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Wednesday, 3 April 1957

Mr CAIRNS (Yarra) .- The honorable member for Corangamite (Mr. Mackinnon) has. I think, come down from great heights of superiority to-night-

Mr Mackinnon - From Oxford.

Mr CAIRNS - He has come down from great heights of superiority to-night to deal in a very condescending manner with the rather " puerile arguments " that come from this side of the House and has ended by an interjection reflecting upon Oxford. It comes rather strangely to my ear from one of those on the other side of the House who seem to admire these things. 1 should like, first of all, to deal with the point raised by the honorable member when he referred to the position we take as a matter of faith. 1 noticed that he was very careful to avoid dealing with the mass of figures presented by the honorable member for Melbourne Ports (Mr. Crean) as evidence that our balance of payments was endangered to some extent by the policy in relation to foreign loans. He was very moderate in his statement of the extent to which it is endangered. The honorable member for Melbourne Ports went on to show the growth of foreign investment in Australia and he connected that to investment policy which, he felt, might have fallen into hands which were not primarily concerned with the Australian level of employment. It seemed to me that the argument presented by the honorable member for Melbourne Ports was an argument factually presented, that his conclusions were reasonably drawn and that these conclusions were logically connected to his facts. Yet the honorable member for Corangamite, with his superior attitude, dismissed it as a matter of faith!

The second point of the honorable member for Corangamite was that the bill must go through. He asked: Where shall we obtain the necessary finance if the bill does not go through? The first thing I say on that point is that, despite the strenuous efforts made by this Government to cultivate the favour of the United States, relatively little has been obtained. Not more than 10 per cent., or 12 per cent, at the outside, of our normal investment requirements has been directly or indirectly financed in this way. Though I am quite prepared to agree with and support that part which has been productive and beneficial, very little of this investment has been in essential sectors of the economy, despite this Government's policy and despite its sedulous attempt to cultivate the United

States. I suggest that the main reason for this - and the honorable member for Wentworth (Mr. Bury) put his finger on it - is the almost impossible economic policy followed by the Government, a policy that is very favorable for investment in the essential fields. The honorable member for Wentworth pointed out that the currencies of countries where inflation has been dealt with are relatively as strong as the dollar, but the currencies of countries like Australia where inflation has not been dealt with are weak in relation to the dollar. However much the Government and its supporters may fawn upon the United States in an endeavour to get money in this way, its fawning is not enough because the United States of America represents firstclass businessmen who look primarily to what they can earn.

The honorable member for Corangamite went on to say that the honorable member for Melbourne Ports and Mr. Dawson, whom he quoted, have an obsession which is based upon a complete fear for the future. Honorable members opposite feel that we on this side of the House have no confidence in the future of Australia, presumably because we will not support a " let-her-rip policy " which has characterized the Government. When he says that our attitude is based upon a belief that Australia must always be a borrower and that there will always be a dollar deficit, I suggest that these are the facts: The alternative to Australia always being a borrower, or the alternative to us always having to control our imports very strictly is a considerable fall in our national income, the level of employment and the distribution of income within that total. That is the alternative; that is the classical remedy for a shortage of overseas funds; and I suggest that still remains the case.

If Australia does not adopt this classical remedy because of the apparent impossibility of governments retaining office if they do, then I suggest we have to look carefully and reasonably at the future. We must not be over-confident about the future, as some Government supporters seem to be, and we should not believe that any kind of immigration programme, any kind of import programme or any kind of borrowing is acceptable if we can find it. On the other hand. I suggest that we should be reasonable and moderate in this matter.

The fourth point raised by the honorable member for Corangamite, and with which 1 hope to have time to deal, contained a little bit of economic determination. He said - and 1 agree with him - that the more investment lite United States of America makes in Australia the stronger will be our defence position, because in the event of conflict the United States will come to the defence of its own investments. Of course it will; the honorable member is quite right. But, Mr. speaker, do you remember an earlier debate when it was suggested thai economic motives might have something 10 uo Wl. what was happening with regard to egypt and the Middle East? Oh, no, the United States would nol go lo the defence of its investments in the Middle East! li is a purely racial problem there, between Israel and Egypt However, according to the honorable member for Corangamite, the United States will come to me defence of. its investments in Australia. Of course it willi And it goes to ihe defence of its investments elsewhere, too.

