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Thursday, 24 August 1972
Page: 705

Dr PATTERSON (Dawson) - I support the amendment moved by the Leader of the Opposition (Mr Whitlam). The principal objective of this Budget is a blatant attempt to hoodwink the electors of Australia by a desperate Government - a Government facing extinction at the end of the year. But despite the Government's sudden interest in such matters as social services reform and income tax reform, the Budget has serious deficiencies that should not occur in any well formulated national Budget. It is a Budget which is once more an extension of the Liberal-Country Party Government's confessed unco-ordinated, ad hoc policies in relation to the management of the nation. It is a stop-go Budget, a Budget which gives concrete evidence of the illconceived policies enunciated by the Government's budget 12 months ago, when such sensitive items as sales tax and Post Office charges were deliberately increased, without justification, as time has shown. Instead of the budget 12 months ago being designed to stimulate consumer spending and reduce the rate of inflation, it in fact dampened spending and increased inflation with the inevitable result of widespread unemployment in certain sectors of the economy.

When first announced, the income tax cuts appeared to be a major gain to income earners. But when the position is scrutinised more closely in relation to inflationary trends, it becomes apparent that once again the Government has been deceitful, by not revealing all the facts. The Government did not tell the people that the income tax reduction for which it has provided means that the higher the income of a taxpayer the greater is the rate of increase in his net income after the tax has been paid. This move by the Treasurer (Mr Snedden) is a cunning device, easily recognised by those familiar with income tax structures and the incidence of taxation at various levels of assessable income. Thus, although the Treasurer is correct in asserting that the percentage reductions in the amount of income tax payable are significant to the family man on a low income, once again the greatest beneficiaries are those on higher incomes.

I want to say a few words about the controversy over the revaluation of the Australian dollar in relation to the value of other world currencies which we have heard so much about in recent weeks. Most of the controversy has been initiated by academic economists who have put forward for consideration learned points of view in journals, newspapers and other forms of the media. They are perfectly entitled to do so. But recently we saw the intrusion of the Reserve Bank of Australia into this controversy to the degree that the Reserve Bank had come out in favour of appreciation of the Australian dollar on the ground that the dollar is undervalued. The Reserve Bank is a vital arm of the Federal Government. Its policies are closely tuned to the policies of the Federal Treasury, as they should be. The Federal Treasury is the supreme policy-making department in the Commonwealth. On the Board of the Reserve Bank is the Secretary of the Treasury, Sir Frederick Wheeler, who is one of Australia's most powerful financial policymakers and adviser to the Federal Government.

Even though the Reserve Bank's analysis was confined largely to the problems of regulating the inflow of foreign money in relation to inflation, its pronouncement that the Australian dollar is undervalued is in fact a general pronouncement to the world of serious economic content. It has been interpreted by the Australian public as such. It no doubt has been interpreted by world financial authorities as such. I believe that this public pronouncement by the Reserve Bank, an arm of the Commonwealth Government, even if correct, is highly irresponsible. It can only lead to confusion and speculation both in and out of Australia. Experience has shown that the level of the value of a nation's currency is a highly emotional issue of great economic significance. Any sudden major change in the value of a nation's currency can lead to great gains in wealth on the one hand or bankruptcy on the other. Unless it is an integral part of a world-wide realignment of currencies by the principal trading nations, general depreciation or appreciation of the currency, as distinct from devaluation or matters attached to the gold standard, should be avoided under present economic conditions.

Let me first state a fundamental principle of currency appreciation as it affects Australia's exports and imports. If the international value of the Australian dollar is raised - appreciation - the prices of Australian exports rise and the prices of foreign imports into Australia fall. Thus a reduction in exports and an increase in imports can be achieved, which over time can progressively diminish the surplus of foreign exchange reserves. Translated into practical action, appreciation will reduce the profitableness of all Australian export industries - rural, mineral and manufacturing - as well as associated industries, such as tourism, which earn export income. The degree of move, of course, depends on the elasticity of the particular factor being varied. Certainly, appreciation would discourage movement of speculative money into Australia, but it would allow a greater volume of cheap imports into Australia. Some economists argue mat a significant increase in cheaper imports not only would reduce costs in Australia but also would allow for the transfer of labour and capital resources from high cost industries into the so-called low cost industries often referred to by the Tariff Board. These economists conclude that by a better allocation of the nation's resources the nation's real income is increased, and inflationary forces are dampened.

This, in my opinion, is an academic argument. It is an academic approach which ignores the fact that a major increase in cheap imports following sudden appreciation could cause the bankruptcy of small manufacturing industries which employ thousands of men and women throughout Australia. At the same time the general increased competition from imports could cause a loss of production from large Australian manufacturing firms whose competitive position had been protected by the former level of the exchange rate in relation to the tariff, that is, in relation to the tariff which would not be altered. It must also be remembered that the burden of any appreciation of the Australian dollar would fall more harshly on Australian owned companies than on foreign owned companies operating in Australia, because Australian owned exporting companies need to earn Australian dollars to pay dividends to Australian shareholders. Unfortunately, it is a fact of life that it is most difficult to write contracts for Australian exports in the mineral field and the primary industry field, whether we speak about iron ore, bauxite, sugar or whatever it may be, in Australian dollars.

