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Wednesday, 7 December 1960

Mr CAIRNS (Yarra) (12:21 PM) .- We have yet another retreat. The honorable member for Mitchell (Mr. Wheeler) proposes to retreat and hide away in the corridors as an expression of his disapproval of this very naughty Treasurer who has offended so much against the principles of free and private enterprise. The honorable member has delivered a very interesting speech. It may not have been his best, but he is obviously not feeling too well. I am sure that if he were talking with confidence he could have done very much better. We understand his problem and excuse his relatively poor performance. He has our sympathy, and we promise not to be too hard on him.

He has told us that he is an advocate - one of the comparatively few lily-white advocates - of the well-proved principles of finance which gave us a depression with 500,000 unemployed in the 1930's and which is largely responsible for giving us an inflation of 100 per cent, in ten years during the 1950's. Like the honorable member for Mitchell, these well-proved principles of finance, will be obscure in the corridors when the vote is taken. Because these well-proved principles of finance have once again proved quite incapable of solving the problems that this country faces, the Government has been forced to take this action. That the monetary and interest rate policies have proved incapable of keeping full employment and capitalism properly regulated, is borne out by the Treasurer himself who said this in his second-reading speech -

I pointed out how the bidding of higher and higher rates of interest for borrowed money had been working to the disadvantage of governments and other public authorities and, through them, to the disadvantage of the general taxpayer. This was because the less governments could borrow on reasonable terms the more they had to obtain in taxation to finance developmental works and the provision of community services.

This distortion of the economy which the Treasurer has now been forced to recognize is the result of the well-proved principles of finance which are supported by the honorable member for Mitchell. When we have such an admission as that from the Treasurer about the policy of his own Government, little more need be said from this side of the chamber.

The second point made by the honorable member for Mitchell was that business and commerce had been at a standstill.

Mr Wheeler - I was referring to the companies affected by the legislation.

Mr CAIRNS - In other words, the honorable member for Mitchell is saying that the companies which lent £433,000,000 last year have been at a standstill because they are affected by this legislation. Any honorable member who says that companies which lent nearly £500,000,000 worth of money last year are at a standstill is certainly suggesting a fairly substantial form of depression. I do not think these companies are at a standstill because any one who has read the newspapers during the last two or three days will have noticed more and more advertisements offering high rates of interest for money. It is interesting to note just how interest rates have gone up since this legislation was introduced. For instance, Ansett-A.N.A. are offering 1 per cent, more for four-year money. One of the gentlemen who only last week lamented the terrible circumstances which had befallen those engaged in his line of business is offering 1 per cent, more for one-year money. Again, I believe Hookers are offering 12 per cent, for four-year money. Does this indicate that business is at a standstill? Or does it indicate that some of these companies have been put in a difficult position by this Government's legislation? The honorable member for Mitchell did not tell us which it was.

The honorable member for Mitchell made a third point. He said that he hoped that measures to curb Government extravagance would not be long delayed. But he forgot to tell us the directions in which he expected to see cuts in Government expenditure. Does he expect a cut in expenditure on education, on roads, on power, on water conservation, on housing, on hospitals, or on health and social services? Some time when he feels a little better and able to speak out his time, he might tell us the directions in which cuts in Government expenditure might be made. The basic proposition that the Treasurer put forward in an attempt to justify this legislation is that the Government cannot get enough money for its essential expenditure, yet the honorable member for Mitchell wants it to have less in the future. Perhaps he will tell us on a future occasion just where he thinks this Government expenditure should be cut.

Let me refer now to one point made by the honorable member for Wentworth (Mr. Bury) who was a little more dismal than usual to-night. I thought that he was marching in the procession behind the funeral of some of his favourite hire-purchase companies when I noticed the way in which he delivered his speech. He said that the companies were not making large profits. The honorable member for Mitchell criticized the honorable member for Reid (Mr. Uren) for quoting figures to illustrate the tremendous growth that had taken place in the capital of some of these hire-purchase companies in recent years.

