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Tuesday, 9 May 1961

Mr CAIRNS - The Minister took up the point that the Leader of the Opposition said that the economic measures introduced by this Government were conservative measures. The Minister said that some were novel. He mentioned the provision of the Government for eliminating interest on convertible notes, and said that was a novel procedure. This was novel procedure when it was first suggested about ten years ago, but the Government did nothing about it for ten years and so it has become a conservative measure. The Minister mentioned several other minor points. He referred to the provision that life assurance offices should contribute to public funds up to 30 per cent, of their assets, and other completely minor matters of no general significance.

But the Minister did not mention the four conservative fundamental policies of the

Government. He did not mention the fact that this Government has followed a policy of wage freeze and has appeared in the Arbitration Court and other tribunals from one end of the country to the other opposing increases in wages. That is conservative policy. It was the policy of conservative governments 100 years ago and is still the policy of this Government. The Minister said nothing about credit restrictions, the main leg of this Government's policy. That is conservative policy that has been followed down the years by conservative governments in every country. He did not mention the sales tax, an indirect tax on consumption goods. That has always been the policy of conservative governments. The Minister did not mention either the policy of balanced Budgets that has kept pensions down, provided inadequate amounts of money for education, kept public works in a backward condition and left the country with broken surfaces upon its roads and inadequate streets and water supplies. The Minister did not mention any of these things which are all conservative policy.

Then the Minister went on to speak of a loan to which the Leader of the Opposition had referred, and he said that this loan was not borrowing. The Minister said it was drawing from the bank. According to the Minister, when you draw £78,000,000 from a bank, you are not borrowing. In some miraculous fashion, that is not a loan at all. Overlooking the fine point he was making, the Minister said, "You go along and borrow from the bank ". It is costing us £390,000 in gold straight away for this socalled non-loan. It will cost us £900,000 in interest in the first eighteen months it runs, £575.000 in interest in the next six months and £675,000 in interest in the six months after that. If this is not a loan, I have yet to learn what it is. At the end of that period, we have to face repayment of the £78,000,000 and the £45,000,000 standby credit if we draw on it.

These are points that the Minister for Labour and National Service laboured so badly in debating. The Opposition has chosen to discuss the most significant matter that faces the Commonwealth Government at present. Several weeks ago. the Treasurer (Mr. Harold Holt) made a short statement to the House about borrowing £78,000,000 from the International Monetary Fund. He gave no particulars of this proposal. He did not indicate whether it was a loan or a gift, or whether any interest was payable on it. He did not indicate whether any conditions had been attached to the transaction. He made a bald statement of eight or nine lines in which he gave no particulars. Following that statement, he was questioned in the House and outside. It was suggested that he had agreed to adopt restrictive economic policies to get this loan. Then, on 4th May, he produced a statement which has shown that this Government has been willing to give up a considerable part of its sovereignty in relation to economic policy to the International Monetary Fund. Supporters of the Government may deny it, but the statement showed that the Government has sold out a considerable part of its economic sovereignty in determining the policy of the country. This was a statement of fundamental importance. It is a charter of Australia's economic future for the next two or three years. In his statement of 4th May, the Treasurer served notice that full employment and economic expansion in Australia are a thing of the past, and that they have come to an end.

This statement is really an undertaking by the Government of the Commonwealth that it is no longer committed to a policy of full employment, and it is the first time for thirteen years that an official statement of this kind has been put before the Australian people. This statement puts the Australian economy into a strait jacket designed by economists and bankers in New York. It is a document of despair. It is a receipt for restriction. It is the Treasurer's last will and testament. It is a symbol of senility, lt is a cry of administrative hopelessness. It is a hopeless, conservative document, which it seems the Treasurer was not prepared to tell the people about. Either he did not know the conditions or he was prepared to keep them quiet. Were they a secret between Sir Roland Wilson and the International Monetary Fund? Did the Treasurer know all about them. It was only after he was questioned about it here that he was prepared to divulge any information at all.

