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Wednesday, 20 May 1970

Mr DOBIE (Cook) - We have been listening to a collection of suave asides sliding all over a quaint speech by the Leader of the Opposition (Mr Whitlam) but what could scarcely be called an authoritative speech on economics and one which scarcely reflects the policies or platforms of the Australian Labor Party. I am pleased to see that the honourable member for Melbourne Ports (Mr Crean) is now at the table. One can only wish that he might have had the opportunity to speak. I am quite surprised that the honourable member for Oxley (Mr Hayden) and the honourable member for Adelaide (Mr Hurford), with their economic backgrounds, have not as yet been given an opportunity to speak in this debate.

The potential value of the Corporation proposed in this Bill should be assessed in relation to what implcations are seen in the very large inflow of foreign capital into this country in recent years. There are few subjects more complex than this one, and it is one in which it is easier to get opinions than facts. It is not always possible to separate emotional response from economic judgment in thinking about the issues raised by overseas investment, but it is very important that we do think about it and base whatever we do about it on a proper concern for the future development of this country. There can be no doubt that the huge sums invested here from abroad in recent years have been of crucial significance to the rapid industrial development we have seen taking place. Without this inflow of foreign capital we could not have developed all the new industries we have seen established; we could not have embarked on the immense new mining projects; we could not have developed our cities as they have developed or sustained our migrant intake. In fact, it is generally agreed that much of Australia's progress would have been delayed for who knows how long before Australians, acting alone, could have amassed the vast capital requirements needed or gained the technical and managerial know-how to undertake large scale projects without outside help.

I do not believe there can be any real argument with the proposition that this foreign investment has brought great benefit to Australia at this vital stage of our development. However, I do not believe that it would be wise to arrive at that comfortable conclusion and let the matter rest. I think it right that we should occasionally look at the balance sheet and see what minuses, if any, there may ba developing. It is not so long ago that this country faced a series of crises in our balance of payments position. Honourable members will remember that there was a continuous battle to make ends meet in our international transactions. Terms of trade were and are working against Australia, as indeed with all major rural exporting countries. Manufactured exports were beginning to play an ever more significant part for us. But it was the dramatic development in the mineral industry in the past decade, backed by Government encouragement and guidance and largely financed from overseas sources, which came to the rescue of Australia's international trading situation and appears to have largely removed the threat to stability with which we had learned to live so precariously from year to year.

Of course, there can be no disputing that the inflow of foreign capital itself has played a crucial task in balancing our accounts in some recent years. Other honourable members have pointed out some facts about the extent of foreign ownership in certain key areas of our economy. Others have referred to the growing bill which must be paid now, or in the future, for overseas funds which have been invested here. I would like to consider very briefly what these factors mean for our balance of payments. Simply put, a growing industrial structure means growing demands for capital equipment and the essential materials to sustain industrial growth. A growing population with full employment and rising living standards means growth in consumer spending. In turn, these growth factors generate imports which have increased from an annual bill of approximately $ 1,800m at the start of the 1960s to something of the order of $3,500m this financial year, representing an annual increase at the rate of 8% over the past decade.

In addition to paying for imports we also need growing amounts of foreign exchange to meet deficits on invisibles such as freight, overseas travel, dividends and interest payable overseas. This need has been growing also. In 1959-60 the deficit in this area of our balance of payments was about $500m. Now this deficit is more than $l,000m a year and is growing. The burden of these items such as dividends, royalties and interest payments remitted abroad is also growing. In 10 years these remittances have more than doubled to about $340m today - a figure, I remind honourable members, which includes royalties. Irrespective of the precise base used or the particular factors considered, it will be agreed that the bill for these items is increasing and doing so significantly.

Whether one agrees with the figures put forward by the Minister for Trade and Industry (Mr McEwen) on whether one agrees with those which have been mentioned in this debate by my colleague, the honourable member for Lilley (Mr Kevin Cairns), is somewhat immaterial. Honourable members will recall that the Minister claimed that income remitted overseas had risen from 8.3% of our export earnings 5 years ago to 10.5% a year ago. The honourable member for Lilley, on the other hand, by removing certain data, claims that the figures should be from 6.6% to 8.6%. I have not had time to investigate thoroughly the figures of the honourable member for Lilley. However, I support them and his contention that royalties should not be considered in this context. Nevertheless, the reality is that both sets of figures show that, despite a substantial increase in the volume and value of our exports in the past 5 years, the cost of servicing foreign debt and foreign investment in Australia is steadily growing and, I venture to say, will continue to do so. Some time over the weekend I was able to do some figures too and I would suggest that perhaps the most significant figure to look at in this context when we consider that exports in 1964-65 amounted to $2,574m and in 1968-69 $3,220m, is the income earned after tax. This income payable on direct private overseas investment excluding royalties moved from $250m in 1964-65, which represented 9.7% of exports, to nearly double that figure in 1 968- 69 of $493m or 15.3% of that export figure. The danger is there and is one which we have to be careful about.

