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Tuesday, 9 May 1961

Mr McMAHON (Lowe) (Minister for Labour and National Service) - Mr. Deputy Speaker, the Leader of the Opposition (Mr. Calwell) has first of all accused this Government of being conservative and of adhering too rigidly to the doctrines of the past. I believe that to be an extraordinary statement, and the honorable gentleman must himself know it to be inaccurate and perhaps even untruthful, for the simple fact is that probably one of the continued criticisms that the so-called objective critic has made about this Government is that it has introduced too many novel measures and has always been ready to experiment. Statements by the Prime Minister (Mr. Menzies) and by the Treasurer (Mr. Harold Holt) have made it clear that whilst our objectives of policy remain clear - and they are mentioned in the document presented to the International Monetary Fund - nonetheless we will always adopt flexible policies providing they are based upon liberal lines; we will adopt flexible policies to achieve these objectives.

I will mention one or two of the novel measures which have been introduced by this Government and which, when they were first mentioned in this House, were applauded by the Opposition because it felt they were much in advance of their time. I mention the action on convertible notes - that interest on convertible notes cannot be deducted. I mention the bill recently before the House, relating to life offices and their contribution to government securities. I mention the bill recently before the House - if it is not still before the House - relating to export incentives. So, I think you will find, Sir, that far from this Government being conservative, far from it thinking that it must stick to the recognized methods of the past, it has done what it considered to be desirable to keep the economy healthy and to keep the objectives of national development within the framework of steady international balances and a stable currency. So, the honorable gentleman has at the beginning - so, too, at the end - vastly exaggerated in everything he has had to say.

The second point which the honorable gentleman mentioned was borrowing from the bank. Here, I believe, some one has misinformed him, because the truth is that no borrowing has been made from the International Bank for Reconstruction and Development. We have borrowed from the International Monetary Fund, and it acts like any bank does. The International Monetary Fund was created under the spirit of Bretton Woods. Its very spirit is this: That if in times of difficulty a country should wish to borrow money for a temporary purpose, then it could treat the fund as a banker and go along and borrow the money and at any time repay it. We joined the fund at a time when the Labour Party was in office. What I want to ask is: Why would we have joined the fund and have made contributions to it unless we thought that at some subsequent date we might have to make a drawing and that we would make that drawing because we were facing temporary difficulties? Having mentioned the policy with relation to the International Monetary Fund, it seems to me that this was one of the occasions when, in the interests of the country, it was wise that we should turn to the international bankers and say to them, "Because of seasonal changes, and because we have quite substantial fluctuations in the prices we receive for our goods overseas, we would like to get a second line of credit from you and have a stand-by credit ". This appeared to me to be the ideal time when this Government should have gone to the International Monetary Fund and said, "Lend us £78,000,000 to cover our temporary difficulties, repayable over a period of time, and should we find at a later date that we want a further drawing of £45,000,000, we will approach you for it ".

It was made clear in the document issued by the Treasurer that this was done as a precautionary measure and not because we felt there were great difficulties in connexion with our international payments. It was because we felt that at this moment, and in order to sustain public confidence at a time when there could be a substantial run-down, we should take this precautionary measure to cover what could be difficulties ahead. And so, in short, I put it to you, Sir, that those who give this matter thought would say that the fund was created for this purpose and, it having been created for this purpose and as we thought that we wanted to create a psychological atmosphere in which people could realize that there was a solid basis for confidence, we should take the action we did. I say again, this was one of the occasions when it was wise for us to take action.

The Leader of the Opposition went on to make a statement which I regret he made, because it is not like him to make inaccurate statements or to misrepresent the position. He did say that the intention was to maintain credit restrictions until 1962. The fact of the matter is that there were two borrowings, one a matter of some £78.000.000 which was immediately placed to the credit of our London funds, and the second, a stand-by credit of something like £45.000.000. In making application for those moneys, it was made perfectly clear to the International Monetary Fund that if present conditions continued to exist the policy we were now following would continue to be followed. In other words, the agent of the Treasury said to the fund " These are the policies we are now followin a to overcome our difficulties ": and T add here that the fund itself approved of the policy we were following to meet the difficulties that are facing us. What was made clear was that it was only in the present circumstances that we would continue to follow that policy, and that it was for us to decide whether or not we wanted to change. In other words, there is no commitment here to any one not to change our policies, and there never has been.

