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Thursday, 25 May 1939

Mr FADDEN (Darling Downs) . - I am sure that every honorable member who has been associated with this debate is desirous of using every means possible to prevent profiteering in connexion with defence requirements. History' shows that in respect of their supplies of war materials, governments have been the victims of profiteers right throughout the ages. Anybody who has taken a very close interest in this debate must have been struck by the fact that whilst the Government has brought forward nO concrete proposal to give practical effect to the general desire for the prevention of profiteering, it has raised every obstacle in the way of honorable members who are desirous of incorporating some safeguard in this bill. I was amazed at the statements of both the Minister and the Assistant Minister that no formula could be set down for establishing a profit-finding basis and that, as a consequence, they were unable to give any idea as to what would be a fair and reasonable margin of profit for 'those supplying government requirements. We all know very well that everything can bc costed. The Minister has stated that in the United Kingdom all means possible were used to control costs of production, by inspections of factories and the laying down of formulas established on a definite technical basis for cost finding. The Defence Purchases Board in Canada had the same methods. If the Government has in mind as a fair and reasonable margin of profit what it proposes to allow to he firms conducting the annexes, namely, 4 per cent, on turnover, God help this country in the event of it having to meet heavy expenditure during a time of war. As an experienced accountant I say that I know of very few businesses which obtain or are able to maintain a net profit of 4 per cent, on turnover. Yet, that margin is to he allowed to those concerns which are controlling the annexes for which the Government has to find the whole of the equipment, the works and the buildings, and, in most cases, the land. These annexes are to be fully equipped by the Government and private enterprise is to be asked to find only the skilled labour, out of the employment of which it is to be allowed to make a profit of 4 per cent, on total output or turnover. We have been told that it is impossible to lay down a formula. ' Whilst I do not contend that the formula suggested by the honorable member for Martin (Mr. McCall) is perfect or complete, I regard it as an honest attempt to prescribe a reasonable limitation of profit. The Government itself can work out the details of its application. I have before me a cost-finding questionnaire sent out to members of the Printing and Allied Trades Association in New South Wales by Messrs. Sorenson Purves and Company, a well-known firm of chartered accountants established in Sydney and Melbourne. This questionnaire, which was sent out in order to arrive at a costing basis for the printing trade in New South Wales,, asks for particulars concerning various factors that operate in that industry. I shall not weary the committee by referring to the details. The point I wish to make is that if the printing trade of New South Wales can evolve a basis for the determination of costs in that industry, is it beyond the capacity of the national government of this country to formulate a basis for ascertaining the costs of those engaged in the manufacture of munitions in order to prevent profiteering in the event of war? The suggestion made by the honorable members for Martin (Mr. McCall) and Balaclava (Mr. White), has been wrongly interpreted by the honorable members for Werriwa (Mr. Lazzarini) and Bourke (Mr. Blackburn). It was not suggested that profits be limited to 6 per cent, on turnover, but that it be limited to 6 per cent, of the ascertained true value of the assets used in the earning of the profits. The Minister, in stating that the policing of any arbitrary margin of profit would be too cumbersome, drew attention to the fact that there are thousands of contracts to be dealt with, and asked if it was suggested that every one of them should be scrutinized in order to determine the profit made by the contractor. There is no necessity to do that. The system of contract by public tender must be continued, but the system should be carefully policed. Every contractor should be licensed. He should be required to put his licence number on his tender and embody in it an affidavit that the price at which he has tendered does not permit him to earn a profit in excess of that prescribed. Competition between tenderers will determine whether there is evidence of profiteering. Oau we not depend on the integrity of manufacturers, and, if there is any suspicion of profiteering, inquire into it? We do that in connexion with taxation returns. Taxation officials do not scrutinize every return. They do not look upon every taxpayer as a rogue and a thief. But if in an individual case the department has its suspicions aroused, it investigates the return and takes appropriate action. If that is found satisfactory in connexion with taxation returns, could it not also be done in connexion with our huge defence expenditure of over £70,000,000? If the Government is sincere in this matter, could it not ask the new Department of Supply and Development, the 'Works Department, the Tariff Board and the Contracts Board jointly to police a provision for the limitation of profits ? Instead of placing every obstacle in the way of honorable members who desire to protect the interests of the people against profiteers, it should be ready to give sympathetic consideration to their suggestions.

Mr Beasley - The Government is creating suspicion by its actions in this regard.

