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Tuesday, 30 November 1976

Mr SINCLAIR (New England) (Minister for Primary Industry) - The Treasurer (Mr Lynch) has brought down a statement this afternoon in the House to explain to honourable members and to the public the circumstances surrounding the weekend decision to change the value of the Australian dollar relative to overseas currencies. The honourable member for Oxley (Mr Hayden), who has just spoken, seemed to find 3 areas in that statement and in the Government 's action of which he was critical. First there was a suggestion that in some way devaluation is a result of some newspaper speculation and an alleged leak out of a Cabinet meeting in regard to changes in interest rates and in monetary policy which were announced some weeks ago.

Looking at the whole atmosphere of leaks, it is quite interesting to compare the total propriety of this move and the impropriety on the occasion of the 1974 devaluation. Do honourable members recall the circumstances? The former Government's decision to devalue was taken at around 10 p.m. on Tuesday 24 September. The announcement was timed for 6 a.m. on Wednesday 25 September when financial markets would be closed, but if we check the record we find the Melbourne Sun reported the devaluation, including the figure of 12 per cent, and that the story in question was put together at around 1 1 o'clock on 24 September, one hour after the decision was taken. Subsequently, at around 1.30 a.m. on 25 September, Reuters reported the story in the Melbourne Sun. The Reuters news report was made public around 4.30 p.m. on 24 September in London, before the public announcement. This led to immediate trading action on the London market during the final part of the day's trading and before the announcement was made. Not only was there a distinct leak of information in circumstances which should have led to the resignation of yet another of Labor's Treasurers- of course Labor nearly ran out of men to fill that portfolio- but also the leak led to circumstances in which the present Leader of the Opposition (Mr E. G. Whitlam), as Prime Minister, refused to answer questions in the Parliament on the matter and refused, of course, to initiate any investigation whatsoever. So much for the comparison in terms of leaks. I think the honourable member for Oxley needs to start with a comparison of the propriety of his own Government's behaviour on the occasion of the 1974 devaluation and the present circumstances.

The second substance of the comments made by the honourable member for Oxley related to an allegation that the inflation rate would be somewhere around 1 7 per cent or 1 8 per cent this year. He spoke of 'horrendous accumulations'. This allegation compares in no way to the reality of what we have achieved in economic measures since we have been in government. Indeed the last quarter's consumer price index figures indicate that this Government significantly has been able to contain some of the undue pace of escalation of inflation. In case it is thought that the whole question of inflation being unduly induced by this devaluation is unreal, let me refer to the September 1976 economic newsletter by Philip Shrapnel and Co. Pty Ltd. It is interesting because it relates specifically to the comment of the honourable member for Oxley and in my mind rebuts it completely. Mr Shrapnel says:

The main argument used against devaluation is that it will encourage inflation. Inflation must be cured before tackling the problem of unemployment. These unsupported assertions are stated as dogma, as if they were beyond dispute.

I think Mr Shrapnel must have heard the honourable member for Oxley and perhaps even the Leader of the Opposition, for neither of them were inclined to see the reality behind their allegations on the inflation question. Mr Shrapnel continued:

We would like to present some alternative ideas. First we see no economic reason why inflation and unemployment cannot be brought down together. Since Australia already has a firm monetary and fiscal policy the only other important pre-condition for reducing inflation is a firm wage policy whereas the pre-condition for reducing unemployment is simply to improve business profits which could be improved by devaluation quite apart from any contribution made by wage restraint. Secondly, the benefits of a devaluation will not be frittered away in a relatively short time unless we have a weak wage policy. If we do have a weak wage policy we have achieved no permanent solution to the problem of inflation even if we do not devalue because after a delayed agonising recovery the same problems will emerge as soon as activity starts moving briskly again.

I raise that point because it is most important, in my view, that people look at the question of the extent to which costs will rise after devaluation in a proper perspective. There is no reason, if the total package of measures announced by the Treasurer is implemented, for undue inflation. There are a number of areas in which we are aware that costs will rise. It is certainly not true nor is it, in my view, economically sound for a person who is a former Treasurer of Australia to suggest that we will have an inflation rate of about 17 or 18 per cent. Indeed, none of the statistics, arithmetic or economics can justify that claim.

The next assertion made by the honourable member for Oxley was that unemployment will not be below 5 per cent in the next period. One of the purposes of this measure is to try to encourage employment through the stimulation of local manufacturing industry as a result of inventories being run down and as a result of people trying to buy goods that are now in store that are largely imported before prices go up on subsequently imported goods on which, of course, the prices will rise. Manufacturing industry generally is producing only to 60 per cent or 70 per cent of capacity. While it is producing at that level there is a real ability to increase the volume of production without adding to costs. I would strongly contest any suggestion that in those circumstances Australian manufacturers, first of all cannot increase their volume of production and increase their capacity to produce without adding to the cost of individual items. Indeed, if they can produce to about 90 per cent or even 100 per cent of capacity they could do so for the same cost as that on which they are now producing to 60 per cent or 70 per cent capacity. Therefore, every reason exists for them to be able to contain cost increases. Of course, the result of that is again to stimulate the domestic employment situation and, I believe, to rebut that allegation of the honourable member for Oxley that unemployment will not be below 5 per cent.