The Government is responsible for the management of this country and has i free hand, should it think it desirable to change its policy; and should the circumstances change and we think a change in policy ls necessary, of course the necessary chance will be made. The statement by the Lead.t of the Opposition that credit restraint will be maintained until 1962 is totally wrong. What the Government has stated is this: While we have difficulties of the kind wa now face, such as difficulties with our balance of payments and with regard to inflation and loss of purchasing power, we will see that the monetary system is kept under reasonably tight control. In other words, we do not want the creation of so much money that inflation will once again get out of hand.

But what we did go on to point out was that in the circumstances in which we find ourselves there will be a moderate increase in credit during the course of the next year. In other words, there will be no such thing as tying credit down or seeing that credit does not expand. The liquidity position of the banks will be sustained. Only to-day a release was made from the reserve deposits to the trading banks. In addition, it is envisaged that there will be a moderate increase in credit during the next year. So again I say that I regret that the honorable gentleman said that credit restrictions would be maintained until 1962.

Mr Cairns - They will be, will they not?

Mr McMAHON - I have stated the position accurately. Tt is set out on page five of the document issued by the Treasurer. If the honorable member for Yarra wants to be well informed, and not as ignorant as he appears to be, he will read that document carefully.

Mr Cairns - Will they not be maintained until 1962?

Mr McMAHON - 1 have no wish to listen to the honorable member's interjections. I did not interrupt the Leader of the Opposition when he was speaking, and the honorable member for Yarra might show me similar courtesy and refrain from interrupting me when I am making my speech. 1 have stated the position as it concerns the International Monetary Fund. The next point raised by the Leader of the Opposition related to our import policy. First, let me make it clear that the honorable member told us in his introductory remarks that no one likes import restrictions, and that the Labour Party believes that the appropriate method of handling a problem of this kind is by tariffs, not by import restrictions. Therefore, it came as a surprise to me to hear him say, at the conclusion of his speech, that restrictive import licensing should be reimposed. It was quite obvious that he was not at all certain which policy he wanted to follow, nor why the imposition of selective import licensing should be advocated. Speaking from the political viewpoint, I venture to suggest, Mr. Deputy Speaker, that honorable members opposite would welcome the support of any one at all at the forthcoming elections, Communists or any other persons you care to mention, and that they would like to win the support of some manufacturers who would be happy to see import licensing reintroduced.

Having made that comment on the political plane, let me turn to the purposes of import licensing. We removed import licensing for very good reasons. It is well known to the House by now that the great difficulty we have faced in recent years has been an excess of demand over available supplies. This has meant that the demand for labour has increased, that prices have increased and that we have had balanceofpayments difficulties. The Government thought - and, Sir, f personally believe it correctly thought - that one way of overcoming the difficulty was to permit a large inflow of imports, so that, the excess demand could be satisfied and a balance could be achieved between supply and demand. If honorable members look at the document presented to the International Monetary Fund they will find that the Treasurer now argues that there is a better balance between supply and demand. I personally believe, in fact, that supply and demand are now quite evenly balanced. The problems of rapid labour turnover and of overtime have, I suggest, been solved, and the economy is in a substantially better and stronger position to-day than it was in February of last year.

Having these considerations in mind, we took off import licensing for a very good reason. We took it off because, in the spirit of Bretton Woods, we wanted, if possible, to give some inspiration to those who believe in the free flow of goods internationally. We led the way. The imports have come in and I believe they have had a beneficial effect.

But the point I want to make - and it has been referred to by the Treasurer - is this: If you study the make-up of imports under the various classifications you will find that 82 per cent, of the extra imports have gone to the manufacturer. He should be among the last to complain, because he is now getting the additional equipment, the raw materials and the accessories of which he was deprived when import licensing was in force.

