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Tuesday, 9 May 1961

Mr CREAN (Melbourne Ports) . - Mr. Speaker, this bill provides for the appropriation of a further sum of £57,143,000 from the Consolidated Revenue Fund. This is in the nature of a supplementary estimates bill, but one item in it is of some significance. It makes provision for appropriation to the Loan Consolidation and Investment Reserve of £40,000,000. This is the principal item in the bill - the greatest single appropriation provided for in it - and the existence of this item affords honorable members an opportunity to go to the root of the economic problems of the Australian nation because, to some degree, they all are bound up in this. The Treasurer (Mr. Harold Holt), in his second-reading speech, stated -

At this stage, it appears likely that receipts of the Consolidated Revenue Fund could exceed expenditures from the fund by more than the £125,700,000 originally estimated.

It will be remembered that when the Budget was presented, in August last, one of the prongs of the Government's policy was that this year there should be a Budget surplus, and in August last that surplus was estimated at £125,700,000. According to indications of the Government's revenue since, unlike the revenue of some individuals in the community, the Government appears likely to have £40,000,000 more in its surplus than it thought, and the surplus, instead of being £125,700,000, is now expected to be about £165,000,000. Accordingly, the Treasurer told us -

An additional appropriation is therefore sought for payment to the Loan Consolidation and Investment Reserve of an amount up to £40,000,000 over and above the £125,700,000 provided for in the Budget.

These days, Mr. Speaker, as is known, the policy that a government pursues in its budget - its fiscal policy - has a lot to do with the economic destiny of the community. As the Treasurer himself has pointed out, this arm of policy does not work in isolation but works in conjunction with monetary policy. Increasingly, it seems to be thought that in economies like that of Australia monetary and fiscal policy need to be buttressed by other weapons. Since the last Budget was presented, we have seen, a number of steps taken by the Government by way of second thoughts after that Budget. Some of them may be classified as fiscal devices, but they really represent a selective form of economic control. At least, these measures represent a recognition by this Government that monetary policy and tax policy, working alone, often are instruments which are too blunt to obtain the required results in an economy such as ours.

This afternoon, I want to deal with one or two points of the Government's policy and contrast the sort of complacency, in a sense, with which certain problems are faced up to in Australia with the attitude adopted towards problems of the same kind in other countries where circumstances are not really dissimilar. Last Thursday, the Treasurer made a statement explaining the reasons why the Government had borrowed from the International Monetary Fund 175,000,000 United States dollars or £78,125,000 Australian, with a stand-by arrangement, as he described it. under which a further 100,000,000 United States dollars or £45,000,000 Australian could be borrowed if necessary. Criticizing this situation, the Opposition pointed out that the arrangements made have served only to pinpoint the difficulties being experienced by this country with respect to its balance of payments and suggested that this position has arisen because of the Government's failure to grapple with the situation which was presented to it. The Opposition also hinted, as had been hinted by way of questions some days earlier, that certain strings were attached to the borrowing of the sums mentioned - strings which, in a sense, restrict what may be termed Australia's economic sovereignty. The Treasurer tried to imply that that was not so.

If any individual borrows from a bank, he does not borrow always on his own terms. Some restrictions or conditions generally are placed on his borrowing. This is a transaction internal within the economy, but the position is not altogether different where a country borrows from an international institution. The only thing is that-

Mr Killen - Is this really borrowing?

Mr CREAN - It is certainly borrowing, because if you do not repay it you will be in some difficulties, and that would be the sort of position that would apply as between borrower and lender. I should think that it could accurately be characterized as a species of borrowing. I suggest that not only do you have to pay it back, but before you get it you have to subscribe to certain conditions. Some of my colleagues will develop this point in some detail later, but I should like to bring to the attention of the House a statement contained in a recent pamphlet published by the International Finance Section. Department of Economics, Princeton University. It is one of a series called, " Essays in International Finance ", and it bears the date March, 1961. The title of the pamphlet is, " The International Monetary Fund: Its Present Role and Future Prospects ". The author is Brian Tew, who, I think, originally was a product of an Australian university, and who is now abroad.

Mr Bury - He came here, and is now Professor of Economics at the University of Nottingham.

Mr CREAN - I accept that. In this pamphlet, writing of the operations of the International Monetary Fund, he says that the situation in that fund is very much different since 1956 from what it was prior to then. In commenting on the changed role of that institution, he says -

Lastly, the events of December, 1956-

That was when Great Britain made an approach to the fund - established the precedent that sovereign states, and even very important ones, have to be prepared to agree to conditions when obtaining large-scale access to the Fund's resources.

