House of Representatives
20 August 1975

29th Parliament · 1st Session

  1. House of Representatives
  2. 29th Parliament
  3. 1975

Mr SPEAKER (Hon. G. G. D. Scholes) took the chair at 10 a.m., and read prayers.

page 251

PRIVILEGE

Mr DALY:
Minister for Services and Property · Grayndler · ALP

- Mr Speaker, I raise a matter of privilege based on 2 articles which appeared in the Sydney Daily Mirror newspaper of 19 August 1975 and the Sydney Daily Telegraph of 20 August 1975. I produce a copy of the Daily Mirror newspaper printed and published by Mirror Newspapers Ltd, 20-24 Holt Street, Surry Hills, and of the Sydney Daily Telegraph which is printed and published by Mirror Newspapers Ltd, 2 Holt Street, Surry Hills. I refer firstly to the article which appeared in the Daily Mirror of 1 9 August under the caption ‘MPs Battle The Budget Flight Rule: Daly tells how to beat it’. The article states:

Federal Ministers have been told how to beat the discomfort of economy travel.

The answer, from the Minister for Services and Property, Mr Fred Daly: Travel a day early and stay overnight at $48 a night.

But senior public servants are hopping mad over the suggestion for Ministers to veto the Government’s economy class travel ruling this way.

Mr Daly opposed last night’s Caucus decision that all members of Parliament and public servants must forego first class privileges and fly economy.

Those affected by the ruling can get around it by travelling the day before appointments and staying overnight to ensure they are rested, ‘lie said.

Mr Daly’s advice is in direct conflict with a Public Service rule that overnight stays must be avoided wherever possible.

I do not intend to read the rest of the article. I seek the leave of the House to incorporate it in Hansard.

Mr SPEAKER:

-Is leave granted? There being no objection, leave is granted. (The document read as follows)-

Public servants have even been told to arrange meetings in the afternoons rather than in the morning so they can fly there and back the same day.

There is also a big gap between the $48 overnight allowance available to a minister and the $31.50 allowance for senior public servants.

The cheeseparing aspects of the Government’s Budget proposals are an indication of its determination to cut costs in every direction.

The Treasurer, Mr Hayden, is grimly aware that this may be his first and last Budget speech.

It may also be the last Budget of the Whitlam Government.

Unless the tough measures forecast repeatedly by the Prime Minister, Mr Whitlam, are seen to make an impact on inflation, the Labor Party would be voted into oblivion within six months.

Almost $2000m will be sliced off education, welfare, housing, transport and urban and regional development programs.

The means test is almost certain to be retained for the time being.

Tax indexation is a non-s:arter despite appeals from both trade union and employer pressure groups.

The only bright spot is the possibility of a small cut in personal income tax.

But he will pay this back in excise on cigarettes, liquor and petrol.

He will also find his wage packet eroded by increases already announced in postal and telephone charges bringing letter rates to 1 8c and local telephone calls to 9c.

Mr DALY:

– By the way, the article was written by some nonentity in Canberra named Trevor Kavanagh. I do not wish to spend a lot of time over this matter other than to say that the article itself is false and misleading and in my view represents a reflection on the Parliament and its members. It certainly is designed to discredit me and the Government, and I suppose that is part of the political game. My complaint- and every honourable member should remember this- is that it represents an attack on members and the Parliament itself.

I go further and refer to a leading article which appeared in the same newspaper of that day and which arose out of that article. The leading article, on page 4 of the Daily Mirror, states:

Here ‘s a good laugh to brighten your day.

On the one hand- as if to hold itself up as a wecansuffertoo example to the public it has squeezed for nearly three years- the Labor Government has loudly proclaimed it will show restraint by making all Federal politicians and public servants fly economy.

And on the other, the Minister for Services, Mr Daly, is urging that politicians should stay over an extra night at an hotel.

Economy seating is so cramped, he says, that Ministers could not be expected to arrive ‘ bright and alert. ‘

Poor babies!

So the article goes on. That article arose out of the false article written by this gentleman Kavanagh- I have given him a polite name- and shows what can happen in regard to such a matter. I seek the leave of the House to incorporate the whole article in Hansard.

Mr SPEAKER:

-Is leave granted? There being no objection, leave is granted. (The document read as follows)-

page 251

PAMPERED MPS GET EXTRA NIGHT IN PUB

Here ‘s a good laught to brighten your day.

On the one hand- as if to hold itself up as a wecansuffertoo example to the public it has squeezed for nearly three years- the Labor Government has loudly proclaimed it will show restraint by making all Federal politicians and public servants fly economy.

And on the other, the Minister for Services, Mr Daly, is urging that politicians should stay over an extra night at an hotel.

Economy seating is so cramped, he says, that ministers could not be expected to arrive bright and alert.

Poor babies!

As it is, the economy nights is only band-aid economyand will gain the Government $3.5m a year.

A mere drop in its ocean of grants to inexperienced expatriate film-makers and dahlia festivals!

And not enough even to make a dent in the anticipated Budget deficit of $3,000m.

Yesterday’s OEDC report- which is non-political and without bias- shows the appalling mess the Government has made of our economy with its excesses, rating us behind only Britain and Italy in potential bankruptcy.

There is, of course, no reason why politicians shouldn’t fly economy. And no reason, either, why they should stay overnight if they do.

But it is the excesses that must be halted if we are ever to be dragged back from the downhill ride towards 25 per cent inflation and half a million unemployed.

Who does Gough Whitlam think he is, to order his photograph to be put up in schools all round the country?

Of course it should come down. But why should it be replaced by a picture of the Queen? That would be a needless return to the past

If schools or government offices have picture hooks to spare, why not use them to hang Australian art? At least that would be more pleasing than Gough.

Mr DALY:
ALP

– To add more fuel to the fire the Sydney Daily Telegraph, that great old organ of democracy, has published a similar article. I seem to recollect that its proprietor recently spoke about the freedom of the Press. That puts my ideas more in keeping with those of the Minister for the Media (Dr Cass). The likes of the Kavanaghs, and others I suppose, do not want any Press people inquiring into their integrity. Arising out of the false article by Kavanagh, another article appeared in the Daily Telegraph of 20 August 1975. It reads:

We find particularly reprehensible the attitude of the Minister for Services and Property, Mr Daly, who suggested that ministers could beat the new ruling by travelling a day early- and then banging in a claim for an extra $48 overnight expenses.

These statements were falsely made by Kavanagh, and now we find Mr Murdoch, that great defender of the integrity of the Press, printing the lie in the leading article of his newspaper and thus in his way adding fuel to the fire and undermining the prestige of this Parliament. Mr Speaker, I seek leave of the House to have incorporated in Hansard the leading article from today’s Daily Telegraph.

Mr SPEAKER:

-Order! Is leave granted? There being no objection, leave is granted. (The article read as follows)-

page 252

FLIGHTS OF FANCY

Politicians and public servants are behaving like a lot of spoiled brats because they have been told they can no longer travel first class when they go by air.

It is an economy move designed to save the Federal Government more than $3m a year in fares.

While that is not a great amount in terms of the Government’s overall deficit, the state of the national coffers is such that every unnecessary cent of expenditure has to pared.

You would think that politicians and senior public servants would be the tint to realise this. But obviously not.

Those who are making such a fuss about the new economy ruling are clearly more concerned about pampering their own egos than they are about eliminating wasteful expenditure.

We find particularly reprehensible the attitude of the Minister for Services and Property, Mr Daly, who suggested that ministers could beat the new ruling by travelling a day early- and then banging in a claim for an extra $48 overnight expenses.

Mr Daly’s reasoning is that ministers need to be rested for their appointments- and if they can’t get their rest in a first class seat on the plane, they should have an extra night to recover from the trip.

What nonesense

The truth is that there is very little difference between first class and economy class air travel. Very often the seats are the same, and the airline designates only at the last minute which seats will be used as first class and which as economy.

Anyway, it’s time we did away with the whole idea of segregated travel. Let’s have one-class aircraft, with one fare for everyone.

Meanwhile, Mr Daly and the rest of the Canberra crowd which is making so much fuss should realise that cuts in government spending are more important than their own ruffled feelings.

And they will almost certainly find that travelling economy they will arrive no more tired and no less tired than they do now.

