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Wednesday, 18 June 1930

Debate resumed from 30th May (vide page 2349), on motion by Senator Daly -

That the bill be now read a second time.

Senator SirHAL COLEBATCH (Western Australia) [3.27]. - I intend to ask the Senate to consider the bill not from the point of view of one who is hostile to all forms of bounties and high protection, but rather from the viewpoint of one who believes that, if we are to have a policy under which certain industries shall be assisted by other industries, that policy should be based on definite principles, which must be strictly observed. I should have thought that the present unfortunate position of the Commonwealth would warn the Ministry and honorable members of this Parliament of the danger of an indiscriminate policy of bolstering up certain industries at the expense of other industries. I feel sure that neither the Government nor the members of this Parliament nor the public generally, have paid anything like sufficient attention to the report of the Economic Committee appointed by the former Prime Minister. I offer no excuse for quoting two or three paragraphs from that report which have a particular bearing upon this measure. Let it be remembered that this is not merely a bounty bill. It is a tariff bill as well, because it is freely admitted that, without high protection for the manufacturing side of the cotton industry, the bounty would be wholly ineffective. It follows, therefore, that if we pass this bill, we shall pledge ourselves not only to the payment of a bounty, but also to a tariff. In paragraph 15 of its report the Economic Committee makes this statement: -

From these various and contrary influences we conclude that the policy of protection has not had very great net effects upon the prosperity of the community as a whole. It has not brought all the benefits expected, nor has it been disastrous. But the benefits and costs of the tariff do not march together.

As the tariff grows, the costs overtake the benefits, because the benefits have natural limits, while the costs have not. Australian experience, like that of other countries, demonstrates the natural tendency of protection to increase. The most disquieting effect of the tariff has been the stimulus it has given to demands for government assistance of all kinds, with the consequent demoralizing effect upon self-reliant efficiency throughout all forms of production.

A little later, on the same page, there appears this remark -

Our conclusions on effects indicate that the total burden of the tariff has probably reached the economic limits, and an increase in this burden might threaten the standard of living.

That is the point that I particularly impress upon honorable senators supporting the Government that has brought down this bill. The report continues- - '

It is important, therefore, that no further increases in or extensions of the tariff- -

And by the tariff is also meant bonuses of this character- should he made Without the most rigorous scrutiny of the costs involved.

So far we have not had that scrutiny. The report goes on - '

We refrain from proposing a drastic weeding out of the worst cases, because, cancellationmust involve the loss of capital invested and. specific employment. But there may be industries winch are costing more to maintain than would be lost by the withdrawal of protection. The savings so made Will allow of' the substitution' of any new industry which' offers favorable prospects of becoming established at a low cost for its protection-. The total burden of protection should not be increased.

At page 86 the matter is summed up very conclusively in these words -

We say again that the resources out of which the subsidizing of industry can be paid are limited.

That is an economic fact that certainly was not realized by the previous Government, and I doubt if it is realized by this Government. The report continues -

They lie in the great natural advantagesof certain industries, including gold and other metals in the past, but now almost confined to wool and some wheat. These great natural advantages are now all exploited, unless a. new mineral field of great richness should be discovered - and our available resources for subsidizing industry are at their maximum. These resources are now stretched as far as they will go in maintaining the standard of living for a growing population. 1 Any great additional strain, such as would be imposed by subsidizing wheat exports, must result in a fall in the standard or a check to population, which might easily go beyond the cessation of immigration and lead to emigration and a decline in the birth rate. It is only, in fact, by continued improvement in efficiency of production that our limited surplus resources can continue to subsidize uneconomic industry on even the present scale.

I point out that that was written twelve months ago, and that everything that has happened since has confirmed those- arguments. We have also reached the stage when, instead of an increased population by excess of arrivals over departures, we have witnessed recently an excess of departures over arrivals. That is the first step, and the next- step, if this policy is persisted in, will be a general lowering of the standard of living of the people.

We recently discussed the granting of a wine bounty. I want to point out three very essential differences' between that bounty and the one that we are now considering. In the first place, the wine itself pays its. own bounty out of an excise. In this case the taxpayers have to pay the bounty. Should not that fact alone cause us to pause ? We are told that the deficits of the. Common wealth and State Governments for the current year are going to reach the huge total of £9,000,000 sterling. The Commonwealth Treasurer has told the Treasurer of the States- that it is essential that they should endeavour to balance their budgets as the first step towards re-establishing Australia's . credit. The honorable gentleman said that he intended, to make that endeavour himself in regard to the finances of the Commonwealth. That will necessitate rigorous action, and increased and extreme taxation. We are told that that will occur not only this year, but next year and the year after that. Can we with a light heart face additional burdens? Here we are asked .to commit the country to further expenditure out of the Consolidated Revenue to bonus an industry whose merits have not, I submit, been sufficiently investigated by the Government. Obviously, as the Economic Committee pointed out, this bonus will have to come out of the other industries of the country. It can come from no other source. Can those industries afford it?

