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Thursday, 26 November 1959

Mr McEWEN (Murray) (Minister for Trade) . - in reply - Mr. Speaker, I shall try to deal with the points of substance that have been raised by the honorable member for Melbourne Ports (Mr. Crean) and the honorable member for Lalor (Mr. Pollard). Both honorable members asked why capital of £500,000, and, latterly, £1,000,000, which, clearly, as is indicated by the annual report of the Export Payments Insurance Corporation, still stands to the credit of the corporation, has not been drawn upon. The answer, of course, is very simple: This is a business institution. Business institutions have capital behind them with which to work. I know it could be said that, behind this body, there is a government guarantee which, originally, stood at £25,000,000, and which, more recently, has been increased to £50,000,000. It could, theoretically, be argued that an institution of this kind, so guaranteed by the Government, need not have any capital at all. That would be the alternative to the arrangements that have been made, and that would conform completely with the Douglas social credit doctrine, but not with the doctrines of normal business. The Export Payments Insurance Corporation is designed to do business with normal business institutions, and it would not be expected that an insurance company which, in the very nature of things, is liable to losses should have to have recourse to a government guarantee to make good the very first loss that it sustains. That, surely, would be a very odd arrangement, and it is a proposition of a kind that I do not know to exist anywhere in the world.

This corporation, which I have described as an insurance company, is designed, as the principal act provides, to operate on a non-profit, non-loss basis. That does not mean, of course, that it is never to make a profit and never to make a loss. It means that, over the long term, the corporation is not intended to incur losses and so be a liability on the government and the people. On the other hand, the corporation is not a profit-making institution and is not intended, over the long term, to show profits.

Mr Crean - The capital of the corporation could hardly be said to be a working fund.

Mr McEWEN - Oh, but it is. That is exactly what it is. It is a working fund for the corporation, which, happily, has not yet had to draw upon it in order to meet liabilities.

Mr Pollard - It is a subsidy, in reality.

Mr McEWEN - It is not a subsidy When one goes into the business of insurance one can never be sure whether a house will be burned down next day or a loss will be incurred on a transaction.

Mr Pollard - Why hold £1,000,000 when £100,000 would cover it?

Mr McEWEN - The corporation has covered risks to a total of £40,000,000 and has, as far as I can remember, outstanding contingent liabilities at present some £20,000,000.

Mr Bury - And they are growing all the time.

Mr McEWEN - Happily, they are growing all the time. That is what it was established for. To have merely £100,000 of capital would probably not show evidence of capacity to cover not one but maybe a dozen risks that are contingent at a particular time. I think this is an understandable explanation of the need for the corporation to have some capital in its own right. It is a real business institution. It is not a body composed of paper. That is the short answer.

Of course, if it has some capital, necessarily, as a business organization, it will want to put this capital to the best use. So, it lends the money back to the Government by investing in government securities which are realizable in the event of a loss, and which, in the meantime, earn interest. To that extent, it is business-like and the capacity of the organization to give the service that it was set up to give is increased. That is all that I have to say on that point.

First the honorable member for Lalor and later, the honorable member for Melbourne Ports raised the question of the corporation placing funds in its possession with the short-term money market. The honorable member for Lalor stressed that it ought to be restricted to placing its funds with the Commonwealth Bank or, alternatively, to investing them in government securities. The practice of the corporation is to do exactly as the honorable member for Lalor has suggested with any funds which are available for investment for a period of three months or longer. In such cases it will deposit the funds with the bank; it will invest in government securities. But if, as occurs in any big business organization handling great sums of money, the corporation has £10,000 or perhaps £70,000 clearly available for a period of say, 20, 30 or 40 days, but not clearly available beyond that term because of circumstances known to exist, it cannot deposit this money with the bank because the bank's minimum term of fixed deposit is three months; and if the corporation invests in government securities for a few days, clearly there are the expenses inherent in that kind of investment It is very much better that it should be able to invest funds, as could be done for only 10, 20, 30 or 40 days, in the short-term money market.

Mr Pollard - It could get an overdraft.

Mr McEWEN - I will return to the overdraft proposition in a minute.

Mr Pollard - Why not let the corporation invest the money for three months and if it happened to run short it could get a temporary overdraft?

Mr McEWEN - I understand that proposition. I will come back to it because it is a proposition, although not a business proposition. It is better that the money should be lent. There is a word, " dealers " used. The honorable member for Lalor, like myself, is a farmer. We think of dealers as middle men and as speculative men. But here the word " dealer " indicates an authorized dealer in the short-term money market. Such a man is not a speculator. The word " dealer " is a proper description of an operator in the short-term money market.

The short-term money market was really created, if not by this Government, at least with the approbation and the assistance of this Government. Its whole purpose is to enable the business community at large to do what the proposed amendment will permit the Export Payments Insurance Corporation to do, that is, to invest funds available for very short terms with a body with which interest can be earned but in circumstances of absolute security. There is a service to the business community. The public interest comes into this matter. 1 remind the House that the short-term money market, at this stage of its existence, is gathering in these funds to lend them to the Government and at low rates of interest.

There you have a community of interest. The interest of the Government and of the people is served, also the interest of the business world, and of the Export Payments Insurance Corporation. The business world is permitted to earn some interest where, otherwise, there is no facility to earn it, and the Government is permitted to have the advantage of the available money in the hands of the business community for short terms.

