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Tuesday, 22 September 1942

Mr HOLT (Fawkner) .- The last pre-war budget presented to this Parliament provided for an estimated expenditure of £95,000,000, which sum included what was then a. record peace-time provision for defence. Since that time the expenditure on defence has naturally grown each year, owing to the outbreak of war. In the first year of the war, Australia's war expenditure amounted to £55,000,000; it increased to £170,000,000 in the second year, and to £320.000,000 in the thi id year f hostilities. The Treasurer (Mr. Chifley) has told us that his estimate of war expenditure for this year is £440,000,000, the total expenditure of the nation for the year being estimated at £549,000,000. Those are big figures for a country with a small population. Should war expenditure continue to increase in the same ratio, it may be that next year slightly over 7,000,000 people will have to face an expenditure of £700,000,000. Rut even that amount may not be final. The President of the United States of America, who probably is in a position to hazard a more accurate guess than any body else at the moment, has expressed the belief that, the war will last for another three and a half years. If that be the case, much heavier demands will be made on our national income than the considerable sum that has been forecast for this financial year. By any standard, the sum of £549,000,000 is a colossal amount for 7,000,000 people. It represents £78 a head of the population. If we were to pay for the war as we went along, every man, woman and child in the Commonwealth would have to contribute 30s. a week.

How are we to raise this vast sum? The Treasurer indicated that he proposed to use three methods, namely, taxation, loans, and bank credit. Taxation and departmental receipts, he tells us, will bring in £249,000,000, leaving a difference of £300,000,000 to be financed by loans and bank credit. From loans last year, the Government raised £120,000,000. But 1 remind honorable members that last year, the Commonwealth had a new government exhorting the people to subscribe to war loans. Japan had entered the war, and for the first time Australia was threatened directly with ihe very real menace of invasion. All those elements were conducive to success in raising war loans. With the assistance of those factors, the Government was able to raise £120,000,000. In other directions, however, its loan programme fell down. The sale of war savings certificates reached £12,500, 0O0 in the previous year, and the Government expected to stretch that sum to £25,000,000. lt succeeded in raising only £9,000,000.

Bearing those facts in mind, and with the knowledge of the cumulative effect of Commonwealth taxation on companies and subscribers with comparatively large private incomes, I am justified in saying that the Treasurer will have great difficulty in raising more than £150,000,000 this year on the loan market. Even if he gets that amount, there will still remain a gap of £150,000,000 to be spanned by bank credit. With honorable members opposite and even some Ministers, bank credit is a very popular solution of the problem. Not so very long ago, the Minister for Labour and National Service (Mr. Ward) was openly critical of the policy of the Government of which he is a member, regarding the payment of interest on war loans. He said that if he were given his way he would not pay interest on war loans.

Mr Baker - Hear, hear!

Mr HOLT - From the interjection of the honorable member for Maranoa (Mr. Baker), and the support that a considerable number of honorable members opposite gave to the views of the Minister for Labour and National Service, I may assume that that sentiment is widely supported by the Labour party.

Mr Baker - The money can be raised without the necessity for paying interest upon it.

Mr HOLT - Honorable members opposite suggest that the money should be raised without paying interest upon it. The method which they suggest involves the issue of bank credit, or the raising of compulsory loans which do not bear interest. During this debate the Opposition has pointed out at great length, the dangers of such an extensive use of bank credit. Honorable members on this side of the chamber have endeavoured to hammer home this point at every opportunity, but the disposition has grown on the part of honorable members- opposite to dismiss the danger with an airy wave of the hand as an inflation bogy. Last week-end, the Attorney-Genera] (Dr. Evatt) lent his. support to those who say that the Opposition is raising the inflation bogy. Honorable members opposite appear to have forgotten that it was not the Opposition, but the Treasurer himself, who laid great emphasis upon the inflation bogy. As their memories are so short, I shall remind them of the Treasurer's words.

Mr Calwell - The honorable member will agree that it is a bogy, just the same.

