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Wednesday, 31 August 1960


Mr FREETH (Forrest) (Minister for the Interior and Minister for Works) . - The honorable member for Lalor (Mr. Pollard) started his speech with becoming modesty, in that he proclaimed he knew little of economics. I must confess that I thought he was being unduly modest, because he put his finger on one of the great problems of this country when he said that export prices tended to come down while costs in Australia tended to rise. Indeed, nobody could quarrel with that diagnosis, which is the Treasurer's own diagnosis of one of our problems. However, the honorable member went on to say that drastic measures were required in order to attack the situation, and thenceforward he completely lived up to his own description of his knowledge of economics as being modest, because he proceeded to make out a case for increased wages. Now, Sir, whatever the rights of the wage-earners may be, there can be no doubt whatsoever that the history of the last twenty years in Australia shows that whenever there has been an increase of wages it has been followed by a period of inflation. The honorable member for Lalor accused this Government of deliberately trying to deprive the wage-earners of their just entitlements. In fact, Sir, during the last eleven years there have been nineteen separate increases in wages given by the Arbitration Court, which this Government upholds.

The Opposition has suggested that drastic action is needed to curb inflation. I want to remind the Parliament that last year and the year before this Government was in the position of having to budget for a deficit - a deficit in an economy which needed some stimulus, in an economy where there was a tendency for unemployment to rise. Budgeting for that def cit gave the necessary stimulus, and the unemployment situation was held and has since improved. Apparently, according to honorable members opposite, in those two years we did not budget for a large enough deficit or for large enough government expenditures. But this year they come to the Parliament and say that we should budget, I imagine, for a larger surplus because, they say, inflation is rampant and drastic action is required. Quite obviously, if drastic action is required in a budget which provides for a surplus, the kind of action needed is to budget for a far larger surplus than the modest £15,000,000 surplus that is budgeted for now.

In any analysis of the inflationary situation which has generally prevailed, not only in the lifetime of this Government but also during the term of the previous Government, we must appreciate that not only is inflation caused by surplus purchasing power at any given point of time, but also that it is partly the result of a psychological factor - the excess demand for the good things in life when the purchasing power to buy them is available. We live in an age in which people, rightly or wrongly, demand increased living standards. They demand them particularly in consumption goods. It is a case of keeping up with the Joneses, a matter of buying new cars, new television sets, new washing machines, in a mechanical age where all these things are becoming available in increased novelty and increasing quantity. People have made increasing use of hire purchase in order to buy those things. There is an increased tendency for two or more jobs to be held by people in the same family, for the specific purpose of enabling the family to buy those consumption goods.

We also have an increasing reliance on the part of people in this country - I suspect that the same tendency exists elsewhere in the world - on the short-term approach, and increasing reliance on the welfare State.

Those things, I think, are a psychological factor. They are the result, in part, of World War II., and the result, in part, of the increasing technological advances of the atomic age and the cold war. This purchasing power in the community, which gives effect to this increasing demand, stems from many things. Honorable members opposite say it comes from profits. It does, in part. It comes from wages. It comes from bank liquidity. It comes from credit. It comes from overseas reserves when those reserves are buoyant. We have heard to-day that our overseas balances, in terms of trade, are down. The terms of trade figure is down to 70 compared with 100 in the base year, 1953. In other words, if our terms of trade were as healthy as they were in 1953, our overseas reserves would be better by approximately £400,000,000. That, of course, is largely beyond the control of the Government.

In this situation there are several matters which have to be considered. The first is: What action should be taken? The next, and equally important, question is: How drastic should the action be? The third question is: How much flexibility should remain? I have said that we should remember that the last two Budgets were for deficits, in order to stimulate the employment situation and to overcome the tightening effect on purchasing power of low overseas prices. We must not forget that employment is only just coming into what we regard as a reasonable balance. I think honorable members will agree that drastic action could be dangerous, and the kind of drastic action that honorable members opposite want us to take - I shall examine some of these aspects in a moment - could quite easily plunge us into a situation where we could fall down on the other side of the fence, and go into a recession and unemployment.

