Australia

on the World Today

AMERICAN investment in major Australian industries during 1954 reached $887 million. More than 500 American firms have affiliations or connections in Australia, and initial communication between businessmen of the two countries can now be arranged through a United States Contact Clearing House Service.

Australia has benefited immeasurably from British and American financial assistance, techniques, and equipment. Unaided, the nation could not have achieved the tremendous progress of the post-war years. The oil industry, for instance, now has an Australian and international investment of a half billion dollars. By 1956, if her four big new refineries are operating to capacity, the cost of Australia’s oil imports will have been cut by about $60 million per year.

The country has real need of working capital. Big national developmental and defense projects are under way; industrial and civic expansion demands costly outlay on basic services — water, electricity, transportation; and heavy expenditure is required for the immigration program. This year’s immigration target is 125,000 new people. Desirable ratios have to be determined between restricting imports and increasing exports, borrowing abroad and inducing a greater flow from overseas of private capital for investment.

In recent years Australia has received $258 million in loans from the World Bank for development. Rural industries have benefited considerably from heavy machinery and equipment whose importation from dollar areas might not otherwise have been possible. Last year’s rural production, slightly less than for the previous year, was 20 per cent above the pre-war level. However, as a result of high costs, and lower prices for exports, net farm income in the last two years has actually declined.

The wool industry slips

Australia depends on her primary industries, and especially on rural products, for the bulk of her export trade. In the last three years the volume of primary products exported increased by more than 15 per cent.

Wool and side products of the wool industry account for more than half the export income. A record wool clip for 1954 5,5 partially offset a decline of about 12.5 per cent in wool prices, but even so the wool exported brought in $85 million less than in the previous year—an amount representing more than three quarters of the drop in the total export income for t he current year. Inev itably the country s whole economy reacts to movements in wool prices.

More than half the net value of Australia’s total production comes from 1 he manufacturing industry in 19,58 54 nearly $8 billion. But much vital raw material has to be imported, and it is improbable that exports from primary industries can be expanded sufficiently to pay for all of Australia’s import requirements. A greater proportion of factory products will have to be diverted to the export trade if the possibility of periodic cutbacks in production as a result of import quotas and financial restrictions is to be avoided. Australia’s rapidly increasing population and a well-established secondary industry are interdependent. Both are strategic necessities.

Developing new markets

Successful trade missions to Africa and Southeast Asia have proved that an extensive market is available to Australian exports, subject to salisfactory quality and price and reasonably prompt delivery. The Vest raiian Trade Commissioner Service in these and other areas is being strengthened.

Britain is traditionally Australia’s best customer. In an effort to recapture ground lost following the cessation of British bulk buying of Australian foodstuffs, and to extend sales further, Australia has launched in the United Kingdom a $600,000 advertising campaign. Other intensified trade drives are being planned. Furthermore, the federal government has now agreed to establish a scheme to guarantee government-sponsored export credits, provided a satisfactory basis for the scheme can be evolved. It is unfortunate that recently increased shipping rates between Australia and other countries will add to the handicap of high costs that Australian exporters are struggling with.

Australia’s rapid development is straining her financial, material, and manpower resources. The country has most undoubted prosperity, but it is being threatened by renewed wage pressures, excessive spending, external trade difficulties, and diminishing dollar reserves.

Wages and salaries go up

In 1939 the population was almost 7 millions. It is now 9.3 millions and is increasing by more than a quarter of a million every year. The national income in the financial year 1938-39 was $1 billion. In 1946-47 it was $3 billion, and in 1954-55 $9 billion. Some idea of the extent to which inflation is reflected in these amounts is given by the retail price index which is used in the computation of the basic wage. The index figure went from 1029 for fiscal 1938 to 2644 for fiscal 1954.

The Federal Treasurer, Sir Arthur Fadden, in his Budget speech on August 24, 1955, drew attention to unmistakable signs of inflation. He pleaded for general restraint, but corrective controls introduced in the Budget were negligible.

In November, 1954, a year after it had pegged the basic wage for employees under federal awards — the majority of workers in Australia — the Federal Arbitration Court attempted to restore the pre-war relationship between skilled and unskilled workers. Giving judgment in a test case, the court awarded increases for skill, based on a two and a half times multiplication of the 1937 margins. The increases ranged from 78 cents to $4.76 per week.

In the following months federal and state wage-fixing authorities extended the increases over a wide field of industry. The shortage of skilled workers is acute, and it is hoped that higher wage margins will attract more trainees. The metal and electrical industries alone have vacancies for about 10,000 tradesmen, and an adult training scheme has been introduced. In all industries there are too few apprentices. In part, this is a legacy of the low birth rate of the middle thirties, but there is also a disturbing drift of young people into highly paid “dead-end" jobs.

Immediate repercussions from the wage increases occurred in the federal and state public services, and salaried officers received substantial pay raises. The increases for professional and clerical employees in the federal government ranged up to $2000 per year, and these were later increased to a maximum of $4151 per year. An appeal by the Federal Public Service Hoard against this later award is now being heard.

Meanwhile, the parliament granted increases ranging from $1567 to $6716 per year to federal judges, conciliation commissioners, and top-ranking public servants, whose salaries are not subject to arbitration. Similar action was taken in most states, and some state parliamentary salaries have also been increased.

In secondary industry, pay raises have added from 1 to 10 per cent to costs of production, and increases in already large handling and transport charges are swelling the cumulative effects. Unfortunately the wage adjustments contain self-renewing elements.

