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Thursday, 26 November 1959

Mr CREAN (Melbourne Ports) . - This measure is similar to the measure which was introduced last year. Virtually, it sums up the overall financial position of the Government's account as the Treasurer (Mr. Harold Holt) sees it at the present time. The purpose of this bill is to provide for the issuance of treasury-bills totalling £61,000,000, of which £37,000,000 will be set aside for defence purposes and the remaining £24,000,000 for redemption of Commonwealth securities which were issued for war purposes.

The measure last year provided for a sum of £110,000,000, of which £78,000,000 was to have been for defence purposes, and the remaining £32,000,000 for redemption of Commonwealth securities which were issued for war purposes. Last year, it was anticipated that the overall budget deficiency would be £110,000,000, but the financial result for the year was very different from what had been anticipated. A statement issued recently, with the authority of the Treasurer, indicates the position of the Consolidated Revenue Fund as at 30th June, 1959. Instead of an anticipated deficit of £110,000,000, the Government concluded its operations with a deficit of only £28,000,000. If the Treasurer was so wrong last year when he sought £110,000,000 and needed only £28,000,000, we might ask ourselves now, when he is seeking £61,000,000, whether in fact he will require anything at all. That is a hypothetical question which might be posed at this stage.

Mr Harold Holt - It is a delightful prospect.

Mr CREAN - It may be a delightful prospect, but I do not think that the statement reveals the true situation because, in our attack on the Government's financial policy during the debate on the Budget, we pointed out that the Government did not have to resort to treasury-bill finance to the extent of £110,000,000 and was able to complete its operations with a deficit of only £28,000,000 because it had allowed the banking and other financial institutions to increase their holdings of government securities by some £70,000,000 or £80,000,000.

We have here a situation which sometimes may be camouflaged to a great extent. Recently, we have had legislation before us to legalize or to make possible a new kind of security called a seasonal treasury-note which, as we see it, is only a variant of the treasury-bill method of finance with the added disadvantage that, instead of bearing interest of only 1 per cent., payable by the Government, as such, to another channel of the Government - the Commonwealth Bank - it bears interest at the rate of 3 per cent. The difference between the 1 per cent, and the 3 per cent. - on an average amount of about £100,000,000 a year, it comes to £2,000,000 - falls mainly into the hands of financial institutions in our community, the private banking system on the one hand, and the new short-term money market, as it is called, on the other. To use a phrase, they whack up between them the additional £2,000,000. That is the kind of camouflage which may well be continued within the succeeding twelve months.

Mr Curtin - And the Government gets it back in party funds.

Mr CREAN - It goes back into all kinds of places.

When the Treasurer, in preparing his Budget, looked at the total outgoings in the form of expenditure, on the one hand, and the total incomings in the form of taxation and other revenue, on the other hand, he found a deficiency of £61,000,000, and this simple little bill purports to allow that amount to be raised by treasury-bills. By the use of a bookkeeping device, some part of that £61,000,000 is to be allocated to defence expenditure, and the remainder to these government accounts such as the National Debt Sinking Fund and the Loan Consolidation and Investment Reserve.

What is not always realized about these funds, Mr. Deputy Speaker, is that, to a great degree they represent bookkeeping entries and that, at times, it is hard to see what is the real overall position of the Government accounts.

Mr Harold Holt - I can assure the honorable member that this is the real cash position.

Mr CREAN - It is the theoretical cash position as the right honorable gentleman sees it at the moment. All I am stating, as my initial postulate, is that, this time last year, the Treasurer sought permission to raise £110,000,000 in this way, and he found, at the end of the financial year, that he required only £28,000,000. In other words, he was £82,000,000 out.

Mr Bandidt - He was out the right way, though.

Mr CREAN - The right way depends on the way in which one regards the interests which benefit. That is the point that I want to elucidate, if I can, in the time at my disposal. The point that I was going to make before I was interrupted was that, although it makes a difference in the distribution position, it does not make any difference in the aggregate whether you have £1,000,000 of credit expansion in the community taking place through the private banking system or whether it takes place through government credit expansion. What makes the difference is how the £1,000,000 is spent - or, in the instance which we saw last year, how £82,000,000 was spent.