I really want to talk predominantly about the background behind this decision and the circumstances that I think need to be looked at in relation to why devaluation has become necessary. There is no use people saying that of course the Treasurer, the Prime Minister (Mr Malcolm Fraser) and the Deputy Prime Minister (Mr Anthony) have said that the Government would not devalue but have now gone against that statement. It is the responsibility of a government and of the senior ministers of a government to preserve the value of their currency to the very maximum. It must be for the Treasurer to deny any suggestion of change of currency value in order to avoid the disastrous speculative consequences which the Labor Government generated by its own irresponsible actions. A proper government behaving in a proper way does not engender speculation in the manner that the Labor Government did at the time of its devaluation in 1974. So much for the suggestion that the Treasurer, the Prime Minister and the Deputy Prime Minister should not have done as they did and asserted that the Australian currency would be held firm.

The circumstances of the productive group of industries in Australia has deteriorated progressively. A number of assertions have been made about the relative level of profitability amongst wage earners and amongst those in the service industries in comparison to those in the productive industries. In particular, as far as the rural sector is concerned, it is interesting to compare the net farm income as a return for capital invested, management and labour, with the adult male average earnings. I should like to refer to 3 particular years. In 1 966-67, net farm income, on the basis to which I have just referred, was $6,395, representing $122.98 a week. The adult male average earnings a week was $61.90. So, in 1966-67, $61.90 was the average weekly earnings compared to $ 1 22.98 for net farm income. That has taken not only labour into account but also capital invested and management. In 1971-72 under a Liberal-National Country Party Government the relationship had changed a little but not as significantly as after the Labor Government came into office. In 1971-72 net farm income was $5,982, $1 15.04 a week, compared to $93 for the adult male average earnings. In 1 976-77 as a result of the change in the structure induced largely by the implementation of the Coombs report and by the refabrication of the whole of the structure of the Australian economy during the Labor days, engendered by the transfer of resources to the public sector and engendered by the transfer of resources beyond the ability of the productive sector to afford to other sectors of the economy, the projected net farm income has fallen to a figure of $6,545; the per week returns are $125.87 whilst the average weekly earnings are $184.70.

Of course, to that figure must be added the 2.2 per cent wage indexation decision handed down by the Conciliation and Arbitration Commission which worsens the whole position of the rural sector. Equally, it can be said of the mining sector of production and of the manufacturing sector involved in exports. Indeed, one of the principal concerns of the Government has been the large number of Australian manufacturing companies which progressively have moved off shorewhich have sought to transfer their Australian operations to areas in which labour costs are less than they are in Australia. Many companies have been able to make greater profits by importing goods and serving as importers, as wholesalers and as retailers instead of as manufacturers in Australia. Relative wage costs have destroyed significantly the competitiveness of Australian exports and in this connection it is interesting to compare United States average weekly earnings and Australian average weekly earnings. Production from the rural sector of the economy was such that unless some serious action had been taken such as was announced by the Government, the rural sector itself was unlikely to continue to survive. Only last week, according to the Financial Review, the journal issued by Philip Shrapnel and Co. Pty Ltd to which I referred earlier stated:

For our part, we do believe that the Australian dollar is over-valued by about 17 per cent and consider that the Government should take more note of the positive stimulation that a devaluation would give to local manufacturing industry and to the rural sector and be less worried about the effect of increased import prices.

It was in that context that the Government took its decision. It was a decision in which not only the Country Party but also the Liberal Party took a part. It was a decision taken jointly by the members of the Government. It was taken in the light of the economic facts and the decline in reserves in the relative ratio of the reserves to imports and of the degree to which money was flowing out of Australia. It was taken after advice received from the financial advisers to the Government on the alternatives of a borrowing of $ 1,000m or a devaluation. In those circumstances, I am quite convinced that not only was it the right decision to make but it was the essential thing to do.

On final point to which I should like briefly to refer is the benefit which devaluation will bring to the Australian community. In the rural sector of the economy the change in statistics is such that during the course of this financial year it is assessed that there will be an improvement of about $150m across the whole breadth of the rural sector. The honourable member for Oxley and the Leader of the Opposition have suggested that in some way there will be no benefit to the rural sector. That is utter nonsense. Every one of the rural industries- the dairy industry, the horticultural industry, the sugar industry, the wool industry and the beef industry- will benefit and that benefit will more than off-set the costs. The Leader of the Opposition has moved an amendment to the motion. It is an amendment which suggests that the Government in some way should be censured because of its economic program. What arrant nonsense that assertion is. Indeed, the whole of the restructuring- this devaluation plus the monetary and fiscal measures that accompany it- will ensure that not only will inflation be contained but also there will be a proper redistribution of wealth within the Australian society which will help in the revival of the rural industry, the stimulation of the mining industry and the encouragement of employment within the manufacturing industry which will be very much to the betterment of the Australian community. I move:

That the question be now put.

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