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Thursday, 9 March 1961

Mr DEPUTY SPEAKER (Mr Lucock (LYNE, NEW SOUTH WALES) - Order! There are too many interjections. The Leader of the Opposition was heard in silence. I ask Opposition members to extend the same courtesy to the Acting Prime Minister.

Mr McEWEN - What I have just been illustrating in a domestic or business sense exists in exactly comparable circumstances for the Australian nation in respect of overseas earnings. Over the eleven years during which this Government has been in office there have been violent fluctuations of international commodity prices, and in recent years the severe decline in prices has been a nightmare. But we have managed. It is true that on occasions we have had to embark upon internal policies of restraint, notwithstanding general policies of expansion. We have had import controls. We have tightened them, and we have relaxed them. We were abused by vested interests when we had import licensing controls, and we are being abused by vested interests now because we have sought to give freedom from them. In spite of the calamity howlers - and we have heard some superb and gifted calamity howlers in this House to-day - the Australian economy has still gone along.

The Government has embarked on farreaching policies to encourage the production of more and more items for export. There have been constantly expanding trade promotion drives right round the world. I think I am justified in saying that our trade negotiations have been notably successful that we have obtained access to new markets on terms which have given us the opportunity to sell our products to the best advantage. Under these internal policies, the volume of goods for export has increased enormously, and increased assistance has been given in the promotion of sales. In spite of all this however, we have this intransigent or intractable problem caused by the fact that prices for the bulk of the commodities which we sell have gone down on the world's markets while, by and large, the value of the things we are importing has continued to go up.

Let honorable members take note of the figures I am about to quote. When this Government came to office it deliberately introduced policies to stimulate the production of things, for export. It set out to ensure that, there was a market for those goods overseas, and sought to stabilize conditions in Australia to tide us over until its policies produced their effect. Our efforts have had varying results. The Commonwealth Statistician will say that, having regard, to the immediate post-war shortages, the Korean war boom and so on, 1953 could be taken as being as near to a normal year as one could get when dealing with world values of bulk commodities. I emphasize that that is not my opinion; it is the judgment of the Statistician. I have taken 1953 as a basis for the purposes of comparison. This year, Australia will sell overseas about £880,000,000 worth of wool, butter, meat, fruit, lead, zinc and so on. The return will fall far short of our needs, but, if we got this year for those things that we export the prices obtaining in 1953, our income would be not £880,000,000, but about £1,300,000,000, and this country would have no balance of payments problem whatever. Therefore, to the extent that 0U policies have induced production for export and. secured the right to sell those things, they have been completely successful. What has militated against us has been the fall in the value of bulk commodities throughout the world. I say to my friends opposite, and to some of the leader writers of the great newspapers of Australia, that they would be serving the Australian people better if they were to devote themselves, as 1 and this Government have been doing over recent years, to pointing out to the rest of the world that Australia is not getting, a fair go in connexion with bulk commodity prices. That has been the theme of Australia's policy declarations at the great Montreal conference and other places.

That brings- me back to the comparison between the ship propelled by steam and the one that sails before the wind. This country is not engine-motivated. It is influenced by external circumstances. But we can have, just as the master of a sailing, vessel has, a constant objective. So long as this situation exists - and I think it will always exist in. the foreseeable future - this economy will have to tack and turn to get to its destination. But that does not mean that it will not get there, nor does it mean that we shall have to change our objective. No Australian Government can compel buyers overseas to give us more than they are prepared to pay, and no Australian Government can compel those who sell tous from overseas to sell for less than they have elected to charge.

Just about twelve months ago, the Government decided to free imports from control. It had two reasons for that. The first was an economic one. We wished to make a contribution to abating the pressures of inflation. The second was to give nol unbridled, but reasonable freedom to do business. I am proud to stand here and say that, because of the basic political philosophies of this Government-

Mr Costa - Which are wrong.