Mr Harold Holt - It was spent in precisely the same way as last year's Budget predicated.

Mr CREAN - It was not spent precisely as the Government predicated. At this time last year, the Minister predicated a need to have recourse to £110,000,000 worth of treasury-bill finance. At the end of the financial year, total expenditure was much the same as had been forecast, but, instead of the whole £110,000,000 having come from treasury-bills, only £28,000,000 had come from this form of finance and £82,000,000 had come from an increase in the holdings of government securities on the part of the private banking system.

Mr L R Johnson - What did that cost?

Mr CREAN - It cost the difference between the market rate on bonds of something like 4 per cent, for short-term securities, or 5 per cent, for long-term securities, and the rate of 1 per cent, on treasury-bills, which would have been the operative rate if the course predicated by the Treasurer, to use his own word, had been followed. The difference between £80,000,000 worth of treasury-bills issued at 1 per cent, and £80,000,000 worth of bonds issued at an average of between 4 and 5 per cent, is quite significant in relation to the Government's final revenue position. It is even more significant in relation to the position of the private financial institutions in the community.

We of the Australian Labour Party have been chided - this is one of the points that I want to clarify - when, at election time, we have said that the difference between expected revenues and expected expenditure ought to be made up by treasury-bills, and we have been told that that is inflationary finance. However, it is a matter of relativity. As I say, in essence there is no difference between credit expansion in the community which takes place in the form of an increase in overdrafts on the part of the private banking system and credit expansion which takes place as a result of issues of treasury-bills by the Government. It depends, again, on where the private banking system disposes of its assets.

After all, the volume of money in the community should have relation to what the community wants to do, on either private or public account. We on this side of the House have argued, for a good many years, that what has been wrong in the Australian economy is that there has not been the right balance between what may be called public investment on the one hand, and private investment on the other. Frequently, at question time in particular, and at other times, in this House, honorable members point to shortages of schools and hospitals, the inadequacy of transport facilities, and deficiencies in the provision of electric power and water and sewerage services, as well as other public requirements, in their respective States. More can be done in these fields only if more of the resources of the community - in most instances those resources are limited - are devoted to public rather than private activity. But the final division between public and private investment largely depends on the policy pursued by this Government, which, by means of its control of income tax, which is the major source of revenue at the present time, and of the allocation of loan moneys through the Australian Loan Council, virtually determines the total amount of public investment in the community. This Government has failed to intervene in the economy where it should and, apparently, has chosen to exercise its central bank control and use the private banking system as the regulator of the division between public and private investment, instead of acting directly itself. When this happens, a great deal of initiative is shifted away from the Government, where it ought to belong, and falls into private hands.

If honorable members care to study the banking statistics that are circulated from time to time to members of the Parliament, they will find, on examining the aggregate holdings of government securities by the banking system, that significant changes take place from time to time. Government securities held by the private banking system, on the one hand, and advances made by it, on the other hand, rise and fall from time to time. After all, the private banking system has a certain degree of choice - a choice that can be limited or varied by the policy pursued by the central bank, either by disposing of its assets by increasing advances in order to stimulate private activity, or by subscribing to government securities, in which case the money is expended on public development. Quite a number of documents have been issued recently, some of them by private organizations and some of them by committees which have a certain degree of government authority behind them.

I think that most honorable members have received, within the last twelve months, a very interesting booklet dealing with the projected development of secondary industries in Australia in the next ten years. It was suggested in that booklet - and I think most members will not query it - that there was need for more public investment in future than we had had in the past. It also implied that there should be some relationship between public investment, on the one hand, and private investment on the other because, as was pointed out the other night in another debate, technical capacity cannot be developed in a community unless the educational facilities available to citizens are increased. It was said that it is out of technical capacity or the development of " know-how ", which flow primarily from the resources devoted to education, that industrial potential is increased. Therefore, there must be a greater degree of integration, in the future, between public and private investment. That statement conveyed nothing new to honorable members on this side of the House. We have been pointing that out for a great number of years. But the only way in which you can alter the existing balance between public investment on the one hand, and private investment on the other, is by the kind of measure that we are now contemplating.

