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Wednesday, 9 March 1966

Mr McMAHON (Lowe) (Treasurer) . - Mr. Deputy Speaker, may I first of all thank the House for its indulgence in permitting me to speak without restriction of time in order to explain in some detail the Government's approach to the report of the Committee of Economic Inquiry, or the Vernon Committee, as it is known? Since the report was tabled in this House on 21st September last, there has been, as was desirable, considerable public discussion of it. I do not propose to debate any of the criticisms of the report itself which have been made in the Press and elsewhere, although I shall say something on particular aspects of the policy suggestions advanced by the Committee. What I shall do is to consider in the first instance certain criticisms of the way in which the Government has dealt with the report. Then, to put the matter in perspective, I propose to contrast some of the main conclusions of the report with the view the Government itself takes as to the economic future of this country and its own broad approach towards the development of the great possibilities that our future unquestionably holds.

It has been said in various quarters that the Government has rejected the report and, by inference, all that turns upon its conclusions. That is certainly a wrong view. The Government did, it is true, find some of the conclusions unacceptable and, for very good reasons, made that fact known promptly and decisively. It had a duty to do so. As the then Prime Minister said, there is a great deal in the report which is entirely acceptable to the Government and, furthermore, a great deal that has been or will be helpful, by way of information assembled and analyses made, in our task of shaping decisions on the problems constantly arising around us. Indeed, I may go further than this. I think I can fairly say that we find reassurance both in the broad tenor of the report and in its findings on particular issues which must be the subject of policy. It appears to us to set the seal on much that we have done, much that we are doing and much that we have it in mind to do.

Much of the report is descriptive and, in large part, constitutes a useful account of Australia's postwar economic experience. As the Committee expresses it, there has been a " strong undercurrent of growth in the Australian economy" in the years since the war and it adds that the fluctuations in economic activity which have occurred have been, to use its words - " minor incidents ". None of these fluctua tions, it says, " has been serious enough to strike at the roots of long term economic growth". Rather, the Committee sees Australia's main economic problem throughout the postwar period as a recurring tendency for pressure on domestic resources to become excessive, with consequences for the level of costs and prices and, also, for external stability. Speaking from our own practical experience, which spans four fifths of the postwar period, we believe this diagnosis to be exactly right.

Like the Government, the Committee gives economic growth and full employment the central place amongst our national economic objectives. At the same time, the Committee fully recognises the manifold problems of a policy which aims at " high " economic growth and full employment on the one hand and stability of costs and prices and external viability on the other hand. As to this, the Committee says -

Inflation and balance of payments troubles lend to go hand in hand- and both - may be inimical to long-term growth.

These are the Committee's own words, and again I say that they ring absolutely true to us.

Yet again, the Committee sees that the management of a growing and fast changing economy, especially one as much exposed as ours to the vagaries of international affairs, presents sharp difficulties for the timing of action to hold the economy on a steady path and keep its resources fully employed. As the Committee states it -

In a fully employed economy expanding at a high rate, it will be always necessary to apply brakes from time to time.

Mr. H.P. Brown, whose name is well known to honorable members, recently put this matter in another way -

Policy making is now primarily concerned with small pushes in what is hoped to be the right direction. The art of managing the economy has developed greatly, and the success of present policy is best indicated by the controversy between those who believe current trends are expansionary and those who believe the opposite. This dispute has continued for nearly twelve months and, as yet, the victory has been with those who actually make policy.

Those words, I think, require no elaboration by me. Consider, also, what the Committee had to say about the Australian standard of living. It gave much consideration to this matter and made comparisons with other countries. After allowing for differences of measurement and comparison, the Committee concluded that -

From what we know of the average levels of national and personal income and of consumer prices in different countries . . . Australia ranks among the half dozen or so countries with the highest average standard of living.

Housing, it said -

.   . ranks high in Australian thinking as an element in the standard of living.

In other material standards such as health, ownership of consumer durables and education, Australia compares most favorably with other Western nations. A similar position, it says, applies to the more nonmaterial elements in our national life such as social security and working conditions.

But the Committee was, of course, concerned to do much more than record economic history. It directed itself to a host of current problems and, on most of them, it has said much that is worthwhile. For example, one of the most interesting chapters in the Committee's report is that on costs, prices and wages. Although the Government does not endorse everything the Committee has to say in this chapter, it will command the attention of all who are concerned with these matters.

What, in particular, I find of great value is the Committee's straightforward rejection of the view that somehow or other inflation and growth go hand in hand. Price stability, it says - and these are its words - . . is desirable not only for its own sake but because of its great importance for the maintenance of steady economic growth.

