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Industries Assistance Commission



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Jj. A U S T R A L I A ι

P R I M E M I N I S T E R

PRESS STATEMENT NO. 24 November 1974

INDUSTRIES ASSISTANCE COMMISSION

The Prime Minister today released an exchange of correspondence with the Industries Assistance Commission.

"I have asked the Industries Assistance Commission to provide to the Government the fullest information about the social and locational implications of. its recommendations. The Chairman of the Commission intends re-examining reports as yet undecided by the Government to identify any

supplementary recommendations which might be appropriate in the current state of the economic cycle" said Mr Whitlam.

"I have also told·the Chairman of my wish that more . attention be directed towards a general approach set out in the Commission's Annual Report for 1973-74, which would have the effect of avoiding a significant scaling down of

some high cost activities where change would present intractable social problems."

"The Commission has been asked to take into account in its recommendations that the Government's structural adjustment measures and non-metropolitan subsidy scheme are not designed to meet all the problems, whatever the stage of the business cycle, which might arise from a structural change seen as in the national interest by the Commission." . . -

The Prime Minister concluded by saying that the system of public inquiry and public advice into assistance measures and the ability of the Government to use the results for the national good would be enhanced by these moves.

CANBERRA. A.C.T.

P r i me M i ni ster

C anberra

:-:v V ;Ί74

Dear Mr Rattigan, , .

I refer to your letter of 18 November 1974 about the relationship of cyclical fluctuations in the economy to longer term industrial policies involving structural change, I understood from the approach to high cost industries outlined in the Commission's Annual Report for 1973-74 that the Commission would relate its

recommendations to the economy's capacity to sustain the changes involved, but I welcome your reassurance that " this is to be the case.

The degree of change which is sustainable by particular social groups and locations is, of course, affected by factors other than the state of the business cycle. In this connection, I have noted comments in thb Annual Report in relation to the possibility of containing,

rather than significantly scaling down, some industries in the high cost area. For example, the thrust of paragraph 144 of the Annual Report suggests that the Commission has in mind that new investment should be encouraged into areas requiring lower levels of protection, whilst measures would not be recommended which would have the effect of significantly

scaling down those high cost industries where change would present intractable social problems.

Having in mind the balance which the Government must hold between the national welfare and the effect of changes on individual welfare, I should like more attention to be directed to this general approach which appears to

provide a sound base Upon which to encourage at a manageable rate the. greater efficiency, and with this the greater prosperity, of Australian industry in the interests of the community as a whole.

Whatever the stage of the business cycle, the Government needs the fullest information about the social and locational implications of the Commission's recommendations. The Government has not taken decisions on a number of reports

including, for example, the Man-Made Fibre Fabrics report of last January, because of its concern for the social and locational implications of"the Commission's recommendations.

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I note that you have in mind re-examining during the next few weeks such reports to identify any supplementary recommendations which might be appropriate. Our consideration of these reports has progressed to such an extent that it would be undesirable to delay matters further, but if the

Commission can provide supplementary recommendations quickly enough the Government will consider them»

Reports which have yet to be submitted to the Government are in a different category. The Government’s structural adjustment measures have been developed (loan guarantees being an exception only in still requiring

legislation to be passed) and you have been'fully informed of the Government's non-metropolitan subsidy scheme. Whilst helpful, these measures are not designed to meet changes in the business cycle; nor indeed can they necessarily be

expected to meet all the problems, whatever the stage of the cycle, which might arise from a structural change seen as in the national interest by the Commission. The Commission

therefore should not make recommendations for change on the assumption that other measures available to the Government will necessarily allow their implementation without difficulty ■ to the community.

It would therefore be entirely appropriate, as has been indicated already through the questions directed to the Commission by SIDCAI on some recent reports, for the Commission to couch its recommendations a.gainst the background of the .

immediate social and locational changes which might follow from their implementation.

I shall publish your letter as you suggested, and also my response»

Tours sincerely,

. E. G. WHITLAM

Mr G. A. Rattigan, C.B.E.·, Chairman, Industries Assistance Commission, Kings Avenue, BARTON A.C.T. 2 6 0 0

im iustnes Assistance Commission < I | ·· i

Kings Avenue Canberra, Λ.Ο.Τ.

