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Wednesday, 7 December 1960

Mr WHEELER (Mitchell) . - Before the suspension of the sitting, we suffered by listening to the radical views of socialism as expressed by the honorable member for Reid (Mr. Uren). He quoted a great many figures to show the increase of capital growth and he deplored the very fact that there had been such an increase. But I ask the House to consider whether that increase is not an indication that new capital has come to us from those who have faith in the country as a place in which to invest their funds, thus creating new industries and adding additional capital to old industries. Surely that is a recognition of our growing strength and of the confidence that investors have in Australia.

The honorable member for Reid posed as the warning light of the Australian Labour Party - the real economic blinker of the Opposition. I want to say to the honorable member for Reid that there is no occasion to be so miserable, even at this late hour. We will survive and much to the consternation of the honorable member we will be prosperous, despite the prophecies of this dismal Tommy from Reid. What did he say? 1 do not think it was one of his best speeches. It appears that he hates the capitalist system and if we could only use the " Laws of Disaster by Uren ", we would be in a happier position.

But it is not as easy as that. I am sorry that the honorable member for Reid was so depressed and that he found refuge in so many figures. I do hope that he understood them. They did not do anything to prove his argument. He is so miserable about the whole situation, but I want to refer to the comments of critics of the Government who have been vocal about the state of our economy. Some of them have tried to create panic and a scare that can only do harm, but their charges are without foundation. Anybody who tries to create a depression, a panic or a lack of confidence in the economic stability of our country is doing a great disservice to Australia itself. I have faith in Australia and in its destiny. I consider that there are vast possibilities and potentialities here and an opportunity for investment.

One of the greatest attractions of investment is the security offered by a stable government. The eleven years of continued prosperity which this Government has given to Australia is something that has never been given by any previous government. The only disadvantage of our economy is that it is geared to the wool cheque. Our national income having fallen, it would be folly not to recognize in the general economic sense that our expenditure and our development must be attuned to our lower incomes. That should not be related solely to the private sector, but should be applied also to governmental expenditure, and moves to curb governmental extravagances should not be delayed until the effect on the private sector of the measures now adopted has been noted. To travel fast is to travel dangerously, and Australia has certainly been progressing at a fast rate in the last decade. It is to be expected, therefore, that there will sometimes be trouble at tricky points of the road. We are at such a point now and it is therefore prudent that the Government should take some action in monetary matters.

The Government has been criticized for its intervention at this time in the overall financial programme. It has been charged against the Government that its actions now are inconsistent with the recent Budget proposals. In answer to such critics, I say that it is no doubt very fine to be consistent, but it is even more important to be right at a given time. Frequently, being consistent means only doing something this year because it was right to do it last year in entirely different circumstances. This is a time of rapidly changing events and unfortunately government financial policy is often too slow to meet the changing pattern. It must be remembered - I ask our critics to bear this in mind - that to change the policy of governmental action is not as easy as is the normal conduct of business activities. Quite frequently, when a government does act, the corrective process is rough and arbitrary and can be unjust. In some instances, government action destroys the regulating mechanism itself.

The Treasurer (Mr. Harold Holt) has stated outside the Parliament that the bill now under discussion is unusual and unorthodox. With this I agree. But it also carries with it the likelihood of the disadvantage that is referred to socially as not being understood. In his statement on the national economy, the Treasurer intimated that such a measure would be introduced. Since then, naturally enough, business and commerce likely to be affected has been at a standstill and has been held in a state of suspense, not knowing what the precise details of the measure would be. It is unfortunate ate that in this matter the Government faces a dilemma to which it has contributed itself in no small degree by consistently ignoring two important factors operating in the money market. The first is that the ordinary banking structure was hamstrung by restrictions and the second is the failure to recognize the need for a rise in interest rates.

For some time past, the Government has been encouraging expenditure, but at the same time it has approved of directives being issued to the banks to restrict credit. Normal funds for industry would have come from the trading banks, but when supply from this source was cut off, industry was obliged to raise money by issuing fresh capital. Any fresh capital, naturally, would have been subject to a high rate of income tax, and the dividends payable to shareholders would also be taxed in the shareholders' hands. As a consequence, some companies sought to find other means of borrowing and raised by notes and debenture issues the money that was denied them through the normal banking structure. In the process, the banking system lost its purpose as a regulating lending system and with it went the authority the banks would have exercised at that time.

In addition to losing this valuable restraint, the Government was forced into the position of being a competitor in the fixed interest market with company debentures and note issues which offered a more attractive rate to the investor than did government bonds. Experience has shown that in a period of rapid expansion, interest rates must go up, and attempts to evade this law usually result in runaway inflation.

I know it is a socialist concept that we can have cheap money all the time, and this cheap money policy was something that we inherited from a prevous administration, our predecessors in office.

