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Thursday, 14 May 1970

Mr Kevin Cairns (LILLEY, QUEENSLAND) - It is not my intention to chase the honourable member for Lalor (Dr J. F. Cairns) through some of his perambulations about balance of trade statistics; nor is it my intention to chase him through some of his quaint interpretations of capital inflow, its significance to this country and the significance of the present decline in real capital inflow to this country. I do not intend to chase him through those data, but I would make 2 comments upon his speech. I would suggest that when he refers to the mining industry he may reflect that the amount of capital required in any industry, mining as well as others, varies very much according to the maturity of the industry. If one doss a time series of the capital requirements of any industry one will find that that has always been a most important characteristtic of the industry. If the honourable member for Lalor would examine that principle before he makes some strictures upon mining in various parts of this country, he may come to a different conclusion.

The second comment which I would make upon his interpretation of capital flow and on balance of trade statistics is this: It is perfectly clear what is the source from which the honourable member for Reid (Mr Uren) over the years has obtained his own interpretation of these matters. It is a fact that the error of one member of the Opposition has been reflected in the writings of the other member of the Opposition, both of whom are on the front bench. But if I may make a third comment on the speech of the honourable member for Lalor it is this: It was a speech on the motion for the second reading of the Bill that dealt very little with the Australian Industry Development Corporation which is the matter we are now discussing. Almost half of his speech covered matters that would have been better reserved for the Committee stage of the Bill. Of course, while he sought to immerse himself in some of the intimate details of the Bill, it merely indicated that the principles which animate the honourable member for Lalor are principles which he finds difficulty in applying in depth, and so he ran out of time in applying them.

The aims of this Bill are perfectly clear. The aims are to raise the amount of Australian equity in enterprises operating in this country, to raise the amount of Australian equity in enterprises directed especially towards the export field, and to raise that amount of equity by fixed interest borrowing overseas. But basically the aim of the Corporation which is acceptable economically as well as socially is to raise the amount of Australian equity, and any decent Aus- tralian would support those kinds of aims. But there are different paths to be traversed in order to achieve those aims. Every time the Budget is presented in this House the Opposition says that it has an aim similar to that of the Government with respect to the Budget. It says that it is concerned with economic stability, economic welfare, proper uses of resources and, of course, the welfare of the whole country in terms of defence. The Government also says that. At every election time similar kinds of aims drop from the mouths of various members. The paths to be pursued in achieving those aims are vastly different. It is precisely in relation to those paths that I want to direct a few of my own comments this evening.

I refer to the speech made by the Minister for Trade and Industry (Mr McEwen). Much of the Minister's case depended upon this statement in his speech:

We face a growing burden of income remitted abroad. Income remitted overseas by companies in Australia has in 5 years risen from 8.3% to 10.5% of our export earnings.

I regard that statement as providing a most significant reason for the establishment of the Corporation. It is a little disturbing to find on analysing the data of income remitted abroad by Australian companies as a proportion of Australian export earnings that the figures are otherwise. I suggest that the figure has not risen in 5 years from 8.3% to 10.5% but rather that it has risen to only 8.6%. There is a substantial difference. In fact the figure has not risen to that level in 5 years. It has risen from 6.6% to 8.7%, not in 5 years, but from 1958-59 to 1968-69. This vital difference in the interpretation of the basic data must give rise to some doubts about the institutions which are designed to increase Australia's equity.

If one were to go a little further and subtract from the income and dividends remitted abroad the interest on fixed interest borrowing overseas by institutions, the income remitted abroad would be a great deal less. It is known that I hold a somewhat different view on this matter from the Minister for Trade and Industry. I respect the Minister very highly, but there is a difference in our interpretation of the basic data. For that reason I have reached a different conclusion as to the need for the Corporation. One then has to look a little further at the background against which the Corporation is to be developed. Whether we like it or not, we do not generate sufficient of our own resources for reinvestment in this country. One can complain about capital inflow but one can thank God that the capital inflow has occurred, because without it the standard of living would be far lower than it is today and it would be increasing far more slowly than it is today.

