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Thursday, 23 March 1961

Mr CAIRNS (Yarra) .- This afternoon, Mr. Deputy Speaker, we heard the Treasurer (Mr. Harold Holt) introducing the Government's policy for the quarter beginning in March. The matter before the House is the Government's policy for the quarter beginning last December. If any one believes that that kind of policy is either necessary or desirable in Australia, then I think they need not refer to any one else as lacking brains. There is a very great deficiency of intellect apparent in their attitude.

Surely, in a country of this kind we do not need to have significant changes of policy every three months. We do not need to have a change in the level of taxation by 1 0 per cent, in a period of three months. Surely we do not need to have a change every three months in the way in which insurance companies are to be treated.

Mr Mackinnon - We did not have a change in the level-

Mr CAIRNS - Of course you have had a change! The Government announced this proposal last November. Then in December the Government said that insurance companies would be required to invest 30 per cent, of their funds in Commonwealth loans. To-night it is something quite different. How do you expect people to plan with this kind of chopping and changing of policy going on?

The Government has not reduced taxation. It has continued to increase taxation over the last ten years that it has been in office. The honorable member for Henty (Mr. Fox), who has just resumed his seat, disagreed with the honorable member for Barton (Mr. Reynolds) on this point. But I remind him that the aggregate of Commonwealth taxation has risen from £470,000,000 in 1948-49 to £1,244,000,000 to-day, an increase of more than 275 per cent. That means that the ordinary taxpayer, in order to be in the same position to-day as he was in 1948-49, should now have an income of £16 10s. if his income was then £6. If his income was £10 a week in 1948-49, it should be at least £27 10s. to-day. If it was £20 in 1948-49, it should be at least £55 to-day. This has not happened. The lower down in the income scale he is, the more he suffers as a result of this Government's income tax policy over the years.

In 1948-49, when this Government came into office, the proportion of indirect taxation that is levied in the price of goods - indirect taxation hits the lower income earner far more than it does the higher income earner - was 35 per cent. It has now risen to 41 per cent., so 6 per cent, more of Commonwealth revenue is coming relatively from the lower income earners. So, whichever way we look at the situation, contrary to the view of the honorable member for Henty, the taxpayer has suffered as a result of this Government's taxation policy.

The honorable member for Henty chose to make some political capital out of another old story. He accused the Labour Government of 1949 of not being willing to remove petrol rationing. The position in 1949 was that the Prime Minister, the Right Honorable J. B. Chifley, had a request from the British Government that petrol rationing should not be reduced in Australia because petrol resources were not available in England. But the present Prime Minister (Mr. Menzies), this great patriot and lover of Great Britain, was quite prepared to win a few miserable votes in 1949 by promising to abandon petrol rationing, although this meant taking a bigger share out of the pool available to motorists and other users of petrol in England. He won his few miserable votes and he deprived the British industries and other users there of petrol that would have been available to them from the pool if petrol rationing in Australia had not been abandoned. Government supporters have painted a completely one-sided picture, as usual, and they are unwilling to stand up to the truth. Mr. Chifley had far more loyalty to, and love for, Great Britain than this pompous Prime Minister, who travels around the world from day to day, has ever had in the whole of his life.

Another aspect of this sales tax proposal is worthy of note. For a good many years the Government has said that inflation was a condition in which too much money was chasing too few goods, that it was caused by incomes being too high, and that it was too much spending. The Government has said this as though every one was spending too much and as though every one had too high an income. But the Government has now for the first time made a very great discovery. The Treasurer, in his speech on 15th November, said -

At the present time it can be said that demand is much too high; but that is true only in an aggregate sense. It is not true of all sectors of the economy or of all people. Undoubtedly, some people are spending much more than usual but others are not. Similarly, the demands that industry is making on resources are not universally too great. Some industries are running along quite normally or, if they have expanded, it has not been more than commensurate with the general rate of growth. The excess demand for resources is most evident, and over-expansion has been most pronounced, in certain sectors.

So for the first time in ten years this Government has recognized what the Australian Labour Party has been saying for ten years, and it has been difficult, we are often told, for the Australian people to understand the difference between these two approaches. These two approaches are of very great importance in determining what is to be done about inflation. After ten years, the Government has made very important progress in recognizing that spending is not everywhere excessive but rs excessive only in certain places.