18 November 1974

The Honourable E.G. Whitlam, Q.C., M.P., Prime Minister, Parliament House, CANBERRA, A.C.T. 2600. - ' / & >

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Dear Prime Minister,

, One matter discussed in the Commission's annuap^eport was the relationship between the long term objectives' of ifndustry policy., which will require some structural changes witTilrr-ftiritral ian industry, and the effects of cyclical fluctuations on the economy's capacity to

sustain structural change (paragraphs 138 to 144). . In particular, i t drew attention to the fact that there will be certain times when - the economy can more readily accommodate desirable structural changes.

The economy is at present slack and unemployment high, by Australian standards. In this situation, workers and resources who may be displaced by decisions designed to induce structural changes cannot readily be absorbed in other activities. . The Commission has

therefore given further consideration to the question of timing in formulating its recommendations for long term assistance to industry.

Three factors influence the extent of structural change that is possible at any time: ..· . ..

. the general level of activity in the economy;

■ . ' the general mobility of the community's resources;

' < the availability of assistance to enable industries and individuals to adjust to change.

As already noted, the current level of economic activity is slack by Australian standards. Moreover, the Government's measures for adjustment assistance are s t i l l being developed. The present, therefore, is not a suitable time for implementing significant structural changes - however necessary such changes may be to improve

the welfare of Australians - because the. I mined late cost would lie further temporary disruption to employment and a resulting increase in deprivation for employees. The Commission believes that, in this situation, its recommendations should not add to the unemployment already evident in the economy.

R n n n by P r l m o M l n h l e r

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The Commission therefore proposes that, in the present situation, when i t is considering recommending a long term level of assistance that would be likely to bring about important changes in employment within an industry, i t will include in i t s report on

the industry a supplementary recommendation - to apply in the short term. This supplementary recommendation will be designed to ensure that acceptance of the Commission's report would not add to any existing short term employment d i f f i c u l t i e s in the industry concerned.

( I t should be noted that, as only some of the Commission's recommend­ ations for long term assistance to particular industries are likely to have adverse e ffects on employment, only some of the Commission's reports will need to contain the types of supplementary recommend­ ations described above). <

One e ff e c t of this approach will be to separate short run considerations, arising from cyclical fluctuations in the economy, from the long run objectives of industry development policy. Issues of structural change will be dealt with in the basic long term recommend­

ation. This will leave the Government free to deal with questions of long term assistance in a way which promotes the long term welfare of . the community as a whole and in accordance with the industry assistance policy expressed in the Commission's statutory guidelines. It will also remove pressures which may otherwise develop to s e t t l e questions of long term assistance in response to the pressures arising from short term changes in the economy. . .

The Commission w i l l , during the next several weeks, examine the.reports i t has signed:and on which the Government has yet to decide - to identify any requiring supplementary recommendations on the grounds outlined above. As far as is possible within it s commitments to dead­

lines set by the Government for completion of individual reports, i t will also now give the highest priority to those inquiries i t has on hand bearing directly on general assistance measures which will contribute to the long term objective of improving the quality and mobility of

resources. These general measures were referred to in paragraph 147 of the Commission's annual report. This will provide the Government · with advice on the a v a ila b ility of general measures to support the complementary policies being developed to f a c i l i t a t e structural changes,

to ease their private adjustment costs, and to develop those low cost industries which contribute most to e f f i c ie n t use of the community's resources and, thus, i t s general welfare.

As the machinery now being established by the Government to a s s i s t adjustment to structural change develops, the need for the type of supplementary recommendations by the Commission referred to above should diminish.

Yours sincere],/}

, /

/ /

( / /

λ

(G.A. Rattigan)

EXTRACT FROM INDUSTRIES ASSISTANCE COMMISSION ANNUAL REPORT 1973-74

APPROACH TO HIGH COST INDUSTRIES

137. In addition to the approach the Commission has proposed for the development of low cost industries, the objective of improving the efficiency with which the community's resources are used will also require a gradual reduction in the levels of assistance which are high. ’

138. A question which is central to any long run policy that aims to encourage the movement of existing resources into activities where they will be used more efficiently is the rate at which that

movement occurs. Two factors must be balanced: the bcnclits to the community, in the form of increased real wealth and improved living standards, which will result from a more efficient allocation

of the nation's resources; and the costs to particular industries in the form of disruptions to settled ways of production and the scrapping of some assets, and to individuals obliged to change their jobs and perhaps also their place of living. The slower the general rate of change in assistance, the easier it

will be for industries to accommodate to it, through the planning of new investments and depreciation of older assets. But the slower the rate of change, the greater the cost to the community as a whole, in

wealth forgone.

