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Tuesday, 29 November 1960

Mr CREAN (Melbourne Ports) .- Although the measure that is now before us is known as the Sales Tax (Exemptions and Classifications) Bill, ostensibly -it is not a bill to increase taxes but a bill to impose a tax which, it is suggested, will reduce purchases of the product upon which it is to be imposed, namely, the motor car. This is evident from the speech dealing with the Australian economy that the Treasurer (Mr. Harold Holt) delivered on Tuesday, 15th November, 1960. I wish .to read that .part of the Treasurer's speech which leads up to the proposal relating to increased sales tax on motor cars. Referring to the present state of the economy 'he said -

First, we consider that the overall liquidity of the whole economy, which has been very high for a long time and is still high, must be reduced . . Secondly, we think we should 'try to diminish the excessive flow of -funds, generally through the so-called fringe institutions . . . Thirdly, we propose to use such direct measures as we have at hand to steady down activity in the building and motor vehicle industries.

The bill which is before us is one of the direct measures to which the Treasurer referred. At a later stage in his speech he stated -

.   . we have .decided to increase the rate :of sales tax on motor cars and station wagons from 30 per cent, to 40 per cent.

He then went on to say why this was being done -

We are .doing this, fatly., to cut back the rate of buying of these vehicles, which has become higher than the current condition of our economy can reasonably -be expected to support.

He then stated - this is rather interesting corning from a 'Liberal Treasurer - ,. . there are 'limits to the resources we can afford (for the production of items such as motor cars as against other requirements of our growing economy . . . imports for the motor industry, as well as of petroleum products, 'have also risen steeply . . . imports in the September quarter this year were running at an annual rate of £200,000,000 -compared with .a rate of £152,000,000 in the September quarter of 1959.

In other words, this is not a measure designed .primarily to raise revenue; it is a measure arising out of what might be called an import crisis in the Australian economy, designed to dampen down economic activity in a particular direction. As was pointed .out :in the House recently that import crisis - if it exists - exists .purely as a result of this Government's decision in February this -year to remove entirely import licensing as it .then operated in Australia. The measure which is now before us illustrates that the step that the Government took in February was a step in the wrong direction. The remedy now proposed has no direct relation to the level of imports. I shall have a -little more to say about the suddenness of .this crisis.

Why has the 'motor car industry been singled out for this specia'l treatment which flows purely from -the 'Government's decision in -February, -I960, 'to -remove import controls? 'On page 20 of the October issue of 'the '" Treasury Information Bulletin " under tee heading " Recorded Imports " it is stated that -the value of imports of petroleum 'products and oils foi the full year 1959-60 was £100,000,000 and of "vehicles, parts and accessories, excluding aircraft, £88,000,000. In other words, those groups which the Treasurer has linked together aggregated £188,000,000 for .the year 1959-60. But he has chosen to compare the 'September quarter of that 3'ear - the first quarter - with the corresponding quarter for the year 1960-61, in relation to which the " Treasury Information Bulletin " states that the value of imports of petroleum .products and oils waa £27,'000,000, and of vehicles, parts and accessories, excluding aircraft, £26,000,000. On an annual basis these imports amount to £200;000,000 :n round figures.

The Treasurer is .applying .his argument to imports of motor cars -and petrol, but is it not just as logical to assume that other imports - the value of which has risen in total by nearly £200,000,000 in the period - are coming in at an excessive irate? Yet these measures Jo not touch in any way any industry except the motor car industry. lt is true that that industry can be regarded as perhaps the .most significant item in our imports, but when you consider the role that it plays in the Australian economy, and when you read some of the Government's own publications relating to the motor car industry - 3 refer particularly to " The Australian Motor Vehicle Industry " which was prepared by the Department of

Trade in 1959 - you will realize that the industry is being treated most unfairly. More recently the Tariff Board conducted an inquiry as a result of an application by the British Motor Corporation (Australia) Proprietary Limited for a protective tariff on internal combustion engines and parts therefor. I would suggest that at the moment we see a conflict between the trade policy of the Government on the one hand, and its monetary and fiscal policy on the other. We said the other night that there seemed to be no new situation in November of 1960 that was not apparent in August of 1960. As the Treasurer (Mr. Harold Holt) pointed out in his Budget speech in August, in a modern economy you have to integrate monetary and fiscal policy with trade policy, lt seems to me, however, when one considers the various aspects of this Government's policy, that that desirable integration is not taking place at all. As a consequence, despite the objections of the Prime Minister (Mr. Menzies) to such a description, the Government's policy can be fairly characterized only as one of " off again on again " or as being a stop and start policy.

