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Tuesday, 30 August 1960

Mr FOX (Henty) .- At the outset, let me compliment the Treasurer (Mr. Harold Holt) on what I consider to be, in prevailing conditions, a very good Budget. I do not suggest for one moment that it solves all our problems or that it could not be improved; but it is still a good Budget, and undeserving of the harsh criticism levelled at it by the Opposition. I congratulate the Treasurer on the work he put into it, and I hope that in the years ahead he will continue to guide the financial affairs of this nation and beat the record term of office of his illustrious predecessor.

Now let us examine some of the criticisms offered by the Opposition. The Opposition Whip, the honorable member for Wilmot (Mr. Duthie) said -

To the wage-earners, who comprise the vast majority in the nation, this is a cynical, cruel and crippling Budget. The Government has even withdrawn the 5 per rent, rebate cf income tax which it gave last year.

Now let us see what the Opposition said about this rebate when it was granted last year. It will be interesting to quote the remarks of the honorable member for Yarra (Mr. Cairns), who at least, among members of the Opposition, is regarded as an authority on financial matters. He said -

It will give £20,000,000 in a reduction in direct income tax in this way: To the 57 people in the community who have an income of £50,000 or more, it will give £1,555 a year. To the 568 who have incomes between £20,000 and £50,000, it will give £1,055 a year. To the 756 people who have between £15,000 and £20,000, it will give £451.

And listen to this -

But to the 1,208,000 whose incomes are between £105 and £600, it will give less than £2 a year; to the 303,000 whose incomes are between £600 and £700, it will give less than ls. a week, and the 1,115,000 who earn the average income of between £700 and £1,000, it will give about 2s. a week.

Mr Cairns - Hear, hear!

Mr FOX - Right. The honorable member for Yarra went on to say -

That is the kind of social injustice that comes from this Government.

This year, when this rebate which the Opposition described last year as being miserable and worth virtually nothing, is withdrawn, its withdrawal is called " a cruel and crippling burden ". Now, apart from the action on this rebate, the only other increase in taxes in the Budget which can possibly affect the working man is the increase in the rate of sales tax on electric razors from \2i per cent, to 25 per cent. This sales tax has been increased in order to remedy an anomaly which has existed for some time, because for a number of years safety razors have borne the 25 per cent, rate of sales tax. The honorable member for Wilmot started to interject, but has apparently changed his mind. I am glad that he did so, because I was about to say that I have read in the newspapers that at least one company - the Remington Rand company - has announced that it will absorb the increased sales tax and leave the retail price of its electric razors unchanged. 1 compliment this company on that, and 1 hope that other manufacturers of electric razors will follow its example. I want to tell the Opposition now that I have no shares in Remington Rand. In fact, I have no shares in any company despite the fact that the Opposition continues to refer to us over here as being the spokesmen for big business.

Now I turn again to what the honorable member for Wilmot had to say about the Budget. He said -

Spiralling profits and prices causing an everwidening gap between income and expenditure have led to the breakdown, not the stabilization, of our economy.

He described the Budget as - a vicious weapon which is being used against the ordinary man in the street whose wife has been forced to seek employment in order to make ends meet.

Mr Cash - Who said that?

Mr FOX - The honorable member for Wilmot. Now listen to what the Leader of the Opposition (Mr. Calwell) had to say about the Budget. He said that in the ten years this Government has been in power prices have risen by 98 per cent. I want to remind honorable members opposite that when the Chifley Government went out of office in 1949 the basic wage average for the six capital cities was 129s. To-day it is 276s. My authority for those figures, in case they are challenged, is the Commonwealth Year Book and issue No. 62 of " Australia in Facts and Figures " published by the News and Information Bureau. So, on the admissions of the Leader of the Opposition, prices have risen by 98 per cent, but the figures I have given show that wages in the same period have increased by 114 per cent. So this everwidening gap between income and expenditure to which the honorable member for Wilmot referred appears to be widening in reverse.

