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Thursday, 10 March 1966

Mr WENTWORTH (Mackellar) . - There are one or two questions in the Vernon report which relate to major matters in the economy and which I think the House might note. I refer to the remarks that have been made in regard to savings and the inflow of foreign investment. I listened with great regard to the speech made a moment ago by my friend from Queensland, the honorable member for Lilley (Mr. Kevin Cairns), and I felt that what he said about, for example, the changes in the work force has not yet sufficiently engaged the attention of the Government or of this House. I do not intend to traverse those matters. I commend the honorable member for what he said. I think he gave a most thoughtful and original analysis of some of the main factors.

If we look at our balance of payments on current account we are struck by the immense deficits which now seem to be occuring. I shall cite figures from the " Treasury Information Bulletin " of February 1966 on the balance of payments. For 1958 the deficit was $309 million; 1959 $385 million; 1960 $459 million; 1961 $737 million; 1962 $2 million; 1963 $476 million; 1964 $59 million; 1965 $784 million. It appears from preliminary figures that the deficit for the year ending 30th June 1966 will not be less than $1,000 million; it may even exceed that figure.

These deficits have been made good by capital inflow, because of which our balances in London have been kept up. But can this continue and, in particular, can it continue in its present undesirable form? The figures produced by the Treasury in respect of capital inflow show that today practically none of it is accounted for by Government securities and fixed debentures. On page 53 of the Treasury White Paper the figures set out show that the governmental inflow for the period from 1949 to 1965 was $312 million, balanced by an outflow on other official transactions of $128 million and by an outflow on account of marketing authorities of $62 million. The net capital inflow on the debenture account for the 17 years period is only some $122 million, or roughly $7 million a year. It is virtually a negligible figure. Practically the whole burden has been carried by capital inflow for the purchase of equities - the purchase of Australian real things. I think honorable members will agree with me that this is an undesirable state of affairs and that if we must have this capital, a great deal more of it should be coming in the form of fixed debentures, and a great deal less should be coming from sales of equities.

The Treasury White Paper shows that in respect of annual property income, the invisible debits have risen from $90 million in 1949 to about $400 million in 1965. The increase continues, so that it will not be long before the need to service foreign capital is in fact exceeding the capital inflow. This is the kind of debenture situation which all companies find dangerous and is one to which, perhaps, more attention might be given in our economy.

I agree that while we continue to have what I think is an unforgivable deficit on current account because of excessive imports and the need, which we have now imposed on ourselves, to service a large amount of foreign capital, we are forced on any terms to obtain foreign capital in order to carry on. We are mendicants and suppliants for foreign capital until we can get rid of the deficit on current account. Because we are mendicants and suppliants, we have to sell our equities on the market at the best price available as forced sellers until we can bring our balance of payments on current account into better shape.

I have read to the House some of the figures from 1958 onwards. They do not give us any cause for satisfaction or optimism for the future. If we study the figures, they may seem even worse than at first sight, because honorable members will recall that we are not as yet carrying our fair share of international defence commitments. We have to find more if we are to be safe and to continue to exist as a nation. Although it is true that we have been absorbing a considerable number of migrants, our rate of natural increase, as the honorable member for Lilley has told the House, has not been as great as it might have been. In a sense, an incoming migrant is a cheaper person to service in terms of capital equipment than is a child, because an incoming migrant does not require the same education and total maintenance as does a child while he is not yet ready to enter the work force.

It seems that we must make a great effort to cut down our imports and substitute for them locally produced goods. I appreciate that there are difficulties. Some people say that it cannot be done, but that is what is said by every man when he is told by his bank manager that his overdraft should not increase any further. There are all sorts of things which he cannot do without until finally he must do without them. There is need for a great substitution of local saving for the saving that we have been importing from abroad in the form of capital inflow which has been purchasing our equities. As it has purchased our equities, it has made it much more difficult for us to maintain balance in the future. We are in the position of a firm whose commitments for what it has borrowed in the past seem now to be preventing any possibility of its paying its way from current income.

We have had certain windfalls. There may be greater windfalls, particularly in view of the discoveries of mineral treasures which we did not put in the ground but which we are very lucky to have in the ground that we own. These mineral resources may come to our rescue. If there is no disaster and if we can maintain our existence as an independent country, the growth of population in Asia will call for considerably greater exports of foodstuffs and may give to our primary industries a bonanza greater than they are at present expecting.

But with all this we have got to be taking measures, as the Vernon Committee very rightly says, to increase our local rate of savings. It has been a failure of the Government's financial policies to date that it has not faced up to this problem. It is not an easy problem to face up to; it is not a pleasant problem. In facing it, I think there must be a certain loss of electoral popularity.

What are the measures which we can take? In the first place, I think we must be taking measures to remove - not at one step, but progressively - the means test on pensions which has so greatly inhibited local savings. People say: " Well, how can you do this? It will cost £130 million," or whatever figure they like to pluck out of the air. It is true that there will be some additional expenditure, although it need not be this astronomical figure which has been blown up into fantasy by those who do not want the means test abolished. There will, however, be a considerable outlay, but, in the long run it will be more than balanced by the extra savings that will occur when the inhibiting effect of the means test is removed. But that is in the long run. The removal of this inhibition will not change saving habits overnight. If this is done in one step, although the eventual profit will exceed the eventual expenditure, over the short term the expenditure will exceed the profit. So it is probable that the phasing out of the means test in accordance with a not too lengthy but at the same time a not immediate plan is something which the Government must undertake if it is to bring our economy into balance and abolish this tremendous outflow of funds on current account which creates our dependence on overseas capital.

Last night the honorable member for Wakefield (Mr. Kelly) mentioned the need to change our taxation structure in order particularly to reduce the excess in what is called teenage spending so as to provide a savings basis also for those who are going to be married and who want to make provision for their housing, their furniture and for other capital expenditure which is unavoidable from the first year of marriage. So there again I would think that the Government should be considering some kind of special teenage saving, perhaps on a semi-compulsory basis, or perhaps on a voluntary basis, financed by some kind of special savings bond tailored to the special needs of the teenagers.

In addition, the Government might be doing something about the negative investment in debentures by companies which use their overseas credits, which are good, in order to borrow on the Australian market and thus acquire equities in Australia without bringing in any capital at all. One example I think would be General Motors-Holden's Pty. Ltd. not only in relation to its manufacturing but also in relation to what it has done with regard to General Motors Acceptance Corporation, which is a hire purchase company related to the sale of its products. These companies finance their operations by borrowing on the Australian market, using their credits, which are unimpeachable credits, abroad. Thus they take out their borrowings in profits and they obtain equities in Australia without bringing any money in. This is something which the Government must have a look at.

The Government should be doing something, too, about the tax deductibility of interest on money borrowed in Australia by firms whose equity capital is held overseas. 1 shall be very disappointed if legislation along the lines I have suggested is not brought forward by the Government when the next Budget comes before us, or indeed, if it is not brought forward as an emergency measure, as I think it should be. I am afraid I have strained the patience of the House by speaking somewhat discursively on these matters but I think they are matters which should engage our attention. They are major matters of policy which seem to me to emerge from the considerations which are examined so competently and effectively in the Vernon report which is at present before us.

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