Mr HOLT - I do not agree. It is no more a bogy than was the " yellow peril " of a few years ago. When previous governments were strengthening the defences of Australia, honorable members opposite described the menace of Japanse nationalism as a bogy and a.-kod : Whore are these hostile nations a gainst whom we must guard our shore."? In the teeth of their bitter opposition, we persisted with our defence programme. To-day, some of those honorable members are accusing us of raising that bogy of inflation. The Treasurer said -

There uri' sumo people who think the war should he financed entirely by Central Bank credit. The Government is convinced that in that way lies ; danger.

I have shown that we have already drawn on practically all our reserves of labour and equipment, and that recent expansion of the war effort has been achieved, bv subtraction from peace-Lime production. ] have made it. clour that, the further expansion nl war activity men lis further reductions in the things that will remain for civil use. Expansion of bunk credit, therefore, without n. corresponding capacity to expand production would, increase purchasing power without i increasing the supply of poods and service. Increasing the volum*; of money without increasing thu supply of poods for civil consumption not only creates the danger of inflation, but it sets up serious competition between demands for civil goods and demands for war requirements. Clearly then, as further physical resources arc provided by the nation for war so must further financial resources be similarly provided from the sayings of the people. This can only be d me if every individual saves and contributes to tin* utmost, of his capacity.

That passage illustrates one of the grave weaknesses of the financial structure of the Commonwealth at the present time, and umplis sizes the genuine danger of the excessive use of bank credit. When a country is seeking to expand its civil production and has resources of men and materials lying idle bank credit possesses obvious merits. As civil production is increased, the capacity of the general community to consume the goods must a'so be enlarged. But instead of producing civil goods, we are now forced to divert men and materials to the war effort. A substantial increase of bank credits at a time when civil production is being reduced will obviously lead to inflation. What will happen? The diminishing supply of goods will be accompanied by an increasing supply of money; and the competition among those who have the money for the diminishing volume of goods will force up prices.

Mr Archies CAMERON - And produce black markets.

