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Wednesday, 11 September 1985
Page: 436

Senator MacGIBBON(11.58) —The Opposition opposes the Snowy Mountains Engineering Corporation Amendment Bill 1985 because it is wrong. It is wrong because it opens the way for tens of millions of taxpayers' money to be spent unnecessarily to provide a service, both within Australia and overseas, that is already available at no cost to the taxpayer. It is wrong also because it provides a threat to the great civil engineering companies of Australia. Not only will it threaten the ones in the civil engineering field but, because of the great powers the authority will receive by way of this Bill, it could really challenge and put at risk the companies which operate across the whole spectrum of Australian engineering. Honourable senators should not ever lose sight of the fact that it is the private companies, not the Government, which create wealth for this country.

I find it very surprising, at a time when we are reeling under the biggest spending, biggest taxing and biggest borrowing government in this country, that we are legislating for things which will increase the deficit. Ten per cent of the Federal Budget this year will be spent on interest payments on overseas borrowings by the Federal Government alone. I am not talking about the billions of dollars that are tied up in State government and local authority borrowings. Ten per cent of all Federal outlays-more than we are spending on defence this year-is going on interest payments for money that this Government has borrowed. Some $20 a week of every taxpayer in this country is now going on interest payments. Everyone who files a tax return pays for the profligate borrowing of this Government. More importantly, in terms that everyone can understand, one-third of all the exports that this country will make this financial year will go on interest payments for the borrowings that we have made. It is against that background that we are legislating blithely to increase the run on the public purse.

It is my intention this afternoon to deal with the history of the Snowy Mountains Engineering Corporation, the justification that the Minister for Housing and Construction (Mr West) made for it in his second reading speech when he introduced the Bill and to explain why it is wrong. Before I do that I will deal with the two opposing speakers who have spoken in support of the Bill. Senator Cooney made a traditional and impeccable defence of the Bill within the terms of Australian Labor Party ideology and, of course, that is simply that governments are entitled to be in any commercial field they like. We on this side of the chamber do not agree with that. We believe that governments should not be in commercial enterprises that can be successfully run by private industry.

While we have a policy commitment to privatisation, I would like to put it a little more clearly for Senator Cooney and other members of the Labor Party. What we are primarily about is breaking up the monopoly position in Australia and it does not matter whether it is in private industry or government owned enterprises. We believe that monopolies inevitably lead to an increase in price for the consumer. Our primary concern is to get costs down by fostering competition. The second point is-it bears very heavily on this argument against SMEC-that if people are providing a service in private industry it is pointless going into that field with government money.

As one would expect, Senator Siddons gave the Australian Democrats support very heavily to the Labor Party which is just what one would expect from one of the registered factions of the ALP. His speech dwelt largely on the past and the undeniably great achievements of the Authority since it was founded. We have no argument with that. We think it has been a wonderful star in the Australian engineering firmament but we have built the Snowy Mountains scheme and there is no longer any justification for keeping an authority, which does something quite different from what it was founded to do 20 or 30 years ago.

SMEC was founded in 1970 by a Bill which stated in its preamble that it was to retain the engineering skills built up during the 25 years it took to investigate, design and construct the Snowy Mountains scheme. At that time the Bill confined SMEC to operations in Australia principally in areas where it had built up its expertise. In 1973 the Labor Goverment lifted some restrictions and gave more discretion to the Minister as to what fields SMEC became involved in. This Bill extends that liberalisation even further. It takes all the restrictions off SMEC as to what it can do. It can compete with private enterprise right across the whole of the engineering field in Australia and overseas. That would not be so bad but the really bad point is that SMEC has an open slather with respect to financing. By appealing to the Minister SMEC can get as much money as it wants from the public purse. It is under no compulsion to repay that money. It repays it as and when the Minister demands, or desires it, and there is no compulsion to make a profit or service the capital which it has. Under those terms anyone could go into business, even the Labor Party.

I now turn to what the Minister said in his second reading speech on this Bill. In introducing the Bill the Minister stated:

This Bill provides for the restructuring of the Snowy Mountains Engineering Corporation, to put it on a more commercial footing and to allow it to participate more effectively in the international engineering market. The changes are extensive, but simple and easy to understand. They are designed to allow operational flexibility to the Corporation in Australia and overseas, to improve the Corporation's competitive capacity in a wide range of engineering works, to maximise its flagship role overseas and to ensure that it acts with commercial prudence,

. . .