What follows from this? It follows that the Government must now have a policy of priorities. Instead of relying upon a general taxation measure or upon general credit restriction applying to the whole economy everywhere in the same way, whether there is excess or no excess, the Government rn the last three or four months has for the first time realized that it must introduce selective measures. It is hardly possible to imagine a more conservative gentleman than the honorable member for Sturt (Mr. Wilson), but even he spoke about essential, less essential and non-esse'ntial goods and activities. That is something he would never have mentioned even a few months ago and it is a recognition that there are such things as priorities in the economy. So the Government has taken a most important step.

In this new approach the Government has said for the first time that in some sectors of the economy there is too much money or too much spending. Where are these sectors? The Government made a dramatic discovery. It said that one of the places where spending was excessive was the motor car industry. The Treasurer on 15th November last said -

The motor industry is another conspicuous example. Registrations of new vehicles have lately reached a rate of 330,000 a year, which is far above the highest point achieved in the 1954-55 boom.

The honorable member for Barton did very well in pointing to the contrast between this story and the story of the Government over the past ten years. In that period, the Government told us of the wonderful expansion taking place in the motor vehicle industry. It told us how American capital was coming here by the million, how British capital was coming here by the million, how Australia now had one motor car for every four persons, and how everything was being done to encourage the expansion of the motor vehicle industry. A double taxation agreement was entered into and this gave investors in the industry millions of pounds of relatively tax-free income. Everything >vas done to increase the rate of expansion of the industry, until suddenly on 15th November, 1960, after a fantastic increase, the Treasurer discovered that the great industry of which he was so proud had gone too far. Is it reasonable that he should suddenly have realized this? Was he not aware that the industry was expanding too far and too fast? I think it was the honorable member for Melbourne Ports (Mr. Crean) who a few weeks ago in this House quoted from the " Australian Motor Vehicle Industry ", a report put out by the Department of Trade. At page 1 1 of the report, this passage appears -

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-

This is early in 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.

That was the pattern. It was known to the Government that early in 1959 the industry could turn out 335,000 vehicles a year. Then there were imports on top of that registration of 330,000 vehicles at the end of 1960. The Government found that the industry had expanded far too much. The honorable member for Sturt said that action was necessary. Can any one deny that? Could not it have been seen that the industry was expanding too rapidly? Could not the Government have endeavoured to apply a policy which would have prevented this expansion from taking place rather than, a few months later, forcing the industry to a stop? Could it not have prevented thousands of people from going into an industry and establishing themselves in a particular place, and then a few months later disemploying them, with the result that at the present time we have 73,000 people on the labour market? Is not it possible in this day and age for the Government to devise a better policy than that?

The capacity of the motor car industry was well known long before 1960. The Government knew what was happening, but it has always allowed inflation to occur in the economy and has then made a virtue of cutting back the economy and causing unemployment. It has made a virtue of increasing taxation and then made a virtue three months later of removing that taxation. What justification can there be for a policy of that kind?

The next question that arises is: What effect did the Government intend this legislation to have? The Opposition found it rather difficult, when the matter was before the House, to find out what the intention of the Government was. I remember saying on 30th November of last year -

The purpose of the Government in imposing additional sales tax on motor cars is to reduce the number of motor cars imported into, or produced and sold in, Australia. If the Government does not succeed in bringing about that reduction, the purpose of the measure will have been defeated.

I pointed out how speakers for the Government, on that day and the day before, had said that there would be no unemployment in the industry. They said that what Labour speakers were saying would happen was only calamity howling, for which we are supposed to be noted. Government supporters said that there would be no dislocation in industry, and the Minister for Labour and National Service (Mr. McMahon) said that there would be only 170 or 180 persons unemployed, not 5,000 persons as in fact did take place.

It was very difficult for the Opposition to entice the Treasurer into the House, but quite late in the debate he made a statement upon this matter. At 5.43 p.m. that afternoon he said -

I made it clear that the intention of the Government's measure was to reduce the volume of sales of new motor cars; that is, to reduce to some degree the abnormal sales.