Mr HOLT - That is so. Proof of this tendency is provided in the notice given by the Attorney-General (Dr. Evatt) to-day of his intention to introduce legislation to stamp out black markets. The black market is the misbegotten child of inflation. The Government, in its approach bo the problem of the diminishing supply of civil goods with respect to taxation particularly, takes an unreal view of the volume of purchasing power available at present. First, it is astray in thinking in terms of the individual, instead of the family. I shall give a specific example to illustrate my point in this respect. Honorable members generally know of many similar cases. Let us compare the pre-war income of the family of a typical artisan breadwinner, say, an electrical engineer, with its present income. Before the war he was probably receiving the basic wage, plus a margin for skill of approximately 30s. a week. His income was about >£6 a week, or £312 a year. Let us suppose that, that man, as is the case in so many instances, has a son approaching manhood, two young daughters, and, perhaps, another son of about sixteen or seventeen years of age. To-day, the father as a skilled tradesman is probably earning from £12 to £14, allowing for overtime; the eldest son is earning from £6 to £S a week, say, as a trainee fitter; each of the two girls is earning about £3 a week, or more, in a textile or war production factory; and the younger boy, if he is of any use at all, is earning upwards of £3 a week. Thus the family's income can now be conservatively estimated at £27 a week, or £1,404 a year, compared with £312 a year before the war. Of that amount of £1,404, on the details I have mentioned, a sum of only £125 is paid in taxes, leaving the family a net income of £1,279 compared with its pre-war net income of £312. That is not a fanciful illustration ; it is a typical case, as every honorable member must admit. It is evidence of the vast volume of purchasing power represented by an accumulation of comparatively small incomes which are lightly taxed. Such incomes are creating a tremendous consumer demand at a time when the necessities of war are compelling us to reduce our volume of civil production. This state of affairs is general. Last week in Melbourne, for instance, a refrigerator which cost £75 when new brought £137 10s. at an auction sale. All of us have knowledge of similar incidents which prove that when the volume of spending power is increased, and, at the same time, production of civil goods is decreased, prices rise rapidly. Numerous evils spring from this development. What are these evils? Who are the sufferers from inflation? There is invariably a sharp rise of prices. The person with a fixed income is the first to suffer. The thrifty man who has put his money into savings in the form of insurance, &c, finds that, in a time of rising prices, he is paid in a devalued currency. People who owe money are in a happier condition. They are able to pay off their debts much more easily. The patriotic and thrifty, public-spirited citizen who invests as much of his savings as possible in -war loans for the duration of the war is a sufferer. As the result of the depreciation of the currency, the income he receives is of much less value, as the war progresses, than that which he, in a spirit of patriotism, has invested in war loans. Most important of all, however, from the point of view of the Government, and of the nation generally, is the effect of inflation upon the wage-earner. The average wageearner is not on a. fixed income, inasmuch as cost-of-living adjustments of his wage are m,ade automatically every quarter. Nevertheless, there is always a lag between the time when the increases of prices occur and the time when the adjustment is made. Thus, the wage-earner directly suffers from a. policy of inflation. If one adds to all these cases of individual hardship the general hardship resulting from financial dislocation and general eco- nomic chaos caused by inflation, one realizes the real menace of the policy upon which the Government has embarked. What is the remedy for this evil ? The remedy is a sane financial policy instead of an irresponsible policy dictated by political expediency. That sane financial policy must, be applied to our methods of raising money for war expenditure. Obviously, if we must restrict production for the reasons I have mentioned, then we must also restrict consumption. This can be done by various methods. One method is rationing. The Government has adopted that method ; but rationing by itself will not bc effective. If the supply of civil goods be rationed, aud, at the same time, the volume of purchasing power be increased, that reserve of private money must be drawn upon through taxes of the lower ranges of incomes and through compulsory loans. In order to soften the harshness of such methods, because they oblige the people to make radical adjustments of their lives, we can institute a system of post-war credits. I do not think that honorable members opposite would ask the committee to increase the rates of tax in the higher ranges of income. These classes of incomes are already the most savagely taxed in any part of the Empire. The lower ranges of income represent 70 per cent, of the national income, and the bulk of the vast volume of purchasing power which is now creating financial havoc. So far, that pool remains practically untapped. As I pointed out earlier, when giving a typical example, only £125 of a family income of £1,404 may, under such circumstances, bc taken by way of taxes. In time of peace that could perhaps bc justified on the score of social justice, but it is a fatal economic policy in time of war. A single man earning £200 a year in Australia is taxed £7 18s. In Great Britain he would pay £32 10s., of which £10 16s. would be a post-war credit or a nest-egg.

Mr Calwell - Who will pay for these nest-eggs ?

Mr Fadden -- Who will pay for the loans ?

Mr Calwell - The loans will never bc repaid.

Mr HOLT - .The honorable member fox Melbourne does not agree with raising money by way of loans,, but the Government, of which he is a. supporter, hopes to raise millions of pounds from loans, and, if we can: repay those loans - I do not see why we shalL not be able to do so - we shall be untroubled in paying the post-war credits. Canada, which has not yet felt the same physical threat as this country has, has already adopted the system of post-war credits. It has followed in the footsteps of Great Britain and, undoubtedly, anticipated the future financial policy of the United States at America. In Canada a man who earned 5,000 dollars last year paid 1,000 dollars of income tax. On a similar earning this year, he will pay 1,878 dollars,, and of the extra 878 dollars 500 dollars will be a post-war credit. Canada, is meeting 52. per cent, of its war costa out of current revenues, as compared with Australia's dangerously; low figure of 46 per cent.

If. we are to have a proper financial approach by the Government to the matter of wm finance, allied with a sane policy on what might be termed the negative side, that is the reduction of spending power, there must also, be revision of the Government's policy in respect of profits and taxation of company earnings generally. No more fallacious humbug has been talked, in this Parliament than onthe subject of profits. We have reached the stage at which success in business is regarded as a moral offence and the making of profits as a crime against the nation. The reason is entirely to be found in the attitude of honorable members opposite, to whose minds the making of reasonable profits is a sin and should be prevented. A short examination of the facts reveals how dangerously stupid such an attitude is. T do not say that profits should not be taxed, but they certainly should not. be taxed to the point of eliminating the incentive to private industries and individuals for greater effort. That creates a basic weakness in the production programme, because manufacturers will not take risks, exercise their ingenuity, or expand their operations, unless they consider that the prospective return justifies their doing so.

