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Tuesday, 30 August 1960


Mr TURNER (Bradfield) . - Listening to the honorable member for Yarra (Mr. Cairns) I have been somewhat fascinated in working out a little arithmetical problem. The honorable member is opposed to indirect taxes. At present, indirect taxes bring in about £500,000,000 a year. Presumably he would throw a large portion of that amount overboard. When dealing with the Government's proposed borrowing, programme; he expressed the view that the £150,000,000 which the Government proposes to borrow will come mainly from institutions, and that a very large proportion, of this amount - perhaps most of it - is really created credit, so he would not resort, to this means of obtaining revenue. Therefore, he will lose a very large part of another £150,000,000 which, according to the Government's plans, is now available to it. Further, he believes that the £50,000,000 in the sinking fund is really inflationary, and presumably he would not use that either, so he will throw overboard another £50,000,000. To summarize, he will lose £500,000,000, or a large part of it; something like £200,000,000 in loans which the Government proposes to raise largely from institutions, and £50,000,000 in the sinking fund.

Not content with giving up this revenue and money from borrowing, the honorable member wishes to spend more money on social services, education, hospitals, transport and the like. If honorable members care to add that £500,000,000, plus the £200,000,000, plus whatever figure you like to take for the honorable member's proposals regarding an increase in social services and the other forms of expenditure which he has mentioned, they may well ask themselves how revenue will be obtained from other sources to make up for these losses and proposed increases in spending. At present, the yield from income tax imposed on individuals is about £500,000,000 and from companies about £270,000,000. It would seem then that the honorable member proposes at least to double direct taxation. If he believes that the workers will escape any increase in taxation if his proposal to double direct taxes is accepted, I cannot follow his reasoning.

I do not propose to take any further part in the political battle which has flowed from one side of the chamber to the other in the course of this debate so far, and no doubt will continue to flow during the remainder of it. But I propose to be as constructive as I can and to break some new ground. 1 do not propose to weary the committee with detailed facts and figures in support of my argument, not because these are not available but simply because I do not wish to be tedious. I believe that the trends which are evidenced in the various papers will be sufficiently supported by reference to them.

I propose to try to answer three questions: First, does inflation matter? Secondly, will it be sufficiently checked by the Budget and the associated policies which have been announced by the Government? Thirdly, if not, what more can and should be done to check inflation?

Let me deal now with the first question - does inflation matter? I believe - this may be a startling statement but it is true - that it is accepted by the Government and the Opposition, by business leaders and by the community generally that creeping inflation is not a bad thing. Economists are divided on the question of creeping inflation. Some believe that it does not do much harm and others believe, as I do, that it can be quite disastrous. As to those who suffer from it, either they seek to escalate themselves out of their difficulties - let this interest or that interest look after itself and let the rest go hang; here I refer to wageearners and pensioners. As to others, either they are impotent, or they are unconscious of what is happening or why it is happening, or they are inarticulate. They are numerically weak and have been disregarded. In my opinion, creeping inflation is utterly evil and a real effort should be made to reduce the creep below the 3 per cent, which has been the average for the past ten years.

What are the effects of inflation? Let us consider first the effect on loan raisings. Last year the Government raised £190,000,000 by way of loans. This year it anticipates that it will be able to raise £150,000,000. But the Australian Loan Council's programme involves an increase in expenditure from £220,000,000 last year to £230,000,000 this year. This means that the difference will have to be raised by increased taxes, and that this process will continue, not only this year and next year but while inflation continues at this rate. The implication is that there will be increased taxes to meet the failure to raise money by way of loans.

What is the effect of inflation on primary industries? As we know, rural incomes have declined relative to the incomes of the remainder of the community. Costs have risen while prices overseas have remained fairly stable. So primary producers are caught in the nutcrackers between rising costs and the level of prices which does not rise.

