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Wednesday, 8 November 1967


Mr CREAN (Melbourne Ports) - We intend to give our support to one of the Bills that is before us, but we want to move what might be called a technical amendment to the second Bill in order to point out certain views that we in the Labor Party have regarding the question of foreign investment in Australia. The Loan (Qantas Airways Limited) Bill refers to a loan for Qantas Airways Ltd, as it is now known, and the Loan (Airlines Equipment) Bill refers to a loan for the Australian National Airlines Commission which, of course, is more popularly known in Australia as TransAustralia Airlines. Regarding the loan for

Qantas, the sum to be borrowed - and it is to be borrowed over a 7 to 8-year period -is $US68.7m or $A61.4m. Regarding the loan for TAA, the sum to be borrowed is $Can3m .or $A2.5m. The sum to be borrowed on behalf of TAA is such a small amount that our view is that the equipment ought simply to have been paid for out of Australia's international reserves which, I understand, at the moment are more than $1, 000m - they are near enough to $ 1,200m when we take all the prospects into account. It seems to us that it is not good national accounting to borrow a sum as small as $3m when there are reserves of that nature, particularly when the interest rate for the loan will be 7%. Therefore in respect of the Loan (Airlines Equipment) Bill we propose to move the following amendment:

That all words after That* be omitted with a view to inserting the following words in place thereof: this House, whilst not declining to give the Bill a second reading, is of opinion that the financing of the purchase of aircraft by the Australian National Airlines Commission should be met from revenue and not from a loan raised overseas.'


Mr SPEAKER -Order! I take it that the honourable member is forecasting the amendment and not moving it.


Mr CREAN - I am forecasting it in order to indicate the difference in approach to the two measures. We are supporting the Loan (Qantas Airways Limited). Bill for reasons which I hope to be able to outline. The reasons why we propose to move an amendment with respect to the Loan (Airlines Equipment) Bill are, firstly, that in our view $3m is a trivial amount when Australia has plenty of overseas reserves on which to draw and, secondly, that we have to pay an interest rate of 7%. It seems to us to be not very sound accounting. After all, 7% is paid to Canadian interests. We derive no taxation from the 7% when it is collected. If, for argument's sake, the money were borrowed internally by debentures or by Commonwealth loans, at least the people concerned would have to pay taxation on the interest derived from the loan. So the real interest rate is above 1% when we take into account the fact that no taxation revenue is derived as a complement to the interest.

We take a different view in respect of the Loan (Qantas Airways Limited) Bill because here we have a form of foreign investment that is terminable, that is, it is not permanent in its effect. The loan is paying for itself as it goes because Qantas, by reason of adding this additional equipment to its fleet, is better able to participate in international airways activity. Qantas will pay for the servicing of the loan out of the fruits of its endeavour. It is rather interesting to read the annual report of Qantas which was. tabled in the House only a few days ago. The results in this financial year were not as good as those in other years because of the unfortunate domestic differences that took place between Qantas, as the employer, and its pilots, as employees. I do not want to go into the details of that matter at this stage because that is not the purpose of the discussion.

Pages 26 and 27 of the annual report refer to a 10-year statistical review which shows that in a space of 10 years the revenue of Qantas has risen from approximately $42m in 1957 to more than $123m in 1966-67. In fact, the figures for 1965-66 would have provided a better comparison, because the effects of the strike were reflected in the figures for 1966-67. I think it is stated in the report that if the strike had not occurred it is likely that the revenue of Qantas in 1966-67 would have been more than $140m - in other words, a threefold increase in 10 years. There has certainly not been anything like that rate of increase in fares. Fares have altered only marginally in that , period. The main reason for the increase in revenue is the increasing amount of business that Qantas now attracts. It will be from revenues of the nature I have mentioned that Qantas will be able to service the debt incurred under, this Bill.

One or two of my colleagues intend to speak about some aspects of foreign investment. But we in the Labor Party have never maintained that in no circumstance should there, not be .foreign investment. What we say is that the Australian economy, like that of any other country, should be particularly careful as to the extent to which it allows foreign investment and the form in which foreign investment comes into the country. Foreign investment can take three forms. It can be direct investment, it can be what is called portfolio investment or it can be a terminable kind of investment such as when the Government or some other agency raises a loan via debentures or other means for a particular purpose. The ultimate assets will still be owned and controlled by Australia.

At least, in Qantas Airways Ltd we have an example of a government undertaking in this field of transport that is working very successfully in international operations in contradistinction to, say, Trans-Australia Airlines, which is engaged in internal operations. I do not think it is always realised that TAA and Qantas have a combined annual turnover of the order of $200m, or $4m a week, if honourable members like, i think that th'e figure for TAA is something like $80m a year. That for Qantas was $123m last year and is likely to be $140m this year. This gives some idea of the vastness of these undertakings. They are very successful undertakings, too, if I may say so. I for one have no quarrel with TAA and Qantas as forms of socialised enterprise, if one likes to so describe them, and very successful ones at that. This success shows that the same sort of management techniques as are applied to private enterprise can be successfully applied to publicly owned enterprise. Not many commercial undertakings in Australia have an annual turnover of the magnitude of $80m or $123m. At least, it is gratifying to see these two airlines operating so successfully.

