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Thursday, 31 March 1966

Mr SPEAKER - Order! Honorable members must not interject. I point out that the honorable member for Melbourne Ports, on behalf of the Opposition, will be replying to the Treasurer. He, too, should be heard in silence.

Mr Cope - I did not say that, Mr. Speaker. You are looking at me.

Mr SPEAKER - Order!

Mr McMAHON - I now turn to important sectors of the economy that have been affected. I shall refer to housing and the motor vehicle industry. I should like to take advantage of the opportunity to deal extensively with the greatest problem that faces Australia today - the drought, its persistence, and the effects that it is likely to have for some time to come. I shall deal first with the motor vehicle industry. Towards the middle of 1965, motor vehicle registrations attained a rate of more than 440,000 a year. Clearly this was a level that could not be maintained, because it would have led to a saturated market and other problems. In 1964-65 a total of 420,000 vehicles were registered. That was in contrast to a total of 400,000 in the year before, which was 100,000 greater than the total in 1959-60. In 1959-60 we had the biggest number that we had known up to that date.

Mr Cope - There was a bigger population.

Mr McMAHON - Yes, but not to the same extent. There had to be a fall in registrations. Later I want to touch upon the problem as we see it at the moment. I think I shall be able to indicate that registrations are now moving towards what I would regard as being a satisfactory level.

The second sector of the economy upon which I want to touch - it is more important than the motor vehicle industry, because of its social implications - is the housing and construction industry. We look at this as being a great social problem. We want all Australians to be adequately housed. We want the standard of housing to improve continually, and at the same time to avoid if possible the sharp increases in the cost of housing that have occurred in the past years.. In 1964-65 a total of 116,700 dwellings were commenced. I think it can be said that at that level the rate of commencements was too high. In 1963-64 the number of commencements was 107,600. I remind the House that only a few years ago when there were between 85,000 and 90,000 commencements we thought the performance was rather good. Towards the end of 1965 the rate of approvals given by shire councils and local councils fell substantially. Consequently in both the private and the public sector the Government had to ensure that what could be regarded as being a satisfactory rate of commencements and of approvals was achieved. In the December quarter of last year the rate of commencements was 24,582. If that rate were continued throughout this year we would achieve a rate of at least 100,000 commencements.

What I want to point out here is this: When we saw the rate of approvals and the rate of commencements falling in both the private sector and the public sector, we took action - not perhaps quickly enough, but we did take action. In the case of the private sector, the savings banks at the request of the Reserve Bank, with our full approval, are making an additional $24 million available for housing over a period of six months - that is, in the final two quarters of this year. Undoubtedly, that must make a big impact upon the numbers of approvals and commencements. Later, when I had a look at the figures for the public sector of the economy - that is, for the activities of the State Housing Commissions and for similar activities - I came to the conclusion that activity in this sector had to be increased substantially. Consequently, over the final three months of this financial year $15 million will be available. That has not yet had time to make an impact. I shall return to these two aspects later, indicating what we think the present position is and what we think the trend of the economy will be.

I now want to turn to another section of the economy that does, I think, deserve very special treatment. I have said to the House before and I want to repeat it now - it cannot be repeated too often - that the drought is, I believe, the major economic and social problem that we face today. The impact of drought is, regrettably and unfortunately, first felt by the men on the land themselves and by their families. Their incomes are reduced, and their costs go up. We have to do all that is physically and humanly possible to give them support not only for carry on purposes but for restocking and rehabilitation as well. In the case of the drought, the problem does not end there. In addition to affecting the men on the land, a drought affects the commercial interests in the towns, lt has finally an effect on the supply industries which provide motor vehicles, tractors and everything else associated with the farms. So, Sir, we find that not only does the drought affect the men on the land; it also has a pervasive effect throughout the economy.

The Prime Minister, in the speech that he made to the House at the opening of the session, made a statement which I now want to repeat. It illustrates the philosophy of the Government and the attitude that it has to drought relief. He said that we will go as far as we can and for as long as is necessary in order to give help to those people who are in need. I repeat those words: " as far as we can and for as long as is necessary in order to give help to those people who are in need ". I have not been the Treasurer for very long, but at least I have been able to take a quick look at the extent to which we will be helping in financial terms. I point out, Sir, that we have in truth underwritten the Budgets of the States concerned. We have permitted up to $6,000 for carry on purposes to be made available by the States to individual farmers in need. We have underwritten the cost of subsidies for the transport of stock and for fodder, and we have taken various other measures to ensure that the person in need will in fact receive the help to which we believe he is entitled.

Mr Cope - What are you doing for the housewives?

