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Wednesday, 24 May 1939

Mr CASEY - The honorable member may rest assured that & very generous arrangement has been made by a number of firms which have agreed to establish these annexes at the request of the Government in order to help towards creating a potential reserve of munitions capa>city for use in time of war. Honorable members have already been informed that the rate of profit to be allowed, even with these restricted items, is to be 4 per cent.

Mr Lazzarini - At last the lion and the lamb lie down together !

Mr Hutchinson - Who will pay the insurance premiums?

Mr Jennings - What are the other overhead charges that remain?

Mr CASEY - I cannot answer all the questions off-hand, but included in the overhead will be the management charge which is applicable to the output of munitions in relation to the whole output of the parent company.

Mr Fadden - I take it that the 4 per cent, is loaded on ascertained cost.

Mr CASEY - It will be added to the strict labour and material costs, plus the proportion of overhead that I have mentioned.

Mr Fadden - In- effect, the profit is the ascertained cost plus 4 per cent.

Mr CASEY - Yes.

Mr Paterson - It is 4 per cent, on output, not on capital, because the capital belongs to the Government.

Mr Fadden - It is 4 per cent, on turnover.

Mr CASEY - A good deal of defence work will be done at the railway annexes and by railway departments generally, for the Commonwealth in the future. The basis of cost for such work has also been agreed upon between the State governments and the Commonwealth Government.

I have mentioned that an advisory accountancy panel is- to be appointed. The Government has been informed by its expert advisers that an effective check on profits is already practicable in respect of all goods acquired for the Defence Department. First, the Government factories themselves afford a means of checking prices; secondly, the Contracts Board applies a check; and, thirdly, work done in the future in the annexes will be subject to checking. The expert officers of the Government believe that by these various means an effective supervision of all costs will be possible. But as the expenditure on defence requirements during the next few years will undoubtedly increase substantially, the Government . has" invited five eminent accountants, three of whom are specially skilled in costing, to collaborate with it in recommending methods, after due inquiry, by which further safeguards and checks may be provided in respect of all profits.

Mr Beasley - Are these advisers the gentlemen who advised the Government in respect of the provision of shells by the Broken Hill Proprietary Company Limited ?

Mr CASEY - The accountancy advisory panel is not yet actually in existence.

Mr Beasley - If the advisors to whom the Minister has referred are the gentlemen' who advised in regard to the shells, their advice was not worth much, for the Broken Hill Proprietary Company Limited took 25 per cent, profit out of that contract.

Mr CASEY - I do not quite understand the honorable member's point.

The cost of the raw materials required by the annexes will also be subjected to the most careful checking. The senior officers of the Contracts Board have been engaged in work of this kind for many years. They have now accumulated a wealth of knowledge and wide sources of information concerning the cost of the raw materials and the finished goods produced by, and for, the Commonwealth. Weekly advice is obtained on these matters not only from Australian factories, but also from other parts of the world, particularly Great Britain. These officers are watching costs and prices all the time. They know the price of leather, of metals, although this varies from day to day, and also of the thousand and one other lines of raw material in which they have dealt for many years. It would be extremely difficult for any one to hoodwink the senior members of the Contracts Board. Still, there may be gaps in the existing methods of ascertaining costs. For this reason the advisory accountancy panel is to be constituted. If the Government were fully satisfied that no possibility existed of excess profit-making it would not waste time in asking these five busy men to form this panel. These men, who have agreed to give their time in honorary capacity, will soon find any chinks in the costing armour. The panel will reach its conclusions in a relatively short time and will adopt a completely comprehensive costing system in order that the public funds may be fully safeguarded.

Mr Anthony - How much time will the members of the panel be expected to give to this work in an honorary capacity ?

Mr CASEY - I cannot say, but, so far, they have been so generous as to place no limit upon it. The members of the Advisory Industrial Panel have given their time most generously, and I have every reason to believe that the five membersof the Advisory Accountancy Panel will be equally as generous in their voluntary and honorary work in the public interest.

Mr McCall - Will they also be employed by manufacturers'?

Mr CASEY - None of these gentlemen has any association with any of the large interests in Australia.