The second point of difference between this and the wine bounty is that wine is a luxury and people can please themselves whether they contribute towards, the bonus. I make bold to say that it will be found that a great many will refrain from drinking wine and so contributing to the bonus. Here we are dealing with a necessity to which everybody will be compelled to contribute twice over, first as taxpayers to meet the direct bounty, and then as users of the commodity, through the indirect channel of increased customs duties. The poorer sections of' the community will have to contribute most, through the increased cost of their clothing. There you have a direct attack on the standard of living of those who can least afford to have that, standard lowered. I do not think that there is .the slightest question that already the standard of living is lowered among a large section of the community by the present policy of ill-considered bonusing of industries. I quote only two instances, sugar and butter. I remind supporters of the Government that only recently the Melbourne Trades Hall raised a protest against the high price of butter, in respect of which there is a form of bonus not very dissimilar from this. I believe that a great many people would be shocked if they were fully awakened to the fact that the present bonus paid to the Australian sugar industry, by the increased cost imposed upon the consumers of sugar in this country, is more than £200 per annum for every person employed in that industry. If that fact were generally known people would begin to wonder whether we can go on indefinitely mak.ing the natural industries of the country support these industries for which the country apparently is not suited. We cannot 'expect to be suited to every kind of industry.

The third point. of difference between this and the wine bounty is that wine-growing and wine-making is beyond all question an industry entirely suited to Australia. Although I do not like the manner in which the assistance is granted, I would say' by all means help an industry for which the country is suited, and which can be made to progress. Can it be claimed that cotton is unquestionably an industry for which Australia is suited? At page 112 of its report, the Economic Committee lays down an obviously sound principle that I do not think was followed in this instance, that preference should be given to industries with the least comparative disadvantages, either present or prospective. It is a sound principle that we should endeavour to build up in Austra-

Iia those industries which have the least, comparative disadvantage with those of other countries, and not to bother about those, with the greatest comparative disadvantage. It seems to . me that the amount of protection which is alleged to be necessary in regard to our cotton industry proves beyond all question that it is an industry in which that comparative disadvantage is very great indeed. It is one of the last industries that we should ask the natural industries of this country to support.

Let. us consider the recent history of this industry, its present position, and its future prospects. In 1920 the Queensland Government provided a bonus, as-, a result of which it lost £78,929. Two years later that Government, whose Premier is now the Commonwealth Treasurer, was astute enough to persuade the Commonwealth Government to join in the guarantee. Undeterred by the unfortunate experience of the State, the Commonwealth became a co-partner in guaranteeing the industry. In three seasons the two authorities lost £359,790.. In relation to the next stage let me quote the words of the Leader of the Senate (Senator Daly) -

In view of the increasing losses and other difficulties associated with the industry, the Queensland Government in 1925 urged the Commonwealth to take over the whole matter.

One would have thought that if the losses-' were increasing and the difficulties becoming greater, the Commonwealth Government would have said that if theState Government had faith in the industry it should be prepared to carry theburden, seeing that it would benefit if the industry was successful. But it did not do so. On the contrary, it' took over the whole responsibility, because "of the increasing losses and other difficulties associated with the industry." In my opinion the personal equation had a lot to do with that decision. The then Premier of Queensland was a man of vigour who knew definitely what hewanted; the Treasurer of the Commonwealth was a man who wanted to be a. little ray of sunshine and to make everybody happy - a man obsessed with theidea that the resources at his hand wereunlimited and that he could grant assistance to all who asked for it. The fact; remains that the Commonwealth, took over the guarantee, and;in four successive seasons paid out another £320,000. What was the result ? The production of cotton fell from 18,282,643 "lb. in 1924-1925 to less than' 8,000,000 lb. 'of cotton in 1928- 1929. Senator Daly sought to explain that falling-off by saying that-

The. , -growers have never been able , to see ahead .'for, more than -a few years at a .time. !-:. . .. There were no elements of that stability and permanency of policy conditions and prices that are essential to;, the success of any. industry. ,

With all respect to the worthy Leader of the Senate, I can scarcely refrain from characterizing a statement ' of that kind as nonsense. Has any industry in this country ever had stability of- prices or labour .conditions? Does not every successful industry in any part of the world prosper by reason of the necessity for competitive effort and for meeting changing conditions as they arise? Nothing would be more certain to ruin any industry than stability of conditions, for it would destroy all initiative and effort, with the result that very soon the last state of that industry would be worse than the first. During the period that governments dissipated £750,000 of public money, -and' there was a steady decline in the production of cotton, how did private investors fare? In the Sydney Morning Herald last week there appeared a statement in regard to the BritishAustralian Cotton Association Limited, which indicated that the association intended to sell its assets to Australian Cotton Co-operative Association Limited, a new growers' concern. As a step preliminary to the sale the old company is asking its- preference shareholders to forgo the whole of the dividends, to which they are entitled in order that some small liquidation dividend may be paid to the ordinary shareholders. So far the preference shareholders have not received any dividend - nor indeed have the ordinary shareholders - although they put £370,000 into the project. The statement goes on to say -

