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Thursday, 27 June 1946

Mr SPENDER (Warringah) .- The bill before the House, which provides for an appropriation of £20,000,000 for war purposes, affords to honorable members on this side of the House an opportunity to examine what seem to me to be some very important matters in relation to war finance. Inextricably mixed up with war finance is finance for all other purposes. Two vital questions arise in my mind, the first relating to the method of budgeting adopted by this Government, and the second relating to the method of finance which the Government is pursuing.

It is to these two questions that I desire to direct my observations.

In the first place, it must become apparent to every honorable member that during 'the war period we had to depart completely from any control by this chamber over the finances of the country. I venture to say that there is no real control even by the Executive over the huge expenditures which we have to meet each year. When we contemplate budgets more than five times as great as' pre-war budgets, when we are dealing with budgets which nowtotal approximately £500,000,000, and when we have regard to the total national income, it must be obvious that the country cannot continue to carry that burden and at the same time make the progress necessary to be made if all the promises to the men who fought in the war, just ended are to be redeemed. There is no control by the Parliament or the Executive over the total amount budgeted for. Honorable members will remember that when hostilities came to an end the budget was reframed in the space of two or three weeks. Two or three weeks to reframe on a peace-time basis a budget originally concerned with the waging of the war! We know that the war expenditure for the financial year about to end has in no way diminished < compared with that of the preceding year when we were in the midst of the terrible conflict. That, of itself, must surely excite the comment that, in the interests of honorable members on both sides of the House there needs to be the closest scrutiny of government finance. I have always advocated that the members of this chamber, on whatever side they sit, owe a prime obligation to themselves and to the country to know more about govern- ment finance than has been vouchsafed to them by the .Treasurer (Mr. Chifley). During the period of the war we had, for security reasons, to lump together the total amounts expended on defence and for other purposes. We all know that the amounts expended on defence and for war purposes were by far the greater part of the budget ; but that, for security reasons, individual items could not be revealed. But the time for that has long passed, and I should have thought that any government cognizant of its responsibilities to the country would long before this have introduced a supplementary budget based upon the requirements of peace, in which the details of expenditure on defence and war would have been revealed and subjected to the closest scrutiny. It has been left to members on this side of the House to ferret out matters which should have been made apparent to them by the Administration. However, it is not much good going over the past. "When the next budget is, brought down a clear responsibility will rest upon the members of this House to insist that the most complete details are given of every item included in it. ..

It appears that no matter how much pruning is undertaken, future budgets will be stabilized somewhere in the neighbourhood of £300,000,000. That amount of money represents a large portion of the total national income of this country. Consequently there is a need to have a running scrutiny from month to month by this Parliament and the Executive. I can appreciate the difficulties which confront the Executive in seeking to control finance. After all, there are so many questions of policy which assert themselves, and it is not always competent for the Executive to keep control of extravagant expenditures, and to make certain that every £1 expended is properly accounted for. The time is long overdue, however, when there should be established a statutory authority in this Parliament owing its obligations to this Parliament solely and not to the Executive, which should sit continually, and examine each commitment as it occurs, and, as far as possible, before actual payment is authorized. This Parliament, in my view, has been treated with contumely in its dealings with financial affairs. Only when expenditure has already been incurred do the matters come before us for debate, and debate upon them is then very much restricted and rendered futile because the harm, if any, has already been done. There ' is ' a prime necessity for the Parliament ro assert itself in these matters.

Also the Executive has an obligation to present its budget, much earlier than is customary. I understand that we are not to receive the budget before the general elections. Before the new Parliament assembles nearly one-half of the next financial year will have passed. The budget will be introduced when nothing can be done in any real sense to control expenditure. No man in this chamber can say that he is not cognizant of governmental extravagance. So there are three points concerning the budget that must be heeded. The first is the necessity to grapple with the problem of how taxes can be reduced. That cannot be done until the strict needs of the budget are known. Secondly, there is the need for a continuous examination of Commonwealth accounts by a statutory authority. The committee of the House of Commons affords a splendid example of how effectively governmental expenditure can be checked. We made a minor attempt to create such a body when we appointed the War Expenditure Committee, but that touched only the fringe of the problem, because it dealt mainly with only comparatively small matters and almost invariably after the money had been spent., Thirdly, I emphasize the need to bring down the budget early in the financial year. The obligation is on the 'Government to state its budgetary requirements before we go to the people. Otherwise we face the electors without precise knowledge of the commitments and deprived of essential information for debate.

