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Tuesday, 14 March 1961

Mr Malcolm Fraser (WANNON, VICTORIA) . - Mr. Speaker, it is difficult to find any consistent argument in the speech just made by the honorable member for Macquarie (Mr. Luchetti), which was typical of the contributions made by the Opposition in this debate. The honorable gentleman, together with the Leader of the Opposition (Mr. Calwell), in part at least said that most of our present difficulties had been caused by this Government and by the flood of imports which the Opposition and its leader have represented as the main problem confronting Australia at the present time. I prefer to argue - I believe that the facts support me - that the difficulties confronting Australia now are caused by events that have occurred outside Australia, and, secondly, that imports - or a flood of imports, to use the term adopted by the Leader of the Opposition - are a symptom and not a cause of our present problems.

The Leader of the Opposition ignored four other factors, Mr. Speaker. He ignored the fluctuations in our export income and in the gross value of the production of our major export items. He ignored the effect of inflation. He ignored the effect of changes in the terms of trade. He ignored the effect that Australia's position as one of the world's great trading nations has in this regard. It is worth saying a word or two about each of these things.

First, let me deal with the fluctuations in export income and in the gross value of the production of our major export items. Over the last eight or nine years, the volume of rural exports has increased by 25 per cent., but the returns over that period, despite the increased volume, have risen by only £13,000,000 - from £716,000,000 to £729,000,000. If we look at the variations in the gross value of the production of our major export items over this period, we find that wheat reached a high point of £178,000,000 this year and that it reached a low point of £66,900,000 in 1957-58. Wool reached a high point of £615,300,000 in 1950-51 - a year of relatively low production - and a low point of £311,300,000 in 1958-59 from a clip that was 50 per cent, greater than that of 1950-51. The value of the production of butter has varied from £83,200,000 to £35,000,000 over the period, and that of beef from £187,100,000 to £69,800,000. These variations are caused in large measure by changes in export prices which are completely and absolutely beyond the control of this Government or of any one inside Australia. The variations are due also to changes in the volume of production caused by varying seasons in Australia, and these changes also are outside the control of this Government. But it is quite clear that these tremendous variations create in Australia difficulties that are unequalled in any other country. Other countries are able to forecast much more accurately than we can what the outlook for the future is.

The second factor ignored by the Leader of the Opposition was the effect of inflation. It is quite clear that in the period from 1950 to 1953, inflation marched at a much greater rate in Australia than in other countries. But it is clear, also, that this was due to the wool boom, and that control of inflation in those years would have been beyond the capacity of any government. Since 1953, inflation in Australia has not been out of line with inflation in the other major countries, Mr. Speaker. France has had a much greater degree of inflation. New Zealand, South Africa and the United States of America have had a degree of inflation that is comparable with the inflation in this country. The Government has been consistent in its fight against inflation over its period in office, and primary producers and the exporting sections of industry in Australia should be thankful that the Government has been consistent in its fight. If it had not, the position in Australia would have been much worse now than it is. But the exporting industries should realize that their difficulties are largely brought about not by inflation but by falling overseas prices.

The Leader of the Opposition ignored, also, changes in the terms of trade. The International Monetary Fund has taken the year 1953 as the base year with an index of 100. We find that by 1960, the index of Australia's terms of trade had fallen to 65. The figures for New Zealand and Canada - two countries in circumstances not dissimilar to our own - had fallen only to 94 and 97. The terms of trade moved in favour of the manufacturing countries - the United States, the United Kingdom and Japan - where the index figures are 108, 113 and 116 respectively. Put in plainer terms, Mr. Speaker, the export income of £880,000,000 that we expect to get in 1960- 61 would be £1,350,000 at 1953 prices. If that were the case, we would certainly have no problem in front of us at the present time. Putting the position in even plainer terms, I could say that we need two bales of wool to do what one did in 1953.

When we see the indices for the export prices of our major export products, we realize that it is no wonder that the terms of trade have moved against us. If 1952-53 is taken as the base year with an index of 100, we find that the indices had fallen by the second half of 1960 to 60 for wool, 76 for wheat, 79 for butter, 81 for metals, and 91 for sugar. Meat shows the one bright spot in the outlook at present, the index for that commodity having risen to 149. The average of the indices for all the items in this group had fallen to 71. In the light of these facts, and having regard to what Australia is trying to do in the way of development, it would be a miracle if we were not confronted by difficulties at the present time.

Australia's position as one of the great trading nations emphasizes and multiplies the effect of adverse trading conditions. Australia, despite its small population, is among the first ten trading countries. In 1961, we exported 27 per cent, of our gross national product. This is a much higher proportion than is exported by any other country that I know of. All members of this House know how important it is that our position as a great trader be maintained. They know, also, how vulnerable this situation makes Australia to .changes in economic conditions overseas.