Import restrictions were removed in February, 1960, because of the inflationary circumstances of that time. The theory behind the removal was that if we allowed goods to flow into the country we would produce favorable effects by restraining inflationary trends. The importation of more goods would lower internal prices and increase competition between good's produced at home and those imported. That was the theory, but it did not work out in practice, because apparently the Treasurer did not correctly assess the policies that would be adopted by businessmen in Australia. He did not appreciate the fact that they were not primarily interested in whether the imported goods competed with locally-produced goods, or whether prices would be reduced. They simply brought into this country goods that were not needed. That unrestricted import flow has led to the serious crisis that Australia faces now in relation to its overseas balance of payments.

The new policy, the " on again " solution, is not to reimpose import licensing. The Government has adopted a kind of dogma about that. At least it is adhering to that dogma at the moment, although I am not too sure that it will be doing so a couple of months from now. However, at the moment it is clinging to that dogma, and it has looked around for another method of reducing imports. The chosen method is the increase of sales tax on passenger motor vehicles.

It is interesting at this point to note the effects on sales of motor vehicles brought about four years ago by the increase of sales tax on those motor vehicles. Again, I do not think we need go further than the document which I have already mentioned, " The Australian Motor Vehicle Industry", published by the Department of Trade, one of the larger departments of the Government. On page 5, under the heading " General Market Situation ", an analysis appears giving the factors influencing the demand for motor cars in Australia, and the following remarks appear: -

In the longer term, demand for motor vehicles is influenced by a number of factors of which some of the more important are:

(a)   population and growth of the work force;

(b)   the level of real income; (c)-

This, I suggest, is a significant factor - price changes in motor vehicles relative to the prices of other goods; (d)-

This also is of some significance, because cognate with this tax measure is the one which is concerned with what are called fringe institutions, and which is designed to cut off the source of supply of finance for the purchase of motor vehicles - the availability of finance; and

(e)   the age of the vehicle population.

I think that two matters at least are worthy of note in this connexion. In 1956 a substantial increase was made in the sales tax on motor vehicles. The impact of this increased tax can be seen by a perusal of the monthly figures of new motor vehicles in Australia published by the Commonwealth Statistician. If we commence at the point at which the horror budget, as it came to be known, was introduced, in March of 1956, we find that in that month, and before the operation of the legislation, sales of passenger cars amounted to 14,037, and of station wagons to 364. In the next month, April, when the measures had become effective, sales of cars had dropped to 11,210 and of station wagons to 253. In May the figures rose slightly and, after all, there are seasonal factors to be taken into consideration, and other points as well, such as the fact that some months have 30 days and others 31. In May 12,033 passenger cars were sold, and 241 station wagons. In June the figures dropped to 10,928 and 242. There was a progressive decline. In fact, one of the motor firms has stated that it did not reach, until the beginning of 1959, the level that would have been reached in 1956 but for the imposition of additional sales tax.

There is no doubt, therefore, that the increase of the sales tax in 1956 had a most salutary effect on the Australian motor vehicle industry. The representatives of that industry feel that it has already been asked to bear a big enough burden. But the conflict between the Government's trade policy and its economic and fiscal policy is again apparent from the remarks made by the Treasurer a few nights ago, when he said that no one ever anticipated that the demand for cars in Australia would have reached the figure it did. On page 11 of " The Australian Motor Vehicle Industry ", under the heading " Capacity " the following information is given: -

Excluding vehicles for which demand is insufficient to warrant local production or assembly, the Australian vehicle industry now has adequate capacity in terms of manufacture and/or assembly to meet all demands. Present capacity-

That is, the present capacity of March of 1959- is approximately 335,000 motor vehicles a year, and plans in hand for the next few years will raise this to about 375,000 with some indication of still further expansion in later years.