He quotes from an address given by Mr. Per Jacobsson, the chairman of the institution, delivered to the International

Chambers of Commerce on 23rd April, 1959 - not very long ago - as follows - . . assistance obtained by the United Kingdom in December 1956 was granted on the basis of a declaration by the British Government that strict financial and credit policies would be pursued; that quantitative restrictions would not be reimposed, and that the value of the pound sterling would be maintained. It has become a regular feature of all important Fund transactions that the governments receiving assistance inform the Fund about the policies which they intend to follow.

This has been done by the Government of Australia recently. The footnote which Mr. Tew has attached to that comment is, I think, of some significance. Referring to Per Jacobsson's reference to Britain's position in relation to the Fund in 1956, Mr. Tew wrote -

Britain's declaration to the Fund in 1956 amounted to no more than a declaration to pursue policies already adopted on their own merits- and again, it conceivably could be a justification by the Australian Government that it has not been tied in any way by any conditions imposed by the International Monetary Fund, because it has already adopted the policies concerned - but even so it presumably committed her to avoid changing these policies except after prior consultation with the Fund.

I do not want to pursue the question in great detail, because others will go into it more precisely; but it has to be recognized that there was some reluctance on the part of Australia to go into either the International Bank for Reconstruction and Development and the International Monetary Fur.d because it was felt that adherence to those institutions might in some way in future circumscribe Australia's economic sovereignty. And there is not any doubt that implicit in what has been adopted as the procedure since 1956 is the fact that countries which want to borrow - of which Australia is the current example - have to commit themselves beforehand to certain economic policies, or outline what their economic policies are, and those policies cannot be varied without some prior consultation with the fund. That is all that is sought to be pointed out by this side of the House and the press, but the Treasurer seems to be a little sensitive about it, and states that there are no strings attached to the borrowing. I suggest that that state ment is not a factual presentation of the circumstances as we find them. We have borrowed and, in certain circumstances, will be in the position to borrow further. In order that that loan might be consummated a statement had to be prepared by the Commonwealth Treasury stating what Australia's present economic policy was. and stating even what policy would be followed up to the end of the next Budget year - that is, to the end of June, 1962. By precedent, and judging from the present method of working of the International Monetary Fund, there may be no change in Australia's present economic policy without prior consultation with this international body.

That is the only point I want to make at this stage with regard to that, but the basic fact that should not be lost sight of is, why does Australia have to have recourse to this borrowing at all? This goes back again to internal circumstances in our economy which are largely of the Government's own making. The most sorry feature is that for the last several years our annual imports have greatly exceeded our annual exports in value, and the difference has been made up by capital inflow. That position of excessive imports has been aggravated since February, 1960, by the Government's incredibly stupid decision to remove import controls. Again, you get some rather curious arguments raised here with regard to the question of imports. It was even suggested that the relaxation of import controls was an anti-inflationary measure, which would help to lower prices in Australia. The other day, in his submission to the International Monetary Fund, the Treasurer stated that some importers were actually importing certain goods even though the prices of these goods were higher than the prices of similar goods available in Australia. I should like some member of the Government to argue seriously that anybody believed that removing import controls would help to lower prices in Australia, because such an assertion has not been borne out. I would like to hear of any examples of that phenomenon, if it has occurred.

The second argument that is sometimes advanced is that, having this excessive volume of imports, Mr. J. E. Coyne, as governor of that institution. He points out that a similar situation exists in Canada to that which obtains in Australia. He is very sceptical about this question of imports. He argues that some of the imports into Canada have been prejudicial to the development of the industries of that country. I suggest that the same circumstances obtain here. I hope that members will see the link between this question of imports and the provision of future employment in Australia. Mr. Coyne said -

Undoubtedly, one important reason for the slow rise of employment in goods-producing industries, and the decrease in the case of agriculture-

Again, not dissimilar to Australia - has been the great input of capital in the form of machinery and equipment - mechanization and automation. Unfortunately for employment in Canada, a very high proportion of such machinery and equipment has been imported from other countries, instead of being researched, developed and produced in Canada and providing a " growth industry " for Canada in terms of employment and technological progress.

