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Wednesday, 23 November 1938


Mr FADDEN (Darling Downs) . - I regard this debate as very important because, through the budget, the Government should give a lead to the people of Australia in regard to economic and financial matters. I believe that there are abundant grounds for criticizing thy budget. The Government should postpone, if not repeal, the National Health and Pensions Insurance Act, at least until there is some evidence of the recovery of commodity prices, and improved economic conditions. Apart from the financial aspect, the scheme is misunderstood throughout the Commonwealth. This is proved by the fact that most newspapers publish explanations by the Insurance Commission in the form of answers to questions. Any one who studies those answers, and compares them with the speeches delivered in this House during the debate on the insurance bill, will appreciate the numerous inconsistencies, and variations from the- original statements, that have developed in regard to this most important measure. There, are far too many questions to be answered. Then, the question of the remuneration of doctors is as far from being settled as ever, and it is not likely to be satisfactorily settled for some con- siderable time. The measure is admittedly an experimental one, and it is an expensive experiment. It is admittedly defective, and it is anticipated that it will have to he amended in the near future in many important respects. The most cogent objection to it, howover, is the cost. According to the budget, public contributions for the first six months will be £5,500,000, and the charge on the Treasury during the ensuing financial year is stated in the budget speech to be £1,100,000. This estimate, however, has been supplemented by a subsequent explanation given on the introduction of a recent measure, and lias now been fixed at an additional £466,000. This amounts to an annual cost of more than £12,000,000 a year, and the amount will be an increasing one. It is understood that defence expenditure for the year 1939-40 will be about £20,000,000. The vote for the post office is £2,500,000 more than that lor the previous year, and I submit that, at a time like this, such an increase is not justified. "We have enormously increased the cost to the population, and whether the money is to be found by taxation or by loans does not alter the position. It must be provided by the people, and by the same people. Can they afford it? Export returns are declining. There will be.- a smaller wool clip this year 'than last, while the average price is not likely to be better. Wheat will be exported to depressed markets, and every one is now aware of the disastrous position in which the wheat-growers find themselves. Existing values of butter are not likely to be maintained. The balance of trade is already unfavorable, allowing for shipments of gold and specie. If there is not some concession to the virtues of economy and ordinary prudence, the country may experience, before long, if not an economic crisis, at least a grave financial set back. All the indexes point in that direction. Honorable members should not blind themselves to the warnings before them. It is of no use for us to do the " ostrich act and hide our heads in the ground. Nothing is gained by disregarding the statistical warnings contained in the publications of the Department of Statistics, which the Commonwealth pays a considerable amount of money to have collected and collated. According to the last issue of the Statistical Bulletin: export values have declined since 1928-29, from an index base of 92.5, to one of 65.9 on the 13th October, 1938. In July of this year it was 71.7. In August, it had declined to 69.7, in September to 66.2, and by the 13th October last, to 65.9. These figures should make honorable members sit up and think, and should make the Treasurer (Mr. Casey) realize how unwise it is to load the people of Australia, and the industry of the country in particular, with the cost of that half-baked scheme known as national insurance.

All of these factors will have repercus-sions. Among them will bc, inescapably, a heavy addition to the costs of all industrial production. This will react unfavorably on the cost of living. That will be followed by demands, more or less legitimate, and perhaps undeniable, for higher wages. If production costs rise, and wages move correspondingly, production will be depressed and unemployment induced. That is not a pessimistic view. It is a practical one, and no government worthy of the name of a national government should ignore the facts which ought to be as plain as the nose on one's face, allowing for the fact that some noses are plainer than others.

Defence is paramount. Money cannot be refused for the protection of the country and the population against attack by an enemy - and if that had not to be apprehended there would be no need for defence at all. It is invasion that the Government the Parliament, and the people have to guard against. The heavy expenditure required for this purpose calls for all possible reasonable savings in other directions. It demands that other matters be subordinated to the great emergency of security.

The Treasurer (Mr. Casey) said in his budget speech that production in 1937-38 would be about the same as in the previous year. The Statistician puts that figure at £456,200,000. In the last financial year the seven governments spent from revenue alone £208,000,000 - more than 43 per cent, of the gross value of all industrial production. Is that wise? Is it safe? Is it sane? And can the national Government coolly propose to inflict a dozen millions and more of additional expenditure for the operation of its half-baked scheme of social insurance ?

