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Address to Federal Council of the Australia Country Party



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RESS TO FEDERAL. COUNCIL OF THE AUSTRALIAN COUNTRY PARTY

BY TIE RT. HON. j•

McE«TEN

LEADER OF THE AUSTRALIAN COUNTRY P ARTY DEPUTY PRIME MINISTER MINISTER FOR TRADE AND INDUS ThY CANBERRA - 7th DECE!11BER, 1968

The first policy point which has always been in the minds of members of the Country Party is defence, the actual security of our country.

It is clear to all that we are living in troublesome and unpredictable times. We are involved in the defence of South Vietnam, where our troops have maintained the tradition of the Australian Armed Forces.

The one point that I want to make is that, in a world in which Australia becomes a more enviable country to own every year, a richer country, set in a world of uncertainties, we have seen our ancient protector, Britain, practically disappear from our scene and our area,

But our Government has met the situation of our ultimate security by establishing a firm and abiding alliance with our great friend, the United States of America, the most powerful of all military nations. For our security,

this is a transcending thing. Our conduct must be such as to preserve it as a permanent relationship.

Many events have happened in the year.

We have seen the devaluation of sterling, the currency of our great traditional market.

We Country Party Ministers fought for and.

secured, under our doctrine of "policies of compensation", a decision by the Government to compensate the industries which would have lost through devaluation.

This meant to the wheat industry alone at least $30 millior,, s the total amount of compensation for rural industries announced to date is about $58 million. There has been no decision about devaluationolicies for the coming

year but a decision on this will be taken by the Cabin t. I don't predict when the decision will be; I expect in to near future.

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For the wheat industry we gained the security in international trading of a new International Grains Arrangement.

There are large volumes of wheat available or coming available at the present time which, without the

International Grains Arrangement, would produce great pressures

on international markets and values, Experts believe that the current international

price of wheat is somewhere between 15 and 20 cents higher today than it would be if there were uncontrolled competitive

selling without an International Grains Arrangement.

During this year Mr. Anthony has negotiated, against immense difficulties but with immense patience and skill, a new Wheat Stabilisation Scheme.

During the next 5 years the wheatgrowers have a secure home consumption prie starting at `;71.70 a bushel, which will be reviewed upwards annually, and a.guarantee covering 200 million bushels of wheat exported, with a minimum guarantee of $1.45

IVIr. Anthony will, I have no doubt, deal with the details of the scheme, but I must correct a comment that I have heard that the ww :-ahea'. sold., for lhne consun i=on -is i obc iced at the cost of production, This is entirely incorrect.

The price of x',1.70 a bushel derives from calculations of every element in the historic cost—of-production table.

The only modification is that the tremendously increased value of wheat farms, which of course reflects the value of wheat 'o ^ i e a : }gin itself. has not been taken at the inflated value, which would have produced a cost of production of $2 a bushel.

There was no wheatgrower or no wheat organisa-tion in Australia which thought to claim for a moment that we should have a land valuation within the formula which would produce a result of $2.

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A new International Sugar Agreement has been successfully negotiated.

In operation it will more than double the export pr-ice of sugar which has prevailed over the last several years.

I feel it quite safe to say that the new Agreement will bring to Australian sugar producers an additional ) to $34 million a year.

While we were negotiating the Agreement, the price of sugar on world markets was £17 or £18 a ton, It had been as luw as £12.10.0. a ton.

Within a couple of weeks of the Agreement being reached in Geneva, the world price had risen to E27 a ton. It is naw £29 a ton. And the Agreement does not come into effect until 1st January.

This week we have concluded. in London the renewal of the Commonwealth Sugar Agreement, under which Britain will buy sugar from us for the next 3 years — 335,0?0 tons a year at £43.10.0, sterling a ton.

In the industry's black days, our Government had lent the sugar industry 4)19 million one year and was prepared to lend a10 million and, if necessary, x;15 million in the second year.

This is the first time in my experience that a primary industry has asked Government for a loan and not a gift.