That is his first observation on this very important question. I hope to be able to link up these propositions, the second of which he states on page 12 of the report as follows: -

It would appear that our present economic problems derive in part at least from excessive concentration on physical investment and unbalanced investment in earlier years.

He has suggested, in other words, that it would have been better to have lost some of the private investment in Canada and to have had a degree more of public investment, particularly of " investment in human capital which can, at times, do more for growth of output than investment in physical capital ". Again, I suggest that the same sort of circumstances apply here. A lot of people have been happy because they have seen foreign investment choosing its own field and providing employment in Australia. But perhaps it has been done to the detriment of increasing the capacity of our own technical students in the next few years and of developing this country more suitably. Again, I think that is a valid observation. The report also contained the following observation: -

The view that Canada could not have enjoyed sufficient economic growth without this vast increase in foreign investment in Canada, and that the Canadian standard of living would have been much lower if we had not had this vast increase in foreign investment in Canada, appears to me very questionable.

I cite this proposition only because I do not think that any one could, by any stretch of the imagination, suggest that Mr. Coyne, the Governor of the Bank of Canada, is a socialist agitator or that he reflects the Labour point of view. He has made very significant utterances about the over-all pattern of development of the economy in Canada, pointing out that the situation in regard to imports is not a very happy one. He says that the situation has very few historical precedents because no other country of comparable maturity has had anything like so large a deficit sustained over so many years. I suggest that similar circumstances exist also in Australia.

Over the last seven to ten years wo have had almost a chronic deficit in our overseas accounts which has been made good by borrowing. We have had either direct investment by foreigners in our industries or we have borrowed through the International Bank for Reconstruction and Development or the International Monetary Fund. That can have serious dangers, as the Governor of the Bank of Canada warned that it could have for his country. The important point which is often overlooked is that in taking this course you fail to grapple with the structure of problems as they exist in your own economy. I think that we are getting to that stage in Australia.

This is borne out by the employment figures contained in the most recent issue of the " Treasury Information Bulletin ", which covers the three months, January to March, 1961. Some very critical features emerge from the contemplation of employment statistics as published in this bulletin.

It is bulletin No. 22, and is dated April, 1961. On page 21 and following pages it is stated that civilian employment in February, excluding wage-earners in rural industries and female private domestic service was 3,077,000 persons, an increase of 64,600 since February, 1960. It is not very long since we were told that, from now on, the increase in employment, year by year, ought to be between 100,000 and 120,000 persons. From February, 1960, to February, 1961, the increase was only 64,000 persons. That figure is as bad as it is because of the trend that took place in the first quarter of the current year. As well as anticipating that we had to find between 100,000 and 120,000 new jobs a year for our own children leaving school and for immigrants, it was also anticipated that the biggest absorber of labour in Australia for many years would be manufacturing industries. Yet, in the three months to February, 1961, there was a decline in manufacturing employment of 14,500 people. These are the things that the Government ought to be considering a little more closely. But its monetary and fiscal policy has been such that, at the moment, about 80,000 people are unemployed. The number has grown considerably in th.e last three months. The impact is only beginning to be felt.

Mr Reynolds - It has grown a lot since the last figures were issued.

Mr CREAN - Exactly. Unless the Government pays more serious consideration to the structure of employment we could very quickly suffer an economic catastrophe. I am not one to predict economic gloom, but I think that this is the only thing that can be predicted because of the Government's ineptitude and its inability to grasp these problems until it is too late.

Mr Harold Holt - What is there in the record of the last eleven years to justify that statement?

Mr CREAN - I am not talking of the record of the last eleven years; I am talking, in particular, about the record of he last few months. That is of much more significance than the record of the last eleven years. This Government seems to claim credit for all the good things when they happen, but it wants to ignore the bad things when they occur. I suggest that the duty of the Government is to grapple with the situation as it finds it. The figures in the Government's own Treasury Bulletin at least point to a catastrophic slide in the rate of employment absorption in the Australian economy. The Government is not finding 100,000 new jobs every year. In fact, in the last quarter, in the source in which we provide most of our employment - manufacturing - there were actually 14,500 fewer people employed in February, 1961, than at the beginning of this year. It is all very well for the Treasurer to say there has been a turnover of labour and that it has gone to places where it is better served, but there are 80,000 people who have not gone anywhere and who are unemployed. I suggest that if the trend which was evident in the first quarter of 1961 continues in the current quarter, the unemployment figure will be well over 100,000.

Mr Harold Holt - Your leader said it would be 150,000 in March.

