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Thursday, 31 March 1966

Mr MCMAHON (Lowe) (Treasurer) . - by leave - In his statement to the House, at the beginning of this sessional period, on the state of the nation, the Prime Minister (Mr. Harold Holt) mentioned some of the economic measures that had been taken by the Government. He pointed out what we were doing overall in terms of help to offset the effects of the drought. He stated that incentives to exports would be continued - that is, existing incentives - and he mentioned several other measures that the Government was taking, and intended to take, particularly regarding rural credit funds. Since then various Ministers have issued statements. One of these related to housing. This morning I made a statement concerning rural credit. The Minister for Labour and National Service (Mr. Bury), has made a statement dealing with the employment position. Each of these statements has told a story. When they are looked at together they paint a picture that no-one can possibly cavil at and of which few can be genuine critics.

At the beginning of a year we usually find it difficult to make economic forecasts about what is likely to happen during the year. There are several good and understandable reasons for this. Immediately after the Christmas period there is a fall in consumption expenditure. People have spent some of their savings or some part of their resources and consequently there is a slowing up during January and February. As well we have a large number of school leavers coming on to the employment market. False impressions can be created because the number of registrants for employment can be seen to be increasing. There is the business shut down over the Christmas period and it frequently takes time for industry to get under way again and to take up the slack that has occurred. We find that in December and January it is difficult to estimate what the economic trends might be. This was the position early in January. Many people were then pessimistic about what the economic trends would be early this year and about what would happen during the year. However, in March the February employment figures became available. The February figures of numbers of unemployed, numbers registered for employment, job vacancies and the rate at which job vacancies are being filled are indicators to which we look forward with great interest during March.

I can state clearly and emphatically that anyone who cares to look at the figures fc employment and unemployment in February will be reassured, because there was a substantial drop in the number of people registered for employment. The young people coming on to the market and the migrants who have become available are being rapidly absorbed in employment. 1 do not want to labour the figures nor to go into detail over them, but it is fair to say that not only were the figures reassuring, as any objective witness would admit, but they indicated quite clearly that comparatively speaking, the number of registrants for employment during February was low. We have now a state of virtually full employment. I am fairly certain as a result of what I have seen of the numbers of applicants for jobs that there will be a significant fall in registrants for employment during March. I think it is right to say, as many people who have looked at the figures, cautiously and carefully, have said, that this is a reassuring scene. It indicates that we have full employment and I forecast that not only will we sustain full employment but that there will be a widespread and general demand for employees throughout the country-^ demand that is likely to continue in the future.

I want to use the word "reassuring" again, because there are so many critics who during the last months of 1965 and the early months of 1966 forecast that we would have serious unemployment problems. Clearly they were wrong, because instead of their forecasts proving accurate we now have a state of virtually full employment. Because the employment position is so strong and there is a strong demand for employment throughout the whole economy I think we are entitled to say that the problem of economic management is turning out satisfactorily and that the Government's economic policies have been successful.

To put this matter into perspective and to show what has haooened I refer to the situation over the last four years. We have had an unprecedented increase in immigration; about 150,000 migrants are coming here annually. We have had a substantial increase in school leavers and a substantial increase in the work force. Admittedly in 1961 we had a higher degree of unemployment than we cared for, but since 1961 there has been a substantial growth in our work force and this has been taken up. More than 500,000 people have been satisfactorily absorbed in employment. It is fair to say that our policies have been successful.

I turn now to our economic policies. I want to explain, if I may, just what was the objective of our economic policies. Our policies had two objectives. First, we have had the growth in our economy with the problem of a constantly increasing work force. We wanted to achieve our policy objective while trying to ensure that we did not create great problems of inflation and did not add to our balance of payments difficulties. We had to make sure, if we could, that our exports and imports came into balance. We had another great problem. That was the necessity to change the pattern of activity so that resources could be diverted from one sector of the economy to another. Let me explain this diversion of resources in greater detail. We had to ensure that the rate of increase in demand was reduced because, as I shall show in a few moments, it was too great. At the same time we had to ensure that resources were diverted into the defence effort, as the defence forces had to be built up to 40,000 people and equipment had to be provided. Moreover, we wished to promote basic development projects throughout the economy such as the large scale development of iron ore deposits and the construction of railways and roads. Finally, we had to attempt to ensure that the production of the heavy section of industry - a section which will mean increased production and a better future for Australia - was increased. Later I shall quote some figures to illustrate the extent to which that part of our policy has been successful.

It was the aim, the essential aim, of Government policy not only to restrain inflation but also to achieve this diversion of resources. We attempted to divert resources from one sector of the economy to the more productive and more essential sectors by trying to ensure that expenditure in the more important sectors was increased while expenditure in less important areas was decreased and in some cases considerably reduced, as in the case of stocks.

Mr Stewart - And housing.

Mr McMAHON - If the honorable member will remain quiet he will get the complete answer on housing. That is what has happened; that is the rationale of

Government policy. Over the months we have succeeded not only in shifting resources out of the less essential sectors of the economy but also in transferring them to what I call the more essential sectors. I point out here that at any given moment of time you have a fixed amount of resources and what you can do is limited by the physical quantity of manpower and resources that is available. I have drawn attention to that fact because some people think that you can expand all sectors of the economy at the one time. It was our duty to move resources to defence, to basic development projects, and into private capital expenditure.

I now turn to the background of the problem as we see it. In the early part of 1965 we found that expenditure over all sections of the economy was increasing at the rate of approximately 13 per cent, per annum. That rate of increase is beyond the capacity of this country, or perhaps any other country, to sustain. It was beyond what we could produce locally and the imports that we could afford to pay for. Therefore, we faced not only the problem of reducing money expenditure but also the problem of diverting resources.

What has happened? There has been a steadying down in rates of expenditure. In more recent times consumption expenditure has not increased nearly as fast as it has in other years. This is understandable. It was our policy, as expressed in two successive Budgets, not to allow this to occur. The rate of stock-building has fallen. Stocks were too high to maintain production in relation to the demand that existed, and some sectors of activity had to take the brunt. We found during the latter part of the year that the rate of increase in expenditure continued to ease and that a great deal of the strain was taken off the economy. We found that the rate of increase of total expenditure last year was 1 3 per cent. In the December quarter of 1964 the rate of increase in consumption and fixed investment expenditure was 1 1 per cent., in the last quarter of 1965 it was of the order of 8 per cent, and at this rate we were able to maintain full employment and to ensure that production in the essential sectors of the economy increased.

Mr J R Fraser - I think the Minister is wonderful.

Mr McMAHON - Thank you. I think the honorable member, if I may use the phrase-

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