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Thursday, 27 April 1961

Mr TURNER (Bradfield) .- One sentence in the speech delivered by the honorable member for Reid (Mr. Uren) deserves to be remembered. He said that this bill is a good precedent for a future socialist government, and he pursued that theme. That will also be my theme. I propose to devote myself entirely to this bill and to the main principle in it. In particular, I propose to refer to the consequences that will flow from that principle should it be pursued, as no doubt one day it will be, by a socialist government.

The prelude to this measure, as put forward by the Treasurer (Mr. Harold Holt) on behalf of the Government, is the wickedness of life offices and1 superannuation funds in not doing what was alleged to be their public duty. The Treasurer pointed out that, in 1939, 50 per cent, of the assets of those institutions were invested in government and semi-government securities. He said that in 1949 the proportion was 68 per cent., but by 1959 it had fallen to 37 per cent. In 1939 the long-term interest rate was 3i per cent. In 1949 it was 3i per cent., and in 1959 it was 51 per cent. The Treasurer asks us to draw the inference that these institutions have not been doing their duty. Let us look at the figures I have just given and see what they really mean.

Mr Bryant - Are you attacking the Treasurer?

Mr TURNER - No, not the Treasurer; I am attacking the Government. The Treasurer is merely the spokesman for the Government. In 1939 there had been a period between the two great wars that included a world-wide depression, when a number of companies went bankrupt and a number failed to pay dividends. It was a time when insurance companies might well have looked to government securities as a safe investment for their funds. One must remember that the rate of interest then represented real money. In 1939 inflation was not running at the rate of over 3 per cent, per annum as it is to-day, and people received a real return of 3J per cent, on their money. But to-day, if they get a return of 3i per cent., in terms of real money that would be precisely nothing, because inflation is running at approximately that rate. In 1939 approximately 50 per cent, of the assets of these institutions was invested in government securities. That is understandable. In 1949 the proportion had risen to 68 per cent. Of course it had. There had been a war, and naturally the savings of the people had to be channelled into the war effort. That is quite understandable, and in ordinary circumstances such a high percentage would have been utterly abnormal.

Mr Wheeler - We must remember that the market was pegged also.

Mr TURNER - That is so. By 1959 the figure had dropped to 37 per cent. In the light of what has happened in the United Kingdom and the United States, that is still a very good figure indeed. It is true that the rate of interest is now 5% per cent. If you deduct 3± per cent, or 4 per cent, because of inflation, the true return may be about 2 per cent. That is a poor return compared with the real rate being received in 1939 or 1949. So the figures that have been trotted out by the Treasurer on behalf of the Government seem to be completely hollow.

Let us see what has happened in the United Kingdom and the United States. I propose to quote a description of the situation taken from a British insurance supplement published in the " Economist " of 19th September, 1959. The article reads -

Decisions to change direction in investment policy have to be implemented over a period of years.

Insurance funds, as every one knows, arc going out of gilt-edged and into equities. To an important extent the movement is still part of adjustment to the violent distortion of insurance portfolios that took place during the war. Between 1937 and 1947 holdings of gilt-edged jumped from 29 per cent, to 43 per cent.-

That is, less than it was during the war in Australia- of the insurance companies' invested assets. That was clearly an excessive proportion; it would have been excessive if there had been no inflation and no new preference for stakes in real assets rather than securities with a fixed money return.

But the insurance companies could not simply unload their excess gilt-edged. In practice, they had made few substantial sales. The balance of their portfolios has been adjusted over the years by deployment of new money, the bulk of it going into equities.

In the same document a table is published showing that in 1958, the latest period for which figures were available, the holdings of British life offices in British Government securities and guaranteed stocks represented 20.6 per cent, of their total assets, and holdings in British municipal and overseas government and municipal securities represented 8.6 per cent. - substantially less than the holdings of life companies in Australia at this time.

In the United States the position is even stranger, no doubt, to the eyes of the Treasurer. I propose to quote from the 1960 " Life Insurance Fact Book ". Under a heading " Government Securities " the following statement appears -

The aggregate held in Government securities at year-end 19S9 was less than half the amount held in 1949, and about one-third of the peak of such holdings in 1946.