Honorable members opposite have not suggested that this year we should budget for a bigger surplus. That is true. However, they have suggested, by and large, that there should be larger government expenditures. I think that everybody will agree that that will not help to meet an inflationary situation which the Opposition has described as " large ", " out of control " and " requiring drastic measures ". The Opposition has, indeed, been very silent about the kind of things that should be done in this situation. The Leader of the Opposition (Mr. Calwell) has been living in the past. He says that if he were in government he would provide a good old-fashioned Chifley type of budget. That reminds me, Sir, of a quotation from the story written by Mr. Alan Dalziel about his former employer, Dr. Evatt. One of his comments on the Labour Party - one of his few comments with which I agree - was that the Labour Party is extremely vocal about the past, incoherent about the present, and completely mystified about the future. When we hear the Leader of the Opposition proclaiming that he wants to present to this Parliament a good old-fashioned Chifley type of budget, and hear the honorable member for Fremantle (Mr. Beazley), as we did last night, say that he did not suppose any Treasurer in the world was more successful in holding the purchasing power of money than was the late Mr. Chifley, then indeed we see that honorable members opposite are not only vocal about the past, and living in the past, but are also distorting history.

I want to remind the honorable member for Fremantle, who said that the Chifley kind of budget was capable of holding inflation, that between 1945 and 1949 retail prices, according to the C series index, rose by 30 per cent. They rose by 9.8 per cent, in 1948, when most of the wartime controls to which Labour wants to get back now were still in existence, and by 9.3 per cent, in 1949. When we came into office retail prices were rising at the rate of 10 per cent, a year. Like the honorable member for Fremantle, I do not want to taunt the Opposition with these rather grim facts. I believe that the forces and pressures which were on the Chifley Government then, and which were only dimly comprehended by that government, as they are by the Labour Party to-day, were the same forces and the same pressures that we have to contend with in this day and age. In March, 1947, Mr. Chifley said -

It is evident that some rise in wages and prices is inevitable.

This was the honorable gentleman who, according to the honorable member for Freemantle, could hold down inflation. This is the kind of Budget that the Labour Party wants us to accept to-day. Honorable members opposite are indeed living in a dream world; the past has become dim and unreal to them, but, as has been said, they are extremely vocal about it. In 1949, Mr. Chifley said -

Within Australia there has been a large and widespread rise in incomes during the past two years. The primary industries have had two good seasons and prices, especially for wool and wheat, have been high. There has also been a notable inflow of capital seeking permanent investment here. At the same time, costs and prices have been rising at an increasing rate.

There is Mr. Chifley's own admission that he was quite incapable of keeping these things down with the controls that were then available to him. The measures that honorable members opposite want to take to control inflation to-day are largely the measures that the Labour Government of the late 'forties had at its disposal and which it was incapable of using in those days to keep down inflation. First, the Opposition wants an excess profits tax and a tax on higher incomes graduated according to the level of income. As a means of dampening down purchasing power, I suggest that that approach has entirely the wrong effect. At what level does the tax on higher incomes start? How does it damp down the demand which is exercised through hire purchase? How does it damp down the demand for consumer goods which comes from the large mass of people? We should recognize that, no matter how wealthy a person may be, there is a limit to the consumer goods that he can buy. He can buy so many motor cars and so many television sets, drink so much beer and smoke so much tobacco; but there is a limit to it. The large consumer demand which exists in this community to-day does not come from the wealthy few, it comes from the large mass of wageearners who are earning good wages and living in a degree of relative prosperity. If the Labour Party really set out to damp down purchasing power through a graduated scale of taxation, it would find that the increased scale had to start pretty low down to achieve any results.

On the question of excess profits, I point out that an excess profits tax, a war-time company tax, was imposed in 1940. In 1947, Mr. Chifley abandoned it in spite of the inflationary pressures. He said then -

As part of its general review of taxation, the Government has carefully examined the incidence of this tax, and has found that it contains many aspects which make it inappropriate that it should continue in the period of post-war reconstruction.

He went on to say -

In ordinary peace-time circumstances, this tax operates inequitably; it penalizes new industries by preventing the building up of reserves and favours old established industries which have had the ability to build up reserves.

This Government has often been accused of favouring big and established businesses. Yet this very proposal which Labour offers as one suggestion to meet the inflationary situation is a proposal which would protect and entrench established industries and prevent the small man and the newcomer in the competitive field from becoming established.