Mr McEWEN - Of course, they arewrong from the Opposition's point of view. The Opposition does not believe in freedom in the economy. We understand that only too well. The tenor of the debate so far has emphasized that. 1 repeat that we on this side believe in freedom. This Government confidently believes that we can sustain freedom to import, and we have no intention of departing from that policy. But the calamity howler who shakes the confidence of overseas investors in the wisdom of sending money to Australia, or who stimulates the Australian merchant to import more than he needs for the time being is making a powerful contribution to wrecking this measure of economic freedom, which we have sought to extend to Australia's trading, industrial and consuming communities. I am sure that every responsible Australian citizen and organization realizes that the success of the measures depends upon overseas markets. No Australian Government can escape from that reality. Surely, therefore, it is essential that modifications be made to policies from time to time to adjust them to the changing aspect of international trade.

The other phenomenom which impelled the Government to action last year was the clearly developing inflation. But before passing from the balance of payments, let me point out that excessive internal buoyancy, which is typical of an inflationary situation, does produce abnormal import demands and calls upon overseas funds. The figure which the Leader of the Opposition (Mr. Calwell) quoted as an example - that related to imports of tin plate, steel, carpets, plastics and so on - is the result of the pressure generated by the buoyancy of the internal situation which produces a level of demand which, quite clearly, cannot be serviced indefinitely unless things are brought to a reasonable balance.

This Australian inflation is an unseen robber. Surely there is no need for me to explain how it harms the thrifty, those who are in the fixed income group. Surely there is no need to explain how it robs the workers' pay packet, or how damaging it is to export industry. We take inflation as a serious happening, and we deal with it. Wherever it occurs, inflation is always accompanied by a concentration of the economy upon the non-essentials and a neglect of the essentials. This Government would much prefer to face blasting attacks from its political opponents, and from those whose balance of profits and in some cases whose jobs are interfered with by our antiinflationary policies, than to allow damaging inflation to undermine the Australian economy. We would rather risk our political reputation, in the short term, by taking the inevitable unpalatable steps necessary to arrest inflation than to let it slide by more comfortably. Money and credit must be restricted in the inflationary situation. That level of profit making which produces a reckless indifference to cost and wage levels must be minimized. In times of inflation, steps taken to divert from the non-essential to the essential are always necessary, and they are inherent in our policy at the present time. In a country like Australia, where the balance of payments problem is concurrent with inflation, and is indeed a by-product of it, there is a dilemma for those who are responsible. The dilemma is that we want to encourage economic activity in the export sector while at the same moment we are setting out to restrain it over the broad field. Here, of course, there is a real problem for us, but no problem for the socialist mind. All this can be controlled, says the socialist, by the iron hand of government. We seek to use that means to the minimum extent.

Let me turn now to some actions which have been challenged and which have generated criticism. The reduction in overseas earnings, which is apparent to every one, inevitably reduces the liquidity of the banking system. Part of our recent policy has been to minimize the abruptness of the impact of that situation, which was quite unpreventable. To that extent the bank credit policies now operating have been designed, importantly, to produce an impact earlier than it otherwise would have occurred, but, in the ultimate, to produce an impact much less severe than would otherwise have occurred. That really ought to be understood. Who will attempt to justify the unrestricted availability of funds for non-essential and speculative purposes when, at the same time, there is money starvation for essential export industry and basic industries and essential community services such as health and education, and public works like roads, communications, water and sewerage, and power, without which, of course, the economy would quickly become grievously unbalanced. Where does Labour stand on that, when it challenges our credit restriction policies? They are designed - and we make no bones about if - to divert in this situation from the less essential activities to these activities that are basically essential to the Australian life and living. Every single point of our policy of credit restriction - motor car taxation, non-deductibility of certain interest payments by companies, the desire to divert some life insurance funds to Government loans, and the raising of interest rates - and the other points, without exception, have been introduced for the explicit purpose of preserving balance in the Australian economy. There is no intention that essential undertakings in either the private sector or the public sector shall be permitted to starve. And for this very reason, that interference with expansion in the private sector - motor cars, commercial building, &c. - is only defensible when the level of activity in those spheres has been carried to the point of endangering the basic economic stability. That has occurred; it is demonstrable.