Mr Cohen - You can blame the Government for that.

Mr Kevin Cairns (LILLEY, QUEENSLAND) - The honourable member would not ever recognise a principle. Sometimes principles are important in examining a corporation. If one examines the capital inflow that is involved here one finds that the background to the development of the Corporation is this: Over the last 3 quarters, that is from the quarter ended in September to the quarter ended in March, capital inflow to thi.; country has dropped more than in any similar period for almost a decade. We are in a position where capital inflow has declined very seriously. One just has to refer to the figures for the past few years to illustrate the point. For the appropriate 3 quarters of 1969-70 the capital inflow was $307m. In 1968-69 it was $9.1 6m, and for the year before that, 1967-68, it was $870m. 1 am unable to find another situation where the decline has been so great in such a short period of time. We are being saved to a great extent by the improvement in our balance of trade, for which we have to be very grateful to the Minister. One has also to recognise the continued dependence upon capital inflow. Because of my interpretation of the background of the Bill I have arrived at somewhat different conclusions from the Minister.

The precise reason for which the Corporation is being set up is as the Minister stated clearly on page 8 of his speech. H? said: tn what I have said I speak not to criticise foreign companies-

And he did not - but to point out the circumstances which indicate a lack in Australia of the means for Australian companies to marshal adequate financial resources for major expansion and development under Australian ownership.

There is a clear statement of fact. There is a clear forshadowing of a gap in financial institutions. A little later on the Minister said: lt will assist-

That is, the Corporation - in cases where the development would otherwise not take place, or would otherwise bc possible only with undue loss of ownership and control to overseas. 1 have not been able to determine what are the cases for borrowing overseas at unsubsidised rates by efficient and economic Australian industries that have been presented to appropriate institutions and have been rejected. The Corporation depends upon such cases. To find out the cases involved I have searched through the data concerning many of the prominent cases such as Gove and Robe River. 1 have not been able to find the cases upon which such a corporation has to depend for its conception and its birth. Surely that is the vital ingredient in any institution that is to be developed. Yet I have not been able to find it. There must be a perceptible unsatisfied.

If one goes a little further one finds that a financial institution is being developed. I know that the Minister has given much consideration to this factor, but I am concerned about a financial institution being developed which may lend widely and be outside the system of credit control in this country. What I am saying should appeal to many members of the Opposition. I am in favour of the maximum control of credit in this country one way or another through the banking system and through the Reserve Bank. This is the only way in which interest rates can be kept down reasonably well over a long period of time, lt is the only way in which monetary policy can bc made to serve, as it ought to serve, basic economic policy 3nd doctrine.

Mr Cope - How do you apply that to hire purchase?

Mr Kevin Cairns (LILLEY, QUEENSLAND) - If the honourable member for Sydney had listened he would have realised that it was the growth of hire purchase companies that was the unstated premise of my statement. He should appreciate that. I am concerned that in the statement on the Corporation Opposition members, and in particular the honourable member for Lalor, made no reference to the fact that a body is being developed, which could become a very substantial body, to lie outside the system of credit control - I do not like using that expression - of this nation. The effect on interest rates in that position can be disastrous. We know the effect of fringe institutions in the past and we do not want to duplicate that position unnecessarily in the future. I know that the Minister is aware of this problem and that he will take cognisance of it at the appropriate time.

Let me now refer to the institution that has been set up. Any institution that is set up derives from some important principles when it is established to operate in what is a private enterprise economy. So this institution has also to depend on private enterprise economy and it has to operate under those circumstances. First of all I would have liked for it to have been a bank for those reasons. Secondly I would have liked this institution to have operated under similar circumstances to those under which comparable institutions operate within the economy. Thirteen years ago - a long time before I came to this place - the honourable member for Macarthur (Mr Jeff Bate) was instrumental with others in seeing that those principles were carried through to the operation of the Reserve Bank. He pl'ayed a great part in the battle of 1956 and 1957. I think that any Government-backed corporation or institution operating within the economy should operate on certain principles.

Mr Uren - Have you read the Bill?

