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Friday, 12 July 1946


The Government acted on the view that early demobilization of the forces was the key to the major problem- of transition. The sooner the great body of men and women engaged in the services and related activities were returned to peace occupations, the sooner would war costs fall and civil production increase to meet the pent-up demand for goods and services which constituted the danger of inflation. General demobilization began on the 1st October last year and I may fairly claim that it has proceeded with -unexampled success. Originally it was planned that by the 30th June of this year 400,000 men and women would have been discharged from the services. In actual fact this target was exceeded by 50,000, so that during the nine months some 450,000 men and women were made available for civil employment. It is probably true to say that nowhere amongst 'the Allied countries have these results been bettered.

The effect is seen in employment figures. At the 30th, June, 1945, there were 2,650,000 men and women in civil occupations in Australia. At the 30th June this year, despite the fact that a large number of women and over-age men have withdrawn from the employment field, the number in civil occupations is estimated to have been 3,030,000. In other words, nearly 400,000 more people are on civil production now than there were a year ago. This figure, of course, takes no account of those discharged servicemen who are still on leave before taking up employment.

Perhaps the most gratifying feature of this great change-over process has been the rapidity and ease with which people discharged from war. occupations have been absorbed into civil employment. During the past year over 500,000 men and women have been released from defence and other government occupations. Yet at no stage has there been any significant number of unemployed, and the amount paid in unemployment allowances and servicemen's reinstatement allowances has been negligible.

Budget Results, " 1945-46

The speeding up of demobilization last ye'ar was reflected in the approximate budget results which are. now available. War expenditure in Australia was £340,000,000, compared with the budget estimate of £298,000,000. For this a group of items arising out of the return and disbandment of troops, the movement of ships and aircraft, and the dismantling and storage of war equipment was principally responsible. Deferred pay alone was £18,000,000 above the budget estimate. The settlement on demobilization of leave and other accumulated credits in pay books also brought active pay above the estimate by £4,000,000. Ship movements and aircraft maintenance cost an additional £5,000,000. Reciprocal lendlease and subsidies -to primary producers also exceeded the estimates by £6,000,000 and £7,000,000 respectively.

On the other hand, due to the delay in the presentation of accounts by the United Kingdom authorities, overseas war ex,penditure reached only £38,000,000, com- . pared with the budget estimate of £62/000,000. Accordingly, actual total war expenditure of £378,000,000 showed a net excess over the budget estimate of only £18,000,000. In the previous year total -war expenditure was £460,000,000.

The reduction on the previous year-'s war expenditure is less than some have expected. I have, however, already referred to certain major terminal charges which were met in the financial year 1945-46. For deferred pay alone we met a liability of £72,000,000 which had accrued during the war. Other terminal costs are spread over numerous items of expenditure and cannot be isolated at this stage. However, the main items of direct service expenditure show large reductions over the previous year. For example,

Army expenditure on arms, armament and ammunition fell from £2S,000,000 in 1944-45 to £13,000,000 in 1945-46. Expenditure on Army camp expenses and rations fell from £26,000,000 to £17,000,000, and expenditure on aircraft equipment and stores from £46,000,000 to £24,000,000. Reciprocal lend-lease fell from £89,000,000 to £26,000,000.

Against this, certain indirect costs of the war showed an unavoidable increase. Debt charges rose from £34,000,000 in 1944-45 to £42,000,000 last year, primary production .and price. 'stabilization subsidies from £25,000,000 to £33,000^000, and re-establishment expenses from £1,000,000 to £5,000,000. In addition, a new item of £6,000,000 for contributions to the United Nations Relief and Rehabilitation Administration appeared.

For the information of honorable members a comparison of 1945-46 with 1944-45 under the main heads of war expenditure is set out in Table No. 1.

Non-war expenditure equalled the estimates at £132,000,000, bringing the total expenditure for 1945-46 to £510,000,000. Excluding taxation collections of £34,000,000 reimbursed to the States, taxation yielded £319,000,000, and other revenue £38,000,000, a total of £357,000,000.

The actual gap between war expenditure and available revenue was therefore £153,000,000, compared with the budget estimate of £152,000,000. I would emphasize particularly that this was financed wholly from the proceeds of borrowings from the public. This means that in the past two financial years the Government has met the whole of its war expenditure without recourse to treasurybills, or any other form of central bank credit.

Details of actual receipts and expenditure for 1945-46 compared with the budget estimates are set out in Tables 2, 3 and 4. The figures are of course preliminary only and subject to adjustment.

Conversions and 'Redemptions.

In July last year the Government exercised its option of redeeming in London £94,312,000 of Commonwealth and State securities which carried interest at 5 per cent, per annum; £60,000,000 worth of stock was converted into a 3J per cent. loan to mature in 19'65'-69, and £34,312,000 was repatriated to Australia, 3^ per cent, securities of an equivalent amount being issued to the Commonwealth Bank of Australia. A further option which accrued in December, 1945, in respect of stock amounting to £14,05o-,000 was also taken up. This stock carried' interest at 5 per cent, per annum, and it was converted into a 3 per cent, -loan, to mature in 1958-60, at the issue price of £98.

Since the Labour Government took office in 1941 Australia's governmental loan indebtedness in London has been reduced by £57,000,000 sterling, or £72,000,000 Australian currency. This has been accomplished by the transfer to Australia of debt amounting to £49,000,000 sterling and the redemption of £8,000,000 sterling from the National Debt Sinking Fund.

This reduction of our overseas indebtedness, coupled with conversions of loans to lower rates of interest, has resulted in a reduction of our annual interest liability in London by £4,500,000 sterling, or £5,600,000 Australian currency.