Mr DALY:
ALP

– I take no objection to whatever attacks are made on me personally- I can put up with them- but the articles to which I have referred are false and misleading and in my view they represent a grave reflection on the Parliament and its members. These articles originated from an article written by Kavanagh in Canberra. They are false, as are the actions attributed to me. This journalist- and I give him a polite name again- made no effort to check the facts with me at the time but he decided that he would ridicule Parliament from memory probably before the cost of spirits rose last night. I do not know the journalistic nonentity who signed himself as Trevor Kavanagh from Canberra and I have no regard for his ability or his integrity, because anybody with any commonsense would not write such an article as he wrote, and no journalist would be silly enough to sign it if he had any integrity.

What my views are of journalists of this kind, unfortunately, the Standing Orders prevent me from expressing in this Parliament. I understand that Kavanagh represents a newspaper that is owned by Mr Rupert Murdoch. I wonder what Mr Murdoch thinks of the type of individual that he engages in the Parliament. The big danger in these articles is that some obsecure and unknown journalist like Kavanagh could, if he so desired, undermine a member of this Parliament by methods such as this. He could destroy the member personally in certain circumstances and at the same time the Parliament. Honourable members opposite may laugh but this can be done. I have in mind that an attempt was made in my time to do it and this House dealt with the people who tried to do it. If this kind of thing is tolerated there will be no end to what unknown nonentities in the Press, engaged by Press barons who preach freedom of the Press and then destroy every principle associated with it, can do to this Parliament and its members.

Mr Speaker, may I now seek your guidance as to whether you wish me to move forthwith a motion to refer this matter to the Committee of Privileges, or whether, in accordance with the usual practice, you propose to take the opportunity to consider whether a prima facie case of breach of privilege has been made out.

Mr SPEAKER:

-It is my intention not to rule on the matter at this stage. The matters that the Minister has raised are matters which I will have to take into consideration. I will consider them and give a ruling to the House at the earliest possible time.

Mr Sinclair:

- Mr Speaker, may I speak on the matter now?

Mr SPEAKER:

-No. It is not before the House.

Mr Wentworth:

- Mr Speaker, I rise on a point of order. You said that the matter was not before the House. It is before the House. Certain views have been put to you which will obviously and very properly influence you in considering the matter. There may be views on the other side which should be put to you. You will make your ruling on the fullest information which is available to you and some part of that information could come from honourable members in this House. The matter is before the House and it is relevant. I ask you, Sir, to consider that point of order.

Mr SPEAKER:

-Order! The matter is not before the House. The matter can come before the House only if I rule there is a prima facie case or, should I not rule in that manner, if notice of motion is given and that motion subsequently comes before the House. At the moment the only thing before the House is a statement by the Minister and I have to make a decision whether or not a motion arising from that statement will be moved forthwith.

Mr Wentworth:

- Mr Speaker, with very great respect -

Mr SPEAKER:

-Order! The honourable gentleman will resume bis seat. I will not enter into any further debate on this matter. The Standing Orders are absolutely clear.

page 253

PETITIONS

The Clerk:

– Petitions have been lodged for presentation as follows and copies will be referred to he appropriate Ministers:

Australian Government Insurance Corporation

To the Honourable the Speaker and Members of the House of Representatives in Parliament assembled. The humble Petition of the undersigned employees and agents of the Australian insurance industry respectfully showeth:

  1. 1 ) That Parliament should reject the Bill currently before it to establish an Australian Government Insurance Office.
  2. That while there is a need to establish in Australia a Natural Disaster Fund to provide compensation for property damage and other losses resulting from disasters such as earthquakes, floods and cyclones, such a Fund can be established, as in other countries, using the medium of the existing private enterprise insurance offices.
  3. That a plan for such Fund was submitted to the Treasury in October 1974.
  4. That no sound reasons for the establishment of an Australian Government Insurance Office (other than the desire to provide non-commercial disaster insurance and Australian Government competition with private enterprise ) has been given by the Government.
  5. That there is already intense competition between the existing 45 Life assurance offices and between over 260 general insurance companies now operating in Australia, and that further competition from a Government Office would only be harmful at this time.

  6. That the insurance industry is already coping with

    1. the effects of inflation,
    2. b ) increased taxation on life assurance offices,
    3. c) the effects of recent natural disasters,
    4. other legislative measures already in train or in prospect by the Government, e.g. the National Compensation Bill, a National Superannuation Plan and improved Commonwealth Public Service Superannuation.
  7. That as taxpayers your petitioners are greatly concerned at the huge costs (far more than the $2m initial capital and loan funds which it is proposed will be allocated ) of establishing an Australian Government Insurance Office.
  8. That as employees and agents of existing insurance offices your petitioners fear for their jobs and their future prospects if the Parliament proceeds with the legislation.

Your petitioners therefore humbly pray that the House will reject the Bill.

And your petitioners as in duty bound will ever pray. by Mr Drury and Mr Macphee.

Petition recieved.

Australian Government Insurance Corporation

To the Honourable the Speaker and Members of the House of Representatives in Parliament assembled. The humble petition of undersigned citizens of Australia respectfully showeth that the establishment of an Australian Government Insurance Office will:

  1. 1 ) Lead to the nationalization of the Insurance Industry.
  2. Divert a substantial flow of funds from the private to the public sector.
  3. Depress the private sector still further and create unemployment both within the Insurance Industry and elsewhere.

Your petitioners therefore humbly pray that the House of Representatives rejects completely the Australian Government Insurance Office Bill 1975.

And your petitioners as in duty bound will ever pray. by Mr Drury.

Petition received.

Australian Government Insurance Corporation

To the Honourable the Speaker and Members of the House of Representatives in Parliament assembled. The humble petition of the undersigned citizens of Australia respectfully showeth:

That Parliament should reject the Bill currently before it to establish an Australian Government Insurance Office.

That while there is a need to establish in Australia a Natural Disaster Fund to provide compensation for property damage and other losses resulting from disasters such as earthquakes, floods and cyclones, such a Fund can be established, as in other countries, using the medium of the existing private enterprise insurance offices.

That a plan for such a Fund was submitted to the Treasury in October, 1974.

That no sound reasons for the establishment of an Australian Government Insurance Office (other than the desire to provide non-commercial disaster insurance and Australian Government competition with private enterprise) has been given by the Government.

That there is already intense competition between the existing 45 life assurance offices and between over 260 general insurance companies now operating in Australia, and that further competition from a Government Office would only be harmful at this time.

That the insurance industry is already coping with

  1. the effects of inflation,
  2. b ) increased taxation on life assurance offices,
  3. the effects of recent natural disasters,
  4. other legislative measures already in train or in prospect by the Government, e.g. the National Compensation Bill, a National Superannuation Plan and improved Commonwealth Public Service Superannuation.

That as taxpayers your petitioners are greatly concerned at the huge costs (far more than the $2 million initial capital and loan funds which it is proposed will be allocated) of establishing an Australian Government Insurance Office.

Your petitioners therefore humbly pray that the House will reject the Bill.

And your petitioners as in duty bound will ever pray. byDrGun.

Petition received.

Australian Government Insurance Corporation

To the Honourable the Speaker and Members of the House of Representatives in Parliament assembled. The humble petition of undersigned citizens of Australia respectfully showeth that the establishment of an Australian Government Insurance Office will:

  1. . Lead to nationalisation of the Insurance Industry.
  2. Create hundreds of public servicejobs and cause serious unemployment in the private Insurance Industry in Australia.
  3. Have a serious effect on the private sector of the economy by the passing of further funds to be controlled by the Government through its instrumentalities.
  4. Provide no better insurance service to the public than that already provided by the existing 45 Life Offices and 260 General Insurers.

Your Petitioners therefore humbly pray that the House of Representatives rejects completely the Australian Government Insurance Office Bill 1 975.

And your petitioners as in duty bound will ever pray. by Mr Jarman.

Petition received.

Australian Government Insurance Corporation

To the Honourable the Speaker and Members of the House of Representatives in Parliament assembled. The humble petition of undersigned citizens of Australia respectfully showeth that the establishment of an Australian Govern- . ment Insurance Office will:

  1. 1 ) Further shrink the flow of funds available for finance for private enterprise in Australia.
  2. Will eventually lead to nationalisation of much of private enterprise in Australia.
  3. Cause serious unemployment in the private insurance industry throughout Australia.

Your Petitioners therefore humbly pray that the House of Representatives rejects completely the Australian Government Insurance Office Bill 1975.

And your petitioners as in duty bound will ever pray. by Mr McVeigh.

Petition received.