Recently, the Prime Minister (Mr. Lyons), very sensibly endeavoured to secure the co-operation of the States in diverting works programmes so as to dovetail with defence works. There might well be proposed co-operation in reducing the rising costs of administration, and here the Federal Government - and the Parliament - ought to give a lead. The people of Australia simply cannot afford, in their present circumstances and with their doubtful prospects, to support the insurance scheme and the defence programme. Which should come first? There is but one answer. National insurance should be postponed in the national interest. It should wait until the international political horizon and the domestic financial horizon arc less cloudy. To realize the necessity for economic caro wo have only to look at the budget for this year, and to compare the ever-rising expenditure of this Government over the Inst three or four years. The expenditure, of course, has to be provided for out of production, and out of the pockets and purses of the people, and has risen from £75,289,325 in 1934-35 to £93,136,000 for the year under review, which is £7,000,000 more than in the previous year. I concede that the bulk of the increase is due to expenditure on defence, but there is no evidence of any care or consideration being given to the need for economy. I submit that a national stock-taking is long overdue. The Government must take stock of its national and natural resources. It must enlist the cooperation of the States. It is essential that the Government review definitely, minutely, and expertly its financial policy.

I would direct the attention of honorable members to the comparison of aggregates for the September quarter of 1938 with the September quarter of 1937, as revealed in the statistical information and accounts of- the nine trading banks. These figures should form a basis on which honorable members could intelli- 1fr. Fadden. gently survey the position and have some regard for the future. . The following table sets out the position -

 

The banking position deteriorated considerably during the year. The excellent export season of 1936-37 relieved the tightness which had developed in the money market in 193G, but the position has now been almost entirely reversed. The main reasons for the present unsatisfactory situation - arc to be found in reduced proceeds in the year under review compared with the previous year, a high level of imports stimulated by the increased spending power available in 1937, and the existence of widespread drought conditions ending in May, 1938. These factors have caused heavy demands on the banks for accommodation so that advances increased by £23,000,000 in Australian currency. As the result of these movements the ratio of advances to deposits rose from 86.02 per cent, in the September quarter of 1937 to 92.34 per cent, in the corresponding quarter of 1938. With the exception of the September quarter of 1936, when the ratio stood at 93.67 per cent., the figure for the last quarter is higher than in any corresponding quarter since 1931. Coin, bullion and Australian notes decreased by £4,200,000 in Australian currency, the cash to deposits ratio at 10.51 per cent, being the lowest on record for a September quarter. The equivalent ratio in the September quarter of 1937 was 12.01 per cent. Treasury-bills fell £5,500,000 in Australian currency, the decrease in liquid resources amounting to £9,700,000 in Australian currency. It appears .that London funds have fallen considerably, although they, no doubt, remain at a fairly high level, especially after' the rise recorded as the result of the 1936-3? season.

To sum up, the banking position is very tight. If the present tendencies of low export prices and high imports continue, as seems likely in the immediate future, the banks will be forced to exercise greater discrimination, and even to contract credit unless the central bank takes action to increase the credit base. The necessity to restrict credit could, however, be avoided by the Commonwealth Hank, as a central bank, taking action which would add to the cash resources of the trading banks, and so offset the present stringency in their liquid resources. To achieve this, the recognized methods of central bank control could be employed. If the Commonwealth Bank, using " open market operations ", were to purchase government securities, by far the greater amount of the cheques it pays to previous holders of stocks would be deposited with the trading banks. When cheques drawn on the Commonwealth Bank are passed through the clearing exchanges, the trading banks' balances with the Commonwealth Bank are increased. Another method which the central bank could adopt would be to discount new issues of treasury-bills. The cheques and cash drawn by governments when this increased credit was made available to them at the Commonwealth Bank would eventually bring about increases of both the deposits and cash resources of the trading banks. The important object of central bank action should be to support investment so as to maintain the fullest possible use of productive resources and a high general level of economic activity. It must do this in a way that will neither cause unhealthy inflation nor undermine confidence and the activity of private investors. The courses of action suggested would make this possible by enabling the trading banks to maintain their advances, which ensures that capital will be made available to creditworthy industries.

Theadvantage of an increased issue of treasury-bills, also, is that it involves an increase of government expenditure, and consequently maintains spending power. There are many justifiable claims by governments for expenditure at the present time. This offers added inducement to private investment.

