic demand and business activity. In parallel, there has been an expansion of total money supply, as reflected in the deposits and liquid assets of trading and savings banks, and this will tend to work in the same direction.

World commodity prices, especially for wool, on which the prosperity of our external accounts is so largely based, are always liable to sudden fluctuations quite beyond our power to influence. Should these prices fall, we could quickly find ourselves again struggling with a deficit in the external accounts. It is as well thai we should remind ourselves of this fact, the more so since our international reserves cannot be said to have yet been restored to a satisfactory level and since the level of imports, even after the recent relaxations, will not be sufficient to enable all existing demands for imports to be met.

The character and rapidity of recent changes in the economic position serves, once more, to emphasize the point which has been made time and again, namely, that Australia's economy is highly exposed to external changes and, since the war, subject, at the same time, to the strains and stresses inevitably associated with the rapid rate of economic growth to which we are now committed. Difficulties of the kind which we have experienced in the recent past could again threaten us. For this reason, the present easier economic situation does not admit complacency.

The first part of the economic survey, which I now propose to table, covers more fully the aspects to which I have referred. It traces, in some detail, the upsurge of expenditure between mid-1953 and the end of 1955, and illustrates how the boom subsided during 1956. It is, I think, worth drawing attention to the conclusion that this boom was wholly the product of forces within the economy, and occurred without provocation from abroad and despite a firm control on public expenditure. To quote the words of the survey -

What does seem to be demonstrated most clearly by this analysis is the need, in a phase of growth, for restraint on total expenditure.

Ideally, of course, such restraint ought not to have to be enforced by governmental or related action but should proceed from general understanding of the problem and appreciation of a common interest in stability.

There are, however, other longer-term problems which we judge to be of such importance that we have devoted a major part of the present survey to a discussion of them; these are the problems which arise from a rapid rate of economic growth.

Last year's economic survey discussed Australia's post-war economic growth. What we have tried to do in the present survey is to think ahead about the shape of future growth, especially as this is determined by the needs of our future population, and about issues to which we ought to be directing our attention if we are to secure a varied and balanced growth and avoid or mitigate the disorders which a rapid rate of growth can bring. There arc here some large and complex questions.

The sources of growth will be, of course, immediately apparent and quite familiar - increases in the population and work force both from natural increase and from immigration, increases in capital investment, increases in productivity, exploration and the development of new resources.

There is no basic reason why this country by exploiting the resources at its disposal should not continue to maintain the rates of growth which it has achieved over recent years. Consider, by way of illustration, the great increase in mineral production ir northern Australia which is now in prospect, or the gains which may be expected from the application of new techniques in agriculture and industry.

When we come to consider more closely the means by which economic expansion is to be sustained it is clear that there are many risks and difficulties. One ever-present and indeed over-riding risk, is that in our eagerness to press on with desirable and necessary developments we will attempt too much at the one time and in doing so disrupt the balance of the economy, and frustrate the very purposes which we set out to achieve.

Forecasts of population growth over the next decade, which assume continuance of present rates of immigration, suggest some quite striking changes. One effect of these changes will be to restore - partly at any rate - the percentage of the population in the working age groups. We have therefore to provide not only for a larger population, but within this, for a relatively larger working population. And that means in turn a rising demand for jobs and for working facilities.

The enlargement of the capital structure for this additional population is likely to run up against a number of difficulties. There is not only the problem of making sufficient resources available for investment purposes but also that of getting those resources into those avenues where they can make their best contribution. Closely allied is the problem of financing capital expansion in both the public and private sectors, which becomes the problem of inducing a sufficiently high level of community savings and of attracting overseas investment. For public authorities it raises the whole vexed question of an alternative to financing capital works from revenue.

A principal determinant of the rate of economic growth is the level of output - not only the level of output, but also its composition. I think I might best illustrate this by reference to our balance of payments problems. Over the next five or ten years expansion of our economy is certain to increase our demand for imports. Though we may cover some part of the cost of these additional imports by borrowing abroad, the bulk of their cost must be covered by an increased level of export returns. As the survey points out these are two important considerations in expanding exports. First, we must concentrate our energies and resources on those activities in which we have the greatest advantages, natural and other, and which offer the greatest scope for economical expansion. Secondly, we must try to keep down costs so that our exports will be competitive on world markets. Opportunities for the expansion of exports do exist; it remains for us to proceed, and to be in a position to proceed, to exploit them.

These then very briefly are the kinds of problems discussed in the second part of the survey - problems on which there are bound to be different opinions but certainly problems which must be faced in the interests of future economic growth, and ones to which we will inevitably revert in future annual surveys. I lay on the table the following paper: - 1957 and Beyond: An Economic Survey, and move -

That the paper be printed.

Debate (on motion by Dr. Evatt) adjourned.

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