Mr Aston - Would not the honorable member want it to do so?

Mr CAIRNS - Yes. Do not shift ground completely; be logical, if you can, and examine the argument, just for once. I suggest that we might examine this bill at some length, and look a little more closely at the matter raised by the Opposition, to see whether it is a matter of faith, or whether there are any facts in support of our case. The argument raised is that overseas currency is scarce, and that dollar currency in particular is scarce, and that we should seek to obtain overseas currency wherever and whenever we can. We must turn, first of all, to exports and services, but we find that we cannot get enough in this direction. We must turn, therefore, to loans. We must do this because we want the most rapid kind of economic development possible. This is a perfectly logical argument, and to it the honorable member for Wentworth (Mr. Bury) added the statement that the one justification for borrowmg overseas is that the capital that we obtain relatively increases our capacity to carry a greater burden of debt. I think that this was merely an assertion by the honorable member. One would have expected that a person of his experience and background would have taken a look »t the statistics that are available in Australia to see whether his assertion was correct. Rather did he do the opposite. He f, m -1 v made an assertion and made no attempt to test it. It can be tested, and I propose to do so. 1 suggest that we have experienced in Australia in recent years an increasing dependence upon borrowing. Before 1 go into the figures in this regard, let me say that I am perfectly prepared to concede) - and I think it could be called a concession - that to-day we are not nearly as dependent on borrowing as we were before i.1k war. The impact of borrowing upon our balance of payments, in addition to w national income and capacity to produce, i« probably not so great, as it was before thi war. But, I want to direct attention to the nature of the problem and the trends ii> that problem that the figures reveal. 1 shah not pjt mis necessarily upon a political level, but one has to start the comparison somewhere. Between 1941-42 and 1948- 49 oar overseas indebtedness showed a net decrease of £143,000,000. This is a complex figure, taken from the White Paper on National Income and Expenditure, but it is a figure that can be used for purposes of comparison, because 1 shall use similar figures in a few moments. As 1 say, our overseas indebtedness decreased by £143,000,000 in that period. During this, time we financed a war effort, in the period between 1941 and 1945, which was very significant, upon any test. We received a considerable amount of investment, both directly in the war sector of the economy and in the other sector of it. About SO0.0O0 people were taken from productive activities and placed in the services. We financed a considerable amount of activity at the same time as we reduced our net overseas indebtedness by £143,000,000 But since 1949-50 the trend has been quite the reverse. Since then our overseas, indebtedness has increased by £821,000,000 I concede that this still does not pui us relatively, in as difficult a position as thai which obtained before the war, but that trend and that comparison cannot, I suggest, be overlooked.

This increase in our indebtedness is not completely the result of borrowing. It it also the result of some other factors, and when we turn to the amount of oversea* borrowing to try to find out the significance of borrowing, again we have a rather complex figure which is given in the White Paper on National Income and Expenditure, which not only includes borrowing, but such items as undistributed company profits. changes in foreign bank balances in Australia, deferred import payments and a few other matters of that kind. But the amount borrowed is still the most significant part of this figure. During the first period, from 1941-42 until 1948-49, a considerable amount of borrowing took place, at, on the whole, much more favorable rates of interest and terms of repayment than in the second period, with which I will deal in a moment. The increase in borrowing amounted to £259,000,000. In the second period, from 1949-50 to 1955-56, the increase amounted to £716,000,000. This increase in our indebtedness and our borrowing is a very significant trend that has developed during the term of office of this Government, which has turned increasingly towards overseas investment of this kind. [ suggest that the reason for it is indicated by the remark of the honorable member for Wentworth, that inflation makes an internal condition which is not favorable to domestic investment in many fields, is not favorable to domestic savings because of the effect of inflation on the value of savings, and is not favorable to the direction of investment into essential places.