Mr Lazzarini - Does the honorable member suggest that manufacturers are so mercenary that they need the incentive of high profits to manufacture munitions required for their own. protection.?

Mr HOLT - It is not that they are mercenary. The manufacturer who works his machinery for longer shifts and takes risks and extends his plant in order to increase the production of munitions is no more mercenary than his employee who works overtime for the same purpose and receives extra wages as the result. I remind t ,he committee that other countries which have grappled with this problem have done so much more realistically than this Government has.. In Great Britain, for instance, the rate of profit permissible before the wartime profits tax operates on a new and struggling business is lifted to S per cent. Germany, whose control over public finance is more flexible and effective than that- of any other country engaged in this war-, at first took in taxation all profits in excess of 6 per cent. The German authorities found that the weakness of that policy was that, it discriminated against companies whose risks were greater and depreciation of assets more rapid than was the case with other companies, and, accordingly, they introduced a sliding scale of taxation. The present taxation of companies in Australia is not only discriminatory in that it makes no provision for added risk or added depreciation, but it is also grossly unfair to the individuals who derive their income from company dividends. That contention was borne out to the satisfaction of most honorable members when they examined the proposal to take all profits in excess of 4 per cent, on capital, it is most significant that, of the 200 or 300 letters which I received on that proposal, two-thirds came from women, most of whom were in receipt of small incomes. New Zealand is a country comparable with Australia, and it has a Labour government. Its system provides for income tax rebates to be made to shareholders in respect of payments of company tax.

Mr Calwell - The honorable member would not expect the big shareholders to write to honorable members and show their hands on the 4 per cent, proposal.

Mr HOLT - -No doubt the honorable member had as many letters as I had from what are. normally called the big shareholders. The honorable mem!ber also must have been struck by the large proportion of persons of moderate income, particularly women, who would have been affected drastically by that proposal.

One of the most serious weaknesses of this Administration is disclosed in its handling of the problem of waste. I use the term " waste " in all its senses, because, if we are to shoulder the enormous burden of £549,000.000 of expenditure his year, with the likelihood of the amount rising to £700,000,000 or more next year, quite obviously we must reduce to a minimum waste of men and mate rials. I remember the Prime Minister Mr. Curtin) telling honorable members a few years ago that, as Leader of the Opposition, he did not intend to examine microscopically the Estimates, because he realized that all the pruning he could suggest would not have the same effect in reducing expenditure as would result from a shortening of the war by even three months. That is one way of approaching this matter, but it is not a very satisfactory one. lt is looking at it only from the point of view of waste in the sense that we as a Government spend more for particular articles than there articles are really worth. That is waste in one sense but really the least important sense, normally speaking, in time of war. The really serious waste is the misuse, or foolish use, of man-power and materials. [ shall give three short illustrations of what I have in mind. No doubt each honorable member will have his own list, to which he could add just as I could add at great length to these three. I drew the attention of the Minister for the Army (Mr. Forde) to one instance, which has a significance in view of the statements we have already heard to-day from honorable members of their difficulties owing to the man-power shortage. I told the Minister of 30 men in the Army who have been assigned, apparently as a permanent task, to washing the floors of the rooms and corridors at Wesley College, Melbourne^ which has been taken over for administrative purposes by the Army.

This fact was brought to my notice by one of them, who was previously a primary producer on his own property, and in that capacity no doubt rendered very useful national service. He was classed as B2 physically, and therefore was not sent into the Army for combat purposes, but was one of those 30 men .stationed at the college to do cleaning work. I know the locality in question. If, in the past, more than five or six female cleaners were put to the task, I should be very much surprised. It is work which female cleaners were doing formerly in very much fewer numbers than the Army establishment apparently requires, and it is work which they could do to this day.

