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Tuesday, 14 March 1961

Mr BEAZLEY (Fremantle) .- The honorable member for Hume (Mr. Anderson) adroitly side-stepped the whole purpose of this debate. In October, the Treasurer (Mr. Harold Holt) announced a four-pronged policy. It was not, as the honorable member for Hume suggested, to arrest internal inflation or to cany out any of the purposes that he mentioned; it was designed to redress Australia's unfavorable trade balance. If the four-pronged policy of the Treasurer is to be discussed as a success or a failure, it must be discussed as a success or a failure in altering that unfavorable trade balance.

The honorable member for Hume spoke about costs and how they affect the farmer. I invite his attention to the fact that the export prices of Australian wool and wheat were very similar in 1949 under the Chifley Government to what they are today, that the basic wage was £6 9s. not £15, and that since the fall of that Government the level of costs and wages to which he has referred has developed.

It is interesting to hear Liberal and Australian Country Party spokesmen talk about hire purchase and interest rates. For years honorable members on this side of the House have begged the Government to do something about hire-purchase interest rates, first because they were usurious, but secondly because they were diverting money which otherwise might have gone into fundamental development works through Commonwealth loans and other means to a froth economy that was not important. The Government allowed that situation to drift for years, and then in October of last year, after seven or eight years of soaring hire-purchase interest costs and diversion of funds to hirepurchase activities, one of the four prongs of the Government was the removal of deductibility for income tax purposes of interest paid for certain sorts of activities. That prong of policy was directed at hire purchase. But the records of the Parliament show, as the honorable member for Hume knows, that for years we asked the Government to take action against hire purchase because of the way it was distorting the economy.

Let us have a look at what the Treasurer and honorable members opposite said last October and November was a new divine revelation and a policy that we must all support. As times goes on, back-bench members usually find that Ministers like them to come in on debates such as that of last October, but if the Government ever feels it is on a winner, the Ministers want to take all the debate themselves. Last October we had the honorable member for Moreton (Mr. Killen) standing and pledging that the Government's action in connexion with the motor car industry would not lead to unemployment in that industry. Other honorable members opposite made assertions of a like character. Now we learn from the honorable member for Hume that what has taken place is a diversion of labour. Let us have a look at the four prongs of this wonderful policy proved up to the hilt as a splendid policy in almost the last debate in this House in the last session by every supporter of the Government who spoke, except for one Senator, Senator Wood, who proposed - I heard him being sneered at as he did so - much of what is now the policy of the Government in its new phase.

The first prong of the Government's policy was increased sales tax on motor cars. That is now removed. The second was the proviso that 30 per cent, of the funds of insurance companies must be invested in Commonwealth loans. That is now removed. The third was the credit squeeze, which is still with us. The fourth was the adjustment in the deductibility for income tax purposes of interest payments.

The " Financial Review " of the " The " Sydney Morning Herald " contained this interesting statement -

The Federal Treasurer, Mr. Holt, is to have more talks wilh the hire purchase industry as an attempt is made to unravel the tangle of Government thinking on interest deductibility.

So it appears likely that the fourth prong of policy will be removed or modified.

The point that is important is not whether the honorable member for Hume thinks it is good that a diversion of labour is taking place; the important point is what is happening to the external credit position. The policy is designed to meet this. Has it done anything to achieve its purpose? If it has not, the policy has failed. While we are all discussing what this has to do with Australia's internal economy, the truth is that the external position of Australian trade is wholly untouched and the deterioration continues. Despite this Government's credit squeeze, imports in February were worth £94,800,000 against exports worth £79,600,000. It was a further deterioration of £15,200,000, and it brought the visible overseas trading deficit for the eight months from 1st July to £182,200,000. In terms of sheer commodities, we have failed to pay for our imports in eight months to the extent of £182,200,000. That does not take into account freight and other invisibles. For the whole of the last financial year these were £127,000,000 or about £10,000,000 a month. They are running at more than that for this year, but if we take this figure for the eight months in question, we have another £80,000,000. So, in the first eight months of the financial year, we are failing to pay our way by £262,000,000. This compares with a favorable balance in the corresponding period of the last financial year of £35,600,000. For the eight months, our imports totalled £755,600,000 and our exports £573,000,000.

The four-pronged manoeuvre of the Treasurer has had no effect whatever on external trade. If this policy is to have an effect on external trade by the credit squeeze, what is the real theory underlying the Government's activity? If this country is to cease importing at so great a rate by any other means than direct import controls, it must cease importing by a drop in the purchasing power of the Australian people. You may call it a credit squeeze if you wish, but it means that somebody becomes unemployed, has no income and hence ceases to be a purchaser - the situation that existed in the depression. The Australian demand for imports, therefore, falls. That is the policy of the Government through credit restrictions. It is not the policy of the Government, it says, to revert to import controls. However, that is a new departure in the Government's policy; it was not the policy of the Government in the past.