Increased Postal and Telephone Charges

To the Honourable the Speaker and Members of the House of Representatives in Parliament assembled. The humble petition of the undersigned citizens of Australia respectively showeth:

That we wish to protest most vigorously at the proposed increases in postal and telephone charges.

Your petitioners most humbly pray that the House of Representatives in Parliament assembled will take immediate steps to:

Diminish the size of the increase or, if possible, leave charges as they are.

And your petitioners as in duty bound will ever pray. by Mr Kevin Cairns, Mr Fry and Mr Jarman.

Petitions received.

Fraser Island

To the Honourable the Speaker and Members of the House of Representatives assembled. The humble petition of the undersigned citizens of Australia respectfully showeth:

That whereas the natural environment of Fraser Island is so outstanding that it should be identified as part of the World Natural Heritage, and whereas the Island should be conserved for the enjoyment of this and future generations,

Your petitioners humbly pray that the members, in the House assembled, will take the most urgent steps to ensure:

That the Australian Government uses its constitutional powers to prohibit the export of any mineral sands from Fraser Island, and

That the Australian Government uses its constitutional authority to assist the Queensland Government and any other properly constituted body to develop and conserve the recreational, educational and scientific potentials of the natural environment of Fraser Island for the long term benefit of the people of Australia.

And your petitioners as in duty bound will ever pray. by Dr J. F. Cairns and Mr Hunt.

Petitions received.

Metric System

To the Honourable the Speaker and Members of the House of Representatives in Parliament assembled. The petition of the undersigned citizens of Australia respectfully showeth:

That the plan to obliterate the traditional weights and measures of this country is causing and will cause widespread inconvenience, confusion, expense and distress.

That there is no certainty that any significant benefits or indeed any benefits at all will follow use of the new weights and measures.

That the traditional weights and measures are eminently satisfactory.

Your petitioners therefore pray:

That the Metric Conversion Act be repealed, and that the Government take urgent steps to cause the traditional and familiar units to be restored to those areas where the greatest inconvenience and distress are occurring, that is to say, in meteorology, in road distances, in sport, in the building and allied trades, in the printing trade, and in retail trade.

And your petitioners as in duty bound will ever pray. by Mr Jarman and Mr Street.

Petitions received.

Whales

To the Speaker of the House of Representatives assembled. The humble petition of residents of Australia respectfully shows:

That we believe the plight of the World ‘s great whales to be desperate; that we are convinced that they need conservation now, and that exploitation should cease; that we agree with Dr Sidney Holt of F.A.O., who says that a complete re-assessment of all scientific data on whales is needed; and we further submit that substitutes of all whale products are available, and could, with Government encouragement, be made in Australia. We are convinced that the great whales, as a significant pan of the World’s Wildlife Heritage, and being on the verge of distinction, now need our complete and wholehearted protection.

We, your petitioners, therefore humbly pray that you will:-

  1. 1 ) Support a 1 0 year moratorium on whaling at the 1 97 5 meeting of the I. W.C.
  2. Support research and development of alternatives to whale products, and encourage production of these products in Australia.
  3. Provide increased funds for research into marine biology.
  4. Force the cessation of whaling operations at Cheynes Beach, W.A.; at the same time providing funds to assist the personnel and facilities of the factory to be otherwise gainfully used, (perhaps in whale research, to further our own and the World’s knowledge.)
  5. Ban the import into this country of all whale products, and all goods containing whale products.
  6. Urge that Australia, as a member of the I. W.C, use all possible influence to encourage the end of whaling throughout the World, and refuse to service ships of all whaling nations at Australian ports.

And your petitioners as in duty bound will ever pray. by Mr Kerin and Mr Reynolds.

Petitions received.

Nuclear Energy

To the Honourable the Speaker and Members of the House of Representatives in Parliament assembled. We the undersigned citizens of Australia by this our humble petition respectfully showeth:

Whereas the use of nuclear fission for power generation presents unacceptable hazards of life, and whereas plentiful supplies of energy are essential if there is not to be severe social and industrial dislocation in this period of intensifying population pressure on rapidly disappearing and quite irreplaceable geological resources, your petitioners humbly pray that the Members in Parliament assembled will move to initiate international action against the use of nuclear power and for a crash programme of research and development into safe and replaceable sources of energy.

And your petitioners as in duty bound will ever pray. by Mr Malcolm Fraser.

Petition received.

Taxation Deductions: Land and Water Rates

To the Honourable the Speaker and Members of the House of Representatives in Parliament assembled. The humble petition of the undersigned citizens of Australia respectfully showeth: That the undersigned persons believe that-

The $300 limit on income tax deductibility in respect of personal residential land and water rates is unrealistic and is a discriminatory income tax penalty.

Your petitioners therefore humbly pray that the Government will take steps to see that the aforesaid limitation is removed entirely or substantially increased.

And your petitioners as in duty bound will ever pray. by Mr Connolly.

Petition received.

School Cadet Corps

To the Honourable the Speaker and Members of the House of Representatives, Parliament assembled. We the undersigned citizens of Australia do humbly petition the Parliament of the Commonwealth of Australia that they do take such steps as necessary to:

Continue the School Cadet movement and to actively promote same, which we do humbly petition this Honourable Parliament to make sure.

And your petitioners as in duty bound will ever pray. by Mr Garland.

Petition received.

Wetlands of the Northern Territory

To the Honourable the Speaker and Members of the House of Representatives in Parliament assembled. The humble petition of the Conservation Council of South Australia Incorporated, of the Division of City of Adelaide, respectfully showeth:

That wetlands in the world are diminishing in area and quality through man’s activities.

That the wetlands of the Northern Territory are some of the most extensive in Australia.

That these areas are important, not only to migratory birds from overseas but provide an important refuge to birds from southern Australia, particularly in drought periods.

That the Australian Government is a signatory to the Convention on Wetlands of International Importance, Especially as Waterfowl Habitat, and as such is obliged to consider any moves which might limit wetlands.

That some of these wetlands of Northern Australia, notably all those within the catchments of the East and South Alligator Rivers, should therefore be incorporated into a National Park.

Your petitioners therefore humbly pray:

That the House instruct its Standing Committee on the Environment to examine the boundaries of the proposed Kakadu National Park with a view to including the whole of the catchments of the East and South Alligator Rivers within the Park.

And your petitioners as in duty bound will ever pray. byDrGun.

Petition received.

Communism

To the Honourable Speaker and Members of the House of Representatives in Parliament assembled. This humble petition of the undersigned citizens of Australia respectfully showeth:

That the undersigned express their total opposition to the creed and expansionist aims of Communism and calls on the Australian Government to use its full resources to resist Communism, to support active opponents of Communism and to withhold support for Communist-inspired activities.

We call on the Australian Government to:

Press for the release of refugees from occupied South Vietnam.

Permit entry to Australia to those refugees who wish to come here.

Establish a public inquiry into the power exercised by the Communist movement in Australia.

Publish intelligence assessments of Communist activity in Australia.

And your petitioners as in duty bound will ever pray. by Mr Street.

Petition received.

Education Assistance: Isolated Children

To the Honourable the Speaker and Members of the House of Representatives in Parliament assembled. The humble Petition of undersigned electors of the Division of Grey respectfully showeth: those children living in isolated country districts are suffering disadvantages because of this isolation and need more financial assistance than is now available and more accommodation for them. They would also be helped if an Information Centre where country parents and students could obtain-

  1. details of courses available, particularly alternative and vocational courses, and
  2. types of accommodation available- particularly in relation to the location of ( 1 ).

Your Petitioners therefore humbly pray that the House of Representatives will review the assistance given to help the education of isolated children.

And your petitioners as in duty bound will ever pray. byMrWallis.

Petition received.

Mr SPEAKER:

-Apparently there is.

page 256

QUESTION

QUESTIONS WITHOUT NOTICE

page 256

QUESTION

UNEMPLOYMENT

Mr MALCOLM FRASER:
WANNON, VICTORIA

– I ask the Treasurer a question. The President of the Australian Council of Trade Unions, Mr Hawke, made it plain that he believes unemployment will rise as a result of the Budget. I ask: Do not the Budget Papers indicate that total employment will increase by only one per cent by 1975-76, which in fact will involve a sizable increase in unemployment since probably2½ per cent additional people will be available to enter the work force? Will the Treasurer say who is right? Does he believe that he is right? Does he believe that Mr Hawke is right? Does he believe that the Treasury is right because from Treasury paper No. 2 it would be plain that the Treasury believes there will be an increase in unemployment of not less than 100 000?

