P. M. No. 8/ 1961
ECONOMIC POLICY
Statement by the Prime Minister, the Rt. Hon. R. G. Menzies
We have been closely examining, in Cabinet and
Committee, the effects, so far, of our Economic policy
measures. We have also given much attention to the drive for
exports, some general aspects of which I announced at the
beginning of January.
We see no reason to alter the substance of our
policy which we knew would be, in the short run, unpopular
with many people but which we believed, and believe, is in the
best interests of the nation. Credit was too easy, and an
inflationary boom was under way. Credit therefore had to be
restricted so that stability might be restored. The effects
of the boom included an increased demand for imports, while
our export income, so dependent on primary products, remained
somewhat depressed. This, I should point out, is not because
primary production has fallen; on the contrary, it has
increased. But the " terms of trade" have moved against
Australia very significantly since 1953. By that I mean that
the prices of imports, as contrasted with the prices of
experts, have not fallen, so that the imports we can buy for a
given quantity of exports have been reduced. If our terms of
trade are taken as an index figure of 100 in 1953, ( itself a
relatively normal year) the figure today is 65. This, which
is beyond our control, since we cannot fix the price paid by
the world for our exports, is at the root of our present
problem. The terms of trade have moved against us more than
against almost any other country in the world. In the
result, our overseas roserves, vital to our activities as a
great international trading nation were ( and are) falling at
too rapid a rate. WIe have been living beyond our means
internationally, with the result that reserves are being drawn
upon to meet current business payments. This is not good
business, as every business man knows.
Another element was the increasing resort to high
interest borrowing outside the banking system, for hire
purchase and ether financial transactions. This growth
( which has mushroomed in the last year or two) had two
undesirable by-products.
First, it increased the burden on the taxpayers,
because these high interest payments were treated as business
expenses; which meant that up to 40G% of the interest was
being met by the Treasury, i. e. by other taxpayers.
Second, it attracted m--oney away from Savings Banks
and public loans by outbidding in interest rates. This has
meant that we have not been able to got from the loan market
all the funds vitally necessary for national development in
power, water supply, transport, scliools, housing, and the
like, with resultant burdens upon taxpayers ( who are, broadly,
the adult population of Australial In this current financial
year, no less than 65% ef the cost of capital works, both
Federal and State, is being met cut of Commonwealth taxation
revenue!~ We tackled this matter by some variations in bank
interest rates, and by measures to prevent these high outside
interest payments from being fully deductible for Income Tax
purposes, We know that there has been much criticism of, and
some uncertainty about, our particular measures. At an early
2.
date we will resolve this uncertainty by substituting for what
we announced as a toemporary and somewhat arbitrary measure,
new law on deductibility. I have reasoin to believe that the
new proposals, which the Treasurer will announce in~ due course,
will go a long way towards meeting reasonable and constructive
criticism, while not conflicting with the Government's policy.
objectives. In order to assist the loan raising which
governments must have if the nation is to grow, and if'private
enterprise is to have proper foundations on which to build, we
announced policies in relation to Life Assurance Societies,
Superannuation funds, and the like, ( which enjoy great taxation
benefits), requiring them to subscribe to Governrment and semi-
Government Loans 30% of their funds. Since our announcement
useful discussions have occurred and certain modifications 01
our proposal have been worked out. These will be announced by
the Treasurer. They will, I believe, be widely acceptable.
In all these and allied matters, it is necessary to
make it clear that while we have adopted policies of some
severity, we are maintaining a close watch upon results,
particularly in the field of employment. That there should be
some falling off in employment in the meter car industry, a
falling off from a very high peak in 1960, is inevitable; for
one of our designs was to reduce inflationary pressure in that
section. This must involve some changes in employment, but is
not designed, over all, to produce unem-ploymient, which it will
be our constant care to resist.
To sum up on tiiese matters, we are conscious of the
harm that can be done by the existence of uncertainties in the
business world in relation to deductibility of interest and the
investment policies of life assurance and superannuation
schemes. These uncertainties will be resolved by the Treasurers
statements which I have foreshadowed.
There are four other matters of considerable
importance to which I will now refer.
