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Tuesday, 29 November 1960

Mr BEAZLEY (Fremantle) .- The measure before us is unique in that it is a tax measure, the main purpose of which is not to raise revenue. It is a tax measure, the avowed purpose of which is to curtail imports. The honorable member for Moreton (Mr. Killen) has said that there will be no unemployment in the motor car industry. He may be right. I take it that that means that there will be no fall in the demand for cars. If that be true, the Government will have failed in the objective of its policy because the Government's purpose is to reduce the demand for cars. This demand, we are told, is produccing an excessive drain upon our financial resources overseas through purchases of motor vehicle components and upon our own local resources of materials such as steel which are being drawn away from the rest of the Australian economy. So if the honorable member for Moreton is right and there is to be no diversion of labour from the motor car industry, the Government's policy will have failed. This problem of the balance of international payments is not new. The honorable member for Moreton has just stressed to the House that nobody would say that the Treasurer (Mr. Harold Holt) is taxing for the pleasure of taxing, but he and his colleagues have never hesitated to suggest that the Labour Government restricted the importation of petrol for the pleasure of restricting it. Let me say that the Liberal Party has no cause to regret that the Labour Party imposed petrol rationing. We had no illusions about it being politically unpopular, but it left this Government with a few tens of millions of pounds in sterling reserves in London which would not have been there had there been free importation of petrol.

I have said that this balance of payments problem is not new. I do not think that we need to seek the opinions of members of the Liberal Party and the Country Party on that. We can look at the official statements of the Government itself. In the official statement on national income and expenditure for 1959-60 the appalling record of the Government in international trade is revealed at page 20. That document shows that in 1953-54 our trade deficit on current account was £17,000,000; in 1954- 55 it was £259,000,000; and in 1955- 56 it was £231,000,000. In 1956-57 we had a surplus of £99,000,000- nowhere near the magnitude of those deficits on current account. In 1957-58 we reverted to a deficit- of £174,000.000- and in 1958-59 we had a deficit of £207,000,000. In 1959-60 the deficit was £243,000,000. Those deficits totalled well over £1,000,000,000.

The deficits have been covered. They have been covered by borrowing. They have been covered by capital investment. They have been covered by hot money. Insofar as they have been covered by borrowing, at some point of time this Government or its unfortunate successor, must start the process of paying back. That must mean the increasing of our exports which are not covered by imports - the building up of a surplus. Insofar as these deficits have been covered by capital investment, this country must pay dividends and interest on that investment, and that money must come from increased exports. Insofar as these deficits have been covered by hot money, there is always the possibility that, if there is a stringent policy in this country, that hot money will be withdrawn. So the claims on the part of the Government that all is for the best in the best of all possible worlds, or in the Australian economy, does not conceal the fact that persistently, as shown by the Government's own statistics contained in this statement on national income and expenditure, we have not been paying our way.

The Government, until this present debate, has spoken of hire purchase as if it were purely an internal phenomenon, and purely internal in its consequences. After all, what is hire purchase? If I undertake a hire-purchase contract, I am pledging my income before I have earned it. That is the essence of a hire-purchase contract. If this is done on a tremendous national scale - and I understand that hire-purchase contracts now exceed £400,000,000 - it means that thousands of people are pledging their income before they have earned it. If the hire-purchase pressure consists, as it very often does, of a demand for highly complex technical equipment, much of which is imported, then the country starts pledging and spending its income before it has earned it. That is the basis of the deficits that I have mentioned.

The Federal Labour Party has governed only in three significant periods - twice during wars and once in a depression. It is always called on to come into power when the policy of its predecessors has been played out, as was the policy of borrowing persistently down to 1929. It may well be that the existence of the Democratic Labour Party will stop that historic process from taking place in the future, and that this Government will stay in power to pay off its own debts. I am certain that there will be many regrets on the part of people on this side if a Labour government does not emerge, but it will be interesting to see the control of the economy that will be adopted by a Liberal government when, to quote a new novel, " The kissing has to stop " - when this flow of credit from abroad has to stop.

The Prime Minister (Mr. Menzies) said recently that the Government does not have to satisfy newspaper critics in this country, and that the people it has to satisfy are the hard-headed investors abroad. In 1951, when this Government, as the result of the wool boom, had £803,000,000 sterling in reserves in London, it did not matter a tuppenny dump what the hard-headed critics abroad thought of this country's economy. They were in debt to us. With the possession of that £803,000,000 there was an unparalleled opportunity to import, without running into debt, the capital equipment that this country needed. But that balance of £803,000,000 dropped in one year to £372,000,000 due to the wholesale importation of, very largely, consumer goods. Then the historic policy of keeping this country's internal economy subservient to overseas investors was followed, and now we do have to worry about what the hard-headed critics abroad think. So we have this policy of constant borrowing.

