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Wednesday, 13 May 1936

Senator A J McLACHLAN (SOUTH AUSTRALIA) (Postmaster-General) .. - I move -

That the House of Representatives be requested to make the duties - "per cwt., British, free; intermediate,1s.; general,1s. 4½d.

And in respect of sub-item (a) -

For each £1 by which the equivalent in. Australian currency of £100 sterling is less than £125 at the date of exportation -

An additional duty of per cwt., British, . 36d.; intermediate, . 36d.; general, . 36d."

Honorable senators will observe from the explanatory memorandum that; - (1.) The duties under the Customs Tariffs 1933, were1s. per cwt., less exchange adjustment (British preferential tariff), 1s. 6d. per cwt. (general tariff). (2.) The Government introduced proposals in another place for reduction in duties to free (British preferential tariff),1s. per cwt. (intermediate tariff) and1s. 4½d. per cwt. (general tariff), based on the recommendation of the Tariff Board. (3.) The Government's proposals were rejected and compromise rates of 6d. per cwt., less exchange adjustment (British preferential tariff),1s. 3d. per cwt. (intermediate tariff), and1s. 6d. per cwt. (general tariff) were forced upon the Government in another place.

I shall proceed to offer sound reasons in support of the request I have just moved, the substance of which is that the Government's proposals introduced in November last be reverted to. It is granted that the cement industry is a large employer of labour and pays large sums in wages. The Tariff Board stated that, on the basis of the productionof 400,000 tons of cement, employment is given to 2,000 hands in the quarrying and transport of raw materials, and in the manufacture of cement, involving a wage cost of £350,000 per annum. In addition, indirect employment is given in the mining and transporting of coal and in the manufacture of paper hags.

Local manufacturers have supplied more than 95 per cent, of Australian requirements during the last ten years. Imports have been relatively small, and in the last few years have included coloured, white and quick-setting cements of types not made in Australia. The stimulus given to cement production and the protection given to the local industry have led to the installation of plant far beyond the needs of Australia. The rated capacity of the plants is over 1,300,000 tons per annum, whereas in the peak year of production the total output was approximately 750,000 tons. The output for 1933-34 was 410,000 tons.

The board found that duties at the rates operating under the Customs Tariffs 1933 prevented external competition, and were being used to cover excess profit-taking in an industry which is over-capitalized, in which free internal competition does not exist, and in which high costs of production are an inevitable result of the distribution of output between too many plants. Costs submitted to the board showed conclusively that, if free competition had existed between the different manufacturers, some of them could have shipped to other States and sold at prices below the level of prices in those States, and still haTe made a profit.

The value of the cement industry cannot be calculated solely in the terms of raw materials used and employment created. Price is an important factor. Other important activities, such as the building industry, use large quantities of cement. An unduly high price not only retards progress in these industries, but also restricts demand and tends to limit the amount of employment in the cement industry.

At the time of the board's first inquiry, local manufacturers were selling cement at the following prices: - Queensland, £4 17s. 5d. a ton; New South "Wales, £4 10s. lid. a ton; Victoria, '£4 6s. 8d. a ton; South Australia, £4 19s. 7d. a ton; Tasmania,, £4 15s. 6d. a ton.

These prices have since been reduced, and in March of this year were as follows: - Queensland, £4 12s. 9d. a ton; New South Wales, £4 5s. lid. .a ton; Victoria, £4 ls. 9d. a ton; South Australia, £4 2s. 4d. a ton ; Tasmania, £4 8s. a ton.

After an exhaustive investigation of costs, which were liberally dealt with, the Tariff 'Board came to the conclusion that the maximum reasonable selling prices, free on rail metropolitan area,, should be - Queensland, £3 3s. lOd. a ton ; New South Wales, £3 16s. 5d. a ton;. Victoria, £3 8s. 7d. a ton; South Australia, £3 8s. 2d. a ton; Tasmania, £3 10s. lOd. a ton. The prices now obtaining for locally-made cement are higher than what the board considered to be maximum reasonable selling prices by - Queensland, £1 8s. lid. a ton; New South Wales, 9s. 6d. a ton; Victoria, 13s. 2d. a ton; South Australia, 14s. 2d. a ton; and Tasmania, £1 2s. lOd. a ton. On the information submitted by the Tariff Board, there appears to be ample room for a reduction of selling prices.

At this point it is opportune to compare the local prices of cement with those ruling in other countries. On the first page of the Tariff Board's supplementary report, the prices in Canada, the United Kingdom, and the United States of America are shown. The lowest Australian price at factory is 65 per cent, higher than the Canadian domestic price expressed in Australian currency, 40 per cent, higher than the United Kingdom domestic price on a similar basis, and 32 per cent, higher than the American domestic price. Taking the highest Australian price at factory, the percentage margins, by which | the local prices are higher, are : As compared with Canada, 117 per cent.: United Kingdom, 83 per cent.; and the United States of America, 74 per cent. The disparity was much greater under the . prices ruling a year ago. This serves to emphasize the price disability under which Australian users of cement are labouring in comparison with users in other countries.