The methods discussed are much more effective than a mere increase of the note issue, because they are more certain to lead to increased investment. There is alwaysthe danger that the effect of any marked issue of notes will be nullified by the recipients hoarding them. Moreover, the movement may be regarded as inflationary, and cause loss of confidence. This would probably cause a reduction of the investment in Australia of funds from abroad.

I do not desire to convey the impression that I am an expert. I am not. I am simply a keen student who endeavours to put forward the result of his careful consideration and deep research. I contend that the time has arrived when the Commonwealth Government must take stock of its financial policy in order to place it more in conformity with the conditions with which we are faced, and in order to enable it to measure up to them more advantageously,


Mr JOHN LAWSON (MACQUARIE, NEW SOUTH WALES) - Will the honorable member indicate to what extenthe would have the note issue increased ?

Mr.FADDEN.- That is a matter for the experts, who would have regard to the essential relativities. Naturally, there would be a limit beyond which the Commonwealth could not go. Nevertheless, something has to be done to fill in the trough. The longer it is left in existence the deeper it will become. We cannot deny the position. We arc faced with an increasing fall of the export prices, and, consequently, we have to make up the leeway scientifically and wisely, and with regard to all salient features.

In considering the financial statement for the year, a person is somewhat in the dark by reason of the fact that full information for analytical discussion is not available.. Estimates of receipts and expenditure for the year ended the 30th June,", 19 38, were presented to the House in August, 1937. The Auditor-General's report for the year 1936-37, containing the Treasurer's statement of receipts and disbursements, was presented to the House and ordered to be printed on the 27th April, 1938, or eight months after presentation of Estimates for the year 1937-38. The twenty-seventh annual report of the Postmaster-General's Department, containing details of accounts for the year 1936-37, with which I propose to deal later, was presented by command on the 5th May, 1938, and ordered to be printed on the 22nd June, 1938. It necessarily follows that for discussion on the budget the latest available information, apart from that presented in the form of Estimates by the Treasurer, is contained in -

(a)   the report of the Auditor-General on the accounts for the year 1936-37 ;

(b)   The report of the PostmasterGeneral's Department for the year 1936-37, presented on the 5th May, 1938.

In the Consolidated Revenue Fund, the statement of the Treasurer showed a surplus of receipts over expenditure for the year 1936-37 of £1,276,558, but, if proper consideration were given to the figures presented by the PostmasterGeneral's Department alone, the surplus for the year 1936-37 could have been increased by considerably more than another £2,000,000.

The funds of the Commonwealth Government can readily by divided into three sections -

(1)   Consolidated Revenue Fund - which contains working costs - and contains expenditure on a cash basis similar to cost items in an ordinary business;

(2)   Loan Fund - which is for the purpose of providing funds for capital or fixed assets. Naturally, as the asset gets depleted by age or wear, an annual charge has to he made on Consolidated Revenue Fund for such wastage, hence, there arc sinking fund charges, &c., on the Consolidated Revenue Fund.

(3)   Trust moneys which are collected and expended on special purposes clearly defined, and do not enter largely into the discussion.

Under the heading of Business Undertakings, page 11 of Statement of Receipts and Expenditure, Consolidated Revenue Fund, appear the following receipts and expenditure of the Postmaster-General's Department for the year 1936-37 : -

 

That is the contribution of the PostmasterGeneral to the surplus of £1,276,558 on Consolidated Revenue Fund for the year 1936-37 ; but that is by no means all the contribution that the PostmasterGeneral gives, as will be shown later. On page 59 of the budget paper, it is shown that £2,116,88511s. 6d. was expended by the Postmaster-General's Department for the year 1936-37 on additions, new works, buildings, sites, &c. TheAuditor-General states on page 74. of his report that -

In the year 1936-37, the amount of £2,116,886 was provided from revenuefor new works, buildings and sites. The provision of additional postal facilities will benefit the general public and will no doubt be justified from the financial aspect in augmenting the revenue.

This expenditure of £2,116,886 from revenue forcapital assets is not a new departure, but is now an established practice. The sum of £6,977,274 has been so expended for the three years 1936-38, and £4,000,000 is provided from revenue for 1938-39, making £11,000,000 for the last four years. For 1935-36, 80 per cent. of capital expenditure of the Postmaster-General's Department came from Consolidated Revenue Fund. The percentage for 1936-37 was 87, while that for 1937-38 was 100 per cent. and 1938-39 is also called upon to provide 100 per cent. from revenue. According to page 79 of the budget papers, the total expenditure on new works, buildings and sites in the Postmaster-General's Department to 1938-39 is £60,446,845, of which £24,900,249, equalling 41 per cent., has been provided from revenue and £35,546,596, equalling 59 per cent. from loan. Expenditure of a capital nature, for the purpose of augmenting the revenue, is a correct and legitimate charge on Loan Fund, and the charging of such to revenue whilst the asset created thereby exists for from 10 to 50 years, is misleading and incorrect public finance.