But, leaving aside the question whether these hire-purchase companies are making excess profits - as if any one other than those who defend such companies in this House could ever put forward such a proposition - the real fault with the hire-purchase companies is not so much that they are making excess profits and embarking upon vast programmes of capital accumulation and expansion as that they are high-interest lenders lending money at from 10 to 15 per cent. They are inefficient in the ordinary sense of the word. If a factory is able to turn out goods at a cost of 5s. while another cannot turn out similar goods for less than 10s. or 15s., we argue that the factory with the higher cost is inefficient. In the same way, the hire-purchase companies are inefficient in that they are charging from 10 per cent, to 15 per cent, interest as compared with the Commonwealth Bank of Australia which can turn out money at from 5 per cent, to 6 per cent. I repeat that the hire-purchase companies are inefficient in that they connot turn out their money for less than from 10 per cent, to 15 per cent, whereas the Commonwealth Bank - and no doubt some other banks - are efficient in that they can turn out the same money at from 5 per cent, to 6 per cent.

What is being done in this legislation? There is nothing revolutionary about it. It will not revolutionize the financial system. Certain companies which borrow money by issuing debentures or secured notes will not, as from the end of 1959-60, be able to charge the cost of unlimited borrowing against their income before tax is worked out. For companies which pay tax at the rate of 8s. in the £1, the cost of borrowing has been reduced in the past by the operation of the tax concession, from 8 per cent, to 4.8 per cent, or from 10 per cent, to 6 per cent. In other words their borrowing cost has been reduced by 40 per cent. In future these companies will not have that advantage.

There are two things to be said about this: First, there are a great number of concerns that are excluded from this limitation. They include banks, pastoral finance companies, dealers in the short-term money market, building societies and public utility companies. The second thing is that this measure applies only to future borrowings. Without being affected by this measure, companies can borrow up to the level of borrowing in 1959-60, which must represent a total of between £400,000,000 and £500,000,000 for all companies concerned. They can still borrow that amount and treat the interest as a tax deduction. That is, the companies paying tax at the rate of 8s. in the £1 can still reduce the cost of that borrowing by 40 per cent.

On the face of it, this does not seem to be a very serious handicap. It does not seem to justify the long faces of representatives of the hire-purchase companies in this House; nor does it seem to justify the criticism by hire purchase chief, Mr. Bisset. No one has yet told us who is the member for Bisset in this House but we will find that out in due course. As I have said, the probable results of the measure do not appear to justify these depressing statements about the reduction in the activity of these high-interest, high-profit, capital accumulation, hire-purchase companies. The measure may not be a serious handicap to them, because they will be able to operate at 1959-60 levels and better. But this may not allow some of them much for expansion and some contraction may occur in the case of a company which has geared itself high - that is to say where the ratio between capital and borrowed funds is extremely high. I believe that the ratio in some cases is eight or nine to one.

The measure may cause a contraction in those companies which have lent long in order to get high returns. But how it will affect those companies and the people who have borrowed from them is still completely a matter for conjecture. We do not know. It is pretty fair to say that the campaign started on their behalf here and elsewhere over-states the effect that the measure will have. But suppose that there is a vacuum in the situation: Suppose that some of these hire-purchase companies have to pull back. As the Prime Minister (Mr. Menzies) would say, that is the object of the exercise.

There is some evidence that the object of the exercise may, to some extent, be achieved. Large headlines have appeared in the Sydney newspapers during the last week or so telling us that companies which have financed perhaps 400 or 500 homes have had to withdraw finance from the purchasers. There were no such headlines in the press in Melbourne. Does this mean that no similar companies have lent money to home-builders in Melbourne, or does it mean that, because of the Higinbotham by-election next Saturday, the newspapers in Melbourne will not report these matters? We have had evidence from the honorable member from Calare (Mr. England) and elsewhere that finance has been withdrawn from those who have been purchasing farm equipment with money borrowed from these companies. If that is true and there has been some contraction, then it is the object of the exercise to cause that contraction.

Anyway, why hire purchase? The reason is that the ordinary working man whose income is between £16 and £20 a week cannot maintain the standard of living that the mass advertising system tells him that he should maintain, unless he turns to hire purchase. The increase from £80,000,000 to between £400,000,000 and £500,000,000 in hire-purchase money in the last seven years is the result of that trend. Workers have not enough to pay from their current earnings for what they are being persuaded to buy unless they turn to hire purchase. Wage income cannot meet the cost of output at the rate at which consumers are being encouraged to buy so they have to turn to hire purchase.