Labour then suggests that it wants control of hire purchase. How does it propose to control hire purchase? Many comments have been made about interest rates and deposits. Even at the height of war-time finance, when it was necessary to squeeze every penny out of the private sector of the economy, the Government did not think it necessary to control hire purchase. In 1940, Mr. Chifley, as a member of a special committee, signed a report which approved of the existing interest rates. The rates that it approved were very similar to the rates now operating. The final paragraph of that report reads -

To meet this it could be laid down that the added charges expressed as a true rate of interest per annum on the unpaid balance shall not exceed rates as may be specified. Suggested rates for this purpose would be -

 

That was in 1940. Is this the kind of Chifley budget that the Leader of the Opposition wants us to adopt?


Mr E James Harrison - There was a war on then, don't forget!


Mr FREETH - Yes, there was indeed a war on. The one result of restricting interest rates would be to transfer funds to other fields. Inevitably, there would be a tightening of hire-purchase credit and the very people who would be hit immediately are the people whom honorable members opposite ask should have a higher standard of living. They are the men on the margin, the people who can least afford hire purchase. They would be prevented from buying wireless sets, television sets, motor cars and the like. If honorable members opposite want that state of affairs in this economic context, why do they not say so? Again, if they place a legislative limit on the deposits required, the people who would be hit immediately are the people who can afford only small deposits and who are willing over a long period to save money to buy these goods. We do not believe that the state of the economy at present requires this drastic action. Neither do the State governments. The State governments met not long ago and agreed on uniform hirepurchase legislation which would have the effect, if so desired, of achieving a uniform economic result all over the Commonwealth.


Mr E James Harrison - You know they could not get it.


Mr FREETH - That is a very interesting comment. My honorable friend says that they could not get agreement on interest rates and deposits.


Mr E James Harrison - There were too many governments of the same type as yours.


Mr FREETH - That may or may not be so, but it is an interesting commentary on the possibility of obtaining an amendment to the Constitution. We have not the constitutional power now, and if the State governments, which are in office because of a political majority in the respective States, are against giving the power to the Commonwealth, it is difficult indeed to understand how the Commonwealth will get it. As for the proposition that the Constitution should be amended to provide for these matters, it is quite clear that the Leader of the Opposition again is living in a dream world out of touch with reality. It is far easier to talk about referendums and to talk about the desirability of the Commonwealth having additional powers than to succeed in obtaining them, as he would well know if he had any regard for the facts of life and the realities of the constitutional position.


Mr E James Harrison - Why did you set up the committee if you do not intend to take any notice of its report?


Mr FREETH - I will return to the committee in a few moments, because it had some very interesting observations to make.

One of the other factors over which Opposition members want control is capital issues. Capital issues control was available to the Chifley Labour Government until the end of 1948. We believe that this control is objectionable except in extreme emergencies. On 20th October, 1948, Mr. Dedman, in his second-reading speech on the Defence (Transitional Provisions) Bill 1948, referred to the control over capital issues exercised under the National Security Regulations, some of which were being renewed by that bill, and said -

This control has been relaxed considerably since the end of the war, but it enables the exercise of a selective function between ventures to be made and should be continued. It has, I am not surprised to find, much support in business circles as well as in the general community.

The present Government has recently been aware of the objectionable features of selective measures such as import controls. As an administration, we have not only to make decisions as to the general trend of import licensing or capital issues control, according to whether we are trying to control imports or whether we are trying to control capital issues. We also have to make individual selections. Suppose Mr. Smith and Mr. Jones want a licence to import something. You have to make a decision between the two. It has to be an arbitrary decision, and the disappointed one naturally feels that he has been treated unjustly, and he may well have been, because officials are not infallible. There were objectionable features in import controls, and there are equally objectionable features in capital issues control. It is significant that in 1948 Mr. Dedman said, referring to capital issues control -

It has, I am not surprised to find, much support in business circles . . .

Again, the people to benefit from capital issues control are the established big businesses. Those who lose out because they have no chance of getting an import licence or a permit or whatever is required are the newcomers - the men who want to bring fresh competition into the field. They are the men who have little capital but plenty of energy and plenty of ideas, and they are the people that this Government wants to encourage. Despite the charge often levelled at us by Opposition members that we look after big business, Opposition members are principally the ones who would be protecting big business if all these measures that they now advocate were adopted.

