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Wednesday, 20 May 1970

Mr SINCLAIR (New England) (Minister for Shipping and Transport) - in reply - I find it a little hard to know where, out of the Socialistic blandishments of the honourable member for Wills (Mr Bryant), he finished up in terms of this Bill. I wish to go over some of the arguments that have been presented before this House and to look at them in relation to what I see as a very necessary adjunct to the financial structure of this country. When the honourable member for Cook (Mr Dobie) was speaking a while ago he mentioned that in his opinion in 1950 we could hardly be said to have had a financial structure of any substance. It one looks at the change in the structure of our economy in 1970 and sees the changing demands both in terms of future investment and the areas from which investment can be generated, I think one will appreciate the purpose for which this Australian Industry Development Commission has been constituted.

It has been suggested during the debate that the division in this House on this issue is between members of the Government rather than between the Government and the Opposition. I think the last few honourable members who have spoken on behalf of the Opposition have fairly effectively demonstrated that this is not so. In fact from the very commencement of the debate the Opposition has suggested several areas where they see this measure falling far short of what they would regard as being the necessary measure of control evolving from such a Corporation. A moment ago the honourable member for Wills gave quite a burst on the extent to which he felt this instrument could be used to further the aims of Socialism by the introduction of Government funds as direct investments in sectors of the economy through following the considered policies of a government. The Government has included in the Bill restraints which are specifically intended to ensure that the Corporation may not be so used. I think that therein lies the first division between the attitude . of the Government and the attitude of the Opposition to this Bill.

The objectives nonetheless have been substantially agreed on amongst all those who have spoken. A philosophy has been mentioned by even my colleague, the honourable member for Lilley (Mr Kevin Cairns), which suggests that it is worthwhile to endeavour to encourage an increase in the measure of Australian equity. That of course is the basic purpose behind the establishment of the Australian Industry Development Corporation. Clause 8(1.) of the Bill sets this as being the principal policy objective of the Corporation. To the extent to which there is a need for it, however, there are honourable members of the Government parties who feel that adequate provision is already available within the existing financial structure of the Community. I frankly disagree with that contention for several reasons. First of all, I believe this Corporation will not in any way operate in the field of a bank. I feel that the Australian Resources Development Bank is operating in a field and in a manner that is quite distinct from that intended for the Australian Industry Development Corporation. The Development Corporation is specifically intended to invest funds borrowed for a particular project. In other words, it will not act in the normal way that banks in Australia do in advancing loans for particular purposes and generating income from the funds so advanced. Rather it is intended to be an investment corporation which will utilise funds raised for specific projects.

During the course of the debate the honourable member for Balaclava (Mr Whittorn) and the honourable member for Lilley both said that they felt the Australian Resources Development Bank was in its way quite adequately able to perform a role which they saw as utilising and maximising Australian equity. I do not believe the Australian Industry Development Corporation as it is presently constituted will compete in the field in which the Australian Resources Development Bank operates. The Australian Industry Development Corporation, which will borrow funds from overseas to invest in projects, is not going to use the capital which is its structure. By contrast the ARDB, the resources bank, operates through its capital. The capital itself of the ARDB is the principal case for re-investment supplemented predominantly by domestic borrowing. The AIDC is to be specifically restrained from using its capital other than as security to raise finance principally overseas. Clause 24 sets out specifically the structure of the capital of the Corporation. We can see that the capital of the AIDC is intended only to provide the security for the raising of sufficient funds for the particular projects in which it desires to invest. Indeed, under sub-clause (8.) of clause 24 there is a restraint which ensures that the actual funds subscribed from the Parliament are to be there.

Principally as an inducement to persons to make loans to the Corporation for use by it in the performance of its functions and will not ordinarily be applied by the Corporation in the performance of its functions, and the Board shall have regard to that intention in making requests under this section for payments of instalments of capital.