The key changes are to:

remove existing restrictions on the range of engineering activities open to the Corporation;

That is our major point. We do not believe that the Corporation should have a licence to operate against the Australian engineering profession. The Minister continued:

. . . include in the statement of functions a specific reference to the Government's intention that the Corporation shall, as far as is practicable, involve Australian organisations in the performance of overseas work and promote overseas the interests of the Australian engineering industry;

We have no quarrel with that, if we can agree with the earlier part. The Minister continued:

. . . allow the Corporation, with ministerial approval, to form companies or other legal arrangements where this is necessary to assist the progress of involving Australian engineering companies in joint ventures overseas and for other commercial purposes;

The Minister also mentioned other administrative things. Later in his speech the Minister stated:

Unlike private enterprise, the Corporation did not have the capacity to quickly shed staff, at minimal cost, to an appropriate level.

That leads me to one of the crippling liabilities of this body. As a Public Service operation it lacks the flexibility to cope with changes in the market as they occur. In business we always have good and bad times. When things get bad a business, if it is to stay alive, simply has to have the ability to alter its operations, to get rid of staff, to put on new staff, and to get out of fields that it is in. But a public service body with committees meeting and superannuation payments for staff who work from 9 to 5 or 10 to 4 hanging over its head cannot function in this way.

Senator Tate —That is what it has done.

Senator MacGIBBON —And end up losing $10m the way this Corporation has in the last few years. The Minister went on to state:

I shall, of course, be able to direct the Corporation-

I hope that the Labor Party has a Minister other than Mr West to do this-

as to the exercise of its powers and the performance of its functions. Any such directions will be included in the Corporation's annual report to Parliament. It would not be the Government's intention to seek to intervene in the detailed activities of the Corporation, but rather to ensure its compliance with overall government policies and sound financial principles.

The implication in the phrase `sound financial principles' is that somehow or other one can magically legislate for corporate profitability. One cannot legislate for corporate profitability or financial success any more than one can legislate for morality or longevity. It just does not happen that way. Further the Minister in his speech stated:

On balance, private Australian engineering organisations are sure to benefit. They will experience stronger, but fair, competition from a revitalised Snowy Mountains Engineering Corporation.

Very clearly, it is a declaration of war on the Australian engineering profession to talk about experiencing stronger, but fair, competition from a revitalised Snowy Mountains Engineering Corporation. There simply will not be fair competition when one is dealing with a body that does not have to show a profit, that can get money on demand from the Government and which does not have to make repayments or pay interest on borrowings. There has been some discussion about the profitability of the Corporation. Senator Cooney and Senator Siddons talked about this. It is not true, as a report claimed, that last year was the first year that the Corporation did not make a profit. If one goes back to 1982-83 one finds that it lost about $310,000. Admittedly, that is not much when one is dealing with millions but it is still a loss. Taken over recent years we are down quite a lot of money and the statements in the report are quite misleading. The 1983-84 report stated that total turnover showed a sharp decrease of 23 per cent from the previous year to $44m, and despite the implementation of cost cutting measures, the Corporation was unable to avoid its first ever operating loss.

I suggest that whoever wrote that report should read the one for the year before and get the accurate figure. What sort of cost cutting exercises have been taking place when in the same report we find that administrative expenses have gone up by 20 per cent? They have gone up from $11.6m to $13.9m-an increase of 20 per cent. It is quite misleading for a director of the company to make a report saying that cost cutting measures have been taken when there has been a 20 per cent increase in the face of a 23 per cent drop in the turnover and activities of the company. The Minister in his speech said that the Corporation will make every endeavour to break even, and the 1983-84 report to which I am referring expresses the anticipation that the Corporation will be operating on a profitable basis by 1985-86. I do not think that is likely to come about.

Senator Tate —What if it does? Would that change your mind?

Senator MacGIBBON —I do not think that is a possibility, if the Corporation is going to shed the number of staff anticipated and pay them superannuation. I am glad Senator Tate brought up this matter because, as the Auditor-General has noted, no funding for superannuation is mentioned in this report. One of the unusual items is the payment to about 50 people to which Senator Archer referred. If the Corporation is to get rid of a few hundred staff, that liability will go up into millions of dollars.