In these four things, Mr. Speaker - the fluctuations in export income, inflation, changes in the terms of trade and our position as a great trading nation - can be found the causes of our present difficulties. These difficulties are not caused by the flood of imports, which is a symptom and not the cause of the present situation. I have mentioned inflation as one of the four factors in which can be found the causes of our problems, but as inflation since 1953 has not been greater in Australia than in most other countries, inflation since that time, I believe, should be disregarded.

Since the Opposition, in its censure motion, has made such great play on imports, it would be worth while to examine the imports position both before and after the relaxation of licensing. Before licensing was ended, more than 50 per cent, of imports were running free. These were items which were essential to industry. But it could surely not have been foreseen that when licensing was ended by far the greatest increase - an increase of more than 30 per cent. - would occur in the imports that were running entirely free before. This could not have been expected, and it can be explained only by boom conditions in certain sections of Australian industry and by the activities of people who, quite clearly, have been hedging against what they believe is the possibility of the re-imposition of control. It is quite true that a certain amount of tinned chicken from the United States and a few Californian oranges have come into this country, but in total items of this kind do not amount to much, and they certainly do not cause our present difficulties.

The Government has been blamed for ending import licensing. but those who blame it for this forget the reasons of thirteen months ago. There was then incipient inflation in Australia. Increases of the basic wage and margins had just added more than £150,000,000 a year to the annual wage bill. Our overseas reserves were strong because of the Government's action, and they had been built up in the circumstances of thirteen months ago for the occasion when the Government would find it possible to get rid of this kind of control, which is contrary to the philosophy of people on this side of the House. The removal of licensing in the circumstances of thirteen months ago was an important step in combating inflation. It meant the opening of Australian industries to some degree of outside competition and the placing of restraint on Australian manufacturers, thereby preventing them from raising prices as they would have done if import licensing had remained.

Other policy measures were adopted in the fight against the inflation which was incipient in the economy. The Government engaged counsel to appear for it before the Commonwealth Conciliation and Arbitration Commission, and argued sensibly and correctly that a further increase .in the basic wage at that time would benefit no one but would jeopardize the exporting industries - that such an increase would have been of no benefit to the wage-earner since prices would inevitably have risen because productivity was not increasing then and could not match the increase in money wages. The Government also announced a credit policy which provided for some restriction of bank advances by the trading banks, and it announced that it would budget for a surplus when the Budget was introduced in August as an anti-inflationary measure instead of for a deficit, as had been done for some years previously. These measures, Mr. Speaker, would have been successful, I am convinced, and no further measures would have been necessary, but for circumstances which came to light after the Budget was introduced. The first of these was the lower prices overseas for wool. I believe that the Government was quite justified in budgeting in expectation that wool prices would continue to be the same this year as they were last year. I know that wool futures, since their opening in May in the Sydney market, were consistently lower than spot prices by about 6d. per lb. Because of the demand for wool overseas, the Government had no reason to expect a fall in wool prices to an extent which will cost Australia this year about £70,000,000 in overseas income.

Secondly, it was only after the Budget had been introduced that it became evident that there had been a great expansion of bank credit. Advances 'had increased by over £150,000,000 in about seven months, lt appeared that most of this had gone to finance additional imports. Perhaps because the Australian system of overdraft limits had quite clearly got out of control of the banks their estimate of the amounts that people were going to take up of the unused overdrafts were unrealistic in the circumstances. These two matters were not in evidence when the Budget was introduced. If they had been, the Budget would have been a much more severe document. It was because these factors did not become evident until after the Budget had been introduced that the November measures became necessary. These were, increased sales tax on motor cars, credit restrictions on some sections of industry, a tax on debentures, and an incentive to life assurance and superannuation funds to invest in Government bonds. The purpose of these measures is to prevent inflation and bring demand into line with what we can afford, so as to bring balance into our economy.

Sitting suspended from 5.58 to 8 p.m.

Mr Malcolm Fraser (WANNON, VICTORIA) - Mr.

Speaker,before the suspension of the sitting I sought to show that the difficulties confronting the country are caused, not by the flood of imports, as the Opposition has sought to argue, but by changes in the terms of trade which are beyond the control of any government, and which have occurred because of falls in prices overseas rather than inflation inside Australia. I then went on to describe Government measures that had been introduced to combat those trading conditions and to give the reasons for them. When the sitting was suspended, I had just mentioned four policy measures which were introduced last November. I should like, briefly, to say a word about two of those measures.

The measure which has appeared most controversial in the public eye has been the additional sales tax on cars. The reasons for this increase were clear and sound. For the four months ending October, 1960, motor vehicle registrations were 26 per cent, greater than those for the same period of 1959, and 49 per cent, greater than those for the same period of 1958. In 1959-60 hire-purchase companies put £35,000,000 more into purchases or sales of cars than in the previous year. The increased rate of car sales was adding an additional £50,000,000 to the import bill which, under the circumstances, this country could not afford. Therefore, sales tax was increased as a temporary measure as the Treasurer had foreshadowed in his speech and it was removed when conditions in the industry warranted it. But the industry was also affected by other matters. It was affected by hire-purchase restrictions - by having the flow of finance to hirepurchase companies drastically reduced. Of that I approve. But the motor car industry was also affected to a great extent by Its own over-expansion. The introduction of the Falcon was a part, but not the whole of the over-expansion in the motor car industry.