The percentage of life companies' assets invested in U.S. Government securities at the end of 1959 was 6 per cent, compared with 6.7 per cent, the year before. For the decade of the 1950's, the U.S. Government securities averaged 11.1 per cent, of life company assets. In the 1940's, marked By the years Of war emergency, Governments represented an average of 32.5 per cent, of all life insurance company assets.

Since 1945, when investments in U.S. Government securities represented 45.9 per cent, of the life companies' assets, there has been a yearbyyear decline in the proportion that these securities have represented of total assets. Following World War II. there was an unprecedented demand upon all thrift institutions for capital funds for the domestic economy. The life companies, which had played a major role as investors in United States Government securities at a time of national crisis, gradually shifted their investment emphasis to provide capital for business and industrial growth, home-building and community development. In the decade of the 1950's, while the aggregate mortgage loan and corporate security holdings increased 147 per cent.,- United States Government securities decreased by 55 per cent.

So this movement has occurred, for entirely understandable reasons, in the United Kingdom and in the United States of America, but on an even bigger scale than here. So much for the Treasurer's prelude to this bill. I know, of course, that we have a special problem of development, and I do not overlook it, but for the time being I am interested in pointing to the complete hollowness of the prelude to the bill given by the Treasurer (Mr. Harold Holt). The honorable member for Reid (Mr. Uren) joined in the orchestral accompaniment. This trend is not confined to Australia. In fact, the Government here has fared rather better than the Government of the United Kingdom and the Government of the United States, and there is not the slightest suggestion in either of those countries - or anywhere else - of resorting to forced loans to remedy the position.

I want to say a word now about the people who are affected by legislation of this kind. The honorable member for Reid echoed what is in the hearts of members opposite, but he was perhaps indiscreet enough to put it in plain terms. He referred to the life offices and the superannuation funds in the sort of terms with which we are familiar, coming from the soap boxes that are mounted by honorable gentlemen opposite from time to time. He referred to these institutions as though they were wealthy companies and blood-sucking capitalists, and entirely institutions for the benefit of the idle rich. Indeed, the Treasurer himself has given the impression that these institutions are giants, doing the wrong thing and quite divorced from the people who, in fact, have their money invested in them. .. _ _ _ . _ _

I want to make it quite clear that I stand here, not for wealthy institutions, but for thousands and thousands of little people. They are the people for whom I am speaking here - little people, middle-class people, city clerks, farmers and an increasing number of workers with family responsibilities. They are the people concerned in this bill. They are people who are making provision against death or for retirement, for widows and children. If anything is done to the detriment of these institutions, it is done to the detriment of little people, of women and children, not of great financial institutions.

What does the bill do? It is so complex that one may fail to understand it. The explanatory note issued by the Treasurer as lately as yesterday afternoon ran into 33 closely typed pages of highly complex material. I do not profess to understand, nor do I believe that any member of this House understands, the full implications of this bill. So we have to look at it in the broad. Only after a painstaking examination by experts of the various institutions will it be possible for them to arrive at some idea of what the bill means in terms of pounds, shillings and pence to the funds of those institution*

However, some things are quite clear. The bill consists of a mixture of rewards and punishments. The rewards are tax concessions on .a silding scale, .under certain conditions. The penalties are the withdrawal of 'concessions .unless -a proportion of >the funds flowing into the 'institutions concerned is invested in government securities. This is a .penalty in the sense that the "interest payable on government securities is less than .the return obtainable from some other types lot investment -that would otherwise be available. To balance the plus and minus is a matter of precise calculation in each case, but, as I have said, certain things are quite clear.

First, the statement by the Government in November was perfectly clear. The Government intended, willy nilly, to force these institutions to put a fairly high proportion of their funds into government securities which would bring them in a lower return than they could get elsewhere. The Government made it quite clear in November that that was its intention, and we may be sure that this bill is intended to do precisely that. These institutions either must lose their tax concessions or they must give up a higher return on their investments. They must do one or the other. Whichever course they pursue, they will lose. Let us be quite clear about that, and forget about the complexities of the bill.

The superannuation funds were not taxed before, but they are to be taxed now. 'This, also, is quite clear. But why were they free of tax? It was not because of any generosity on the part of the Government. They were free of tax because if employers had chosen, instead of establishing their own funds, to pay their employees some retirement benefit, then in each year when they paid it the employers would have been entitled to a tax concession for it, as part of the expenses of the businesses. So when, instead of doing that, they set up these funds, it was clear that they should remain free from taxation. This was not any act of generosity on the part of the Government at all. It was a recognition of the fact that the employers, if they had not set up the superannuation funds, would have been entitled to a tax concession.

