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Wednesday, 9 March 1966

Mr CREAN (Melbourne Ports) .- On behalf of the Opposition I move -

That all words after "That" be omitted with a view to inserting the following words in place thereof^ " this House, whilst not declining to give the Bill a second reading, is of opinion that the financing of the purchase of aircraft by the Australian National Airlines Commission and Qantas Empire Airways Limited should be met from revenue and not from a loan raised overseas."

It will be remembered that on two fairly recent occasions we considered somewhat similar measures to this. One was introduced by the former Treasurer (Mr. Harold Holt) on 18th March 1964 and the other measure was introduced on 9th November 1964. Each of them enabled borrowing overseas on behalf of Qantas Empire Airways Limited. In those two instances we moved an amendment in similar terms to the one that is now before the House. We did so because we regarded the sums as relatively so trivial that it was virtually bad book-keeping and bad economics that when we had money in our reserves we should resort to borrowing and to placing ourselves under fairly restrictive conditions with overseas banking concerns.

Honorable members will find the names of the concerns involved in this particular instance contained in the schedule to the Bill. They are the Morgan Guaranty Trust Company of New York, the Chase Manhattan Bank, the Manufacturers Hanover Trust Company, the Chemical Bank New York Trust Company, the Irving Trust Company, the United California Bank, the Northern Trust Company, the Bank of America National Trust and Savings Association and the Continental Illinois National Bank and Trust Company of Chicago. All of these concerns are to take a part of the loan that this Bill contemplates. The sum could be as high as SUS54 million - something under $A50 million.

The terms under which this loan is to be borrowed provide for payment at an interest rate in excess of 5 per cent. In fact, the Treasurer (Mr. McMahon) has indicated that the average interest cost over the full period of the borrowing is slightly less than 5i per cent. That means that with a period of repayment of seven or eight years probably nearly one-half as much again will have to be paid to extinguish the loan. In other words, a sum of from $25 million to $30 million will have to be paid by way of interest as well as the principal sum of $US54 million.

Quite an interesting document entitled " Supplement to the Treasury Information Bulletin " was issued by the Commonwealth Treasury during the recess. It dealt with the Australian balance of payments. It indicated that Australia's holdings of gold and foreign exchange at 31st December 1965 were $ A 1,278 million and that in addition Australia had what are known as second line reserves which aggregated S589 million. The relevant reference appears at page 43 of the document. At 30th June 1961 Australia's gold and foreign exchange holdings had totalled $1,102 million and potential drawing rights on the International Monetary Fund amounted to $266 million. Thus first line and second line reserves taken together totalled SI. 368 million. By 30th June 1964 the first line reserves had risen to $1,708 million, second line reserves to $446 million and the total to $2,154 million. At 31st December 1965 the deficit in balance of payments over the proceeding 18 months had reduced gold and foreign exchange holdings to $1,278 million. Meanwhile, potential drawing rights on the Fund had increased to $589 million, bringing total reserves, both first line and second line, to $1,867 million.

It might be asked why. when holdings are as high as that, there should be recourse to borrowing at all. One may ask: Why when a sovereign government has that much cash at its disposal, should it enter into a transaction with eight or nine foreign banking concerns to borrow the sum in question and to pay an interest toll of Si per cent.? Of course, nothing will be paid by way of taxation. This money will be paid to foreign people. The interest rate of 51 per cent, is gross. There will be no net return to the Treasury, because the interest will be income to people outside Australia. In this instance, the interest will be income to foreign banking concerns and their shareholders. The sum of $54 million which is to be borrowed is so small when related to total reserves, which amount to approximately $1,900 million, that we suggest the sum should not be raised overseas.

The supplement to which I have referred contains in chapter VI some rather interesting reflections on the current situation and future possibilities. At page 44 this passage appears -

A figure between $1,000 million and $1,100 million-

At the moment the figure is above that; it is $1,278 million- would still represent a high level of reserves, especially taken with $589 million potential Fund drawing rights. It can be said that the past eighteen months have exemplified very well the proper function of reserves. They are there to be used and they have been and will be used to tide the balance of payments over a period of deficit which it seems reasonable to classify as temporary in nature. For there has been nothing in the way the deficit has emerged to suggest a chronic and persistent imbalance.