I ask honorable members what the position would be if the State governments were able to extract taxation or impose charges that would enable them to debit the whole of their expenditure on railways, the erection of schools, and other public buildings to revenue? What freights would be charged to the primary producers and other sections of the community had the State authorities adopted the system of finance which this Government employs? I ask them to realize the position with which the people of the States would be confronted if the cost of rolling-stock and other capital expenditure, such as must be incurred in the extension and expansion of any railway system, was charged to revenue instead of to loan account. The answer is quite plain. Yet this Government has, by virtue of the charges or taxes which it imposes, been able to extract sufficient from the people to have the colossal sum of nearly £25,000,000, or 41 per cent. of the expenditure of the Postal Department, charged to revenue instead of to loan. As least £20,000,000 could, at present, be treated as aloan of, say, twenty years' standing, and Consolidated Revenue Fund could be recouped from loan to the extent of £20,000,000, if considered desirable over a period of four years, say, £5,000,000 a year, and this money could be utilized for defence purposes without the imposition of further taxation. The financial returns of the Postal Department at present could stand up to the additional £20,000,000 loan, without any increase of charges. The Australian people should be encouraged to subscribe to such a loan, the cost of which could adequately be carried from the surplus revenue of the Postal Department. If that were done, the taxpayers would be relieved of unnecessary imposts at a time when taxes arc particularly heavy, and when it is not in the best interests of the people to impose unnecessarily extra imposts.

The profit and loss account of the Postal Department for the year 1936-37 shows a profit of £3,340,930 18s.1d. The excess of receipts over expenditure for 1936-37, according to the statement of the Treasurer, is £491,440 4s. 2d. The profit and loss account shows income and expenditure whilst the Treasurer's state ment is prepared on a purely cash basis, but the following particulars illustrate the large portion of this difference of £2,849,490 13s.11d.:-

 

The difference is accounted for by the difference in the preparation of the two statements; one is on an income and expenditure basis and the other is on a purely cash basis. It will be seen that additional to the £491,440 4s. 2d. shown in the Treasurer's statement, the Treasurer has taken the PostmasterGeneral's fund by means of payment of capital expenditure out of Consolidated Revenue Fund and by means of excessive sinking fund charges to the amount of £2,767,344. For 1939 the Treasurer has budgeted for a deficit of £1,143,000, which is to be met from general revenue on account of Postmaster-General's Department, but such estimate is after providing £4,000,000 capital expenditure and excessive sinking fund charges from revenue. Such items total £4,750,000 at least, so that the true result on a proper accounting basis should be a surplus of £3,500,000. This would more than pay interest and redemption on a £20,000,000 loan for the Postmaster-General's Department repayable in twenty years.

On page 5 of the report of the PostmasterGeneral for 1936-37 it is stated that " the interest charge is allocated by the Treasury Department as is also the exchange on interest payments." On page 48 of the report the following payments made by the Postmaster-General's Department are shown: -

 

Taking the average interest rateat, say, 4 per cent., the interest charge would represent loans of £37,474,175 on which interest is being paid by the PostmasterGeneral's Department to the Treasury Department. It has already been shown that the total loan expenditure of the Postmaster-General's Department up to the 30th June, 1937, was £35,546,596, and it is also noted that sinking fund contributions to the National Debt Sinking Fund paid by the PostmasterGeneral's Department total over £1,000,000 a year. It is apparent, therefore, that no rebate by way of interest charge is being allowed by the Treasury Department for the large sinking fund contributions yearly charged up to the Postmaster-General's Department. All of the information available points to that conclusion. The exchange charges made on this department by the Commonwealth Treasury for 1936-37 amounted to £370,370.


Mr Jolly - The Treasurer stated that the loan indebtedness is £31,000,000.


Mr FADDEN - Yes, but he has charged it up at over £37,000,000.

