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Tuesday, 18 April 1961


Mr CREAN (Melbourne Ports) .- 1 should like to comment briefly on two matters on which the honorable member for Darling Downs (Mr. Swartz) touched early in his speech. My colleague, the honorable member for Lalor (Mr. Pollard), this afternoon said that in his view all insurance ought to be nationalized. I merely point out to the honorable member for Darling Downs that at least the form of insurance that we are considering at the moment is an example of insurance that has been nationalized. This form of insurance is carried on by a government undertaking, presumably because no one else would carry the sort of risks that were involved. The fact that these risks have been accepted on a national scale has, to some extent at any rate, meant an improvement in Australia's export trade. Equally of some significance is the fact that, unlike some other forms of insurance, this undertaking is conducted on the very laudable basis of no profit, no loss. Presumably, it should charge sufficient to cover - and no more - the cost of the service that is provided in underwriting the risks involved.

I should like to draw the attention of the House to the rather peculiar way in which this no-profit no-loss assessment seems to be working out in practice. I shall refer to the income and expenditure statement of the Export Payments Insurance Corporation for the year ended 30th June, 1960. It is to be found at page 14 of the annual report of the corporation, which we now colloquially refer to as Epic. The statement shows that for the year ended 30th June, 1960, the income of the undertaking was, in round figures, £100,000. Of this income, £47,000 came from premiums received on the risks insured and the remaining £53,000-odd was income from investments. The expenditure of the under taking for the twelve months was £62,000. This left an excess of income over expenditure of £38,000 in round figures.

I point out that the income from investments is derived from the investment in Commonwealth Government securities of the £1,000,000 initial capital that was provided by the Government out of Consolidated Revenue. This yields £50,000, in round figures. If this £50,000 were not available - it does not come from the earnings of the corporation - the undertaking, instead of showing a surplus of £38,000, would in fact show a deficit of something of the order of £15,000. I query whether on this basis the undertaking is being run on what the Minister for Trade (Mr. McEwen) refers to as a no-profit no-loss basis.

In my view, the method of financing this undertaking means that a subsidy of the order of £50,000 has been given to those who have chosen to insure under this method. I do not think that any other explanation is possible in the light of the figures given in the statement of income and expenditure. I hope that the Minister will comment, perhaps during the committee stage, on whether the undertaking is being run on a basis that meets his test of no profit and no loss. This seems to me a rather peculiar way, to say the least, of financing an undertaking - to borrow £1,000,000 from Consolidated Revenue and to invest that £1,000,000 in the securities of the same Government. It is a rather odd way to provide income for this undertaking, but if this income were not available to it, the undertaking would have shown a defict of about £15,000 instead of a surplus of £38,000.

I should like now to deal with the substance of the bill before us. This provides for a new kind of insurable risk and that is a risk that can be undertaken in what is called the national interest. If such a risk is to be undertaken, it is undertaken after consultation between the corporation, the Minister for Trade, the Treasurer and other members of Cabinet, if need be. I should like to cite certain references that appear in the last annual report, from which I have already quoted figures. To my mind, it indicates a deficiency in Australia in relation to the provision of finance for a certain kind of trade which would be undertaken if there were some other means of obtaining finance. For the information of honorable members, I quote an article that was published in the December, 1960, issue of a London publication called " The Banker ". The article is by Mr. Paul Bareau, a well-known financial writer in Great Britain, and is headed, " Export credits where Britain lags ". Tn it, the writer says -

It is argued in industrial circles-

That is, industrial circles in Great Britain - that what has hampered British exports has been not merely the inadequacy of E.C.G.D.- which is the Export Credit Guarantee Department, the equivalent in Great Britain of the Export Payments Insurance Corporation out here - but the unavailability of the necessary supplies of medium-term credit even when such cover is provided.

I suggest that that kind of gap exists in the Australian economy at the moment, and it is pointed to in one or two references contained in the fourth annual report of the Export Payments Insurance Corporation, whose charter we are amending this evening. On page 7 of that report, the corporation points to the fact that since its inception it has issued a total of 265 guarantees. That is to say, over a period of three years, there have been 265 individual examples of insurance undertaken under this scheme, which indicates that the people who have recourse to this kind of insurance are comparatively few in number. When we take into account the fact that for the year ended 30th June, 1960, the last year for which statistics are available, there were 127 separate policies current, and the face value of the business insured was £26,429,903, we realize that, in round figures, the average size of each transaction covered varies between £200,000 and £250,000. Those are fairly solid transactions, and the corporation points to the fact that apparently there is not sufficient catering for what it calls the small traders. It mentions that there were many small traders who, for a variety of reasons, found it difficult to establish themselves in the export field. What we propose doing to-night does not in any way meet that deficiency. I suppose it may be said that this deficiency arises from the size of the business offering. It is inevitable, in the kind of world in which we live, that a small firm wishing to make an export transaction of £10,000 or £15,000 will find it difficult to become embraced in the kind of machinery involved here.

The second, and I think more significant, deficiency is that mentioned in the corporation's report under the heading, " Export of Capital Goods ", which appears on page 7. There, the corporation states -

By contrast with the previous year when some measure of success was achieved by insured exporters of capital goods, the current year proved to be disappointing. Some 29 offers covering prospective contracts aggregating £13,000,000 in value were made during the year with only ona success.