Financial Outlook foe 1946-47.

Although detailed estimates for 1946- 47 have not yet been completed, so that any estimates now given must be regarded as provisional, it is desirable to give some broad indication of the financial outlook for the year.

The field which calls for the closest review is war expenditure, which last year totalled £378,000,000. This group item was used during the war years to cover all expenditures attributable to the war, and the same classification was used last year because the Pacific war was still being fought when the estimates were prepared and a continuance of active war expenditure for a considerable time after V-J day was inescapable. Even during the war years, however, the group item included costs which, whilst arising out of the war, were not direct war costs in the sense that arms and equipment and active service pay were. Debt charges, price stabilization subsidies and re-establishment are examples of these indirect war costs, and since the war ended they have bulked much more largely in the total expenditure. In 1945-46 they accounted for £182,000,000 as follows : -


This represented 48 per cent, of the budget war expenditure of £378,000,000. In the previous year the same items represented only 19 per cent.

Accordingly, when the budget is framed it will be necessary to re-arrange the groupings more in accord with peacetime conditions.

Meanwhile, from the more detailed analysis of last year's war expenditure set out in Table1., some idea canbe gained of the items in which major reductions can be expected in the current year.

Of these items, expenditure on. the three service departments and reciprocal lendlease is the chief. Last year the total was £333.000,000. This year I hope that it can be reduced by something in the neighbourhood of 50 per cent.

It should be clearly understood what will be comprised in the gross expenditure of the service departments for this year. Much of it will still represent terminal costs of the war. Deferred pay on account of members of the war-time forces who will be demobilized this year will lie approximately £15,000,000. The occupation force in Japan' and certain forces in the islands have still to be maintained. We have also to provide about £8,000,000 under the lend-lease settle- ment, which. I will describe later, and about £20,000,000 for past liabilities due to the United Kingdom. There will also be a small amount for reciprocal lendlease. These items are in the strictestsense a carry-over from our fighting effort.

Concurrently with the winding up of war-time demobilization, we have to carry forward the organization of our peacetime defences, which will proceed on a basis that recognizes the greater share of responsibility accepted by Australia for security in the Pacific zone. Thus service expenditure this year will be a blend of war-time and peace-time costs, and the latter element must continue beyond this year into the future.

Similarly there will be expenditure, though on a considerably reduced scale, on such activities as munitions, supply and shipping and aircraft production, which had their origin in the war but which have a bearing on future defence and in part also upon our peace-time development.

Next there is a wide and varied group of items which can be described as transitional because they are necessarily incurred in the changeover from war to peace. Re-establishment, training, soldiers' settlement and war gratuities are typical of these. Last year these items cost £5,000,000. This year they will cost perhaps £25,000,000, ' and they must remain at a relatively high level for some years yet.

Our contribution to Unrra, which last year cost £6,000,000 and this year will cost £12,000,000, comes within the group.

Subsidies for price stabilization and, in many cases, subsidies for primary producers, arose out of war and yet are even more necessary in the transition period. Last year expenditure on subsidies was £33,000,000, including £20,000,000 for primary producers. There will certainly be no saving this year and there may yet be some increase.

Finally, there are certain residual war costs which must continue indefinitely War pensions and some branches of repatriation are examples. The cost of these . last year was £9,000,000, This year there "must be a substantial increase. Interest and sinking fund on war loans are in the same category. This year they will amount to £50,000,000, as compared with £42,000,000 last year.

Within the limits of its obligationsto the nation for security and for the reestablishment of former servicemen and women, the Government will curtail war, defence and associated expenditure to an absolute minimum. It is impossible at this stage to give any firm estimate of what the total for these items will be in 1946-47. Nevertheless, whilst those carryover costs to which I have referred will partly offset reduction in service expenditures, I nope that an overall reduction approaching £150,000,000 can be accomplished on the net expenditure of £378,000,000 last year.

Non-war expenditure last year was £132,000,000. There will be a substantial increase this year. Actual payments from the National Welfare Fund will increase by about £21,000,000, ' of which £16,000,000 will be provided from the budget. Payments to the States will increase by £6,000,000, and the Department of Civil Aviation, the Post Office and other essential services will require more funds. A total increase of at least £45,000,000 can be expected.

The main conclusions, to be drawn from this review are that, whilst a large reduction in service, costs can be effected this year, there are still heavy expenditures to be met for terminal items, such as deferred pay and maintenance of occupation forces; large recurring items such' as war pensions and interest and sinking fund, heavy subsidies for price control, and very large increases in normal services, including welfare payments and civil aviation.

As to revenue, a firm estimate can ' not be given in a preliminary survey of this kind. The higher level of civil employment, more production, and probably a greater volume of imports, will be reflected in revenue, particularly indirect taxation. In the light, however, of the analysis given above, total expenditure must still exceed revenue by a considerable margin. This margin will be very, much less than last year, but it will still make a substantial call upon finance from public loans.

It must also be expected that more loan moneys will, have to he raised during 1.946-47 to finance the Loan Council programmes. Although public works activities will be limited by the supply of materials and appropriate types of labour, it is to be expected that the State governments and their subsidiary bodies will, endeavour to push forward with their deferred plans for development and the provision of many kinds of public facilities. At the Loan Council meeting next month a loan works programme for the Commonwealth and the States will be considered, and the overall figure will be well above the level of recent years. Housing, of course, will have a very high priority, and it is expected that not less than £20,000,000 will have to be provided on this account.

Mr Bernard' Corser - I rise to a question of privilege. Some time ago I asked the Prime Minister whether he would make a printed copy of this statement available to each honorable member. We are entitled to that, because it is not always easy to hear the right honorable gentleman.

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