It is only when this has occurred that the Government has felt obliged to minimize these activities through particular policy actions. The automobile industry was at an extremely high level of activity and had been making excessive calls on overseas funds and local resources; and that explains the increase of the sales tax as a deterrent. The purpose of that step was clearly stated by my colleague and others of us in the Government, and we said it would be maintained only for so long as it was judged necessary for the purpose for which it was imposed. Now, as the total and cumulative effects of other factors have operated, the judgment has been made that the additional sales tax was no longer necessary for the purpose for which it was applied, and it has been removed. Is that not understandable to any reasonable person? Is it not the correct course of action for us to have taken?

Under the policies of this Government, home ownership is, I think, higher in Australia than in any other country, but the cost of home building at any time reflects the pressure of the whole building programme of the country. Beyond a point, if there is unlimited credit available for building you must get dearer homes, to the detriment of people who are aspiring to own their homes. What we aim at is reasonable stability and sanity over the whole of the building field. That is our only objective and clearly we have made it apparent in the bank credit directive that it was not intended to depress home building for home ownership. In this enormous and new country we have not inherited the public works of centuries, of which older countries have the benefit. We have enormous areas and few people. Heaven knows we have high ambitions and an enormous demand for public works, and there are only two ways by which to finance them - by borrowing money or levying taxation on to-day's generation. We think that taxation for public works is high enough, but if you cannot borrow the balance - if you think taxation is high enough and you cannot borrow the balance - then clearly you must either fall behind in your public works or turn back to even higher taxation.

In this field, over the last ten years, 60 per cent, of all Australian public works have been done by levying taxation to pay for them - £2,000,000,000 has been levied upon the people to pay for public works which posterity' is to a large extent to enjoy. Historically, the life insurance companies have subscribed to public loans to an important extent. It is a fact that over most of our history, works to which public loans are geared have depended importantly upon subscriptions from life insurance companies. This Government believes in life insurance. This Government, more than any other government in the history of this country, has diverted, by its policies, a positive torrent of money into the coffers of life insurance companies and superannuation funds. When we came to office a taxation deduction of £100 a year was allowed for life insurance. To-day the rate, under our policy, is £400 a year, and as a direct result the funds of life insurance and superannuation bodies have risen prodigiously. The total deductions from income tax allowed for subscriptions to life insurance companies and superannuation and provident funds, I am informed, are currently running at the rate of £150,000,000 a year. This concession, to use the tax jargon, involves the Commonwealth Government in forgoing £35,000,000 of revenue a year. While the Government has given up that amount of revenue, paradoxically the subscriptions to government loans from these traditional subscribers have diminished practically to vanishing point. We do not rebuke the companies for that. They are the masters of their own affairs. This is not to rebuke them but to state the objective fact. We have foregone £35,000,000 a year because we believe in life insurance by the people, but at the same time subscriptions have really diminished to vanishing point. In the light of those facts we have concluded that rather than see the works programmes for hospitals and schools, communications, essential water, power, sewerage and so on wither away - or be paid for by punitive increases in taxation - we should turn to this historic source of loan money to support to a not unreasonable extent government loans for this purpose. That is why we proposed that life assurance companies should make some reasonable contribution from the funds that our policies have directed into their coffers, not for the support of this Government but for the progress of the Australian nation. And, after all, what is the difference between the policy-holders of the great insurance companies and the Australian people? There is no difference! 1 turn now from that which I am sure is understandable to this controversial issue of non-deductibility of certain interest liabilities of some public companies. Over the years the allowance as a tax deduction of interest on borrowings generally has been, and is, beneficial to the development of the economy in quite important aspects. Nevertheless, certain financing encouraged by this deductibility, helpful as it may be to some sectors of the economy, can do harm to others. For instance, deductibility can, and does, give undue encouragement to those engaged in the business of raising money from the public to finance share and land dealing, and promotion and construction of more or less speculative kinds. With the general rate of company tax at 8s. in the £1 deductibility means that in profitable ventures the Commissioner of Taxation bears up to 40 per cent, of the interest cost of the borrower, and so in those circumstances some people can afford to offer, and have been offering, very high rates for funds from the public. So is it any wonder that in a buoyant economy where every one wants to expand and must have the funds to do so the cost of borrowing - the rate of interest - has, as every one knows, really threatened to get out of hand? As is always the case in these circumstances, investment was being channelled increasingly into the less essential at the expense of the more essential sectors of the economy, both private and public.