What is the position in relation to other countries? I find - figures of this kind have been quoted in the House previously - that purchasing power to-day in various countries as a percentage of pre-war purchasing power is as follows, the Swiss franc, 55 per cent.; the German mark, 52 per cent.; the United States dollar, 49 per cent.; the New Zealand £1, 42 per cent.; the British £1, 37 per cent., and the Australian £1 is at the bottom of the list with 33i per cent. We have witnessed growing protection in one way or another of primary industries, for example, through the device of a home consumption price and the dumping of surplus stocks overseas at less than the cost of production. I refer to butter, eggs, sugar, dried fruits and so on. We have now reached the nadir when proposals are being made for the shoring up of our wool. This is the reductio ad absurdum of this process. I believe that the ultimate result can only be devaluation of the currency, and we shall move then to a still lower level in the value of our money. F om Hermon to Gallilee and from Gallilee to the Dead Sea we shall flow down from one level to the other in a further big decline if we have to face devaluation of the currency.

What is the effect on the fixed income groups? I refer, first, to superannuitants. In the case of public servants, governments have kept pace fairly well by making good the decline in the value of superannuation benefits. This has not been the case in respect of private firms. There have been two surveys in the past, and I have asked the Treasurer (Mr. Harold Holt) to have another in order to fix attention on the failure of some private companies to do justice to their retired servants. Again - speaking still about fixed-income groups - you have widows living on the income from trusts that have been created by wills or intervivos, widows who are living on the proceeds of what are called trustee securities - that is, government securities, mortgages and the like. These are erosion-prone securities. Such people have suffered.

Bondholders whether they be individuals - and people must be eccentric, I think, to invest in bonds - or institutions, both life assurance and other institutions, have of course been switching over more and more from government securities to buildings, as one can readily see if one walks about the streets of the cities, and into equities or whatever else they can get into. But they have such vast sums to invest that in large measure they are captive investors in government loans. So far as these fixedincome groups are concerned, the result is, in two words, continued impoverishment.

What is the position of wage-earners? These people continue to seek cost of living adjustments. They are always engaged in a rat race. As the wheel turns round, they run faster and faster but remain precisely where they were. Or you might say that they are in a position similar to that of that mythological figure, Tantalus, who was punished in the underworld by being placed up to the chin in a pool of water that flowed away whenever he bent to drink.

I should now like to quote some words which were used by Dr. H. C. Coombs, in his address to the Australian and New Zealand Association for the Advancement of Science, in August, 1959. He said - . . when allowance is made for higher aggregate earnings due to freedom from unemployment, larger family incomes as a result of more overtime, more readily available casual work, higher relative earnings for young people, for the effects of increased social services, and for the benefits of durable consumers' goods financed by savings stimulated by hire purchase facilities, there will be surprisingly little left to be attributed to higher real wage rates.

Labour representatives, of course, prefer to propagate the money illusion - the illusion that as long as the worker has more notes in his pocket he is better off - rather than to seek other ways of increasing the worker's real income.

What is the effect of inflation on the economy generally, Sir? First of all, it distorts the whole pattern of investment. Interest rates inevitably become high, because you have to deduct 3 per cent, straight away for the erosion of your capital. If people put their money into a savings bank and the rate of interest is 3 per cent., they receive, in real terms, no interest whatsoever. They are merely being preserved against the loss of their capital. So you always have to add to the interest rate that is charged 3 per cent, for the erosion of capital. This is one of the worst features of inflation. Another result, of course, is that government bonds, as we have heard, are priced out of the field, and you get, as the honorable member for Yarra has said, starvation of government works in connexion with transport facilities, such as railways and roads, schools, hospitals and so forth, because government bonds are priced out of the market.

Then again, people try to hedge against inflation. Hence the stock exchange boom, the land boom, hire-purchase booms for durables, and the creation of unit trusts and of land trusts, with ultimately, of course, the danger of a break in the boom and the loss of money by a lot of small people who have put their savings into these things. You get, also, the smart alecs, if I may call them such, who profit under these conditions and create social tensions. It is simply another of " the spurns that patient merit of the unworthy take".

Then you get a decline in the traditional institutional framework of canalizing savings. Banks cannot attract fixed deposits. Insurance societies are not attracting as much money as they should. People do not find it worth while to insure against, say, death duties. The savings banks are still attracting money, but they probably will not do so for very much longer, because people have a way of waking up in time and you cannot fool all of the people all of the time. The result of all this is that a lot of people put their savings into investments such as unsafe notes and direct deposits with various enterprises. The result is a loss of savings because the old channels are of less utility than before. I believe in these traditional channels of investment. Investments made directly are less likely to be wise than are those made through the traditional institutions, which have their means of assessing the value of investments.

