ECONOMIC SURVEY
STATEMENT BY THE PRIME MINISTER
Strict Embargo; not for broadcasting, Cabling or publication
before midnight on Sunday, 21st February, 1960.
Last week Cabinet made a general survey of the Australian economy.
This is something we do at fairly frequent intervals. The previous occasion
was just before Christmas. We always have before us a great deal of
information on employment, production, consumption and investment expenditure,
costs and prices, external trade and payments, monetary conditions
and so on. After studying all these factors, we consider what, if anything,
the Government should do to influence the situation in one way or another.
We find a good deal in our current position that is favourable
and encouraging. The employment situation is particularly strong.
Industrial production continues to rise. Although there has been drought
in South Australia and some other areas, rural output will, as a whole, be
quite high. We are having a good export year. It looks as though the
total value of exports will be well above œ E900 million. More imports are
coming in and helping to increase the supply of goods and materials.
But there are other tendencies which are perturbing. The most
serious of these is the rise in costs and prices. In some degree this has
been going on for a considerable time, but in recent months it has become
faster and it is now decidedly too fast. Our aim we believe the aim of
everyone and not only of the Government must be to slow it down and
bring it to a halt. We say that unequivocally, because we reject the
view that a rise in prices and costs is harmless so long as it keeps within
" treasonable" limits. We believe that, on all counts, we are better off
with a stable level of prices and costs.
The rise in prices which has occurred has been due principally to
causes within our own economy. For a long time past, import prices have
been virtually stable. Export prices, it is true, have risen during recent
months and this has probably helped to raise the local price of some
articles. But in the main it has been a process of adding, one on top of
the other, a great many particular increases in wages, profit margins,
charges and the like, some large, some small, but all contributing to a
general upward movement that has grown faster as it has gone on.
Some people describe recent developments as costs inflation in
contrast to so-called demand inflation.
But demand has had its influence as well as costs. Up till a
few months ago it was possible to say that overall supply and demand were
more or less balanced. Both were increasing but apparently at about the
same pace. More rece ntly, however, it has become evident that, although
supplies pre still increasing, demand has started to race ahead.
Various factors have contributed to this the rise in export income,
public authority spending, private capital expenditures, capital inflow
and so on. The combined effect of all these is now capped by the wages
and margins decisions. The Basic Wage increase is estimated to add
million to total wages and salaries; the margins decision a further
amount not far short of œ 2100 million. These increases both add to wage
costs in practically all industries and trades. They also add to
demand for goods and services of most kinds.
Along with this rising trend in costs and prices and in demand,
there has also been a growth in the liquidity of banking and monetary
conditions. It is of course a product of some of the factors which have
caused incomes and expenditure to rise, and its effect is to assist and
2.
encourage those tendencies.
Therefore, it has become quite evident to us that some counteracting
measures should be set in train.
FIRST: As I have said, it is vital to build up resistance to
the rise of costs and prices. This cannot be brought suddenly to a
stop; but there must be increasing pressure against it. Especially must
we avoid further large additions to the elements which enter into costs,
and it is with that idea in view that the Commonwealth has decided to
intervene in the current Basic Wage Case before the Commonwealth
Conciliation and Arbitration Commission. As we have often made clear, it
is not our policy to oppose wage increases as such; but our strong present
belief is that, having had two major wage increases within a period of a
few months, the economy needs time to absorb them and to restore the equilibrium
between supply and demand which has been disturbed. That is
essentially the point of view we will be putting to the Arbitration
Commission. We are doing this not in any spirit of opposition to the
claims of wage earners, but because we believe it to be in the best interests
of the economy as a whole and of all people in the community, including
wage-earners. SECOND: We had before us up-to-date figures on the budgetary
position, and we went very thoroughly into them. We also gave some thought
to prospects for next financial year and discussed broadly what should be
the aim of policy in the light of conditions we see developing. The next
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of economic conditions. Just the same, it is very important to
think of these matters well in advance because they are necessarily affected
to a considerable extent by what happens during the intervening months.
In the current year we have budgeted for a deficit. But in the circumstances
I have described, we propose, for the new financial year, to do all
in our power to avoid any deficit finance.
THIRD: Monetary conditions, as I have said, have been
exceptionally liquid and have tended to become more so as the year has gone
on. The Reserve Bank of Australia, which has a special responsibility in
these matters, has been taking action by way of calls to Special Account,
and, since the change-over in arrangements, by increasing the reserve
deposit ratio to ensure at least that the liquidity of the banking system
will not be increased during the year. The Government is very much in
accord with and will support the policy of restraining the growth of
excessive liquidity.
FOURTH: Along with our review of the internal econoliy we have
this week examined our external trade and payments position. It is one
of considerable strength. Whilst imports have risen, exports have risen
still further. We have had some success in borrowing abroad, and there
has evidently been a quite large inflow of private capital. As a result
we now hold considerable reserves of gold and foreign exchange and we
have, in addition, our quota in the International Monetary Fund which was
increased last year to 300 million dollars. This may be regarded as in.
the nature of a second line reserve.
Over the past couple of years we have relaxed import restrictions
by successive steps and this, I am certain, has been all for the
good of the economy. We have now decided to move to a position in
which, as nearly as possible, imports will be unrestricted except by the
Customs Tariff. It will be necessary for a time to retain some licensing
arrangements on certain commodities to meet the special problems arising
out of existing commitments, but that will be all the restriction that
remains.
73. My colleague, the Minister for Trade, Mr. McEwen, will shortly
announce details of what is to be done. May I recall that when, in 1952,
the Government first imposed restrictions on imports, it gave an undertaking
to remove them whenever our external position should permit. We
have been through some fairly difficult times since then but we have
always kept that undertaking steadily in view and we find it very
gratifying now to have been ableto come so close to fulfilling it
completely. We see these several policy decisions as a broad programme
intended to provide strong and increasing resistance to those forces now
operating in our economy which are tending to throw it out of balance.
We feel the situation requires firm and steady pressure of this kind rather
than abrupt action. Much that is going on in industry and trade and
construction is undoubtedly sound and beneficial. We do not want to check
or impede this. What we do want, however, is a restraint on certain
developments, such as the price and cost movement, which have been tending
to get out of hand and which could, unless counteracted, undermine our
stability.
CANBERRA, 21st February, 1960.