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Thursday, 18 May 1939

Mr STREET (Corangamite) (Minister for Defence) . - As one who up to the present has been administering the department in which the Munitions Supply Branch is contained, I think it might he desirable if I had a word or two to say about the general policy concerning the supply of munitions in Australia, because it appeal's from the speeches made by various honorable members that a great deal of misconception exists as to the exact position. At the outset I should like to say that 1 agree with the honorable member for Barker (Mr. Archie Cameron) regarding the colossal load carried by my predecessor, the honorable member for Calare (Mr. Thorby)., who administered not only the three service boards but also the Munitions Supply Board and the Civil Aviation Board. As one who has had to do only a part of that work I realize the enormous load he must have been carrying.

To keep this matter of munitions supply in proper perspective, we should, I think, refresh our memory in regard to sub-section 8 (5) of the Covenant of the League of Nations, which reads as follows: -

The members of the league agree that the manufacture by private enterprise of munitions and implements of war is open to grave objections. The council shall advise how the evil effects attendant upon such manufacture can be prevented, due regard being had to the necessity of those members of the league which are not able to manufacture munitions or implements of war necessary for their safety.

It is to be noted that the points that emerge from this provision are: -

(i)   The desirability of control over private manufacture of munitions ;

(ii)   The necessity for having regard to special factors which may obtain in regard to any country in the provision of munitions, such as its degree of economic development.

On the 6th December last I outlined the Government's defence policy in this House, and pointed out that the essential basis of its policy for increasing local self-sufficiency in munitions supply comprises : -

Adequate reserves of munitions ;

Establishments for the local production of special types of munitions not produced by industry;

The aircraft industry;

The fostering of primary and secondary industries to add to the country's resources of raw material, stores, manufacturing establishments and skilled labour;

A plan for the organization of industry for the supply of the services in time of war.

Modern war involves a vast expenditure of munitions and equipment, and if they are to be fully effective, it is necessary that our forces should have adequate reserves. Preparation on the material side involves a comibination of building up certain necessary reserves for mobilization and organizing local resources for the production of supplies, so as to avoid the accumulation in peace time of vast stocks which deteriorate or become obsolete. The policy of the Government is to erect factories which have no counterpart in commercial industries for making the types of essential munitions. The whole procedure and technique of manufacture are recorded with a view to making process specifications available to industry in an emergency. Parallel with the development of government factories, the Government is fostering commercial industries, and thereby systematically adding to the country's resources of raw material, stores and manufacturing establishments. A Principal Supply Officers Committee has also been constituted, whose function it is to prepare a statement of the requirements of the services in wartime, to examine them in relation to the stocks and productive resources of the country, and to prepare plans for mobilizing the resources of industry in an emergency. Subordinate to this committee are supply committees dealing with various requirements. Associated with the Principal Supply Officers Committee is the Advisory Panel on Industrial Organization, which is composed of leading industrialists who give a large measure of their time in an honorary capacity. There is also an Economic and Financial Committee consisting of Professors Giblin and Melville and Dr. Wilson, the Commonwealth Statistician. This committee is engaged on a review of the strength and weaknesses of the national economy under stress. The Council for Scientific and Industrial Research is undertaking the examination of special technical problems, such as local alternative sources of supplies of raw materials, and a special committee was constituted some time ago under the Development .Branch of the Prime Minister's Department to deal with the examination of alternative sources of supply of. liquid fuels.

As I have already mentioned, modern warfare entails a huge expenditure of munitions. To prepare for war, Australia must have either very large stocks of munitions, or factories which are organized to be brought into the scheme of production. The provision of large stocks of munitions would require the expenditure of vast financial resources. Large staffs would also be required for their maintenance to prevent deterioration. It must also be remembered that armaments become obsolete with the invention of new types. The output of the government factories, however, whilst generally sufficient for defence purposes' in time of peace, would prove inadequate for wartime needs. During a war period, it would be necessary to depend upon local industrial capacity to supply the additional requirements. The organization of industry for this purpose presents a formidable problem, and it is essential that preparatory action should be taken in time of peace, so as to ensure that industry can change over at the vital points from commercial to war production with a minimum of delay, should the necessity arise. The Government has accordingly provided a sum of £1,000,000 towards the organization of civil industry for an emergency, and the initial steps are being directed to the creation of manufacturing capacity for the supply of empty components of ammunition. The Government is equipping and, in a few cases, erecting extensions to selected privately-owned factories to enable skilled craftsmen to receive the training that will enable them readily to undertake the production of munitions in an emergency.

Mr Martens - Are the States collaborating in that?

Mr STREET - Yes, through their railway workshops. The plant provided by the Government under this scheme will remain the property of the Government. The layout and type of equipment will be based on that of government munitions factories, and its use will be subject to governmental control. This will enable a close check to be effected on cost of production and will facilitate the control of profits.

The Government is fully aware of -the necessity to exercise control over the profits of industries engaged in the manufacture of munitions and equipment in time of national emergency. It will not relinquish control of the manufacture of munitions, but under this method will, in effect, enlist the aid of private industry for the management and operation of government-owned plant.