Again, Sir, what is the effect of inflation on the cost push of wages and administered prices? I should like now to quote from an article entitled " Creeping Inflation ", which was published in the June, 1959, issue of the " Monthly Review " of the Federal Reserve Bank of New York. Tt stated -

If a slow but steady rate of general inflation were to be tolerated as a form of surrender to the inevitability of prices increases in the " administered " price and " organized labour " industries the end result would be the transfer of purchasing power to the workers and management in these industries at the expense of those whose savings are being depreciated or who are unable to increase income in pace with price increases.

If .creeping inflation were accepted as public policy the result would be either social injustice or, if escalation were successful, galloping inflation.

I have not time to go into the effect of inflation on the stability of employment and economic growth, but if honorable members are interested in that they will find it dealt with in the article from which I have just quoted.

Before I go on to my second question, let me summarize what I have said. 1 have tried to drive home the point that inflation, whether it is galloping inflation or creeping inflation, is an unmitigated evil. Until all sections of the people wake up to this fact, nothing will be done to check it. That is why I have gone over what may appear to be old ground. I have done so for the positive purpose - not a purely negative one - of trying to bring people to the realization that all, including industrialists, workers and governments, have an interest in stopping this thing from going on.

Now I come to my second question: How effective is the Budget in dealing with this matter? I believe that it tackles only one aspect of the problem - demand inflation, which is caused by too much money chasing too few goods. The Government has budgeted for a surplus of approximately £15,000,000. I am disregarding the argument of the honorable member for Yarra in taking that figure. If the surplus budgeted for were double or treble that amount, how great a diminution would that make in the total purchasing power available to the community? We must look at the Budget surplus against a national income of £5,500,000,000. So a budget surplus even double or treble that budgeted for in the current financial year would not involve any very substantial decrease in the supply of money.

I believe that the credit squeeze is good so far as it goes, and that the removal of import restrictions have been salutary. I have no fault to find with the measures that the Government has taken here, but I cannot find in them a serious attempt to tackle this problem of creeping inflation. I believe that the Government, like the Opposition and all sections of the community, expects creeping inflation to go on and does not have its heart in the task of stopping it.

The Government .is jio more .to blame for it than is the Opposition or any other section of the community.

Now I come to my third question. I have hastened over the second, because much has been said about the Budget. My third question is: What else can be done if this Budget does not do the job? As I indicated earlier, the task requires leadership. The leadership should come, of course, from the Government, and nobody is better qualified to lead this nation than the Prime Minister (Mr. Menzies) himself. Leadership should also be shown by industrialists, by the captains of industry. I am continually disgusted by statements issued by spokesmen for various interests. It is time, I believe, that the captains of industry themselves took a hand by making meaningful statements. In Roman days when a funeral was being conducted it was the custom to employ a number of professional mourners. They evidently used some early form of tear gas, and their tears were preserved in vases and buried in the mausoleums of the deceased. It was this practice which prompted the words of Tennyson -

Break, thou deep vase of chilling tears That time hath shaken into frost.

It is about time, in my view, that these ersatz tears that are wept by the paid spokesmen of industrialists were also consigned to oblivion, and that we heard sensible and meaningful statements from the captains of industry themselves, lt is time, indeed, that they took on the job of leadership.

Leadership should also be displayed by the trade unions themselves, or the more thinking members of them. How do they profit from inflation? I have tried to point out that they do not, and I believe, as does the honorable member for Wentworth (Mr. Bury), who spoke earlier, that the responsible members of the trade union movement should give thought to this matter. I do not think it is too much to expect newspaper editors also to play a responsible part.

I now come to what I may call costpush inflation, whch I believe is the nub of the whole matter. The wages-price spiral must be braked somehow, and there are two shoes in the brake. One is the prices shoe and the other is the wages shoe. If you rely on one shoe only the whole machinery will simply burn out. This matter will come to an issue at the next basic wage hearing, which Will occur, I believe, in February of next year. In what context will the Commonwealth Arbitration Commission be called upon to decide the issue? I believe that it is from this angle that the Government must consider the matter, and that it must approach the commission with a determination to try to control prices. I am now speaking of the prices side of the brake drum. Something serious must be done in the matter of prices. A good deal has been said on this subject, but I shall refer once again to the reference in the Governor-General's Speech at the opening of this session of the Parliament, when His Excellency said -

The development of tendencies to monopoly and restrictive practices in commerce and industry has engaged the attention of the Government which will give consideration to legislation to protect and strengthen free enterprise against such a development.