I do not want to deal harshly with the honorable member for Wilmot, but he made great play on the fact that company profits have risen considerably, and he named certain companies. I did not have time to check all of them, but I checked three under the mistaken impression that all of them had their head offices in Melbourne. I will deal with them in the order in which the honorable member for Wilmot mentioned them. The first company he mentioned is Meggitt Limited which, he said, had paid a 12i per cent, dividend, having earned a record profit of £88,481 for the year ended 31st May. He mentioned Motor Credits Limited, saying that it was a hire-purchase associate of the Automobile Chamber of Commerce and had lifted its profit by 36 per cent. from £105,465 to a record of £143,986 for the last financial year. He then said -

The profit of Gordon Edgell and Sons Limited increased by 36 per cent, in the year ended 30th June.

He went on -

These arc fantastic figures when one considers that the Government has had nothing to say about profit inflation. Throughout Australia, this is the sort of thing that is going on. Prices are moving upwards week by week and the poor old consumer is being slugged. Profits are rising all the time and companies are making no effort whatever to steady costs.

The inference from that is that the companies are increasing their rates of profit. I do not think that anybody would argue against the contention that, with rising population and with improved methods of marketing, any progressive company will increase its turnover. I shall set out to prove that increased turnover is responsible for the increased profits. The first company I shall take is Meggitt Limited. I contacted this company and it sent me its balance-sheets for the last two years which, unfortunately, did not show the turnover. My informant told me that this year's profit, which was a record, was 15.7 per cent, on actual invested capital. On shareholders' funds the profit was equivalent to 6.8 per cent. In spite of the fact that this company was formed in 1911, it was only last year that it made its first issue of bonus shares. My informant also pointed out that the higher profit this year was due to increased turnover. As reported in the current balance-sheet, the company purchased approximately 50 per cent, of the year's record harvest of 26,500 tons of linseed and paid to the farmers £1,200,000 for raw linseed. I think that members of the Australian Country Party will agree that linseed meal is essential in order to increase primary production.

So much for Meggitt Limited. The next company I contacted was Motor Credits Limited. This company stated that its turnover last year had risen toy approximately 100 per cent. Turnover for 1959 was £578,000 and for 1959-60 was £1,144,000. In other words, although the profit was up 36 per cent, the turnover was up 100 per cent. The company pointed out that the increased turnover was due not only to the normal increase in business, but also to the fact that during the year the company had floated a subsidiary company and had opened a number of new branches.

I am sorry that the honorable member for Wilmot is not here at the moment, but I wish to say that when one of the two companies whose profit rose by 36 per cent. - and I am not saying which one - was told of the honorable gentleman's statement about the increase of 36 per cent., with his inference that the company's rate of profit had increased by that percentage, I was told, " You can tell the honorable member for Wilmot from us that if he can show us. any way to increase our rate of profit by 36 per cent, he will be perfectly safe in resigning his seat, because we will give him a job for life at a higher rate of pay than he is ever likely to receive as a member of Parliament ".

Gordon Edgell and Sons Limited admitted that its profit rose by 36 per cent., but pointed out that its turnover almost doubled. This was due to several things. One was that the company had purchased the Birdseye interests and entered into the manufacture of baby foods for the first time. This was also its first full year in the manufacture of frozen foods. The company also pointed out that it was an all-Australian company and the capital invested in it was all Australian. The company also says that it is highly regarded as an employer among the trade unions. I was interested to learn that it provides a good deal of employment in Tasmania, the State in which the honorable member for Wilmot's electorate lies.

It is only natural that increased population and improved marketing methods result in increased turnover and increased profits, and I maintain that it is not entirely honest to present increased profits as an argument, without relating them to turnover. Let us take the case of two firms - two shops, if you wish - which operate next door to one another. They have exactly the same overhead and sell exactly the same line of goods. One firm is content to accept a mark-up of 25 per cent, on the cost of its goods, but its neighbour wants a mark-up of 40 per cent. I do not think any one would argue that the company with the lower mark-up would sell the most goods. We all know the law of diminishing returns. Generally speaking, the more you increase the price of goods, the more you reduce demand, but the more attractive you make prices, the more goods you will sell. If a company such as the one I have mentioned reduces its mark-up from 40 per cent, to 25 per cent., and so doubles its turnover, it makes larger profits. If it trebles its turnover it could make almost double the profits of its competitor. Does the Opposition applaud the company which works on a lower markup and increases its profit? No! It merely states that this company last year increased its profit by 100 per cent., and then it proceeds to talk about profit inflation.