Mr McMAHON - I married one. Now, Sir, let me explain in financial terms the extent of our commitments to do this. In order to ensure that the States will receive the moneys that are necessary to underwrite their Budgets, we shall this year provide a minimum of $20 million to permit them to carry out the drought relief works that they consider to be so necessary. I emphasise, Sir, that that $20 million is the minimum amount. I personally believe that the amount will be much more than that. I shall be able to give more definite figures to the House when I introduce the legislation to validate the payments.

Because I believe the drought to be a No. 1 problem, I should like now to mention some of the matters that we have dealt with during the last day or two. Since the Prime Minister made his statement, arrangements have been made for the establishment within the banking system of a Farm Development Loan Fund. That is the name by which it will be called. In my statement to the House earlier today, I outlined the details of these arrangements. The Farm Development Loan Fund, to be set up initially with finance of $50 million, will be used by the trading banks to make fixed term loans for periods of up to 15 years or more to rural producers for a range of developmental purposes that will include the restocking of drought affected properties and other measures for drought recovery. The loans so made will supplement those made by the banks on overdraft and from Term Loan Funds, and will represent a net addition to bank lending to the rural sector.

At the same time, Sir, as announced in my statement of this morning, the Term Loan Funds of the trading banks are being augmented by an amount of approximately $21 million. A substantial proportion of the Term Loan Funds is used for the making of loans to rural producers, so that the increase in the size of those funds will further increase the availability of bank finance to rural borrowers. This is another decision that the Government has made in order to attempt to ensure that we do our best to help the bloke who is in need on a rural property.

Although we believe that the banking system will be able to meet the needs of most drought affected rural producers for finance for restocking purposes, there will inevitably be producers who cannot obtain adequate bank finance for such purposes because of their own particular financial positions. The Prime Minister announced in the course of his policy statement that he had advised the Premiers of New South Wales and Queensland of the Commonwealth's willingness to extend its financial support to the two States in respect of the cost of drought measures, so as to cover expenditure by them on concessional loans for restocking. This, Sir, is a new policy decision by the Government about which we have written to the two State Premiers. The two State Premiers have since been in touch with us on this matter and have advised us of the details of the cecessional loans schemes that they propose to introduce. These schemes, Sir, will provide for the making of loans to producers in necessitous circumstances of up to $10,000 in any one case, the loans to be made by the States to carry an interest rate of 3 per cent, per annum and to be repayable over a maximum period of seven years, with no repayments being required during the first two years.

I said, Sir, that these amounts of $10,000 to be made available by the States would be underwritten by us. I can assure the House - it will be made more obvious later on - that the terms under which we are making the loans to the States are very generous indeed. The Prime Minister has now confirmed to the Premiers that expenditure by the States on these schemes will come within the Commonwealth's undertaking to provide financial assistance to the States in respect of the cost of drought relief measures. The details of the schemes will, I understand, be announced by the two State Governments shortly.

In the light of this, Sir, I think it can fairly be claimed that we have been sensitive to the seriouness of the problem of the drought. We have treated it a major national problem, not as a localised State problem, and we have provided a range of remedies and a range of assistance that we hope can be used in most' circumstances.

I would now like to turn briefly, however briefly it might be, to our external accounts. It was not so long ago - perhaps three or four months ago - that we in the Commonwealth Government thought we might have substantial difficulties with regard to our overseas reserves and our balance of payments. Because farm production and exports had fallen by something of the order of 10 per cent., we thought we were heading for a deficit in the current account section of our balance of payments of well over SI, 000 million. That is a large amount to encompass in any one year. However, signs have emerged lately that the problem will be nowhere as great as we formerly thought it might be.

On the exports side, there are three good reasons for this. First, there was some carry over of stocks of exportable products which have now been sold. Secondly, it appears that the prices of some of our rural commodities have increased. For example, wool prices have increased by something of the order of I2i per cent. This will give some relief to the sore pressed farmer. Finally, there has been a substantial production increase both in metals exports and in exports of our manufacturing industries. While we felt previously there might be a fairly substantial decrease in exports, we are now able to say that we feel that exports will be kept up and that the value of these will be somewhat the same as it was last year.

Turning to the other important section, imports, let me say that in the September quarter these were coming in at the rate of about $265 million a month. Clearly, this was a level of imports that could not be permitted to continue. It was beyond our capacity to pay for. So, following on the fiscal policy we have adopted in two Budgets and the monetary policy we have followed continuously, there has been a progressive easing in the rate of imports. In the first two months of 1966 the rate fell by $33 million which represented a monthly rate of $232 million as compared with the figure of $265 million I mentioned previously. Therefore, I can say that in terms of our balance of payments on current account the course of events appears to be satisfactory, and I am pleased to be able to say that the difference between the value of our imports and our exports last month was of the order of only $li million.