Mr Kevin Cairns (LILLEY, QUEENSLAND) - I would consult your mentor about your economics if I were you.

Mr SPEAKER -Order! I think the House will agree that when the honourable for Lalor was speaking the Chair maintained that he should be allowed to speak with the minimum amount of interruption. I understand that the honourable member for Reid is to speak next in the debate and I wo u I'd suggest to him that he cease interjecting.

Mr Kevin Cairns (LILLEY, QUEENSLAND) - Over a number of years an arrangement was developed whereby, for example, Trans-Australia Airlines operated in competition with comparable organisations in the field of aircraft transport. A return was required on the capital which supported TAA. A rate of return is struck from year to year and this is done so that TAA would not have an unfair advantage over its competitors.

Mr Keith Johnson (BURKE, VICTORIA) - That was done to help private enterprise.

Mr Kevin Cairns (LILLEY, QUEENSLAND) - If you only knew, eVen the honourable member for Hindmarsh (Mr Clyde Cameron) has travelled with Ansett-ANA from time to time, I understand. These were important principles that needed to be supported. A rate of interest was struck so that TAA would not have any undue advantage over competitors such as Ansett-ANA. If we go a little further and look at the operations of the Australian National Line, we see that a similar principle has been developed there. A rate of interest is struck on the funds appropriated and a return has been required in recent years. With respect to the Postmaster-General's Department a similar principle has been supported. The principle has been repeated with respect to the Commonweal'th Banking Corporation. The basic principle is the same but i:s application is a little different. That Corporation has to operate under exactly the same conditions as those under which its competitors have to operate.

Those principles do not apply to this Corporation. The principles concerning the rate of return on capital awarded are ignored. Of course, if they are ignored one would have expected that this body, if it was not to have a rate of return on the capital employed, would have become an actual or effective lender of last resort. Either of these 2 principles should have applied. I am sorry to see in th:s Bill that neither of those principles is implemented. I would like to see them implemented. There was 1 other point in the Bill which governs the operation of the Corporation. I know the Minister is very sensitive to this point and will take it into consideration. As the Minister for Trade and Industry indicated in his speech, this Bill will be concerned especially with export oriented industries. That is its special concern. At present there is a distinction between that statement and some of the ingredients of the Bill. We are concerned always to raise our balance of trade in our favour. Australia has depended on its trade and its external trading relations as a vital engine to its economy more than many other countries have. So I would hope that in the course of the Committee stage those matters might be examined and parts of this Bill brought into conformity with the second reading speech. I am sure it can be done.

I think it can be reasonably well established that a body is being set up which is similar to bodies already operating in the field. I will compare it principally with the Australian Resources Development Bank. The Corporation is concerned with overseas equity, export income, 1 hope, and the pursuit of high overseas equity by means of fixed interest borrowing abroad. When one examines the objectives of the Australian Resources Development Bank one finds that there are 6 objectives. T will read 2 of them to the House. The first is:

To borrow or to raise overseas Funds in the fixed interest category on the most favourable terms possible.

There is no difference between the aims of the Corporation and the Bank in this respect. The second objective is:

To require a substantial Australian interest in ventures finance.

There is a difference in words but a clear confluence of intentions. What has to be demonstrated then is that when this Corporation is being set up something has been found wanting in, for example, the Australian Resources Development Bank. One inevitably arrives at that conclusion. We ask: Have such charges or comments been directed to the Australian Resources Development Bank? They have. A number of comments have been made that in its own fixed interest borrowing abroad the Bank has not pursued through its shareholders, the trading banks of Australia, a strong enough policy, ft has not borrowed sufficient abroad. For example, the Prime Minister (Mr Gorton) was asked a question on a television programme in Melbourne on 12th April concerning this factor. He said, concerning the Bank: lt has mobilised some $250m or something of that kind but ii has virtually borrowed nothing from overseas at all. It may be $2m or $3m now but it is chicken feed. It hasn't pragmatically done what this Corporation is set up to try and do.