Many large expansion plans at present in hand will have the effect not only of raising the capacity to produce vehicles but will also result in substantial increases in the Australian content-

That is, as distinct from the imported content - of various models.

Apparently, this document is an official publication of the Department of Trade and, in effect, it commended the circumstances of the motor car industry twelve months ago when the capacity was 335,000, the figure that the Treasurer says has unexpectedly been reached. Plans were in hand also twelve months ago to increase the capacity to 375,000. Now, we are caught in the new philosophy of the

Government. If this philosophy had been adopted and enunciated in 1956, there might have been some justification for it. If the Treasurer had said then what he says now - namely, that too much of the economy is being directed towards the production of motor cars at the expense of something else - or if he had said that we had too many motor cars and too few schools I, for one, would have applauded a decision to concentrate on schools and let motor cars go. But we have reached a situation in 1960 where we have a certain capacity. We have a demand on the part of the public, apparently a free consumer choice, so that sales of motor cars are running at the rate of approximately 333,000. I doubt whether it could be maintained that the dislocation that this sales tax is going to cause will do anything but disrupt the motor car industry, while the flow-over into other levels of economic activity will not shift productive resources from one part of industry to another but will destroy confidence in the economy as a whole. It will not mean that we will have fewer motor cars and more schools, but simply that we will have fewer motor cars, fewer schools and less economic activity generally. That sort of situation is just stupid. If this had been anticipated, and if the Treasurer had said in 1956, " I think you are expanding too far in the motor car industry and too fast", there might have been some warrant for calling the industry to heel; but all that happened last time apparently was that the industry was able to absorb the shock, and it claims that the only reason for that was that there was no easing off of credit facilities available. However, there is an easing off this time.

The effect on the last occasion was summed up very well in another place by Senator Ridley, who was formerly secretary in South Australia of the Vehicle Builders Employees Federation of Australia. He said in August, 1959, just on twelve months ago, that the 1956 measures when adopted had the effect, first, of creating unemployment in the motor vehicle industry. Secondly, he said there was a disparity in the effect between the States, because one of the features of the motor car industry is that it is confined mainly to three States - New South Wales, Victoria and South Australia - but its impact in

South Australia is of greater relative significance because of less overall industrialization in that' State. While the motor car industry in; South Australia is not the biggest part? of the Australian' industry-, if ismuch more significant1 in tHe economy ofSouth Australia than it1 is- in New South Wales* and Victoria1 where' there' is a greater diversification of industry. So; as Senator Ridley has said, there was- a disparity in the- effect of- the" economic measures- between the States. Thirdly ,- there was a' disparity in the effect' between company and- company. Oneeffect was to' enable the strong companies toget! stronger and* to cause' the weak to go info depression. General Motors-Holden's Limited' is a much sponger economic unit than the others* I- have nothing against tha* company personally; it operates- in myelectorate and has produced a very good caf at a> competitive price. The fact remains that it is stronger than the others' and is less dependent on imports. The effect of the last measures was to create a bigger gulf between the' established' industry in, Australia- and' the competitors which were endeavouring to enter- the field, namely the British companies- such- as Standard' Motors1, which; operates in Port- Melbourne also.

The fourth effect of- the last measures was that Australian manufacturers were handicapped in competing with overseas- companies. Of course, that effect will still apply in connexion with the current measures. Most of the overseas companies produce on a higher scale than do Australian companies and large-scale operation reduces costs. There still is no direct restriction on imports of cars into Australia. Provided they can compete at a price they can still come in. It may be that the impact, if there is a fall, will be heavier on the product of Australian industry than on its overseas competitor. Fifthly, as Senator Ridley said, the measures treated the motor car industry as a luxury industry. I do not think that anybody regards the motor car to-day as a luxury. One might argue occasionally that some people have motor cars when they cannot afford them, but that could be argued about other things apart from motor cars. The motor car is freely regarded as a family necessity in the context of the Australian economy and in the circumstances of Australian geography. An effect of this measure will be that Bil] Brown, who did' not buy a motor car before 15th' November, will pay about £100 more than Jack Jones- who bought' a car on 14th November. There is not much equity about' that as a solution to the problem.

