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Tuesday, 8 March 1966

Mr HAROLD HOLT - That was the honorable member's urging to me after the last Budget. He had better get smother slogan to break the monotony.

Mr Pollard - -Give Holt a jolt.

Mr HAROLD HOLT - Well, a jolt is better than a removal job. Judged on the latest statistics of the volume of capital and the stream of official visitors coming here from various parts of the world to study investment prospects, Australia can look forward confidently to this inflow continuing strongly. Its extent is the more remarkable because the Governments in the two principal source countries from which this investment comes - the United Kingdom and the United States of America - have both imposed some restraints on external investment. The combination of favorable growth prospects and stable economic and political conditions are proving strongly attractive. Australia finds 90 per cent, of its capital investment from its own savings, but our rate of growth has been greatly assisted by the savings of others who bring new industry, new techniques, new equipment and new skills to us.

Within the past fortnight, we have had discussions with representatives of industry and commerce and finance. These have been followed by discussions in the Cabinet. It is clear that the measures adopted in last year's Budget succeeded in bringing about a better balance between supply and demand in the economy. There are, I know, apprehensions about some weaknesses in the economy which, if they were to spread and combine, could create an undue slackening of demand and unemployment. The Government certainly does not want this to happen and will take any steps necessary to prevent it happening. The general trend of demand must be kept rising sufficiently to preserve full employment and provide jobs for the additional labour coming forward locally and from the rising migrant inflow. From the preliminary information available to us there was a sharp fall in registrants for employment during February.

A substantial additional amount of finance, estimated at $24 million, is being provided by the savings banks for housing in the second half of 1965-66. The effect of this has yet to show up fully. We have under consideration other measures to give further support to housing. The same approach applies to other sectors - subject always to the consideration that we must be guided first and foremost by the trend in the general level of demand and activity and the need to ensure that resources are available for the priority requirements of defence and for developments of a kind that will increase exports. It is for this latter reason that we have been especially concerned with the problems created by the drought and the still wider problem of finance for rural industries.

The drought in New South Wales and Queensland has been a great misfortune in many ways. Most of all, it has been a misfortune for the producers in the drought areas. They have suffered heavy losses and s great deal ot personal hardship. Our sympathy goes to them as we join our hope to theirs for early relief. The drought has been a misfortune for the industries which serve the rural producers, such as the makers of agricultural machinery. It has been a misfortune for the economy because it has brought a heavy cut in rural output. We have felt the effects in exports for this financial year and we will possibly feel it still more heavily in exports for 1966-67.

The Commonwealth Government and its agencies have, from the start, viewed the drought as a national problem. The first requirement is that of assistance while the drought is still on. The provision of finance for this purpose rests largely with the trading banks and, from all the information 1 have, they have done an excellent job.. They have been assisted in this by the Reserve Bank which has seen t'o it that there was no policy restraint on their ability to lend for the purpose and that they had the liquid resources to support their customers all through the drought areas. The Commonwealth Government has backed the State Governments with finance in all the relief measures they have found necessary. , lt has done this by grants and advances to enable the State Budgets to carry the costs of drought relief and to make loans to drought affected producers on easy terms. In fact it has assisted the States on a quite unprecedented scale to carry out drought relief measures.

Unfortunately, the drought has not passed even in Queensland, where there have been rains, and in New South Wales it is worsening. The Commonwealth will continue to assist the States to finance their drought relief measures as far as necessary and for as long as necessary. Where rains have fallen, and the restocking of properties has become possible, a need for restocking finance has arisen and is expected to grow as and when the drought is relieved. Here again, the provision of finance will largely be a matter for. the trading banks. .The Reserve Bank will support them in this to the full extent. The Commonwealth Development Bank has also been lending for the purpose and the Government will ensure that it has the resources to continue doing so. i.; There will, however, be producers who, Aor one reason or another, cannot get adequate bank finance for restocking. The Premier of New South Wales has written to me about this. He has proposed that the system of loans the State is making to producers for relief purposes should be extended, with necessary adaptation, for restocking purposes. Under this system, loans are made up to certain limits at low rates of interest and with provision for a deferred repayment period. I have advised the Premier of New South Wales and also the Premier of Queensland that the Commonwealth is prepared, for this purpose, to extend the support it has been giving to the State for other drought measures. Obviously, it is only sensible and very much in the national interest that, so far as finance is necessary and can help to keep down drought losses and get farms and stations back into full production as the drought lifts, it should be made available. The need to sustain and increase rural production for domestic requirements and for exports is as important today as it has ever been in our history.

