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Thursday, 11 June 1970

Mr CREAN (Melbourne Ports) (2:43 AM) - Of course, I regret that these measures are to be dealt with at this time of night and in these circumstances.

Mr Turnbull - It is absolute stupidity.

Mr CREAN - It is; I can agree with my new friend that it is absurd, but we have agreed to what is described as a cognate debate, although in a sense the measures are entirely different. I indicate that the Opposition intends to oppose the Loan (Defence) Bill, under which it is proposed to borrow $10Om from the United States of America, although I will only formally oppose it tonight as I do not want to divide the House. Nevertheless, we will oppose that Bill while, with regard to the Loan Bill, which the Treasurer (Mr Bury) has described as a technical measure, we offer no objection. Regarding the Opposition's reasons for opposing the loan from the United States of America of $100m for defence purposes, basically we think that defence should be paid for as we go. It is an expendable item for which we should not incur debt or borrow, overseas. Australia has a deficiency of reserves at present, if we have to procure defence equipment overseas. After all, we have had the fiasco in recent times of the Fill. In the course of his speech, the Treasurer was careful to point out that none of the $100m would go on the ill-fated Fill venture. In fact, he has implied that he still has $75m unspent on that account for which authority has already been given. The other rather peculiar aspect of this measure is that although it is a Loan Bill the loan has not yet been arranged. The Treasurer used the following rather curious words:

It is expected that the Export-Import Bank of the United States will provide the loan funds to be raised under this legislation. We are at present negotiating with the Bank for this purpose, and the Bill has been drafted to provide authority for the Commonwealth to accept the usual provisions of Export-Import Bank loan agreements.

I am not sure what he means by 'the usual provisions'. No rate of interest is quoted, and it seems to me to be a peculiar kind of exercise to ask for a blank cheque, as it were, with interest rates being as high as they are at present and with borrowings being raised overseas at a rate as high as 9%. No term has been quoted. 1 would have thought that at least the term should have been arranged before the sanction of the House was sought. Briefly those are the reasons for objection to this measure. I maintain that for defence we should pay as we go. We certainly should not borrow in the United States on terms that are not even set down. So much for that measure.

I now want to say one or two things about the second of these measures which I think the Treasurer described as virtually a machinery measure to enable the Government to carry out policies approved under the various Acts authorising expenditure, the raising of revenue and financing transactions. He claims that the measure is necessary to authorise,- if need be, what is known as the Government deficit in this particular year. Broadly, the Commonwealth Government aims to raise and to spend sums in the region of $7,000m. That is roughly the expected revenue from all sources. The expenditure is almost a like amount, but there is a difference of $30m, a deficit. Tn other words, spending is to exceed potential revenue by the sum of $30m. The rather curious thing about the Budget documents these, days is that we seem to have more documentation but in many respects the whole thing is becoming harder to comprehend. We now have attached to the Budget Speech when it is brought down a document known as Statement 6 which presents the Budget in what is described as national accounts form. When the Budget is laid down, whilst technically every dollar that we spend has to be accounted for, nevertheless in the course of a year there are a. number of transactions which the Government is not able to predict in advance. Reading such information as is available to us, it seems that certainly the outcome at this stage of the year is far from being clear, and the picture is certainly very much different from what it was at this time 12 months ago.

I should like to quote from the latest monthly summary issuing from the Treasury of Commonwealth financial transactions for 1969-70. It deals with the situation to 31st May 1970. They are the latest figures available to me. The Treasurer may have some later figures. In the course of his second reading speech on this Loan Bill he indicated that there had been a different result in the overall loan market this year from that which had been expected. The main reason seems to have been that this year there was a greater degree of redemption of loans than on previous occasions. In other years, as Joans came due for conversion the tendency was for people to put the- money back into new loans. However on recent occasions they have chosen to redeem the loans - in other words, they have asked for their cash and have put it into something other than government securities.