By contrast the ARDB operates specifically through the funds that are its capital. Beyond that, of course, there are restraints in terms of the total amount of borrowings of capital of the AIDC. The honourable member for Melbourne Ports (Mr Crean) has suggested that perhaps the finance might be far larger than it is to be. But I believe that this Corporation acting, as it will tlo, specifically in 2 fields - in the fields of mining and manufacturing - will find initially it is adequate to have a smaller rather than a larger capital. As its investments spread it will be able to grow with investments which have proved remunerative and also will bc able to grow as may be necessary to achieve the maximised Australian equity for which it was originally constituted.

When this measure was introduced the Minister for Trade and Industry referred to the general trends in our economic climate which he saw as the basis behind the establishment of the Corporation. There is no doubt that at a time when rural exports are growing al less than 2% and import needs are growing at 8% there is a need for Australia to turn to other sources to generate sufficient income in order to be able to finance these expanded imports, indeed, one of the things that is happening in our industrial sector is that we are progressively moving from small scale into larger scale industry. This does not exclude the possibility, which indeed I see as being essential, of this Corporation investing in small industry. This is one of the few areas in which I. find myself in agreement with the Leader of the Opposition (Mr Whitlam), because 1 believe that there are many small industries in Australia which could profit ably benefit from having an injection of capital such as that which should be available through the operation of the AIDC.

There are many other industries in this category which because of shortage of capital find themselves in a position where they are unable either to compete satisfactorily in export markets or to compete within Australia against the multi-national corporations which are increasingly operating within our country. Of course, it is for that reason and towards that purpose that clause 6 of the Bill sets down the provision which the honourable member for Bradfield (Mr Turner) felt was so vague and ambivalent. Clause 6 (2.) sets out that the Corporation shall perform its functions in such a manner as to promote trade and commerce between Australia and places outs:de Australia; to promote trade and commerce among the States: to promote economic development of the Territories, and so on. To my mind it is essential that there be some body in Australia, some corporation which is able to generate from overseas, by virtue of the very high standing that a corporation of this nature will have, money which can be invested in ventures which are virtually at (he launching pad in terms of growth. As 1 see it, this is the phase in which much of Australian secondary industry is in today. Australian industries at that stage today too often find that they are unable to raise sufficient funds locally and consequently are subject to overseas takeover bids.

Yet there is no doubt that overseas investment has made a tremendous contribution to Australia. Overseas capital is something which should be encouraged rather than hindered, and will be, I believe, by a measure of this sort. Yet it is essential that we do, however, have some mechanism which will enable Australia, wherever possible, to raise capital overseas perhaps partly by equity sweeteners so as to retain the maximum percentage possible of Australian equity rather than having equity participation going straight to overseas hands. I believe that there is at this stage a very real opportunity for Australia to achieve world scale in many of its secondary industries through the operation of a corporation of this nature.

There is no doubt that if Australian manufacturers are to compete on world markets, if they are to face world competition at home with minimum tariff protection, we must build up vastly greater scales of production and we must attract massive capital investment. There is no doubt that a corporation of this nature is the ideal instrument by which this can be achieved. It is not an instrument which will in any way conflict with private enterprise. Indeed, it is these constraints which the members of the Opposition principally object to within the clauses of the Bill.

The Bill itself has been so designed that in every phase - and the Leader of the Opposition has described as rather quaint the objectives - there is a sound basis on which one can lay down firm guidelines for the Board of Directors of this Corporation. I refer in particular to clause 8(2.) which provides that in the performance of its functions the Corporation shall act in accordance with sound business principles. This I see as a way in which one can require the Corporation to follow what must surely be objectives which relate to investing only where the ultimate return from the investment is going to fulfil the functions and the policy objectives for which the Corporation is constituted.