The manner in which the board assessed maximum reasonable prices is set out in the table appearing at the foot of page 8 of the original report, and I invite the attention of honorable senators to the comments appearing at the commencement of page 9 of the report relative to the various items of cost. The board appears to have been very liberal in its assessment of reasonable maximum costs. A case in point is the cost of limestone and clay, for which the figure of 7s. 6d. a ton has been adopted. In its independent inquiries as to costs of comparable quarry materials, the board ascertained that one municipal authority in Victoria obtains blue metal spalls from a quarry, situated about 5 miles from the point of delivery, at a delivered cost of 5s. 3d. for 1½ tons, roughly the quantity of material required to make a ton of cement. Moreover, blue metal is much harder to quarry than limestone, the sizes are smaller than the sizes of limestone ordinarily sent to crushers at cement works, and the material is hauled 5 miles by motor truck; yet the price of the spalls, including contractor's profit, is only 5s. 3d. for 1½ tons. A further instance cited was hard screened ballast for the Victorian railways, which is delivered into tracks in the country at a price, including profit, of 5s. for 1½ tons.

The reasonable maximum cost of production at factory has been assessed by the Tariff Board at £2 6s. 5d. a ton in New South Wales and Tasmania, and £2 10s. 2d. in Victoria and South Australia. The liberality of the board's assessment can be judged from figures which are given on page 8 of the original report with regard to the net cost of producing and marketing refined copper. The cost a ton of refined copper was £45. The grade of ore being treated necessitated the use of approximataely 30 tons of material, and the total cost a ton of ore was only 30s. The ore is mined, principally in underground workings, is subjected to two or three crushings, passed through classifiers, and then treated by the. flotation process. The cost of 30s. a ton of ore also includes the cost of treating the metallic content recovered by the flotation process, which involves filtering, smelting, casting the metal into anodes, and refinement. Costs of fuel, maintenance of a large plant, and transport system, as well as depreciation, are included in the total cost of 30s. a ton. Honorable senators will surely agree that the board's figures of £2 6s. 5d. to £2 10s. 2d., as representing the maximum cost of manufacture of cement, are not unreasonable, having regard to the figure of 30s. a ton for copper ore.

Further support is lent to the board's cost figures by the fact that in the last trading year the actual production costs of six factories, operating in three States, were below the board's figures by from 6d. to 7s. a ton. As four of these factories were operating on an. output of less than half of their capacity, there could be no better proof that the board's estimates did not set an impossible standard.

The Tariff Board has allowed 10s. a ton as a reasonable margin for profit. Subsequent to the publication of the original report, the industry arrived at the assumption that the margin of profit allowed by the board was gross profit, and included selling and administrative expenses and taxation. The board has made it clear, in the supplementary report, that the term " profit " includes taxation, but not selling and administrative expenses which are included under the heading, " manufacturing ", for which an amount of 20s. a ton was allowed.

In its original report, the board pointed out that only one company made a disclosed profit of less than 10s. a ton, and stated that the need for a reduction of profit was evidenced by the high earnings in a period of restricted output when the rates of profit ranged from 6 per cent. to 32 per cent, per annum. In the year prior to the original inquiry the excess profit, that is the profit over the reasonable figure of 10s. a ton allowed by the board on the output of eight plants, amounted to approximately 12s. 6d. a ton, which, when applied to the output of all factories, represented approximately 200,000 in one year.

The excess profit figures brought out in the supplementary report are still more alarming. A summary of the results of ten factories during the last trading year shows that the excess profit earned, after allowing the reasonable profit of 10s. a ton, including income tax, and 6s. a ton for depreciation, was 14s.11d. a ton. This summary is all the more striking by reason of the fact that the excess profit of 14s.11d. a ton is very close to the effective British preferential tariff rate of 15s. 6d. a ton imposed during the year in which the profits were earned. Furthermore, the excess profit was earned by plants working, in the aggregate, at less than half of their capacity.

In its latest "report, the Tariff Board has accepted the lowest quotation for British cement of 51s. 6d. a ton, c.i.f., for the purpose of showing the competitive position, and estimates that the landed duty free cost on that basis will be - Queensland, £3 Ils. Sd. a ton ; New South Wales, £3 10s. 3d. a ton ; Victoria, £3 lis. a ton; South Australia, £3 lis. lOd. a ton, and Tasmania, £3 lis. 2d. a ton.

The Customs Department has examined invoices for importations of British cement during the last two or three months, and has found that the lowest actual landed costs on wharf - duty free except for primage - were considerably higher than the board's estimate. The actual landed costs of these shipments were - Queensland, £3 16s. 3d. a ton; New South Wales, £3 14s. 7d. a ton; Victoria, £3 16s. lOd. a ton; South Australia, £3 16s. 4d. a ton; Tasmania, £3 14s. 5d. a ton. These figures compare Wi tb the board's reasonable maximum selling prices as follows: - Queensland, 12s. 5d. a ton higher; New South Wales, ls. 8d. a ton lower; Victoria, 8s. 3d. a ton higher; South Australia, 8s. 2d. a ton higher; Tasmania, 3s. 7d. a ton higher. Thus it will be seen that, except in the case of New South Wales, imported cement could not be landed in competition with Australian cement if the local product were sold at reasonable prices.

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