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Thursday, 9 March 1961


Mr BURY (Wentworth) .- Mr. Speaker,once more we have heard a diatribe against the Government's economic policy - the sort of stuff that is rolled out year in and year out. We are still waiting to hear what the Labour Party would do if it were in office. This is important because there is one thing which history shows that the Labour Party will not do, and that is to take savage measures to cure inflation. When the Leader of the Opposition (Mr. Calwell) began his speech this morning he resorted to the old Labour Party myth that the Australian economy in 1949, when Labour left office, was sound. At that time, the rate of price increases was about 10 per cent. Apparently the Labour Party regards 10 per cent, inflation as reflecting a sound economy, but some of us are old enough to remember a few things such as blackouts, shortages of goods and petrol rationing.

What is the answer? What is traditionally the only answer of the Labour Party for inflation? Price control! When Labour lost the referendum on price control it lost its policy. No other policy to restrain inflation has ever emanated from the Labour Party. During the war prices were fairly stable because the Australian people were fighting as one, and conditions were abnormal. But as soon as the natural life force of the economy came into being after the war there were catastrophic shortages and Labour had no answer except further controls.

The honorable member for Melbourne Ports (Mr. Crean) played on the word " controls ". Everybody knows that some controls are necessary, but the important questions are, " To what degree? " and "Of what?" That is the essential difference. An economy may be anything from a completely free economy to a completely controlled economy. The American economy is probably the nearest approach to a completely free economy, but it, too, has many controls and it always has had them. At the other end of the scale is the Soviet economy. Of course, we have controls! But in regard to the extent of controls and the method of control there is a very big gulf between the political parties.

So far, from the Labour side, only one suggestion has come as to what can be done to cure the current economic problem. Labour would re-impose import controls. It would cut off imports. We can certainly believe that. A lot of people imagine that the balance of payments problem can be solved simply by slicing off imports. They say, "We are just in a balance-of-payments crisis ". But to any one who looks carefully at the rate of increase in prices last year, which was between 4 per cent, and 5 per cent., and the rate at which they were obviously going to increase had the Government not taken these measures, it is obvious that the main purpose of the measures is not to meet the balance-of-payments crisis but to prevent inflation from getting out of hand. In a world in which public opinion rightly demanded full employment there must always be a very difficult course for any government to steer between full employment, on the one side, and inflation and undue price increases on the other. To steer a skilful course is something which no country has yet achieved anywhere.

Some countries have experimented. They are feeling their way. They learn a few things as they go along.

The Leader of the Opposition may, indeed, point to the fact that our prices have increased more than those of other countries have done and our level of unemployment has been far lower than that of other countries. The very fact that the ideal of full employment is pursued so ardently and so consistently makes the task of restraining inflation extremely difficult. In this instance, we have reached a position at which inflation appears to be a real danger. Allied to the problem of inflation, of course, is a balance-of-payments crisis. The two things go together. If demand is high, because of over-full employment and high incomes in Australia, balance-of-payments difficulties result.

Such difficulties are common to every country, and no country has yet evolved a technique by which, if the balanceofpayments position is deteriorating and inflation is increasing, you can take just so much action - no more and no less - in order to get particular results. There cannot be any quantitative relation between what is done as a policy and the exact effects of that policy. Take the motor car industry as an example. No one can do other than regret the most unfortunate effect on individuals of their becoming unemployed when adjustments take place. But does any one in this House seriously think that the Australian economy could afford a rate of increase in imports of motor cars commensurate with the rate in the September quarter of last year, when the rate of imports represented an annual increase of 33i per cent. - from about £150,000,000 to more than £200,000,000? The flow of imports for this industry caused steel shortages and difficulties in labour supplies over a wide range of Australian industry. Does any one suggest that we could have gone on with the motor car industry continuing to import at that level?

In circumstances such as these, we have to decide what to do. Any responsible government, whatever its political colour, would have had to make that decision, because the Australian economy could not stand the flow of imports for the motor car industry. What is done to correct this? A tax is increased. The sales tax is an obvious choice. Probably, any government would have done what this Government has done. Could any government which increased a tax or applied credit restrictions say precisely what effect such a measure would have? Could it say that sales of motor cars would be cut exactly by so many thousands to a specific figure?. The only thing one can do is head in the right direction, adjust one's measures as necessary, and tailor them to suit the situation. Certainly, the motor car industry was cut back very sharply indeed. Any adjustment made should not be taken too far, and the restoration of the previous level of the sales tax on motor vehicles when the additional tax had done its work extremely well was just plain common sense.

Similar considerations apply to the credit restrictions. Here again, the choice of the right action is not easy. Anybody knows that if the supply of money expands too quickly, inflation results and prices rise. If the supply of money is cut down, the reverse happens. But nobody anywhere has yet been able to establish that if you reduce the supply of money by. say, 5 per cent., prices will fall by 5 per cent.; or vice versa if you increase the supply of money. All you can do is head in the right direction.