Mr FADDEN - That is so. The amendment proposed by the honorable member for Martin (Mr. McCall) will be of no use unless the amendment forecast by the Deputy Leader of the Opposition (Mr. Forde) be carried. Subclause 2 must be amended in order to make it mandatory on the GovernorGeneral to give effect to the provisions of sub-clause 1. The amendment of the honorable member for Martin is an honest attempt to impose a check on profiteering. I repeat that the 6 per cent, profit margin will find its own economic level because every tenderer will take into consideration the possible tender of his competitor. Competition will be keen. Unless some definite margin of profit be laid" down a contractor who bases his tender on a maximum profit of 6 per cent, will be at a disadvantage as compared with another with perhaps a larger turnover, who bases his tender on a profit of 4 per cent. I suggest that the Government could utilize the amendment moved by the honorable member for Martin as the basis for the fixing of an equitable margin of profit.

In Queensland price-fixing legislation has been in operation for years. We are told that the Department of Supply and Development will deal with all kinds of commodities - munitions, raw materials, finished articles, motor tyres, toothbrushes, &c. Every commodity in Queensland is subject to price-fixation, and to the scrutiny that it demands, and, if profiteering has not been eliminated, it has at least been reduced. The prices of commodities throughout the State are revised in accordance with the conditions obtaining from time to time. It is all humbug to say that the Commonwealth Government could not lay down a formula for the control of profits. We could stipulate that profits should be limited to a maximum of 6 per cent, on the capital value of the assets utilized, and prescribe certain charges allowed for overhead expenses, depreciation, &c. We should take the actual experience of the Contracts Board, and ascertain whether a 6 per cent. residue represented a fair and reasonable return. In the schedule to the Electric Light and Power Act of Queensland are set out certain classes of expenditure to be allowed for in calculating the cost of production, so that the fair selling price of the commodity may be determined. The act requires certain information to be supplied by the company, and, if the department is not satisfied about it, an investigation is held. If the company has not observed the provisions of the act, it is liable to a fine and certain other penalties. The total revenue is taken into consideration, and from that is deducted the cost of production as set out in the schedule. [Leave to continue given.] The Gas Act of Queensland is drawn on similar lines. Under the electric light act, the cost of production within certain prescribed limits and with regard to certain items is ascertained. The amount of profit allowable is arrived at in this way: A sum not exceeding 7 per cent. of the amount actually invested in the undertaking at a certain date is ascertained in accordance withthe for- mula set out in paragraph 2 of the schedule, which states the kinds of assets on which that 7 per cent. is allowed. That is all that is asked for by the honorable member for Martin under his amendment. I repeat that the limit of profit under the amendment would be 6 per cent. of the value of the assets actually used.

Mr Gregory - Suppose a firm obtained only three contracts in a year.

Mr FADDEN - If it had 33 contracts, the principle would be the same, because it would have to sign a declaration as towhether it had complied with the provisions of thelaw. If it desired the full 6 per cent. profit, and one of its competitors wanted a profit of a lesser percentage, surely the safeguard is obvious. The firm that wanted a profit of 6 per cent. could not compete successfully with the establishment which required only 5 per cent., all other things being equal.

I cannot see why the honorary advisory panel is necessary, having regard to what the Minister and the Assistant Minister have told us. The Assistant Minister said that this panel would look into everything done by the Contract Board. This oversight would relate only to the purchase of materials, not to the cost of production or to the question whether the margin of profit was fair and reasonable. It is necessary to have a basis on which to work. That basis should be the cost of production, which must be calculated on prescribed lines. We are told that theadvisory panel will overlook the work of the board to see if the buying is right, and if all the necessary safeguards are applied. There is some consolation in the statement by the Minister that, as the result of the activities of this board, the prices paid compare more than favorably with the prices charged to wholesale houses for similar lines ; but that does not prove that the profits obtained are fair and reasonable. It is necessary to get down to the root of the matter in order to safeguard the public purse, and to do that there must be a proper, uniform and technically-ascertained basis of cost of production, if we are to have what is considered by this Parliament - not by an honorary advisory panel - to be a fair and reasonable rate of profit. That is all that we desire. Each of us represents about 60,000 electors, and Ave should not have so little regard for our trusteeship as to hand over to fivehonorary public accountants the task of deciding what is a fair and reasonable rate of profit. That is a matter for this Parliament to determine, and the first and most definite attempt towards that end is to be found in the amendment submitted by the honorable member for Martin, which I hope every honorable member who desires to put a limit on the amount of profit to be permitted will support up to the hilt.

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