It seems to me that this makes a considerable difference to the potential situation. The sums involved amount to about $500m, or 2% of the gross national product. Whether people convert their loans and put their money into private rather than government activity can make some overall difference, certainly to the Budget situation and perhaps to the total economy.

Interesting differences have arisen in the I I months to 31st May 1970 compared with what happened in the 1 1 months to 31st May 1969. In 1969 the then Treasurer had from the United States more than $62m in defence credits. This year the sum availed of has been only $18.5m. In 1969 the Government obtained borrowings abroad amounting to $105m whereas this year there has been repayment of moneys overseas to the extent of nearly $114m. There is a fairly significant difference in aggregate. Whereas last year the Government had nearly $168ra available from overseas sources, this year there has been a net retirement on the overseas account of approximately $95m. There has been a marginal difference of about $250m on that account.

The next item which is significantly different from that of last year relates to loans in Australia. At 31st May 1969 the net proceeds of loans in Australia was $367m. This year it was only S242m. So there is an adverse difference of $125m. The next item also reveals a considerable difference this year against that of last year. I refer to the change in treasury notes on issue. In the 1969 period there was a reduction of S19m whereas this year there was an increase of $116m. That has been used mainly to finance the wheat pool arrangements. As honourable members know, we have a lot of wheat that we cannot sell but under the arrangements an advance is made to the growers. The Treasury has financed that by recourse to treasury notes. Net advances to the Australian Wheat Board this year show a debit of $2 18m. Until 31st May 1969 there had been actually a retirement of borrowings from the Reserve Bank of $133m. This year actual borrowing from the Reserve Bank to the end of May has been J 100m. Again that shows a net difference of $233m. 1 was interested to see the other day that the Treasurer hopes to be the first Treasurer to present what are known as 'forward estimates of expenditure'. I would have preferred the Treasurer to do what was done in the United Kingdom in respect of this matter, that is, to issue what is known as a Green Paper - not a White Paper. This Paper was prepared and presented in April 1969. The explanatory note at the beginning of the Green Paper deals with- certain aspects of the relationship between the Executive and Parliament in the held of public expenditure, lt continues to explain that it sets out a number of proposals for changes in present arrangements which the Government is submitting to the Select Committee on Procedure for its consideration. The explanatory note concludes by saying ' that in view of the importance of the subject the Government is issuing the Green Paper so that its proposals may form the basis of wider public discussion.

I submit with all respect to the Treasurer that there is need for a certain amount of public discussion in Australia also on these matters. I commend lo him the suggestion that he issue in advance noi so much the actual figures but an indication of what he proposes for this 5-year estimate, lt would be in no sense binding for the 5 years but would be an estimate for as far as could be seen at that stage. In Great Britain this system arose from the recommendations of an earlier committee, known as the Plowden Committee, which said that regular surveys should bc made of public expenditure as a whole over a period of years ahead and in relation to prospective resources. So as well as anticipating what the expenditure will be some attempt could be made to assess what the revenue might be. Of course it would be necessary to presume the continuance of tax rates at the same rate; it would not be possible to indicate that in 3 years time the rate of income tax would be increased.

There are certain limits to forward planning. Nevertheless, there is an indication that public expenditure is not something that we think about only at the time of a Budget but that it has a relationship to what has been done before and what is expected to flow from that into the years ahead. I am glad that we are to have something of that kind, but 1 think the Treasurer might have educated us a bit better if he had adopted the same practice as has been introduced in Great Britain. Had the hour not been so tate 1 would have liked to go further this evening into what seem to be some limits of the Budget in the context of the Australian situation as we find it. I think I mentioned the other evening in the course of another financial debate that we have virtually thrown away fiscal policy in Australia as a weapon. Because of that we have to rely more than we should on monetary policy. Monetary policy for the most part, when it is applied in Australia, is applied in the form of the bludgeon of rising interest rates. 1 would commend to the Treasurer observations that were made in the most recent issue of the 'Australian Economic Review' published by the Department of Applied Economics at the University of Melbourne. This document, which contains a survey of the Australian economy up to the end of the March quarter, points to some of the difficulties that arise from the pay-as-you-earn method of taxation, under which, broadly, the same amount of deductions is collected each month. But in the first 2 months of the financial year and even in September very heavy refunds are made to taxpayers out of the Commonwealth account, and subsequently these amounts find their way into the banking system and there is an increase in liquidity in those months. The opposite situation prevails in the period from March to June when what are called the larger taxpayers begin to get their provisional assessments and when companies have to pay their taxation. During those months we get what is called a run down in liquidity. This of course makes for some difficulty in the Australian context. Certainly the difficulty is compounded if we are not being very successful in our debt management or loan market transactions. This, it seems, is the situation the Treasurer believes we hit in the Australian economy a month or two ago.