Mr CREAN - He may have overestimated a little bit; but I suggest that the Treasurer has underestimated the degree of illness in the Australian economy at the moment, and it is time he looked more closely at the situation. 1 again direct his attention to an article which appeared in a recent issue of the " Economic Record ", which is the publication of the Economic Association of Australia and New Zealand. In the December, 1960, issue of the " Economic Record " there was an article by Mr. Burgess Cameron, a research student at the University of Canberra, entitled " The Anatomy of High Employment ". In it Mr. Cameron makes an analysis of how employment has grown in Australia from 1947 to 1958, and the categories in which the employment has been found. He says -

It will be noted that in these three periods- that is from 1947 to 1950, from 1950 to 1954 and from 1954 to 1958- factory employment absorbed respectively 31 pei cent., 37 per cent, and 31 per cent, of the estimated rise in employment.

That is the point - in the past, factory employment has been the greatest single absorber of labour in Australia; yet in the last quarter it shows a decline, Mr.

Cameron goes further in his article and points to particular industries which he suggests ought to be the ones that we can look to in the future for the greatest absorption of employment. He says -

In the period 1954 to 1958, the growth ot factory employment and hence, substantially, the growth of total employment, depended primarily on the heavy industry pace-makers - engineering, chemicals and paper. At the time of writing (April 1960), it appears that this is still true.

But the situation in April, 1961, is that the paper industry in particular is facing a decline of employment in Australia; and I doubt whether the engineering industry or the chemical industry would show an increase.

It is all very well to argue about a dead level of employment in Australia, but we do not have a dead level. We have to have an increasing level of something of the order of 100,000 or 120,000 new jobs each year, and the majority of those jobs have to be found in heavy basic industry, in the sort of factories which employ large numbers of people. But what is the situation? Again, the Treasury Bulletin shows that in the January-March, 1961, quarter employment in larger private factories, including practically all private factories with 1 00 or more employees and a large section of those with between 50 and 100 employees, decreased by 2.6 per cent. In factories other than food factories, employment decreased by 4 per cent. Those facts point to a very critical situation so far as the future employment potentiality in Australia is concerned. Yet the very policy which has helped to bring that situation about is to be continued in this country until June, 1962.

There has to be some change in the Government's attitude. It is all very well relying on the theory that certain monetary and fiscal measures that are taken will produce certain results. The measures which the Government has taken have produced unfortunate results for large numbers of Australians and if they are continued they will produce an even greater deterioration in our economic situation. It is all very well for the Government to crow about the last ten years of achievment; they have not been an unmixed blessing. Those years have been characterized by inflation and, as the Opposition has pointed out, inflation is the stealthy robber. It is Robin Hood in reverse - stealing from the poor and giving to the rich. It penalizes those on fixed incomes or slowly rising incomes and gives premiums to the profiteer. That has been the situation which has prevailed over a good part of the last ten years; and the Government has not taken appropriate fiscal measures in the right places to see that a little justice is done through the taxation structure to reduce or redress the inequity that inflation has wrought over the years.

In Australia at the moment we have a situation in which during the past quarter another source that we look to to buttress our employment - the building industry - shows an unfortunate decline when measured against comparable periods. The Treasury Bulletin, at page 25, shows the number of new houses and flats commenced in the March quarter of 1961 at 19,928. To get a comparable situation we have to see what the March quarter of 1960 was as against the December quarter of 1959. The March quarter of 1960 showed commencements at 22,569 and the December quarter of 1959 showed 21,900 commencements. In other words, there were 700 more commencements in the March quarter of 1960 than in the December quarter of 1959. But in the March quarter of 1961 the figure was 19.928, and in the previous December quarter it was 23,594, or 3,600 more. In other words there has been a deterioration on a quarterly basis of something like 4,000 dwellings or something like from 16,000 to 20.000 houses per annum, a slump of one-quarter of the potential building activity in the past. This flows largely from the credit and economic measures pursued by this Government. It is impossible, in the limited time, to cover all these ills, just as it will be difficult for the Government to look back over the last eleven years and try to rescusitate the good. The people at the moment are more obsessed by the ills of the last quarter and the next quarter than they will be gratified about the results of the previous ten years. You cannot continue to live on the past politically. Politics seems to be a field where there is more emphasis on the present and the future than on the glories of the past; and that is probably a good thing. It is probably a salutary feature. However, I suggest that the Government ought not to be complacent. I have cited particularly its failure to grapple with Australia's overseas trading position and its action in putting the country in pawn by borrowing either from private individuals or from financial institutions.