This appropriation springs from the constitutional necessity to appropriate surplus revenue to some account so that it shall not revert to the States. It is necessary to consider what money is to be appropriated and how it is to be expended, because the Government has revealed a dangerous tendency to appropriate money for purposes that are not provided for in the Constitution, Sections 51 and 52 of the Constitution provide that this Parliament shall have power to legislate in respect of specific matters, and there is. a general power of appropriation for the purposes of the Commonwealth. It is clear, I should think, particularly in view of the High Court's decision in the Pharmaceutical Benefits case, that money may not be appropriated except for the purposes of the "Commonwealth. Yet, this financial year, the Department of Labour and National Service, which I cite, not as the exclusive example, but as a1 good example, has been the subject of the appropriation of money for purposes which- do not come within the constitutional limits on the Parliament's power of appropriation. After the cessation of hostilities a national employment organization was set up. It is .concerned only to a minor degree with the placing in work of exservice men and women, and its general purpose is that of an employment bureau. There is no constitutional authority for the appropriation of money for that purpose. We either have, or have not, the power to legislate on such matters, and if we have not, we are not entitled to ex. tract money from the people and apply it for such purposes. The Department of Labour and National Service is issuing a number of booklets that are commendable in respect of both the manner in which they have been prepared and printed and the various aspects of industry that they deal with, but there is no authority for the appropriation of money for that purpose or similar purposes.. The budget for 1945-46 provides for the expenditure of many millions of pounds in authorized directions. So, there are instances of money being wrongly applied.

There is no attempt to reduce the huge overburden of taxes which has been prolonged into the peace. It is illuminating to cast one's eyes over the list of portfolios now being administered. There are nineteen Commonwealth Ministers. I can understand the necessity to increase the Cabinet strength during war, but, with the return of peace, the time is ripe to reduce the number of portfolios and to eliminate overlapping. It is essential, for example, to concentrate in one department all matters relating to the reestablishment and repatriation of ex-service men and women. Honorable members on both sides of the House have had to go from one department to another on behalf of constituents before they have been able to have matters resolved.' Economy can be effected by wiping out the overlapping that unquestionably exists. There is also room for economy in reducing the number of government employees. I concede that since the peak employment figure was reached in, I think, 1943, the number of employees of the Government has been reduced,, but in the last three months that movement has been arrested. Indeed, latterly, movement seems to have been in the other direction, especially in regard to male employees. Since 1939 the number of government employees has increased by 22 per cent.

Mr Calwell - Those are men taking the place of women.

Mr SPENDER - That is only partly correct, as I have reason to know. Girls discharged from the Women's Royal Australian Naval Service have been promptly re-employed by the Department of the Navy as civilians. ' '

The Treasurer recently estimated that war expenditure next financial year would be £250,000,000. That cannot be justified. In order to put the matter on a debatable basis I consider that more approximate to the needs of the country are the following figures: -


I state those figures only because they provide the only way in which we can get down to bedrock. If any of those figures are incorrect, the Government should say which are incorrect and why. Then we shall know our defence needs next year. . -

Substantial sums of money resulting from the termination or surrender of war contracts and from the activities of the Commonwealth Disposals Commission are going into the Treasury. There are also large sums of money due to the Commonwealth from other countries for work done by Australia for them. Sound finance demands that all such money, which probably amounts to hundreds of millions of pounds, should be applied direct to the reduction of our war debt in" order to reduce the annual interest burden on the loans raised during' the war.

Mr Calwell - Some people want to pay all the proceeds into the Consolidated Revenue and to reduce taxes.