Not only has this occurred, but there has been a very erratic behaviour in the inflow of loans. If we are dependent significantly upon loans, that dependence is not so critical if we can see a fairly uniform and steady pattern of available loan funds, a rising pattern or at least a steady one. But that has not been so. Overseas investment in Australia since World War II. has followed a most erratic course, and I suggest that this is one of the dangers that Australia is facing. I should like to run through the figures from 1941-42 to show the erratic nature of this investment. These figures include both public and private investment, and they are as follows: -


The figures follow a most erratic course.

Mr Ian Allan - There was a war on in 1951.

Mr CAIRNS - So I believe. 1 think the situation must be related to the general condition of the economy. Normally we might have relied a little more upon export earnings and services to finance the amount of overseas payments that we were required to make. We were not able to do that, so the gap has been filled from the proceeds of overseas loans. The really significant thing about this is that in almost every year since the war the gap has had to be filled by the proceeds of overseas loans. This is just where the overseas loans impact relatively more on the economy now,I. should think, than before the war. We were never, as far as one can see, in a similar position before the war, although the figures necessary to test the accuracy of this statement are not available readily or perhaps at all. Despite this situation, we have had a condition which is not really new, of controlled imports. By controlling imports, we have been able to create something of an economic playground in this country. By means of import controls, the present Government has been able to permit inflationary pressures to continue, and it has been able to see, as the Treasurer was able to see in 1950, the distortions of the economy that these inflationary pressures have produced. The effects of this, generally speaking, are fairly well known, but I suggest that the main effect in relation to borrowing and lending has been to make domestic investment a less significant factor in the long-run development of our own economy, and we have not been able, therefore, to earn sufficient funds to pay even for controlled imports, and for freights, services and other invisibles. We have become dependent, for our balance in most years, upon borrowing of the type I have already discussed. Where inflation has been dealt with, funds are more readily available from domestic sources. The alternative to going overseas for increasing amounts of funds is to deal with inflation and the distortions of inflation in our own economy. The Government is forced, to some extent, to go overseas and to do the things it it doing because it will not come to grips with the inflationary situation at home.

The next matter thatI should like to deal with concerns a significant point raised by the honorable member for Wentworth (Mr. Bury). I suggested earlier that he raised this point in terms of a pure assertion which one would hardly have expected from a man of his knowledge and access to sources. One would hardly have expected the simple assertion that Australia is able to carry the burden of loans more easily. There are some figures by which we can test this. The test, necessarily, is somewhat arbitrary, but we can take the cost of servicing overseas loans in various ways, and we can compare that cost with our export earnings, or with our gross national product. If we had a measure of our total capital investment we also could compare it with that. If we had a measure of our productive capacity we could compare it with that, too, but as we have no measures of our gross capital structure, and our productive capacity that make sense, we cannot test it in that way. But we have a measure of exports and we have a measure of gross national product.

If we look at the cost of servicing our loans, the net dividends and interest paid overseas, and if we include undistributed profits, although that may not be completely accurate, we shall see that there has been an improvement in the post-war period compared with the pre-war period. I made that concession earlier, and it is also borne out by these figures. In 1941-42, the total cost of net interest, dividends paid overseas and undistributed profits - we have to take them in these years together because the White Paper on National Income does not separate them until, I think, 1948-49 - was £28.000,000, or 18 per cent, or 19 per cent, of the value of our exports at that time. Between 1941 and 1949. there was a decline from that 18 per cent, or 19 per cent, to 3.5 per cent, or 4 per cent, of the value of our exports. There was some fluctuation, mainly in respect of exports, but in the post- 1949 period, I suggest there has been no increased capacity of the Australian economy to carry the cost of servicing overseas loans, because in 1949-50 the amount of net interest, dividends paid and undistributed profits - £3 1 ,000,000- represented 5.1 per cent, of the value of exports. In the last year, at £60.000.000, the figure for net interest, dividends paid and undistributed profits represented 7.7 per cent, of our exports.