In a reply to a question asked by the honorable member for East Sydney (Mr. Ward), which appears at page 1837 of "Hansard" of 6th October, 1960, the Minister for Trade (Mr. McEwen) gives the Austraiian trade statistics for each year from 1950-51 to 1959-60. When the Government first had its most irresponsible burst in 1951-52 - this was where our sterling balances in London were first dissipated -it allowed £1,050,000,000 worth of imports, and this was the greatest volume of imports in Australia's history. Australia could meet this with only £668,000,000 worth of exports. So it was £382,000,000 in the red. The Government then took fright and imposed import controls for the first time. Australia's imports, which were £1,050,000,000 in 1951-52 fell to £510,000,000 in 1952-53. Controls more than cut them in half. They came back to about 48 per cent. As it happened, Australian exports rose from £668,000,000 in that year to £846,000,000. That £846,000,000, coupled with the great reduction in imports, went a long way towards adjusting the great deficit of £382,000,000 which occurred in the year before. Was there mass unemployment in Australia when import control was introduced in 1952-53? There was not. Was there acute suffering in Australia when import control was introduced in 1952-53? There was not.

Mr Halbert - Is there now?

Mr BEAZLEY - There certainly is for the people who are being dismissed. If you choose credit restriction and unemployment as a means of reducing imports by destroying peoples incomes, that is much harsher on those people than is a general import cut. We all remember that the present Prime Minister said in one of his broadcasts during the war: -

We will probably have poverty after the war, but what is the matter with poverty if it is honourably shared?

If we have to cut our imports and so reduce Australian living standards, what is the matter with import controls, which ensure that the reduction in living standards is honorably shared? A policy of credit restriction means that some thousands of people become unemployed and have their incomes destroyed. Then you have reduced purchasing power in the country and consequently a reduced demand for imports. That is, in truth, the approach that the Government is making to the problem at present.

The Treasurer tells us very airily that the level of sterling balances in London is not terribly important and that what you have to look at is the trend. If he had translated the word " trend ", he might have said that what you have to look to are your liabilities. That is a very important point. In 1957-58, for instance, our holdings of gold and foreign currencies abroad amounted to £525,000,000. By December of last year they were down to £376,000,000 and now they are down considerably further. One of my colleagues suggests that the figure is £299,000,000. I do not think that the figure of £299,000,000 includes gold holdings. You will probably find that they account for another £60,000,000, which would bring the total to the vicinity of £360,000,000. But that is not the critical point. If we had had £350,000,000 in London in the depression of 1931, the country would have considered itself to be in a princely position. The critical point is that the Government is perpetually borrowing overseas - it is now in the market for a Swiss loan - and therefore we have increased liabilities.

In " Hansard " of 6th October, 1960, at page 1837, the Minister for Trade supplied Australian trade statistics to the honorable member for East Sydney. They show what the country must pay in private investment income, in interest on overseas public debt, in government loan repayments, in freight, in personal remittances, in overseas travel and in other invisibles. In 1950-51 those liabilities amounted to £231,000,000. In 1959-60, they amounted to £390,000,000. Private investment income in that time - the return to investors in this country - had risen from £24,000,000 to £58,000,000. Interest on overseas public debt had risen from £19,000,000 to £27,000,000. Government loan repayments declined from £21,000,000 in 1950-51 to £13,000,000 in 1959-60. They fell to £3,000,000 in 1951-52. They were £3,000,000 in 1952-53, £17,000,000 in 1953-54, £9,000,000 in 1954-55, and so on. The rate of repayment has never returned to £21,000,000. Freight had risen from £92,000,000 in 1950-51 to £126,000,000 in 1959-60. Other invisibles had risen from £57,000,000 in 1950-51 to £116,000,000 in 1959-60.

The tendency of freights and all the invisibles which have an effect on the Australian economy is to rise. The higher they are, of course, the higher should be our sterling reserves in London, because of the greater liabilities to be met. The more that our economy is owned by foreign investors, the more, of course, we must pay in interest. The invisible items I have mentioned amount to £390,000,000. At the present rate, our exports for this year will be worth about £840,000,000. These invisible claims are getting pretty near to half the value of our physical exports. I remember the late Mr. Scullin saying that at one stage during the depression one ship out of every three leaving this country was leaving to pay interest and that kind of thing. That is the situation that we seem to be getting back to. The Government speaks about its success in attracting foreign capital, but why will it not face the fact that many of the industries that have been established behind our tariff wall with foreign capital are operating under controls that ensure that they will not export? We were not given the report in the Parliament, but in " The Economic Record " for August, 1959, there is an article on the export franchises of Australian companies with overseas affiliations. The authors state that they are indebted to the Secretary of the Department of Trade for making the results of a survey available for publication. The article reads -

Recent emphasis on the importance to Australia of developing exports of manufactures has drawn attention to a disturbing feature of direct overseas investment in Australian manufacturing industries. This is the limitations which overseas principals are said to impose on the rights of their Australian subsidiaries or firms working under licence to sell their products outside Australia.

The honorable member for Hume always accounts for the non-export of Australian secondary products in terms of cost levels, but the parent companies do not take the risk of having competition from their subsidiaries in Australia. The article continues -

A recent survey by the Industries Division of the Department of Trade enables us for the first time to get a picture of the extent and nature of these restrictions on export franchises. Both American and British connected firms were covered by the survey.