Mr SPENDER - I am wholly opposed to that. Nor do I think that such a course is necessary or proper to achieve a substantial reduction of prices. To the extent that that money can he applied to debt redemption the annual interest commitment will he reduced.-

I intend to say a few words about methods of financing war as well as peace, hut, before doing so, I think it is appropriate to refer to the views on that subject of the Treasurer's lieutenant, the Minister for Works and Housing (Mr. Lazzarini), which, I have no doubt, reflect the opinion of other members of the Labour party. In June, 1941, when we were in occupancy of the treasury bench, the honorable gentleman expressed -an astounding view of financial methods in these words -

Are we to be expected to leave ourselves in the bauds of the money-changers and to pile up huge debts which later will have to be paid by the blood, sweat and tears of the men who fought for victory? If we must mortgage our future we shall mortgage it only to ourselves. We should operate through our own financial institution. The Commonwealth Bank should be the only organization operating in relation to war indebtedness. If the Government is honest in its desire to mobilize the resources of this country in respect of materials, men and machinery it should draw upon the resources of the Commonwealth Bank. Money, terms mean nothing in our present situation. If the Government wishes to float a loan it should act solely through the Commonwealth Bank. . It should not permit other financial institutions to burden the people of this country with debts that will be unpayable after the war.

Now, is it not extraordinary in the light of this statement that there has been a radical departure from that view?

Mr Anthony - When did he say that ?

Mr SPENDER - In June, 1941, when the views which he expressed were almost generally held by the Labour party.

During the war, the Labour party has pursued, in principle, but with the addition of certain unsound systems of applying them, the financial methods that the Government of which I was a member laid down in 1941. That policy, always the subject of attacks then by those presently occupying the treasury bench, was to finance the conduct of the war by taxation and loans, and to the extent that we could not finance the budget from those two sources, we should have recourse to central bank credit. Since 1941, the Labour Government has raised many loans. As I refrained from taking part in the last campaign it is proper that I should explain to the House the reasons for my action.

Mr Dedman - The honorable member refused to take part.

Mr SPENDER - I refrained from taking part. The Minister for Post-war Reconstruction (Mr. Dedman) may interpret that, if he pleases, as a refusal. In my opinion, the methods . adopted by the Government in raising the last three loans are grossly unsound and can result only in the aggravation of the inflationary forces in the community. The first of the three loans was for £107,000,000, and there were approximately 412,000 subscribers. Of the total amount, the major portion was found not by the people but by financial institutions and business houses, which the Minister assisting the Treasurer .(Mr. Lazzarini) condemned in 1941, and the Commonwealth Bank. In fact, the Commonwealth and State Savings Banks and other governmental institutions found 48 per cent, of the money. For the second loan of £86,000,000, the number of subscribers fell alarmingly from 412,000 to 259,000. Again, 48 per cent, of the money was provided by the Commonswealth Bank and State savings banks. The third loan was for £78,000,000, and there were 179,000 subscribers. On this occasion, the Commonwealth Bank and the authorities I have mentioned found 38 per cent." of the money. I assert that that is inflationary finance, and I shall explain the reason for that opinion. The Commonwealth Savings Bank is advancing, not its own funds, but the money of its depositors, and the same remark applies to savings banks of the States - and similar institutions. Those funds belong to the community, and the depositors are entitled to withdraw their money from the bank at any time. But the money has been lent on long term and short term loans to the Commonwealth Government. In future, when production gradually overtakes demand and 'people need money for the goods and services which they have been denied during the war, they will seek to withdraw their deposits from the Commonwealth Bank. Then the bank must find money to meet that demand. But the money has already been hypothecated to the Commonwealth. The deposits have been used for Commonwealth purposes, although the Commonwealth Bank is still under the obligation to make the money available to the depositors on demand. Having regard to the fact that those three loans totalled £261,000,000, and of that total more than £100,000,000 was found by the Commonwealth Bank, and kindred institutions, we have a serious inflationary factor introduced into the national financial structure. I express the opinion, for reasons which I shall shortly develop, that we are riding into an inflationary period, and unless this is arrested by marrying production to demand, it will be followed by a period of deflation and then' a period of economic' depression.