In the last 5 years the annual rate of foreign capital inflow has doubled. In the last 2 years it has been at the level of some $ 1,200m. Coupled with the plough-back of profits by foreign owned companies in Australia, which itself has doubled in the last 5 years, the commitments we are now building up for future overseas payments in profits, royalties, interest and repayment of loans must be, as I think is generally admitted, rising at a considerable rate. It is to be regretted that nowhere near enough work has been done in (his field of inquiry and I would hope that the interest that was being shown at some of the universities - certainly at the University of Melbourne's commerce faculty - 10 years ago could be re-activated. There can be no questioning the great need for definitive research into forecasting trends for payments of income remitted abroad and 1 would commend it to any students who are contemplating a subject for their master's thesis. But back to the Australian Industry Development Corporation. One of the main purposes I read into the proposal for an Australian Industry Development Corporation is to encourage, not to force, but to encourage, a gradual build up in the Australian-owned share of the development now going on in order to moderate the rate of build up in our future commitments overseas for profits, royalties and interest payments. I believe this is common sense.

As honourable members realise, capital inflow can come in a number of forms. It can come in as borrowing with a finite requirement to repay at fixed rates or as equity capital with a continuing and growing need for capital service payments. Overseas capital can come in to industries restricted by franchise imposed by parent companies overseas which prevent them exporting or to industries which develop exports and contribute to our export earnings. It can come in a way which leaves a large degree of Australian ownership and control or excludes Australian participation. In each of these alternatives, admittedly starkly posed for this speech, there is a choice between one way and another, with one choice being better for Australia's future. As 1 see it, the job for the Development Corporation will be to use its influence where it can in the projects for which its assistance is sought to see that the choice made between the available alternatives is that choice which is in the best interests of Australia. Perhaps its crucial role will be its ability to influence the proportions of overseas capital coming in in the form of fixed interest loan money as opposed to equity capital. As structured by this Bill I believe this Australian Industry Development Corporation can play this useful role certainly to the extent that its operations should result in a larger proportion of overseas capital coming into

Australia in the form of loan moneys. These moneys will eventually be repaid, thus ending the commitment to send funds overseas to service them. Equity capital gains a right to participate in profits and there is no predictable end to the commitment. As the enterprise prospers and grows the overseas payments grow with it.

As we are aware, the greater the share of profits of enterprises financed with capital from overseas which goes to Australians through equity holdings in our enterprises, the greater will be our capacity to finance our own further development and the stronger will bc our long term balance of payments position. These are simple facts and they have been simply put - oversimplified perhaps, but none the less important to this debate as it has developed. Of course, there remain big tasks to be undertaken in developing Australian industry and natural resources. This is not in dispute. Nor is it disputed that huge amounts of capital, both loan and equity, will need to be forthcoming for Australian development. It is in our long-term interests to encourage such measures as the Australian Industry Development Corporation, designed to assist the efforts of Australian companies to get overseas capital in the form best suited to what T believe are our best long term needs.

Here in Australia we have developed many kinds of financial institutions each filling an important and specialised need. These institutions cover a wide range and reflect the rapid sophistication of the Australian money markers in the past decade or so. We have the large private trading banks and their savings banks, State government savings banks, the Export Payments Insurance Corporation established by the Federal Government, the private Australian Bankers Export Re-Finance Corporation, the Commonwealth Development Bank - wrongly incorporated, I still firmly believe, in the Government-owned Commonwealth Banking Corporation - the private Australian Resources Development Bank, the hire purchase finance companies, short term money market dealers who have evolved from major share broking firms, life insurance offices, overseas discount houses, the new and rapidly expanding credit unions, and so on. Furthermore there has been a great expansion of the Australian merchant banking system, increasingly in recent years in partnership with the internationally renowned merchant banks of Britain, Europe and, to a lesser extent, the commercial banks of the United States of America.

All these institutions have largely grown up to meet a specialised need although there is inevitably some overlap between their interests and, contrary to what the Leader of the Opposition (Mr Whitlam) suggested,, certainly a welcome element of competition between them. Some of these institutions perform banking functions for industry insofar as they provide short and medium term finance, deposit and overdraft facilities, and so on, although all of them, I would remind the House, do not operate as banks within the banking system. Some of them - the brokers, the short term money market dealers, the life offices and the merchant banks - provide the broad range of financing facilities, the underwriting and placement of share issues and the putting together from a variety of sources of the financial package needed to get a project off the ground and enable a company to expand. I feel there may be some confusion in the minds of the public and indeed in the minds of some honourable members simply because they have not realised that the proposed Corporation is not intended to act as a bank at all. It will not be performing banking functions any more than, say, the Australian United Corporation or the Development Finance Corporation perform such functions.