I have said that deductibility in some cases is desirable and necessary as my colleague the Treasurer (Mr. Harold Holt) has pointed out. I have explained that in some circumstances it can have, and has had, harmful results. It is quite important to the community to ensure that action necessary to curb the harmful effects does not strike at the valuable aspects of deductibility. Accordingly, when the Government introduced the current measure on this matter it said that this was a holding operation. The Treasurer, to use his own words, said that it is " to remain in force only until such time as a more comprehensive and detailed scheme is fully developed in the light of experience and wider information ". We shall preserve the valuable features of deductibility, but we shall, in to-day's circumstances, minimize other features which may produce, and have produced in the past, distortions of the economy which can harm the public interest.

I turn now to the subject of employment or, as the Leader of the Opposition prefers it, unemployment. He has been proclaiming that we soon will have 150,000 unemployed in this country. This is the usual, regular, calamity call and I suggest that it be not taken too seriously. What is relevant to this matter is that this Government has never treated the question of employment lightly. To prove this, I draw upon the figures covering the decade from 1949 to 1959 which have been published by the International Labour Organization. These figures indicate that in each year of the decade unemployment in Australia has been much lower than in the United Kingdom, the United States of America, Canada and West Germany, to take just four leading industrial countries. There is the proof nf the effectiveness of the Government's policy of sustaining employment in this country. In the future, as in the past, our policy will be adapted to changing circumstances and our purpose will be to continue to maintain what we regard as our proud record in the employment field.

We are determined to solve our problems of the moment without throwing away our freedom. We are certain that minimum government control produces dynamic business expansion which can never be matched by socialist constriction of the economy. Members of the Government parties are experienced in public life. We know what wins a vote and we know what loses a vote. We know that tightening bank credit, presenting evidence and advice to the Arbitration Commission as we did a year ago, raising interest rates, exposing some Australian manufacturers to sharper import competition and increasing taxes are not vote winners, but we have enough confidence in the Australian people to be sure that they believe that we have sound judgment - and we have eleven years of experience to draw upon to prove it. We are confident also that the Australian people believe that what dominates us in our sense of responsibility to their future and that no true progress is possible without a healthy economy.

An economy that cannot procure, through earning or borrowing overseas funds, enough to pay for its essential imports is not healthy. That is why we have taken certain action. Where costs are rising at an intolerable rate, the economy is not healthy. That is why we have taken certain action. An economy that can produce funds for boom, non-essential expenditure but cannot find funds for essential developmental work, particularly in relation to exports, to keep pace with the growth of the nation, is not healthy. That is why we have stepped in and introduced our policies. The steps that the Government has taken are designed to restore health to the economy so that our expansion, with prosperity and full employment, can proceed from a stable base. We are confident that our policies are right and that the desired results will flow from them.

I conclude by saying that the attack which the Labour Party has made upon the Government's policies is not just a parliamentary incident. Fundamentally, what emerges from this debate is that the two sides of the Parliament offer the Australian people two completely different ways of life. That is the point; and I say to friends of the Government who criticize some of our methods that they should not be com pletely carried away by one aspect of our policies that may hurt them or with which they may not agree. Let them not forget that what has been said in this Parliament to-day has been designed to develop an atmosphere for the next election when the Labour Party hopes to regain power to enable it to change the way of life of the Australian people. That is the critical issue. 1 have not the slightest doubt that the Australian people, recognizing that issue, will have confidence in this Government and will indicate that confidence now and when they get the opportunity to vote.

Sitting suspended from 12.40 to 2.15 p.m.

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