It is quite true that at the present time the capacity of the motor industry is far beyond Australia's annual requirement. The Government has given the various motor car companies an excuse to blame the Government instead of themselves for some of the reductions that are occurring in the industry. The industry was also affected by the very real thought that the increased sales tax was only temporary. Any one who intended to purchase a car would obviously consider waiting until the tax increase was removed. It should not be thought that this industry has not profited, as other industries have, under the policies of this Government over the last ten years. Australia is one of four countries in the world with a car to every four people or fewer. In the four months ended October, 1960, over 112,000 vehicles were sold while in the whole of 1949, the last year of Labour administration, sales were not much greater - 125,000 vehicles.

Credit restrictions were designed clearly and precisely to curb the speculative enterprises inside the economy and to restrict the excess operations of hire-purchase companies. Credit for the legitimate requirements of exporting industries has not been reduced and it is right that credit to these industries should be maintained. Only one exporter has told me that his credit has been reduced under Government policy, and I believe that this has been the result of a mistaken interpretation of Government policy by a bank manager, and that matter is being reviewed. Credit for the exporting industries has been maintained.

The Government's programme represents a vigorous attack on the cause of the present problems confronting Australia, which is that the demand for imports is greater than our present overseas income can sustain. This attack is especially in the interests of primary producers and other exporters. Primary producers in particular suffer if inflation is allowed to go uncurbed. They are already in difficulties, not so much because of inflation, but because of the drastic fall in many of the prices that they get for their products overseas.

In this debate the Australian Labour Party has shown that it is interested in tackling only the symptoms of present difficulties by re-imposing arbitrary restrictions on imports. They say that this is necessary because of balance-of-payments difficulties, but an analysis of speeches from the Opposition members clearly indicates that their idea is to protect industry. This shows some turning away from traditional means of protection, the tariff, and there may be implications in this implied change of policy which the Labour Party itself has not thought out to the full. Opposition speakers have further argued that licensing alone will solve the present problems without any effort to cure the imbalance in the economy caused by changes in the terms of trade and changed trading conditions overseas. It is quite clear that any such approach to the present situation is nonsensical.

The Government policies have been hampered over the last twelve or fourteen months by people hedging against what they believe to be a possibility of the reimposition of licensing. It is quite clearly part of Labour's plan to create as much uncertainty as possible, hoping that this uncertainty will boost further the demand for imports while licensing is not imposed and so force the Government into some kind of drastic action. The sooner importers realize that the Government means what it says in connexion with licens ing, the sooner the success of the Government's measures will be evident. I believe that the next two or three months will be the testing time for Government policy because I believe that the figures for this month will show that imports have been quite heavily reduced. I believe that they will be reduced even more in the month of April. If that occurs it may open the way to some relaxation of credit restrictions.

While many of the Government's measures are short-term ones, the Government is also interested, as it always has been, in long-term approaches to the difficulties confronting the country. The Minister for Trade (Mr. McEwen) has foreshadowed certain measures which will encourage secondary industries in particular to export and to seek markets for new exports. The honorable member for Melbourne Ports (Mr. Crean) argued that Australia, instead of doing this, should concentrate on expanding traditional exports. This is exactly what has been done over the last ten years, and it will continue to be done while this Government is in office.

The volume of rural production has increased by 20 per cent, over the last seven or eight years. The volume of wool production has increased by 50 per cent, during the decade. Exports of rural products have increased by 25 per cent, over the last seven or eight years. On 1953 values, this year's exports would be worth £1,350,000.000, instead of the estimated £880,000,000. Had those values been maintained, there would be no problem and no difficulties confronting Australia at the present time.

The present moves do not in any way indicate that the rural sector of the economy is being neglected. Other steps have been taken to assist rural industries in many directions. The latest measures merely indicate that the Government is exploring every possible avenue to increase export revenue, though it may be too much to expect the Opposition to understand this.

Once it becomes evident that the import position is under control, the price task of the Government will be to maintain Australia's pre-eminent position in the employment field, as has been the case over the last ten years. It is worth noting that whilst

Canada's terms of trade have fallen from 100 to 97 and Australia's from 100 to 65, Canada has 750,000 unemployed at this moment and Australia has less than onetenth of that number. To-day's report issued by the Minister for Labour and National Service (Mr. McMahon) has indicated that although dismissals have been reported in many industries, this labour has been taken up by other industries throughout Australia. I have every confidence that the Government will watch this factor, as it has for the past ten years in which it has given Australia unrivalled progress and a sense of well-being. I strongly support the measures that have been introduced over the last twelve or fourteen months to combat the situation arising from changes in the terms of trade which have moved more adversely against Australia than against any other country. I am convinced that the Government's measures will prove to be successful and that all honorable members will see for themselves that they have been successful before too long.

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