The methods of finance which the Government is now pursuing, are depressive. During the war, taxation and the method of finance were directed solely to the accomplishment of diverting production from civilian requirements to war purposes. For that purpose, we did two things. First, we taxed the people to the maximum extent that they were able to bear in order to reduce their purchasing power which otherwise would compete with government moneys for war purposes. Secondly, we persuaded the people, quite properly, to save their money and invest it in Commonwealth funds for war purposes. By a. combination of both factors, we abstracted money from the community in order to prevent competition with governmental requirements, and by that method in conjunction with other controls, diverted production from civilian to war needs. That was admirably suited to the requirements of war, but the Government has now failed to appreciate the need to change that policy much more quickly than it is doing.

Mr CALWELL (MELBOURNE, VICTORIA) - That would promote inflation.

Mr SPENDER - No. That is where the Government is creating the essence of inflation. A large amount of money is deposited in the Commonwealth Savings Bank and the trading banks. 1 believe that I am correct in saying that deposits have increased by more than £600,000,000 since 1939. In addition to that, a large amount of money has been taken by taxation and loans, and ia finding its way into the hands of the spending community by way of gratuities and deferred, pay. All this combines to form a total bank which must find an outlet at some time. Unless we stimulate production so that those funds can find an outlet and provide goods representing the value of that money, we shall create a condition in which production will be retarded and costs will be increased. That will increase the tendencies to inflationary finance. That proposition is incontrovertible.

The Government must realize that methods of finance, which were 'admirably suited for war purposes, are not suited for peace-time purposes. Bit by bit - I do not believe in shifting completely at one stroke from one method to the other- money must be made available for civilian production, so as to absorb labour in civilian occupations. But advertisements appear on every big hoarding in the cities showing a hand pressed down, and bearing the caption "Keep prices down,' and invest in Government loans ". If that is to be the mark of our financial policy, is it not obvious that we shall restrict opportunities for civilian production? I do not suggest, as I have said, that the Government should change rapidly from one method to the other. In the change-over from peacetime to war-time conditions, we had to move gradually in order not to cause a great dislocation of the economy before it wa3 elastic enough to take up the, shock. In the change from war-time to peace-time conditions, we must proceed by. progressive stages. But the Government has not revealed that it proposes to pursue any method of finance other than that of high taxation and loans, which it has adopted in the past. It the Government follows that policy, itwill only aggravate the shortage of commodities, increase the costs of goods, and limit production. By a combination of nil those factors, the Government will contribute to inflationary finance.

Mr Calwell - Does not the honorable member recognize that there is a shortage of goods to-day because of the lack of man-power ?

Mr SPENDER - No, I do not recognize that altogether. That there is a shortage of man-power is true in one sense,, but to state it as an absolute proposition that explains everything is, in my view, te commit an error. There is a failure to realize that production is the means of preventing inflation. Inflation cannot be avoided simply by damping down production by high taxation and a continuance of the system of government loans for the purpose of financing budgets. Having regard to the large sums of money which that system of finance must abstract from the total national economy, it must be obvious that the method rs simply a continuation of the policy which prevents civilian production from asserting itself. That, in .short, was the policy which was followed in war-time. Unless some more elastic approach to finance be adopted, I assert now, without any equivocation, that we shall ride into a period of inflation, and no efforts of the Government will be able to avoid it. That period will be followed by deflation and an economic depression. All honorable members are desirous of preventing that, and this isan opportunity to examine the best method of achieving that objective.

