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Monday, 19 October 1970

Mr KEATING (Blaxland) - I do not intend to deal with any of the matters raised by the honourable member for Boothby (Mr McLeay), including that of a Russian presence in the Indian Ocean except to make the point that this Government and this country can do little about it because our defence forces are vastly inadequate. I would like to have the opportunity to debate the general aspects of Australia's defence, but as we are limited to a 10 minute speech I can make only a few specific points on the defence set-up as it currently exists. We might have had the opportunity to discuss Australia's defence if we had had a chance to discuss the statement made by the Minister for Defence (Mr Malcolm Fraser) in March, but the debate has been postponed, lt is about No. 6 on the notice paper - never to be returned to this House - so this is the first opportunity since that we have had to discuss the whole question. The Government's estimate for the expenditure necessary to ' meet Australia's defence needs for the year 1970-71 is just on $1,1 37m. This amount represents an increase of $33m on last year's defence expenditure. It is an increase of exactly 3.1 per cent - not very much of an increase when one considers that a large proportion of this 3 per cent increase will be swallowed by service wage and salary increases.

The defence appropriation for the coming year will decrease by 1.1 per cent as a proportion of total annual Commonwealth spending. This is evidence of a situation that is a far cry from the attitudes expressed by the Minister for Defence who has repeatedly stated that the Government would continue to spend more and more money each year on defence as a measure of long term security. Not only is the defence appropriation itself receding but one has to doubt if the people are getting value for the money spent anyway. An analysis of Australia's defence organisation and preparedness leads one to the plain realisation that the Liberals should no longer be entrusted with Australia's defence. Statements made recently by Sir Henry Bland, the former permanent head of the Department of Defence, quite clearly indicate that the present defence structure leaves a lot to be desired. In a speech to the Western Australian Branch of the Australian Institute of International Affairs Sir Henry advocated a restructuring of the defence group of departments bringing the existing 5 departments - Defence, Navy. Army, Air and Supply - into "a 3 department complex. In his plan the Department of Defence would continue to exercise its present functions but would include some of the functions now discharged by the 3 Service departments. The second department he envisaged would concern itself with the raising, training and administering of the 3 services and the third department would basically carry out the supply function of equipment, research, development and procurement as well as the supply of material and logistics.

Implicit in Sir Henry's statement is that the existing defence set-up is inefficient and inadequate. The Labor Party believes this to be the true position and "has constantly advocated a restructuring of the defence machine. I think it is fair to assume that Sir Henry's statement is a direct slap in the face for the Minister for Defence and the Cabinet in general. In his lecture Sir Henry referred to the fourth arm of defence concept as outlined by the Minister for Defence in a speech to this Parliament last

March. On that occasion the Minister took time to advise the House that he was involving industry in Australia's defence administration. All this fourth arm talk by the Government involving industry sounds very good, but unfortunately in reality it has meant very little. The major industries that are always heavily dependent upon defence orders are being starved almost to the point of extinction. The aircraft industry would be the best example. The naval shipbuilding industry would be another. In this year's Budget the expenditure on naval ship construction is estimated to decrease by $18,977,000 on last year's figure. The Budget gives no intimation that procurement from Australian industry is being given any additional encouragement.

The Government, realising the lack of encouragement and support it has given to Australia's defence industries, has made a great noise about what is termed off-set and co-production. These terms refer to what would be the Australian manufactured component of items of defence equipment procured from overseas for our armed forces. Through the use of these much overworked terms the Government has hoped to placate Australian industry with promises of an indirect but bigger slice of the procurement cake. The fact of the matter is that since 1966 and until March this year the approximate value of sub-contract or off-set work, as it is termed, has been a little under $5m. This is an infinitesimal amount when one considers that Australia has spent approximately $900m overseas on military equipment during that period. I will admit that things have improved a little this year with the Australian content in the acquisition of the light observation helicopter, the Boeing Chinook medium lift helicopter and bits and pieces from United States commercial projects, but this is not enough. The Government hails these meagre achievements as marvellous pieces of salesmanship when in fact most foreign governments buying overseas military equipment make certain that the home industries are considered by writing an off-set requirement clause into the original invitation to tender documents. This is not done in Australia, but it should be. Any overseas company answering Australian military tender invitations should be quite certain that if it wants our order it is mandatory that off-set work roust be provided to assist Australian defence industries. To the present time most of the off-set work has been what could be called nut and bolt work. Most of the items concerned have been fairly simple requiring very little specific skill. No doubt this production has been useful to establish confidence in Australian manufacturers and to establish that an acceptable degree of quality control exists. But what are now required are off-set items that are of a more complex nature, that not only supply a workload to industry but demand a broadening of our skills and technology.

