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Tuesday, 1 October 1974
Page: 1500

Senator CARRICK (New South Wales) - The Senate is debating the Sewerage

Agreements Bill 1974. The Bill in itself is a simple one which the Opposition supports. Taken in isolation, its aim is supplementary to that of the Sewerage Agreements Bill 1973, and it provides a supplement of $7.95m to 3 States for their sewerage programs. This is in addition to $30m provided to the 6 States in 1973. The amounts of the supplement are $3.95m for Victoria, Sim for Queensland and $3m for Western Australia. This makes a total of $37.95m for the program last year and this year

The Federal Opposition, as I said, supports the measure in itself taken in isolation. However, I should add that it draws serious attention to the fact that the Bill is in breach of the 1972 policy speech of Mr Whitlam and the Federal Labor Party. That speech, supplemented by many speeches made on platforms, made it clear that amounts to be granted for sewerage works to the States and to semi-governmental authorities would be wholly non-repayable grants and not loans. The 1972 policy speech itself is quite clear on this matter, and I read the relevant section:

A Labor Government will immediately ask the principal water and sewerage authorities what Commonwealth grants in the present financial year would enable them to embark promptly and economically on an uninterrupted program to provide services to all the premises in their areas by 1 978.

The simple fact is that this amount, as was the previous amount, is made available in the form of a loan. As a loan it confers no more benefit upon the constructing authority than if the borrowing ceilings for semi-governmentals or for the States in the Loan Council programs had been raised. I should add that there is a slight benefit of differential of interest rates. But, nevertheless, that in itself is minor.

Senator Devitt - What about the availability of finance?

Senator CARRICK - I come to that. It is in relation to this point that I wish to speak in wider terms about this Bill and the program foreshadowed in the Federal Budget of some $105m allocated for sewerage purposes. I do so against the background that the borrowing programs of the semi-governmentals and the local authorities may not be realised in the months ahead and may fall seriously short. I say this not as any prediction of my own but as a repetition of statements from the authorities themselves. These statements, of course, can be tested. The fact is that the semi-governmentals and the local authorities go on the market for debentures. I notice that the Sydney Metropolitan Water Sewerage and Drainage Board is offering those debentures at 10.2 per cent short term and 9.75 per cent long term and can be scarcely regarded as attractive in a period of extremely high and even rising interest rates. So that on the level of the attraction of interest rates alone, the borrowing program must be in some jeopardy.

However, the action of the Federal Government at other levels has more seriously threatened that program. The semigovernmental loans normally are heavily taken up by the trading banks and the savings banks. The trading banks are now in a liquidity crisis and quite clearly do not have the money to provide for subscriptions to these kinds of loans. Indeed, I call on the Government to look towards increasing the liquidity of the trading banks, not only for the purpose of general commerce and industry but also for this purpose of financing huge works that are necessary. This action will not only facilitate the carrying out of the construction works but also provide continuity of employment in this country and take up the slack of growing unemployment.

Apart from the trading banks having their borrowing capacity reduced, the recent action of the Federal Government in amending the Banking (Savings Banks) Regulations will seriously restrict the lending capacity to the semigovernmentals from the savings banks.

The savings banks start from the base that for the first time in some 25 years their deposists are falling in quantum. Therefore quite clearly their capacity to lend is reduced. But, as honourable senators will know, the effect of the amendment to the Banking (Savings Banks) Regulations to reduce from 60 per cent to 50 per cent the proportion of the depositors' balances required to be held by savings banks subject to the Banking Act in prescribed liquid assets and public sector securities, and to reduce from 10 per cent to 7.5 per cent the proportion of depositors' balances the savings banks are required to hold in deposists with the Reserve Bank of Australia and Treasury notes, is to direct funds more freely available to the savings banks into home loans and housing loans.

Of course, I commend this action in the face of the crisis in home construction at this moment. I think this morning a spokesman for the Master Builders predicted that this crisis would result in something like a 60 per cent to 70 per cent decline in the construction rate. Clearly more money, and more money at reasonable interest rates, should be put into housing. However, the effect of that would be to make substantially less money available for local and semigovernmental borrowings. So the local and semigovernmental constructing authorities are facing a serious position in terms of their ability to raise loans.