One of the purposes of the Government's economic measures, I suggest, is to create unfavorable conditions for a wage increase in 1961. Just before a general election, the Government cannot again go into the Commonwealth Conciliation and Arbitration Commission to oppose an increase in the basic wage or in margins. So it is turning to measures of this kind to put on the screws to create unfavorable conditions when the unions go to the court next year. That is one of the reasons for its legislation.

If a gap is being created in the amount of money being lent to consumers and home-builders and those who are purchasing farm equipment, there are two alternative courses of action. The honorable member for Mitchell (Mr. Wheeler) has put one of them very clearly. He has stated, in effect, that this problem can be solved by the Government's allowing interest rates to increase still further. That is what he has put to the House for its consideration as the representative of those people who have money to lend. It suits them to get the highest possible price for their money. So we have an advocacy from the representative of those people for a higher interest rate policy. The proposal is, first of all, to increase the interest rate on Commonwealth bonds. This will raise the floor under the whole interest rate structure and so other interest rates will go up. It will then be easier for the hire-purchase companies, which will now have some difficulty, so it is stated, because of the removal of this tax concession, in paying the interest rates which they think that they have to pay, to get money. They will then be able to raise their rates, not by 1 per cent, or i per cent, as they have during the past week, but by 2 or 3 per cent. Thus they will get back the advantage. They will be able to pass on to the consumer the amount that they have lost by the removal of the tax concession. That is the alternative presented by the representatives of the hire-purchase companies - an increase in the cost of borrowing.

There is yet another alternative: That is that it should be the object of the exercise here to turn the operations of the hirepurchase companies back again. As they withdraw from the lending field - these high-interest, inefficient lenders - something else can be put in their place. We can put lower-interest lenders in their place. First of all, we can put the Commonwealth Trading Bank in their place. We could put the trading banks in their place too if a private enterprise government wanted to do that. But the honorable member for Mitchell, who has been an advocate of the trading banks before, left them out of his calculations to-night. He does not want to allow them to come into the field at lower-interest rates. He does not want the Commonwealth Trading Bank or the private trading banks to come into the field because this would destroy his case for a higher-interest rate economy which he made out this evening.

In examining this matter, let us go back to 1953. Before then and after, the trading banks were subject to some measure of control because, as the Treasurer has admitted, they have escaped from that control quite significantly from time to time. In 1952-53, the advances by the major trading banks in Australia totalled £697,000,000. At that stage, advances by hire-purchase companies totalled £88,800,000. Since 1953, the advances by the major trading banks have risen in 1959-60 to £952,000,000, an increase of £254,000,000 on a basis of £697,000,000. But what has happened to the hire-purchase companies - these poor, low profit concerns to whose miserable requiem we have listened from the honorable member for Mitchell and the honorable member for Wentworth (Mr. Bury)? What has happened to these poor downtrodden low-profit hire-purchase companies? Their loans in 1953 totalled £88,800,000. To-day, the official record given by the Bureau of Census and Statistics shows that their loans total £433,400,000, an increase of £344,000,000, as against an increase in lending of the trading banks of £254,000,000. In addition to the lending by the hire-purchase companies, probably another £100,000,000 or so has been lent by other companies which are not completely or fully hire-purchase companies. So to-day there is well over £500,000,000 on loan by these people.

Do not forget what is happening here. There has been an increase of lending by banks of £254,000,000 at an average interest rate of between 5 per cent, and 6 per cent, as against an increase in lending by hire-purchase companies of probably £344,000,000 and more at an average of probably 9 per cent or 10 per cent., because these hire-purchase concerns are getting probably twice what the trading banks would be getting. So the important thing is that this trend of development, which underlies the whole inflation of the past ten years in Australia, must be turned back. Time and time again, the Australian Labour Party has advocated and demonstrated to any one whose mind was not blinded by political prejudice that the inflation of the past seven or eight years is profit inflation which has resulted from this money-creating process that the Government has allowed to come into operation. These figures have proved that that is so.

The action that has now been forced upon the Government by its own ineptitude and failure to recognize these circumstances over the years has proved that to be so. Now that this stage has been reached and the Government has been forced to recognize that its own creation - the hire-purchase companies - has caused inflation and distorted the economy, as the Treasurer admitted in the first proposition contained in his second-reading speech, we say that the Government should not be allowed to step one pace backward. We will not agree to any backward step as has been advocated by the financial representatives on the Government side who suggest an attempt to deal with this situation by increasing the interest rate structure all round. This shall not occur, and the Australian people must come to see what is involved.