If one takes net interest, as it can be taken now from 1949, it will be found that the net interest of £15.000.000 in 1949-50 has more than doubled, to £31.000.000 in 1955-56. If we take the cost of servicing loans - net interest, dividends paid and undistributed profits - we find that the increase from £31.000,000 in 1949-50 to £60,000,000 in 1 955-56 is just a little more than 90 per cent, lt so happens that our gross national product also has increased by approximately 90 per cent., so that there is not much difference there. In both these cases, there is no allowance for price increases, but if we allow for price increases we find that the comparison is a little less favorable to the argument that the economy is now more capable of carrying the cost of servicing overseas loans than it was before. So I suggest that, had the honorable member for Wentworth taken the time to check the figures, he would have found that his proposition that the economy is now more capable of carrying overseas loans was not borne out. I am not going to say that, even on that comparison, the economy is less capable of doing so, but I say that the statistics which are available are inclined to that view. They certainly do not support the view put forward by the honorable member.

Departing for a moment from these general considerations, before I conclude 1 should like to look at a few particular considerations in relation to this bill. On several occasions I have endeavoured, by way of questions on notice and other forms of question, to discover from the Treasurer (Sir Arthur Fadden) whether there is any tie between money obtained from loans from the International Bank and the spending ot that money in dollar areas. From my own point of view, I think that a loan of this kind from the International Bank is, in many ways, preferable to a loan on the market in the ordinary way. In this case, we can certainly see the kind of goods that will be imported, and we can make some test of whether or not they are essential in relation to other things. In respect of most of our loans from overseas, we can make no such test. In regard to the questions that I have directed to the Treasurer, I have been unable to find evidence one way or the other, on the statements that have been made, that there is no such tie or that these funds may be spent in any part of the world. Theoretically, perhaps, they may be spent anywhere, but evidence accumulates from a good many importers who are concerned, for example, with the importation of tractors, that it is relatively much easier to obtain tractors from American sources than it is from European sources. When one turns to the agreement there is a suggestion, I think, that this might be the case. In Article III. of the second schedule to the bill we find a section which deals with currencies in which the proceeds of loans are to be withdrawn. The section states -

The Borrower shall use reasonable efforts to assure that payment for goods financed out of -he proceeds of the Loan ls made in the currencies of the countries from which such goods are acquired The proceeds of the Loan shall, to the extent that the Bank shall so elect, be withdrawn from the Loan Account in the several currencies in which goods are paid for. rh is is the sentence I want to stress -

The Bank shall be under no obligation to permit ;he proceeds of the Loan to be withdrawn in any currency except the currency in which the Loan is denominated \nd, of course, the loan is denominated in dollars. It seems to me that it may be possible - I do not know whether it happens, and I am raising this question in an effort to find out whether it does - in terms of this proposition contained in Article III. of the second schedule of the bill, that the bank may influence the spending of loans in countries in the dollar area. When we look on a little further, we find, in Article VI., that a bond is to be entered into by the borrower. The relevant section states -

The Borrower shall execute and deliver Bonds representing the principal amount of the Loan, is hereinafter in this Article provided.

When we look to see the kind of bond that the borrower shall execute - and this may be simply an accident - we find that the form of the bond is covered by Schedule I and is headed, " Form of Registered Bond without Coupons Payable in Dollars". The dollar sign and the dollar condition, as it were, appear throughout the bond. I have raised this matter with the object of trying to discover whether, in fact, there will be a tendency - perhaps not as the result of a deliberate decision - for the proceeds of the loan, in practice, to be spent upon dollar goods. I relate this to the proposition put forward by the honorable member for Melbourne, who showed that relatively there was a greater pressure upon the sterling area currency than upon the dollar area currency in the operation of import controls. There appears to be a suggestion that the proceeds of the loan are tied in some way to dollar goods.