These things are intrinsic in economic policy. Unless we impose a gaol-like system under which we can control individuals in the day-to-day detail of their activities, thereby rendering them no longer free to make their own decisions over a large field of activity, these mistakes will be made. We cannot help it. If the measures taken have too sharp an effect in some respects, those measures are naturally trimmed back.

The intensity of the current credit squeeze results from the previous expansion, among other factors. That is admitted quite freely. There is now in our banking system a weakness which makes central bank control very difficult to achieve. That weakness is our overdraft system under which limits are granted and drawn upon, on the average, only to about 55 or 60 per cent. Under this system, if credit is to be contracted, you cut down the limits. But you cannot control everybody who has a right to sign cheques within the limits previously established. This was really a basic cause of the huge increase in bank advances between February and November of last year. We can conclude only that they were increasing at a frightening rate.

What does the community want to do about this? Does it want to go on with bank advances increasing at that rate? Will it not do anything about the supply of money? Does it want an increase in prices in one year of 15 or 25 per cent, instead of 5 per cent.? If a government is to cure these economic ills, it has to do some pretty nasty and unpleasant things. Members of the Australian Labour Party and many people outside this Parliament talk as though these are the kind of -things that governments enjoy doing and that their supporters enjoy being made the local scapegoats for. These things are very unpleasant, but, on the whole, as time goes on, the more responsible members of the community will become increasingly reconciled to the fact that if the measures taken by the Government, or similar measures, had not been taken, disaster would have ensued. Even the wildest critics of the Government's measures have not suggested that it should have done nothing and that it should just have let the whole situation rip.

With respect to not only the balanceofpayments situation but also the internal condition of inflation, such critics, like members of the Australian Labour Party, are very silent about what they would do, except for one thing: They would reimpose imports control. Many interests are bound up in imports. There are many people who dislike the draught of competition. When an economy has been subject to imports control for so long as ours was and the controls are removed, no government finds it easy to estimate what will be the precise effects on different sectors of industry. But let us at least remember that 75 per cent, of our imports bill is incurred in servicing industry directly in one way or another. If you reduce imports without taking corresponding measures to reduce internal demand, you will get shocking inflation. The measures taken in February of last year to restrict imports would have done their work well by now if the volume of bank money had not increased. There is nowhere in the world any set of magicians with any particular expertise who can predict exactly what the effects of measures such as these will be. All we can do is watch the situation and do the commonsense thing.

When we talk about imports control, let us not forget the evils that existed when such control operated. We recall the cosy little parties of people with nice monopolies in certain lines who added about 15 or 20 per cent, to their prices simply because they had begun importing earlier and happened to have import licences, whereas others had not. That sort of thing is implicit in imports control. Whatever we call it and whatever we do to enforce it, a rational system introduces all kinds of anomalies and unfairness, resulting in general dislocation. If we re- impose imports control, we shall go back inevitably to that kind of situation. Let us not forget that. Far too many people forget too BaSil\, what went on under imports control. They may become a little alarmed about the balance of payments and they may conclude that the re-introduction of imports control would remove objectionable features of the economy which have developed over the years, but we should make every endeavour to avoid re-imposing direct control over imports if we can.

There is one vital respect in which the Government is not master of the economy. The honorable member for Melbourne Ports suggests that the whole trouble arises because of a pricing policy adopted by a number of big concerns. That practice may be followed and we all know that to some extent it is; but keep this matter in perspective. These big concerns - these nasty people who are so unpopular with the Australian Labour Party - that have done so much to build up the Australian economy in their own sector are only a small portion of the whole. If we periodically jack up the whole of the incomes through the Commonwealth Conciliation and Arbitration Commission, increasing incomes when clearly there are no roods to buy commensurate with those increases, we will have a difficult situation to handle.

A large part of our trouble now arises because the extra income let loose in 1959 is gradually working its way through the system. These measures the Government is taking will certainly adjust the system. However, it is impossible in the course of doing so to avoid very unfortunate effects on large numbers of people. But if we now have a big increase in the wage structure and all our costs go up again, the results may be regrettable. It is all very well to say that General Motors-Holden's Limited and other large concerns can absorb the increases. To some extent they are able to do so, but the vast majority of employers, including those in the wool industry and other major exporting industries, cannot absorb any further increases. If we continue with this process whereby the Government must continually inject a huge extra amount into the income system, it will become virtually impossible to contain a large measure of inflation.

Nobody can be sure that these measures will work, but if in face of this we get a large increase in incomes, our position will become most serious. However, provided every one is sensible and people do not allow talk to lead them into making the kind of decision which progressively leads to a depression, when everybody feels uncertain and restrains activity, we will be all right. People should examine the situation as it exists in reality and not in the atmosphere that is created by gloomy talk of bankruptcy and odd troubles here and there, because if people keep their heads they will realize that what we are passing through basically is a severe shake-out. If we proceed sensibly, we will come through, and come through before the end of this year.







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