Now may I turn to the capital account of our balance of payments? During the first half of 1965-66, the current financial year, the rate of apparent private capital inflow was of the order of $396 million which was $112 million more than for the corresponding period of the previous year and, in fact, was much higher than the level for any other year we have ever known. If we look at the figures for the first two months of this year, as far as we have been able to ascertain them, we will see that private capital inflow is continuing at a high level. Consequently, we can say that for this year the increase in private capital inflow will be substantial. The sum total of what I want to say in this regard is that our position has improved substantially. This year, therefore, we will not be faced with a very big fall in our overseas reserves and a very big balance of payments deficit.

The only other matter I want to mention in this context is that we should not relax our efforts to increase our exports and reduce our imports. If we look at one other section of our balance of payments - the Government sector of the capital account - we see that next year we have loans of about $150 million maturing overseas at a time when funds available are drying up and when interest rates are constantly increasing. World Bank interest rates for example went up last month by about one-half per cent. We do not know how heavy redemptions will be.

As well as that, we have substantial payments to make overseas for our defence equipment. Defence expenditure overseas will increase from about $100 million, as it was in 1962-63, to about $200 million in this financial year. That will leave us with outstanding commitments abroad for defence equipment of over $1,000 million. The lesson we learn from (this is that unless the drought continues and becomes more severe and unless there is a sudden upsurge in expenditure of all kinds, our balance of payments is moving to a more evenly balanced position and by the end of next financial year we may perhaps have reached a satisfactory position.

May I now turn to the economic position as a whole? I .think our economic position may be brought into perspective by a consideration of the statement so frequently and erroneously made that the economy is slowing up. I want to look at four different aspects of .the economy. Let me deal with what are called the weak spots. The first relates to dwelling construction, the second to the general effects of the drought, the third is the lower level of motor vehicle sales and the fourth is the excessive stocks in some sectors.

As to housing, I think it can be taken from the figures that have been published recently and which I have mentioned in the House that the rate of approvals by local authorities has increased substantially at a time, let me point out, when .the full impact of the $39 million has not been felt. Only a few days ago before we announced the further advances of $15 million the Governor of the Reserve Bank said he thought that the number of commencements could be about 106,000 this year or will be at that rate during the last quarter of this year. If we look at the rate of approvals for private houses alone - .this does not refer to flats - we will see that the number of approvals in February was 5 per . cent, greater than it was in February last year during the boom period when dwelling commencements reached a rate that could not be sustained. I believe we can say of the housing sector that this is one of the soft spots which has been removed. I want to mention also that the housing industry is only one aspect of the whole building industry. This industry is a large employer of labour directly. It also has an impact upon the supply industries of household equipment and of industries such as those producing bricks, mortar, tiles and everything else that goes into a home. There has been some - not a great deal, but some - easing off in approvals in respect of the commercial and industrial sectors. I want to point out to the House that while there has been this easing off in these sectors, there will be a substantial increase in the public sector because large works associated with camps, drill halls and barracks will start to get under construction during the immediate future.

The second matter that I wanted to mention was the drought. Here, again, no one can make any positive forecasts as to when the drought is likely to end. There have been relief rains in some areas. Drought persists in other areas, and some areas that did receive relief rains are now starting to find that the drought is affecting them again. So at the moment all that I can say here is that we cannot predict what is likely to happen, but we will take all those remedial and preventive measures that it is open to the Government to take.

Now may I turn to the problem of motor vehicle sales? All that I mention in this respect is that if we look at the last figures that have become available to us we will see that although we have not got back to the previous figures - that is obvious - the rate of decline in the number of sales has in fact fallen. In the December quarter there was a decline of about 13 per cent, on the previous December quarter, and the February figures show a decline of 8 per cent, on the figures for the previous February. From the best figures that I can see I think we will find that the forecasts of those who think there will be something of the order of 362,000 motor vehicle sales for the year will turn out to be wrong. Perhaps the trend will be more apparent when we receive the March figures which will be available in the course of the next few weeks.

The next matter that I wanted to deal with was the problem of manufacturing stocks. During the whole, or most of, 1965 manufacturing stocks built up substantially. In some industries they built up to a level which at the then current level of production could not be sustained. The additions to stocks have been falling substantially over recent months and we are now informed in various significant sectors of the economy - and they are the sensitive sections - that stocks have fallen to a level compatible with current sales. We can therefore expect that in these industries where orders were previously lacking they will now commence to increase. So apart from the very difficult problem of the drought, I think we can say that there is good reason for stating that in one case it is no longer a soft spot and in the other cases we will need to see later figures before we are in a position to make statements with any degree of certainty.