I intend to speak in a moment about some circumstances of the wool industry, but one of the achievements if the year has been the acceptance by our Government of a Drought Bonds Scheme in which certain graziers, either sheep

•or cattl3, can purchase these bonds from their income.ef lush years and avoid paying income tax to that extent, and cash the bonds in drought years.

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I have always, until recently, been an opponent of the Government getting into the shipping business.

This has been against the proposition of the Government buying conventional ships and sailing them under the higher-cost, Australian crevr;_ng. conditions.

This, I have argued, would produce a result damaging to our ability tD argue for lower freights.

Now I have proposed to the Government that we should charter two great container ships and enter two shipping conferences: the British/Continental-Australia Conference and the East Coast/North America-Australia Conference.

The proposition now is that we will charger a most modern, newly. constructed container vessel and a newly constructed vessel, half container and half pallet handling.

The Government itself will become a member of each Conference and will run ea 4h ship as one of a fleet of 3, our partners being Cunard, Blue Star and Ellermans.

The charter cost is very much. less than the east would be had we built the ship ourselves, and the efficiency will be the efficiency of our oven successful Australian National Line, joining with the 3 great experienced lines I have mentioned,

After the establishment period, substantial profits are expected, but to make a profit is not the reasor.

for going into the shipping business,

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Freight charged is, or should be, a reflection

of,the costs of running ships and the costs of all the handling on the wharf.

Je have never been in a position to argue

with complete, direct knowledge the relationship between

freight charged on the one hand and costs and profits on the other hand.

Being not only in the shipping business but on a partnership basis and inside a Conference, the Government

will become possessed of every element of knowledge upon which freights are based.

This is the explanation of my proposing to the Government that it should take this step.

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The wool industry is definitely confronted with serious problems.

The Country Party and the Government have

tried a variety of devices to help the wool industry.

Of course, the greatest is the Reserve Price

Plan, which was not acceptable, The Government has supported promotion and

research promotion to get the price up and research tc

get costs down.

There has been encouragement and assistance

to production and development via the tax system.

The only remaining device which has been

adopted by any Government is subsidy added to the return from a product.

There seems to be all the evidence that

subsidy of wool prices would be quite unacceptable to the wool industry. .

Moreover, a direct price subsidy would involve

Government in an obligation which I am sure would be

unacceptable to Government.

Nor does the wool industry need a continuing hand-out. You sell a product whose prices fluctuate

widely. But the costs of producing your wool have been steadily going in only one direction, upwards.

Yaur costs increase largely for reasons which are beyond your control, and to a great e:-.tent reflect

Australian development policies of all kinds from which

you get little direct benefit,

The only remaining idea that has been put to me - and it has come from a variety of sources which include interests within this Party and the graziers themselves - is to make some recompense to growers as an offset to increases in the additional costs which, year by year, the national policies of growth and development

inevitably generate, for all industries, in fact for the

whole community.

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+1' hen wool prices are at acceptable levels, the grower can no doubt handle these increased costs.

It is when wool prices are low that the real difficulty occurs.

Practically all sectors of the community except wool have some form of wage or price adjustment or Goverlment

guarantee of some kind: wool is one of the completely unprotected sectors.

If a device can be found to help the wool industry to handle rising costs when prices are low, this should be

seen as a proper form of help to a great industry struggling

with a unique combination of price and cost difficulties.

This is a thought which woolgrowers within this Party might give their attention to.

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The Graziers' organisations have been

persuaded to see the tariff as a principal contributor to

their costs and to the unprofitability of their industry.

Of course they refer to Arbitration Awards,

but there is ten times as much talked about tariffs as

there is about wages.

I AM the Minister for Trade because Sir Robert

Menzies, as Prime Minister, asked me while Sir Arthur.

Fadden was our Leader to create a Department of Trade,

which includes in its functions the protection of Australian

industries, primary and secondary.

The Tariff Board is the instrument of advice,

operating in complete isolation from the Department of

Trade.