Sixthly, Senator Ridley pointed out that the imposition was a. visible and' invisible tax on every section of the community. It was visible in its first impact but invisible in its reflection in other parts of the economy.. If honorable members look at some of the industries allied with the motor car industry, they will see precisely what is meant? by that- statement Seventhly, the measures' caused' a- depression of the living standards of the Australian people with only an- infinitesimal' saving, if any, in the consumption of petrol. On the last occasion, the reason for the- impost' was that Australia's imports of petrol were increasing rapidly. On this occasion, the1 Government has said that it is putting on the tax to reduce the sale of motor cars. It is reducing' the sale of motor cars because it claims that the motor car industry is increasing its rate of imports. As I have suggested, the increase was already evident well' before the end of the financial year, in June, 1960, but nothing was done about it. Apparently, the Government gambled on the overall level of imports declining. It has not declined and, according to the arithmetic that the Treasurer applies, the motor car industry of Australia is the only section singled out for treatment.

Again, one gets back to the kind of problem that is germane to the internal situation in Australia: Why has the' rate of motor car sales in Australia increased as rapidly as it has within the last twelve or eighteen months? The answer is to be found in. the efficiency of the motor car industry itself, because, basically, the list price for most of the standard models, excluding the sales tax, has remained remarkably stationary for the last three or four years; in fact, in one or two instances it has actually declined. This is in great contrast to- the majority of other prices in the Australian economy. I think it suggests that the people as a whole regard a motor car as much better value than a lot of other things. This sort of tax. if it has an impact in reducing consumption, will put a penalty upon the efficiency of the industry. Again, it shows that the Government is ignoring the real basic problem with which it ought to be grappling, namely the problem of inflation. Prices are rising, either because the people who fix them are charging more than is fair or because of other factors in the economy with which the Government should be grappling.

T come back to the lifting of import controls which were removed, so we were told, in order to reduce prices. That effect was not achieved*. Prices which previously appeared as a part of inflation now appear under a new guise called an import crisis. Rather than have import licensing or, as some people have suggested, a primage duty which would affect all imports equally and allow the consumer to exercise his choice more clearly, the Government has chosen the blunt bludgeon of the sales tax as its solution to the problem. I emphasize that sales tax is a bludgeon, the impact of which will be significant on employment.

In order to give the House some idea of the scope of the automobile industry in Australia, I invite attention to a publication of the Commonwealth Statistician, " Manufacturing Industries 1958-59. - No. 9. Motor Vehicles and Cycles ". At page 7 it shows that a total of 1 1 5,000 people were employed during 1958-59 in the motor car industry generally, not only in construction and assembly, but on repair work and in allied parts of the industry. At 30th June, 1959, £100,000,000 was invested in land and buildings and £48,000,000 was invested in plant and machinery in the industry as a whole. During the last year for which figures are available, there was an increase in the land holdings of the industry of £8,500,000 and an increase in new plant of £7,500,000. So the industry is very significant to Australia's economy.

As 1 have said, if the new theory of the Treasurer were correct that his measures would shift demand into more desirable channels, there might, perhaps, have been some warrant for these measures. But I do not think that that argument can be maintained. To begin with, there are too many loopholes bv which the measure can be evaded. For instance, one of the principal producers in the market, General MotorsHolden's Limited, could drop the list price of its vehicles bv as much as the increase in the sales tax. I do not suggest that the company will do this, but it could if it wanted to, because it is making an exorbitant profit. That would certainly cause great embarrassment to the rest of the Australian motor vehicle industry which would not be able to do the same thing. It would have the effect of making the strong get stronger while the rising industry would go out of business. I do not know whether the Government would regard that as a good shift of economic resources.

