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Wednesday, 8 March 1961

Mr OSBORNE (Evans) (Minister for Repatriation) . - I would first like to congratulate the honorable member for Higinbotham (Mr. Chipp) and the honorable member for Calare (Mr. England) on having made such successful maiden speeches. I suppose every one of us remembers his own maiden speech and the feelings he experienced when making it. Both of our new members have successfully surmounted the first parliamentary hurdle. Personally, I found it most encouraging to hear from two new members, both on this side of the House and one from each party of our coalition, such thoughtful and welldelivered speeches. It must be equally discouraging to the Opposition to note the quality of the new recruits to our ranks. I congratulate them, and I wish them well in their careers in this House.

I turn now to the remarks of the honorable member for Braddon (Mr. Davies). I would not attempt to contradict his description of the conditions in his own electorate because I am not informed about them, but the general gloomy picture he drew of the economy of this country at large was completely exaggerated, to the point of falsity. His exaggeration and gloom cannot be sustained by the facts. The honorable member spoke of " a recession ". He even used the term " depression " in describing the state of affairs in this country to-day, and this description cannot possibly be accepted. I have no doubt that we will hear other similarly exaggerated and gloomy views from other members of the Opposition during this debate, because, in spite of the disclaimers of the honorable member for Braddon, they quite clearly want to build up an impression of calamity in the public mind. They realize that their only hope of attaining office lies in national misfortune, real or imagined. For this reason they encourage a belief in economic calamity, in the vain hope that it is just around the corner. This country is not, as they would suggest, in the depths of economic crisis, let alone a depression. We are not even undergoing a period of deflation. What is happening is that the rate of expansion - a rate of expansion which was growing too swiftly for the country to sustain - is being cut back.

That is the central point that I want to make. This is not a cutting back from an even economic level; it is a steadying down of a rate of expansion which had become too fast for the country to maintain. When any country is growing and expanding at. a fast rate, a tendency to inflation is inevitably present, and the central economic problem for the government of such a country is to restrain the inflation without interfering with the growth. The growth of this country during the last eleven years cannot be denied. During the eleven years of the Menzies Government we have had full employment, rising standards of living and a really remarkable development of our resources. At the same time we have kept going an immigration programme by means of which more than 100,000 new citizens every year have been brought here from abroad. They have been absorbed into the Australian community, and their breadwinners have been employed, without undue strain. This has been done in addition to the absorption, with rising standards of living, of our own natural increase in population - and I remind honorable members that we have a high rate of natural increase.

These have been our objectives - full employment, rising standards of living, increased population and the development of the resources of the country. We have worked for those long-term objectives steadily and consistently, and we will continue to do so.

During the last eleven years economic circumstances have varied considerably. Yet the objectives of the Government have been steadily pursued and have been attained to a very large degree. As the House knows, we are a considerable nation of traders. We export a far higher proportion of our gross national product than do most nations, including even recognized great nations of traders such as the Japanese. Consequently, we must import a great deal. Experience has shown, oddly enough, that the more we manufacture here the more we must import to sustain our growing industries. It has been estimated than more than 70 per cent, of our import bill goes in goods required to sustain Australian industry. For these reasons we are very dependent upon conditions abroad, and periodically we must adjust ourselves to changing conditions overseas.

If the present economic circumstances and the Government's reaction to them are to be properly understood, the situation must be seen as a whole. So, I want to take the House back over the events of the past year. A year ago, in February, I960, there were all the signs of an inflationary boom developing. This had to be restrained in every one's interests. So the Government did four things. It cooperated with the Reserve Bank in measures intended to restrain the expansion of credit. This was done, not to cut back credit, but to restrain the rate of expansion of credit. We announced that we would budget for a surplus and so lessen the impact of public spending. The Government intervened in the basic wage case which was then being heard to express the opinion that the economy needed time to digest the then recent wage rise and marginal increases. We felt that the economy could not at that time stand a wage rise without severe inflationary effects which would more than rob the wa!le-earner of the value of any increase that he might be given. The fourth sten the Government took was to abandon import licensing on all but about 10 per cent, of commodities.

I should like to say a word or two about the decision to give up import licensing. At that time, our overseas reserves stood at nearly £550,000,000 and our export income seemed reasonably assured. There were very good reasons to give up import licensing. Under constant pressure from the business community, we had promised for years to do so as soon as we could, because import licensing is a clumsy mechanism with harmful side effects. Opposition members have themselves paraded these harmful side effects before the House again and again in debate, and they know them well. A freer import of goods would, and it will, restrain inflationary demand in times of high buying pressures and it will help to keep prices down. The time was opportune, we believed, to return to the conventional means of banking measures and supply and demand to regulate our flow of imports. That was the situation last February, and the action we took.

Then at home, instead of bank credit being restrained in accordance, with the directives of the Reserve Bank, it expanded by £150,000,000 in the course of the year. The drain on our external balances was sustained and heavy, and by November, 1960, measures more drastic than before were imperative in the national interest. The inflationary pressure was still strong and the boom conditions persisted. The number of vacant jobs still greatly exceeded the number of applicants for work and overtime was being worked in no less than 67 per cent, of Australian factories. The number of homes built last year reached the enormous total of 100,000 and that in my opinion is a rate greater than we can sustain at this period of our history without causing severe over-strain to the resources of the building industry, and without grossly increasing the urban land boom, which we know was in progress. To have continued at that rate would only have meant that the cost of housing would have gone up and up and the young home-seeker particularly would have found the realization of his hopes receding further and further out of his reach.

