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Friday, 18 September 1942


Senator ARNOLD (New South Wales) . - I listened with great interest to the speech just delivered by -Senator J. B. Hayes, particularly to his opening remarks. I felt that when he said he wished to help the Government, he was sincere. Generally speaking, his speech was fair and his criticism reasonable. He was not afraid to give a measure of praise where praise was due. However, I should like to correct the impression which he and his colleagues hold with regard to the Government's proposals to make good the gap of £300,000,000 which is left in the budget after revenue is accounted for. I agree with him that once again the Government has decided upon a very high level of taxation. At the same time, however, some of the honorable senator'3 colleagues have urged it to impose even higher taxation. They did not call it taxation. I refer to their proposals for post-war credits. Such contributions would place an insupportable burden upon the people. I point out that the Fadden scheme of post-war credits would yield only £30,000,000. That would still leave a gap of £270,000,000; but honorable senators opposite did not suggest any way of filling that gap. They seem to be afraid of inflation. They are afraid of what might happen if additional bank credit is injected into our financial economy. Senator J. B. Hayes declared that the release of further credit would increase prices. That is true. Indeed, that fact has been demonstrated in normal times; and I have no doubt that, under the exceptional conditions now prevailing, the same tendency will be evident. There cannot be the slightest doubt that, under the strain of war, our financial structure, like every other part of our economy, will creak and groan. Prices must inevitably rise. However, honorable senators should discern the difference between the conditions which operate generally in peacetime and those which prevail to-day under the si rain of war. In peace-time, prices were gradually rising. Here are the

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weighted averages for New -South Wales for the past few years: 1936, 865; 1937, 888; 1938, 911; 1939, 933; 1940, 972; 1941, 1,026; 1942, 1,068. I should say that in 1943 the index figure will be approximately 1,100. This gradual rise of prices is inevitable. However, when the average person is told of inflation, he envisages the sort of thing that happened in Germany after the last war, when the monetary system of that country collapsed. To any person who entertains the fear that that will happen in Australia, I say confidently that such fear is unfounded. Let us examine the usual economic cycle in peace-time. First, let us take a normal period, when a certain amount of money flows through the community, and unemployment remains stable at a certain percentage. In such a period, people buy what they wish to buy with their available purchasing power. Traders endeavour to sell whatever stocks they can. Gradually, these conditions generate a feeling of confidence which permeates our whole economy, and, as the result, the banks are prepared to lend money more readily, and at cheaper rates. We also find that, in such a period, traders seek to extend their businesses and embark on new ventures, all the time endeavouring, naturally, to make greater profit. With the ready flow of money, prices rise slightly, but so long as sufficient money is flowing and the volume of employment is satisfactory, no harm is done. Later, however, there comes a period of speculation. Because of the fact that money is cheap, and the banks readily make funnels available, many begin to speculate on ventures which are not quite sound. That is the normal peace-time cycle. Then, with the failure of ventures and loss of savings, the banks begin to call up risky overdrafts; Money rates rise, and depression follows. The point I make is that if any government poured out bank credit at this period of speculation, and continued to pour it out, the obvious result would bo a collapse such as that which occurred in Germany after the lastwar. The release of bank credit under such conditions would obviously upset our whole financial system. However, in peace-time the Government does not possess the control which it now exercises under war conditions. In peace-time, our economy is governed largely bythe law of supply and demand. When the supply of goods is not sufficient to meet the demand, competition results and prices begin to rise and get out of hand. But let us compare that uncontrolled peacetime tendency with the conditions existing to-day. Honorable senators must admit that the controls now enforced by the Government are sufficient to prevent inflation to any serious degree. At the same time, as I said earlier, there must be a slight rise of prices. That is unavoidable in a time like the present. One of the principal results of the exercise of these controls will be the establishment of a huge reserve of private money; and it is from that pool that the Government hopes to secure its loan requirements by way of voluntary contributions from the people. I urge honorable senators to bear these facts in mind when discussing the subject of inflation in relation to the budget proposals.

Let us review the various forms of control which the Government now exercises over our economy. First, it has control over investments, which are now supervised by the Capital Issues Advisory Board. That body will permit only investments which it considers to be essential in the national interest. Next, all building is strictly controlled. This prevents the wild speculation usually associated with a boom building period in peace-time. Indeed, private building is now almost absolutely prohibited. Imports also are controlled. That means that speculatorscannot now deal in imported goods. The effect of petrol rationing is to restrict expenditure in the motor industry. Not only is the purchase of motor cars restricted, but the huge expenditure incurred by motorists in normal times is also prevented. Then we have newsprint rationing, and the reservation of most of our basic raw materials. We have rationing of clothes. All of these restrictions greatly reduce the expenditure normally incurred by the purchasing public. Further, the production of all sorts of goods, from iron, steel, copper, industrial chemicals, rubber, tinplate, &c, has been severely restricted. To-day, no person can buy luxury furniture. If we require furniture, we can purchase only what the Prime Minister (Mr. Curtin) might describe as austerity furniture. That is, only utility furniture. Other goods which are not now available to the purchasing public include bath heaters, vacuum cleaners, and washing machines. Severe restrictions have also been placed upon travel. Unless one has some very good reason, one is not permitted to travel interstate. Next, supplies of liquor and tobacco have been curtailed. Hundreds of other items have been either prohibited or restricted. I believe that the Government will continue this policy, and impose further prohibitions and restrictions on civilian goods and services. As evidence of the increase of savings, which will be available for loans, the deposits in the savings banks have increased in the past two months by £15,000,000. If that rate continues throughout the year, the increase of savings for twelve months will be £90,000,000. The savings bank rate of interest is very small, and many depositors will probably transfer their money to war loans in order to earn a greater rate of interest. According to the Treasurer's budget speech, approximately £64,000,000 was raised by public loans in 1940-41, with the help of the trading banks, whilst in 1941-42, without such help, approximately £126,000,000 was raised, in addition to the conversion of over £66,000,000. With all the control that has been put into operation in the last eight or nine months, I believe that the flow of money availablefor voluntary savings will be so great that the Treasurer has every reason for optimism as to the prospects of the full amount of loan money being subscribed. I fear that the problem of inflation is not so great in the war period, but will become very intense at the close of the war. I ask leave to continue my remarks at a later date.

Leave granted; debate adjourned.







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