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Friday, 1 May 1936

Senator A J McLACHLAN (SOUTH AUSTRALIA) (Postmaster-General) . - I have had an opportunity to look at the somewhat voluminous report of the Tariff Board on this subject, made in April, 1933, and also the annual report of the board for the year ended the 30th June, 1934. To certain interests the suggestion of senator Duncan-Hughes will possess attractions because, as he pointed out, the present position allows for only one-way traffic. But if his amendment were carried, there would still be only one-way traffic. In its general report on exchange adjustment, the Tariff Board adopted as a basis for exchange adjustment the then current opinion that the present exchange would continue indefinitely. At the inquiry, Professor Giblin said -

I think we must regard ourselves as on this 125 basis, with comparatively alight variations one way or the other, almost indefinitely - certainly indefinitely from the present point of view.

In making its recommendation for the application of general exchange adjustment, the board said -

The board considers that, in the event of exchange moving not more than 5 per cent. in either direction-, the absence of immediate adjustment would have no serious effects.

There are many hundreds of items still subject to the general exchange adjustment, which is based on an exchange rate of 25 per cent. It will be apparent that it would be illogical to take the 25 per cent. basis for the general exchange adjustment - that is the actual exchange operating at present - whilst adopting a different basis for those items which are subject to the new methods of exchange adjustment. In short, the Tariff Board, in its recommendation, has adopted the general principle which Parliament embodied in the Exchange Adjustment Act. It applied the same principle specifically and with greater accuracy of detail. On this point the board also made the following statement in its report: -

The finding of the board is not intended to convey the belief that, should the Australian exchange further depreciate, there should necessarily be a further adjustment of duties. In this connexion, the board considers that no decision should be arrived at until the occasion calls for it, when action would be determined upon after proper inquiry.

The board has warned Parliament against taking, without further examination of the position, the very step which the honorable senator suggests. The amendment of Senator Duncan-Hughes raises a question of policy which has not been decided by the Government. The present exchange rate has achieved a number of objectives, chief " among them being financial and trading stability. It has been a matter of high policy to keep the rate at its present level. If that level were increased, a decision would have to be made as to whether or not it was desirable to maintain the higher rate or revert to the now current level in the public interest. If the latter decision were made, the amendment of the honorable senator would delay a return to that level. The question can be decided if and when the exchange rate 'increases. The adoption of the amendment in its present form, if applied throughout the tariff, would, if the exchange rate rose sufficiently high, reduce the margins of preference which under the Ottawa agreement we are obliged to maintain in favour of the United Kingdom.

To give an illustration I will quote item 380. Under this item we are obliged to maintain a preference of 25 per cent, to the United Kingdom. The present rates and exchange corrective are : - Exchange corrective: British preferential tariff, 10 per cent. - .8 per cent.; intermediate tariff, 35 per cent. - .8 per cent.; general tariff, 35 per cent. - .8 per cent. With exchange at £100-£138 the intermediate and general tariff rates would be 24.6 per cent., or .4 per cent, less than the agreed-upon margin. With exchange at £100-£169 no duty would be collected under the intermediate or general tariffs. There are many other examples which could be quoted. I assure honorable senators that should the exchange go higher the question as to whether further deductions should be made from protective duties will engage the attention of the Government' and the Tariff Board.

Under these circumstances I cannot accept the amendment proposed by Sena tor Duncan-Hughes. I refer honorable senators to reports of the Tariff Board in which the matters of exchange and general stability of currency are dealt with. Those pronouncements are well worthy of study. On page 4 of its report dated the 13th April, 1933, the board, after dealing with this subject in the manner which I have just indicated, said -

For more Ulan a year now the rate with sterling has been kept stable at 125, and the board can see no features in the present situation which are likely to influence those in control of the rate to depart in the near future from their policy of stability. The board's recommendations in respect of protective duties would, therefore, be based on false premises if it continued to accept the view that the considerable depreciation of Australian currency is a factor which may foe safely ignored.

Earlier in this report the board pointed out the difficulty of calculating the effect of exchange on protective duties. Instead of adhering to the somewhat technical language used by the board, however, I shall put the matter as it appears to me personally. Take* the case of an Australian manufacturer who imports, either from Britain or foreign countries, some of the components of the articles he produces. These components have to bear the protective burden of our depreciated currency; that is, the effect of the exchange rate. That burden, which is calculated upon the proportion of the component parts imported, varies in every case, and that is why the Tariff Board, as Senator Duncan-Hughes has pointed out, has inserted a special calculation in respect of each of the hundreds of items so affected. That calculation represents the appropriate corrective to allow for variations of exchange in respect of the imported parts of each article.

Senator Guthrie - If, because of drought conditions the wool industry collapsed, would not the exchange rat« rise?

Senator A J McLACHLAN (SOUTH AUSTRALIA) - The honorable senator visualizes an alarming possibility, and of course the exchange corrective will have to be applied if we are unable to export sufficient products with which to get money to meet our obligations overseas. This operation of exchange on protection is only of recent development. I recall that when I was a member of the Oppositionin this chamber, I voiced somewhat strong ideas regarding the confusion of these two elements. Tariff for the protection of industry is one thing, whilst the overseas trade balance, as reflected in the exchange rate, is another thing entirely. Similar confusion arises to-day in respect of calculations of the trade balance because in such calculations allowance has to be made at times for capital imported or exported. On this point I referred last night to a calculation regarding exports in which allowance had to be made for exportations of gold. Such factors are a thing apart from the tariff; nevertheless they must be recognized in calculations directly affecting the tariff. I am of the opinion that thefinances of the country are something entirely apart from its tariff policy and the exchange rate is entirely a matter of finance. On page 15 of its report of the 30th June, 1934, the Tariff Board expressed itself thus -

It is mathematically impossible to choose rates of duty that will satisfy legal obligations after making thereductions allowable under the Customs Tariff (Exchange Adjustment) Act,and still provide reasonable protection should the Australian currency approach nearer to parity with sterling. An actual example will illustrate this fact. In one industry the board found that under existing conditions a duty of 5 per cent, would be reasonable, but that as far as could be estimated, a duty of 30 per cent. would be necessary with exchange at par. Obviously the rate of duty (62/3 per cent.) which when adjusted by the reduction of one-fourth would provide adequate protection (5 per cent.) at present, would expose the local industry if exchange suddenly became normal, for instead of an estimated necessary duty of 30 per cent., there would be only62/3 per cent. On the other hand, the imposition of 30 per cent., subject to one-quarter reduction or 22½ per cent, net would result in over-protection by17½ per cent., while exchange remains at 25 per cent. In a monopolistic industry, the operations of which had been characterized by excess profit- taking, such a duty rate would have given a protection permitting; the continuance of excess profit-taking while the currency remained depreciated.

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