The problems with SMEC are very simple. It is a Public Service body and it simply cannot react to change quickly enough. It is fine if it is running in a stable environment and everything is going well and in place but, as I said before, things go up and down in the commercial world and we have to be able to react to them. Put in its simplest terms, one of those reactions has to be to acquire new staff and to get rid of the redundant ones. SMEC, as it is constituted, will never have that capability. Secondly, by its very nature it cannot attract the people with current commercial skills and judgment, and if it does not have current commercial skills and judgment it cannot stay in business and make a profit.

All of this is costing the taxpayer a great deal of money. The Minister said that at July 1984 the Government had already put $6m into the Corporation. The Corporation's accounts show that in comparison with the $2.6m with which it started, Government funds now stand at $6.6m. Certainly the Corporation has been profitable in earlier years, but I make the point that in the early 1980s some of that profitability came from a revaluation of assets. In other words, the Corporation sold some of its real estate and made a handsome profit on it. If it had not done that it may not have made a profit at all. However, its general area of operations is a non-competitive environment. It does a lot of in-house work for government departments, principally for the Department of Housing and Construction and for the Snowy Mountains Hydro-electric Authority. This work is really undertaken on a cost-plus basis. It is not competitive. The rest of the country does not compete for the work and, even in these very favoured circumstances, the Corporation still loses money.

We on this side of the Senate are opposing the Bill because we just do not see the need for this Corporation. We know very well that these facilities are provided in great number by the engineering profession in Australia. The original reason for setting up SMEC-the preservation of skills-is no longer applicable. Nobody in SMEC today was with the Snowy Mountains Authority when it started nearly 35 years ago. It is 15 years since the last of the Snowy Mountains scheme was put into operation and the expertise that was built up then has gone. The people have retired, died, or gone into very senior management, where they have no bearing at all on the actual operations. The overwhelming majority of SMEC staff today are relatively recent recruits. So the argument that the retention of skills is an important factor from a national point of view is not sustainable. Anyway, we are not in the business of running the massive Snowy Mountains civil engineering type of scheme for which the Authority was founded. We are now moving into the whole range of general engineering, and the relevance of what the Authority did 35 years ago simply is not applicable.

We are also opposed to the Bill because the Corporation uses public funds not only to compete with but also, I believe, to hammer the private companies in this country. As I said before, it is the private companies, whether in the engineering field or the manufacturing field, that generate the wealth that keeps us at the standard of living we want. The Corporation has a very unfair advantage insofar as it can get funds from the government on demand-funds which, as I said, it does not have to repay.

Quite a deal of comment has been made about the Corporation's involvement in overseas contracting. Overseas contracting has been of great value to us from the point of view of general international public relations. I think that is very important but, again, a lot of that contracting is in-house. I have very good links with Australian consulting engineers and consulting surveyors and I am very conscious of the activities overseas of these two groups. Some of the principal and most creative and dynamic characters live in Queensland, and Queensland companies have taken a leading part in operations around the region we live in, the South East Asian region. Their common cry is that they can get little support from an Australian government in their overseas operations.

These companies have the skills and the ability and are competitive enough to win these jobs. Not only do they get a lot of money from the performance of their contracts but also, indirectly, through feeding work to Australian sub-contractors, they earn a great deal of money for this country. They got very little support from the Fraser Government and they are getting active opposition from the Labor Government. The Labor Government is acting against private contractors operating overseas. It is channelling all the work through the Australian Development Assistance Bureau and SMEC, and I think that is wrong.

These people have the flexibility, the skills and the expertise, and they should be encouraged. Instead of putting funds into bodies such as SMEC, the Government should be talking to consulting engineers, engineering contractors, and consulting surveyors and offering them what support it can. It is not necessarily financial support they want; they want diplomatic support. They want support through the Department of Foreign Affairs. They want doors opened for them, they want invitations, and they want to be seen in the field as operating with the support of the Australian Government. They are not getting this at present.

The Opposition does not support this Bill. It does not support the expenditure of millions of taxpayers' dollars on a service that is obviously uncompetitive and clearly non-essential to Australia. We believe that the skills that are inherent within the private sector of Australia, which can be provided in the national interest and at no cost to the taxpayer, should be the direction the Government follows. We see no need to support this Bill.