Instead of increasing the interest rate structure, the screws must be tightened further on the hire-purchase companies than is being done in this minor measure. They must be taken, not suddenly but gradually, out of the field into which they have wrongly entered. The Government permitted them to enter that field by allowing them to escape registration under the Commonwealth banking legislation in 1953. The Government allowed it and now the Government is wrestling with the Frankenstein it created. The Prime Minister (Mr. Menzies) and the Treasurer have been worried by the battle with this monster they created since 1953. As the battle proceeds, we see the dismal faces of the honorable member for Mitchell and the honorable member for Wentworth and their friends who are appalled at the temerity of the Government in attacking this monster which the Government created.

Of course, the Australian Country Party looks on in silence. Not one member of the Country Party in this House has chosen to make a speech in this debate or express an opinion since the honorable member for Calare (Mr. England), in asking his maiden question, enthusiastically revealed the fundamental fault in what the Government has done. Not one member of the Country Party has spoken since then. Does the Australian Country Party support the criticism of the honorable members for Mitchell and Wentworth? Are honorable members in the Country Party corner in favour of meeting this situation by raising interest rates still further? Are they in favour of the tried and true financial principles that the honorable member for Wheeler has espoused? Are they in favour of this, or will they remain silent? Are they game to go further than interject? They are masters of interjection, but they are incapable of making a speech in this House on any issue which has any controversy in it. Now and again there is a rebel in the Liberal Party - a Wright or a Wheeler in the corridors; but there is never a rebel in the Country Party. Whenever was there a rebel in the Country Party against a decision of this Government?

Mr Wight - Who are the rebels in the Labour Party?

Mr CAIRNS - You will have plenty of time to answer my questions later.

Mr Turnbull - Your hands are tied.

Mr CAIRNS - It is not long since I did not vote on a measure in this House when the Labour Party voted on it. It was the Richardson report.

Mr Aston - But you took your salary increase.

Mr CAIRNS - My clever friend at the back should check up on that and find out.

Mr Wight - Do you deny that you took your salary increase?

Mr CAIRNS - Yes, I do. I want to sum up in the time I have left the situation we have reached in the economic history of Australia in 1960. The proposal now before the House is completely supported by the Australian Labour Party. If it is a socialist policy, then I would say to the Country Party that it is a socialist policy coming from a very unsocialist Treasurer. Any element of socialism he had in his make-up he left in the University of

Melbourne in the 1930's. He made up for his loss of socialism by sociability. He has become a social lion instead of a socialist. That is sufficient to show whether this measure is socialist or not.

This proposal confirms the analysis of the economy that the Labour Party has been making for the past seven years. It confirms that inflation in Australia is profit inflation, that the dynamics of inflation in this system have come from the financial institutions and the hirepurchase companies which were permitted by this Government to escape controls and to lend between £400,000,000 and £550,000,000 of new money in the past seven years at the highest possible rate of interest that they cound extract from the Australian community. This proposal has proved Labour's analysis that there has been a distortion in the economy. The proof is demonstrated by the fact that this is the first time for seven years that anybody on the Government side has admitted that there is a basic distortion in the economy as the result of these financial circumstances.

In his second-reading speech, the Treasurer said -

I pointed out how the bidding of higher and higher rates of interest for borrowed money had been working to the disadvantages of governments and other public authorities and, through them, to the disadvantage of the general taxpayer.

You do not need to be a Labour man or a socialist to support this legislation. You need only to be some one who is concerned with the best interests of the community in order to support it. I do not know whether it is the Treasurer or somebody in the Treasury who has been reading books by J. K. Galbraith or Dr. Coombe's lectures, but somebody has picked it up somewhere, because there are not many socialists in the Treasury. What they might have been when they finished their university courses they are not any longer, and I think that no one needs to have any fear about that.

The Labour Party says that this proposal, while it is a step in the right direction, does not go very far. It leaves the hirepurchase concerns with something between £400,000,000 and £550,000,000 at the same rate at which they obtained it and with the same taxation concessions as in the past, and it is not likely to cut their activities greatly. The Labour Party believes that their activities ought to be cut back further. It believes that they should not be permitted to operate on the usurious rates of interest that they charge. It believes that their activities should be cut further back, to the 1953 level.

Mr. SPEAKER (Hon. John McLeay).Order!The honorable member's time has expired.

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