For many years now, cheap money has been a fetish with the tycoons of the Treasury. Interest rates must be kept low in all circumstances so that loans for the Treasury's schemes will not cost too much. But the truth is that in a period of rapid development loan money becomes scarce and consequently becomes dear. The matter is simply one of supply and demand. For probably 30 years or so, the Treasury has been trying to ignore this obvious fact. It has been too pre-occupied with its own immediate problem of keeping down its interest bill and it just lets the rest of the world go by with its problems. The Treasury has now admitted its error in a grudging and half-hearted way by adopting the new policy of allowing some flexibility in bank interest rates and an increase in the rates of interest on fixed deposits. However, the Treasury still clings desperately to the dogma of artificially low interest on government bonds. An announcement has yet to be made concerning a higher rate of savings bank interest.

In a period of expansion we need the savings of the people and they must be sustained at a high rate, Mr. Speaker. They are the only real counter to inflation in the long run. But as a corrective of inflation, the Government is now using the tax weapon to curb the activities of what are termed fringe institutions - more precisely, in this case, the activities of hire-purchase companies, land and building companies and other financial concerns. But there is posed the question: Will the matter rest there? I very much doubt whether it will. What will happen will be typical of what always happens when the regulators and controllers try to override the well-proved principles of finance. Each new attempt produces more problems. Then more stringent rules are introduced and more problems follow. The only logical end is a fully regimented economy with, inevitably, a fully regimented population. The present measure may conform with the textbook theories of Canberra, but will it work out in practice? That will be the test of this bill.

After examining the bill as well as I have been able to in the limited time at my disposal, I find that it is negative in its approach and that its objective is the restriction of activity. The action now proposed involves all companies operating with capital raised by convertible notes, whether or not those companies are engaged in speculative practices. It seems to me that it would have been far more equitable if the speculator, were he in fact endangering the loan market, were taxed at a higher rate instead of other businesses which were not engaged in speculative practices being involved. As the bill stands, all companies using this form of finance in which capital is raised by convertible notes will suffer because of the practices of a few.

Mr Clyde Cameron (HINDMARSH, SOUTH AUSTRALIA) - What is wrong with that?

Mr WHEELER - I should hate the whole of the community to suffer just because the honorable member did not believe in certain things. Why should the whole of the people suffer just because of one individual who transgresses against what is accepted for the community as a whole?

All sorts of provisos and exceptions are incorporated in this bill, and I predict that these will be an open invitation to the devising of ways and means to circumvent its provisions. No doubt the Treasury, the Commissioner of Taxation and the Parliamentary Draftsman have devoted much care to making the bill as water-tight as possible. But on my first examination of it, I incline to the view that it shows all the signs of hurried preparation. As I read it, the bill is aimed at companies. It does not deal with sole traders, partnerships or groups which may not be formed into companies to conduct business on the same basis as that on which business is conducted by the companies which are the target of the bill's provisions.

Proposed new section 51aa of the principal act, which appears in clause 4 of the bill, exempts certain companies such as banks, pastoral companies, building societies and co-operative societies. This is all to the good, but to my knowledge there are certain finance companies which specialize in providing finance for home-building. Obviously, these are to be caught in the net along with the rest although they serve a useful purpose in the community and devote a certain percentage of their funds to homebuilding. Admittedly, they charge a rate of interest higher than that charged by building societies, but they conduct bona fide the business of lending for homebuilding. I ask why these companies should not be placed in the same category as, say, pastoral companies.

In proposed new section 51aa, the term " excepted interest " is used. I should like to know whether this term covers dividends or interest payable on a preference share issue.

In sub-sections (5.) and (6.) of proposed new section 51aa of the principal act, we set out some of the powers of the Commissioner of Taxation. Sub-section (5.) begins -

Where the Commissioner is satisfied . . .

The same phrase is repeated in sub-section (6.). The Commissioner was present earlier this evening in that part of the chamber where the Government's advisers sit. Although he is a benign character, I doubt whether he has ever been satisfied, particularly with the collection of income tax. I should like to know whether a company itself has any rights. Has it a right of appeal against a judgment of the Commissioner of Taxation? I hope that the Treasurer will re-assure me by stating that there is a right of appeal in these matters and that, even if such a right is not stated in the bill, it is given by the substantive act which this measure will amend. I should like an assurance that there will in fact be a right of appeal against the judgment of the Commissioner, particularly in the light of the phrase -

Where the Commissioner is satisfied . . .

Although the Government announced its broad intentions on 15th November last, final details of this bill were disclosed only yesterday, barely 24 hours ago. It may be proper that there should not be any further delay in passing this measure, so that the companies concerned may know where they stand. I feel that a mere 24 hours is hardly sufficient time for the electorate to express its opinion of this legislation. It is obvious that criticism will be readily forthcoming from those who will be affected by it, but there are others with no vested interest in the proposal who may wish to contribute some objective comment on it. It is to be regretted that sufficient time has not been given to allow considered, nonpartisan opinion to express itself.

The House sat until very early this morning, and it is now twenty minutes past midnight and I have not had either the time or the opportunity to study the bill closely. Therefore, if I vote for it I am called upon to accept the theory of exposition, the real theory of the exercise. As I have already tried to indicate, theory and practice do not always go hand in hand in financial matters. Accordingly, I am constrained to say that, in the absence of practical evidence needed to enable me to make up my mind on the matter, I am sure the Government will not be disturbed if I indicate now that I will refrain from voting on the bill.

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