There is another broad consideration which is not entirely negligible. This bill may be fairly mild, but its importance lies in the fact that it is a first step on the downward path. From the Governments statement in November and from what it is doing now, these institutions will be justified in drawing the inference that, if this measure is too mild, a more drastic -one will be introduced. They realize that they had better go along quietly. All that has been said from the other side of the House will enforce this view in their minds. So, by a process of blackmail as well as by what is deliberately being done in this bill, you are going to force funds into this channel at sub-economic returns. That is the essence of the matter.

The Opposition has made its position very clear. One Opposition speaker after another - and this will doubtless go on as the debate continues - has said, in effect, " My father chastised you with whips, but I will chastise you with scorpions ", if I may quote a gentleman in the Old Testament. So I proceed to discuss this bill on the basis "that a new principle has been introduced into our affairs - -namely, guided investment of the people's savings. We had a very clear exposition of this from the honorable member for Reid, who can think of all kinds of ways of investing the people's savings, giving them in the end, I have no doubt, no return at all.

What is repugnant to me about this measure is that citizens will be compelled to invest .their savings, not in what brings in a good -return or .even a fair .return, but at sub-economic and unfair rates in what the planners consider to be socially desirable projects. This is entirely repugnant to me. What is the ;end of the road upon which the Government has made its first mild, hesitating step? Consider, first, the steady decline in the value of money, which, as I have said, is at the rate of 3 to 4 per cent, per annum. This is likely to continue into the future, as far as we can see, because the political forces that operated to bring it about in the past are still operating and, as far as we can see, will continue to operate. This will go on.

The second thing we have to .consider is that the expressed policy of the Labour Party is cheap money. If the value of money declines at the rate .of, say, 4 per cent, per annum and if the Labour Party, in pursuit of its expressed policy of cheap money, considers that 4 .per .cent, is a good enough return to give the people on government securities, and uses every weapon in the armoury of the Constitution to force people to put their money into .government securities, you will see that the real return that the thrifty will get will be .precisely nothing. Indeed, it could (he a negative quantity. What does this mean in regard to the propensity to save and .to :be thrifty? Such .a trend must in the long run make saving very difficult and ultimately impossible. The citizen will be prevented from making his own provision for the vicissitudes of life, for his .retirement or for his widow and children in the event .of his death.

In the past ten years the 'Government has taken from the people of Australia in taxation for public works £2,000,000,000 which they might otherwise have invested and so, perhaps, added to their personal savings. This year 65 per cent, of public works are to be carried out with money that has been taken from our citizens by taxation. This means that the Government has clipped the wings of the-private -citizens -and prevented - them from saving by taking all that money from them in taxation. Not content with that, the Government -intends to have guided democracy in respect of their savings. -Pursuit of this course upon which the Government has set its feet, in this 'bill, may mean that our citizens will receive -no return at all on -their money or even that the capital will erode. This measure is a crippling and mortal blow to thrift, saving and the capacity of the citizen to provide for the vicissitudes of life for himself.

This prospect is so utterly repugnant to me and so contrary to what I conceive to be the Liberal society and the good life in any human society that T cannot in conscience support even this first short step towards perdition. On this matter I have been consistent throughout. I opposed this measure from the moment the proposal left the Treasurer's lips in November last year. I have opposed it on several occasions outside this House. I have made my position perfectly clear outside the House and it is perfectly clear now. To me, this is a matter of conscience and it goes 'back not only to discussions about this bill outside this chamber but also to what I said in the House during the Budget debates last year and the year before. To my mind, this goes to the very root of the kind of society that we .hope to preserve. In itself, this is a littLe step, but the question is: Where will this step lead us in the end?

In the time 'that remains to me, 1 wish to examine some of the more detailed arguments that have been advanced by the Treasurer on behalf of the Government. "First, he has sought to pillory the leaders of these institutions as persons failing in a moral duty to the community. I have already dealt with that in a large measure. These men "have a paramount duty to their policy holders, for whom they are trustees. They have tried to .safeguard .those people against the inroads of inflation. "Secondly, the Treasurer has equated the policy holders with the whole community. This is not a true equation. It is true that they are a large group, but why should they 'be singled out, in effect, to pay a special tax for the benefit of all? In plain and simple terms, that is what this proposal amounts to. They are thrifty people and they are small people. Why should they bear a disproportionate share" of .the burden of ensuring that public policy is carried out just "because they are thrifty and because they are small people? Of course, the real reason is quite plain. Most of them will not understand; they will not .know what is happening to them. That is the real reason why they have been singled out. I could use here a very harsh .analogy that I used in another place, but J will not do so.