There is a further ground for doubt. We have heard too frequently the comment that the rate of growth of the gross national product has fallen sharply. This is highlighted by the fact that during the December quarter, on the official statistics, there was an increase of only 4 per cent, in the gross national product. If we look at the figures that have been released we will see that this figure has been calculated after a very big fall in farm income. If farm income were taken out, the gross national product would have increased not by 4 per cent, but by 7 per cent. Further, the fall also reflects the smaller additions.

Then there is the problem of what is called the fall in consumption expenditure. Some people have argued that because consumption expenditure is easily the biggest sector of the economy and expenditures there are far greater than in all the other sectors put together, a fall in the rate of increase in consumption expenditure must necessarily mean that there has been a fall in the rate of growth in the economy as a whole in real terms. This does not necessarily apply. If there has been an increase in public works expenditure, an increase in development projects and an increase in productive equipment, then a smaller increase in consumption expenditure does not necessarily mean a fall in the real rate of growth in the country. Far from that being the position, as I have said, if we take account of the fall in farm output we will find that there has been a substantial increase in real terms.

What I want to point out is that the country continues to grow, and at a strong rate. We have full employment. I want to repeat that in my opinion when the next figures for registrants become available we will have further cause for reassurance. Perhaps it is not fully realised how rapidly we, as a country, have been adding to our productive resources. Too frequently it is forgotten that when we add to our productive resources we add to our capacity in the future. I should like to illustrate this by concentrating on the figures for new capital expenditure for private business. I make my comparison for the last six months of 1964 and the last six months of 1965. Looking first at manufacturing, we find that total capital expenditure rose from $378 million in the earlier period to $445 million in the later period, an increase of 18 per cent. Within that total, expenditure in extracting, refining and founding rose by 35 per cent., in engineering by 19 per cent., in chemicals by 14 per cent., in textiles and clothing by 50 per cent., in food, drink and tobacco by 28 per cent., and in other forms of manufacturing by 15 per cent. The only industry to spend less in the later period on capital expansion was the motor vehicle industry.

There was a decline in that industry from $50 million to S43 million, which was a decline of 15 per cent.

The non-manufacturing industries increased their capital expenditure by 45 per cent, from $318 million to $462 million. In mining, the increase was from $35 million to $110 million, which was an increase of no less than 208 per cent. Taking all industries together, the increase was from $696 million to $908 million, an increase of 31 per cent. This, mind you, was in the space of one year. What this amounts to is that over and above our defence expenditure we have channelled resources into areas where they will bring the greatest production and greatest productivity in future years. Can it possibly be argued by a reasonable critic that this means a slowing down of the economy? These are the very ingredients of progress. These are the very ingredients of increased production and productivity, and we as a Government cite them with a great degree of pleasure. As to the philosophy and attitude of the Government, I think it was well expressed by the Prime Minister when he said -

There are . . . apprehensions about some weknesses in the economy which, if they were to spread and combine, could create an undue slackening of demand and unemployment. The Government certainly does not want this to happen and will take any steps necessary to prevent it happening. The general trend of demand must be kept rising sufficiently to preserve full employment and provide jobs for the additional labour coming forward locally and from the rising migrant inflow.

Before I complete my statement I want to point to two factors. The first is that in an economy such as ours, which is growing at the rate at which ours is and with a very heavy migrant inflow of about 150,000 a year, changes can take place with bewildering rapidity. Consequently, it must be a cardinal principle of economic policy, and one which is adopted by this Government, that we have the maximum flexibility, and be prepared to encourage expenditures in one section of the economy and to moderate expenditures in others so that we achieve the maximum or best productivity and production that it is possible to achieve.

The second is that activity in some of the areas in which increased expenditures are taking place can fall with dramatic rapidity. I want to emphasise the words oi the Prime Minister. He said that we are carefully watching every one of the indicators; that we are determined to maintain full employment; and that we are determined to have the maximum rate of, growth of which Australia is capable. As one who is watching the economy on his behalf, I say that I will watch every trend with the maximum of the ability that lies at my command. I conclude on this note: I believe that the economy is basically sound and that growth is continuing. On behalf of the Prime Minister and the Government, I pledge that it will continue in that way.

I present the following paper -

State of the Economy - Ministerial Statement, 31st March 1966- and move -

That the House take note of the paper.

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