Mr HAYDEN:
Treasurer · OXLEY, QUEENSLAND · ALP

– None of those people are right. The Treasurer is right. What I said last night stands- that is, that this Budget is directed at stimulating gradual recovery, not rapid recovery. It would be antithetical to the best interests of the Australian community to see a hothouse rate of recovery. In the first instance it must be understood that there has been an accumulation of stocks. Accordingly, until they are run down it is unlikely that we will see a significant pick-up in productive output. The evidence is that decumulation- to use a rather ungainly word beloved by some economists- is now taking place. The latest quarterly estimates on national income and expenditure suggest strengthening in private investment and a pick-up in demand. As I said last night, by and large there are early signs of a recovery- a recovery which could prove elusive if the wrong measures were taken now, a recovery which could be eroded in its progress if there were enough dissimilitude on the part of the Opposition trying to scare people in the community, because a great deal of the input in recovery at this stage will be a matter of improved psychology. As the recovery takes place obviously the surplus capacity in industry and overtime will be resorted to before there was a significant pick-up in the employment of people in the work force.

I spoke on television interviews on 2 channels last night on which Mr Hawke also appeared. It was not my understanding that he was asserting that the Budget would bring about an increase in unemployment. But let us bear in mind that the economic inputs that come from the Budget fairly largely will not have much effect before the early New Year because of the nature of lags and because the Budget will not be passed until about October. I repeat that there are signs of an early recovery, which can be encouraged, which could be helped if Opposition members displayed some national interest and concern to see that it did pick up and showed some concern for the private sector which they are supposed to represent in this place but which they represent very poorly. Finally I point out that the problems that this country has encountered are very similar to the problems which have affected most industrialised countries, according to the Organisation for Economic Co-operation and Development’s Economic Outlook on world economies produced a few weeks ago.

page 257

QUESTION

NATURAL GAS PIPELINES

Mr LUCHETTI:
MACQUARIE, NEW SOUTH WALES

– My question is directed to the Minister for Minerals and Energy. I ask: What stage has been reached in the construction of the lateral natural gas pipelines to Lithgow, Bathurst, Orange and Wagga? Is the Minister in a position to give an assurance that the work will proceed without delay?

Mr CONNOR:
Minister for Minerals and Energy · CUNNINGHAM, NEW SOUTH WALES · ALP

– We are certainly in a position to carry on without delay. In point of fact there is provision in the Budget of $9m for the first stage of the laterals to be constructed from the main natural gas pipeline, from Young to Lithgow, Orange and Bathurst and from Young to Wagga. We have already spent over $500,000 on the necessary surveys, which are to be followed by resumptions. In addition we have already spent over $100,000 on telemetry equipment that was ordered in conjunction with the original launching of the project. The propaganda which has appeared in the Press- in the Sydney Morning Herald in particular- has been tendentious and designed to soften up the price resistance of buyers of natural gas in Sydney. The true position is that natural gas can be landed at the Wilton gate valve for the metropolitan area- and this includes the cost of the laterals- at 4.6c per therm. At the present time Australian Gas Light Co. Ltd is paying $84 per tonne for naphtha from which it is constituting the present Sydney metropolitan gas supply. There will be a considerable margin even after the company undertakes the construction of its internal pipelines in accordance with the original haulage agreement. I have told my State counterpart, Mr Freudenstein, that we are ready to go ahead and that the request that has been made by the State Government on behalf of AGL Ltd is nothing less than humbug. We are ready to go ahead. We ought to go ahead and it is part of the policy of the Government -

Mr Lusher:

– Are you going to go ahead?

Mr CONNOR:

– We are ready to go ahead.

Mr Lusher:

– Are you going to go ahead?

Mr SPEAKER:

-Order ! The honourable member for Hume will remain silent. The Minister will not answer questions directed to him by interjection.

Mr CONNOR:

– I know it is a matter of acute embarrassment to the State Liberal Government and to the Opposition here, but we are ready. We have always been ready. It was nothing short of a specious application on behalf of the Australian Gas Light Company to further increase its profits that Premier Lewis took the stand which he did and communicated with us in terms which were a disgrace.

page 258

QUESTION

REGIONAL EMPLOYMENT DEVELOPMENT SCHEME

Mr FISHER:
MALLEE, VICTORIA

– Will the Minister representing the Minister for Labor and .Immigration give a categorical commitment that all applications approved under the Regional Employment Development scheme will be funded by the Government? I ask this question in the knowledge that many municipalities and organisations have outlaid resources and finance after receiving official acceptance of their applications from the Minister for Labor and Immigration and. that, of course, unemployment is dramatically increasing.

Mr RIORDAN:
Minister Assisting the Minister for Urban and Regional Development · PHILLIP, NEW SOUTH WALES · ALP

-The answer to the question is no. No such categorical undertaking can be given by me. However, if the honourable member would like to put specific questions to me subsequently I shall, on his behalf, ascertain the information from the Minister. I thought it was made clear enough last night in the Treasurer’s speech that some curtailment of the rate of expenditure under the Regional Employment Development scheme was necessary in the total Budget consideration. I thought the Treasurer made that clear enough. But if there is some specific matter about which the honourable member is concerned and he asks me about it I shall get the information for him.

page 258

QUESTION

PROPOSED COAL EXCISE TAX

Mr JAMES:
HUNTER, NEW SOUTH WALES

– I ask the Minister for Minerals and Energy: What will be the effect of the proposed coal excise tax on such coal producers as Utah Development in Queensland? Will it be excessive? How will it operate in the NewcastleCessnock region of New South Wales?

Mr CONNOR:
ALP

-In the year ending 30 June 1975 the gross profit in respect of exports of black coking coal was $A 1 66m. It is estimated on a very liberal basis in respect of production costs that the profits for the forthcoming year will be $544m. That will be a total increase of $378m. The proposed tax will be $ 1 20m which will leave a net gross yield of $258m. But in point of fact when it comes to the calculation of company tax at 42.5 per cent a further $51m will go back to the exporters, so the true gross profit increase will be $309 instead of $378m.

The Utah Development profit would have been of the order pf $A160m gross. After the necessary calculation in respect of the 42.5 per cent reduction of the excise through company tax Utah will still get $A132m. That will be after the calculation of company tax. That will still be a record for Australia. As for the wails that there will be, they will be completely unjustified. People can thank the Government of Australia, the Labor Government, for co-ordinating export sales of coal, particularly to Japan. We nave been treated very fairly by the Japanese. In respect of the Hunter Valley coal production, the tax operating there, based on a carbon content of less than 85 per cent in the coal- it is a soft coking coal- will be of the order of $2 per ton. After the 42.5 per cent deduction in respect of company tax the net tax will be $ 1 . 1 5 per ton, which is quite reasonable and quite appropriate to the coal type. For the first time there is a government in Australia which is prepared to take its fair share of windfall profits. For the first time we have been able to co-ordinate sales and we are co-ordinating the collection of taxation.

page 258

QUESTION

BUDGET DEFICIT

Mr LYNCH:
FLINDERS, VICTORIA

-Will the Treasurer indicate to the House the planned growth rate in the money supply-I refer here to M3 for 1975-76-and the general manner in which he proposes to finance the deficit? Does the honourable gentleman expect that this year’s deficit will lead to an increase in interest rates, an increase in the rate of monetary growth, or both?

Mr HAYDEN:
ALP

– The intention of the economic strategy is that the money supply will come down, but gradually. Even the monetarists would concede that short, sharp movements in money supply have a severe dislocative effect. We will be bringing it down gradually. I am not going to set a target. The Opposition in government never set targets and gave considerably less information than I have given in Statement 2, which is quite an innovation in the sort of economic background information that is provided. I indicated last night when I spoke that this Budget brings fiscal and monetary policy into better balance. It would be our purpose as much as possible to avoid the sort of monetary measures to which the honourable member referred. On the other hand, if the Opposition has its way it will try to spread an attitude of depression in the community. It will try to create pessimism as much as it can in the hope that it will undermine the strategy of this Budget. In doing so, of course, it is quite reckless in its attitude towards the needs of the private sector of the Australian economy. The Opposition would not care if a situation arose in which other measures had to be taken because of the erosive forces which it released by its activity in the community. But I repeat, it will be our intention to try to avoid resort to monetary policy. We have in fact taken fiscal measures to bring a better balance into the economic management of the country.

page 259

QUESTION

TAXATION

Mr KERIN:
MACARTHUR, NEW SOUTH WALES

– Has the attention of the Treasurer been drawn to radio reports this morning about a taxpayer with a wife, 4 children and a weekly income of $106, who feared that he would be worse off as a result of last night’s Budget? Can he say what the taxpayer in question, a family man, has gained as a result not only of current Budget measures but also of earlier tax cuts and the introduction of Medibank?

