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Tuesday, 13 November 1973
Page: 3193

Mr DEPUTY SPEAKER -Order! Excuse me, is the Treasurer seeking leave to incorporate this page?

Mr CREAN - Yes.

Mr DEPUTY SPEAKER -Is leave granted? There being no objection, leave is granted. (The document read as follows) -


Mr CREAN - It shows the history of interest rates in Australia from June 1948 to October 1973, for Australian Government securities, for trading banks' overdraft rates, for housing loans and for deposits in savings banks. It shows a history of continuing rise from 1951 onwards. I simply make that incorporation to indicate that this is not the first occasion on which interest rates have been adjusted in Australia. I think that this is the first occasion for the last 20 years on which members of the now Opposition have attempted to condemn interest rates. Yesterday I was asked to explain categorically how

I thought interest rates would operate in the future. I think it is necessary in this sort of debate, if it is to have any value, that we should try to get down to some of the taws in the game. On this side of the House we are just as concerned about inflation as is the Opposition. We in Australia are as concerned about its difficulties as is nearly every country in the western world.

A week ago I happened to have the opportunity to visit China. One of the things Chinese economists said was: 'We have not got inflation in our country'. I said: 'You have a lot of problems which I would not like to have in my country'. But that is beside the point. In grappling with inflation one needs to recognise that it has internal as well as external causes. I believe, sometimes, that external causes are a little exaggerated to the detriment of doing as much as one should about the internal causes. Nevertheless, the situation which we had in October 1973 was not something which arose only in the last several months. I am gratified by the references that- have been made during question time and in the financial Press in the last day or so about Dr Porter's paper delivered at the weekend.

Mr McMahon - He obviously did not know what he was talking about.

Mr CREAN - Perhaps the honourable member might explain-

Mr McMahon - I am glad that he is nodding his head and saying yes.

Mr Hayden - The honourable member has been responsible for more recessions than anybody else in this country.

Mr McMahon - The honourable member would not know.

Mr DEPUTY SPEAKER -Order! The honourable gentlemen at the table are both listed to speak in this debate. I suggest that they allow the Treasurer's remarks to be heard.

Mr CREAN - They are taking up my time in the process.

Mr McMahon - They are on your side, too, Sir.

Mr DEPUTY SPEAKER -If the right honourable member for Lowe had listened to me he would have heard me refer to the honourable gentlemen at the table - one on each side.

Mr CREAN - I can well understand that the right honourable member for Lowe, who was the former Prime Minister, may disagree with Dr Porter because after all Dr Porter, in essence, is condemning the economic policy which was carried out by the right honourable member for Lowe. I am trying to justify my policy and I can understand the right honourable member trying to justify his policy. The Opposition spokesman on economic affairs chose to take a single figure out of table 33 in the Treasury bulletin entitled. 'Selected Financial Series - Indicators of the Formation of Private Sector Liquidity'. If I understood him correctly, he drew some kind of conclusion about a factor of $41m against a factor of $59m. The significant figure which the hon ourable member should have quoted but which he did not quote which is the largest one of all, relates to the increase in private sector primary liquidity. For the September 1973 quarter, which includes part of 1972-73 financial year, the figure was $J,144m. In 1973-74, when these matters partly came under my jurisdiction, the figure was reduced to $656m. There is a difference factor of approximately $500m, which is reasonably significant. Whatever one might like to believe about interest rates, they are part of the mechanism of a capitalist society, and that is still what I am presiding over.

Mr Lynch - I am encouraged to hear that.

Mr CREAN - Some people rather sneeringly call us a socialist economy. I think we are far from being that. I think we are better described as a mixed economy. I used to use those words when the Opposition was in government. I used to make great play on words by suggesting that it was a mixed-up economy. That is one of the difficulties that one faces when one tries to do justice to all sections of the community. It is not easy. After all, it is not as though we are talking about the interest rate. We are talking about a series of interest rates, and we are referring to lenders as well as to borrowers. This fact does not seem always to be borne in mind when one is considering in particular, the question of interest rates on housing. At least the Government has endeavoured to be selective as far as housing is concerned. We have attempted to limit the rate of increase to 1 per cent in the housing sector, whereas in most of the other parts of the economy there has been a 2 per cent to 2i per cent increase in interest rates. Despite what they might say to the contrary, honourable members opposite operated a monetary policy in other days. I ask honourable members opposite whether the operation of a monetary policy is a weapon. I think the honourable member conceded there were 2 weapons - the monetary and the fiscal weapons. If there is a monetary weapon, how would the honourable gentleman have exercised it in similar circumstances?

