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Thursday, 27 March 1969


Senator BULL (New South Wales) - I have been amazed since coming into the Senate that we have not had more debates on tariffs. Tariffs are of such great importance to Australia that it seems extraordinary to me that we do not have debates on them more often. The only debate of any consequence that I remember taking place in the Senate was connected with the chemicals legislation which came before the Senate about 2 years ago. That was a fairly lengthy and, I believe, a very good debate. It will be noted that on the notice paper is mention of the Tariff Board's report which was tabled in the Senate, I think last October. It is still at the bottom of the list. A report of such importance and of such special significance should have been before the Senate long ago.

The Government's economic policy is determined largely by certain actions it takes from time to time. I do not want to go into them particularly but I shall refer only to the control of credit and the statutory reserve deposits which the Government uses - rightly so - to counter inflation and to stimulate the economy when it considers such action to be necessary. Taxation is another means which can be used to achieve those purposes. The Government's first duty in its monetary policy is to meet the requirements of the country. Then, although this is outside the jurisdiction of the Government, we must keep in mind the very important effect of decisions of the Commonwealth Conciliation and Arbitration Commision on our economy.

The next aspect that we must look to is the Government's policy of protection. I emphasise that I do not want to exaggerate the importance of tariffs to Australia but they are a factor of great significance. As I have said, I regard the nation's policy of protection as of paramount importance. It is of special significance to Australia. On the one hand, we are a country not yet fully developed with, I believe - I am sure honourable senators will agree with me - a great potential. Because of the demand on our financial resources there is, as has been mentioned today in another debate, an inflow of capital from overseas. On the other hand, we must remember that we are a country with a small population that is very largely dependent on its exports, the major export being wool. Of course our wool has to meet competition throughout the world and the industry has no chance of passing on the costs which are added to the cost of production, be it tariff or anything else. That is why I believe that our costs must be watched continually.

Returning to my statement about the need for more debates on tariffs in the Senate, it must be remembered that the Tariff Board reports are tabled months ahead of the debate. Some of the reports with which we are dealing now were tabled, I think, last September. They became effective from the date of tabling. Therefore, when we debate them here the only means that we would have of altering them would be by disallowing the new rates of protection; but if we did that we would cause chaotic conditions in industry which, I am sure, would result in some industries, at any rate those to which the report referred, lacking confidence.

For these very reasons I consider that there must be the heaviest obligation on the Government to see that Tariff Board procedures, as distinct from rates that may be set, are the best possible. I believe that members of the Tariff Board, as members of an advisory body, must have a status and receive salaries commensurate with the work they have to undertake. The very best men available must be attracted to these positions. They must be men whose decisions and recommendations not only will carry weight with the Government but also will create confidence in our industries, be they secondary or primary.

I also believe that we must have a sufficient number of members on the Board. A couple of weeks ago 1 asked a question about this matter. I believe that the Board is inadequately equipped, as regards its membership, because of the great number of cases that are now coming before it and also because tariff matters are becoming mora involved and more difficult to consider. It goes without saying that the Board must be adequately staffed. I have no reason to believe that it is not adequately staffed at the present time. These requirements having been met, I believe that the Board is in a strong position to review existing duties frequently and competently. Some of them have not been reviewed or considered for up to 30 years.

Let me come back to the proposals now before the Senate. I think it must be agreed that, although they are many, most of them are not of any great significance to the economy, to the workforce or even to the industries concerned. I hope that I am not speaking against those industries in any way when I say that. I wish to refer especially to one matter; that is, the Ansell Rubber Co. Pty Ltd application for increased duties on hot water bags. As Senator O'Byrne mentioned, the rates have been increased from 35% to 45% general rate and 25% to 35% preferential rate. Honourable senators will note that those were the rates recommended by the Board and that the Government approved them. But the Government goes out of its way to reject that part of the report of the Board in which it suggests possible future action. On page 7 of its report, under the heading 'Conclusions', the Board deals with the problems of the industry, particularly the problems resulting from imports by chain stores. It goes on to say:

Ansell 's high price disadvantages on . sales to chain stores, which form a significant part of the Australian market, coupled with its access to important materials at world prices, raise serious doubts as to whether the manufacture of bags in Australia continues to be economic. However, although demand has declined and the local industry's competitive position has deteriorated, the Board is not yet convinced that protection should be withdrawn.

Near the end of the section headed 'Conclusions', the Board says:

Should Ansell's overhead costs be such that bag production does not prove worthwhile for the company, the Board suggests that the duties be removed as there would appear to be no opportunities for local economic production by other manufacturers.