Again, to move to another sphere which will be of interest to the Minister assisting the Treasurer (Mr. Lazzarini), there goes on every day and every week in this country the wasteful expenditure of money, and the wasteful use of men, under the system of working regular twelve-hour shifts in munitions factories. I know that the Government is aware that this is a. wasteful use of man-power, and that it has attempted by way of negotiation to break down the twelvehour shifts to nine or ten hours. It was conclusively proved in the last war, and has been forcibly argued by expert medical opinion already in this one, that more production is obtained from men working regularly nine, or at the most ten, hours a day than from the same men attempting to work twelve hours. But the great weakness of the position now is that the employees have become accustomed to the wages they get for the extra hours of overtime, and, although it is doing their health no good, and they are not reaching the output that they should, they are resisting any move to reduce their hours to ten, or nine or less. A third continuing example of wastefulness in public expenditure, which the country cannot afford to carry in addition to the other tremendous burdens which the war is throwing on it, should also be made, known. This is my third illustration, on which I venture with some diffidence, because expert opinions are involved, but I shall have the temerity to express my views on it, because to me it is the height of stupidity. It relates to our tank production programme. Honorable mem- hers are aware that some considerable time ago the Government decided to manufacture tanks in Australia. Their manufacture is throwing, and will continue to throw, an enormous strain upon us, on top of the tremendous munitions programme we already have, in providing skilled personnel and valuable materials required for other munitions production. It adds another heavy burden to the many that the country is carrying, and for what purpose? If our policy is defensive, then we know that we have to resist a seaborne invasion. The number df heavy ranks, or tanks of any greater strength than, say, our 'ordinary Bren gun carrier, that could be brought to this country by a sea-borne force, is obviously limited. At the same time we are allied with countries, members of the united nations, which are turning out tanks in vast numbers. The tank production of America is growing by leaps and bounds every month, but with this knowledge in the mind of the Government and its expert advisers, they are still persisting in what. I insist is a most wasteful and useless additional burden upon our munitions programme.

Mr Conelan - Does not the honorable member think that we need tanks?

Mr HOLT - We may need tanks, a» we need many things, but our capacity to produce them is no greater than our capacity to receive tanks which are produced very much more easily and in much greater numbers from allied countries. I do not mean that we should simply rest on. our oars and leave it to other countries to do these things for us. The point I am. leading up to is that there are much more effective ways in which we can assist than by embarking on a form of production which is novel to us, and which will strain to the last degree our capacity to expand our munitions production generally. I have no doubt that the policy of continuing the production of tanks in Australia is supported by expert opinion, but I remind the House that a very sage old Frenchman, M. Clemenceau, said that war wa3 much too serious a. business to leave to the generals. Our experience in this war has confirmed that statement. The Prime Minister told us recently, when honorable members from all sections of the House were pressing him to permit greater numbers of nien to be engaged in munitions and food production, who would necessarily, in that event, have to be withdrawn from the Army, that his expert advisers had suggested a figure for our Army strength, and our Army was not yet as strong numerically as he would like it, or, for that matter, as they would like it. Was there ever a general who was satisfied that his army was big enough ? If the decision were left to the army chiefs, quite obviously and very naturally they v/ould see the problem through their own eyes, and in the light of their own immediate difficulties. There must be some authority able to survey the whole scope of our war-time problem, and not merely the individual problems of the Army, Navy, Air Force, munitions production, food production, or civilian needs in other directions. All of those elements must be surveyed, not by some person who is particularly interested in only one of ih em, but by a government which is prepared to see the task as a whole, and accept, responsibility for it as a whole. I think there will be general agreement on that point. It is not pleasant for honorable members to challenge policies which are dished up to them as having emanated from expert advisers, but there are aspects of our policy to-day which, if they do represent the views of expert advisers, prove that we need another set of experts. It is not many years since we were told by very much the same brand- of experts that all Ave required to defend Australia against the risk of attack by a sea-borne force was a force of 100,000 trained men. The honorable member for Batman (Mr. Brennan), as a member of a former Government, will probably have that figure in. his mind, as no doubt other honorable members will also. Thai was only a few years ago. The. figure has been increased time and again. We have not forgotten that they were practically the same advisers who were responsible for the debacle, in Greece and the muddle in Malaya. Therefore, if we have any misgivings and serious doubts about some of these problems, there is an obligation upon us to express our views forcibly in relation to them. Speaking personally,

I entertain the very gravest doubts of the wisdom of the Government's policy of draining this country of man-power for the purpose of creating an enormous army machine.