From that isolated position it has made 462

recommendations in the last 10 years, only 9 of which have

not been adopted by the Government.

These are the facts against which some Graziers

accuse me of being a monster, always a Country Party monster,

with a reckless disregard of the terrible consequences to them of the almost unanimous acceptance by the Government

of the Tariff Board's recommendations AND, bless my heart, they have on the payroll

an economist who constantly supports this ridiculous theme Every time the Government makes a decision on

the Tariff Board's recommendation, it is made by members if

a Cabinet, or Ministry, where the Country Party is outnumbered

three to one by.Liberal Ministers Yet, the responsibilities are heaped upon me

alone. (I had an exact parallel of this experience in a

campaign mounted in Western Australia, where it was spread around that the failure of the Federal Government to provide great sums for the Ord Dam was attributed to me alone.)

Surely there is something curious in all this, The "something" is very simple, and ought to be better recognised by graziers.

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Historically the Graziers' Associations have recognised the Country Party as being the only party to which they can really look to protect the country interests.

The Graziers have constantly financially supported the N.S.W. Country Party.

The unpleasant tiuth is that there are anti-Country Party elements in the T,' S.'. Graziers Association who want to destroy the Country Party in the interests of another political party., There is a cell within the Graziers' Association fstering this campaign against me and the Country Party, the objective being to induce the Graziers' Association

to cease financially supporting the Country Party in N.S.W.

This is the unpleasant fact of the situation.

I raise no objection to people opposing the Country Party, campaigning against the Country Party, wishing to terminate the existence of the Country Party. This can be a part of the political scene.

But whether it be the secret Basic Industries Group it the cell within the Graziers' Association, I will continue and expose efforts by wealthy people and wealthy groups operating in secrecy of their on real purpose or identity to harm our Country Party.

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There is a fairly widespread belief amongst woolgrowers, and a spreading belief amongst wheatgrowers, that the tariff imposes a serious burden on their costs.

Rural policies of subsidies, stabilisation plans, tax relief such as provide benefit to rural industry, have been secured only.by arguing that the burdens of tariff, arbitration, etc., warrant special provisioi of relief to the export industries.

Therefore, when you weigh the cost burden of tariff, you must set on the other eideaof the scales the benefits secured because of the cost disabilities.

In respect of the direct effect of the tariff on the woolzrowers, the position as put to me by officers I asked to work on it is:

Net direct additional cost of tariff and subsidies is 0.85 cents per lb. of wool

OFFSET ALMOST COMPLETELY by Government assistance of 0.75 cents per lb. for promotion and research.

The direct effect on wheatgrowers is:

Net direct additional cost of tariff in the past 5 years is 3.5 cents per bushel of wheat

OFFSET COMPLETELY by Government assistance -fertiliser subsidies, stabilisation, research -of 10.4 cents per bushel.

S. the tariff in its direct application to these industries is insignificant.

The special arrangements for primary industries are not hand-outs. They are based on the premise that, due to certain high government policies, primary industries have to suffer costs that otherwise would not e'Tist.

This is the basic reason for superphosphate subsidy, or a special taxation concession, or a stabilisation system which gives special benefits to farmers.

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For this reason, if you want to examine in any

comprehensive fashion the burden of the tariff on farmers, it is necessary that costs which the tariff actually imposes

are seen against the offsetting benefits that farmers have

been given because the tariffs -- and a host of other more

important policies -- have imposed cost burdens on them.

And thus, if you look at benefits given by the

Government against the costs due to tariffs, the wheat

farmers are 7 cents up on the deal.

If they had no tariff and no special treatment, the wheat farmers would be 7 cents per bushel worse off.

In the case of wool producers, if they had no

additions to direct costs as a result of a tariff, and no special concessions, they would be only one—tenth of a cent better off.

These are simply figures to illustrate my point.

It is clear beyond argument that it is not the

di rect effect of the tariff which is responsible for increasing the costs of farmers.

The indirect effeetsof the tariff are not measurable, and I have no doubt are more important.