Honourable senators will see that quite definitely the Board had difficulty in arriving at a decision and wondered whether the duties that have been given should be given. To me, this has special significance. I believe that this was one of the first reports made after the Board announced its future classification procedures. One might ask: Why did the Government appear to rebuff the Board on this occasion? I refer now to the second reading speech made by the Minister for the Interior (Mr Nixon), who introduced this Bill in another place on behalf of the Minister for Customs and Excise (Senator Scott). I do not see why the second reading speech made in this chamber should be different from that made in another place. Dealing with the recommendation of the Board, the Minister for the Interior said:

The Government has not accepted the Board's suggestion that the recommended duties be removed should the costs of the local industry be such that it could not continue hot water bag production. The Government's view was that in that event it should be open to the industry to make a further approach seeking a higher level of protection.

Why did the Minister make any reference at all to that part of the report? To me, it seems to be a warning to the Board that the Government does not approve of its classification principles. The Minister's statement seems to be tantamount to the Government saying to the Board: 'Come again, and we will give the matter further consideration'. From a reading of this report, it appears that the production of hot water bags is of little significance and is only a small part of the activities of the Ansell Rubber Co. Pty Ltd. As Senator O'Byrne mentioned, this would appear to be a declining industry and one with a low throughput potential. Of course, should the company come before the Board again, as it is entitled to do, any decision regarding tariffs must be the decision of the Government. That is as it should be. But I ask this question: Why does the Government seem to go out of its way to make reference to that part of the Board's report?

I have said many a time in this chamber that I strongly support the Tariff Board's proposal to classify industries as low, medium and high protection industries. I believe that in future the Governvent must be more discriminating and selective and must grant protection to low and medium cost industries, particularly those with a high throughput potential. It would appear that, particularly lately, most industries and organisations have approved the Board's guidelines for future recommendations. A few years ago only a section of primary industry was organised to present its case to the Tariff Board. But now primary industries not only are becoming organised but also are coming closer together in the realisation that tariffs are a factor in the cost of production and that primary producers must become more interested in this question. They support the Board's report.

In regard to secondary industries, we know that the Associated Chambers of Manufactures of Australia has recently approved these classification principles; but it must be mentioned that up to this stage the Australian Industries Development Association has not given them its full support. The arguments of those who are opposed to these classification principles seem to revolve around in interpretation of paragraph 44 of the annual report of the Tariff Board. If there were any question about a 50% upper limit being the maximum, I believe it was dispelled by Mr Rattigan in February in an address to, I think, the Associated Chambers of Manufactures of Australia, in Canberra. The report in the 'Age' read:

Mr Rattiganmade it clear that the principles stated in the Board's annual reports of 1966-67 and 1967-68 "remained fundamental to its activities'. But he stressed that this approach did not involve adopting a 50% effective rate as an arbitrary unit of tariff protection, and adopting an arbitrary arithmetical cut-off point.

So whereas this policy might be spelled out in the Board's reports in relation to the 50% level, Mr Rattigan has given this clarification, which appears most interesting at the present time. I consider that this classification principle, in effect, means that the Board will keep the high levels of protection constantly under review, and this is as it should be. I am not against any industry that can justify its present level of protection but justification is required and some review is long overdue. Surely at a time such as the present, when we are overdependent, I believe, on the inflow of overseas capital, we must keep this in mind. At a time when there is a great need to export more, particularly from our primary industries, to meet the gap between exports and the imports that are necessary for defence and development, we must pay special attention to costs of production in all fields. The Government must demand efficient and economic industries, both primary and secondary, and in my opinion should not be giving further subsidies or tariff protection to industries which do not measure up to these require'ments. Competition in industry is the key to efficiency. I believe that where there is no competition there is usually slackness in production. Whereas a few years ago we were getting along on an increase of about 2% to 2i% in costs annually, much of which could be met by increased productivity, at present our costs are rising by about 4%. I think I saw the other day figures indicating that in the 6 months to the end of December the rise was 4% and it was considered that by the end of June the level would be retained at about 4% per annum.

As I said before, I believe that tariffs are a factor in increased costs of production. At the present time we are dealing with a Customs Bill. I emphasised previously, as I do now, that tariffs are not the only factor. As I have been interested in the affairs of the wool industry for a number of years, I know of the controversy that is going on at the present time about the cost of protection. It has been claimed and calculated that direct costs attributable to protection are less than lc per lb of wool. In Government circles it is claimed that most of this is balanced by what we get in the way of subsidies for promotion and research, and I do not disagree with that. I have no doubt that those figures are correct. But those who sponsor this argument conveniently forget, or do not enlarge upon, the indirect costs to the industry, which are substantial. The Vernon Committee in its report to the Government a few years ago stated that indirect costs to the industry are difficult to assess - which

I admit - but are somewhere about 25% to 30%. As one who gave evidence before the Vernon Committee, I should like to refer to what the Australian Woolgrowers and Graziers Council presented at that time on the question of the indirect costs of protection. The Council stated:

It is the total effect of protection on the Australian cost level which concerns the grazing industry, not the increase in price of the few imported goods and materials used directly in the industry. The cost of protection in the grazing industry flows not from high material costs directly attributable to a tariff duty but from the generally higher cost level made possible by the tariff! as a whole.

