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Tuesday, 27 April 1965

Exchange control regulations will be altered in the following ways:

(a)   Official exchange for direct investment outside sterling area will be available only when the project will bring a substantial continuing return to the balance of payments and there are good prospects that the overall return will, within the shortterm, equal or exceed the capital outflow.

(b)   The proceeds of wills and gifts to United Kingdom residents will no longer be permitted to be sold as investment currency, but will come into the reserves.

(c)   Investment currency will no longer be available for the purchase of houses outside the sterling area. Only the proceeds of sale of houses and similar property owned by residents of the United Kingdom will be available for this purpose.

Prompt Payment

(d)   More checks will be made to ensure that exporters obtain payments from foreign customers within six months of shipment unless special permission has been obtained.

(e)   The present foreign travel allowance of up to £250 for a journey abroad will continue, but the amount will be entered in passports and anyone purchasing more currency than this in any year will be asked to provide evidence that the funds are required for genuine travel expenditure. The amount of sterling notes travellers may take out of the country is being reduced from £50 to £25 per journey.

(f)   Residents who sell foreign securities will in future be expected to exchange 25 per cent. of the foreign currency proceeds into sterling; the other 75 per cent. will remain available as at present for re-investment abroad or for sale as investment currency. There will be special arrangements for jobbers and financial institutions.

Before I leave the United Kingdom position, I might just say that Britain hopes to achieve its purpose in two broad ways. These are, first, by taxation measures, which are of some complexity, as one will see when one reads them and, secondly, by exchange control measures, which again, are of some complexity. The matter is summed up by the United Kingdom Chancellor of the Exchequer in this statement -

The benefit of the exchange control measures to the balance of payments is difficult to estimate, but it should be at least £100 million a year. In addition, the extra tax from companies with overseas income is likely to be also of the order of £100 million a year.

So the measures that are being undertaken are likely to restrict, as to the rest of the world, capital to the tune of some £200 million per annum. Just how far we would figure in making a contribution to that saving is a matter for experts to determine and might well have been determined if the Treasurer had first had an opportunity to confer with the United Kingdom authorities. I note today from the announcement of ministerial arrangements that the Treasurer is due back from the United States on 4th May. I would really be happier if it had been arranged for him also to visit London and come back armed with what knowledge he could glean on the spot there. because we are faced at the one time with difficulties from both sources, the United Kingdom and the United States.

We in this country certainly, for the reasons that I have already given, cannot complain about these countries addressing themselves to the solving of their balance of payments difficulties. I repeat that it is important to them and important also to us that they do so. I say with regret that this Government ignored a warning that was plainly implicit when America, under President Kennedy, adopted the interest equalisation tax back in the middle of 1963. There to us,' on the wrong end of a trading and annual balance position, was a clear indication that something upon which we relied, already inadequate for our purpose, was to be further restricted. One might have thought that the Government would have been alerted to the need to begin to assess what effect that would have upon Australia if it were followed up by increasing restrictions of that nature. Here was the most powerful financial country in the world imposing those restrictions. That undoubtedly should have sounded a note of warning to the Government.

One cannot help but be surprised to be told in the Senate today in considered statements from the Treasurer, in reply first to Senator Cohen and next to Senator Murphy, that there are no complete official statistics in this country as to the percentage of foreign ownership in various industries, the extent to which there is Australian participation, whether many of the companies are subsidiaries of overseas companies, and other vital questions. It is clear that the Government did not take the oportunity to address itself to those matters. Otherwise, that information would be before the nation today. On the other hand, we have the spectacle of the Treasurer communicating with American firms here asking their intentions for the future, seeking to arm himself with that information before proceeding to his talks in America. I have no doubt that he would not have got many answers in a hurry from the subsidiaries in this country, that they would need to refer to their headquarters, and that while the information sought might come through the subsidiaries here, it would really be the decisions of the main American corporations.

The Government has no excuse for not being prepared in this matter, for many reasons. It has had warnings from the Opposition in both chambers for many years. I recall having addressed myself to this particular matter in a debate on the Estimates and Budget Papers on 5th September 1956, nearly nine years ago. What I said then is completely relevant today. I shall be brief in the extracts I make from that speech. Having pointed out what our deficiencies on current account had been down a period of seven years, I said -

The Government made amends to some extent by borrowing overseas and by securing the investment of overseas capital in Australia, but both these courses are highly dangerous. They are all right on short term to improve the balance of payments and to prevent too great a crash of our London sterling balances, but they have long term effects which could be disastrous for this country.

I referred to an article which had appeared in the journal of the Bureau of Agricultural Economics, written by one Dawson. From time to time I have referred to this in the Senate. This article, not necessarily approved by the Bureau but certainly appearing in its journal, " Quarterly Review of Agricultural Economics" of 2nd April 1956, under the heading, "Direct Foreign Investment, Influence on Australia's Balance of Payments ", particularly in relation to America, stated -

Even more striking is the fact that the total income (including undistributed profits) accruing to American companies in Australia rose, as a proportion of Australia's dollar export income, from 10.8 per cent, in the three years ended June 1950 to 42.6 per cent, in 1953-54. This rate of increase indicates that, within a few years, a decision by American companies to repatriate profits and dividends instead of ploughing them back could absorb the whole of Australia's dollar income and force the imposition of even more drastic restrictions upon imports of developmental equipment for Australian rural industries and manufacturers.

That was very prophetic. It certainly should have alerted the Government. It was before the Government, but it does not appear to have produced any action, or even any investigation, on all the answers to questions that we have seen which avoid or are unable to supply information with any precision. The article in question concluded on this note -

In the light of these considerations, Australia's present . and prospective balance of payments position would appear to call for a policy of critical selectivity in . the admission of and in the granting of assistance to direct investment from overseas.

I commended the whole of that article to the Government when I spoke on 5th September 1956. 1 select another extract from that speech -

Honorable senators must remember that on all money borrowed overseas interest must be paid, and on all overseas capital invested here dividends are payable so that the Government has, in effect, been mortgaging the future. As pointed out in this very thoughtful article, circulated by the Government's own bureau, there is a warning for the Government about the long term effects of its policies.

I spoke on this matter first in 1956 and 1 spoke on it again five years later, on 9th March 1961. On the latter occasion I quoted a finding of the Reserve Bank of Australia which contained a warning about the trend. In the debate on the motion for the adoption of the Address-in-Reply to the Administrator's speech I said -

During the last five years an extraordinary amount of the industry of this nation has passed into the hands of foreign companies. The Reserve Bank, in its statement of November last -

That would be November 1960 - pointed out that £750 million worth of foreign capital had been invested in industries in Australia during the past five years. Approximately £450 million was used by foreign owned companies to establish or purchase industries in this country, while £300 million was invested in established Australian industries. It was stated that governments had borrowed about £100 million overseas as well. In the same period of five years, we paid out £500 million in dividends to foreign investors. Those figures give some idea of the significance of money that is coming in.


Senator Lillico - Would the honorable senator say what could have -been done about that position at that time?







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