The co-operation and assistance of private industry will be required also to meet other requirements of the fighting services in an emergency and this, too, is a matter which is being fully examined. Upon the completion of the annexes a trial order will be allocated to each, in order to test out the plant and equipment, and to enable the personnel to acquire .a knowledge of the technique involved.

Mr Beasley - Will this plant remain idle?

Mr STREET - Yes, unless a national emergency arises. The great bulk of the machinery is not of the kind required in ordinary commercial enterprises, and cannot be used for other industrial purposes. That is the reason for setting up what has been referred to in some quarters as shadow factories.

In selecting factories for the attachment of annexes, the Government has had prominently before it the potentialities of railway workshops. Two annexes are being provided in both New South Wales and Victoria, and the Commonwealth is co-operating with the South Australian Government in the extension of its machine-tool shop in order to take advantage of its capacity in this direction.

It is an interesting commentary on Australian policy to note that Britain is turning more towards the use of existing resources of industry, or their supplementation, than to the creation of additional government factories. The latter involve huge capital cost, problems in regard to the transfer of labour and the provision of housing accommodation, and also residual problems of their employment when rearmament is slowed down. On the other hand, the development of the existing resources of industry enables use to be made of trained staffs at factories where they are to be found, which is usually in a centre possessing certain features that have governed the localization of the particular industry in that part of the country. It is a notable feature of German rearmament that the speedy manner in which it has been accomplished has been largely due to recognition of this principle of exploiting as far as possible existing industrial resources.

Some honorable members, particularly those from States other than New South Wales and Victoria, have displayed some concern regarding the principles which govern the location of government munitions factories, and I would repeat what I said here on a previous occasion as to the principle that has governed the recent and proposed expansion of government munitions factories. In all cases the extension of facilities for the manufacture of munitions, insofar as the departmental factories are concerned, provide for additions to factories already in existence at Lithgow, New South Wales, and Maribyrnong and Footscray, Victoria, and to the artillery proof range at Wakefield, South Australia, or for other expansion which, by reason of the allied nature of the munitions already being produced, must be located at these centres.

In the selection of sites for munitions production regard is had to both strategic and economic aspects, and, if it be decided to provide additional government factories for new types of munitions not associated with the present groups of factories, the establishment of such new factories at inland centres will receive favorable consideration.

As announced, it is the intention of the Government to set up an advisory accountancypanel to advise on methods of costing and profit control in connexion with the private manufacture of armaments. The field to be covered by this body is a very extensive one, and beyond the reassurance of the Government's intention by this action it is not profitable to pursuea detailed examination of the various alternative methods of checking costs and regulating profits.

Mr Anthony - Will the panel be an honorary one?

Mr. STREET.Yes. It need only be added that it is not beyond the wit of man to devise adequate safeguards to ensure that the public interest is well protected in this matter.

The contracts relating to the provision of annexes provide for a strictly limited percentage of profit, and further indications of the rigidity of the terms of contract will be evident from the fact that in calculating the cost of production the following items are excluded from overhead charges: -

Interest on capital,

Selling expenses,

Advertising expenses.

Bad debts,

Income taxes,

Debenture interest,



Insurance premiums on life policies.

The purchase of departmental requirements for general stores and supplies from commercial sources is arranged through the contract office, which is a branch of the Munitions Supply Board. A contract office is maintained in every State under the direction of the central contract office in Melbourne. All purchases, with very few exceptions of a minor nature, are arranged by way of public tender or quotation. All tenders and quotations must be examined and approved by the contract board in each State, whose members are representative of the navy, army, air and civilian branches of the Department of Defence. The contract office does not purchase the goods; it merely invites tenders and the Contract Board approves of the suitable tenders after examining all of those submitted. Thereupon the demanding service orders the goods, and arranges for delivery and payment. It will be noted that this procedure provides for Government purchase on a strictly competitive basis; and in order to ensure that all parts of the Commonwealth can compete on common ground, tenders are accepted at a price f.o.b. at the capital of the State concerned.

In connexion with this bill there has been criticism of the Broken Hill Proprietary Company Limited and associated companies. Insofar as my experience as Minister for Defence and that of the Defence Department are concerned in dealings with these companies, the allegations of profiteering are entirely unwarranted, and are not substantiated by the facts. I shall give a few instances of what the Broken Hill Proprietary Company Limited has done.

1.   The company carried out, without cost to the Commonwealth, the stiffening of four of its ships to enable defensive armaments to be mounted in the event of war, at a cost of some thousands of pounds. This work would have cost approximately £4,000 if carried out in the normal way.

2.   The company is undertaking to provide, without cost to the Commonwealth, a shell machine shop, including the building, machine tool equipment, jigs, tools and gauges. The cost of this shop will run into £30,000.

3.   A contract was let to the company for the manufacture of 10,000 18-pounder shells, the company's price being much below those of other tenderers. On completion of the work the company found that the actual cost of manufacture was considerably less than it had anticipated and it voluntarily refunded to the Commonwealth the sum of £3,500.

Mr Beasley - That does not say much for the supervision of the department.

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