This is really only an academic exercise. The total expenditure of the Government is £1,600,000,000 and its total revenue £1,500,000,000. Whether the difference of £100,000,000 is hypothecated - in the manner of this legislation - to defence activity rather than to another kind of activity does not matter much. I think that even the honorable member for Wentworth (Mr. Bury) will agree that whether £37,000,000 is devoted to defence services rather than to social services is largely theoretical. It is sometimes a little easier, theoretically, to say that at least it is going into an activity that has long-term results rather than one that evaporates as the expenditure is made. But the over-all effect is the same, whether you apply the expenditure in this direction or in that. Therefore, I say that there is not much substance in the provision that £37,000,000 of the total amount shall be allocated to defence services, while, as the Treasurer has indicated, the other £24,000,000 is to be divided between anticipated deficiencies in the funds flowing into the National Debt Sinking Fund, and this other fund which has been created over the years, the Loan Consolidation and Investment Reserve.

What is involved here is the whole question of balance, as it were. There is some need to clear up a great deal of the mysteries that exist in Australia with regard to the public debt. The Prime Minister (Mr. Menzies) was good enough to circulate for the benefit of honorable members a comprehensive document produced in Great Britain recently - the report of the Radcliffe committee. This document is about an inch and a half thick and it has about 500 pages and approximately 1,000 paragraphs dealing with the monetary situation as it existed in the United Kingdom. 1 emphasize, again, that probably there is need for such a systematic examination of our own monetary and financial affairs as was engaged in by the Radcliffe committee in Great Britain.

One of the things to which the Radcliffe committee pointed as being the determinant of the total volume of money in the community and of the flow of money to the various channels that a community needs was the public debt. I would submit that there is a great deal of ignorance and, often, of misunderstanding in Australia about the public debt. I refer honorable members to the most recent issue of the " Treasury Information Bulletin ", and incidentally, I congratulate the Treasurer and his predecessors for publishing this very informative document. Bulletin No. 16. dated October 1959, page 15, discusses the holdings of the public debt in Australia. In some respects, if you look at the sum quickly, it looks rather astronomical. The total is £3,590,000,000. If I owed £3,590,000,000 to somebody else it would be quite a problem for the somebody else. But £3,590,000,000 owed by the community as a whole, to the community as a whole is not quite the same problem.

When you dissect the figures in this " Treasury Information Bulletin " you find that most of this apparently astronomical sum is held by the left hand of the Government on behalf of the right hand. Of this sum of £3,590,000,000, £432,000,000, or about one-eighth, belongs to the Commonwealth Bank which is only one removed from the Government. I would ask honorable members to note the significant difference between the amount held by the trading banks at 30th June, 1959, compared with the amount held at 30th June, 1958 - £311,800.000 instead of £234,000,000. It is co-incidental, almost, that that figure corresponds to the difference between the

Government's anticipated deficiency for the last financial year of £110,000,000, and the final deficiency of about £30,000,000. Instead of issuing treasury-bills to the value of £80,000,000, bearing interest at 1 per cent., the difference of £80,000,000 was taken up by the trading banks. Then holdings of Government securities rose by £80,000,000, a sum which was provided at interest rates varying from 3 per cent, to 51 per cent. The savings banks which are, for the most part, Government undertakings, held £744.000,000 or close to onefifth of the total national debt of Australia. Life assurance offices held £218,000,000. They are simply glorified channels for accumulating the savings of the people of Australia. Commonwealth and State governments and local and semi-government bodies held £792,000,000. These are the most significant items and they total about £2,000,000,000 of the £3,590,000,000- very much over half. When you look at that situation and notice, from year to year, the fluctuations that take place in the holdings of the total amount of Government debt as between one channel and another, you find that this is largely a siphoning action, mainly through Government-controlled channels, and that the money is put into this fund rather than into that.