A circular, to shareholders shows that the price of £137,500 in cash as for the. plant and business, and does not include stores, stock, book debts, -or cash assets, shares or bonds. The directors ' state that the price : is the full market value of the assets. .' <

Only a.f ew,months earlier - in. December of: last year-r-the- association's- balance-' sheet,; which, according to. the auditors, contained a truthful .record of its affairs, showed; those assets to.be worth £488,670. The report which accompanied the , balancesheet," stated - . . . <

Of the- many factors .contributing- to, the lionsuccess,; of the- company the directors attribute as "the chief the fact that the original anticipations of the amount of cotton to' 'be 1 grown in Australia had never been -.realized. '.On the Strength: of estimates of areas under crop supplied by the Queensland Government, the company had .ordered a large amount of plant, much- of which had been erected and "never required. . ......

Honorable1 senators will see that about £400,000 of private investors'' money that might have been profitably "invested in other enterprises, has gone} simply because those investors were induced . to place reliance on extravagant Govern-' ment 'promises.' In its report of. the 25th September, 1928, ' the Tariff Board referred to this matter in the following terms - '

About this ti me the Commonwealth authorities encouraged every body associated with the cotton industry to take an optimistic view regarding the future. The late Minister for Trade and Customs stated "... the response to the Government's, policy had been quick and satisfactory. New capital, approximating £2,000,000, had been or would be in the near future expended to develop cotton manufacture ..."

The report goes on to mention the amount of "money spent in developing the cotton industry. 1 do not know whether the contemplated sale to which I have referred will be approved by the shareholders of the British-Australian Cotton Association Limited ; but assuming that the sale takes place, it is not unlikely that the new company will again appeal to the public for funds stating that henceforth things will be all right. It will no doubt point out that the Commonwealth Government is behind the cotton industry. The result will probably be that more private money will be invested in a venture which has no more chance of success than had the previous project. The directors of the British-Australian Cotton Association Limited say -

There is some probability of the cottongrowing industry in Australia developing to an appreciable extent in a year or two, but in view of their past experience the directors wo'uld hold out no reasonable hope of that development enabling any dividend to be paid regularly on' a capital exceeding £250,000.

The present capital of the company is £1,000,000. The directors, who have been in the business for some years, do not take so sanguine a view of the position as the Commonwealth Government does. Indeed, their outlook is so gloomy that they tell their shareholders that if they get £137,500 for assets which in December last were valued at nearly £500,000 they will be lucky.


Senator DUNCAN (NEW SOUTH WALES) - The co-operative business will be conducted on a different


Senator Sir HAL COLEBATCH - It must needs be so, for it is not easy to get at the public twice in the same way. As to the future of the industry I should like to read a few extracts from the latest report of the Tariff Board on this question. In its report of March, 1929, the board said -

Evidence is available that there is sufficient suitable land in Queensland for the cultivation of cotton to meet the needs of the Commonwealth, and, in the opinion of the Tariff Board, provided the growers can be assured of a market for their product at prices which will ensure them a reasonable return, the development of the cotton-growing industry in Australia and its establishment on an economic basis is not only a possibility, but is also practically a certainty.

I do not hesitate to say that this is about the most utter nonsense any responsible body has ever put in a report. Could any one imagine anything more stupid than the statement that if the cottongrowers can be assured of prices that will give them a reasonable return they can develop their industry? Under conditions like that one could grow mangosteens at the North Pole or make ice in Hades. What is the use of telling the public that if a profitable price can be assured an industry will be profitable? The Board goes on to say -

In the opinion of the Board any attempt to foster the production of cotton in Australia for export wouldbe unsound from an economic standpoint, seeing that there appears to he little likelihood, if any, of the Australian growers ever being able to secure profitable returns for cotton sold in competition on overseas markets unless perpetually aided by government bounty or subsidy.

Does not that conclusively exclude this industry from those suggested by the Economic Mission as having a minimum of disadvantage in their competition with other countries. The Tariff Board, quoting one of the witnesses who has advocated the payment of bounties, says -

It only needs one season of low world's values, when our production is being exported, to definitely put an end to cotton-growing in Queensland.

It also says -

The Board suggests that those having a controlling influence over the cotton-growing; industry - such, for example, as the Queensland Cotton Board - should warn growers of the danger of over-production and impress upon them the desirability of restricting their production, so far as practicable, to the requirements of the Australian market.

