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Tuesday, 13 November 1973
Page: 3202


Mr WILLIS (Gellibrand) - Before getting to the main part of my remarks, I should like to refer to 2 statements made by previous speakers in this debate. The Deputy Leader of the Opposition (Mr Lynch) referred to the Labor Government's economic ineptitude and the honourable member for Gippsland (Mr Nixon) referred to a rash of bankruptcies which were supposed to occur in this country in the near future. I can only assume that both of these gentlemen have become confused between the policies of this Government and the policies pursued by the Government of which they were a part in previous years, because it is those governments which have shown economic ineptitude and which certainly have produced from time to time a rash of bankruptcies. One has only to think back to 1961 and 1962 to see a great rash of bankruptcies, from which many people in this country have still not recovered.

The matter of public importance which has been raised by the Opposition refers to inflation. It is a fact, which even members of the Opposition must be starting to realise, that inflation in this country this year has been largely generated by overseas factors. If we look firstly just at food prices, we can see that the increase in the price of food alone has accounted for S3 per cent of the increase this year in the consumer price index. This is more than half of the total increase. Obviously it is a substantial part of the inflation which has occurred but this has nothing to do with the economic policies of this Government. Blame for it obviously cannot be attached to excess demand or any other factor which can be attributed to this Government. In fact, it is one of the reasons for the prosperity of the country and the farmers and for the fact that farm income is increasing at such an enormous rate. There has been an increase in farm income of SO per cent in the last financial year and there are prospects of an increase of the same percentage in the current financial year. The increase in the price of meat alone has accounted for 34 per cent or one-third of the increase in the consumer price index in this calendar year. Again, of course, this has nothing to do with the policies of this Government. In the main, it is due to the overseas demand for these products.

Apart from food items, the overseas aspects of inflation have also impinged upon various other commodities in the market. For instance, the price of wool has increased substantially through this year, although I think it started to decline just recently. The price of wool obviously is determined by overseas demand for wool. The price of tallow, the basic ingredient in soap, has doubled this year. It has followed the increase in meat prices. We can look at the way rising world prices affect the price of commodities which we import rather than export or produce here. I refer to such things as imported timber which we use in the construction of houses. The' cost of such timber has doubled this year. The price of cotton on the world market has doubled. The price of salmon has gone up enormously this year. There is a whole range of commodities on the world market the prices of which have increased tremendously this year and those increases are all having an effect on the rate of inflation in this country - an effect which would have been present just as strongly, indeed more strongly, if the previous Government were still in office. I will shortly explain why the effects would have- been present more strongly.

Also, the rising price of manufactured imports to this country affects the ability of Australian manufacturers to raise their prices. They can raise their prices higher if the prices of imported commodities are increasing because they can impose such increases without losing sales to competitive imports. It is a fact that the price of imported commodities has to some extent increased this year - again, under the influence of world inflation, because in all the developed countries of the world there is a substantial rate of inflation at present.

The importance of the international impact of inflation on the domestic economies of developed countries is increasingly acknowledged by economists around the world and surely by now should be acknowleded by members of the Opposition. Let us look at what this Government has done to offset the effect of these important international factors on the inflationary aspects of the economy. Firstly, in effect, the Government has revalued the currency 3 times. It revalued immediately on gaining office and, in effect, it revalued again in February when it did not follow the American dollar down and it revalued again, I think, in September. So this Government has had 3 revaluations. In effect, we are again revaluing now, because the American dollar is on the up and we are tied to the American dollar. So we are revaluing at the moment for a fourth time. I would agree that it is a fairly small revaluation, but if we continue to be tied to the American dollar the revaluation could become much more substantial.

So we have taken quite dramatic action in relation to the exchange rate to offset the effect of world inflation. This works in 2 ways. By revaluing the currency we reduce the price of imports and increase the price of exports. By reducing the price of our imports we get cheaper imports on the local market and it is more difficult for local manufacturers to increase their prices. It also means that demand for our exports is reduced and so there are more products available on the local market and therefore the price is likely to increase by a lesser amount.

We also introduced earlier this year a variable deposit scheme for capital inflow. The deposit was established at 25 per cent and it has now been increased to 33 per cent. This has had a substantial effect on stopping the capital inflow into this country which was so dramatically boosting money supply and thereby feeding the inflationary fires. We have cut tariffs by 25 per cent. Again, this has a direct effect by reducing the price of imports, and also an indirect effect on the manufacturers of importcompeting products in this country. What else could this Government have done to offset international inflation? Clearly, we have taken all the obvious measures to offset international inflation, apart from directly forcibly preventing exports from leaving the country and diverting them onto the local market.

At the domestic economic level, we have raised the statutory reserve deposit ratio by 3 per cent in an attempt to reduce the money supply further. We have established the Prices Justification Tribunal and, despite the sneers and jeers of the members of the Opposition, particularly the Leader of the Opposition (Mr Snedden), this body is much more than a prices exemption tribunal, as the Leader of the Opposition has been pleased to describe it. If he were prepared to do his homework by looking at all the notices of exemption which have been published in the 'Australian Government Gazette', he would see that there has been a tremendous number of price notifications to the Prices Justification Tribunal. When the applicants were threatened with public hearings, the prices became exemptions at a much lower rate than the original price notification to the Tribunal. The Tribunal is having a substantial effect on the rate of inflation in this country, an effect for which the Opposition has given it no credit whatever.

The Government has raised interest rates by 1.75 per cent or thereabouts and, in the process, has done its best to protect home buyers by limiting their interest rate increases to one per cent. The reason for the rise in interest rates was the excessive rate at which the money supply had been increasing. It had gone up by 26 per cent during the financial year 1972-73, of which 17 per cent occurred in the first half of that year when the previous Government was in power. This figure was well above the previous rates of increase in the money supply. The reason for that dramatic increase in the money supply has been well explained by Dr Porter who has already been mentioned in this debate. He said that the previous Government's domestic monetary policy was completely offset indeed, more than offset by speculative capital inflow which was due to its refusal to revalue the currency, even though we had excess reserves. This then became re-enforcing. Capital inflow raised reserves higher. That induced further speculative capital inflow, so raising money supply by an even greater amount. Furthermore, attempts by the Reserve Bank of Australia to remove excess liquidity and to reduce the money supply by Reserve Bank open market operations were in a substantial degree selfdefeating. The Reserve Bank sales of bonds mopped up some money, but raised interest rates and thereby induced further capital inflow. This increased our reserves and thereby stimulated further speculative capital inflow. The whole thing was feeding on itself because of the refusal of the previous Government to stop capital inflow directly by a deposit scheme, such as the one this Government has introduced, and also by revaluing the currency.

On page 12 of yesterday's 'Australian Financial Review' there is a table in Dr Porter's paper, which he delivered last Friday, in which he states that if there had been no revaluation and if the actual monetary policy of the first 6 months of this year had applied and capital controls had been ineffective or inoperative, the money supply would have increased at an annual rate of 48 per cent. In fact, because of the measures taken by this Government, the annual rate of increase is 16 per cent or an actual rise of 8 per cent. This is a tremendous difference. The Opposition has opposed revaluation of the currency, our monetary policy and capital controls.


Mr SPEAKER - Order! The honourable gentleman's time has expired. The discussion is concluded.







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