What is the explanation up to that time or a little before that time for the Bank not having borrowed much fixed interest funds abroad? Why? For 2 reasons. For most of the period that the Bank has been in existence interest rates overseas have been disastrously high. They have been so high that Australian industry requiring loans abroad in order to main its equity was not willing to pay the rates. It is presumed that the rates are not to be subsidised. But there was something in addition to this. Interest rates in this country were very low. They are still low, but they were much lower during that period than they are now. So the gap between the 2 rates was the reason for which there was an acute disincentive in Australia for industry to borrow money abroad through the Australian Resources Development Bank at unsubsidised rates.

But what has happened, almost within recent months, is that interest rates abroad have declined greatly. The Euro dollar rates on the various markets, interbank markets, 3-month rolling fund markets and 7-day funds have all declined very much. But Australian interest rates have gone up also. This has meant that from 2 angles the gap was narrowed between rates here and rates overseas. The disincentive effect was considerably lessened and once the disincentive effect, on a comparison of the 2 rates, was lessened Australian industry found that it was willing to pay some of the rates which applied overseas. So within recent weeks - within the last 6 or 7 weeks - we have had more than $30m raised overseas for Australian industry in fixed interest borrowing of the type to which the Industry Development Corporation is devoted. In these circumstances Australian industry was willing to pay the rates and has thereby been enabled to preserve and, in many cases, to increase the proportion of Australian equity in enterprises. I think it would be a little unfair to criticise industry because it was borrowing in a position of low interest rates, being unwilling to pay high rates overseas, and then to praise it when it is borrowing in a position of higher rates in Australia and is willing to pay rates overseas that had declined somewhat. Reasons for criticism of the Australian Resources Development Bank during the period of its. operation from March 1968 to the present time can be a little unfair.

Some other parts of the Bill cause me some concern. I instance clause 8. sub-clause (6.). I know other honourable members are concerned about this provision. Some other sections of the Bill may have to be examined in some detail, and I know .that they will be examined in detail.

Mr Grassby - What was the clause you mentioned?

Mr Kevin Cairns (LILLEY, QUEENSLAND) - I do not think the honourable member for Riverina understands the Bill.

Mr Grassby - I just asked what was the clause.

Mr Kevin Cairns (LILLEY, QUEENSLAND) - Clause 8, subclause (6.). I have tried in this second reading speech merely to deal with the principles appropriate to this body. I have not sought to make this a Committee stage speech because it is not appropriate to the body. I am concerned basically that this Corporation is not a bank. I think that there is protection to the Australian community in the preservation, with appropriate interest rates, of the banks. I am interested to note that the Opposition has abandoned some of its basic economic dogma in not recognising that fact. I am somewhat concerned about the criteria for lending which are established by the body. This will be examined. I think it is an unnecessary undermining of the banking system, and the competition of the banking system, at appropriate interest rates, deserves to be preserved for all Australians.

Mr Morrison - What competition?

Mr Kevin Cairns (LILLEY, QUEENSLAND) - The honourable member for St George has been overseas and he would know that the interest rates that would apply to appropriate loans overseas would not be recognisable in Australia. I can imagine that for various reasons he decided to retreat back home. There is one other matter which I should like to mention. The aims of the Australian Industry Development Corporation are worthwhile and do need support. The basic criteria on which criticism of income remitted abroad are based need re-examination. There are great gaps in the statistical data. Some of the gaps in the statistical data can be responsible for developing the Corporation which I would not have developed myself but which, of course, quite obviously is going to be supported in this House.

Finally I would say that when one rejects an existing institution good reasons have to be found for that rejection. Good reasons have hot been found for that rejection. The Australian Resources Development Bank is operating in this field. It has enabled

Australian equity in many enterprises to rise far more than it would otherwise have risen. For these reasons it ought to be applauded. I am a little concerned that the Corporation, in its operations, will quite obviously duplicate the function of the Resources Development Bank. It will clearly overlap the operations of that body at a time when its operations have not been shown to be deficient and when, in fact, the criticisms of that body have been shown to be baseless and dependent on incorrect and wrongful economic data.

Mr DEPUTY SPEAKER (Mr Lucock)Order!The honourable member's time has expired.

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