The Government recently announced its decision to have a Rolls-Royce gas turbine propulsion system as the basis for the preliminary design of a light destroyer for the Royal Australian Navy. This is a golden opportunity for the Government to see that the Australian aircraft industry receives substantial sophisticated off-set work from the British. The use of the gas turbine as a means of marine and road transportation will, T believe, increase dramatically in the near future, ft is imperative that Australian skill and technology in this field is assured so that in the defence sense we will not be dependent upon another country for spares of replacement units. On the subject of spares, the Government should see that as near as practicable Australian industry manufactures all the high usage rate spares for our militaryequipment. This has not been a specific policy in the past and the Government cannot escape criticism in this area. The leasing arrangements recently concluded for the McDonnell-Douglas F4E Phantom aircraft bear out my contention. Under this agreement no provision as been made for local servicing of the Phantoms. Therefor spares and a much needed workload for Australian industry will be given out overseas. At a time when the Australian aircraft industry is battling to survive the Government denies it this work - work it could have sent its way with the stroke of a pen. Also, what should not be forgotten is that the Phantom replaces the Canberra bomber which has given a constant workload in spares production including maintenance and overhaul. Tt is not just a matter of what the local aircraft industry does not gain from the Phantoms; it is what it loses from the Canberras. A further implication of the Phantom deal is that it pre cludes the local industry gaining any off-set orders from the United States should the Fill contract eventually be cancelled, leaving the Phantom lease as virtually a hire purchase agreement.

Another area where the Government comes under fire is the matter of the credit terms that Australian manufacturers are able to offer other countries. I could highlight this by referring to the sale of Macchi aircraft to New Zealand. Honourable members will be familiar with the fact that the Commonwealth Aircraft Corporation has manufactured the Macchi for the Australian Armed services and is at the moment trying to sell this aircraft to the New Zealand Government. We arc offering credit terms at the normal overdraft rates of 7i per cent whereas the competitive aircraft from Britain is being offered at about 51 per cent or 6 per cent. These credit terms are being backed by the British Export Guarantee Corporation.

On 20th August this year I asked the Minister for Trade and Industry (Mr McEwen) a question. The last part of my question was:

Will the Government set up an export credit facility to provide finance at better than commercial terms to assist the export sales of Australian manufactured military equipment and other high value commercial exports?

In his reply the Minister said: lt is quite clear that certain governments from time to time seek to give their exporters a competitive advantage by providing funds at lower interest rates. 1 have never felt that this Government could engage in an interest rate war in these circumstances.

Let us analyse what the Minister said. To give their countries a competitive advantage most major manufacturing countries have set up export credit banks. In this way these countries give all of their high value transactions the backing of low interest rates. But Australia cannot even assist in the sale of Macchi aircraft which is helping to keep the Australian aircraft industry alive. The Government does not think it is worth while to reduce interest rates to a reasonable level of about 5i per cent to 6 per cent. Therefore, when honourable members opposite talk about encouraging or assisting Australian industry they talk a lot of hog wash because they do not care at all. It is the same old classic, Liberal approach. When you want equipment you put your hand into tits

Treasury till for a big cheque and hope like hell you can get it. That is all right in times of peace but when you have a contingent military situation you cannot always get the equipment.

The DEPUTY CHAIRMAN (Mr Drury) - Order! The honourable member's time has expired.

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