In equating policy holders with the whole community, the Treasurer has pointed out how as citizens earning a living they gain from public works designed to sustain industry and to provide amenities. He has pointed out how, as taxpayers, they gain by making loans rather than paying taxes to enable public works to be carried out. He has pointed out how as policy holders they gain by a stable currency that sustains the real value of their ultimate insurance benefits. But this, of course, is plain casuistry. As I have just pointed out, policy holders are not the only people who benefit from public policies. They are a large section, but they are not the whole community. They should not be singled out to .bear a disproportionate share of the burden .of sustaining such policies to the advantage of the whole community.

Does any one really suppose that the tax burden will be reduced because more money is raised by raiding these institutions and forcing loans from them? The Treasurer referred to the need for a more " balanced investment " as between the public and private sectors - they are his own words - thereby implying, of course, that more is required for public purposes than was required in the past, despite the fact that government spending as a percentage of the gross national product rose from 21.6 per cent, in 1938-39 to 24.6 per cent, in 1949-50, and to 26.6 per cent, in 1959-60. Those are not the figures that were given by the honorable member for Reid; they are the true figures.

The Treasurer here condemns himself out of his own mouth. There will be no reduction in taxation because this raid is made upon these funds. This revenue will be additional to the money that the public has already provided by way of taxation and will amount to a still further impost upon one section of the community. Does any one really suppose that this manoeuvre will stabilize the value of the currency? It is surely because the Government anticipates a continuance of the decline in the value of money, making low fixed-interest securities such as government securities less and less attractive, that it is introducing this measure at all. So, the reasons that have been given by the Treasurer on behalf of the Government are completely fallacious and1 are simply casuistry. They are unworthy of serious discussion.

The third argument that the Treasurer has advanced - this is a relatively minor one - is that nobody complained when a large part of the assets of the savings banks was required to be invested in government securities. I should like to make two comments on that argument. In order to induce the Government to separate the central bank from the other activities of the Commonwealth Bank of that time, this was part of the price that had to be paid and1 was accepted by those of us who sought to bring about that separation. It was a bargain and that is all. Secondly, people who put money into savings banks usually put in a few hundred pounds as a ready reserve. They do not really look upon it as a substantial investment at all. In fact, I suspect that a number of such people are surprised that they receive any interest pay ment at all. So, it is unworthy to produce that as an argument.

I have not much time left in which to pursue this matter further. I should like to end by saying that Australia has to be developed; of course it has. For that purpose it needs a great deal of capital. That capital has to be secured by way of savings unless the method of securing it is to be highly inflationary. But because this bill strikes at thrift and savings, I am utterly opposed to it. In the long run it must kill thrift altogether and kill the independence of the citizen. This country may be developed by imposing heavier and heavier taxation. In effect, that is all this bill does. The Government is now entering a new field by conscripting the savings of the people at low rates of interest. Australia may be developed that way, but thrift will be killed as we go along, and in the end, instead of the citizen having a precise claim against the next generation for the capital that he has put in for that generation, he will be dependent upon what the Government wishes to hand out to him to provide for the vicissitudes of life, because it has made it impossible for him to provide for them himself.

The other way to develop Australia and provide for the expenditure of the country is to ensure that the people put individual savings into this great national development and personally become entitled to a precise return on the capital that they have put into the development of Australia. This is the independent way of developing the country. This is the way in which to breed independent citizens. It is the way that the Government should be adopting.

I have not the time to pursue the observations of the honorable member for Mackellar (Mr. Wentworth). I have been more concerned with attacking the measure, because I believe it is pernicious and that it will set a precedent which will be utterly disastrous in the end. There has not been sufficient time to enable me to be destructive in my criticism of it and also to speak about the constructive aspect of the matter - inducing thrift rather than laying a heavier tax burden, either explicit or covert, upon the people.

Debate (on motion by Mr. Duthie) adjourned.

Sitting suspended from 5.56 to 8 p.m.

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