I support that concept. This aspect is often overlooked when people talk about the direct and indirect cost of the tariff to the wool industry. It can be claimed rightly that tariffs in recent years have served this nation particularly well. We have had full employment. I think it is true to say that the greatest rise in protection took place in the early 1930s when there was a need to create employment. It allowed industries to become well established. Without question the protection policy has assisted our immigration policy in bringing in large numbers of migrants from overseas to build our secondary industries and give us a bigger population. It has had the effect of attracting investment from overseas. We must admit that if we are to show growth it must be in all directions and the capital must be well spent over the whole of the Commonwealth and in all fields.

Today, as I see it, we have a different situation. We have full employment. There is no doubt about this. It is a tremendous credit to this Government that over the past 10 or 15 years there has hardly been a period when we have had any substantial unemployment. I acknowledge that the tariff policy has helped in this regard. But now these industries are established and I think we have reached a stage where we have to make a new assessment of our position. It must be remembered that these industries, having been established, have their own momentum of growth, and this is important. Tariff policies are first instituted to start this movement. The industries having become established and moving under thenown momentum, the protection that they receive must be very closely looked at. If this is not done, other industries - particularly primary industries - could suffer as a result. I consider that the primary objective of tariff making must be to encourage the effective use of resources. That is why I believe that the Board's realistic proposal to classify industries so that it can ascertain what levels of protection are justified is a major step forward. In my opinion it is in distinct contrast to what one might describe as the hit and miss method which has been adopted until now. As I said earlier, a different situation now prevails. We find that the exporting countries - many with over production in various fields and with great distribution problems - are scrambling for the markets of the world. Therefore, Australia must ensure that her cost structure does not rise faster than those of her competitors. If it does, Australia could be left behind. I come now to the question of review. Honourable senators are no doubt aware that the Board has power to review tariffs.


Senator Ormonde - But how often does it happen?


Senator BULL - It has not happened very often but I hope that it will happen more often in the future. The relevant section of the Tariff Board Act is section 17, which states:

The Board may on its own initiative inquire into and report on any of the matters referred to in sub-section (2.) of section IS of this Act.

As section 15 is fairly lengthy, I will not weary the Senate by reading it. My interpretation of section 17 is that the Board may on its own initiative inquire into and report on the general effect and working of a customs tariff.


Senator Ormonde - And the rate of profit?


Senator BULL - I should think that that would be part of the Board's inquiry. Having made an inquiry the Board reports to the Government. I believe that the Board must examine many of the tariffs which have not been reviewed for a number of years. In my opinion it must pay particular attention to the volume, which I consider is of tremendous significance at the present time. I shall quote some figures that I think illustrate this point. These figures appear in an article entitled 'Australia's high-cost motor industry economics' in the 'Financial Review' of 28th March 1968. The article, which was written by Dr Garry Pursell, refers to the unit cost of production of motor vehicles. I will give a few examples of the position of the motor car industry in the United States of America. For 1,000 units per annum, which is a very small throughput, the index unit cost is 196 and for 100,000 units per annum it is 100. When the figure gets up to 400,000, which is about Australia's consumption, it is reduced to 86. The article states:

What do these figures mean for total production cost at varying scales?

Referring to production of a single base model by a 'fully integrated' firm (i.e. a firm performing the four basic operations for itself), Maxcy and Sibertson--

Who did the research work - write: 'Something like a 40% reduction in costs can be expected as production increases from 1,000 to 50,000 units per annum. Doubling volume to 100,000 units should lower costs by 15%, while a further doubling to 200,000 should achieve another 10% in savings.

The jump to 400,000 yields an additional 5% and expansion beyond this point results in progressively smaller savings for each additional 100,000, the gains tapering off at levels of about 1 million.'

The article states that according to other sources these estimates on the basis of volume are conservative. With the concurrence of the Senate. I incorporate the table in Hansard.

 

I believe that the question of volume is becoming more important in all spheres. It is becoming important on the land. Unfortunately, whether we like it or not, the small farmer is having extreme difficulty making his farm an economic unit because, as he does not have the volume, his costs are high. The same position applies to all manufacturing organisations and industries. Therefore, I think that the Board and the Government must look very closely at the throughput aspect. I have quoted figures not as an attack, if one might call it such, on the Government's policy of protection of the motor vehicle industry in Australia but to demonstrate the importance of throughput or volume.

I conclude by saying that I am tremendously encouraged not only by the new procedures that the Board proposes to adopt in the future but also by the general acceptance of the necessity for these new procedures and the fact that there is general recognition that tariff policies in Australia, as elsewhere, are of great importance to the economy. I believe that the Senate, as a House of Review and a House which should be giving consideration to levels of protection and so on, should take a far more active part in discussing and even determining Australia's tariff protection policy.







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