Mr Beasley - They may have indirect association with them.

Mr CASEY - I think the honorable member is being unduly suspicious. The Government has made considerable inquiries as to the business associations of these gentlemen. They are, I think, unexceptionable. Those honorable gentlemen who are acquainted with the accountancy profession will realize that the accountants who are to form the advisory panel are entirely beyond reproach.

Mr Beasley -We have had a strange experience of the profession in connexion with monopolies in New South Wales, and that makes us suspicious.

Mr CASEY - I hope that the honorable gentleman will not retain his suspicions after he has made inquiries into the associations of these gentlemen. It has been suggested that the insertion in the bill of some arbitrary percentage of profit will bring in the millennium, and that the Government will then be assured that no excessive profits will be derived from the manufacture of munitions. The

Government believes that the fixing of an arbitrary percentage of profit would impose no real check on the operations of manufacturers. In the first place, if an arbitrary percentage were adopted it would have to be decided whether it was to be based on capital or on turnover. If it were based on either there would be many other calculations to be made.

Mr McCall - Could it not be based on the actual capital employed?

Mr CASEY - In any fixing of an arbitrary percentage possibility of grave abuses arises. First the percentage must be based on something specific which cannot be evaded. A firm with a very large annual turnover equivalent, say, to two or three times its capital, would be in a very different position from that of a firm with a turnover of only 50 per cent. of its capital. The relations between turnover and capital have a very wide range. The fixing of an arbitrary limit of 6 per cent. profit on capital would be more than fair to a firm with an annual turnover equivalent to two or three times its capital, and very much less than fair to a firm with an annual turnover of only 50 per cent. of its capital. The first anomaly in any arbitrary fixing of percentage of profit is that it would immediately create a. position of complete unfairness between almost any two manufacturers that could be named. The Government is now for the most part depending on the contract system of open public tender throughout Australia for the purchase of the bulk of its requirements. If an arbitrary percentage basis were adopted is it suggested that tenders would be called in the ordinary way, and that, having accepted the quote of the lowest tenderer, we should investigate and analyse his labour costs, purchases of material and overhead costs, in order to ascertain that he had not exceeded the 6 per cent. profit limitation? Is it proposed that we should apply that method to the 9,000 or 10,000 contracts that have to be placed in Australia at the present time? The average of tenders submitted for Government supplies is under £2,000. If that system were applied to all tenders it can readily be seen what an enormous amount of work would he involved. It would be found that the cost of such investigations, if they were to be complete and trustworthy, would be a great deal more than the saving. Subject to the advice which we shall get from the Advisory Accountancy Panel on broad policy in these matters in the next month or so, I firmly believe that the present system of public tender is the best we can adopt. If the panel advises the introduction of some other form of check the Government will have further ice on which to skate.

Mr McCall - How much competition is there in the sale of the raw products?

Mr CASEY - I am grateful to the honorable gentleman for his question. He speaks of raw products generally. Either he or some other honorable gentleman mentioned at an earlier stage in this debate the purchase of metals which, in respect of munitions, are the most important raw materials. I am advised that in this financial year 800 tons of copper valued at £48,000, 300 tons of zinc worth between £4,000 and £5,000, and about 250 tons of lead worth approximately £6,000 have either been purchased or are in course of being purchased.

Mr McCall - Where do these supplies come from?

Mr CASEY - All are Australian products. About 80 per cent. of the Australian production of copper comes from Mount Lyell, the rest coming from a large number of smaller producers, mostly in Queensland. Objection has been made to the basis of the purchase price of these metals. The honorable member for Balaclava (Mr. White) criticized the sale of copper in Australia on the basis of London price, plus exchange. That, of course, is the basis on which copper is sold, but that is also the basis on which is sold every other primary product or raw material, with the exception of butter, which is exported or capable of being exported.

Mr Rosevear - That is no justification for fixing the price of copper on the basis of London price plus exchange.

Mr Paterson - Is the price of copper based on export parity or import parity or London price?

Mr CASEY - I do not understand the meaning of the terms.

Mr Paterson - Is the cost based on. export parity, which is the London price less freight, or import parity, which is the London price plus freight ?