1. The impact of crodit restrictions upon the miotor and
allied industries, and the financial bodies associated with
them, is already considerable. We 0 imposed additional Sales
Tax on motor vehicles as a supplementary mecans of securing an
effect which would help to reduce the run down in our overseas
funds. Close examination has satisfied us that the present
psychological effect of an increased sales tax which many
possible buyers believe not likely to endure beyond the next
Budget is a bad one. It serves to induce a postponemient of
demand which aggravates the effect of credit measures and
therefore tends to hit the miotor industry more than we would
desire. We are satisfied, on the evidence, that our other
measures will achieve nationally satisfactory results. Wie did
not impose the extra sales tax for revenue purposes, but as a
deterrent. As our own judgaent satisfied us that this added
deterrent is now unnecessary and probably producos undesirable
results, we have decided to repeal the added sales tax,
effective as of the comimencement of business tomorrow 22nd
February. Aiiending leg-islation will be submitted to parliament
at the first opportunity after Parliament resumes, to reduce
the Sales Tax on motor vehicles to the rates payable prior to
the increases announced on 15th November, 1960.
2. There is a good deal of speculation about a possible
re-introduction of import licensing, and some speculation
about a devaluation by changing the exchange rate.
It is therefore necessary to state that we have no
intention whatever to restore the import licensing which was
abandoned, or to alter the exchange rate.
3. We have been working on practical measures to increase
our export income. This is especially important in the field of
exports of manufactured goods. We have had the great advantage
of consultation with representative business men on the
irfiensely difficult question of tax incentives. We arc to
receive from them, in a few days, further material which will
assist us to make decisions.
We have also devised specific proposals for
increasing our overseas sales by new promotional means,
particularly in the Middle East and South America, in which
areas we see very worthwhile opportunities. Our proposals
relate to Trade Commissioner services, sales campaigns, and
adequate shipping arrangements. They will be stated in detail
by my colleague, theMinister for Trade. We have expectations of
solid success. The promotion of the tourist trade is also essential,
and holds promise of increased earnings from overseas. In
January we made increased grants to the Australian National
Travel Association, and asked it to submit a programme designed
to ensure that tourist earnings are expanded as quickly as
possible. The Association estimates that Australia earned
œ l2 m. in overseas exchange from this source in 1959, and that
substantial increase is possible by 1963.
The financial measures to be adopted by us will be
decided when the recorendations of the A. N. T. A. are received
and considered.
4. Our economic measures were not lightly adopted, and
must, in their substance, be maintained until an adequate
impact is made upon the twin problems of internal inflation and
an excessive drain upon our overseas funds. This clearly
involves the conclusion that we cannot, during 1961, provide
large additional amounts from the Commonwealth Treasury, i. e.
out of tax revenues, for public works additional to the great
works now in progress. ut this does not mean that, in a period
when we are aiming at a rustoration of stability, we are losing
sight of the continuing need for further national development.
As the history of the unhalting national progress ofhe list
years has shown, national growth and development are our
grand objective. We hope, therefore, that 1962, will see
further steps forward. We have had under particular and
sympathetic consideration such large enterprises as
Road development in the North, including North and West
Queensland, the Northern Territory, and the North of
Western Australia.
Improved port and loading facilities for the development
of the Coal Export trade.
Standard Railway gauge work from Broken Hill to Port
Pirie including a modified interim proposal recently
advanced by South Australia for diesel locomotion as a
first step.
The Western Australian Scheme for Railway gauge work in
aid of the establishment in collaboration with the B. H. P.
of an iron and stol industry in that State.
Ways and means of further stimulating the search for oil,
and riinerals oenorally.
I 4.
There are other productive schemes; but those I have
mentioned are at present prominent in our minds. The carrying
out of any one of them, in most cases by the State concerned,
will require consultation and co-operation by us with State
Governnents and, where necessary, the devising of financial
arrangements fair to both parties.
So that, when circumstances permit, there may be no
avoidable delay, we now say that w _ re prepared to do what we
can to facilitate prompt detailed planning of the works I have
feicated, so that rture performance can be assisted. To this
end we wil put ourselves into touch with the relevant State
Governments at an early date.
CANBERRA, 21st February, 1961.