It adds -

It is apparent that the requirements of the Commonwealth in the class of cotton now grown in Australia will very easilybe reached by the growers and the question will then arise as to the direction in which extension should be guided. In sounding the foregoing note of warning the board merely seeks to prevent the cotton industry reaching the stage of over-production reachedby certain other Australian primary industries in which production has got far beyond the requirements of Australia, thus necessitating export. The result has proved tobe disastrous in the case of those products where Australia is unable and cannot hope to compete on overseas markets with the products of other countries.

In his speech, Senator Daly said -

In 1936 all cotton bounties will cease and it is expected that the industry will then, with adequate tariff protection,be able to carry on successfully without bounties.

I draw attention to the words " all cotton bounties will cease", and the words " adequate tariff protection ". Surely it is stating the obvious. What practical difference is there between a bounty and a tariff? What is the use of saying that we can do away with this bounty if we push the tariff higher up and thus give a bounty indirectly insteadof directly? The effect is exactly the same both on the industry and on the people who will have to pay. To tell us that at the end of 1936 all bounties will disappear so long as adequate tariff protection is afforded, is to indicate that the bounty will be continuous; that it will never disappear; that if the direct bounty is stopped the indirect bounty in the shape of tariff protection will have to be increased.


Senator Dunn - What about the bounty on gold which the honorable senator is urging?


Senator Sir HAL COLEBATCH -I shall come to that . directly. We were told by Senator Daly in his speech that in spite of all that has happened, the Government is greatly impressed with the prospects of the cotton industry. Apparently this impression was created at a conference between Commonwealth Ministers and Queensland Ministers. The Prime Minister (Mr. Scullin) was at that conference. I know that he is animated by the desire to do the best for his country. But the Treasurer (Mr. Theodore), who was also at the conference, is the man who in the first instance was responsible for the giving of a bounty on cotton in Queensland, and succeeded in inducing the Commonwealth Government first to go fifty-fifty with the State Government in the' payment of the bounty, and then to take over the whole of the burden. He was hopelessly committed by his past actions to the continuance of this scheme. The other Commonwealth Minister at the conference was the Acting Minister for Trade and Customs (Mr. Forde). He is a Queenslander whose constituents will benefit by this proposal if any one does, and who frankly believes that any industry can be established in Australia as long as it is afforded a sufficiently high tariff protection or given a sufficiently high bounty. I ask if that was an impartial tribunal to which a person would refer such a matter if he intended putting his own money in it? Should we not be just as careful when the people's money is at stake? It appears to me that the Commonwealth Government might well have said to the representatives of the Queensland Government who took part in the conference: "If this is going to be such a good thing, and if yourState is going to benefit by it, you ought to stand in with us and take yourshare ".


Senator Daly - Share of what?

Senator Sir HALCOLEBATCH.The payment of the bounty.


Senator Daly - The honorable senator knows that the State cannot give a bounty.

Senator Sir HALCOLEBATCH.There is a special provision in the Commonwealth Constitution which permits the State to pay a bounty with the con sent of the Commonwealth Parliament, and Iremind Senator Daly that for a long time the Queensland Government paid a bounty on the production of cotton under exactly the same constitutional limitations as exist at present. The other day the Queensland Treasurer said thai his State was the only State that did not want to participate in the £10,000,000 loan which is now on the market, and that Queensland would be the first State to get out of. its difficulties.


Senator O'Halloran - That is a tribute to Queensland Labour administrations of the past.

Senator Sir HALCOLEBATCH.I do not care what government is responsible for the position of Queensland to-day. In my criticism I spare no government. I speak on principles. Geographers tell us that Queensland is the richest State of the Commonwealth. I think they are right. Why then should it be necessary for the industries of that State to be paid bounties at the expense of other States?


Senator Crawford - Why be so geographical ?


Senator Sir HAL COLEBATCH (WESTERN AUSTRALIA) asked why the Queensland Government should not participate in the payment of this particular bounty on cotton, and I await an answer from a Queensland senator. It will be all to the advantage of Queensland if cotton succeeds,


Senator DUNCAN (NEW SOUTH WALES) asked what I should say if a bounty were paid on gold. At the present time, Australia is imposing a burden of £6 per head of the population and distributing it in subsidies . on protected industries. The figures have altered slightly during the last twelve months to the advantage of the larger States, but a year ago this £6 was distributed among the States in the following proportions : - Queensland, £8 ; Victoria. £7 ; New South Wales, £5 10s.; Tasmania, £4; South Australia, £3 14s.; and Western Australia, £3 12s.

SenatorCooper. - In those figures the honorable senator is not showing special grants to the States.

Senator Sir HALCOLEBATCH.No. But in the case of Western Australia the amount can be easily ascertained. At present the State is£2 8s. per head short of its proportion on the distribution of the £6 per head of the population of -Australia, and gets something less than £1 per head in the shape of a special subsidy.







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