To what degree? That is what we could not find out. However, sales were reduced. Whether they were reduced -by 30 per cent, or 50 per cent, is still not clear, as far as I can make out, but a considerable reduction took place. As soon as the reduction had taken place, presumably, the Government removed the extra tax. As soon as the effect of the legislation became apparent, the Government decided to repeal the legislation. This must be the position. It must be presumed that the Government, by increasing sales tax, has reduced the number of motor cars being purchased and registered. The additional sales tax having been removed, by what means now will the Government reduce the purchases and registrations of motor cars? How can the Government be sure, now that the additional sales tax has been removed, that the number of motor car purchases will not rise again? How can the Government be sure that the people who went out of the motor car industry will not go back into it again? How can it be sure that the condition which it said was abnormal and excessive is not going to become abnormal and excessive again?

Mr Jess - You know that that will not happen.

Mr CAIRNS - I do not expect you to understand because I think your standard of economics is only that of the first or second grade. I do, however, expect you to be interested. The position is, I think, that the credit squeeze is the only thing upon which the Government can rely. If, as the honorable member for Sturt indicated, the credit squeeze will soon be relaxed, what then is going to happen to the motor car industry? Is it not going to expand again? Is not the Government going to completely defeat what it set out to do? I am prepared to forecast that that will be substantially what will occur.

If the Government does release credit again and does happen to get the economy going once more, it will not be because it wants to make the economy more healthy but because it wants to get votes in the election at the end of this year. The Government has adopted such a policy before. Having removed import restrictions in February, 1960, the Government was faced with a declining balance of payments and an increasing deficit. The Government then adopted a tight credit squeeze and increased sales tax on motor cars in order to reduce imports. The tight credit squeeze policy has been adopted in order to allow the Government to bring in a give-away budget in August of this year, in the hope of winning votes in December, 1961. I submit that the Government's present manoeuvre has no more justification than that.

Honorable members opposite, in talking this evening about the removal of the extra 10 per cent, sales tax, have given the impression that members of the Government all got together - every man Jack of them - and after careful and rational consideration decided to remove the tax. The impression that has been given is that everybody was happy about the extra 10 per cent, tax being removed. Does any one believe that that was the position? The day before the tax was removed the Treasurer justified its retention when speaking to the Australian Council of Trade Unions, and forecast that it would continue. A few days before that he had spoken to representatives of the Royal Automobile Club of Victoria and had given no indication that the Government would even reconsider its position. I suggest that the decision to remove the tax was made by the Prime Minister (Mr. Menzies) alone. If I were a supporter of the Government, 1 would want to know a little more of what was behind this decision.

It is being widely said in the motor car industry that what happened was that on the Friday before the Prime Minister changed the decision of the Government, members of the Ford motor company and General Motors-Holden's Limited put it four-square to him that if the Government did not remove the additional sales tax those companies would close down their works, and that it was under that pressure that the Prime Minister made his decision Honorable members opposite can say that that is not true, but I would like to have more proof that it is not true than the mere interjection of a Government back-bencher.

The purpose of this tax was not to raise revenue, Mr. Deputy Speaker. The Treasurer told us that quite clearly in his economic statement on 15th November, 1960. As reported at page 2857 of " Hansard ", he said -

We are doing this, firstly, 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.

In levying this tax, the Government was not concerned about raising revenue. It was concerned about priorities. It wanted to cut back the motor industry.

The Opposition will move an amendment at the committee stage in order to have the additional revenue which has been collected returned to the people who paid the extra 10 per cent, of the sales tax. If the Government's intention was not to raise revenue, but to achieve the cut-back in the motor industry which has resulted, why cannot the additional tax which has been collected be refunded in accordance with the terms of the amendment which the Opposition will move at the committee stage? But no! The Government wants it both ways. On 15th November last, it said, in effect, "We are not out to raise revenue ". But, having raised about £5,000,000 or so of revenue by means of the additional sales tax, the Government now proposes to retain that revenue.