In summary, a sudden appreciation of the Australian dollar relative to other world currencies would mean an immediate loss of Australian dollars for the Australian export sector, which would be felt directly and indirectly in the rural and mineral areas of Australia and indirectly in the manufacturing areas of Australia including the cities. A higher level of foreign imports due to their increased financial advantage over Australian produced goods would lead to reduced production in some Australian manufacturing industries. So, in both the export and the import competitive sectors Australian confidence could be shaken and the rate of investment by Australian companies in these sectors of the economy would suffer. Another effect is that the rate of unemployment could be greatly increased in many sectors unless some sort of instantaneous re-allocation of resources took place. It must be remembered also that when we contemplate depreciation or appreciation it is very difficult to write long term contracts with foreign countries for minerals at a particular level or particular contract price, when they insist that they be written in foreign currency.

It could be argued that all of the above factors will dampen down the forces of inflation and reduce costs in Australia through a reduced level of economic activity. In addition, a deliberate discouraging of speculative money coming into Australia would be achieved by appreciation. That is admitted. But such drastic policies, although perhaps appealing to the academics, who do not see industry disruption and unemployment in the same light as governments, oppositions or politicians in general see them, do not meet the criteria of responsible government, which has an obligation to make decisions in the national interest. Decisions in the national interest are heavily weighted in favour of the effects on the economic lives of people. For example, it would be most difficult to substantiate a case for appreciation in the State of Western Australia at the present time. It already has one of the highest levels of unemployment in Australia. Any economic attack on Western Australia's export mineral industries would intensify unemployment, as would any increased inflow of cheap imports into Western Australia because they would undermine established manufacturing firms. It is possible, of course, to argue that unemployed people in Western Australia could suddenly be moved to the eastern States. This is how some economists argue. But in practice it is most difficult to tell a man that he and his family must sell their house and get out of one area and go to another area.

Appreciation of the Australian dollar, in my opinion, is not the answer to Australia's inflationary problems or the inflow of foreign money; nor, of course, is depreciation of the currency. All the evidence from a practical and a government viewpoint suggests that if other countries do not alter the value of their currencies Australia should not take any drastic action by altering her exchange rate up or down just to correct inflationary forces and to minimise the inflow of the so-called speculative or hot money. The value of the Australian dollar, in my opinion, should remain at its present level, given the existing levels of the value of other major currencies. At the same time positive exchange control policies should be implemented to regulate and control the level and nature of foreign moneys coming into Australia. In addition to positive exchange control, intelligent domestic monetary and fiscal policies in association with action to regulate prices in Australia such as a prices justification tribunal should be ancillary to sound exchange control. My principal objective here is to criticise the Reserve Bank of Australia for its irresponsibility in making public highly speculative policy pronouncements which can cause damage to the stability of the Australian financial system. I also suggest that it is high time the Government and the Reserve Bank took positive action to identify the nature of foreign money coming into Australia and exert sound exchange controls as is practised in the United States of America, Japan, Canada, Germany and other European Economic Community countries.

I have not tse slightest doubt that the smart alecks in the Australian Country Party, and perhaps in the Liberal Party, will attempt to misconstrue my thoughts on revaluation as a repudiation of my leader, the honourable member for Werriwa (Mr Whitlam). The Leader of the Opposition made it perfectly clear to the Labor Party, to the Parliament and to the Australian people that his personal opinion on revaluation did not in any way commit the Labor Party in opposition or in government. He gave what he believed to be a perfectly honest answer to a complex question which in no way whatsoever could be interpreted as being the official policy of the Australian Labor Party now, or at any time in the future. He is entitled to give his personal view just as I and other members of this Parliament are entitled to give ours. Last night the honourable member for Murray (Mr Lloyd) gave his personal view. He is in complete favour of general devaluation.

It is a great pity that the Deputy Prime Minister (Mr Anthony) and members of the Country Party, who see the statement of the Leader of the Opposition as some cheap opportunity to gain political capital, do not take some responsible action on their own behalf. All that their organised attacks on the Leader of the Opposition are doing is causing speculation throughout the coun try about the future of the currency. What right has the Country Party leader to throw stones at the Leader of the Opposition. It was the leaders of the Australian Country Party who only last week announced that the Government was to establish a national rural bank. This is not Government policy; this is not a decision made by Cabinet; this is the personal opinion of the Deputy Prime Minister and of the Minister for Primary Industry (Mr Sinclair). They were giving their personal opinions, just as the Leader of the Opposition did. What did the Prime Minister (Mr McMahon) do? He repudiated any suggestion that there will be a national rural bank. He repudiated what was said by the Deputy Prime Minister who expressed a personal opinion.

Let me make lt clear in the time remaining to me that the Labor Party is a responsible party. There has never been any suggestion on the part of the Labor Party to make any decision on the revaluation of the Australian currency. That is the role of government and that is the view also of the Leader of the Opposition. We are in opposition. We are not the Government. We recognise that this is a most delicate and complex matter. It is a highly emotional issue and it is essential that the best possible Australian and international advice is available before any decision is taken. When Labor becomes a government it will make decisions on this most complex issue always in the national interest, and these will be responsible decisions.

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