Much has been said in recent weeks about selective import licensing, but I have yet to find a person who would contend that selective import licensing would be effective. I have yet to find a person who is prepared to say that by restriction of bank credits, or by exchange licensing, you can overcome the problem. The few countries that have tried exchange licensing, including Argentina and Turkey, have found that it will not work. The best advice I have been able to get from some of the banking authorities is that it would be extremely difficult to make it work. I do not think, therefore, that selective exchange control is the answer. I did believe that at the time when import licensing was virtually removed, this was the wisest thing that could have been done. I believe it has had a real effect in preventing prices from rising too substantially.

The fourth point mentioned by the Leader of the Opposition related to our overseas reserves. Here I have to confess that I do not understand his argument at all. What are overseas reserves for? We are not misers. We do not want to see this money just piling up in the banks of the world. These reserves are there to be used in cases of emergency,, and as this is an emergency the Government was wise, I believe, in letting its balances run down until it felt the time had come when some other action should be taken. At the present time our reserves, according to the latest Commonwealth Bank return on gold and balances held abroad, amount to something of the order of £420,000,000. If you consider that figure against our imports, and against the possibility that after the end of June imports will fall to a reasonable level, no one would argue that £420,000,000 is a really uncomfortable figure.

I repeat that I fail to understand the argument of those who say, " Your London balances should be built up ". I was brought up in a world which, if you could borrow money and make a profit from it, and out of that profit pay back what you had borrowed with interest and still have something for yourself, it was considered a sound enterprise. In a country like Australia, which is developing rapidly, we must of necessity borrow money, whether on private or public account or from the International Monetary Fund, or, if it is for long-term investment, from the International Bank itself. In a country such as ours, which is rapidly developing and which has a fastgrowing population, we should not only have access to our reserves when difficulties are experienced, but we should also have access to the- International Monetary Fund and the International Bank when we think it is desirable to approach them.

The honorable gentleman asked when it was expected that we would overcome the difficulties. Well, I am not one of those who are given to making forecasts, and 1 believe the honorable member himself should be the last one to attempt to make them. Only a few months ago he made a forecast, suggesting what the level of unemployment would be at the end of March. His figures have been proved to be so dreadfully wrong that I will not make him blush by referring to them. However, I think we can say this: There is, amongst those who are best able to advise, a strong opinion that the Government's measures are now taking effect, and that, within a reasonable time we. can expect to see imports declining in the way the experts said they would.

There are just two other matters I wish to mention before I complete what I have to say. The honorable member referred to the Commonwealth and State Housing Agreement and the interest rate laid down in that agreement. The new agreement is very near ready for signature and has been agreed to with one exception that the honorable member has not mentioned. I think it is true so far as the interest rate is concerned that the States are agreeable to the new method of computing interest, that is, for a 1 per cent, below in the long-term rate of interest.

That will do two things. First it assures the States that they will get the money that the Commonwealth has guaranteed to make available to them under the agreement; and secondly, it does so at concessional rates of interest. The would-be purchaser of a home will not worry so much about the extra £20 a year interest he will have to pay. What he wants is a home at a reasonable price. The agreement the Government has with the States will provide the money so that the people can get their homes, and the action taken by the Government on the general level relating to the reduction of the demand within the community had as one of its purposes the intention of ensuring that building costs did not rise under the speculative influences we knew from February last year until December last. So here again I believe the Government has acted wisely and in the best interests of the community.

The only other point I want to make concerns the importation of steel. I believe that as the Broken Hill Proprietary Company Limited has now advised importers and merchants that the total Australian requirements other than for specialized steels can be met from Australian sources, we can hope in the months ahead that the importation of steel, other than specialized steels, will drop away more or less completely. In other words, if the annual rate of importation of steel was something of the order of £55,000,000, it is now certain that the Broken Hill Proprietary Company Limited and others can henceforth supply the local market and start to move into the export markets.

I conclude on this note: We have listened to the speech that has been read by the Leader of the Opposition. I do not think any honorable member on this side of the House can say honestly that there was a consistent or cogent argument in any one of the points he made. The honorable gentleman repeated that credit would be relaxed and that selective import licensing would be restored by a Labour government, but I have said that so far as selective import licensing is concerned, it would be pretty difficult to satisfactorily administer such a scheme for long. As to credit, the Government's policy of a reasonable relaxation of credit, a moderate relaxation, is the sensible one. The Treasurer is perfectly right in following the policy he has enunciated because it is for the benefit of the Australian people.

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