Agitation for “wage justice”

Rising prices — chiefly, although not entirely, due to wage increases — and the psychological effect of steep salary increases in higher incomes have accelerated rank-and-file agitation for “wage justice.”Already employees in some states have obtained basic wage increases and the restoration of quarterly cost-of-living adjustments. The Australian Council of Trade Unions, the governing body of Australian trade unionism, has decided to apply to the Federal Arbitration Court for a general wage increase and restored quarterly adjustments for the whole country. It feels it can marshal strong arguments to support its ease.

Industry, for its part, despite some instances of high profit margins, claims inability to absorb widespread wage increases and points to undeniable evidence of absenteeism, negligence, increasing labor turnover, and the whittling down of the 40-hour week which was achieved in 1947.

In two years from November, 1950, the basic wage rose from $15.90 to $25.90 per week. As each pay raise was based on cost-of-living increases over the previous three months, rising wages both trailed prices and gener! ated new increases.

Action by the federal government in 1951 and early 1952 to halt inflation, and the subsequent wagefreeze, nevertheless left Australia with a formidable cost structure and high prices. Despite some improvement since then in rates of production, most unit costs are high in comparison with those of overseas trade competitors. Now the wage-cost-price spiral is turning again.

The people spend

Full employment, high incomes, and a rising standard of living have prompted personal spending on a scale which is drawing manpower and resources away from developmental projects. Demand is helping to push up prices, and production of consumer goods is retarding the defense program.

In 1954-55, $5.1 billion was paid in wages, salaries, and allowances. Personal income of all kinds totaled $8.5 billion — a rise of $351.5 million over the previous year. Personal savings fell by $179.1 million to $584.3 million, and installment buying during the year reached $342.8 million. Actual expenditure on all forms of personal consumption was $6 billion.

Australian retail trade has a flourishing annual turnover of about $5.5 billion. The recent affiliation of America’s largest chain-store and mailorder organization with an Australian retail trading company may herald the introduction of trading techniques which could help to reduce the frequently generous margins between factory cost of goods and cost to the consumer.

Government puts on the brakes

In September, in an effort to secure voluntary coöperation in subduing the dangerous overbuoyancy of the economy, Prime Minister R. G. Menzies held a series of conferences with representatives from financial institutions, commerce, industry, and trade unions. He later made a comprehensive statement to the federal parliament on Australia’s financial position, both internally and in regard to its international payments, and outlined measures being taken to bring the economy into balance. Bank credit has been tightened, additional import restrictions have been imposed, and the more important companies that sell on credit have agreed to increase the amount of minimum deposit required and to shorten the period for the repayment of loans.

Estimated expenditure on federal public works has been cut by 10 per cent, the level of departmental imports has been reduced, and proposals for increases in federal parliamentary salaries have been deferred. The Prime Minister appealed to the nation for “wide-and wise” coöperation. It is est imated that an over-all reduction of 6 per cent in expenditure, both public and private, would arrest the economic drift.

The Prime Minister asserted emphatically that there would be no depreciation of the Australian pound, and said that if necessary the government would use fiscal or other measures to ensure that the country’s international payments would be in balance by June, 1956. It is cerlain, however, if prosperity can be maintained, that strong demand for consumer goods will continue. Inflationary pressures could even increase as national stocks are depleted. Stocks were built up during the last financial year by $268 million, but they are well below the level of early 1952 when a period of stringent import restrictions began.

Restricting imports

In 1954-55 the cost of Australia’s imports exceeded her export income by $387 million. The total trade deficit on July 1, 1955, was $573 million. It is calculated that the present restrict ion, when fully effective, will reduce imports to a level of about $1 billion per year.

The great bulk of imports represents the requirements of local industry in the form of capital equipment, raw and semi-processed materials. For some time conflicting interests have debated whether, in view of Australia’s urgent need for development — which is also a strategic need, and greatly in the interests of the Western world — the government is justified in expecting the country’s expansion to be financed largely out of current earnings.

New inflow in 1954-55 from public authority borrowings abroad was $62 million, and incoming private overseas funds together with some undistributed profits to overseas investors totaled about $228 million. Gross private investment during the year was $1.8 billion; $286 million was raised in new capital issues.

A substantial increase in Australia’s foreign debt service, at present only about $45 million per year, could become an embarrassment unless the country’s trade showed at least comparable expansion. In the last financial year Australia’s international exchange reserves, held in London, fell by 25 per cent to $958 million.

In June, 1951, Australia’s London reserves were $1 billion. For the third time since 1949, balance-of-payment difficulties have caused the federal government to apply to the International Monetary Fund for a small, short-term dollar loan. The two previous loans, totaling $50 million, have been repaid.

An illustration of possible difficulty associated with private investment from abroad was provided recently by an automobile manufacturing company whose net profit last year was $22 million—an Australian record. A dividend of 260 per cent — $10 million — remitted to its parent company in America absorbed nearly 7 per cent of Australia’s total dollar earnings for the year.

Mixed feelings have greeted the company’s announcement of a $48 million expansion program, to be financed from plowed-back profits, which is scheduled for completion by 1958. Nevertheless, the increasing manufacture in Australia of automobiles and their components by this and other companies lightens the country’s import bill. This particular company has already begun exporting its products, and its highly efficient plant has potential defense value.

Federal elections will be held in Australia within the next few months. Flections for the House of Representatives— not due until 1957 — are certain to be brought forward to coincide with Senate elections, which must be held before the end of next June. The Labor Party is still bitterly divided, and the federal government, a Liberal-Country Party coalition, is confident of being returned to office. However, if it is to keep control of the Senate, only half of which retires, the Liberal-Country Party team must win in every state. Failure in this almost impossible task could result in legislation becoming deadlocked.