It is not considered politically wise or fair to wage-earners to blame them or the arbitration tribunals for the inflationary effects on the economy of wage increases, and I do not want to do so this evening. The Commonwealth Court of Conciliation and Arbitration, as it used to be, and the Commonwealth Conciliation and Arbitration Commission, as it is now, has held from time to time that the Commonwealth Government has the responsibility for counteracting the economic effects of any decisions that it makes, but its decisions clearly place limitations on the field open to the Government. The history of every wage increase that has been granted leaves us in no doubt whatever that every increase has been followed by a period of inflation which has placed the government of the day in difficulty, whether that government be Labour or Liberal. Although the Chifley Government had available to it prices control, cash wage pegging and many other controls, it was troubled by the inflationary pressures caused by the introduction of the 40-hour week. This Government was troubled - greatly troubled - by the basic wage increase of £1 a week when it was trying to hold down the inflationary pressures which that increase caused. As I said earlier, there have been eighteen other wage increases in the last eleven years. Last year, the basic wage was increased by 15s. a week and margins were increased by 28 per cent. It cannot be denied that these increases have added enormously to the problems with which we are confronted in dealing with inflation.

It is not without significance that the Constitutional Review Committee, of which Opposition members suggest that we should take notice, believed that this Parliament should have power to control arbitration tribunals and to direct them as to the level of wages. I point out to honorable members that that was an all-party committee which, as 1 have been reminded, made a practically unanimous report. At paragraph 772 of the report which it presented on 26th November, 1959, the committee stated -

Actions of State legislatures and Commonwealth and State industrial authorities are capable of having an immediate effect over wide segments of industry. Commonwealth policies in relation to taxation, credit, overseas trade and international payments and other aspects of the over-all economy have to be adapted to the decisions of the various unco-ordinated wage-fixing authorities.

In the next paragraph of the report, the committee declared -

With a power to make laws with respect to terms and conditions of employment in industry, the national Parliament could, for instance, direct specialized authorities to fix wages in accordance with principles which are consistent with the attainment of price stability and the entitlement of labour and industry alike to share in the growth of national productivity.

There, we have an all-party committee deciding that this Parliament should fix wages in accordance with principles which are consistent with the attainment of price stability. Have we heard in this debate one suggestion from the Opposition that wages have any effect on price stability in this country? We have not heard from it a single word to that effect. But in the report from which I have just quoted, the Constitutional Review Committee put its finger directly upon one of the greatest problems of our time.

I suggest that the operative word in the passage from paragraph 773 of the report which I have just quoted, if the National Parliament had the power mentioned, would be the word " could ". The State parliaments have that power to-day. If the State governments wished that power to be used, they could exercise an effect on the national economy by their control over wages. But the State governments, whether Labour or Liberal, abide by the traditional pattern of arbitration which has been developed in this country. I do not know whether they lack the political courage, or whether they believe that wages do not affect the economy, but not one of them has suggested that they should fix wages or direct their own arbitration tribunals to fix wages in accordance with principles which make for economic stability.


Mr Curtin - Why did this Government direct the Commonwealth Conciliation and Arbitration Commission ?


Mr FREETH - We did not direct it.


Mr Curtin - Yes you did. The Treasurer said so in a speech in Brisbane.


Mr FREETH - We put to the commission a case that in this instance stability would not be helped by following the increase in the basic wage last year of 15s. a week and the margins increase of 28 per cent, immediately by another wage increase. That case was argued before the commission. Anyhow, Opposition members only emphasize the fact, which I have tried to make quite clear, that they are not interested in achieving stability if that means some restraint on wages. I suggest that they are completely out of touch with economic reality and nhat if this Government or any other that succeeds it is to have any chance at all of coping with the problem of inflation, there has to be a new approach to this problem of wage-fixing in the community. And that new approach must be one such as that which was outlined recently by Professor Arndt. He is a Labour man, one of those intellectuals whom the Leader of the Opposition rejected because he put forward sound economic ideas which did not accord with the old policy of living in the dim past that the Australian Labour Party' of to-day adheres to.







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