The second- evil of the sales tax proposal is that it has been advanced, ostensibly, to halt an import boom. It will only halt it in one direction. At least two-thirds of the boom will remain untouched. Even if 1 5,000 fewer motor cars- are sold per year it will not make very much difference to the consumption of petrol because all the existing motor cars will remain in use. Those who do not buy new cars will keep old cars longer and it is- the petrol industry which accounts for half the increase in expenditure in the motor industry in globo. That part of expenditure will not be abated.

Thirdly, increased sales tax will not stop the import of more motor cars if people are willing to buy them. This seems to me to be the most unscientific sort of tax that could have been imposed. The Australian Labour Party does not regard sales tax as an equitable tax in any instance but, if we are to have it, let it be confined to luxury goods. As has been pointed out, you can buy in Australia for 75s. three jars of Californian honey, worth about 4s. 6d. a jar in California. Ten pounds of imported dried fruits, which I am sure could beproduced from the electorate of Mallee, are on sale for £10 10s., simply because they are done up in little wooden barrels and soaked in brandy.

Whilst the amounts involved in this connexion are not comparable with those involved in the motor car industry, there is no warrant whatever for placing an Australian, industry in jeopardy while nothing is done to restrict imports of unnecessary luxury lines. One of my colleagues to-day asked a question about tinned chicken. I would not fancy a chicken out of a tin and I would have even more reservations about it if it were imported. But, again, that is the kind of thing that you can have for your Christmas stocking if you can afford it. To have that kind of thing on sale in city stores seems to me to be slapping in the face people who are living in a depressed state. That is why the Opposition condemns this measure root and branch.

We condemn it, first, because it will not achieve what it is intended to achieve. Secondly, it represents a penalty on a very efficient industry which is a large employer and has many ancillary industries depending on it. A firm in Melbourne has indicated that this measure is likely to reduce orders for component materials by about 25 per cent, in the next two or three months. This state of affairs will apply not only in the motor car industry. Thirdly, the Opposition condemns the measure because, while it will cause depression in the motor car industry, it will not cause any expansion in any other industry. Motor cars will not be replaced by more schools.

I suggest that the measure will mean the destruction of economic confidence which, if we are not careful, will have further effects, as do all economic recessions. In controlling the Australian economy, surely there rs no need to court recession, depression or anything of that kind. In view of the manifold works, public and private, that are necessary, it is a criminal act on the part of the Government to adopt this sort of unscientific and blunt device to cure a problem which the Government itself created. Why does the Government not admit the mistake it made in relaxing import controls and say, " We will reimpose import controls as from 1st January, 1961 "? But to point to it now, when it ought to have been evident six months ago, and when anybody with a bit of nous would have seen it from the beginning, and mend one breach in the wall when you know that the pressure is going to come out through another breach, seems to me to be the height of absurdity. In fact, this action only identifies the Government once more as a government of on-again-off-again, a government of expediency, a government which does not face up systematically to governing the country in the interests of all sections of the community, but which adheres to ancient dogmas and doctrines that, belatedly, it has to throw out one by one.

The Government will not recognize the reality of 1960 for what it is. You have to co-ordinate in a modern economy. You have to co-ordinate monetary action - fiscal action or taxing policy - with trade policy. Above all, you have to co-ordinate all these things with prices policy. You have to have justice on the one hand as between all industries and the prices they charge, and on the other hand justice to the consumer who, for the most part, is a wageearner whose salary is rigorously determined for him by economic machinery beyond his control. Justice at least calls for some more adequate method of adjudicating prices as between one industry and another. In the motor car industry we have an industry whose prices have not risen as rapidly as other prices have. Yet the motor car industry is singled out by the Government, because a man can get value for a motor car and will buy it. The Government does not touch the rapacious people who are charging too much for financial accommodation, but penalizes the motor car industry. I say that a government that does that is no longer deserving of the confidence of the people.

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