Taking the exchange rate at £25 a £100, this charge represents an interest remittance of £1,481,480. If the average rate of interest on loans is 4 per cent., it would appear that £37,037,000 is the amount of the Postmaster-General's loan moneys held in London and New York. Seeing that the total loan expenditure to the 30th June, 1937, was £35,547,046 10s. 6d., the utter ridiculousness of this exchange charge is seen. Nearly the whole of the capital expenditure of the Postmaster-General's Department has been incurred in Australia and not overseas, and if £70,000 in exchange was charged to the department, it would be more than an equitable payment. At least £300,000 has been overcharged to the Postmaster-General's Department on this account. The sinking fund contributions of £1,023,673 for 1936-37 and £1,130,000 for 1938-39 are equally ridiculous charges. The total loan expenditure of the Postmaster-General's Department for 1936-37 was £35,547,046. On page 92 of the budget papers, under public debt, it is stated that 30s. per cent.of loan expenditure of the

Postmaster-General's Department shall be paid to the National Debt Sinking Fund. It should be noted that this is three times the average charge made by most other concerns; the average appears to be 10s. per cent. On the debt I have already indicated the charge at £1 10s. per cent. would be £533,205, and the charge made for 1936-37 was £1,023,673, or an excess of £490,468. The charge of £533,205 even is three times that usually made, 30s. instead of 10s. per £100. It is noted also that the depreciation charge on all assets of the Postmaster-General's Department for 1936-37 was only £373,214, so that it would appear that a sinking fund contribution of £1 10s. a £100 is considerably more than is necessary. Page 92 shows that the total sinking fund contribution for the year 1936-37 payable out of revenue was £3,434,219, of which the PostmasterGeneral's Department was called upon to pay £1,023,673. The ridiculousness of this contribution is shown when the PostmasterGeneral's total loan expenditure of £35,547,046 is contrasted with the total public debt of the Commonwealth shown on page 87 of the budget papers as £386,910,341.

There may be some reason for the adoption of this policy, but some investigation is essential. According to the information available to me, it appears that the sinking fund chargeable to the PostmasterGeneral's Department is in excess of the statutory requirements. Unfortunately, I have not sufficient time to go fully into this matter, but I consider that there are various reasons why taxes should not havebeen increased. In the first place, there should have been a scaling down of expenditure. If £4,000,000 cannot be provided from loan funds for capital expenditure on postal works, it should not be raised by imposing taxes, particularly when tax restrictions, especially at this juncture, have a disadvantageous repercussion on Australian economy generally. Moreover, this is not an opportune time to inflict a scheme of national insurance, which is an extra levy upon the Australian community. There are ways other than those adopted in which the budget could be balanced if it has to be balanced. In the interests of the Aus- tralian people the Government should have made a fair percentage of loan moneys available for public works and capital expenditure. The Treasurer pointed with pride to the fact that the public debt of the Commonwealth has been reduced by £7,000,000 within the last six and a half years, but that is one of the weakest features of the Government's financial policy. The Commonwealth, in encouraging and allowing the States to take up available loan moneys, has rendered a. disservice to Australia. State governments in their desire to provide employment have squandered money which the Commonwealth Government could have expended wisely, for instance," in the Postmaster-General's Department. The Government cannot point with pride to the fact that the public debt of the Commonwealth has decreased by £7,000,000. and at the same time direct attention to the fact that the indebtedness of the States has increased by £92,500,000. This Government should have gone into the loan market in order to relieve the burden on the taxpayers of Australia and should have utilized loan funds for capital purposes instead of taking and using such revenue for capital expenditure. It is only because the revenue has been buoyant that the Commonwealth Government has been able to continue its policy in this regard. It has been said that only by virtue of the successive progressive reductions of taxation it has made since it has been in power, has the Government been able to assist in no small measure in the rehabilitation and revitalization of Australia. I agree with that contention. I point out that the policy of tax reduction has gone a long way towards making possible the present state of our finances; it has left the money in the pockets of the people, and in the hands of private enterprise, where it is best able to be employed. Therefore, the Government cannot now also point with pride to its policy of increasing taxation which must be of detriment to Australia. If reduced taxation has been beneficial to the country in the past, it cannot now be said that increased taxation will not be disadvantageous. In conclusion, I draw the attention of honorable members to the following words of EdmundBurke in the House of Commons many years ago:-

Our resources may be as unfathomableas they are represented. Indeed they are just whatever the people possess and will submit' to pay. Taxing is an easy business. Any projector can contrive new impositions; any bungler can add to the old.But is it altogether wise to have no other bounds to your impositions, than the patience of those who arc to bear them ?







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