The honorable member for Lalor interjected earlier and said that the corporation could put money on deposit for three months and that if the contingent liability matured in the interregnum, the corporation could borrow on overdraft. That is completely right. But I venture to suggest that it is not very good business to invest for two months at 2 per cent, and to reborrow for one month at 5i per cent. It is not regarded as good business to do that kind of thing.

Mr Pollard - But if you are not visualizing large amounts, the three months' investment would give good returns.

Mr McEWEN - That may be so, and it would be practicable. But here is an experienced business organization with a highly experienced staff and a commissioner who has the benefit of the advice of a consultative council. If it proves to be in the best interests of the corporation to invest certain sums of money in the way that the honorable member has suggested, I have no doubt that it will be done. That we will leave to the business acumen of the commissioner and those who work with him or advise him.

Then there is the credit agency to lend to facilitate exports. This is a legitimate suggestion, but not one that is really pertinent to the bill before the House.

Mr Pollard - It arises from it.

Mr McEWEN - I will turn to that in a moment. The honorable member for Melbourne Ports raised the question of the establishment in Australia of a specialized credit agency similar to the export-import bank of the United States of America. I do not brush that off. I say that it is a legitimate proposal, but not one within the circumstances of this bill.

Mr Crean - I agree with that. But the report gives us the opportunity to raise it in this debate.

Mr McEWEN - That is true. But one of the great advantages of this Export Payments Insurance Corporation is that it establishes a basis for credit for export sales where otherwise there would not be a business basis for an export transaction. Let me put it in this way: A business house has an opportunity to export something that it cannot finance itself. In the absence of having cover here, it may go to its bank and say, "I have this opportunity to do business. What about an overdraft to finance it? " In many circumstances the bank is liable to say, " What happens if you don't get paid? What happens if the currency of the country depreciates? What happens if war occurs? What happens if the fellow goes insolvent? " The bank is likely to say then, " Sorry, we cannot do business with you. It is not a business proposition." But now he is able to go along and say, " I have this business opportunity, and I will be paid as much as 85 per cent, or 90 per cent, or 95 per cent.", according to the various provisions made. He can say, " I am assured that I will be paid ", and on that proposition he can ask the bank to accommodate him on overdraft. There, a real business proposition is immediately created. The whole concept of the Export Payments Insurance Corporation is consistent with the matter raised by the Opposition that there should be credit facilities to encourage and enable export to take place.

Finally, I think of the words that were read from the annual report of the corporation. They were -

It is considered that any substantial development of a " credit race " in international trade would not favour Australian exporters nor would it be beneficial to the national economy as a whole.

I think the Opposition raises this on two counts: Whether the comments are themselves valid, and whether they are appropriate to be made in this report. I would say that they are both valid and appropriate because they are completely consistent with declarations which I have made, with the authority of the Government, in this House. They have been made also by the present Treasurer (Mr. Harold Holt), the former Treasurer (Sir Arthur Fadden) and the Prime Minister (Mr. Menzies).

The explanation is that if there is any encouragement to make international sales on credit then there will be competition to make sales on credit. In the case of the major items of wheat, meat, metals - the great agricultural and mining products - the bulk commodities - this country has much more wealthy competitors than we are ourselves. The words that are used here - that a " credit race " would not be in the interests of the Australian producers - are completely right. If transactions in wheat and lead are to be transformed from cash transactions to credit transactions, then Australia has competitors much wealthier than herself and would lose out in that competition.

For some years I have been consistently arguing in international circles that wealthy countries ought not to go beyond a commercial period of time in facilitating credit for export. A normal commercial period of credit could be 180 days for foodstuffs, or it may be six months for something else. There are understandings about these things. I have been arguing that in the case of a commodity, such as wheat, where we would perhaps give 120 days and Canada gives five years, that would be a class of competition we could not meet.

Mr Pollard - Some countries are doing that now. You are suggesting that we should intensify what they are already doing?

Mr McEWEN - No. Some of them have done it, but to-day there is a fairly wide acceptance of the validity of the arguments which I have just been adducing, that this is a non-commercial form of competition in the credit race.

Mr Pollard - But they deny that.

Mr McEWEN - It has been very much abated as a result of arguments adduced for and by Australia, and we have benefited as a result. On that point and on the second pai t of the observation, that it would not be beneficial to the national economy: Here is a country which has been suffering now for some six or seven years from a shortage of overseas funds. We have suffered all the rigours of import restrictions and all the maddening annoyances of import licensing because we have not been able, currently, to earn in cash as much in overseas currencies as we desire to spend. Of course, it is a contradiction of our interests to suggest that in respect of what we produce and sell overseas and what we can find markets for, we should say, " Don't bother to pay us now, pay us in six months or twelve months ". That would be a complete contradiction of the real interest we have at stake.

I am sure that honorable members accept the explanation that the commissioner is really embodying here declared Government policy. On that explanation I would ask the House to agree to the motion for the second reading of the bill.

Question resolved in the affirmative.

Bill read a second time.

In committee:

Clauses 1 to 3 - by leave - taken together, and agreed to.

Clause 4 (Application of moneys).

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