This is a homely example, perhaps, but it concerns every member in this House: The amount which every member of the Parliament contributes from his salary towards the parliamentary pensions fund is invested in government securities of one kind or another. This helps to improve the overall situation of the Government and the amount of public investment in the Australian community. We need to have a little more clarity and to make a more critical examination of these problems than sometimes we are disposed to give them. It is easy for the Treasurer to say that all he is doing here is simply getting sanction, on behalf of the Government, to make up a deficiency between his anticipated revenue and his anticipated expenditure. That is the position as he sees it, but I suggest that he was very much wrong last year.

Mr Harold Holt - I was not in the job last year.

Mr CREAN - Well, whoever was there before you were. I do not think that, proportionately, the present Treasurer will be any more successful this time next year than was his predecessor this time last year. But largely it is only a matter of convenience. It is also a question of attitude on the part of the Government towards the private banking system rather than towards the public interest. This Government leans towards the interests of the private banking system more than it does towards the public interest. Sometimes the two may tend to coincide, but often there is a fair margin of difference. In this particular year, an aggregate of £80,000,000 more held by the private banking system in government securities than in the previous year meant an increase in the revenue of the private banking system of, I suppose, some £2,000,000 or more. That means that an additional £2,000,000 of interest was payable by all the taxpayers of Australia to the private banking system in particular.

Mr Bury - Their profits are pretty low at the moment.

Mr CREAN - They might be too low for them, but there are many other people whose standards are low as well; but they do not get the same facilities to improve their standard of living as does the private banking system. But I do not want to go into that at the moment. If the honorable member comes down to my city - I have not been to his recently - and looks at most of the prominent corners, he will see where these struggling banks have their palatial buildings in spite of the fact that they claim that their costs are rising faster than their revenues. That condition does not apply to the banking system only. As most people put it, prices are rising faster than incomes. That condition is being experienced by the majority of citizens of Australia. For my part, I prefer to put my sympathy with the citizens of Australia rather than with the private banking system. That, mainly, is the difference in attitude between members on this side of the House and those on the Government side. We exist to serve different kinds of people. In the aggregate, £80,000,000 more of Government securities held by the private banking system at the end of the year than at the beginning probably means £80,000,000 more of public activity during the year. That £80,000,000 more of public activity, done at the rate of 4 per cent, or 5 per cent., is different from £80,000,000 worth of activity done at 1 per cent.

Mr Anderson - That would keep money out of circulation.

Mr CREAN - It is the function of the Government to put money into circulation or take it out of circulation as it determines according to the circumstances. That is not the function of a few boards of directors. What has happened under this Government, through its banking legislation, is that a great deal of initiative has been taken out of the hands of the public authority and put into the hands of irresponsible private authorities. It is true that they cannot be so irresponsible as to wreck themselves and the economy, but it does make some difference that they should be the determinant rather than the public authority.

Mr Bandidt - But that does not make them irresponsible.

Mr CREAN - It may not make them irresponsible, but it may give them a little more fat than they should have. It may also mean their taking that fat to themselves at the expense of other sections of the community. After all, does not the Government exist to adjudicate between one section of the community and another? All I am saying is that the Government's degree of adjudication makes the position somewhat different from my point of view. I regard it as my duty, on behalf of the Opposition, to show precisely what is being done here. Technically, I cannot see why a measure such as this needs to come before the House at all.

Mr Harold Holt - I wish it did not have to.

Mr CREAN - With all respect to the Treasurer, I doubt whether it needs to. At least the Treasurer did not seem to need to come to Parliament this year to correct a mistake that was made last year. He said he needed £110,000,000 but in fact he needed only £30,000,000. Now he is saying that he wants £61,000,000, and \ am saying that it is extremely doubtful whether he needs that amount. 1 was hoping, in a sense, that he would ask for more than £61,000,000, because that would mean a little more public development and a little less private development in the community.