What does this statement mean? First, it means that Australia has lost, as I said, a considerable part of her own economic sovereignty, and to prove that assertion I propose to quote from certain official documents. First I have " The International Monetary Fund: Its Present Role and Future Prospects". On page 18, this official publication of the fund says -

Requests for drawing beyond these limits requires substantial justification.

Requests are not just taken as a matter of course. Contrast that with the following statement by the Treasurer -

As I said in my earlier announcement, these transactions were arranged, not because of any real anxiety on the part of the Government that out first line reserves will prove insufficient, but because the normal seasonal trend of our overseas business will produce extra calls on our reserves.

According to the Treasurer, it is just a normal i seasonal affair, nothing of any special importance, but the official publication of the Fund tells us that requests for drawing beyond these limits require substantial justification. The 1952 annual report of the fund shows just how the fund treats the situation. On page 87, appendix I., it says -

On the contrary, the task of the Fund is to help members that need temporary help and requests should be expected from members that are in trouble in greater or lesser degree.

The fund expects to receive requests from members who are in trouble in greater or lesser degree! Australia is not in a simple minor seasonal situation; Australia clearly is in trouble to greater or lesser degree.

Having got into trouble to greater or lesser degree, to what have we committed ourselves? The Treasurer and the Minister for Labour and National Service sought to convey that we had committed ourselves to nothing at all. Again I quote from the same International Monetary Fund document to which I have just referred. On page 18, the following reference is made to a loan undertaken by the British Government in 1956 -

Lastly, the events of December, 1956, established the precedent that sovereign states, and even the very important ones, have to be prepared to agree to conditions when obtaining large-scale access to the Fund's resources.

Have to be prepared to agree to conditions! There is no option in this. It says that they have to be prepared to agree to conditions. It goes on to say - . . assistance obtained by the United Kingdom in December 19S6 was granted on the basis of a declaration by the Britsh 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.

And those are the things that we have agreed to do. We have agreed to maintain strict financial credit policies until 1962. The contradiction by the Minister for Labour and National Service of the statement by the Leader of the Opposition (Mr. Calwell) can be completely refuted by reference to the documents themselves. In the memorandum submitted by Sir Roland Wilson to the International Monetary Fund we find this statement -

Seasonal needs apart, however, the monetary authorities intend to keep a firm control over the liquidity position of the banks with a view to limiting during the year ending June 1962 the amount of outstanding bank advances-

They have undertaken to do that.

Mr Killen - Be fair! Read on.

Mr CAIRNS - to a total that would be consistent with the maintenance of financial stability.

And the financial stability needed is one that is consistent with such a level of internal demand that your imports will not get out of balance. Of course the Government has agreed to maintain that! Does any one suggest that the Government will not be maintaining these credit restrictions until June, 1962? Of course not!

What are the difficulties underlying this condition? First, there is the difficulty of imports. The Leader of the Opposition pointed out that, despite the restrictions that the Government has applied up to date, it has failed to deal with the situation. He pointed out that the daily rate of imports during April was the highest in our history. If we are to maintain the kind of financial stability to which my interjectors have been referring by implication, these credit restrictions will have to be carried on still further to achieve the result desired by them.

The present situation has come about because the Government has sought by every conceivable means to raise money in every part of the world and has had to turn now to the International Monetary Fund.

Basically, the position has arisen because the Government has refused to impose import controls. A decision has to be made between internal stability and external stability. That it is impossible to maintain a condition of financial stability in a country like this without either unemployment or import controls is not only my opinion; that it is fundamental that Australia is faced with those alternatives is also the opinion of Professor P. H. Karmel, as is clear from a statement by him in the March, 1961, issue of the "Economic Record " which reads at page11 -

It is difficult to avoid the conclusion that, at full employment (defined by, say, one to two per cent. statistical unemployment), the demand for imports is beyond the economy's capacity to finance.