I arn npt going to attack a policy of borrowing if if is necessary, but borrowing, in either our personal lives or our national life, ought never to be paraded, as the Government has constantly paraded it, as a triumph. At its best, borrowing is a regrettable necessity. Over this period pf time, when the primary industries, which are almost our only export earners, have npt been advancing like the rest of the economy, the Government has been incurring overseas debts without any clear perception of what industries are going to develop in this country in order to enable these debts to be paid back. There have been constant statements that if capital comes from abroad into our secondary industries, those industries will be developed and will be able to pay back cun debts. But secondary industry earns us only 7i per cent, of pur- export income. Unless the Government can see either an increase in the prices received for our primary products so]d overseas, or- new opportunities for an expansion of pur production and the sale of primary products, it cannot honestly point to a process whereby it proposes to pay off this constantly rising indebtedness - two items more of which we have heard about to-night in relation to the Government's borrowings in New York.

In addition to being not new, the balance of payments problem was not unexpected. Tha Government comes into this House and in great surprise, makes the same statements as it made a few weeks before. T invite the attention qf honorable members to the Budget speech. where without any talk of these controls being imposed, without any talk of the present policy being followed the Treasurer issued a warning to himself - which he. did not heed until now. He said -

A second danger would be a rise in imports to levels higher than, we afford.

Most of us thought imports were running that way the whole of the year. He continued 1 shall say more presently on the balance of d and our attitude towards it. Here, however, I may say that we have been prepared ali along t-j see. and indeed to welcome, a rise in imparts to meet real deficiencies in local requirements, long denied 411 2 access to overseas supplies; and we have been prepared to use a fair amount of our quite large overseas reserves to nance s such imports-

They can certainly say that again - but it would be an altogether different thing to dissipate these reserves on imports to feed a domestic boom.

What has the recent level of imports been doing? We ha"e a domestic boom created by a tremendous hire-purchase market, the Government now says. But this problem of hire purchase has been discussed over the past five or six years, and the corollary to the internal level of hire purchase has been the granting of credits by the brinks to importers to finance imports. As the second point in its policy, the Government is now asking the banks to cease to grant credit for the financing of imports.

Let us have a look at this question of sales tax. The sales tax is an inflationary tax. Pay-roll tax is often said to be an inflationary tax, too, in the sense that it is passed on in increased prices. But let us look at the difference between sales tax and pay-roll tax. If you employ 500 men you pay pay-roll tax for each one of the 500. But if, by increasing efficiency, installing new machinery or adopting a better lay-out in your factory, you increase your output of goods with that same staff, the pay-roll tax that you pay is spread over a greater quantum of goods. Pay-roll tax, therefore, is not, ipso facto, inflationary if you can meet it by increased efficiency. But sales tax appended to the article that you produce, if you are the producer of goods that are subject to it, is added to the price of the article, no matter how efficient you are and no matter whether you double your production or increase it by 10 per cent. If you make 50 new cars and sell them, 50 new lots of sales tax are paid. So this tax is much more inflationary than is pay-roll tax, in the sense that it is not so easily to be evaded by increased efficiency.

Perhaps the world's leading authority on sales tax at the present time is John F. Due, who, in his book, " Sales Taxation ", states -

Apart from the overall tendency to place a relatively heavy burden on persons in the lower income groups, the tax tends to penalize any groups whose circumstances compel them to spend higher percentages of their in. ones to attain a given standard of living. Thus the tax tends to burden large- families more heavily than smaller families with the same income, since the former must spend a higher percentage of income to attain a given living standard. Essentially the large family has less taxpaying ability than the smaller, yet sales tax burden upon it will be greater. Newly married couples spending high percentages of income for consumer durables, persons losing property by casualty and forced to replace it, . . . are all subjected to relatively heavy burden, compared to that on others wilh comparable incomes.

Mr. Duesays one thing in favour of sales tax which is true, although I have never heard this tax defended on this ground by the present Government, which has lifted sales tax and the revenue from it higher than ever before in Australia's history. Mr. Due says -

Ar the very best the sales tax is a relatively err.-1? method cf distributing hurden among various people - although admittedly it does place a more satisfactory burden than the income lax on persons spending large amounts from accumulated wealth and on those able to escape the income tax-

In other words, even if you are lucky enough to inherit a non-taxable fortune, when you start buying, sales tax does ask something of you. That is the one thing that Mr. Due's analysis shows in favour of sales tax.