However, it is clear that they are not as important as the effects, direct and indirect, of a sum total of Government policies -- development, employment, migration, defence and living standard aspirations.

.There are those within the ranks of graziers,

particularly, who are arguing that tariff policy should be used in isolation from other Government policies, ar an instrument of industry planning -- both secondary as well as the

protected areas of primary industry.

In order to achieve benefits to farmers by marginally reducing their costs, some industries would be pushed out.

This amounts to a proposal that, in general,

tariff policies should be developed and applied independently of other Government policies which could have enormous

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effects on employment, investment, balance of payments, and

a whole range of basic aspects of our economy.

Some 28,E of the workforce are employed directly.

in manufacture, which predominantly is a protected industry,

with the largest number of employees in the more highly

protected areas, To undermine the security of industries that

provide 28% of total emp .oyaen.t - and as high a percentage

in indirect employment is c propose something that would

be cataclysmic and ce r to e .ly ana tainabie .,

That is the position revealed by an examination

of costs arising from tariffs, Take wages. Remember about 70% of all emplmyment is outside tariff-protected industries,, No one would deny

that the direct effect -,.f wage determinations has a great effect on costs,, Surely no one really believes that he could turn the clock back and radically alter our arbitration system and

undermine our wages machinery simply because it is claimed

that tariff—protected industries clan afford higher wages than unprotected primary industry

Apart from tariffs and wages policies, there are a great many other factors in the cost pressures of recent

years. Unfortunately, these are seldom discussed in any total and balanced veay,,

One of these is the effect of great capital inflow into Australia in our existing circumstances.

I myself have no doubt whatever that this is the

single greatest factor which is producing the bulk of our cost pressures, and the capital inflow has ensured that what

might be called the natural remedies against rising costs

have not come i ntc operation,

I am not condemning capital inflow. 'Within limits, we must have it But I AM examining it against the background of cost pressures,

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The terms of trade -- that is, the value of the things we export compared with the price of the things we import -- are very adverse to Australia.

Without capital inflow we could not maintain the volume of imports.

I do not believe we could suffer for long the out-run of our reserves of foreign exchange, even allowing for our drawing rights from the International Monetary Fund.

Our balance of payments.-- capital inflow aside --is adverse to the extent of some $1,000 million a year.

Without capital inflow to compensate, a very serious run—out of foreign reserves would take place, reducing bank liquidity and Government spending and having the inevitable and strong downward pressure on internal spending and on all internal costs.

These deflationary consequences would,-of.course, give cost relief to the export industries.

Of course, the cost of achieving them in the circumstances that I am describing would be quite terrible to the whole community.

Somewhere along the line a devaluation of the Australian currency would be inevitable. In devaluation you have the ingredients of the natural correction to low prices and low returns to export industry.

Devaluation would increase the value of their products in Australian currency, the currency which the farmer spends.

But I recount this situation only for the purpose of pointing out that these events do not occur for one reason -•nly the prevailing rate of capital inflow.

This rate of capital inflow produces high liquidity in the banking system; a tremendous pace of development and expenditure; tremendous demand for labour and resources; a capacity to pay high wages and capacity to demand and secure •ver—award wages.

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Viewed in this light eep:_tal nlor;.- is the main

single factor in the generat_on of oul.' internal cost pressures

today°

In general, there is no doubt that the whole

community, attracted b-,,- the spectacle of Australian growth and development, vents this to go on even though it produces

•cost pressures.

if the whole community ',.oes want full employment

with increasing :Liva.nt; standards and rapid growth and

development to go on, then the whole : ,.ommunity must recognise

that this results in increased costs for export industry.

And the whole community should be prepared to offset the

increasing costs of export industries which. have difficulty

in surviving in these circumstances.

I do hope that those who are in trouble will see

in correct perspective the relative importance of the various factors which cause pressure on costs today,

In these circumstances, I have no trouble in fighting for policies of compensation for the cost—burdened export industries,

CANBERRA, 7th December, 19680

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