I should like to conclude by summarizing my propositions. Although we are now not quite so dependent upon borrowing as we were before the war, we are becoming increasingly dependent upon borrowing, and, what is more, upon a kind of borrowing which is erratic and which fluctuates in a marked way. This increasing dependence can be demonstrated. For the five-year period 1951-52 to 1955-56, our average annual receipts from overseas loans have been £86.000,000. That is what we have gained, on the average, in each of those years. But if we examine the cost of servicing our overseas loans, we find that the cost of dividends and remitted profits alone for each of those years has been, on the average, £28.000,000. or 32 per cent, of all that we have obtained in each year by borrowing from overseas, ft is easy to say. as did the honorable member for Wentworth (Mr. Bury). that the money obtained by those new borrowings takes the shape of a capital structure and increases the capacity of the country to bear the cost of the loans: but I suggest that when one looks at the figures, one sees that our capacity to do so has not been increased. During the last five years we have obtained, on the average. £86.000.000 each year from overseas loans, but the average annual cost of dividends and remitted profits, plus undistributed profits, has been £53,000.000, or 61 per cent, of the money that we have obtained, on the average, in each of those years. Perhaps undistributed profits are not a current and continuing charge upon the balance of payments, but about £119.000.000 of undistributed profits has accumulated during that period of five years. Much of that money has been reinvested. Unless those assets are sold, the money could not readily become a charge upon our balance of payments, but the fact must not be overlooked that a considerable portion of the money represented by those undistributed profits is available to be withdrawn in the event of some sort of crisis.

If we take into account the interest charges on public authority loans, which are at the rate of £26.000.000 a year for this period, we find that the cost of dividends, remitted profits, undistributed profits and interest on public authority loans amounts to 92 per cent, of the money that we have obtained in new loans in the last five years. It seems to me that this shows high, and increasing dependence upon loans.

Mr. ACTING DEPUTY SPEAKER (Mr. Lucock).- Order! The honorable member's time has expired.

Mr. DRUMMOND(New England) 19.24]. - I should like to begin my speech to-night by referring to the fact that the Treasurer (Sir Arthur Fadden), who moved the motion for the second reading of the bill, has to-day, I believe, set a new record in that he has now held the office of Treasurer of the Commonwealth for longer than any of his predecessors. It is the privilege and the duty of the Opposition to differ from the Government, on matters of policy, but despite our differences on such matters I am sure that we all pay tribute to the rugged, uncompromising honesty and the ability of the tuan who now occupies the office of Treasurer. He has qualities which commend him to honorable members on hoth sides of the House. Agreement with mc on that does not commit the members of the Opposition to acceptance of the right honorable gentleman's policies. I felt that what I have said should be said on this occasion by some one, and T have taken the liberty of saying it.

I have listened to this debate with more than ordinary attention. 1 was impressed by the address given by the honorable member for Wentworth (Mr. Bury), who spoke with, authority. It is always a great privilege to occupy a post where, as it were, one can sit on the top of a mountain and look upon the land beneath. I listened with great interest to the honorable member for Melbourne Ports (Mr. Crean), and also to the honorable member for Yarra (Mr. Cairns). They gave us a mass of figures. Speaking as a member of a committee established by this Parliament, I am sure that if somebody came before that committee and presented to us such a mass of figures we should say, if we wanted to comment upon them intelligently, " Send us a submission. We shall study it and then we shall be prepared to hear you give evidence on it". There is an old saw to the effect that you can do anything with figures. One of the most brilliant men ever to be a member of this House once said to me, when Latin was under discussion, " You can do what you like with figures, but you cannot do what you like with Latin, because that is something that does not permit of liberties ". In saying that, 1 do not intend to reflect upon the members of the Opposition who have produced different sets of figures. Speaking as one who has some knowledge of business in a small way, I. know that sometimes two men can put forward, perfectly honestly, different sets of figures. What we have to decide, as the people who are running this country, is what we shall do with the figures, or in the face of the figures.