I must say that I concur with the general observations in the 'Australian Economic Review'. 1 made the same sort of criticism in this House some month or two ago when these matters were discussed. I said that in essence, . pricewise if you like or in terms of inflation, the situation in Australia is not any worse than it has been for the past 5 or 6 years. It is pretty true that the drastic measures that have been applied with respect to interest rates have perhaps had one or two rather interesting side effects. One of them of course is that there has been a severe cut down on home building. The victims of that are certainly not the people .who are. responsible for the inflationary tendencies in the community. The other odd effect is that the Treasurer seems to have attracted to this country in the months of April or May a certain amount of foreign money. Whether it has come here just on a hot basis because the interest rate is higher now than it was and will flow out again after a short period, I do not know. But at least it may tide the Treasurer over what he thought would be a balance of payments difficulty.

Nevertheless I think all .of this points to some need at least to refine the situation in Australia in order to control these waves of economic activity which gives us too much liquidity at some times and too little liquidity at other times. A publication called 'Trans City Discount Limited Money Market Review News Letter' for May 1970 stated:

The Commonwealth's borrowings from the Reserve . Bank had reached an awe inspiring $8 18m at the end of December but had fallen to $537ra by the end of March. Cash in the system was then already tightening and the excess of revenues over expenditure by the Commonwealth for the final quarter still to come was estimated at some $900m. Such a contraction coming after 2 years of easy money when a high flying stock market had been accompanied by a proliferation and expansion of non-bank financial intermediaries, could only have a very severe impact on an over extended credit base.

That points to the very wide fluctuations that have taken place in the recourse to Reserve Bank credit During the time when the money has not flowed in and the bills have continued to come in, the Commonwealth has to have some means of meeting its obligations. Nevertheless, the system is of such a kind that the economy does get these very big troughs and reverses of troughs in the course of a financial year. This year some of the difficulty was compounded by reason of the difficulty with respect to the loan market. The principal difficulty there was that the people who had the option of converting did not convert but chose to take their cash instead. It will be rather interesting at the end of June, when the final wash up comes, to see what the final picture actually is. It certainly is very much different from what it was 12 months ago, although on that occasion the Treasurer was budgeting for a much smaller deficit than for the previous year. This is what he said:

This year we expect the Budget to produce a domestic surplus of about $500m. This would withdraw a similar amount from the money supply.

I am not sure that that kind of situation has not been confounded by results. Because of transactions that the Government has had to indulge in this domestic surplus of about $500m has not been produced but rather what has happened is that the Government has an excess of action in what might be called the private sector of the economy as against what the Government anticipated would be the situation in the public sector. I am not too sure that the Budget forecast has not come unstuck. I would be interested later on, perhaps on some other occasion, if the Treasurer might expand a little upon that theme. It is not very fair to have to talk about this matter and to listen at this time of night. It is a very unsatisfactory kind of situation. The House has before it two measures that involve in aggregate about $130m. They came on at about 2.45 a.m. There will be no further opportunity until the next Budget to discuss them more fully. I certainly register my protest at the way in which important business of this House is being transacted.

Question resolved in the affirmative.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.

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