Mr HAYDEN:
ALP

– I am not sure of the tax he would be paying. If he had 2 children, currently he would be paying in excess of $6 a week in tax. He would be probably paying less if he has 4 children. But in any case, whether he has 2 children or 4 children, under the new scheme he will pay no income tax. The latest cuts follow cutsagain I am not aware of the order of the cuts for a man on that income with 4 children, but they were substantial cuts- made earlier this calendar year which benefited the average weekly earner with 2 children and a wife by the order of some $6 a week. Finally, Medibank represents an advantage or a saving of somewhere between $2 and $4 a week- depending on the varying costs in different States- in contributions to health insurance funds. So overall he will be considerably advantaged. He will have a real net increase in his disposable income as a result of the measures which were taken in this Budget.

page 259

QUESTION

INCOME TAX

Mr ANTHONY:
RICHMOND, NEW SOUTH WALES

– Will the Treasurer confirm that despite the changes in the method of levying income tax, collections of income tax in the coming year will actually rise by 34 per cent although wages are calculated to rise by only 22 per cent?

Mr HAYDEN:
ALP

– Income tax collections will not increase as fast under the new scheme of pay as you earn income tax as they would under the present scheme. For instance, a person on average weekly earnings would, under the present system of pay as you earn income tax, have a marginal tax rate of between 44c and 48c in the dollar. Under the new system, his marginal tax rate will be about 35c in the dollar. The current rate of average weekly earnings is a little more than $ 140 a week. Under the new system that we are introducing the average income earner will be saving $6 a week on his income tax liability.

page 259

QUESTION

PROPERTY INCOME TAX SURCHARGE

Mrs CHILD:
HENTY, VICTORIA

-Will the Treasurer confirm that the abolition of the property income tax surcharge will have effect retrospectively from 1 July this year? Can he say which other Budget measures are of specific benefit to people living in retirement on the proceeds of property and other savings?

Mr HAYDEN:
ALP

-Yes, the abolition will be effective from 1 July. Of course, the latest step which we announced last night towards the abolition of the means test will be a substantial contribution to their welfare. We have not gone as far as we would have wished but we have gone as far as we could responsibly go, that is, eliminating the means test for people in retirement of 69 years of age effective from 1 July 1976. This Government pioneered the abolition of the means test. For more than 2 decades people in Liberal-Country Party governments promised that something would be done towards the abolition of the means test. The last Minister for Social Services in the last Liberal-Country Party Government tried to stampede that Government to honour a promise which was first made in the 1940s that the means test would be abolished. Nothing was done by any LiberalCountry Party government towards this objective. There has already been a substantial achievement by this Government in less than 3 years of office. From 1 July all people 69 years of age and over will have a means test free pension.

page 259

QUESTION

DEFENCE FORCES RETIREMENT AND DEATH BENEFITS FUNDS

Mr BONNETT:
HERBERT, QUEENSLAND

– I ask the Minister for Defence: When can we expect him to inform the House of the amount of surplus moneys in the old Defence Forces Retirement Benefits Fund and of any arrangements that have been made for the automatic adjustment of defence force retirement and death benefits pensions?

Mr MORRISON:
Minister Assisting the Minister for Foreign Affairs in matters relating to the Islands of the Pacific · ST GEORGE, NEW SOUTH WALES · ALP

-As the honourable member will be aware, my predecessor asked for further actuarial examination. I have now received that report. Unfortunately, there is a dissenting report. This matter is now being examined by the Government. As far as the updating of benefits is concerned, the Government has said that it will update benefits. We had hoped to establish permanent procedures but this was affected by the defeat of the Superannuation Bill in the Senate. I hope to bring into the House legislation which will provide, in this financial year, an updating of the benefits but the establishment of permanent procedures will have to await the attitude of the Opposition to the Superannuation Bill.

page 260

QUESTION

MEDIBANK

Dr GUN:
KINGSTON, SOUTH AUSTRALIA

– I ask the Treasurer: Is it not a fact that Medibank obviates the need for private medical and hospital fund contributions? Is it not a fact that the resulting additions to disposable incomes more than offset any increase in the cost of living from increased postal charges and indirect imposts? Will the Treasurer seek advice from the Australian Bureau of Statistics as to whether this substantial reduction in household expenses will be reflected in a reduction in the consumer price index?

Mr Killen:

– A person would need to ride a bike and be a Rechabite to get anything out of this Budget.

Mr HAYDEN:
ALP

– That would be a discipline beyond your capacity, Jim. As the honourable member for Kingston implied from his question, there is a substantial saving for people as a result of the Medibank program. This saving represents an addition to their net disposable income. I mentioned before that the order of the saving, the addition to income and the extra expenditure which will be in the pockets of people, will be between $2 and $4 a week depending on the State in which they live. This is better than an increase in pay of that order because it is a tax-free addition to their income.

In reply to the last part of the question that the honourable member puts to me, yes, this saving more than off-sets any increased costs which may arise from indirect tax measures which were found necessary for inclusion in the Budget announced last night. Even allowing for those measures, most people will still be considerably better off as a result of the overall package of measures taken last night. Finally, I will take up with the Bureau of Statistics the matter that the honourable member suggests.

page 260

QUESTION

UNEMPLOYMENT

Dr EDWARDS:
BEROWRA, NEW SOUTH WALES

– My question is addressed to the Minister representing the Minister for Labor and Immigration. As the Treasurer indicated that he does not expect an early upturn in business activity, how will the 32 000 people at present employed under the Regional Employment Development scheme find jobs when that scheme is phased out in the next few months?

Mr RIORDAN:
ALP

– I have not said, nor has anybody else said, that the scheme will be phased out in the next few months. I would suggest that perhaps the honourable gentleman might be more beneficially engaged if he directed that sort of question to some of his Liberal Party colleagues in the States who seek to challenge the validity of the scheme and to have it terminated.

page 260

QUESTION

TAX RELIEF

Mr INNES:
MELBOURNE, VICTORIA

-Can the Treasurer relate Budget measures to the findings of Professor Henderson ‘s Committee of Inquiry into Poverty? Can he say whether tax relief for low and middle income earners with dependants is a significant move towards goals which Professor Henderson envisages being met by increased child endowment payments?

Mr HAYDEN:
ALP

-Yes, indeed. The views of Professor Henderson and of many other worthy people who are involved in and committed to the welfare field and who have expressed their concern about the less well off in our community were vastly influential in the decision-making which resulted in the personal tax measures announced last night. For instance, over half a million people who currently pay tax will, when this scheme becomes operative, cease paying any contribution to taxation at all. The minimum taxable income level has been increased from a little over $1,300 a year to something over $2,500 a year. However, depending on the size of the family, that level is adjusted. For instance, a man with a wife and 2 children, on average weekly earnings, who makes average claims for deductions under the taxation scheme, with a taxable income of $5,372 will make no tax contribution under the new scheme. People with families who are in fact paying tax will be making savings. As I mentioned earlier, a person on $ 140 a week will be saving over $6 in tax contributions. That is an addition to his disposable income.

These measures are much more beneficial in that they are selective and help more those who have the greater liabilities, as measured by dependants and necessary outlays of life, than could be the case with child endowment. The defect with child endowment is that child endowment increases have to be made across the board. For any available level of resources which can be directed towards relieving the needs of the more dependent groups in our society, this type of selective effect is much more helpful. Under child endowment, a given level of expenditure has to be spread more thinly because it has to reach more people. People like ourselves in this Parliament who, by community standards, are very well paid indeed, get the same benefit as people who are much less well off. These measures can be seen as a significant move towards meeting many of the recommendations and responding to much of the concern expressed by people like Professor Henderson.

page 261

QUESTION

URBAN AND REGIONAL DEVELOPMENT

Mr Ian Robinson:
COWPER, NEW SOUTH WALES · CP; NCP from May 1975

– My question is directed to the Minister for Urban and Regional Development. Did the Minister confide last week in officers of his Department that he believed that the Government would soon lose office? Have Budget cuts axed the Minister’s personal plans for urban and regional development? Will planning and administrative staff of the Department be reduced in proportion to these financial cuts and will the Minister make a statement outlining the new situation in which he finds himself?