The Minister will know that unlike the State governments these bodies are not underwritten by the Commonwealth Government, or not required to be underwritten, under the Financial Agreement of 1927 which established the Loan Council. So these bodies can fall short, and fall seriously short, of their borrowing requirements. One wishes their loan programs every success. But the facts are that they look to be seriously in threat.

Indeed, the Minister may know that representatives of those authorities have visited Canberra in recent weeks and brought this position to the attention of the Government. It seems to me that the first thing that should be done is to ensure that the borrowing programs succeed, whether by providing more liquidity or by in fact underwriting their ordinary loan programs to the extent of making grants or, if necessary, loans. The point I make is that the borrowing programs which last year alone were in the order of something like $555m could result in a short fall quite easily of up to $100m. This in itself would negative the effect of the nominal value of the Government's sewerage program as outlined in the Budget. I say this not to be critical but in a desire to be helpful towards the financing of these programs. I commend the desire of the Government to carry out vital sewerage developments throughout Australia. I acknowledge it and commend it. I merely say that on that level there is a likelihood of failure.

But there is, of course, another aspect. Construction costs in water and sewerage projects over the past 15 months have increased to the order of 40 per cent. These figures were provided to me by the authorities themselves. When considered with total borrowings, plus the relatively small amount given by the Commonwealth Government, the increase in those construction costs means that inflation- a government contrived device- has meant no gain to those authorities but merely a transfer of funds. I repeat that for the Government to give a loan to a local government authority is merely to alter the agent who does the borrowing. Instead of making the semi-governmental authority the agent for borrowing the Commonwealth Government becomes the agent. It does nothing to provide extra funds for the local government constructing body and does little or nothing to reduce their costs and their indebtedness. Therefore the relatively small amount of $ 105 m which has been foreshadowed could result in little or no increase in the amount of construction carried out in the year ahead. It is true that in another place the Government has recited a number of undertakings that have actually been achieved. But these undertakings are merely those which the local authorities have allocated for pricing. We have to look at the quantum, what the local authorities did and what the Government did.

I stress the point that the Government in its policy speech made it clear that these moneys would be made available by way of grant and not by way of loan. That was unequivocal. Indeed, it went on to state that future grants for this purpose would come from the Grants Commission and that they would be grants as such. Unless I misunderstand the statement of the Minister for Urban and Regional Development (Mr Uren) in another place, the essential nature of the $100m is to provide $70m of loans- not grants- and $30m of grants. The $30m in grants is basically useful. But the $70m in loans will merely transfer the borrowing agent from the semi-governmental field to the Commonwealth Government. These loans will add to the whole debt structure of those authorities. Faced with a 40 per cent increase in construction costs, the depressed nature of the whole loan market, and the actions of the Commonwealth Government in drying up liquidity in the trading banks and altering the 60-40 ratio that applied in regard to savings banks, the local and semi-governmental authorities of Australia face a serious position in the immediate months ahead. No statement has been made by the Government as to how, if at all, it will assist in this regard. I call upon it to disclose what steps it will take and what plans it has to provide the necessary finance.

Let me now outline what in my view ought to be the bases for a common sense program of sewerage construction. I say by way of preface before I do so that I anticipate that the Minister for Aboriginal Affairs (Senator Cavanagh) will resort- naturally enough- to the technique used in another place of decrying those governments of the past that did not complete their sewerage construction programs. May I speak for my own State of New South Wales? In 24 years of government by a State Labor Government up to 1965, that government was wholly responsible for the water and sewerage works of my State. During that time, year after year, that Labor government refused to take up all the loan funds that were available to it from the Australian Loan Council. It argued that it would not build up book debts as such and it deliberately underborrowed. In fact, every piece of capital work in New South Wales was put into jeopardy because of the under-borrowing program of 24 years of

Labor government. I say this against the criticism made in another place that there has been a backlog of works. If there is to be a mote in the eye, then I say to the Labor Party, through its State instruments: 'Physician cure thyself, because the borrowing programs were available and there was the failing to make use of them. The newspapers of 1 966, 1 967 and onwards are full of the fights of the New South Wales State Liberal Government to obtain some kind of redress at Loan Council meetings or to obtain some kind of upgrading in the position so that a proper percentage of the funds could be provided to that Government. But during the previous 24 years we had the failure at all levels of construction- in regard to schools, hospitals and every other kind of construction including water and sewerage- because of the deliberate and stated policy of Premiers such as Mr Cahill and others to under-borrow and to knock back funds offered within the area of the Loan Council. So let it not be said that this was some legacy of some non-Labor administration of the past. The legacy lies heavily with that former State Labor Government.

