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Tuesday, 6 December 1938

Mr CASEY (Corio) (Treasurer) , - My friend and colleague, the Minister for Defence (Mr. Street), in introducing this bill, has described the Government's proposals for the defence of this country in the years that lie immediately ahead of us. It falls to me to deal with the finance side. What the Minister for Defence has had to say, on behalf of the Government, will give Australia considerable food for thought. The proposed formidable increase in respect of Australia's defence effort is a reflection of the Government's reaction to the news that comes .to us from overseas.

As I said in the budget speech, we have no enemies and no enmities; yet we find it essential, the world 'being as it is, to impose great burdens on ourselves in an endeavour to ensure some measure of security for ourselves and for our children. The burdens that adequate defence will impose are now realized to be greater than had been thought to be necessary even such a short time ago as the early part of this calendar year. Honorable members are aware that each year since 1932-33 has seen a steady annual growth of the expenditure on defence from various sources - culminating in the programme that was announced about eight months ago, which involves a total of more than £44,000,000 in the next three years.

The expenditure already provided for, for the current financial year, is just under £15,000,000, to which has to be added the financing of commitments entered into in previous years, to an amount of £1/800,000, which will be met from trust and loan funds. This total sum of " £16,800,000 is to be met as follows :-


The total programme that the Government has now decided to recommend to the Parliament involves a total expenditure for the three years, including the present financial year, of about £63,000,000 ; that is about £19,000,000 in excess of the £44,000,000 .programme announced six or eight months ago.

The Government is very conscious of the serious nature of a proposal involving the expenditure of such a vast sum of money, but it believes it to be essential, and no less than essential, in the interests of Australian security. The programme involves authorizations and expenditure over the three years of the programme as follows : -

Honorable members will realize that, in connexion with defence it is essential to plan for some considerable period in advance. Orders have to be placed and commitments entered into for periods of up to two years - and sometimes more - ahead. This leads me to dwell for a moment on the importance of proper distinction being made between the terms " authorization " and " expenditure ". In the early years of any programme designed to cover a period of years it will be found necessary to provide for authorizations very much in excess of actual expenditure.

In the latter years of a programme, the reverse holds good; that is to say, actual expenditure will be in excess of authorizations. It has been the general practice - and I believe an entirely proper practice - in Commonwealth public finance, not. to embark on authorizations or. commitments unless there has been in existence some parliamentary authority for the expenditure involved. It is necessary at times to some degree to anticipate parliamentary appropriations of a subsequent year, but it is as far as possible restricted to cases of urgency or the necessity to carry on existing departmental activities. It is for this reason that this Loan Bill is necessary.

In this year 1938-39, this increased programme involves entering, at once, into authorizations or commitments to an amount of about £10,000,000 in excess of those envisaged and provided for in respect of the 1938-39 portion of the £44,000,000 programme. The actual expenditure in 1938-39 will only be about £3,000,000 above the actual expenditure previously envisaged. It becomes necessary, therefore, to acquaint Parliament with the new proposals and to obtain parliamentary authority for further commitments to be entered into for defence equipment and additional obligations being undertaken in accordance with the enlarged programme.

What I have said is designed to explain why, under the new programme, a loan bill for £10,000,000 is now submitted for approval, on top of the loan authority for £10,000,000 which was obtained last April or May. The first loan authority was obtained to enable £5,250,000 of urgent authorizations to be entered into immediately for the first year of the programme, and further authorizations which have since been entered into bring the total commitments up to date to approximately £8,500,000. The balance of the authority remaining in the £10,000,000 loan fund of May last, that is £1,500,000, is insufficient to meet the immediate needs of the expanded programme. The schedule to the Loan Bill will, therefore, constitute the basis for future authorizations. It will enable authorizations or commitments to be entered into in respect of 1938-39, 1939-40, and 1940-41.

The final allocation of the expanded programme as between revenue and loan will be decided later when the budgets for 1939-40 and 1940-41 are brought down. Honorable members will realize that it is impossible to say, at this stage, what the budget position will be so far ahead, but the policy of the Government will be to carry as much as possible of the total expanded programme on the revenue account of the next two years. The expanded programme also involves increased expenditure on ordinary services as apart from capital services. These increases relate mainly to expansion of thepermanentand citizen forces. It entails further expenditure in the current year and it is necessary to obtain parliamentary authority for the expenditure involved. Additional estimates of expenditure will, therefore, be brought down later, involving additional expenditure from revenue this year of £1,320,000. Details of these items will be explained when the Estimates are before the committee. The finance of this additional expenditure from the budget so late in the year involves some recasting of the budget position. In order to provide for the additional £1,320,000 on the budget for the current year, the Government proposes to charge to loan fund a portion of the £1,618,000 provided for in the budget for capital services under new works, and to introduce additional Estimates of defence expenditure from revenue.