Later, the Prime Minister intervened in a debate and re-asserted the determination of the Government in this regard. It is my belief that this is one of the things that can be done which would give some assurance to the Arbitration Commission and to the workers that the Government is in earnest in its professed intention to prevent increases in prices. Without control of prices we cannot hop2 to control wages, and it is important - and I emphasize this - ;h?.t the Government should show its earnestness in this matter before the basic wage hearing comes on next year.

I come now to another point, the need for a review of tariffs. I am speaking not of reviews of particular items of the tariff, but a review of the aims and methods of our whole tariff policy. I refer to a review such as that conducted by Copland, Brigden, Dyason, Giblin and Wickens in 1928-29. That review was concerned not with particular items, but with the question of where we were going with our tariff policy. I believe the time is right to conduct another such review, because fresh problems have emerged in recent times which should be the subject of consideration by such a com mittee. Let me mention some of these problems. There is the emergence of monopoly and restrictive practices in our economy in recent times. How does this fit in with our tariff-making policy, and what principles should be applied, having regard to this factor? Secondly, there is the matter of import replacements. Overseas funds have become particularly valuable, and it may be that some local industries should be protected merely because they preserve our overseas funds. But upon what principles should such a policy be applied? Thirdly, there is the legacy of local industries built up in the period of import restrictions. Are we to be saddled with these forever, or what are we to do about them? Finally, there is the need to integrate the determinations of the Tariff Board with the findings of an authority that I would hope the Government would set up to deal with the question of restrictive practices.

At this point I would like to quote very briefly from the report of the Copland committee. This is what it said, at page 116-

The time has gone by when business units with great economic powers can be considered as "private" enterprise, with exclusive rights to their own information. Experience has shown that it is virtually impossible to regulate " monopolies " by legislative enactments directed at mere forms, or by legal interpretation of what is " in the public interest ". The best safeguard of the public interest is publicity, and with protected industries subsidized by the public the case for publicity is overwhelming.

I believe, too, that some thought should be given to the reinstatement of the child endowment payment as a meaningful part of the wage structure. In this connexion, too, by the way, the Government could very well review the pay-roll tax, and consider whether it should not be abolished, the amount now being obtained by this method to be made up by increases in company tax. But the reinstatement of child endowment as an element in the consideration of wages is important from the point of view of the problems I have been discussing up to date, as well as for other social reasons.

Finally, the Government should show its determination to hold down prices by enunciating its determination not to increase its own charges. I refer to postal charges, and railway and airline fares and freights. If the States can be persuaded to co-operate, they might also agree not to increase their charges for railway services or electricity supplies.

I have not time to go into the longerterm methods that the Government could adopt, and I come now to a few comments on the Commonwealth Arbitration Commission. I believe, in common with the honorable member for Wentworth, that it is quite unrealistic for the Government not to have a policy in regard to wages. It must have such a policy, because wages concern many more persons than the employers and employees directly involved. Having perused the last basic wage decision, 1 believe that the court's understanding with regard to productivity is quite defective. 1 suggest that in considering increased productivity you must give some reward to industrialists themselves, otherwise they will have no incentive to improve their technical processes.

I believe, too, that wage increases should be granted only according to the increases that have been achieved in productivity. A Swedish economist who visited this country within the last few years expressed astonishment at the fact that we did not do what is done in Sweden and consider the granting of wage increases in relationship to increased productivity. I know that there is great difficulty in drawing up a productivity index. In America recently much work has been done on this subject, particularly by Davis and Kentrick and by the National Bureau of Economic Research. This much can be said: However inaccurate the index may be, nevertheless the Arbitration Commission is bound to come to some conclusion as to what has been the movement in productivity, and the information on which it bases that conclusion should be the best that can be obtained, and not merely some evidence trotted out by an economist at the commission's hearing, and not fully understood by the members of the commission. A better approximation of the extent of the increase in productivity must, therefore, be put before the commission by the Government.

Basically 1 believe that if we are to hold inflation down it must be by the efforts of the controllers of prices and the representatives of wage-earners, and that in encouraging these efforts the Government has a leading and vital role to play.







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