The Minister for Civil Aviation (Mr Swartz), who, in the absence of the Treasurer (Mr McMahon), delivered the second reading speeches on these measures, commented that Australia has traditionally been a net importer of capital. In the economic life of any community, there are certain periods when it would be futile to suggest that the community's economic development could be secured by a closed economy as it were. In the early stages of a community's economic development, when perhaps imports tend to be higher than exports, the community may have to have recourse to foreign borrowing. This has been the case in several phases of Australia's development, but in recent times there has been quite a change in the nature of foreign investment in this country. In the years from the turn of the century to about 1916 - a year when economic arrangements were dislocated by wartime circumstances - the pattern of foreign investment was mainly one of borrowing in London by governments in Australia, principally for development works associated with railways, transport, public utilities and the like. In those days, there was very little direct private investment involved in the foreign capital that we obtained. But subsequent to 1945, when the last war ended, the pattern became quite different and, as the Minister said, Australia has continued to be a net importer of capital. He went on to say:

In a growing economy such as ours it is inevitable that there, will be a continuously increasing demand for imports of materials, capital equipment and other items ... the Government believes that it should take advantage of opportunities ... to borrow . overseas on reasonable terms and at acceptable rates of interest.

So the philosophy of the Government seems to be: Borrow when you can if you think the terms are reasonable. There can be lots of argument about what terms are reasonable. In the view of the Australian Labor Party, a lot of the foreign investment in Australia over, say, the last 20 years has not been reasonable in terms of the ultimate return expected for it. In Australia at present, quite significant areas of our economy are entirely controlled by ownership outside Australia. It is true that the ownership has established ' assets in Australia. No one imagines, to take an illustration, that, in a fit of pique, General Motors-Holden's Pty . Ltd or any other concern will pull up its stumps and go home just because it does not like the things that are being said about it. Such concerns at least realise that in respect of that kind of investment their bread has now to be found in terms of the internal level of the Australian economy.: Nevertheless, there are significant and quite strategic sections of our economy that are entirely outside local control. Examples are the automobile, chemical and paper industries. Lists of industries have been quoted in this chamber on other occasions, and I do not want to go into them again this afternoon.

We on this side of the Parliament believe that Australia has now reached a stage at which, bearing in mind the yield that the owners of the capital expect, we see that unless the scene is resurveyed this country is likely to have too big a burden in servicing the debt, public and private, that has been incurred in recent years. I would think that over the last 15 or 20 years, the preponderant part of this investment has been private. My colleague, the honourable member for Scullin (Mr Peters), has some figures relevant to this. We on this side of the chamber suggest that at least this sort of situation has to be scrutinised from time to time. We, for our part, have raised objections particularly to what is described as portfolio investment. That represents simply the buying- by foreigners of interests in already established Australian firms. We regard that in a way as the worst form of foreign investment, because it is purely speculative. It does not bring anything into the country except greater foreign reserves, which may be used for something entirely apart from the particular industry in which the interest was bought. We resent the increasing foreign participation in already successful Australian industries and the many bids for mergers and takeovers of industries that Australia is well able to look after itself.

At least, in relation to the Qantas proposal on which we are deliberating, there is a pattern to which we can raise little objection. The proposal is that funds be borrowed for the purchase of jet aircraft of the latest type. We cannot at present make these machines ourselves, for we have not yet a big enough internal market to support such manufacture. It would be futile to suggest that we should build our own large commercial aircraft at this stage, though, with due respect to those concerned, I believe that we could be a lot more audacious with respect to the manufacture of other types of aircraft. We are able, under licence, to manufacture military aircraft here as well as they can be made anywhere else throughout the world, and I suggest that perhaps the same could be done with some kinds of commercial aircraft. Nevertheless, I believe that there are times when it is futile to suggest, in the situation of a limited market, that we should establish every possible kind of industry. This applies particularly to the manufacture of aeroplanes of the type involved here. Many of these large commercial jets cost $10m to $12m each. I propose shortly to say something about the insurance of machines such as these, because it seems to me that in recent times there has been a change in the policy of Qantas with respect to insurance.

In the instance that we are considering, we are concerned with an asset bought overseas and financed overseas, the Com monwealth Government acting as intermediary. The loan will be repaid over a limited term, commencing on 3 1st December 1968, in fourteen half-yearly instalments which will extinguish the debt. Under this arrangement, at the end of the term, we shall have the aircraft and, in essence, they will have been paid for out of the earnings overseas . of the airline operating them. That seems to us to be a form of foreign investment that can be justified. As I mentioned earlier the other loan is for TAA.