139. Three factors have a vital bearing on the rate at which reductions in high levels of assistance can be made:

• The general level of activity in the economy at the time reductions are proposed. I ·

• The general mobility of the community's resources.

• The availability of assistance to enable industries to adjust to changes in the nature of their activities and perhaps also in the locations of their plants;16 and to individuals to train for new jobs or to move to new localities or new industries.

Effective assistance for retraining is, in the Com­ mission's opinion, imperative—not only to assist the movement of resources into low cost industries, but also to help the continuous readjustment to new conditions which is required in a dynamic economy, and is a prerequisite for improving the efficiency with which the community's resources are used.

140. With regard to the timing of changes in assistance to high cost industries, the Commission will attempt to ensure that its recommendations for change are related to the economy's capacity to

sustain the changes involved. It will provide estimates in its reports on individual industries of the extent to which its recommendations are likely to induce structural change. This information will

be of value to those agencies of the Government responsible for assisting adjustment to economic change. Also, there will be certain times during the general cycles of activity in the economy when the kinds of change which the Commission may recommend can be accommodated more readily, and more quickly, within the Government's general economic and social objectives. -

l6Thc general implication·: of decentralisation for industry assistance are discussed further in Appendix 5.4.

• 141. When restructuring of an industry is spread over several years, changes in the level of activity in the economy may necessitate changes in the rate of restructuring of the industry. It is important,

however, that any temporary measures introduced , to meet a short term problem of this sort do not remain in force beyond the situation they were designed to overcome. This may result in an j expansion of the high cost industry and exacerbate

the problems of adjustment.17 If the use of resources in certain high cost industries can be reduced only slowly, an approach is needed that will discourage the continued expansion of such industries, and

encourage the development of the lower cost activities.

142. Where the products of high cost industries are inputs to other industries—including rural industries and industries in the services sector, such as power and transport—and where they are assisted by tariffs which support prices that reduce

the ability of these other industries to compete " locally and internationally, it will be necessary to . minimise these effects. For these reasons the Com­ mission will, in its reviews, give priority to the

problems created by high cost industries generating ’ these effects. ·

. 143. Many of the resources now employed in highly protected industries could in time be directed into lower cost activities. The normal investment. cycle of most industries should provide opportuni­

ties for them—given sufficient initiative and in­ centive—to progressively restructure their activities. This restructuring would be- facilitated if most

major inputs (and particularly basic materials and energy) are available on competitive terms and there !· is a reasonable supply of the necessary skills. The Commission notes that in Australia, progress with

formal Government schemes for assistance in rationalising and restructuring production are more advanced in relation to rural industries than manufacturing industries; however, it recognises that there may not be the same need for Govern­ ment schemes in each sector.

144. The Commission appreciates that the changes referred to would be unlikely to proceed automatic­ ally or without difficulty. There has in the past been very great resistance to change in high cost in­ dustries, which have a vested interest in maintaining the stains quo. If a dynamic strategy for development is adopted, and new investment is encouraged to go into activities requiring little or no assistance, the improved rate of general economic development will be such that the proportion of domestic production resulting from highly protected industries would in time become quite small. The retention of the few remaining highly protected industries, where ad­ justment to the desired changes may create in­

tractable social and political problems, would then be less of a liability, and less of an impediment to improvements in the general welfare of the Australian community as a whole.

In a report on knitted outerwear in 1971, the Tariff Hoard recommended assistance which it recognised would not protect the whole range of knitwear then produced locally and would involve some restructuring of the industry The Government accepted the Board's recommendations hut on 8 ^ cPlcmhcr I’ 7! provided additional short term assistance which remained in force until March 1974. As noted ,n a report of the Textiles Authority (5 July 1974). production of knitted outerwear had increased by about 20 per cent since the Government's decision on the Board's report.

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