On the question of who is honest and who is dishonest, let me turn now to the speech of the honorable member for East Sydney (Mr. Ward). He said -

In its presentation of statistics, the Government is dishonest.

Later he stated -

In the year 1958-59 the Government, because it is a big businessman's Government, released to the private banks large sums of money from what were known as the " special accounts " but which are now called the " reserve deposits " under our existing banking legislation. The Government said that it wanted to increase the liquidity of the private banks, but the money was not used for the purpose of home construction or development. Immediately these millions of pounds were released by an anti-Labour government from the reserve deposits in which they had been earning interest at the rate of t per cent., the private banks invested the money in Government loans at 5 per cent. That was a completely dishonest act on the part of the Government.

But the honorable member for East Sydney did not tell us that these funds which were earning # per cent, interest actually belonged to the private banks themselves.

Mr Cairns - That is very much a matter of opinion.

Mr FOX - Well, they received from the Reserve Bank i per cent, interest on their own funds, but when they borrowed back their own money to invest in Commonwealth bonds they had to pay 5 per cent, interest. And the honorable member for East Sydney accuses the Government of dishonestly favouring the private banks!

In his speech the Leader of the Opposition (Mr. Calwell) said -

We say that the money-grabbing, moneygrubbing controllers of big business have built-in star chambers which inflict severe penalties on those who refuse to abide by, or break, the agreements which they determine among themselves.

This can mean, and sometimes does mean, the loss of livelihood for many small shopkeepers, retailers, growers and producers of all sorts who have no court of appeal against arbitrary and unjust penalties imposed by the monopolies.

I assure the Leader of the Opposition that I do not agree with those tactics, but I remind him that people who live in glass houses should not throw stones. It is not so very long ago that two people named Hursey refused to pay a levy imposed upon them by a union because they considered it to be an unjust levy. Yet they were prevented from earning a living by the members of the union! To me, this case is not a great deal different from the star chamber methods to which the Leader of the Opposition referred.

I want to turn now to the subject of inflation about which so much has been said and written. In one breath the Opposition tells us that it is impossible for the worker to save anything, and in another breath it tells us that inflation is eating away the worker's savings. I realize that inflation is an evil which must be defeated and, as the Institute of Public Affairs has stated, it is everybody's business to fight inflation. It can seriously undermine our export market, and it penalizes the thrifty. It penalizes, in the main, those persons who have invested in endowment and life assurance policies; those who have paid superannuation at a rate which they thought would return enough to keep them in their old age; those who were patriotic enough to invest in Commonwealth bonds and those who banked their savings. I am glad that the Government has done something to alleviate the distress of a section of these people by greatly liberalizing the means test in relation to pensions. I shall have more to say about this subject when the proposed social services legislation is being discussed in a few weeks. In the meantime, I should like to remind pensioners of a few facts which the Opposition will never bring to their notice.

When the Menzies Government came to office in 1949 the permissible income for a pensioner was 30s. a week. To-day it is 70s. In 1949, the value of property which a pensioner was allowed to own before losing his right to any pension was £750. This Government increased that figure to £2,250, and the Budget provides that a pensioner without any income other than the pension may have property worth £4,620 before losing completely his or her entitlement. A married pensioner couple who have no income other than the pension may own £4,040 worth of property, cash, bonds, shares or assets other than their own home and motor car and still receive the full pension of £5 a week each. They do not lose their entitlement completely until their joint additional property is worth £9,240. For the purposes of this legislation, any income that they may receive from property is disregarded entirely. I remind pensioners further that of the proposed pension rate of £5 a week, Liberal governments will have provided approximately £4.

When the Chifley Government went out of office in 1949 the pension rate was 42s. 6d. a week. This Budget raises it to 100s. a week, an increase of 135 per cent. For pensioners who are eligible for the supplementary rent allowance of 10s. a week, which was also introduced by the Menzies Government, the increase is nearly 160 per cent. The Leader of the Opposition has stated that in the ten years since this Government assumed office prices have risen by 98 per cent.