Mr UREN:
Minister for Urban and Regional Development · REID, NEW SOUTH WALES · ALP

– The answer to the first question is no; the answer to the second question is no; the answer to the third question is no.

page 261

QUESTION

TAXATION: EDUCATION EXPENSES

Mr REYNOLDS:
BARTON, NEW SOUTH WALES

-My question is directed to the Treasurer. Will the Treasurer indicate what the proposed new income tax arrangements in respect of education expenses incurred by parents on behalf of their student children will mean as compared with the existing provisions?

Mr HAYDEN:
ALP

– The new scheme of personal income tax is based on a rebate system; that is, the amount of rebate is deducted from the tax which has to be paid. Under the present system of concessional allowances the concessional claim is deducted from the income and the tax is then levied on the remainder. The new scheme is much more equitable. As I mentioned earlier, it will benefit families more and it will benefit the most needy most of all. Under the new arrangement all taxpayers will be able to claim a rebate of $540 on the tax that has to be paid. There are other rebates that they can claim for dependants$400 for a wife, $200 for a student child or another child under age 16 and $ 150 for other children. If, in the case of the general rebate, taxpayers find that their allowable expenses exceeded $ 1 ,350 in a year and if they then care to itemise those costs they will be able to claim 40 per cent of the total cost. In the case of education the ceiling for the claim has been lifted from $ 1 50 to $250 for those purposes.

page 261

QUESTION

INCOME TAX

Mr MALCOLM FRASER:

– I ask a question of the Treasurer. Can he tell the House whether Table 7 of the comparison of tax payable in the schedules that he distributed last night is correct when it indicates that individuals with incomes of $7,000, $8,000 and $9,000 a year and with 2 dependent children under 16 years of age who claim rebates under the new system equivalent to 10 per cent of their income in fact will be paying more tax and not less tax under the new system? If so, how does he indicate that as being an advance for people receiving very modest incomes of $7,000, $8,000 or $9,000 a year? Shortly, how does the Treasurer believe that he is helping the average Australian when the total income tax reforms of $30m this year and $205m in a full year will not even pay for the increased cost of beer of $274m?

Mr HAYDEN:
ALP

– Of course some people will be paying more tax under this scheme than other people. Most people will be paying less. By and large, families will be better off. A single wage family with dependent children will overwhelmingly be much better off. Those most able to pay will contribute the most. Single people, for instance, will be paying more. The Leader of the Opposition chose to use a selective quote. For instance, he could easily have pointed out that if a taxpayer has a working wife, between them they will be paying less tax on their aggregate income than a family with a single income of the same order, but they will be paying more tax than they would be paying under the present system. That is completely equitable and in fact has been referred to in the handbook which has been put out.

There has been a redistribution under this program. It is a program that supports the family man. I do not see anything wrong with that. If members of the Opposition object to this they object to more than two out of every three taxpayers being benefited by this program. I think it is up to them to stand up and assert their position quite bluntly to the community. Do they want to stand in the way of this reform? Do they want to obstruct this beneficial sort of redistribution which is going to help families in the community -the people about whom we are all supposed to be concerned- so that a minority who are comparatively better off will retain those benefits at the expense of the majority?

page 261

QUESTION

EXTRADITION OF ALEXANDER AND THOMAS BARTON

Mr JACOBI:
HAWKER, SOUTH AUSTRALIA

– My question, which I address to the Attorney-General, deals with the question of the extradition of the Bartons from Paraguay. In view of the rejection by the court in Paraguay for the extradition of the Bartons and the fact that the alleged strength of the Bartons stems from the money they have stashed away in Swiss banks -

Mr SPEAKER:

-Order! The honourable member will direct his question or he will not get the opportunity to continue.

Mr JACOBI:

– As their strength comes from the fact that they have resources in Swiss banks -

Dr Klugman:

– And support from the New South Wales Liberal Government.

Mr JACOBI:

-Well, it will be very annoyed if they are returned. If they come .back to New South Wales it will give them knighthoods.

Mr SPEAKER:

-Order! If the honourable member does not direct his question I will ask him to sit down.

Mr JACOBI:

-Well, I think we ought to be reasonable about it.

Mr SPEAKER:

-I am being extraordinarily reasonable.

Mr JACOBI:

-I ask the Attorney-General: Will he take the earliest opportunity to take the matter up with the Swiss Government with a view to having the Bartons’ financial resources frozen?

Mr ENDERBY:
Attorney-General · ALP

– The honourable gentleman’s concern about the Barton situation is understandable. There would be great difficulties, of course, in adopting the suggestion that he makes because, as he points out himself, it is an allegation. Whatever relationship exists between the Bartons and the New South Wales Liberal Government is also a matter on which I should not comment. I can inform the House of some facts that were just given to me a moment or two ago. We received advice from informal sources yesterday that the court hearing in Paraguay had resulted in failure of the application for extradition. I am told that our representative in Paraguay has now received an authentic copy of the judgment of the Paraguayan court. The judgment runs to 44 pages and it is in Spanish. The judgment is being translated at top speed by several translators and my Department hopes to have a full analysis in Canberra by cable tonight.

All that can be said at this point is that the application for extradition has been refused by the judge of first instance and that one of the grounds is the non-application to Australia of the 1908 treaty between Paraguay and the United Kingdom. However, there appear to be several other grounds. The Fiscal-General, who is the Paraguayan official charged with the presentation of the case for extradition, has said that he will appeal, and he and our local Paraguayan lawyers have expressed optimism as to the result of the appeal. However, it may be some months before the result of the appeal is known. We will be conferring with the Department of Foreign Affairs today with a view to a diplomatic request being made that the appeal be lodged and all other appropriate steps be taken to secure the extradition of the Bartons.

page 262

QUESTION

INCOME TAX

Mr BOURCHIER:
BENDIGO, VICTORIA

-I address a question to the Treasurer. Is it a fact that tax reductions suggested to be up to $5 per person on average weekly earnings as from 1 January will only offset the increases incurred by the Treasurer as from 1 July? Is it also a fact that other costs to come in almost immediately from the Budget, such as petrol, beer, cigarettes, postage and telephone charges, will in fact disadvantage the average family man that he keeps talking about? Finally, by the time the new tax scheme comes in as from 1 January, will not the average weekly earnings be close to $180 thereby lifting most people he claims as being free of tax into a tax bracket?

Mr HAYDEN:
ALP

– Average weekly earnings of $ 1 80 by January would represent something like an increase of 30 per cent between July and January. Even with the worst will in the world and the greatest degree of pessimism which members of the Opposition would- hopefully from their view- try to muster, I do not believe that they think that is quite on. I have mentioned already- I should have thought that the honourable member would have heard my answer to earlier questions- that in spite of the increases in indirect charges by and large most people will be better off as a result of the savings which they will attract under the package of proposals outlined in the Budget last night, with the addition of the great savings through the Medibank program. I do not intend to go through those details again.

page 262

QUESTION

MEDIBANK

Mr MATHEWS:
CASEY, VICTORIA

-Has the attention of the Prime Minister been drawn to a statement that the Budget deficit would have been only half as great if it had not been for Medibank? Can he say whether this statement is true and, if so, how the situation has arisen?

Mr WHITLAM:
Prime Minister · WERRIWA, NEW SOUTH WALES · ALP

-I did notice a comment to the effect that the Budget deficit would be only half as large but for the introduction of Medibank this financial year. The statement came from no less an economist than the Leader of the Opposition. It is, however, an inaccurate statement. I hope the honourable gentleman uses the next 6 days to produce a better onslaught on the Budget than that first salvo he fired. The cost of Medibank in this year’s Budget is about $ 1,400m. If Medibank had not been introduced in this financial year but the rickety health scheme which the Government inherited had continued this financial year, the Government would have had to pay about $ 1,000m for that old scheme. The old scheme was dilatory, it was incomplete and it was inequitable. If the Leader of the Opposition is against Medibank still, he should say so. I wish he would be a bit more specific, a bit more courageous in saying what he is against. He is against things in general, but he is not prepared to say that he is against Medibank now because every other Liberal leader in the country except the ineffable Mr Lewis has now accepted Medibank.