During the debate a number of areas which have been canvassed, principally in terms of the suggestion that the Australian Resources Development Bank, that is the resources or refinancing bank, is in fact operating in such a way that there is no necessity for the AIDC. There are a couple of aspects to which I would like to refer. I have mentioned that 1 do not believe that the Australian Industry Development Corporation will be a bank. I do not believe that it should be a bank. The honourable member for Macarthur (Mr Jeff Bate) has suggested that he believes it would be far better were it subjected to the same restraints and to the same general terms of operation as the trading banks are and if that were to be so then it could surely function through the ARDB. But I think to suggest this indicates a failure to recognise that at the moment there is a great deal of overseas capital which is coming into Australia and which is not so subjected to the restraints which he seeks to impose. Virtually what the AIDC will seek to do is to introduce into Australia, with a greater measure of

Australian equity surely than is now possible, similar capital to that which today comes in without any such control.

The honourable member for Balaclava suggested that in his opinion there was no need for any institution. He referred in particular to the reference in the second reading speech of the Minister for Trade and Industry to Australian firms taken over by overseas interests. The honourable member stated that he had made an assessment through the stock exchange gazettes and, if I recall his figure correctly, he said that takeovers amounted to 7 a year. But if he looks at the figures for the last few years - again these figures are taken from stock exchange gazettes - he will find that there were no fewer than 15 'overseas' company take-overs. They were the 15 in 1969 to which the Minister for Trade and Industry referred. Substantially they were companies which, at least in the initial stages, were either overseas owned or under overseas control.

I will give honourable members an indication of companies which have been taken over since the incorporation of the Australian Resources Development Bank. The ARBD was not constituted - as is AIDC - in such a way as to enable it to prevent companies from falling into the hands of companies subject to overseas control or where there is such a measure of overseas investment as to prevent attainment of an objective desired by every honourable member in this House, as I understand it. and that is the maximisation of Australian equity. For example, in the field of automotive parts, forging and engineering, TRW of the United States of America took over Duly Hansford and British Leyland took over Pressed Metal Corporation. In other light engineering fields, Borg-Warner of the United States took over Thompson Scougall, and John Lysaght took over Brownbuilt. The honourable member for Balaclava mentioned that subsequently John Lysaght was taken over by the Broken Hill Pty Co. Ltd. Nonetheless, that second take-over was still in prospect at the time of the first take-over. American Machine and Foundry took over Pioneer Welding. In chemicals, Croda took over Federal Chemicals, Dow chemicals took over CSRC, and Dow and Slater Walker took over Drug Houses of Australia. In textiles and footwear, Courtaulds took over the Hilton Corporation,

Slater Walker took over Easywear and Kinney World Trading took over Williams Shoes.

The Australian Industry Development Corporation is directed not only at takeovers. This Corporation, being specifically directed towards mining and secondary industry, will also have an interest in maximising Australian equity in the ownership of the great new extractive industries now developing to a large extent in this continent. For instance, new ventures are being announced by overseas interests in which there is only a very small or negligible Australian equity, if any. Consumer Glass Co. Ltd of Canada is setting up a S6m plant, Australian Fibre Glass Pty Ltd of the United States is setting up a $4m plant, Dow Chemicals is setting up a $70m plant and the Guest, Keen and Nettlefold group of the United Kingdom is entering into partnership in a new steel works worth $92m at Westernport Bay.

There are many other areas of activity in which there is some measure of Australian equity but far less than I believe to be desirable or supportable in the general climate of Australia's growth. Australia at this stage is launching forth into a scale of operation in secondary industries which involves far more financial investment, far more automation, than has been the case previously. Therefore the order of our capital demands will increase, ft is because of that increase and because of the figures referred to by the Minister for Trade and Industry in his speech that the increase in remittances overseas becomes significant. This is also true when we consider the figures referred to by the honourable member for Lalor (Dr J. F. Cairns). He quoted from Sir John Crawford's paper and referred to the net apparent capital inflow in 1967-68 and 1968-69. The honourable member for Lilley (Mr Kevin Cairns) to some extent disagreed with the figures mentioned by the Minister for Trade and Industry in relation to the increase in overseas remittances in the last 5 years. The Minister said that the increase was from 8.396 to 10.5% of our export earnings. It is true that the figures presented by the Minister for Trade and Industry were calculated on a slightly different basis. We have had some discussions in order to resolve the differences.