Perhaps later this evening we shall argue whether that is not a rather optimistic outlook. Nevertheless, that is the view expressed in this Treasury document. If we are in a set of circumstances which are temporary in nature, why should we put ourselves in pawn for seven or eight years for a sum as trivial as $54 million? lt is about time that we got an answer from the Treasury about this matter. This is the third occasion within not much more than two years that a measure such as this has come before us. The three measures in question will have involved an aggregate borrowing of more than $100 million on which we are to pay interest for a term of seven or eight years, depending on the length of the loan, at interest rates in excess of 5 per cent. If our present recession in relation to external earnings is temporary in nature, if we have accumulated first line reserves amounting to $1,278 million and if, as the Treasury document states, a sum of from $1,000 million to $1,100 million could be regarded as being reasonable, why not reduce the sum of $1,278 million to $1,224 million by simply paying for these aircraft as we get them? Why should we incur a debt with an interest component of from $25 million to $30 million? I should like the Treasury to say why it regards the proposed method of raising this finance as being prudent. I have no doubt that an explanation will be given and that it will be said that it will be difficult within the next year or two to engage in external borrowing because certain other countries have done what Australia so far has failed to do. I refer to the United States of America and the United Kingdom. Those countries have taken measures to protect their balance of payments and in so doing perhaps have made it more difficult for countries like Australia to borrow in the future. I suggest that it is time that measures were adopted internally in Australia to correct our very disturbing balance of payments situation.

We have accumulated reserves now only because of favourable trading results over thi last 10 or 12 years. The facts are clearly documented in the supplement from which I have quoted. A summary of our balance of payments from 1948-49 to 1964-65 is set out at pages 52 and 53. The material also contains a documented account of the extent of capital inflow into Australia during that period. We have accumulated reserves but not because our exports exceed in value our imports. When we take our balance of trade position on current account and add to it what are called invisible items we find that each year we have had a deficit averaging £250 million or $500 million. The new Treasurer at least has had the opportunity to start the period of his administration with new currency. Some of us are still a little confused at times between dollars and pounds when dealing with these analyses. For a number of years I have been speaking of a deficit of about £250 million a year. That is now $500 million. That deficit has been made good only because of what is called capital inflow. The extent of that capital inflow over recent years is shown in this document to which I referred. I do not wish to go into this matter at this stage, because it is hardly within the ambit of this Bill to make an analysis of our balance of payments position. Nevertheless I submit that it would have been prudent simply to pay for this transaction out of accumulated reserves.

We are not opposed to extending the services of Qantas Empire Airways Limited. In the face of strong competition Qantas has firmly established itself as an international airline. I would have hoped that the success we have had with our international airline would persuade the Government to venture into the field of international shipping. One of the matters clearly revealed in the Treasury's document is the terrible toll that Australia pays every year on shipping. Australia, having regard to its population and national income, is one of the world's great exporting and importing countries. International trade is a significant item in our accounts. I think our annual deficit because of shipping freights is about £200 million. This amount represents the difference between shipping costs and what shippers actually pay. I hope that the success of Qantas as an international airline will be a stimulus to the Government to seek similar success with a national shipping line.

Mr Howson - Qantas is not handicapped by some of the provisions of the Navigation Act.

Mr CREAN - That is true, but I draw attention to the casual manner in which the Government has treated the subject of international shipping compared with the rather grand manner in which we have entered the field of international aviation. It may bs that a certain amount of prestige attaches to an international airline but, equally, some prestige should attach to an overseas shipping line. If we look at the balance sheet of Qantas, which will be the principal beneficiary of this loan when it is obtained, we will find that it has fixed assets and other assets aggregating £70 million or $140 million - this balance sheet was prepared before the introduction of decimal currency. By comparison the capital structure of the Australian National Line, which is confined in its activities to interstate and not international shipping-

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