I have also pointed out the Government's failure to look at the employment structure in Australia, and to see just how "Vulnerable we are, depending for continued absorption in employment of people wanting jobs on growth in the manufacturing field particularly. After all, the most outspoken critics of the Government at the moment are the manufacturing interests. I think that occasionally they themselves are open to a degree of criticism, but at least on this occasion they have realized that something is wrong with the state of Australia, or with the six States of Australia. As the Government wants to take credit for what it claims to have done in the past, I believe it should also accept a little bit of obloquy for the kinds of difficulties in which we find ourselves at the moment.

Another matter on which I want to dwell for a moment or two concerns the loan market as we find it in Australia in 1961. I have before me the issue of the " Australian Financial Review" for 4th May, 1961, which gives the terms for the next Commonwealth Loan. An interest rate of £5 7s. 6d. per cent, is provided for securities maturing in February, 1981, £5 8s. 6d. per cent, for securities maturing in August, 1970, and £5 9s. 2d. per cent, for securities maturing only .two years hence. I believe there is some call for an explanation why the short-term rate on Government securities should be higher than the long-term rate. This seems to me to represent a reversal of all currently accepted practice.

Mr Harold Holt - It is unusual for Australia, but not for other countries.

Mr CREAN - I know it is unusual here.

Mr Harold Holt - It has been a regular feature of borrowing in the United States of America.

Mr CREAN - It has not been a very regular feature in Australia over the years, but it is becoming an increasingly regular feature because of the policy that the Government has been pursuing. I repeat that I would like somebody on the Govern ment side to explain why people who lend their money for two years are entitled to get interest at the rale of nearly 54- per cent, from what are called gilt-edged securities, while the Government hopes to induce people to lend their money for twenty years at an interest rate which is lower by i per cent. This does not seem a feasible financial proposition.

Of course we can all be mystified occasionally by the efforts of financial editors of the various journals to justify arrangements of this kind, but I can remember that the short-term rate on government securities was about 3 per cent, not so very long ago. Now it is getting close to 5± per cent., and I suggest that this shows there is something wrong with the financial situation, and that more constructive remedies are called for than were envisaged in the proposal that was put forward by the honorable member for Mackellar (Mr. Wentworth) a few evenings ago, which represented simply a pandering to a certain section of the community, while ignoring the basic problem that perplexes the Australian community at the moment. Just as people say that there should be a fair day's wage for what is called a fair day's work - and it is pretty hard to say what constitutes either - I believe that occasionally somebody should ask what is a just rate of interest to be obtained from government securities or any other securities. I cannot see that people have any moral right to get 5i per cent, on money invested in government securities for two years, or 8 to 9 per cent, for money invested for a year or two in hire-purchase activities. In both cases the rates seem to me to be inordinately high, and I believe the endeavour of the Government should be to bring interest rates down. If the interest rate in one field of investment gets a bit out of hand, it is not necessary for the Government to allow other interest rates to follow the trend automatically.

Mr Howson - Do you think a rate of 3i per cent, is just?

Mr CREAN - Indeed I do. In fact, I should hope that what Lord Keynes looked forward to would gradually come about, the euthanasia of the rentier. A situation arose in Switzerland recently in which people were being offered a negative rate of interest on the disposal of their money. Of course, we are a long way from that kind of position. However, if the rate of interest in those circumstances is thought by some to be a negative idea, we certainly cannot claim to be positive in our approach. There is a big difference between 54 per cent, and 3£ per cent., and I still think it is difficult to justify an assertion that 3 per cent, or 3i per cent, is inequitable, and that 51 per cent, is just right. The issue is not quite as simple as that, and the problem tends to flow from the economic nexus in which we find ourselves. Because this Government has not grappled with its economic problems in the interests of the majority of the people, but has sought to preserve the interests of a fortunate minority, we see the situation that now exists in Australia.

I have taken the opportunity, Mr. Speaker, to point out one or two of the sins of this Government, and I hope that the people of Australia will soon be given a chance to express their resentment.

Mr Roberton - I suggest that it would meet the convenience of the House if the debate on this bill were allowed to embrace matters included in the Appropriation (Works and Services) Bill No. 2, the Supply Bill and the Supply (Works and Services) Bill. The votes on each of the bills would, of course, be put separately in the usual way.

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