The time is long overdue when we must realize that it is the stimulation of production which will prevent inflation. From the public viewpoint two vital factors of finance are demanded. The first is reduced taxation. I do not. desire to elaborate that subject. The matter has been dealt with fully by other members of the Opposition. I have shown that the Government cannot reduce taxation until it- has control of expenditure, and, in" my opinion, neither the Parliament nor the Executive has control of our expenditure. Secondly, we should have as our aim, and should bring it about as quickly as possible, the elimination of taxation on the basic-wage earner. In short, the basic wage is not- a reality if it. is subject to taxation. It has a high ethical and moral significance, and if the basic-wage earners who form the major portion of the consuming capacity of the community, are deprived by taxes of a large amount of money, the Government is denying to them the ability to live upon the basic wage, and is limiting the consuming power of the community, and, consequently, in that sense, is retarding production. All those matters are of the greatest importance as objectives of financial policy. Taxation should not be regarded solely as a means of raising revenue. Particularly at this time, it should be regarded as an instrument of precision, directing the financial development of the country, and not as it has been, and is continuing to be, what 1 term a crushing press squeezing the last drop 1 of revenue from an already dehydrated economy. So I appeal to the Government to review its financial policy, and not be so myopic in its approach as to have in view only one year ahead; it, should be envisaging the probable requirements of the next three or four years at least. Our ability to finance our commitments will depend upon our total national income, and that in turn will depend upon our production. Factors in that connexion will be taxation and loan raising in particular.

I said that I would explain why I did not support the last loan. I did not do so because I disagreed with the methods being pursued by the Government. 1 consider that it is wrong, ethically, to inform a community that a loan had been fully subscribed when that has not been the case, having in mind the 'meaning which people customarily give to the term. When an announcement has been made that a loan has been fully subscribed it is naturally assumed that it has been subscribed by the people, but the Government has not been frank in this matter. This has been revealed as the result of pressure from this side of the House. We have ascertained that the Government has been applying practices which must inevitably lead to inflation. Its actions are the more serious because they have led the people to believe that it is adopting a procedure which will prevent inflation. For the reasons that I have given, I make no apology for having refrained from supporting the loan. If the Government persists with its present policy in respect of loans, I hope that all honorable members on this side of the chamber will refrain from supporting future flotations.

Persistence in the present procedure can load only to inflation.

It must be obvious that, if production does not increase, costs will rise on every hand. This matter is affected to some degree by controls which the Government is continuing to apply. I refer in particular to wage pegging. Those regulations were undoubtedly vital and essential during the war, but the time has come when they should be progressively lifted so that industry may be allowed to develop normally. Surely we cannot contemplate an economy which is to he tied down for all time to the limitations associated with wage pegging. The members nf the Government must realize that the wage-pegging regulations are being deliberately ignored and flouted in certain industries. Despite the continuance of the regulations, wages have been substantially increased in some industries that I have in mind, and the result has been an increase of production. "We must view i hi.? problem in wider perspective.

Inflation can be avoided by controlling expenditure, by desisting from applying funds in the wrong way, and by reducing taxation so as to give an incentive to production. The present heavy taxation should be lifted from the salaries of persons in the lower ranges, and from people in executive classes. It cannot be disputed that a continuation of the present high rates of taxation will defeat the purpose that was in mind when they were imposed. People will not do their best work now that the urgency of war has passed when they know that their earnings will be so heavily taxed, and I do not blame them for that attitude. It is ti ue, also, that investors will not put their money into industry unless they have a reasonable assurance of a ' satisfactory return. They will not take risks in investing their capital if they know that it may be lost to them, or that their enterprise will not be reasonably rewarded.

Mr Calwell - A man who earns to,000 still has £2,000 to live on.

Mr SPENDER - Oh, does he? The Minister obviously is unacquainted with the rates of taxation. I would like to know of a man who can retain £2,000 out of a net income of £5,000. The members of this Parliament should scrutinize more closely our whole finan cial structure. It is idle for us to debate financial subjects unless sufficient data is made available to us. \Exfension of time -granted.]

I appeal to Ministers to take the House into their confidence in relation to the financial affairs of the country. I appeal to private members on the benches opposite to do everything in their power to assert their rights as private members. Parliament, in the last few years, has been merely a shadow of itself. We have often debated matters which have already been determined. This is a reflection upon both the Executive and ourselves. The sooner the members of the House take an active interest in our financial structure, the better it will be for the country. If the present policy of the Government be carried to its logical conclusion it will be impossible to avoid inflation. Everything possible should be done to avoid such a. calamity.

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