A Corporation such as the Australian Industry Development Corporation will be a financial institution certainly; but it is not a bank. It wilt not, for example, have the privileges of a bank in accepting deposits. The Reserve Bank will not stand behind it lending support to its activities. So I do not see that the Corporation could be fairly looked upon as competing with the traditional role of the banks. At the same time, we must never underestimate the fundamental role that has been played by the Australian trading banks throughout Australia's history. The expertise that has developed from ISO years of diversified financial experience cannot and must not be understated. While the value of extending this expertise into certain other financial activities should be clearly understood and encouraged, I believe the Go vernment and the Reserve Bank have seen to this and I doubt whether there would be much credible objection from thinking Australian bankers on this matter. The trading banks have diversified not only in the way they have invested their capital funds into such activities as hire purchase, where, I might add, there has been great stabilisation following the extension of banking managerial expertise into this formerly volatile area of finance, but into the new areas of fund management and trust accounting, for example.

At the same time we know that the banks have been forced into changing their philosophies, partly because of competition from newly developing financial organisations and partly because of policies of restriction put forward by the Reserve Bank. The Australian money market of 1970 bears no resemblance to the Australian money market of 1950 - if, in fact, it deserved such a title 20 years ago. No, Mr Speaker, the role of the trading banks has changed over the past 2 decades and it is to the credit of private bank management in this country that the banking system has moved with the times so well. It has not always been a voluntary transition. Reserve Bank policy has not always been easy to follow and its directions have not always been to the advantage of the customers of the trading banks. Restrictions on lending policy, restrictive control of the trading banks' capacity to earn profit commensurate with capital involved and skills employed have not only challenged the trading banks to greater working efficiencies but they have forced bank management into new activities not, as is so often alleged by members of the Australian Labor Party, to protect their own ends, whatever these may be, but to ensure that bank customers are given the financial servicing and credit facilities their customers require.

I do not intend this speech to be an apologia for the trading banks. I merely wish to put into some perspective what they have done, what they can do and what they believe themselves capable of achieving. I am not convinced that they have the facilities or the managerial experience to move into the activities that are planned for the AIDC. The merchant banks, for their part, do not normally, as will the AIDC, act as risk investors in their own right, with their own funds - lend to projects or participate significantly in the equity of a venture. Nor, perhaps, more importantly, have the merchant banks the capacity to raise a loan overseas for a venture which does not itself have a credit standing on the international money markets. So 1 can see no cause for concern here for the merchant banks. Rather. I believe, the AIDC should be seen as becoming a client, or an associate of the merchant banks and other related financial institutions. Indeed. I can envisage that there could be a substantial increase in business for them, as the Corporation's activities develop, both in acting in partnership with the Corporation in financing ventures and because of the growing number of projects in which Australian firms have an interest and will look to the existing financial institutions to provide their specialised services.

As for the Australian Resources Development Bank, its role and importance for Australian development is unquestioned. lt will, I am certain, continue to receive unqualified support for its operations. But its activities are limited to the extractive industries and 1 am led to believe it does not participate in all stages, from mining to manufacture, of a new venture. For example, it would not be its purpose lo assist in the future development of an essentially mining venture into a fully fledged and integrated processing and manufacturing operation. Principally refinancing loans by its member banks, the Australian Resources Development Bank is essentially an extension of the traditional banking facilities for industry. Quite apart from all this, perhaps the main reason why an Australian Industry Development Corporation will not be in competition with existing financial institutions is that it is obviously intended to tap sources of funds not available to them; and it will be using these funds for a purpose which is not central to that of any of the exist:ng institutions, namely a charter responsibility to act - this is the important feature - to maximise Australian participation in industrial ventures.

I see the AIDC as providing a new facility tailored especially to promote and encourage Australian participation in our industrial development in partnership and not in conflict with existing institutions.

I imagine it will operate in a variety of ways, as determined by the particular needs of a venture it is engaged in, in providing finance solely for Australian partners in Australian ventures. I can understand that the AIDC can be and will be something of a catalyst in the putting together of attractive financial arrangements which would meet the needs of the partners in the project - the Australian companies involved, the overseas companies' involved and the other financial institutions involved - while at the same time achieving for all Australians the important policy objective of greater Australian ownership and control of Australian industrial development.