To achieve a desirable level of price stability the Committee later suggests that, as it says - government should ensure that as far as possible situations of excess demand are avoided so that inflationary tendencies are not exacerbated from this source.

With this, I need hardly say, the Government strongly agrees and it has, indeed, consistently sought to frame its budgetary and monetary policies with that objective in mind.

Perhaps one of the most interesting conclusions reached by the Committee concerns the distributive effects of wage increases, on which it says that its discussion - . . indicates the futility, in the Australian economy, of using inflationary increases in the general level of wages (i.e. increases greater than the growth of national productivity) to preserve or increase the share of wages in national income (excluding export income),-

There are, no doubt, some reservations to make about this conclusion; nevertheless, it is a view which rests on a substantial basis of truth.

Let me turn now to a different field - the availability of credit. The Committee's discussion of this matter emphasises correctly in my view, that the constraints upon growth in Australia lie in the availability of resources rather than in the supply of money. Increasing the money supply would produce inflation rather than increased production. In the Committee's words -

As the economy has for the most part functioned at or close to full employment levels during post-war years, any further increases in the money supply leading to increased expenditure would be much more likely to have led to a rise in prices than to a higher rate of economic growth.

And again -

We have seen no evidence to suggest that the general rate of growth of the economy has been held back by mismanagement of the credit machine.

The Government, and those who serve it in these matters, can, I believe, find satisfaction in this forthright endorsement of their record in this field. Of course, no reasonable person would seek to deny that, with hindsight, it could be said that monetary policy has not always responded promptly and precisely to what proved to be the needs of the moment. The Committee is the more to be commended for not relying on hindsight in its assessment of the measures taken from time to time. As it said -

The actions taken by the monetary authorities at the time . . . seem to us to have been ia accord with a reasonable diagnosis of the problem as it then appeared.

I should have said enough by this to show that the Government has by no means found the report to be out of key with its own thought on some of the largest matters. If I might make a personal comment, I found the report a little disappointing in one respect. It seemed to me, if anything, rather over-cautious in its views on the future possibilities of this country. That may seem an odd comment for a Treasurer whose role traditionally is supposed to be that of a watchdog against optimists, a man whose leading joy in life is to deflate enthusiasm and cut idealists down to size. In all frankness, I admit that I cannot resist a feeling that Australia is on the march in a way that it has never known before. There is always a place for caution and a virtue in seeking for pitfalls- the drought is evidence enough of that. But there is also virtue in watching for another danger - the danger of underrating opportunities.

To me, the great fact of our economic state today is the emergence of quite unparalleled opportunities - opportunities for greater production, new production, more advanced forms of production, larger and more varied exports, greater population growth, and a higher general pace of activity and progress. The central challenge to economic policy is to create the conditions that will enable these opportunities to be realised.

Frankly, I miss something of that note in the report. It was concerned, properly enough, to point out the difficulties and dangers that may lie ahead, the imbalance that may occur in our external account if things go one way rather than another, the costs we may incur if, say, we push migration too hard and have to spread our resources of capital too widely, and so on. The Committee did well in this; it was its responsibility. And yet I confess I would have liked a little more play of sunlight on the picture.

I have indeed been led to wonder how much this apparent mood and approach on the part of the Committee may have influenced some of its recommendations which the Government found cause to reject. Certainly it relied on a pessimistic view of our prospects - excessively so, we thought. It seemed to assume that, more often than not, events would break the wrong way for us. That could prove to be so; but I can see no necessary reason for assuming that it will, and it could clearly be harmful if we were always to found policies on the least hopeful assumptions. But before I go on to discuss any of these recommendations I should perhaps relate just why it was that the Government, having reached a view of them, decided to make that view known promptly on tabling the report.

It was a decision taken not lightly but very deliberately indeed. We had studied the recommendations at great length. We found the reasons advanced for them unconvincing.

We saw that they cut across well-considered views of our own. We had no grounds for expecting that they would command wide public support or that such public debate as might occur would be other than inconclusive, in which respects 1 think we can say that we were right. It would therefore have come close to deception to put these recommendations forth, knowing that we could not adopt them but without telling the public that. But we had stronger reasons still.

Dr J F Cairns (YARRA, VICTORIA) - Mr. Deputy Speaker, I rise to order. If the honorable gentleman would like to have this speech incorporated in " Hansard " I will raise no objection to that course.

Mr McMAHON - The honorable member's objection does not really cut any ice with me. He would be better off if he started thinking of his own future.

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