One of the very great advantages of this year’s Budget will be that the contribution we make to our health schemes will be more equitable, more in accordance with our means than was previously the case. Honourable gentlemen will remember that I used to cite the instance of myself and my Commonwealth driver. We both belonged to the same health scheme. We both had the same number of dependants. At that stage my income was only two or three times his income, but because we both deducted the same amount from our taxable income I was able to get my health insurance at a very much less cost than he could. Now these days all matters, with a couple of exceptions, are rebates instead of deductions- a very great advance in economic rationality and social justice.

What the Government was committed to introduce was a levy to finance Medibank. I put this to the people in 1969.I put it again in 1972. It is clear that the public gave increasing support to the notion that Medibank- universal health insurance- should be financed from a levy on taxable incomes up to a certain ceiling of levy.

The Opposition defeated the levy proposals in the last Parliament. They defeated the levy proposals in this Parliament. I believe that the levy scheme would have been a very rational way of financing Medibank. Nevertheless, the scheme of financing which I had twice put to the people with increasing approbation was rejected in the Senate. Accordingly, the Government saw no point in persisting with that scheme for which it had a mandate. I have no doubt that the Senate would again have rejected it had we put it up in this Budget. It is not true to say that half the Budget deficit is due to Medibank; only a small fraction is due to Medibank. If there had been no Medibank, the cost of the old scheme would have been about $ 1 ,000m.

Quite apart from the fact that the new scheme is being financed in a more equitable way and is total in its cover, there is the fact that all forms of compulsory insurance have now been moderated in their effects. Medibank will cover many of the features for which every motor car owner has to contribute through compulsory third party insurance; Medibank will alleviate the contributions which every employer is compelled to make for workers compensation. Medibank will eliminate the necessity for everybody who wanted any assistance from the Australian Government in paying his doctor’s and hospital bills to contribute to health funds, that is private bureaucracies, before he would get any public assistance whatever from his taxes. Medibank is here to stay. I believe even the Opposition now accepts that. If it is going to make an attack on the Budget it will have to be more rational and more factual than the Leader of the Opposition was in his first salvo last night.

page 263

QUESTION

CONSTITUTIONAL DEVELOPMENT FOR THE NORTHERN TERRITORY

Mr CALDER:
NORTHERN TERRITORY

-My question is directed to the Minister for Northern Australia. I refer to constitutional development for the Northern Territory and the fact that 2 reports have been presented to the Government on this matter by the Joint Committee on the Northern Territory and that an inter-departmental committee was recently set up. What is the Government and ministerial attitude towards those Joint Committee reports? When will the committee recommended in paragraph 1 18(b) of the first report be established? When will the first group of functions referred to in paragraphs 70(a) and 70(b) of that report be transferred to the Northern Territory Legislative Assembly? Are further amendments required to the Northern Territory (Administration) Act to provide for the creation of Executive Members of the Assembly and the allocation of portfolios and departments to them, and for the expansion of the Northern Territory Public Service by transferring existing government functions to that Service? If so, when will these amendments be made?

Dr PATTERSON:
Minister for Northern Australia · DAWSON, QUEENSLAND · ALP

-The honourable member for the Northern Territory will know that the Joint Committee on the Northern Territory tabled its first report on this matter before last Christmas. Then followed the tragic cyclone, cyclone Tracy. In consultation with the Majority Leader and other members of the Legislative Assembly it was decided that the Committee should again look at the constitutional reform problems in the Northern Territory and recommend again if necessary. It did this. Since that has happened the relevant Ministers and thendepartments have been actively engaged in studying the reports and the ramifications of the recommendations. I must point out that I am not the only Minister concerned with the Northern Territory. There are probably at least ten other Ministers with very important functions in the Northern Territory.

I have been in consultation with the Prime Minister on this matter. A high level interdepartmental committee, again working in conjunction with the Northern Territory, has studied it and has made a report. Certain recommendations will be going to the Cabinet very shortly on this matter. In fact, most of those recommendations encompass the matters that the honourable member has raised, that is, the progressive handing over of particular local functions in the Northern Territory to Executive Members of the fully elected Legislative Assembly of the Northern Territory. All of those matters are under consideration. I am in close consultation with Dr Letts and the former Speaker of the Legislative Assembly, Mr Kilgariff, who is now the Executive Member for Finance in the Northern Territory. It is the Government’s wish, as the honourable member knows from the platform of the Australian Labor Party, to make progress on this subject, and this matter is before the Government.

page 264

BUDGET

Dr KLUGMAN:

– My question is directed to the Prime Minister. In view of the fact that last night’s Budget provides for a 23 per cent increase in expenditure on the part of the Australian Government in 1975-76 and an increase of 34.2 per cent in the distribution to the States, in addition to the Australian Government taking over other expeditures from the States, such as those for hospital services, has he received any messages of thanks from any of the Premiers so far today?

Mr WHITLAM:
ALP

-No messages from the Premiers have yet come to my notice today. The messages are not usually of the factual and laudatory nature which the honourable gentleman would expect in the light of the Budget last night. It is very true of course that the States have done extraordinarily well from my Government. As the honourable gentleman points out, the increase in funds available to the States to spend as they see fit in this financial year will be 34.2 per cent. I have little doubt that the majority of the Premiers will still be quite forthcoming in their suggestions as to how we can give them still more to spend as they see fit. Local government also has done well from my Government. It is receiving in this year’s Budget to spend as it sees fit 42 per cent more than it received last year. There is a very great deal of criticism devoted to the Australian Government. As a matter of fact, the Australian Government has been much more severe in curbing its expenditures and its employment than have the State governments. State government employment has increased very much more than Federal government employment in the last couple of years. I had better see whether there is any correspondence from the Premiers. Mr Speaker, since there have been 20 questions answered today- probably a record- I ask that further questions be placed on notice.

Mr SPEAKER:

-Certainly not a record.

page 264

STATEMENT OF HEADS OF EXPENDITURE 1974-75

Mr HAYDEN:
ALP

-(Oxley-Treasurer)-For the information of honourable senators I present the following paper: ‘Statement for the year 1974-75 of Heads of Expenditure and the amounts charged thereto pursuant to section 36A of the Audit Act 1 90 1 - 1 973 (Advance to Treasurer).

Motion ( by Mr Hayden) agreed to:

That the statement be taken into consideration in Committee of the whole House at the next meeting.

page 264

INDUSTRIES ASSISTANCE COMMISSION

Mr LIONEL BOWEN:
Minister for Manufacturing Industry · KingsfordSmithMinister for Manufacturing Industry · ALP

– For the information of honourable members I present reports of the Industries Assistance Commission on: Rural income fluctuations- certain taxation measures; tanned and finished leather- dressed fur; leather and leather substitute products; almonds; bags and sacks of man-made fibre; and superphosphate.

page 264

AUSTRALIAN POSTAL COMMISSION AND AUSTRALIAN TELECOMMUNICATIONS COMMISSION PAPERS

Mr LIONEL BOWEN:
KingsfordSmithMinister for Manufacturing Industry · ALP

– I present for the information of honourable members 2 papers, one prepared by the Australian Postal Commission and the other by the Australian Telecommunications Commission, both entitled Service and Business Outlook for 1 975-76 ‘.

page 265

ROYAL COMMISSION INTO ALLEGED PAYMENTS TO MARITIME UNIONS

Mr LIONEL BOWEN:
KingsfordSmithMinister for Manufacturing Industry · ALP

– For the information of honourable members I present the interim report of the Royal Commission into Alleged Payments to Maritime Unions.

page 265

SEMINAR ON ENVIRONMENTAL LAW: THE AUSTRALIAN GOVERNMENT’S ROLE

Mr ENDERBY (CanberraAttorneyGeneral) For the information of honourable members I present a record of a ‘Seminar on Environmental Law: The Australian Governments Role’.

page 265

PUBLIC ATTITUDES TO THE ENVIRONMENT

Mr BERINSON:
Minister for Environment · Perth · ALP

– For the information of honourable members I present a report on a survey conducted by Spectrum International Marketing Services Pty Ltd for the Department of Environment entitled ‘Public attitudes to the environment’. Due to the limited number of copies available, 2 reference copies of the report have been placed in the Parliamentary Library.

page 265

RAILWAYS AGREEMENT (SOUTH AUSTRALIA) BILL 1975

Bill presented by Mr Charles Jones, and read a first time.