Let me further relate the pension to the basic wage. In November, 1949, the basic wage was 129s. a week. To-day it is 276s. a week, an increase of 114 per cent. As .1 have said, the pension has increased by 135 per cent. Let mc po further. The Opposition has said that if this Government had not intervened in the hearing before the Arbitration Commission, the basic wage would have been increased. I do not believe that even the most enthusiastic member of the Opposition would have expected an increase of 20s. a week in view of the fact that over the past eight years the largest increase has been 15s. But let us assume that the commission had granted an increase of 20s. a week, bringing the average for the six capital cities to 296s. a week. The percentage increase on the November, 1949, figure would have been only 130 per cent., and yet the pension as announced in the Budget is already up 135 per cent., and 160 per cent, for those who receive the supplementary allowance. I say without fear of contradiction that this Government has done more for the pensioners than Labour ever did. I say this without being smugly satisfied that what we are doing is enough. I have every confidence that the Menzies Government will continue to ease the means test and increase the pension rate as it has done regularly during its term of office.

But Jet me return to the question of inflation. I know that inflation harms many people and that it must be defeated, but the people whom it hurts least of all are the workers. I hope to prove that statement. I have stated already that, on the authority of the Leader of the Opposition, prices have increased by 98 per cent, while wages have risen by 114 per cent. That takes care of current purchases. But let us take the case of a worker who, in 1949, entered into a contract to purchase his home. Statistics show that more than 70 per cent, of Australians either own or are purchasing their homes, in 1949 a home could have been purchased from £2,000 to £2,500 for a deposit of from £250, with the repayments ranging from £6 to £8 a month over from fifteen to 30 years. In the intervening ten or eleven years wages have doubled and the value of the worker's home has doubled. But the purchase price is still the same, the interest rate is still the same and the repayments are still the same. In other words, the worker is able to repay his loan with £1 notes which are worth only 10s., or, to use the figures which have been quoted often by the Leader of the Opposition, with a £1 note which is worth 6s. 8d. It is strange to notice that when the Opposition refers to the Menzies £1 in relation to the worker it is worth only 6s. 8d., but when it comes to company profits, the Menzies £1 is worth 20s.

To a lesser degree, even the worker who has purchased goods on a hire-purchase contract for three years benefits to the extent of the inflation that has occurred over that term of three years. The person who has invested his money in stocks and shares loses nothing, because the market value of stocks and shares moves in accordance with the change in the value of money. Those persons that I mentioned earlier who have invested their savings in bank accounts, insurance policies and superannuation are the chief sufferers.

Having dealt with the features of the Budget that I like, I should now like to dis cuss those features of which I do not approve. For one thing, I do not like the pay-roll tax, and I make no secret of the fact. In saying that, I give my own views, and I am not an agent or spokesman for any one or any organization with a vested interest in the subject. The pay-roll tax is an inflationary tax. I have heard it said by some of my colleagues in this chamber that all taxes are inflationary, and even Mr. R. C. Taylor, secretary of the Victorian Branch of the Australian Railways Union, who was quoted by the honorable member for Wilmot, evidently believes this to be true, for he said - . . the Budget itself is inflationary with increased income tax, pay-roll tax, &c, which will inevitably increase prices.

However, the basic difference between the pay-roll tax and company tax is that the pay-roll tax is paid by companies with a specified number of employees, or more, whether or not a profit is made, and company tax is not paid unless a profit is made. The pay-roll tax therefore forms part of the cost structure, on which the prices of all commodities depend, and to that extent it is inflationary. I am fully aware that in order to finance child endowment, the Government must raise revenue from some source, but there is no doubt which way companies would decide if, through the chambers of commerce, the chambers of manufactures or other organizations, they were given the option of continuing to pay the pay-roll tax or paying an equivalent amount by way of increased company tax.

Mr Chaney - Which way would they vote?

Mr FOX - They would vote for higher company tax. Apart altogether from being inflationary, the pay-roll tax is a nuisance to the employers, who have to employ additional staff in order to keep the necessary records and supply the required returns to the Government. I think it is equally silly that this tax is levied on State government departments and local government authorities, because the Commonwealth Government has to reimburse those bodies for the pay-roll tax it has taken from them, and it has to employ additional staff to handle the returns.