This increase in sales tax is perhaps the principal economic measure adopted by the Government to deal with the problem, of international payments. The sales tax on cars and station wagons is raised from 30 per cent, to 40 per cent, and that on motor cycles and motor scooters from 16$ per cent, to 25 per cent. The honorable member for Moreton may well be right in saying that motor car firms will not put workers off because of the increase in sales tax. There is one possible explanation to which I invite the attention of any subsequent speaker from the Government side of the House who may care to explain the matter for us. After all, names like " General Motors Acceptance Corporation (Australia) " remind us that some of these businesses finance hire purchase as well as manufacture cars. If the price goes up because of the increased sales tax,, the interest that they charge will be charged on the new price including the new sales tax. So, to that extent, they may be compensated for a reduction of sales, if sales are reduced.

Doubtless, the Government is concerned about the great increase in imports not only of complete vehicles but also of spare parts and components. The intensified competi tion of the Ford Motor Company of Australia Proprietary Limited with General Motors-Holden's Limited since the introdduction of the Falcon car by the Ford company is one principal root of the increased demand for imports related to the motor trade. The other undoubted root of the demand is hire purchase. The Government has concentrated some attention on bank credit given to importers. It has not concentrated much attention on hirepurchase terms given to customers by importers, and by manufacturers who are importers of parts of the complete vehicles which are their finished product.

Clearly, the Government, believes this sales tax to be a deterrent to the customer, and a hint to the banks to reduce the level of credit given to importers is to be the deterrent to importers. When a sales tax per unit of output is first imposed or newly increased, each firm raises its price and thus, according to the classical theory, reduces its sales and, accordingly, its output. There are two limitations to this theory at the present time, however. A community as habituated to inflation as is the Australian community after eleven years of constant inflation may merely treat the increased price as part of what it expects and, provided hire-purchase terms are available, may continue to buy.

Better than any of the Government's present proposals would be a deliberate and intelligent act of policy, with the Government taking responsibility for imports by imposing control over imports - on the motor industry alone, if it is the Government's considered view that that industry alone is responsible for the draining away of overseas funds. Certainly, the trend of overseas funds is disturbing. At 30th June, 1959, the level of gold and balances held abroad by the central bank was £431,000,000. On the same date in 1959, it was £420,000,000. At 30th June, 1960, gold and balances held abroad by the Reserve Bank of Australia stood at £442,000,000. This seemed to be an improvement. But the movement between September and November in each year, also, shows an unfavorable comparison between 1960 and the previous two years. Between 1st September and 30th November, 1958, balances moved from £407,000,000 down to £395,000,000. Over the same period in 1959, they rose from £416,000,000 to £442,000,000. They have dropped from a little more than £400,000,000 at 1st September, 1960, to about £348,000,000 at the present time.

In the years 1958 and 1959, the Australian economy was protected, not by sales tax as an imprecise instrument of import control but by the precise practice of selective control of imports. The tendency for imports to get out of hand and eat up overseas balances was therefore not present to the same degree, although we were still running into those dangerous deficits. There seems no reason to suppose that this sales tax will be anything like as efficient as control of imports would be.

Sales tax directed so heavily at one industry represents also an attempt to divert materials from absorption into that industry. Capital issues control would be more scientific. Any responsible person must hope that the Government's sales tax policy will be successful in saving our overseas funds. It is an economic, not a party political, question intrinsically. If the present Government continues after the election next year, a sound economy and ability to pay our national way is still desired by everybody. If there is to be a change of government next year, no new government would desire to come to power to face the sickening problems of exhausted overseas balances.

The Government has, by giving a free hand to hire purchase, allowed to hire purchase much greater rewards than have been allowed to savings. Indeed, through permitting constant inflation, it has made hire purchase a wiser course than saving. A person entering into a hire-purchase agreement to buy a refrigerator for, say, £200 at a given point of time may be acting much more wisely, even though paying interest, than if he waited a year when the price may be £250 or £260. The constant inflationary policy of the Government reflected in a basic wage that has moved from under £7 when the Government took office to well over £14 has, of course, increased the tendency of people to resort to hire-purchase contracts. In circumstances of a constantly deteriorating currency hire purchase, normally an unwise means of buying, becomes a wise policy.

When hire purchase is expressed ultimately in a demand for imports, the whole nation draws on future income and that in turn explains the constant trade deficit, the constant borrowing abroad and the constant reliance on capital investment to balance trade. This measure is an admission that the policy of reliance on borrowing and capital inflow is not so sound as the Government is wont to claim. There seems no reason to suppose that it is a measure which will be as effective as a straight-out policy of selecting imports.

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