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Friday, 1 May 1936

Senator A J McLACHLAN (SOUTH AUSTRALIA) (Postmaster-General) . - It may be well if I attempt to make clear some of the points which have arisen. I remind Senator Hardy that the Exchange Adjustment Act affects only goods under the British preferential tariff, whereas under the new system which the Tariff Board first introduced in 1934, the principle is applied, in respect of specific items, to not only British goods, but also those which come under the intermediate and general tariffs.

Senator Hardy - That is what I wanted to know.

Senator A J McLACHLAN (SOUTH AUSTRALIA) - Moreover, the calculations made by the customs officials are based on all values having teen converted into sterling.

Senator Millen - That does not alter the position at all.

Senator A J McLACHLAN (SOUTH AUSTRALIA) - It so happens' that, in the case of glucose, the calculations result in an additional duty of 2.4d. per lb.; hurt if honorable senators will look at item 94, they will see an adjustment on an ad valorem basis, which provides for . 6 per cent. British and . 8 per cent. intermediate and foreign. Obviously, the Tariff Board had to exercise great care before submitting its recommendations to the Government. In preparing the schedule the department has followed the recommendations of the board.

Australia's trade balance has been referred to. In this connexion I desire to express strong disapproval of any discussion in Parliament which might encourage speculation in the exchanges of other nations. We know what has happened in other countries. I myself have been invited to deal in the currencies of various nations in respect of which falls or rises have been expected. Such speculation produces the very evil against which we desire to protect ourselves. We should approach with great care the consideration of currency matters. A suggestion that Parliament might interfere to make the rate 30 per cent., would cause every gambler in Australia and Britain to get busy, with the result that what happened in France and Germany might be repeated in Australia. The Government has a responsibility in connexion with the country's trade balance. When I indicated the prospects this year in this connexion, Senator Guthrie interjected that the position might be different if Australia experienced a drought. The extracts read by Senator Hardy, from a report by the Commission on Monetary and Banking Systems, indicate that Australia is amply secured. I say that deliberately, in reply to the observations which have fallen from the lips of some honorable senators. The Tariff Board has accepted the position that exchange was stabilized at 25 per cent., and has based its recommendations on that assumption. It has reported that a fluctuation of 5 per cent. either way would not necessitate an alteration of the duties it recommended.

Senator BADMAN (SOUTH AUSTRALIA) - Did the board visualize an increase of duties?

Senator A J McLACHLAN (SOUTH AUSTRALIA) - No. On page 9 of its report, dated the 13th April, 1933, the Tariff Boardsaid

The finding ofthe board isnot intended to convey the belief that, should the Australian exchange further depreciate, there should necessarily be a further adjustment of duties. In this connexion, the board considers that no decision should be arrived at until occasion calls for it, when action would be determined upon, after proper inquiry.

Senator Badman - The board provided for a fall of the exchange rate?

Senator A J McLACHLAN (SOUTH AUSTRALIA) - Yes. It was careful to examine every conceivable argument, pro and con, and to estimate the effect on the exchange, and on the fiscal policy of this country. I may be pardoned if I read oneor two extracts from the board's report. On page 5 it referred to the evidence of Mr. Latham Withall, who said -

The direct and indirect implications of a depreciated currency place very heavy burdens upon manufacturing industries. In every element of production costs the exchange factor is discernible. It is, perhaps, not generally recognized that the operation of exchange adds to the cost of locally-produced, as well as to the cost of imported, raw materials. This inflation in prices of locally-produced raw materials is not limited to the exportable primary products such as wheat, flour, and wool, which have a world price basis, and the Australian domestic-consumption prices which are determined by overseas parity, plus the premium on exchange. On the con trary, exchange prices also inflate the price level of local goods, which are wholly consumed within Australia, for it is a truism, and not a matter for argument, that the depreciation of a currency results in a general increase of commodity values calculated or measured in the terms of that currency.

Yet the Tariff Board found that that had not taken place in Australia to' the extent that it anticipated ; there had not been the increase of internal prices that it expected.

Senator Brown - What was the relation between the prices in Australia and. in England?

Senator A J McLACHLAN (SOUTH AUSTRALIA) - On. page 4 of this report the board made the following observation -

It follows that, for a local product ofa type which includes nothing imported or readily exportable, an adverse exchange increases the total protection by the full exchange rate on the c.i.f. figure; hence the protection intended to be provided by the tariff would be maintained if the duty were decreased by the full amount due to exchange. Generally, the manufactured product includes imported or exportable materials: then the protective effect of a. duty is not increased by the full amount of exchange payable, but by a proportion of it dependent upon the relation between the value of the exchange affected materials and the whole.

The board's report proceeded -

The board is, therefore, faced with the position that the added cost of landing imported goods has been materially increased by reason of the exchange, while over the same period Australian costs have fallen substantially. The exchange, therefore, has increased the protection afforded local industry well above the rates which must have been considered reasonable when adopted by Parliament.

In examining this subject in 1934, the board in its annual report said -

The board, therefore, decided to change the basis of its recommendations, and for the greater part of the year under review has shown its findings under three headings, viz. : -

(a)   The rates which will prove reasonable and adequate under existing conditions of exchange ;

(b)   an estimate as closely as can be made of the rates which would be reasonable and adequate if exchange suddenly reverted to par:

(c)   the scale of adjustments necessary to meet conditions of exchange between parity and the present adverse rate of 25 per cent.

The board concluded that it should base its prime finding on the facts as they now actually exist, instead of assuming that costs of local production and costs of importations were different from what they are. Some of the complications involved in arriving at reasonable selling prices have already been set out, and consideration of these will show how difficult it is to estimate what the position would be under an entirely different set of circumstances.

That is the view which I endeavoured to put to honorable senators last night. The report continued -

.   . From these the board is able to arrive at its " (a) " finding as to reasonable and adequate rates of duty.

The board could have concluded, its reports with this finding, and left with the Government the responsibility of providing the same total protection if exchange should fall suddenly. The board considered, however, that an estimate should be made of the duty necessary at par exchange so that steps could be taken to provide for the increase of the rate automatically in .proportion as the value of local currency improved.

The board's recent findings may appear at first glance to be involved,, but the complication, if any, is merely to safeguard local industries in case exchange should suddenly fall. No complication occurs, and no calculation is involved until there .is a movement towards exchange parity. If, as appears quite probable, Australian currency remains as at present for a lengthy period, or stabilizes at its present valuation, all apparent complications would disappear.

We do not know what the future holds, but at present, at any rate, an increase of the rate of exchange is not likely.' Every trend to-day is towards the stabilization of industry in this country; money is flowing into Australia. Having regard to events of recent years, there is a disinclination on the part of the financiers of the world to invest their money outside the British Empire. I am convinced that, as we axe now on the road to prosperity, there should be no artificial expansion of the exchange rate, and I sec no immediate necessity for that to occur for commercial reasons.

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