Professor Karmel is of the opinion, as I am, that, it would be beyond the capacity of the Australian economy to finance the level of imports that would come under conditions of full employment. Therefore, if we are to maintain the kind of economic stability which the Government has undertaken to maintain, some degree of unemployment must be maintained.

Australia's economic history has always been one of struggle between two conflicting powers - the international banking interests on the one hand and the Australian workers and manufacturers on the other. The Australian primary producers and commercial interests have always sided with the international financiers and bankers on every issue. It is no accident that the Minister for Trade (Mr. McEwen), a Country Party Minister in close association with international financiers and commercial interests, sides with policies of this sort. It has always been the aim of the international financiers to secure stable exchange rates, to secure an affluency in overseas funds in order to ensure ready settlement of all overseas transactions, plenty of scope for the payment of high dividends and interest rates to overseas lenders, and free imports. Any instability, any shortage of funds, must be internal. The people living inside the borrowing country must suffer the shortage of funds and the instability. From this point of view, external financial conditions are primary. They are taken as the determinant of all conditions. Internal conditions are dependent upon these things. If external conditions dictate unemployment and fluctuations, then unemployment and fluctuations there will be.

On the other hand, throughout Australia's history, there has been an attempt to secure internal stability, rapid economic progress and full employment. Therefore, external funds must fluctuate, and if they fluctuate too far, they must be controlled. From this point of view, therefore, internal conditions are primary. They are not dependent on external conditions. Those are the alternatives that face the people of Australia. The importance of this document lies in the fact that after thirteen years of committal to a policy of internal stability and relatively rapid economic development under conditions of full employment, the Commonwealth Government now has given notice that it is departing from that policy; that it has accepted the conditions laid down now by the International Monetary Fund and, over the centuries, by the international financiers, and that it has sold out to the money interests in other parts of the world.

What does this mean? It means that the level of demand in Australia must be sufficiently low to ensure that imports are not high enough to get our balance of pay ments into difficulties. What degree ot unemployment is necessary for this? Today, we have perhaps 3 per cent, unemployment and our imports are still rising. It is evident that 3 per cent, is not sufficient. The Leader of the Opposition (Mr. Calwell) has made his case that economic conditions have not changed in Australia to satisfy these criteria. What criteria are required? On page 12 of the article to which I have referred, Professor Karmel states -

The net effect of these adjustments is a rundown of reserves by about £150,000,000.

In other words, under conditions of relatively full employment we have a normal yearly deficiency of £150,000,000 - not in any one year, but in every year. Therefore, to prevent that run-down of £150,000,000, a certain level of unemployment is necessary. What is the level? On page 13 of the article to which I have referred, Professor Karmel makes certain statements which I commit for the consideration of the Government and the people of Australia. In setting out the percentage of unemployment that is necessary to achieve this end, he states -

If excessive importation were due entirely to internal inflationary conditions, deflation would be an appropriate remedy. If a fundamental disequilibrium exists, deflation, although undoubtedly a possibly remedy, is hardly an acceptable one.

Hardly acceptable to any one but this Government which has accepted it! The article continues -

On the basis of the third column in the above table, it would be necessary to reduce the demand for imports by about £150,000,000 to achieve balance. This would involve a cut in aggregate expenditure of as little as £150,000,000 below the full employment level, only if the marginal propensity to import was unity, at levels of income approaching (but not at) full employment. If the marginal propensity was one-third (which seems a reasonable figure to take), aggregate expenditure would have to be reduced by £450,000,000 or about seven per cent, of gross national product. Thus the remedy of deflation might require, say, five to seven per cent, unemployment, and, apart possibly from some favourable reaction on costs and export supplies, it would do little to produce the structural change necessary to foster the relative long-term supply of exports and restrain the relative long-term demand for imports.

Putting that into simpler language, it means that if the Government is to protect its balance of payments by the method of deflation which it has chosen, and undertaken to use for the benefit of the International Monetary Fund, it will have to achieve a fall in the gross national product amounting to £450,000,000, which involves a 5 to 7 per cent, level of unemployment.