Such an amount seems to us to be so small and so trivial that it would be imprudent to pay the interest rate of 7%. The Qantas rate starts at 6% and then is subject to something which, to my mind, seems to be an underwriting clause in reverse. It is the most peculiar kind of arrangement I have come across. The Minister for Civil Aviation drew attention to it in his second reading speech. He pointed out that the form of issuance of the loan was different from anything else and that in the first instance the loan is taken up from the Commonwealth by the United States Export-Import Bank at a loan rate of 6% and the ExportImport Bank will then, if it can, sell off those securities. It is allowed, if it wishes, to sell them off at a rate as high as 7%. That seems to be a rather peculiar arrangement. I have described it as an underwriting in reverse. The usual practice is for ah underwriter to guarantee to take a loan over hoping that the public will take it up and he will be left only with what cannot be disposed. He gets a commission for his services and certain terms are determined in advance. But in this case we have a 6% minimum to start with thrust on to the market and able to be sold at a rate as high as 7%.

Again, I do not claim to know enough about the intricacies of New York finance to know whether this practice is typical or not. But it seems to me that someone will get an extra 1% when they have not really done much to justify it. It is true that there is some sort of vague option that if an offer or attempt is made to sell at 7%, the Commonwealth may, if it is able, finance at something less than 7% . It has an option to do so. However, again this seems to be rather vague. I can understand the reason for the Export-Import Bank wanting to float the loan on to the public because that perhaps gives it larger reserves, as the Minister pointed out, to finance purchases for aircraft by other countries. There are one or two matters that I would like to bring to the attention of the House. Perhaps later the Minister may care to give us some indication of why the policy was changed.

On page 24 of the 1966-67 annual report of Qantas Airways Ltd, under the heading Insurance Reserve', it is stated:

This reserve is held to cover risks which the Company may decide from time to time as a matter of policy to self-insure.

I think this practice is adopted by many government departments if their activities are large enough. As I pointed out, Qantas has a turnover that very few other concerns in Australia can match. Often it pays an organisation to carry its own insurance. Instead of paying separate premiums for a large number of aircraft an organisation can create its own reserve hoping that the whole of its fleet will not go down at once. Of course, in the case of aircraft, this fortunately does not happen. Aircraft accidents are relatively rare. When an accident does occur only one of the fleet is affected. Qantas has quite a considerable fleet and it would seem to be a prudent enough policy for it to self-insure. Apparently that policy is now to be changed. At the moment I think the reserve stands at $13,640,000, so the reserve is still pretty considerable. It would seem to me to be adequate to cover any kind of foreseeable contingency. Under the heading 'Insurance Reserve' the report also states:

In past years the accounts have shown separately the amounts set aside for fleet and other risks but, as the Company is now insuring aircraft on the commercial market, it is more appropriate in these accounts' to group them in one figure.

I would like to know the reason for the departure on the part of Qantas and insuring aircraft on the commercial market. It seems to me that the aircraft are not being insured on the internal commercial market but that maybe insurance is carried by overseas insurance companies. I hope that, is not the case because I believe insurance is a form of economic endeavour that we can well look after internally. I hope that if insurance is being carried out on the commercial market the companies concerned are Australian companies. I would still think, in terms of the amount that has been built up in recent years, that self-insurance is a preferable form of activity. Maybe the Minister will be able to throw some light on this.

I would have liked to say something about one or two other matters contained in the annual report although I am not quite sure whether they are relevant to this particular Bill. The point I want to make is that organisations as big as Qantas - this applies to some extent to TAA - are able to do internally what a lot of other organisations cannot do. For instance, I note that Qantas has built what is called an international hotel at a cost of $12m. This is the Wentworth Hotel in Sydney. I do not say that this necessarily is wrong. At least it is a pretty significant endeavour. The other matter I was interested in concerns closed circuit television. In order to supervise the whole of their works both at the head office and presumably at the airports, Qantas has installed two closed circuit television systems. I am a great believer in the advantages of television particularly for educational services, but I would scarcely have thought that the airways had one of the highest priorities for closed circuit television systems. I should think that there are many higher priorities such as schools, universities and the like. Again, I do not have figures of the costs involved here. Sometimes people who have the money are able to achieve their visions while other people can be only dreamers because they have not the money. Whilst I am an admirer of Qantas and TAA in the form of activity which they pursue, I think ' a little more information should be given on some of these matters. For instance, 1 do not know what the cost of the two. closed circuit television systems is.

When I look at the way in which Qantas has advanced I wish that we had shown the same vision 40 years ago with respect to shipping and its impact in Australia as we have shown in the last 20 years in respect of international airways'. For instance, if we had had the same vision in 1927 with respect to an Australian owned shipping line as we had in 1947 when we established an Australian owned international airline, we would have been a better country for it. It is true that shipping is now making more progress than before. But even in 1967, and although shipping is an older form of transport endeavour than is air transport, the value of the fleet of the Australian National Line as recorded in its last annual report is $75m. By contrast, the asset value of Qantas is over $150m. In other words, this Bill will bring the investment up by something over $200m. Here again, we have gone more strenuously into the expansion of international airways than we have of international shipping. I hope that some of the same vision will be shown in the future with respect to the expansion of the Australian National Line as has been shown in respect of the Australian overseas airline and the Australian internal airline. When the Loan (Airlines Equipment) Bill 1967 is before us I will formally move the amendment that I have foreshadowed.







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