The drought itself has demonstrated a need for more investment in rural industries to strengthen them in various ways against a recurrence of drought from which we have had the good fortune to be relatively free over a long period. This need for drought mitigation work merges into a wider need for increased capital investment in the rural industries. On the one hand, we will need more and more rural output to provide exports. On the other hand, the scope exists for progressively increasing rural output in a variety of ways, all of which require increased capital expenditure on farms. -We have had a great many opinions as to where the main need lies and, while they vary in detail and emphasis, they all converge in a requirement for improved facilities to provide longer term rural development finance on a term loan basis. We are convinced, however, that the need is- not so much for any radical innovations or new machinery as for improvement and extension of facilities .which have already proved their worth/

The Commonwealth Development Bank, established in .I960, has already made a valuable contribution towards meeting the needs for development finance by rural and other industries. However, we believe that the special problems of the farmer would be better served if there were facilities exclusively devoted to his credit needs. Accordingly, the Government has under consideration the establishment of a separate Rural Division within the Commonwealth Development Bank. Legislation will be required for this.

The Government believes it is desirable to provide the farmer with greater access to medium and long term capital for development purposes through his own private bank. The term loan funds, introduced in 1962, already go some way towards meeting this purpose. The Government now proposes to consult with the trading banks with a view to establishing farm loan funds separate from the existing term loan arrangement. The funds would provide finance for medium and long term development purposes including the purchase of land and measures for drought recovery and mitigation of future droughts.

Subject to suitable arrangements being made with the banks, it is envisaged that a sum of $50 million will be available for these farm loan funds. This will be in addition to the arrangements now being made by the Reserve Bank to increase existing term loan funds by $20 million. So, from those two sources a total of $70 million, most of which will be for rural purposes, will be available.

Mr Calwell - At what rate of interest?

Mr HAROLD HOLT - As the honorable gentleman knows, there has always been a preferred rate of interest for rural borrowers. It is contemplated that overdraft lending to farmers will continue as before. In addition, the trading banks will, we hope, be lending from the new funds on a long term basis on reasonable terms and conditions. 1 hope to be able to make arrangements for the Treasurer (Mr. McMahon) and myself to discuss these matters with Hie Reserve Bank and the trading banks in the near future.

The Government is exploring an insurance scheme to cover loans made from the farm loan funds of the banks. This will be done in order to ensure that this kind of lending is not unduly restricted by security considerations where projects otherwise offer excellent prospects of success. From the national standpoint, action in this area is directed initially to the building up of our export capabilities, which are one of the great key requisites for ensuring continued growth. As such, it is to be seen as part of a many sided programme embracing not only assistance, direct and indirect, to exporting industries, but all that goes to the discovery and development of resources, such as mineral exploration, oil search, water conservation, road, rail and port improvements, scientific research and extension services, in fact, most of the main branches of developmental work.

One of the most encouraging facts about exports in recent years has been their increasing diversification. Rural exports still predominate, and will do so for many a day to come. But they are being increasingly and most opportunely supplemented by exports of minerals and of manufactures. One of the main topics discussed with industry representatives last week was that of export incentives for manufactures. It was the unanimous view that the scheme introduced in 1962 had yielded excellent results; The Export Development Council told us that it was making a general review of the subject, on which it would be reporting to us. It asked that certain features of the existing scheme which had come to be regarded as anomalous should be removed, and we have undertaken to consider this. It strongly recommended that the Government should give an assurance that export incentives will be continued after the present legislation expires next year, lt is certainly the general intention of the Government that this should be done. Industry representatives also urged upon us most strongly the need for encouraging the pursuit of research and development in manufacturing industry. The Government has been impressed by these views and is considering various proposals for assistance to industry in this field.

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