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Thursday, 26 November 1959

Mr DEPUTY SPEAKER - Order! The point of order is not upheld.

Mr BURY - The honorable member for Melbourne Ports (Mr. Crean) and the honorable member for Melbourne (Mr. Calwell) took up the time of the House once more riding their hobby horses by speaking in much the same strain as they did during the Budget debate. This measur e essentially follows on from that debate. Most of the things which were said then by members of the Opposition have been repeated to-day.

In relation to the Treasurer's estimated deficit, the Opposition has made great play of the fact that it was somewhat out because loan subscriptions were very much greater than had been anticipated. They also went on to say that the difference was made up largely by subscriptions to Government bonds by the trading banks. That is perfectly true. It may be said, in fact, that the Treasurer's estimate was accurate and the deficit was financed from the trading banks instead of by treasury -bills. In essence, the Treasurer at the beginning of the year did, in fact, prove fairly correct if one looks behind the immediate financial factors involved.

The honorable member for Yarra (Mr. Cairns) made great play of the fact that instead of the banks being permitted in this way to subscribe to bonds at 4i per cent, or 5 per cent., the operation should be carried out entirely by treasury-bills. But there is another very important side to this question, lt is that the profits of the banks have been extremely low. Admittedly, members of the Opposition are hostile to private banks which they feel should not get any profit at all. But on the other hand, the Government, by policy and by direct regulation does hold down the earnings of the trading banks and very much limits what they would otherwise have earned. Because of the large area of direct control by the Government over the trading banks, the Government must necessarily accept some responsibility for their level of profits. If, in fact, it forces the banks to operate in many directions, it is only reasonable that it should create facilities to enable them to recoup themselves and make alternative investments.

Once again the short-term money market was touched upon, and at least it can be said that over a period of time this should result in more money flowing into the Government coffers and should increase the diversity of demand for Government paper. In the long-term this is bound to be beneficial, and it also provides another convenient way in which the Commonwealth Bank can perform its central bank functions of preserving the financial security of the economy. However, I have no desire to detain the House unduly, because I do not wish to go through this again at 4 o'clock to-morrow morning.

I was intrigued by some of the arguments advanced by the honorable member for Chisholm (Sir Wilfrid Kent Hughes) and repeated by the honorable member for Yarra (Mr. Cairns), who made some valid and useful points. The fact that we have to face is the limitation imposed by the Financial Agreement. If we are put to various rather peculiar financial devices to bring about the proper results it is largely because that limitation exists, and we have to operate within it.

As to the States being charged interest on loans from the Commonwealth while the Commonwealth is able to finance its capital works with money free of interest, this position, of course, arises fundamentally from the fact that, overall, the governments of Australia are trying to force up the rate of savings by obliging the people to save at a much higher rate than would be the case if they were left to their own devices. Generally speaking, it is quite impossible to raise, by voluntary means, the loans necessary to sustain the volume of public works required for development. This being the case, and as most of the capital works are conducted by the States, it is inevitable that the Commonwealth has had to step into the breach to provide out of revenue the balance which is not forthcoming from the loan market. It is true that in the process the Commonwealth has gained, in the narrow financial sense, by being able to finance its own works interest-free out of revenue. On the other hand, Sir, we must look at the reality of State-Commonwealth financial relations.

The Australian Loan Council is a loan council. Money provided by and through the medium of the Loan Council is spent by the States as they see fit. On the other hand, the record of other forms of Commonwealth grants to the States is that they are given with a tag. Even money for roads has its tag. The money supplied by the Commonwealth to the States in other ways is always subject to the temptation of the central authority to impose its own conditions on how it is to be spent, and to require it to be spent in certain directions pleasing to the Commonwealth. If, in fact, instead of using this mechanism of putting revenue into the Loan Consolidation and Investment Reserve, and then putting that into securities, and lending that money to the States, the money were granted direct to the States, it would undoubtedly, in the course of time, carry with it a number of tags. Those in the States who wish to preserve a maximum of State freedom should consider carefully whether it is not preferable that this money should come through the Loan Council and not direct in the form of financial grants. The real weakness of the system is not that the States are charged interest, which imposes on them a discipline to use it in proper directions and use proper accounting methods, but the fact that the Commonwealth escapes a similar liability. The Commonwealth finds it much easier to provide money for aircraft and things dear to the heart of the Commonwealth and Commonwealth public servants than the States do to find money for the basic requirements of education, roads, transport and so on. [Quorum formed.] Therefore, the matter should be looked at not from the direction of saving the States from rendering a proper financial accounting of capital funds for basic purposes, but from the direction of imposing a similar discipline on the Commonwealth. The weakness of the Loan Council in the present circumstances is that it is a loan council and not a works council. The real problem is to equate the various uses of capital within the country. The Opposition would be much better employed, if, instead of picking holes in the particular financial mechanism used, it addressed its mind to a proper revision of the present Financial Agreement, and concentrated on equating the use of capital between the Commonwealth and the States on a uniform basis.

Question resolved in the affirmative.

Bill read a second time, and committed pro forma; progress reported.

Message recommending appropriation reported.

In committee (Consideration of GovernorGeneral's message):

Motion (by Mr. Harold Holt) agreed to -

That it is expedient that an appropriation of moneys be made for the purposes of a bill for an act to authorize the raising and expending of a certain sum of money for defence purposes.

Resolution reported and adopted.

In committee: Consideration resumed.

Bill agreed to.

Bill reported without amendment; report adopted.

Bill - by leave - read a third time.

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