The Bill gives the AIDC the flexibility not only to be a fixed interest borrower and lender but to provide through convertible notes, option warrants and .the like the equity sweetener that can attract to ventures funds which would not otherwise be available. On occasion, it may need to be an investment participant itself to secure its objectives of preserving Australian ownership for the future. Perhaps it is in this field that we may need some of these conditions to be considered. I know of no financial institution in Australia able to perform this task. An interesting new feature of the Corporation will be a systematic programme of borrowing overseas funds for development by Australian private industry of Australian resources and skills. I do not believe that the Corporation will always find it easy to borrow money on the international markets - whether in the recognised markets in Europe and the United States of America or from the less organised, but still significant, sources to be found elsewhere in the world. In fact, I believe the activities of the AIDC will be curtailed in the establishing period by the availability or non-availability of such funds overseas. Furthermore, I believe that the rate of interest that will have to be charged to clients of the Corporation, certainly at the present time, will prove to be a further dampener.

If the Australian Industry Development Corporation, established by government* with large capital backing for all to see, cannot borrow overseas at reasonable rates of interest for investment in projects with investment appeal I have doubts that any Australian privately owned business would be able to do so. If such private businesses cannot do so then the scarcity of funds on the Austraiian loan market will mean minimal Australian ownership and control of the ventures. Internationally controlled companies do not suffer from either restriction and may still draw from captive overseas funds which they control. To sum up, with the safeguards written into its charter I believe no existing financial institution need fear the AIDC as a competitor. Indeed, existing institutions should look upon it not as a bank nor just as another financial intermediary but as a potential partner from whose activities they can gain business. As a new institution, with a specialised function of assisting Australian industrial development into private Australian ownership, it should help bring new funds into Australia. I have doubts about some details of this Bill and have agreed with many of the criticisms brought forward by honourable members on this side pf the House, particularly as to whether this Corporation will find the money it seeks overseas. But I believe we cannot know this until we try it.

Let me add a final word about the threat of nationalising the AIDC whenever, and if, the Labor Party assumes office in Australia. I have listened to the words of nationalisation from the honourable members for Lalor (Dr J. F. Cairns) and Cunningham (Mr Connor). The latter member, honourable members will' recall, went so far as to say that his Party will put the AIDC to other and better uses when the Australian Labor Party assumes power. But not a word came from the Opposition Leader (Mr Whitlam) regarding nationalisation. So what? These and similar comments by the Leader of the Opposition are based on one premise and one premise alone. The ALP still intends to nationalise, and I quote from page 10 of that Party's Platform Constitution and Rules', as approved in 1969, for 'nationalisation of banking, credit and insurance*. Later, in the same document, on the same page, the ALP plans 'Regulation of hire purchase and fringe institutions in conformity with regulations of the trading banks'. Or will it be 'Nationalisation by rationalisation of the trading banks'? Yet again on page 11 of the platform and policy the ALP declares for all to see that it plans 'to nationalise any industry or part thereof. The Australian Labor Party has never varied from its plans to nationalise, not just control, anything and everything it wants to. Now we will hear them say that the Constitution places limitations on them; that they, the Labor Party, will be restricted only insofar as they can get round the Constitution. If honourable members and the public think that that is merely a smart legalistic play on words by the legalistic Leader of the Australian Labor Party, then let them not be fooled. Let Mr Jackson and Mr Scambler of the banking world not be fooled. It is no argument to say that the AIDC should not come into operation because, at some future stage, that glorious party of the left-

Mr Cope - Oh, cut it out.

Mr DOBIE - I know the honourable member for Sydney is not part of the left. I repeat that it is no argument to say that the AIDC should not come into operation because at some future stage the glorious party of the left might nationalise it. That glorious party of the left is going to nationalise everything. Even if it is intending to change its policy on State aid yet again - a policy, I might add, which the late Jim Fraser never repudiated for a moment, even when his political leaders did and even less when his opponents in the Australian Capital Territory ranks of the Labor Party campaigned against him on his support for State aid - let us recall that the Australian Labor Party is dedicated to nationalisation of credit whenever and wherever it can.

I remind the House that the Reserve Bank still holds the power to cripple trading banks and their subsidiaries in Australia. The danger of nationalisation through restricted rationalisation of the Australian banks is present now, and the banking leaders of this country should recall this fact whenever they want to make public statements. Of course, the AIDC can be nationalised but where does the ALP think that it would get the funds from overseas to help it operate? From my own experience overseas there would be an immediate and lasting disenchantment with a socialised Australian Federal government. I venture to say that when the ALP does gain office the

AIDC will cease to have the required overseas support and any resultant nationalisation of it will be of far less significance than the mammoth disruption that will shake our economy when the ALP nationalises the trading banks and their subsidiaries - and any other source of credit for that matter. 1 do not disagree with many of the criticisms made by honourable members on my side of the House. I do agree with many of them. Perhaps the case for the scheme before the House has been overstated. I believe there are areas for reconsideration. However, on balance, 1 believe the principles behind the scheme are sound and that they certainly deserve a trial. I support the Bill.

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