Therefore, the Government has served notice on the people of Australia that this is the kind of economic future that is before us. What does this mean? It means not only as much as 7 per cent, unemployment before the changes have run their course but that claims for aid for education will continue to be rejected. It means that the people who have campaigned for increased Commonwealth aid for education will be disappointed when the 1961 Budget is presented. It means that there will be no change in social services. It means that those people who believe, and have believed for ten years, that pensions and child endowment should be increased, will be disappointed in 1961. It means that motorists' associations, which have been publishing material for the last five or six years in the hope that more money will be spent on our roads, will be disappointed. It means that output will fall still further. It means that the textile industry, in which to-day we have perhaps 25 per cent, unemployment and which is working at 30 per cent, below maximum capacity - in other words, the industry is functioning at about the 45 per cent, level - will find itself in an even more serious plight. If these conditions continue we shall see the end of the Australian textile industry.

It means also that the Government will continue to impose a wage freeze in the year to come. It means that the Government will appear before the Commonwealth Conciliation and Arbitration Commission and every other tribunal to oppose increases not only in the basic wage but also in the margins of white-collar workers. It means that the white-collar workers who have campaigned all over Australia for an increase in margins will be disappointed during the next twelve months. It means that this is not Australia unlimited but Australia limited by the demands of the international financiers. Sir Otto Niemeyer moves to-day, not in his own person but in the person of the Secretary to the Treasury, Sir Roland Wilson. It means that full employment is no longer the accepted policy of this country, but that unemployment is a permanent feature of our economy. During the next twelve months unemployment may well rise to 7 per cent. If it does not, the Government's economic policy will not succeed in maintaining the kind of financial stability that will be necessary for it to meet its overseas commitments. It means that the rapid rate of economic development in Australia will slow up. It means that this capitalist economy, which even at its best performance was a considerable degree behind economies organized on a socialist basis, will fall still further behind. It means that stagnation will become a reality, for that is the chosen course of the Menzies Government.

During the course of this speech in which I have outlined criticisms of the Government's financial policy I have heard a number of interjections. I invite those who have interjected, or those who will follow me in the debate, to attempt to contradict any of the points that I have made. The funda mental points are these. The Government has chosen to free imports and to allow an unrestricted flow of goods into the country. This means that there must be applied in Australia an economic policy that will so reduce demand for goods, including imports, that imports will go down to a level at which we will be able to pay for them from the proceeds of our exports. This means in turn that the level of unemployment must rise to reduce our effective demand. Professor Karmel, the professor of economics in Adelaide, stated that there must be a fall of at least £450,000,000 every year, and that this would be associated with a level of unemployment of perhaps 7 per cent. I have pointed out that this involves a restrictive and narrow policy and that the necessary expenditure for social services and other matters cannot be met. I have suggested that this means that the Government will apply a wage-freeze policy in every arbitration tribunal in Australia. I have suggested that the document which was read by the Treasurer in this Parliament on 4th May last is an official statement that Australia no longer is committed to a policy of full employment but is committed to a level of unemployment sufficient to reduce our effective demand to meet our overseas commitments, and that this has been done at the behest of the international financiers.

Australia has now reached a level of conservative and restrictive policy that has not been seen in this country for 25 or 30 years. We have gone back to the principles of the 1930's, and the degree to which this will go on depends on the unwillingness of the Australian people to accept this condition. I believe that they will not accept it and that if this condition is maintained for the rest of the year the Australian people will not accept unemployment, will not accept the retarded economic development that will result, and will not accept the decline and disappearance of businesses. I am quite sure that if this condition is maintained for the rest of this year, the Australian people will express their opinion accordingly and will not be diverted from the basic issues by any incidental and unimportant matters. I believe that the Government will not succeed in getting away with this restrictive, conservative and backward policy which returns to the principles of the nineteenth century.

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