Another thing about which I am not happy - and I have said so before - is the unhealthy trend towards loan and debenture capital. I have a graph published by the National Bank of Australasia Ltd. in its annual report for 1959, which shows that funds raised by debentures, registered notes and deposits in recent years have risen out of all proportion to funds raised by share capital. I know that hire-purchase companies are offering up to 6 per cent, for money at call and up to 10 per cent, on deposits for extended periods. I have also two brochures - respectively termed a schedule and a memorandum - issued by two prominent stock-and-share-broking firms in Melbourne which give rates of interest for money on call and on fixed deposit. These show that there is plenty of demand for money at call at 4 per cent., and for fixed deposits at 6 per cent, for nine months, 7 per cent, for twelve months, 8 per cent, for three years and even at 10 per cent, for longer periods. The banks, however, are permitted to offer their depositors interest at the rate of only 3 per cent.

To my way of thinking, this has three bad effects. First, it is inflationary, because if companies have to pay a high rate of interest on money that they borrow, they must charge a higher rate when they lend it again, if they are in the moneylending or hire-purchase business, and if they are manufacturers, the high rate of interest adds considerably to the cost of production of their goods and allowance for this is made in the sale price. Secondly, the high rates of interest that I have mentioned divert money from Commonwealth bonds, and from the banks, which cannot compete with such interest rates. As banks, in the main, are the chief supporters of Commonwealth bonds and government loans, this again operates against the bond market. The third bad effect is that, because the banks are permitted to lend only about 30 per cent, of their deposits, less money is available for housing than should be the case. I say this in spite of the fact that the deposits of the savings banks have risen considerably, particularly since the trading banks established savings bank departments.

I believe that there is too wide a margin between the rates which the banks are permitted to offer to depositors and those which are freely being offered by hirepurchase companies and others. I do not for one moment suggest that the rates should be similar, because where there is an element of risk in lending, as is the case in hire-purchase contracts, a higher rate of interest must be charged to the borrower than the banks can charge on overdrafts. Therefore, it is not unreasonable for hire-purchase companies to offer higher rates than are paid by the banks. But is it any wonder that the people prefer to lend at the higher rates when they can get double the rates that the banks offer? This, unfortunately, diverts money away from the banks, which could make it available for housing finance. I am aware that hire-purchase companies will finance home purchase on first mortgage, but the rate of interest that they charge is much higher than that charged by other lending institutions, and their loans are for much shorter terms.

There is only a limited amount of money available, and in my opinion the Government should do what it can to direct it into proper channels. I believe that companies should be compelled to raise a greater proportion of their funds by way of share capital than they are raising in that way at the present time. I do not like controls, and neither does the Government, but it has not hesitated to impose them when it thought they were necessary, as it did in respect of import licensing. However, T think that some form of control is necessary in this instance, because loan finance is inflationary, since the interest paid on the borrowed money has to be met whether or not a company makes a profit, and to that extent it forms part of the cost structure. But dividends are paid only out of profits and do not affect prices. I have read that bank credit has been restricted again recently. In my opinion, this only reduces the supply of cheap money. It causes no shortage of dear money.

Like the honorable member for Bowman (Mr. McColm), I think that the trading banks should be encouraged to enter into the hire-purchase field, but I prefer to work from the opposite end of the scale. Instead of permitting them to charge a higher rate of interest, I would restrict the rate of interest that the hire-purchase companies are permitted to offer to prospective lenders, and thus reduce the rates that these companies charge to borrowers. I am sure that if this were done, more money would be directed into Commonwealth loans, and this would be a help in controlling inflation. If public companies are compelled to raise a greater proportion of their new funds by way of share capital rather than loans, prices would be reduced, 1 am sure.

While on the subject of bank credit, I just want to say that I do not think it is logical to assist importers on the one hand by removing import restrictions - a policy of which I thoroughly approve - and hamper them on the other hand by making it difficult for them to pay for the goods that they import.

I wanted to discuss housing, but my time is running out. Let me just say that I realize that in matters of financial policy there can be many opinions as to what is the best policy at a particular time, and history can show them all to be wrong. With this in mind, despite the criticism I have offered in respect of this Budget, I again compliment the Government and the Treasurer on presenting what is, in the prevailing conditions, such a very good Budget.

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