Let me say, regardless of whether the mote lies in the Minister's eyes or our eyes, that there is a serious backlog of water and sewerage development and reticulation and that we must do something about it. The ingredients that I put forward are a serious criticism of the Labor Government's projected program and, I hope, offer constructive suggestions for the future.

The first situation is this: It is hopeless to dribble forward year by year amounts of money without giving some indication quite clearly of what will happen next year, the year after and the year after that. The very planning of such huge projects that involve hundreds of millions of dollars depends upon the ability of these authorities to go to the drawing board, to their engineers, to their suppliers of spun pipes, drains and treatment plants and say to them: 'We will want this quantity and particularity of material at this particular time'. They cannot say this at all at this moment. It is of utmost importance that in a time when the unemployment rate is moving past 2.2 per cent on its way to 3 per cent, something which the Government stated in the Budget is tolerable- I intervene to state that it said that an unemployment rate of 4, 5 or 6 per cent is intolerable- there should be a plan within this Labor regarded tolerability of an unemployment rate of 3 per cent. But where is the move to plan ahead and to say to these authorities that they can go to their drawing boards and plan ahead in consultation with their engineers and suppliers so that more people can be employed in the steel works, in the pipe manufacturing industry and by the pumping and electrical authorities because they will be guaranteed extra employment not only in 1974 and 1975 but also in the years ahead.

The fundamental basis of a proper water and sewerage program is that it should be at least a 3-year program and prospectively a 5-year program. Let me draw the parallel of the huge water conservation program that the Holt Government laid down and which, after it terminated after 5 years of operation, the Labor Government abandoned. Here was a program that planned ahead. Here was a program that industry understood and that the Government departments understood. Here was a program that guaranteed full employment. So I state emphatically that the first point is that a sewerage program must be a 3-year or 5-year program.

Secondly, any such program must be undertaken in terms of non-repayable grants and not by way of loans. All that happens when loans are made is that the borrowing authority is altered and the debt burdens of the authorities are increased. In fact, except in times when the local market will not supply the funds, the Government confers no great benefit upon the local authorities by itself making the loans available to them except that there is a marginal difference between the Commonwealth's interest rate and the debenture interest rate. But if the Government were to embark upon a program of making available non-repayable grants, it would reduce the whole burden on the local authorities. So the second point is that we should have nonrepayable grants and not loans.

Thirdly, any such scheme should look towards reducing the interest burden and the debt burden of the semi-governmental authorities. One of the great social and economic reforms that have been performed by any government since the 1927 financial agreement was undertaken by the Gorton Government when it intervened to look at the State debts and to work out a program for reducing the debts themselves and the interest burdens. Honourable senators will recall that during the post-war years we saw the phenomenon of State debts accelerating to an enormous degree and Commonwealth debts declining. The Commonwealth was financing its activities out of revenue and therefore was incurring no long term interest burden. The States were being financed out of loans that were repayable. The Gorton Government interposed equity in this regard and stated that it would devise a plan to meet this situation.

Sitting suspended from 1 to 2.15 p.m.

Senator CARRICK - The debt and interest structure of the semi-governmental authorities, particularly those charged with the responsibility for water and sewerage, is of mammoth proportions. It is necessary to understand this in order to get some appreciation of the relative impact of the money that is being allocated by the Government. For example, for the year 1972-73 the Melbourne and Metropolitan Board of Works had a capital debt, speaking from memory, of the order of $648m. The Metropolitan Water Sewerage and Drainage Board in Sydney, from memory, has a capital indebtedness in excess of $800m. That authority raises in rates, both water and sewerage, of the order of $ 140m a year and will have to raise much more than that to meet current inflation. The Sydney Water Board would, I think, be seeking a capital loan of the order of perhaps $100m or $1 10m, and the Melbourne and Metropolitan Board of Works some $80m. In Brisbane the capital works program runs to some $60m.

