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Thursday, 25 May 1939

Mr JOLLY (Lilley) . - I listened with great interest to the honorable member for Martin (Mr. McCall) and I do not question his sincerity in submitting his amendment for the limitation of profits; butI think he should have informed the committee of the basis to be adopted for determining the amount of capital assets to be used in the manufacture of government orders.

Mr McCall - The advisory panel of accountants provided for in this measure would do that.

Mr JOLLY - That is so, hut I think that the committee is entitled to some explanation. The limitation of profits is not so easy as some honorable members apparently believe it to he. It would be quite simple to assess profits in a factory which was engaged solely in the manufacture of commodities for the Government, hut not easy in the case of an industrial organization which was employed for only part of its time on the manufacture of Government requirements'. For example, it would be very difficult to assess accurately what assets were being employed by a private manufacturer and for what period in connexion with a government order. That is the difficulty which arises according to my interpretation of the amendment moved by the honorable member for Martin. If I am wrong I hope he will tell the committee so. Take for instance, the case of a manufacturer who receives an order from the Government for the supply of goods to the value of £5,000. If the value of his assets engaged in the fulfilment of that contract were £10,000, then under the scheme proposed by the honorable member for Martin, the manufacturer, would be entitled to a profit of £600.

Mr McCall - Up to £600.

Mr JOLLY - I am afraid that under the amendment proposed the maximum would become the minimum.

Mr.Fadden. - A check will he provided by the Contracts Board.

Mr JOLLY - That may be so. But that is the proposal of the honorable member for Martin in a nutshell.

Mr Lazzarini - The manufacturer might get as much as 60 per cent. under certain conditions.

Mr JOLLY - That is the point I am coming to. Therein lies the great weakness of the amendment. A factory having assets to the value of £10,000 may be utilised for the manufacture of. Government supplies worth £5,000. Under the amendment that manufacturer would be entitled to a profit of £600. There is, however, the possibility that that same plant would be used under similar conditions, several times in one year. It seems inequitable that one manufacturer fulfilling an order for, say £20,000 worth of supplies and using a plant valued at £10,000 would receive only £600 profit, whereas another manufacturer, having assets to the same value but fulfilling an order for only £5,000 worth of supplies would be entitled also to £600 profit. I know it has been suggested that the Contracts Board, or whatever body is to assume control of these contracts, would take into consideration turnover in fixing the amount of profit; but if a manufacturer received an order in the month of January for £10,000 worth of supplies, how could the board assess the amount of profit which should be made on that order? To do this it would have to know how many more orders that firm would be asked to fulfill in the same year.

If an arbitrary figure of 6 per cent. is to be imposed as the maximum profit it should be 6 per cent. per annum. Unless that is specified in the amendment it will he impracticable, because it would be possible for a manufacturer to receive numerous orders during one year. Even if the Contracts Boardwere to fix 2 per cent. on the assets employed as the maximum profit on a government order, that in itself would not be an adequate restriction. If a manufacturer received an order for £20,000 worth of supplies in January, and if he employed assets valued at £10,000 to carry out the order, at 2 per cent, his profit would be £200.

Mr Paterson - He would be entitled to 4 per cent on his turnover.

Mr JOLLY - Yes. But that manufacturer would be eligible to undertake other orders during the year, and if he made 2 per cent. on all of them his profit might be 20 per cent. per annum or more. I do not know whether or not the honorable member for Martin realizes that such a position could arise if his proposal were adopted.

Mr McCall - I do not follow the honorable member's argument.

Mr JOLLY - I submit that it is not possible to come to any other conclusion. I am heartily in favour of the principle embodied in the amendment moved by the honorable gentleman, because, as I said in my second-reading speech, there must be some control over profits made by private manufacturers in fulfilling government orders for munitions and equipment.

In the final analysis a complete and effective check on profits depends upon the sincerity, diligence, and determination, of a government in its efforts to enforce the principle of profit limitation. No amount of legislative precaution would ensure an efficient and adequate check of profits unless there was a determination to see such provisions enforced. I wish to carry the argument a little further. I submit that the proposal of the honorable member for Martin might, and very likely would, operate harshly against small manufacturers. Before the amendment is put, I want the committee to be seised of the fact that the basic idea of the honorable member for Martin is that the profit of 6 per cent. shall be fixed on the assets actually involved. That could be turned over several times in the year. If the board fixed the rate at only 1 per cent., the contractor would earn 10 per cent., 12 per cent., 15 per cent. or 20 per cent., according to the number of orders he received. Whatever check may be provided, this proposal is impracticable and unworkable, and in the end it would react against the Government. It is but fair to say that the honorable member probably believed that, in fixing the amount of net profit, consideration would be given to the number of orders that a contractor' would receive in any one year. If a man received an order for goods to the value of £10,000 in January, by what method could the board determine that before the end of the year he would have received orders to the value of £100,000? I want the honorable member to assure the committee that the Government will be safeguarded against the contingency that I have suggested. I cannot see any escape from it.

Mr Mccall - Can the honorable member point to any safeguard in the bill?

Mr JOLLY - As the bill stands, it will be the function of the Government to sec that undue profits are not made.

Mr Fadden - That is not the case under the bill.

Mr JOLLY - It will have the power to do so.

Mr Fadden - If it wishes to exercise that power.

Mr Forde - The bill is permissive. My amendment would make it imperative.

Mr JOLLY - The honorable member for Martin feels that the Government will treat every case on its merits. Would not that be the case under his amendment ? If the rate of profit were fixed at 6 per cent., every case would have to be treated on its merits, and the Government would have to decide what amount of net profit the contractor should be allowed to earn. Quite apart from that, what is the idea of the honorable member on the vital matter of arriving at the prime cost of the article concerned?

Mr McCall - The experts would do that.

Mr JOLLY - If that be so, we might as well rely on the experts in regard to the net profit. I am just as anxious as is any other honorable member to set that contractors are not permitted to take advantage of these contracts. In the final analysis, the sincerity and determination of the Government will be the deciding factor. I suggest to the honorable member that even under his proposal the responsible authority would have to use discretion in fixing the profit to be earned. I am emphatically of the opinion that, before the committee accepts the amendment, it should have, first, some definite indication as to how the capital involved in each contract is to' be arrived at, and secondly, an explanation as to what is proposed with a view to seeing that there is equitable distribution of the 6 per cent, in relation to a contractor who receives several orders during the year. I say, without fear of contradiction, that the proposal of the honorable member is impracticable and unworkable.

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