Mr Pollard - Does the honorable member think that our Army is strong enough now?

Mfr. HOLT. - lt could be made strong enough at two-thirds or less of its present numerical strength. We can keep our Army strong by strengthening the civilian support behind it, and by civilian support I mean not only normal aspects of civilian life, but also the munitions front, and the food front. -Civilian morale is an important element in bolstering up the fighting qualities of an army. But what is happening to-day? We are draining from factory production and from every other aspect of community life, the energetic, able and vigorous men who comprise some of the potent elements in our war effort. What is the role of this country? That is a question that we must ask ourselves. Are we to take a leading role in terms of munitions, aircraft, and food production, and also in respect of the fighting services, or have we special opportunities, and as the result of these opportunities, special obligations in the common war effort of the United Nations? In my opinion we have a definite role. Whilst there is an obligation upon us to maintain a strong, well-equipped and mobile army in this country - I emphasize each of those three adjectives - we also have allies in this theatre of war. who as their numbers- grow, and as the Pacific offensive develops as we all hope that it will develop in good time, will need increased supplies of munitions and prepared foodstuffs. We have heard a great deal about the coming Pacific offensive, and about the shortage of shipping, which it is claimed is one of the most serious of the problems that are hampering us to-day, and preventing us from putting forward the most effective war effort of which the United Nations are capable. If that be so, is it not the task of this country to provide munitions and food for allied forces operating in adjacent Pacific territories rather than to allow those supplies to be brought by a long sea route from Canada and America? The policy that this Government is pursuing in regard to the expansion of our armed forces is so out of keeping with the common sense view of the matter, that it gives rise to the most serious misgivings. Last week I pointed out that other countries which are engaged in the war to no less a degree and in -no less a vital manner, than we are, have been able to organize their manpower in such a way as to make possible the withdrawal of large numbers of men from the front line to assist in the production of munitions and the harvesting of crops. Russia has been able to withdraw men from its fighting services to harvest crops in various districts, and Germany also took advantage of the lull in the Russian campaign last winter to transport. -thousands of men back to Germany to swell munitions production. [Extensionof time granted.'] I fail to see any satisfactory reason why similar action could not be taken in this country.

What I have said may be summed up in this way. If this Government is to escape the charge of wilful ignorance and crass irresponsibility, it must reduce civil spending power to the same degree that it has reduced the production of goods for civilian use; if it is to escape the charge of squandering our meagre resources of men and materials, it must wage an offensive war on waste, in all its forms. Practising socialists of the kidney of the honorable members for East Sydney (Mr. Ward) and Corio (Mr. Dedman) are endeavouring, under the cloak of wartime exigencies, to put into effect th, peace-time political aims of the Labour movement - a policy which was castigated by that Labour stalwart, the former Premier of Queensland, Mr. Forgan Smith, as a dishonest policy. Of them I quote these words in conclusion -

Some men look on the State as a machine with which they may try experiments. ,11 the experiments fail, they suppose that they can replace things as they were. An. institution which has been brought to maturity in a thousand years may be cut down by a quack in a. single session of Parliament, but he can no more restore it than the woodman can replace a fallen oak. It seems a fine thing, a great achievement, to cut down it tree - a small effort produces a vast effect, and surrounding fools clamour and applaud. Foi the moment a few strokes of the axe seems an operation as admirable as the action of the organic forces which, out of a small acorn, working silently through a series of ages, produced the tree mid set it in its place. Simula it bc .found afterwards that thu mischief charged against it continued, and was due to another cause, should other evils undreamt of appear, when it is gone, to 'have been created by its removal, the glory of the destroyer, whether woodman or reforming radical, will ],e a* short-lived as it has been cheaply gained.

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