The Minister for Trade has said that the Government deplores this practice, but he has had this report for more than two years. The Government's deploring amounts merely to hand-wringing. I cannot quote at length from the report, but it goes on to say -

The restrictions take the form of limitations placed on the areas in which the Australian firms may market their products. A high proportion in both categories are limited to Australia, New Zealand and the Pacific Islands. A number of firms, usually members of world-wide chains, have been established to cater for the local market only and may not export at all. (The number may be much larger than the tables suggest if a proportion of those disclaiming any interest in exports ought to be included in this category.) . . . British restrictions on export to Asia are notably more wide-spread than corresponding American restrictions:

That is one of the interesting things. This is more a characteristic of British companies than of American companies. The report continues - 53 per cent, of British connected firms are limited, but only 40 per cent, of American. Two reasons may be given for the difference. First, the British principals are much more likely to have established connections of their own with Asian markets, or subsidiaries in countries like India, than are American companies. Secondly, during the post-war years of widespread dollar shortage, American companies, unable to sell their dollar products directly in Asian markets, have been more willing to allow their soft-currency Australian subsidiaries to supply these markets; this consideration has not affected British companies. For both reasons the difference in this respect between British and American practice may diminish, as American trade with the Asian countries expands and dollar restrictions are eased.

The report goes on -

So much for the facts which emerge from the Department of Trade survey data. The motives of overseas companies in imposing restrictions on the right of Australian subsidiaries or licensed firms to export are fairly obvious. From the point of view of the overseas principal, nothing is gained by competition from its Australian subsidiary in its home market or in established export markets in other countries supplied either by the parent company or by subsidiaries in these or neighbouring countries. From the point of view of Australia, however, it may be a serious matter if a significant proportion of the firms in its manufacturing industries, and not improbably the most up-to-date and therefore most competitive firms, are not interested in export or are hamstrung by franchise restrictions. There is here a clear conflict of interest between the overseas investor and the borrowing country.

If the industries that are built up as a result of the investment of overseas capital may not export, they become merely a means for getting behind the tariff wall, and in terms of international trade they are a total liability to this country, because dividends must be remitted to their principals.

Mr Hasluck - Do not those industries replace imports?

Mr BEAZLEY - They probably replace imports, but dividends must be remitted to them. They replace imports at the level, perhaps, of the profit of £15,000,000 recorded by a particular company, and they have claims on Australian exports which prevent those exports from earning imports. Dividends that are remitted to the overseas companies must go from Australia in the form of exports and those exports are not able to earn us imports. Clearly, it is much better for Australia to develop its own industries which are free to export than to have industries which are not free to export.

Mr Bryant - The Prime Minister has a colonial outlook.

Mr BEAZLEY - Possibly that is true, because he has defended colonialism in the presence of Nehru and many people abroad. There seems to be some idea that if the British own everything in this country, that is loyalty, and if the Americans own everything, that is security. What we have to do is get the investments that we want. We have to ensure, if we can, that overseas investors do not come here just to exploit the internal market. We must see that their investments have no strings attached.

I have not time to make any further points, because I understand that I have only three minutes left. But I commend to the attention of the Treasurer the issue of " Time " of 3rd March, in which there is a study of the economists around President Kennedy of the United States of America, beginning with Heller. The magazine comments on the policy which he advocates and1 which " Time " believes will be the policy of President Kennedy, and states -

Next to dropping the tight money policy Heller's most important prescription for faster economic growth is increased government investment in our most valuable resource - the human mind.

In Heller's thinking, education has an enormous economic value. He points out that the chronically unemployed are largely the uneducated and unskilled - that the economy has jobs waiting to be filled, but only for the educated and the skilled. Human capital - knowledge, skills and invention - contributes more to economic growth than does tangible capital - machines and factories. That is Heller's viewpoint.

Mr Harold Holt - The United States of America is in a very different economic situation.

Mr BEAZLEY - I invite the Treasurer's attention to the fact that Switzerland and Japan are countries which are almost wholly devoid of economic resources, but human skill in minds and fingers has put them among the most prosperous countries in the world. I recognize that the Government is investing in one form of education, in the university research departments, but it has adamantly refused to invest money in technological education. If the Commonwealth provided an institute of technology in every capital city - an institute properly financed and conducted - so that highly skilled labour was being trained for Australian industry, the Government would make one of the biggest contributions it could make. If it contends that that is a long-term scheme for getting over this imbalance, I point out that so also is the proposal for tax concessions for exporters. If money is invested in real training, skill and education, those things come on the market in four or five years. So an investment of that kind is not such a long-term one at all.

The article in " Time " which I have already mentioned refers to Milton Friedman, one of the most conservative economists in the United States. He has sard -

We have begun to see that stressing only physical capacities does not pay off. We have begun to question just how much of economic growth is based on increases in the quantity of physical capital. In the final analysis, the answer is technology, and this means the removal of ignorance.

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