It is worth pointing out again that the Government has at long last recognized that a taxation measure can have some purpose other than the raising of revenue. "We find it refreshing to see that the adherents of laisser-faire taxation policy, which holds, that you should never levy taxes to return a penny more than you need for revenue purposes; realize at long last that taxation can have a social purpose. That social purpose can be that of the additional sales tax, which was intended to cut back the motor industry which the Government itself had encouraged to expand in every conceivable way. The social purpose can be the discouragement of the investment of money in hire-purchase companies in order to direct the flow of funds more into public investment. Taxation can be used also to encourage insurance companies and superannuation funds to put money into the public sector of the economy. In these ways, taxation can have a social purpose.

I have spent a good deal of time criticizing what the Government has done; I want now to suggest what could be. done in relation to the sales tax. In recent times the Government has increased the proportion of the gross national product and income which is taken in sales tax and similar taxes by more than 10 per cent, of total revenue. The policy of the Australian Labour Party, when we take office, will be, instead of doing that, to reduce the proportion of the gross national product which is taken in sales tax. The policy of the Labour Party will be, secondly, to use taxation not as a revenue measure but mainly as an agent for effecting social purposes by means . of priorities. We shall see that the sales tax is recognized not as a revenue tax but as a priority tax. This is a matter on which the Australian Labour Party will stand: The sales tax must be applied for the purpose of achieving priorities.

Let me now indicate briefly how this tax can be applied towards achieving priorities. First, it can be used to discourage imports. We already have a tax which is supposed to discourage imports. That is a customs tax. But, in relation to imports, the sales tax can be applied on a priority basis to a greater degree to motor cars that use a lot of petrol. The tax should be levied on motor cars in proportion to their size. It should increase in accordance with the greater size of the vehicle and higher consumption of petrol. Thus, we would discourage the import of motor cars that use a lot of petrol. And imports of petrol cause one of the greatest drains on our overseas funds. Next, we can use the sales tax to discriminate against imported goods by imposing on Australian-produced goods which replace imports from now on lower rates of tax or even no sales tax at all. On the other hand, goods which are unessential - which do not replace imports and which contribute nothing to our capital structure or our productive capacity - should be subject to a very high rate of sales tax. This is, of course, implicit in schedules of the sales tax legislation. But I am sure that, from this stand-point, these schedules are so far out of date and so inappropriate that they should be revised from top to bottom.

Let me make one more point. I submit that one of the outstanding features of the modern economy which makes a very significant contribution to the growth of inflation is the almost complete disappearance of price competition. The sellers of goods and services do not compete by trying to lower prices. Instead, by advertising and public relations techniques they try to sell the same or slightly different goods at higher prices to consumers who cannot afford to pay for them. So we have a change in the structure of the economy. More and more people are being employed at higher and higher salaries in the activities of advertising, public relations, packaging, elaborating and inventing. All sorts of gimmicks and dodges are resorted to in order to beat the other fellow and sell the same goods at higher prices. As a result, price competition has substantially disappeared from a very wide range of goods and services in the economy This is something to which taxation has to be related. We have to relate the sales tax increasingly to the sale prices of goods. We have to take into account what happens to the prices of goods after they reach the retail store. We should not look only at the price at the factory, where there is an element of efficiency in competition. We must look at the addition to the retail price resulting from the activities of advertising, packaging and elaborating. If we increase the proportion of the sales tax levied in the sector which embraces advertising, packaging and elaborating and reduce the proportion levied in the manufacturing sector, until the tax finally disappears from that sector, we shall make an important contribution to the control of inflation.

I conclude with a final general point, Mr. Deputy Speaker. The Government is relying on credit policy. It relies on credit restrictions - on what is known as monetary policy. It is supposed to be relying on a balanced Budget, the use of an appropriate tax system, freed imports, and the freezing of wages or opposition before the arbitration tribunals to wage increases, as the means of controlling inflation. Not only the Australian Labour Party has said that measures such as these have failed and should not be tried. As I mentioned to the House only the other night, some of the leading economic thinkers in other parts of the world have come to the conclusion that these methods have failed and should not be used. I bring to the attention of the House once more the views of Professor J. K. Galbraith, an economic adviser to President Kennedy of the United States of America. Referring to monetary policy and fiscal policy - that is, tax policy, he says -

Neither monetary nor fiscal policy make contact with the present form of inflation in an effective and practical way.

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