Mr Curtin - Is it intended to provide money from revenue to meet that expenditure?

Mr CASEY - There is no immediate proposal; that will come later.

Under the authority of the Loan Act, of April last, £4,000,000 was borrowed for defence purposes just prior to the commencement of this financial year, and we are also borrowing at present a further £4,000,000, as part of the current cash and conversion loan. The necessity for this further borrowing of £4,000.000 became evident after the recent crisis. We have already entered into commitments in respect of the years 1938-39, 1939-40 and 1940-41, to the amount of about £8,500,000 out of the £10,000,000 authorized in the April loan, and, as I have previously staled, further commitments of £10,000,000 and expenditure of £3,000,000 for capital services and ordinary services combined have to be faced this year under the new programme.

Mr Anthony - How much of the proposed expenditure of £63,000,000 will be provided from loan moneys?

Mr CASEY - That cannot be determined at the moment. The maximum amount possible will be carried on the budget. It is anticipated that the whole of the £8,000,000 already raised will not be expended this financial year, and that a portion of it will be available towards meeting expenditure early next year.

The enlarged programme involves an expenditure of approximately £63,000,000 over three years, or, on an average, about £21,000,000 a year. For the last three years, the average expenditure on defence from current budget revenue has been about £6,000,000 a year, as distinct from defence expenditure from trust and loan funds. Wo, therefore, have to finance large additional amounts, from one source or another, for defence in this year and the next two years. Even if it were physically possible to raise the whole of this additional burden by taxation alone - and I do not for one moment think it is - the reactions to our internal economy would be too serious to contemplate. Such an extreme course would bring about most adverse repercussions to State revenues and also to employment in industry. On the other hand, there arc not lacking those who would advocate that the whole of the defence expenditure should be financed by some mysterious form of national credits. I say quite frankly that the Government is not prepared to adopt a form of inflation which would jeopardize our economy and might well lead us to disaster.

Mr Holt - Can the honorable gentleman indicate the estimated maintenance cost of the revised programme?

Mr CASEY - No. Estimates vary upward from the height they have reached at present. It is expected that the annual maintenance costs will rise until the end of the programme.

Mr Holt - The honorable gentleman, himself, suggested that maintenance costs would be approximately £10,000.000 a year.

Mr CASEY - I think that maintenance costs are considerably below that at present. I have roughly in my mind the rate at which they will rise, hut I should prefer to give a more carefully considered answer to the honorable member's question during the committee stage. Clearly, therefore, our full financial resources must be concentrated for this emergency. In addition to the maximum sums that can be provided from revenue without serious repercussions, a substantial portion of the total programme must be met by borrowing. Nor can' finance be visualized solely from Australian revenue and loan resources. In the circumstances, the Government has in contemplation the raising of some portion of the loan requirements on the British market. Havingregard to the national emergency with which we are faced the Government believes that this course is fully justified. Just how much money will be raised overseas, and when it will be raised, are matters to be determined when the actual expenditure becomes more imminent than it is at present. It would also be necessary to bear in mind, in this connection, the state of the relative loan markets, both in Australia and overseas.

Under the £10,000,000 loan authority which was obtained in May last, £8,000,000 of loan money is in sight to meet expenditures for this year and part of next year. Under the authority of £10,000,000 at present available, commitments have been entered into to the extent of about £8,500,000. There is a balance of £1,500,000 available towards further commitments under the acceleration of the old programme and the additions under the new programme. This is inadequate for immediate proposals and the bill now before the House will enable additional commitments for 1938-39,1939-40, and 1940-41 to be entered into. As previously indicated, it is not possible now to make a final allocation between revenue and loan for the whole of the £63,000,000 programme, but the policy will be. when the budgets of the next two years arc brought down, to carry as much as possible of the total programme from revenue.

In conclusion, my colleague, the Minister forDefence (Mr. Street) has advised the House of the items of defence equipment that in the opinion of the Government are essential for the adequate defence of Australia in the present circumstances. Following that, I have outlined the scheme, so far as it can be outlined in advance, for the financing of such proposals.

Mr Curtin - It was a very elementary outline - merely to borrow.

Mr CASEY - It might be supposed that that was the end of the business, and that all that now remains is to raise the money. I do not believe that that is the case. I believe the people of Australia have to he convinced of the necessity for this greatly enhanced expenditure in order for them to have the will and the purpose to carry out this great defence programme with spirit and enthusiasm.

Debate (on motion by Mr. Curtin) adjourned.

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