I think the point is well taken in Dr Porter's paper, that if the previous Government had taken certain action in relation to the exchange rate which had something to do with the volume of money flowing in from overseas, the position might have been different. As far back as May 1972, when the Treasury was the present Opposition's Treasury, not mine, it drew attention to this situation in a very full booklet on overseas investment in Australia. It pointed to the fact that if anything at that stage was moving towards fulfilling the classical definition of inflation - of too much money and too few goods - it was the flow-in merely of money unmatched by physical goods. That was one of the contributing factors, and it has been aggravated since by a surplus in our current trading account. Goods that are produced in Australia, in respect of which income is generated in Australia, are exported in greater quantity than goods are imported. That, too, makes more money and less goods. It is the volume of money on which one has to operate. In the process, some are hurt and some are advantaged.

But I contrast this position with the position in relation to the rate of interest on houses. If one is talking about the rate of interest on houses, I think one also needs to look at the price of houses, and that includes the price of land. To suggest that in the last 5 years it has been easy for what is called the small man to buy a house is a travesty of the facts. I believe that the most fortunate generation in Australia, as far as the purchase of houses is concerned, was that of the post-war era - from about 1948, when we began to overcome the wartime shortage of supplies, carrying on into the first 4 or 5 years of LiberalCountry Party administration - because there was control over land values, there was allocation of scarce resources to the various ends and there was an attempt to regulate interest at low rates. Since that period there has been a tendency to let her rip as far as the economy is concerned.

We have controls over banking. I believe that they are necessary. I believe that long ago they ought to have been extended to other areas of credit extension in this country, but they were not. When the Opposition jeers about remedies to control inflation, I point out to it a few words which Dr Porter used against the previous paper of Professor Argy. He said:

He points to a variety of factors and appears reluctant to ascribe weights to them.

I suggest that that is the fault also of the Opposition. It points to inflation and criticises each measure taken by this side of the House to do something about it, beginning with the revaluation in December 1972, followed by our decision not to revalue when the American dollar was devalued, followed by a further revaluation, followed by a variation in tariff rates and followed by the first call for many years to the special deposits via the banking system. I could continue. Prices justification was fought tooth and nail. Restrictive practices legislation is fought tooth and nail. The whole answer to the question ultimately is control of prices and wages. The Opposition is opposing the constitutional attempts to obtain power over prices and wages.

To the gentleman of the Opposition I say this: Inflation is not an easy problem; it is not a problem which will have a quick solution. The problem in November 1973 is different from the problem in November 1972 or November 1971. The Opposition would have faced the same reality if it had still been the Government. Dr Porter has gone on record as saying that, in his opinion, if the sorts of measures which we have taken had not been taken the' inflation rate in Australia would have been nearly double what it is now. One cannot prove observations of that kind, but one can prove - I say this always to the Country Party - that if the consumer price index is taken to be the indicator of rising costs in the Australian community we should look at how that index has increased in the last 2 quarters in particular. More than half of the increase has been due to higher food prices, which means higher incomes to the people whom the Country Party represents. If members of the Country Party accept higher incomes then they are the last people who should rail about wage earners attempting to retain their capacity to buy the products they bought previously. Surely in the finish this is what the problem is all about. It is not about cheaper tax on an isolated commodity. The Opposition's approach ought to be a down to earth contribution of what it would have done. It is pretty easy to say what it would have done, but when it had the opportunity to do it it did not do it. People are not disposed to believe those people who now say: 'If only we had still been there we would have done what there was no impediment to do when we were there.

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