In this situation, the motor industry presented a special and extreme instance of the boom conditions. The number of new vehicles sold in the calendar year of 1960 was over 310,000. That was an increase of some 33,000 or more than 16 per cent, over the number sold in the preceding year. It is significant that if commercial vehicles are excluded from this figure, the number of ordinary motor cars and station wagons sold last year was 3H per cent, more than the number sold in the preceding year. The rate of increase was still going up towards the end of last year. This Government knows very well that road transport is a basic necessity and we have no idea of trying to reduce it. But I ask the House, could the country go on buying motor vehicles at this expanding rate?

Mr Duthie - Why not? Who was it hurting?

Mr OSBORNE - It would inevitably hurt us all for reasons that I can give you. It was estimated that in the September quarter of 1960 the total import bill for the motor industry and for motor transport was running at the rate of £200,000,000 a year. That is for petroleum products, vehicles, parts and raw materials for motor manufacture in Australia. Could we afford to sustain that bill, which was increasing at a very rapid rate? The Government took the special and temporary measure of increasing sales tax on motor cars. This was quite clearly stated to be a temporary measure and we undertook when it was imposed to remove it as soon as we could. Combined with some restraint of credit, this additional tax achieved its purpose quickly. Its removal last month was in no sense a reversal of policy but was in fact the carrying out of the policy which had been previously announced.

Now I want to cover shortly the other means we took, not, I emphasize, to cut back a steady level of economic activity but to check an excessive rate of expansion. Further bank restraint was unavoidable - not, I say again, to cut down a normal level or even a normally expanding level of bank credit, but to reduce the effect of that £150,000,000 of expanded credit which was generated during 1960, notwithstanding the directives of the Reserve Bank. I want to make the point again, Mr. Deputy Speaker, that what is sought is not a reduction of the total amount of credit over a long period but a reduction of the very high rate of expansion. The state of bank credit in Australia to-day itself demonstrates my point. In December, 1959, the total advances of the major trading banks were £942,100,000. By October, 1960, they had reached the peak level of £1,092,200,000. My authority for this statement is the Statistical Bulletin of the Reserve Bank of Australia. The present restrictions on bank credit will only partially offset that expansion of £150,000,000 which occurred during the last calendar year.

The principal aim of the Reserve Bank in its present restrictive policy is to enable the banking system to meet the heavy demand which is usual in the June quarter. So it seems very likely that the general level of bank credit at the end of this financial year will be higher than it was in June of last year, notwithstanding the present curtailment. Against that picture, how can the honorable member for Braddon sustain his wail of calamity about a fearful reduction of bank credit in Australia? It is not of much use to slow down the rate of expansion of bank credit if the pressure is merely to be transferred to convertible notes and unsecured deposits at high rates of interest, and to other forms of capital raised either temporarily or permanently, the interest on which is deductible from profits before tax. That form of capital was sought particularly by the hire-purchase finance companies.

As the House knows, we have no constitutional authority to legislate directly to regulate hire purchase. So if this field was to be kept in a reasonable state of order, we were obliged to restrain the finance available for hire purchase. We did this by limiting the deductibility for tax purposes of interest paid on loans of the sort which I have been speaking about and on convertible notes.

The other principal measure taken was to give notice that we would look to life insurance companies and superannuation funds to maintain in future a reasonable proportion of investment - a minimum of 30 per cent. - in public securities. That decision has led to some criticism from people who are generally of our own political opinion. I have not time to deal with this matter in any great detail in this debate, but I want to tell the House that I am convinced that this proposal is quite justifiable from the stand-point of a Liberal philosophy in the conditions which exist to-day.

One should keep several points in mind when considering this particular question of life insurance investment. This year, 65 per cent, of the total public expenditure on capital works by the Commonwealth Government and the States will have to be found either directly or indirectly from current federal revenue. The loan market cannot meet the country's present needs for capital in this period of great national development and population growth. Life insurance and superannuation enjoy an important tax advantage because the individual taxpayer is able to deduct premiums up to a total of £400 a year in arriving at his taxable income. That concession costs Commonwealth revenue; that is to say, it costs the collective taxpayer, about £35,000,000 a year. Life insurance companies have followed a traditional policy of investing a high proportion of their funds in public securities, but the rate of that investment has been declining steeply in recent years. Unless it is restored and maintained, the 65 per cent, of public capital expenditure already being made from current federal revenue, which I have just mentioned, would have to be increased, and that would mean an additional burden for the taxpayers.

Another point about this proposal which should be borne in mind is that for years we in Australia have accepted the principle that savings banks must invest a minimum proportion of their deposits in public funds. What is fair for them is equally fair for life insurance and superannuation - more particularly when one bears in mind the facts which I have just outlined.

I have sought to establish two things, Mr. Deputy Speaker. The first is that in November of last year, notwithstanding the reasonable action which had been taken in the previous year by the Government and the Reserve Bank of Australia, we had a boom state of expansion which had to be restrained. What we are engaged in is not cutting back the economy but restraining an over-rapid rate of expansion. Secondly, I have sought to show that in the conditions which I have described, the Government has acted reasonably and sensibly. I am confident that this will be generally recognized. I am confident that when this situation is understood, the judgment of the Treasurer (Mr. Harold Holt) and the Government will be vindicated and the actions which we have taken will be supported by public opinion.

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