Mr CASEY -I have been informed by the Australian Mines and Metals Association, in which all the metal manufacturers of Australia are bound together, that it is the average London price for the month, plus exchange. No allowance is madefor freight. As I see it there is no venality in a producer of a primary product in Australia seeking to get the world's price for his product. After all, the producers of wool, wheat, butter and, I think, every other primary product, including metals, seek to get, I think legitimately, the world's prices for their commodities.

Mr Paterson - The London price, less freight. That is what all this discussion with respect to copper is about. The question is whether the price is based on export or import parity.

Mr CASEY - I am advised that it is London price, plus exchange. I see. no abuse in that. The London price is quoted in sterling and the price charged in Australia is the translation of that sterling price into Australian pounds. That is a legitimate price. If we do not give to the Australian primary producer who produces for the world's market the benefit of the world's price he will not continue to produce.

Mr Beasley - That is the London price, plus 25 per cent.

Mr CASEY - I think the honorable member's difficulty arises from the fact that the £1 in Britain is called by the same name in Australia. If our goods were sold in France in francs, or in the United States of America in dollars, the price in Australia would be the price in francs or dollars reduced by the appropriate exchange rate to Australian pounds. The. producers of copper are getting London price in sterling reduced to Australian pounds. That is a legitimate price.

Mr Beasley - It represents an addition of 25 per cent. to the Australian price.

Mr CASEY - No, a reduction of 25 per cent. on sterling. If producers could not get the London price, plus exchange, they would not sell in Australia, they would sell overseas and the proceeds would be remitted to Australia. The Defence Department would then buy at exactly the price it is now paying in Australia.

Mr White - But London price includes freight from Australia and to that is added exchange.

Mr CASEY - London price is the price that people in London are willing to pay for copper.

Mr White - In London.

Mr CASEY - It is the price that they are willing to pay for copper whether it comes from Chile, the United States of America, or anywhere else. In other words, it is the world's price, and it has no relation at all to the question of freight or the cost of freight between Australia and London. If the honorable member for Balaclava wanted to purchase a ton of copper in London he would pay for it, say, £48 sterling. He would not know whether it came from Chile, South Africa, Australia or the United States of America. Regardless of whence it came, copper of a certain standard of electrolytic purity is sold in London at a price of, say, £48 sterling. That is the world's price.

Mr White - But it had to be imported into England and freight had to be paid on it.

Mr CASEY - That is the price for which the Australian producer of copper could sell his product.

Mr Nock - Less freight.

Mr CASEY - He is entitled to get that price converted to Australian pounds. In other words the Commonwealth Government is purchasing metals at a considerably cheaper price than that for which it could import them. That is a fact, vouched for by the Supply Department to-day.

Mr Nock - And the Australian producer gets more for his copper than he would get if he exported it.

Mr CASEY - The Commonwealth Government is purchasing metals for its own requirements at prices far below those which would have to be paid for imported metals. The speeches of certain honorable members suggest a belief that there is a conspiracy on the part of Australian manufacturers to defraud the Government inrespect of the prices of articles supplied to the Defence Department. No honorable member has actually made- such an accusation, but many who have spoken seem to be of the opinion that the average manufacturer who contracts for government supplies, particularly in respect of munitions, tries to squeeze the last penny out of the Government. That, I think, is a legitimate inference from their speeches. I protest against that view, because I do not believe that it is legitimate. I do not believe that every Australian manufacturer is a "crook", who is determined to exploit the Australian public through the Commonwealth Government's purchases for defence.

Mr Beasley - Then why bother about setting up an accountancy panel?

Mr CASEY - I am obliged to the honorable member for that interjection. Because there is a certain amount of suspicion in the minds of honorable gentlemen that undue profits are made from the manufacture of munitions, the Government, although it believes that effective safeguards already exist, has constituted an accountancy panel. The Government does not claim to be omniscient; therefore, it proposes to set up this independent body - which will have no axe to grind, but will seek only the good of the Australian public - to advise it as to the necessity for further safeguards. The Government believes that when it acts upon the advice of those experts, there will be no opportunity for any individual, either in this chamber or outside, to cast a stone at the Australian manufacturer.

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