However, there has been a demonstrable increase in overseas remittances and there certainly has been a very substantial recent increase in the amount of overseas investment in Australia. This has occurred not merely because our mining industries are at a particular stage of development, but is due in part at least to the fact that Australia's secondary industries are also at a very critical stage of development. They have reached a phase of development where it is becoming increasingly necessary to inject larger sums of finance if they are to be truly competitive and if the interests of the consumers - basically this is the Government's concern - are to be protected. It is in this area that I contend that the Australian Industry Development Corporation will play a particular role.

Quite a number of specific matters have been raised in this debate. I do not intend to cover all of them in the few minutes available. I believe certain protective mechanisms have been specifically written into this Bill which have not been adequately understood by honourable members on this side of the House who have criticised the measure. Clause 9 specifically provides that in the exercise of its powers the Corporation will not be subject to direction by or on behalf of the Commonwealth Government. This is a specific requirement of the Bill. That must be considered against the criticism of the honourable member for Macarthur about this body being a Socialist enterprise. The fact that there is a specific requirement in clause 8 (4.) that each year the Corporation shall specifically review the shares it holds is again an area of protection for the private enterprise sector of the Australian community. Specifically the aim of this clause is to ensure that the Corporation takes stock of the reserves it must necessarily accumulate, if given this fairly limited amount of capital, in order to achieve the objectives laid down.

I should add that it is for that very reason that it would be difficult for the Corporation to pay a dividend on the same basis as similar government enterprises, such as the Australian Coastal Shipping Commission, Trans-Australia Airlines or Qantas Airways Ltd. Some honourable members have suggested that the Corporation should be required to do this. If the Corporation were to do this it would find itself subordinate to the normal budgetary allocations of the Commonwealth. We must remember that the capital of this Corporation will not be for direct investment but for its day to day functions. The capital will be there as a security on which to borrow funds. The Corporation is to generate funds from overseas for reinvestment in Australia. If it were subject to budgetary allocations, it would not be able to grow progressively. The provisions of this Bill, such as the Reserve Bank restraints on domestic borrowings, the requirement for the Corporation to dispose of shares and to invest only in accordance with sound business principles are specifically included to protect the private investment sector adequately.

There is 1 other area that needs to be mentioned. I think clause 24 answers some of the problems raised by honourable members on this side of the chamber about the structure of the capital of the Corporation. It needs to be recognised that the initial capital will not be $100m but $50m. which will be paid in 2 instalments, with the restraint that there shall not in any 1 year be more than a $25m instalment paid. Under sub-clause 5 of clause 24 the initial capital is to be $50m until such time as certain conditions - and they are pretty stringent requirements- are met. These rerequirements are that on that capital of $50m the borrowing ratio of 4 to 1 should have been achieved. When we think of the order of overseas investment in Australia and think of the $ 1,000m approximately that has been coming into Australia each year in recent years, we can see that what has been constituted is a corporation not of a gigantic size but one of a nature which I believe and which the Government believes will be able specifically to complement those other facilities that are available within the money mechanisms of this country. The protection under sub-clause 8 of clause 24 also needs to be considered, and that is that the capital itself is there to be used only as an inducement to make loans to the Corporation. So what we have is a body with an initial capital structure of $25m. In the following year it may get another $25m.

Mr Jeff Bate - From whom?

Mr SINCLAIR - It will be a subvention from the Treasury. That $50m is not for the purpose of direct investment in the projects for which it is intended. The distinction between this body and the ARDB is such that I believe the AIDC will not specifically in any way compete with but will rather complement what the ARB itself is able to do. I believe that each of these bodies will have a specific role within the financial system of this country, 1 believe however that the Australian Industry Development Corporation will be far more inclined than the other body to generate funds from overseas and yet retain Australian equity and Australian control. Of course, it is with that purpose and that object in mind that the body is being constituted. Accordingly I commend the Bill to the House.

Question put:

That the Bill be read a second time.

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