In my book, the building of a school in the electorate of my colleague from Barton (Mr. Reynolds) ranks far higher than the building of a bank on the corner of Collins and Queen streets, Melbourne. In one circle of the City of Melbourne there are four corners at the moment either occupied or will be occupied within twelve months by very lavish buildings, either by banks or insurance companies or other financial concerns.

Mr Bandidt - You would not want to see shanties there?

Mr CREAN - No, but I would prefer seeing shanties there than to see children going to school in tents and sheds as is the case in Melbourne at the moment. I would prefer to see discomfort to patrons of a post office rather than children being without a school at all. The patrons of post offices do not have to suffer inconvenience all the week because of inadequate buildings, but children going to school have to suffer that way. It is better for the community to have more public hospitals and schools than to have more insurance company buildings, bank buildings and hotels. But these buildings rather indicate the scheme of choice so far as this Government is concerned. I very much doubt the estimate of this Treasurer and he disclaims the estimate of his predecessor.

Mr Harold Holt - Oh, no!

Mr CREAN - The Treasurer says, " Oh no ", but at least he assumed the estimate of his predecessor who was 250 per cent. wrong. Instead of needing £110,000,000 he needed only £30,000,000; but the difference was not made up by the activity not taking place. I repeat that the difference was made up because he allowed the private banking system to invest to the extent of that difference. 1 am not a betting man, but I would hazard a reasonable guess that when we come to deal with a similar measure next year we shall find that the sum of £61,000,000 that is postulated here will have proved to be unnecessary. I doubt whether the present Treasurer's estimate will be very much closer to the fact than that of his predecessor. However, I take the opportunity, as I think we should, to try to tear a little bit of the camouflage away and see what really resides under it. We on this side of the House say that it is the duty of the Government to serve the interests of most of the citizens, and not just the interests of a few of the citizens. There might not be very much marginal difference in the long run between whether you issue £100,000,000 worth of treasurybills from the Commonwealth Bank direct to the Government - as I think should be done - or siphon them off to intermediaries, either the private banks or this new mystical organization, the short-term money market, where people are supposed to deposit £50,000 over-night and want it back in the morning. The number of people who would want to do that must be very limited, indeed. If at the end of the year you find that it has cost you £2,000,000 a year more than it should have to issue the £100,000,000, you can generally rely on your gentlemen friends in the press not to say anything about it. But if anybody here or there, or a government department, spends £30,000 too much, there is something wrong about that, though apparently there is nothing wrong when £2,000,000 goes into the pockets of the banking system.

Some three or four years ago this Government raised the rate of interest payable on special accounts lodged with the Commonwealth Bank by the private banks from i per cent, to J per cent. An increase of i per cent, may not seem very much, but when you consider that increase on an aggregate sum of £300,000,000 a year it is a pretty good cop flowing directly into the pockets of the private banking system. It takes a lot of explaining away against an over-expenditure of the Department of Supply amounting to £30,000. Equally, at the end of this financial year, instead of the £61,000,000 having been issued by the Commonwealth Bank to the Government at 1 per cent., it will have been farmed out among the Government's friends in the private banks and the short-term money market at 3 per cent., or whatever the rate may be. The difference of £2,000,000 in the cost of doing that, over and above the cost of issuing the money from the Commonwealth Bank direct to the Government, will be borne by the community.

It is time that the people in the press gallery here had something to say about this. If the newspapers are really organs of public opinion they ought to be giving a little of this information to the public. They have not done so, because they are part of the establishment, whose members do not talk about one another. So, the newspapers forfeit their right to be regarded as channels of public opinion. At least, they are a little bit tinctured by self-interest in these matters, and it is our duty, as an Opposition, to show this thing up for what it really is.

The measure appears simple enough superficially, but when you strip away some of the camouflage and look at the realities underneath you find a very different picture. Therefore, on behalf of the Opposition, although we are not at this stage opposing the measure, I remind the House that last year things turned out very different from the estimate of the then Treasurer. His estimate was well away from reality, and I suggest that in twelve months' time the present Treasurer's estimate will prove to be just as wrong as was the former Treasurer's estimate.

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