That is to say, of these 29 transactions averaging about £400.000 each which it was sought to undertake, about which feelers were put out during the year, a sale was made and this machinery was used in only one instance. The report does point out that a number of the prospective contracts were still undecided and were still being probed at the date when the report was written, but at least we do have an indication there that some people in Australia who could sell goods of a capital kind - and I suggest they are the most significant kind - to such of Australia's Asian neighbours as Malaya, Burma and Indonesia, are unable to conclude contracts not because insurance facilities are inadequate, but because the provision of credit in some other form is inadequate. It is possible that this undertaking is limited by the provisions of the Berne Convention, which set a time limit of something like five years on these transactions. I understand from reading the technicalities connected with the matter that a further four years may be allowed between the date of the letting of the contract and the shipment of the goods, so that some transactions may take as long as nine years to complete, and very few firms can wait nine years for final payment. Other firms could sell the goods if they could provide longer terms of credit. That is the sort of thing that Mr. Bareau pointed to as a deficiency in the system operating in Great Britain, and it would seem that a similar deficiency exists in the Australian scene.

The honorable member for Darling Downs (Mr. Swartz) indicated that the national interest clause that we are writing into t tie legislation to-night already exists elsewhere. I think it has been in force in Great Britain since 1954, or thereabouts. The honorable member says it is in force in both Canada and Great Britain, but I point out that the new development announced by Mr. Maudling, president of the Board of Trade in Great Britain, is designed to off-set this gap in the provision of credit. I know that quite a few honorable members receive copies of the very useful document, "News from Britain", issued by the United Kingdom Information Service. I have a copy dated 13th April, 1961, headed, "Cheaper and Longer Credit in Britain for Overseas Customers ". Apparently, in Great Britain they have recognized the force of Mr. Bareau's argument that some contracts languish not because of the nature of the insurance offered, but because of the length of time which elapses before the buyer and seller are able to come to agreement over the terms of the contract. Apparently, in Great Britain, they are introducing a system under which, to meet such cases, the banking system backed by the Bank of England as the central bank of Great Britain, will finance the amount that cannot be negotiated satisfactorily between the buyer and seller during the period of negotiations. I would suggest that, instead of getting up to date five or six years later under the national interest clause, this Government could go further and explore the provision of some other machinery that will bridge the gap that seems to exist with transactions of a capital kind. The effect of it is that we are missing out on these transactions because we cannot come to satisfactory terms of credit. Australia should make some provision to cover transactions of that kind. In this connexion, I quote again from Mr. Maudling's press release which has stated -

Much of the business in these large schemes lies in " developing " countries-

That, 1 suggest, is something that is very critical at the moment - which have a real need, both in terms of internal finance and of their foreign exchange position, to get these schemes under way at the earnest date and to pay over the long-term.

The measures that the United Kingdom Government has taken in the past few days go quite a considerable way to remedying that deficiency. Mr. Maulding's press release also stated -

Under the new method, the British exporter will make and sell his products. He will get part payment with the contract and another part on completion (that part being at his own risk should there be any dispute as to performance). But the bulk will be paid by the overseas buyer out of a loan made to him for that purpose by a bank or institution in the United Kingdom; and that major part will be guaranteed by the Export Credits Guarantee Department 100 per cent, against the borrower's failure to repay any instalment at the due date.

The essence of the new system, said Mr. Maudling, will be a pure borrowing relationship between the overseas borrower and the U.K. supplier of finance, with the E.C.G.D. standing as guarantor for repayment by the borrower.

Mr. Maudlingadded that this new facility will be applied with much greater selectivity than the normal E.C.G.D. insurance. The Department will be scrupulous, he said, in seeing that what ought still to be treated as a supplier credit - and governed by the principles of supplier credit insurance accepted by all members of the Berne Union - does not secure the " soft option " of these new finance guarantees.

I would suggest that there is a more realistic approach to this problem. It is not just a matter of extending the scope of insurable risks or things that will be underwritten, but a recognition that there is a gap in existence. It has nothing to do with insurance as such, but with the provision of credit over a long period of time. Apparently, in Great Britain if the banking system or individual banks provide advances for this kind of undertaking, they are exempted to that extent from the normal liquidity controls as they apply there. Something similar could be done in the Australian banking system. The machinery of the Reserve Bank, in association with other banks, could be used to pay off the person in Australia who produces the goods and sells to the buyer in a foreign country, because in many cases, the payment cannot take place until the capital machinery is actually installed and in use. The parties depend on the return from it to be able to pay it off, and that would seem to be an inevitable economic proposition.

Reading between the lines of the corporation's report, it would appear that there is a considerable amount of business available to be tapped, but it will not be touched in any way by this national interest provision for it does not go far enough. It does not provide the credit to make up the leeway between the terms that buyer and seller can work out. I would direct the attention of the Minister for Trade (Mr. McEwen) to what has been done in Great Britain, and would suggest that this Government, which claims to be seeking to increase Australia's export trade, should look at the deficiency that is obvious here. lt has been suggested that certain trade cannot take place because of the taxation burden in Australia. Recently, the Government advanced a proposal associated with a rebate of pay-roll tax. That seems to me to be very piffling in the light of the problem that is involved. Apparently, it is not cost that is the problem in this connexion, but the provision of suitable finance at the other end of the transaction. That gap still exists in Australia. Apparently, it existed also in Great Britain. Economic writers in that country pointed to it, and I suggest that the same sort of circumstance exists so far as Australia is concered. I was rather interested to read in the Minister's speech that the sort of clause that is before us has been prompted by support which came, he said, from the Associated Chambers of Manufactures of Australia and the Railway Rolling Stock Manufacturers Association. The latter organization is a new one so far as I am concerned; but apparently it sees a prospect of being able to sell railway rolling-stock overseas as a result of this provision. I suggest that others would be able to sell something overseas if there were better facilities for medium and long-term credit. We offer no opposition to the passage of this measure, but suggest that the Government has to go a long way further to stimulate and activate Australia's export trade.







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