Statesmanship is an act of faith. In courts of law, cases are decided on the balance of the evidence presented. In business, accountants prepare figures for the consideration of boards of directors, but, in the final analysis, the decision given is an act of judgment and an act of faith. When the members of a government say, "We believe that if we pursue this policy, ultimately it will prove itself to be sound and for the good of the country they are staking their reputations for managing the affairs of the country on their judgments, sometimes in the face of most unpromising factors. Events alone determine whether their judgment was sound. Let. me say again that statesmanship is, in the fina) analysis, an act of faith, an act of judgment. Again and again we have seen, ai different times, men who have been betrayed by thir own countrymen. I recollect a man in Western Australia who was driven to suicide because he stood by his faith that he could give the dry areas of Western Australia a certain benefit which others said was impossible. He was found dead on the morning that the scheme was to open, and it was proved that the nervous strain had overcome him and led him to take his own life; but history adjudges that he was right in his belief. We meet such instances in the greater affairs of life.

I am not going to enter into the battle of figures with the giants on either side of the House. I shall deal with the purpose of the measure, which is to bring about the greater development of Australia. Yet I may have a passing glance at some of the figures which have been submitted by honorable members. I notice that my friend, the honorable member for Yarra, said something to the effect that between 1949 and 1956 our indebtedness rose by an amount in the vicinity of £750.000.000. [ do not want to quote him wrongly, but I think that that figure is somewhere near the mark. If I recollect aright, n was in that very period, or substantially in that period, that our immigration programme was in full operation. It was between 1949 and 1956 that we brought in about 1,000,000 migrants. It has been estimated that it costs Australia £1,000 to bring in every migrant. That is tha expenditure involved in getting a migrant to this country, from the point at which he is first interviewed until he actually arrives here and takes his place in the Australian economy. One thousand pounds multiplied by 1,000.000 gives a product of £1,000,000,000. It seems to me that we have not come out at all badly.

There is another aspect to this matter. A further point which is raised by the honorable member for Yarra is, I think, worthy of consideration. He said that so far not more than about 10 per cent, or 12 per cent, of the sinews of war have come from the United States. I am not quite sure whether he was referring to direct assistance only or, alternatively, to both direct and indirect assistance; but 1 think I am right in stating that the very origin of the International Bank for Reconstruction and Development, the very purpose for which it was founded, was to remove from debtors, such as ourselves, the necessity to go on to the 0-)en market for finance, because the necessity to do so would probably have meant that we faced such competition for money that w; would not have been able to obtain it on the favorable terms on which we now obtain it. J may be right, or I may be wrong. I admit that 1 have not the knowledge of the honorable gentleman on the right, the honorable member for Wentworth, or of the honorable gentleman on the left, the honorable member for Yarra, on such things; but I have a notion that if you borrow in dollars directly then you have to repay in dollars. The provision of finance through the International Bank is an endeavour to -et over that by enabling us to achieve a muilateral approach to the problem of currency.

The honorable member for Wentworth 1 think it was, raised the point that Australia's position, if we were no! dealing in sterling, would be rather stronger than it is when we are dealing in sterling. That may be so at present. 1 shall not canvass that matter 10 atn great extent, however, I know that at various times since the end of the war Australian currency has been very much stronger in certain countries than sterling has been. But if we are in a cooperative arrangement with other nations we do not want to be like the small poultry farmer who, because somebody offers him 6d. a dozen more for his eggs at a given time, breaks away from the co-operative body of which he is a member, and sells independently. We have to look at the overall value of Great Britain, and to the fact that we owe our very existence to what Great Britain did for us, and to the free institutions that Great Britain conferred on us. 1 was rather struck by a reference made by the Deputy Leader of the Opposition, the honorable member for Melbourne (Mr. Calwell), when he was dealing with the measure. He made certain points in what 1 think was intended to be a five-point programme. First he said, " I do not believe in borrowing overseas ". Well, the proposition resolves itself into this: If you are a young man with a nice property which is aImost completely undeveloped, and which you want to develop to the full, you have to take your courage in both, hands and go to somebody who will lend you money, on that security, for the purpose of developing it.

Mr Curtin - Cannot wc do it through the Commonwealth Bank?

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