So to talk of what are relatively modest sums, that is a sum of $37.9m over the last year and a projected sum of $105m, is in perspective not contemplating a very substantial number of new works. I have made the point that due to a 40 per cent increase in costs the new works may not emerge at all and, unless the Government does something to underwrite the loan programs, there might well be a downturn in construction.

To understand the problem of these authorities, out of every dollar collected in Sydney by the Water Board 52c goes to debt servicing. In Newcastle 53c goes to debt servicing and in Melbourne some 58c. We have therefore the ludicrous situation where the great bulk of money raised by way of rates goes to service old debts. This brings me to the point that I wish to stress. If it is proper, as the Gorton Government did, to relieve the debt and interest burden on State governments then surely it must be equally important to do so in respect of local governments. I put this forward as my own view and as one of the main ingredients of any forward program.

Any such program should relate to the economic and social climate. We are discussing this Bill, and prospectively the Budget, against a condition of severe recession within the community, against a condition where some 1 ,000 persons a day are losing jobs and against a Budget which forecasts and has built into it an unemployment rate of the order of 3 per cent. One would therefore look to the works programs of the Government to see some intelligent long range supplements for taking up the slack in employment.

I say this not in any sense of advocating leafscraping. The thought that water and sewerage works are merely ditching and trenching is entirely wrong. There is in them the opportunity for the absorption of a great deal of skilled and semi-skilled work right throughout the planning, development and construction stages. If the Government is serious in its thought about retraining, I understand that the construction authorities are interested to hear suggestions whereby they can act as retraining agents for people who have been deliberately displaced from employment by the creation of structural unemployment by this Government. I look to this Government to state what is the retraining program in terms of these great public utilities specifically. What has the Government done towards having such discussions, if anything? What are its plans for taking up the slack in employment, not for the purposes of leaf scraping but with a view to long term gainful and skilled employment?

In recent days the chairman of the Melbourne and Metropolitan Board of Works, Mr Croxford, foreshadowed that there would be a necessity to raise the rates of the Board of Works by approximately 30 per cent. There is no doubt at all that other authorities, including the Sydney Water Board, will have to follow suit. I make the point that while this Government deliberately embarks on policies of sustained high inflation of the order of 20 per cent all local and semigovernmental authorities will be forced to inflict punitive taxation by way of higher rates upon the community. The tragedy is that these increases in rates will produce no increase in actual works. Right throughout local government at this moment local authorities, like State governments, are taking the rap for policies created by the Federal Government. The results of the local government elections in my State a week or two ago reflected the anger of the people in my State at the inflation and unemployment policies of the Government.

There is one other important point to make in any program of sewerage works. Desirably the money should be given by the Federal authority to the States without strings. In my view it is highly improper for a Commonwealth Government to insist upon the specific nature of the works to be done. One could say that these works are being used for political purposes, that the Government is seeking quite improperly to use taxpayers' funds for specific and discriminatory works for political purposes. Therefore it is important that the Federal Government should allocate its money without strings and without directions.

The task of constructing new head works and new main trunks is an enormous one. For example, the areas around Melbourne, such as the Dandenongs and the areas to the south and east of Melbourne where great developments have occurred have been tragically short of development funds. They need those funds. Here is the chance for a break-through.

I support the Bill itself and the concept of providing an extra sum of $7. 9m but I query why no satisfactory explanation has been given of the cutback of the Queensland request from $2m to Sim. I query that in the face of the need in the City of Brisbane to do something rapidly to overcome the pollution of the Brisbane River and the general outlets.

In terms of the Bill I raise the matter of the impact of the whole of sewerage finances upon local government and semi-governmental bodies. I seek from the Minister some statement of long term policies. I urge the Government to look to a 3-year or 5-year planning, to a system of debt and interest redemption and, above all, to a system of grants not loans. However, nothing will be meaningful in any of these matters while inflation runs at 20 per cent and while it is moving higher to 25 per cent. The whole of the nominal status of the public works as outlined in the Budget must remain meaningless when inflation runs in the Sukarno style. We can only convert money into new and increased works when we have a stable community. It is against that background that I speak to this Bill.

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