Second Reading

Mr CHARLES JONES:
Minister for Transport · Newcastle · ALP

– I move:

I present the Railways Agreement (South Australia) Bill 1975, which is to approve the Agreement for the transfer of the nonmetropolitan South Australian Railways to the Australian Government. Honourable members will, I am sure, recall that I introduced similar legislation relating to this transfer, and the transfer of the entire Tasmanian Government Railways, during our last session and that this legislation passed all stages. The Tasmanian Agreement was approved by the State Parliament and, as a consequence, the former Tasmanian Government Railways became the Tasmanian region of the Australian National Railways Commission on 1 July 1975. In the case of South Australia the State Legislative Council rejected the transfer legislation and a State election ensued. The Dunstan Government was returned and the South Australian legislation approving the Agreement has now been passed. It now only remains for this Parliament to approve the Agreement again, for the legislative requirements of the transfer to be met.

It is necessary for the Australian Parliament to again approve the Agreement because section 2 (2) of the earlier Railways (South Australia) Act provided that that Act would not come into operation unless South Australian legislation approving the Agreement came into force on or before 1 July 1975. The first of July was an appropriate date because it coincided with the commencement of the financial year and also was the date proclaimed for the Australian National Railways Commission to come into existence. The Act was not passed by the South Australian Parliament by this date so the earlier Australian Act could not come into operation. Honourable members will notice that the present Agreement is in fact the one the Parliament previously approved. The reason for this is that the Australian and State governments are concerned that the people of South Australia should not be penalised financially by the initial rejection of the South Australian legislation. This Bill therefore approves the existing Agreement with effect from 1 July 1975 as did the State legislation approving the Agreement.

Honourable members will be aware that it is very unusual for an Agreement to be approved retrospectively. During my years in Parliament I do not recall this being done, but in the present circumstances I am convinced that it is warranted. The main argument against retrospectivity is that the rights of third parties could be adversely affected. However, in the present situation, during the interim period provided for in the Agreement, the State authorities will be deemed to have continued, and will continue, to administer, maintain and operate the nonmetropolitan South Australian Railways under State laws but subject to direction by the Australian National Railways Commission until the declared date, which is expected to be in about 12 months. As a consequence third party rights will be protected.

The State will, however, benefit from the retrospectivity in the following ways: Firstly, there will be retrospective confirmation of the payment referred to in clause 16 of the Bill so that the amounts in question can be taken into account by the State in respect of the financial year ended 30 June 1975; secondly the State will be freed and discharged from 1 July 1975 from debt repayments and interest in relation to the debts set out in the sixth schedule referred to in clause 19 of the Agreement; and thirdly, under clause 20 of the Agreement the State will be freed from 1 July 1975 from losses incurred on the operation of the non-metropolitan railways. With the passing of this Bill a date can be set for the non-metropolitan South Australian Railways to become part of the Australian National Railways Commission- the first mainland railway system to do so- and a further major step will have been taken towards the creation of a national railway system.

On a number of occasions in the past I have spoken about the need and benefits for a national railway system- twice in the previous session of Parliament, the first on the introduction of the Australian National Railways Bill 1975 and the second on the introduction of the previous Railways (South Australia) Bill. I do not propose to discuss these benefits in any detail again except to remind honourable members that a national railway system would have the means of overcoming the disadvantages inherent in the operations of State railway systems. Railway problems can be tackled in accordance with national priorities. Long overdue improvements and economies can be made. Our first task will be to prepare a program of improvements for the South Australian region of ANR, a program that will be carefully evaluated by the Bureau of Transport Economics to ensure that maximum benefits are obtained from the finances that will be provided.

It is fitting that the first mainland State railway to be transferred to the Australian Government should be in South Australia because the South Australian non-metropolitan railway system is the system most readily able to be integrated with the present system operated by the Australian National Railways Commission and will enable the benefits of the Australian Government’s transfer policy to become apparent quickly. As South Australia has common borders with all mainland States and rail connections with all mainland States except Queensland it will form the central core of a national railway system that can be built on in the future.

I come now to the actual provisions of the Bill. I have circulated explanatory notes on the various clauses of the Bill for the benefit of honourable members and I have reproduced the notes on the Agreement that were circulated when the Agreement was previously approved. As the Agreement has been available to honourable members for some months and its provisions are well known, I will confine myself to a brief description of some aspects of the legislation. On the whole the legislation is very similar to the previous legislation.

Clause 3 repeals the previous Railways (South Australia) Act 1975. Clause 5 is the clause which approves the Agreement. Clauses 6 and 7 are the clauses where retrospectivity is imparted concerning the vesting of land and other property in the Australian National Railways Commission. Clause 16 confirms that the $10m required to be paid to South Australia has in fact been paid, under Appropriation Act (No. 6) 1975.

In conclusion, this Bill is one of the most important pieces of transport legislation introduced by any Australian Government. Because of it the mainland railways will be able to take the first step into a new era of rail transportation, where the emphasis will be on meeting the nation’s needs in fair competition with other transport modes. I venture to predict that before too long the other States will realise the benefits to be gained from a wholly national rail system and will follow the lead given by South Austrafia. I commend the Bill to honourable members.

Debate (on motion by Mr MacKellar) adjourned.

page 266

NATIONAL HEALTH (PHARMACEUTICAL BENEFITS CHARGES) BILL 1975

Bill presented by Dr Everingham, and read a first time.

Second Reading

Dr EVERINGHAM:
Minister for Health · Capricornia · ALP

– I move:

In order to meet rising costs the Government has decided to increase the amounts payable by patients for drugs and medicinal preparations supplied as pharmaceutical benefits. I announced the Government’s intentions in this regard on 24 July 1975. The Bill will amend the National Health Act by increasing patient contributions for general benefits from $1 to $1.50 and for benefits supplied to beneficiaries under the subsidised health benefits plan from 50c to 75c The increases will take effect from 1 September 1975.

As in the past, eligible pensioners- that is, those holding a pensioner medical service entitlement card- will not be charged for their pharmaceutical benefits. Similarly, no charge will be made for repatriation prescriptions. This increase of 50 per cent is the first rise in patient contributions since 1971 when the amount for general benefits was increased by 100 per cent. The new patient contributions will still be less in relation to purchasing power than at the time of the previous rise since prices generally rose by 53.8 per cent on a cumulative basis in the 4 years from June 1971 to June 1975. In common with charges for other services and specialist equipment, the cost of medical goods and services has increased at a faster rate than the general price index. Fortunately, the rises in the wholesale prices of drugs listed under the pharmaceutical benefits scheme have not been as great as for the more labour intensive health services.

Following the 1972-73 inquiry into pharmacy earnings, costs and profits carried out by the Joint Committee on Pharmaceutical Benefits Pricing Arrangements, the Australian Government announced on 24 July 1975 that chemists would receive higher dispensing fees, to be paid in part retrospectively to 1 July 1973. It is estimated that retail chemists will benefit by $5 8m this financial year, including extra payments in respect of the previous 2 years from the increase in dispensing fees. Faced with the argument that public sector spending should be restrained, the Government has been obliged to increase the patient contribution to offset partially such increasing costs. In a full year revenue from the increase in pharmaceutical benefits charges authorised by this Bill will amount to approximately $34m. Assuming that the higher charges operate from 1 September 1975, they will yield $26m this financial year. I commend the Bill to the House.

Debate (on motion by Mr MacKellar) adjourned.

page 267

ELECTORAL BILL 1975

Second Reading

Debate resumed from 27 May on motion by Mr Daly:

That the Bill be now read a second time.

Mr GARLAND:
Curtin

-The Opposition will oppose this Bill since it is the reintroduction in identical terms of a Bill which was brought to the House and the Senate some months ago. I wish to repeat some of the arguments which have been put forward by the Opposition. Firstly, I observe that the Government’s aim in bringing this Bill forward again and in doing it in such a way that will add it to the storehouse of Bills that the Government seems to be preparing for a joint sitting of Parliament, must surely be a triumph of hope over experience. The prospect of a joint sitting of this Parliament in the near future is so far away over the horizon. I do not really believe that the Minister for Services and Property (Mr Daly) who is responsible for this Bill can possibly see a prospect of this taking place. Surely it must be on the blind insistence of the Prime Minister (Mr Whitlam) that we are here today debating this matter again.

The overall aim of the Government, in presenting this Bill is, I believe, consistent with the proposals which the Government has put to the Parliament to change the electoral laws in a way that will give it political advantage. I say that deliberately. I have said it here before in respect of other Bills. One need only instance the attempts to change the Electoral Act and the extremely odd proposed boundary changes which were put to this House. These changes would have resulted in a situation where, if one were to look at the voting trends of recent elections, there would be a far greater percentage of anticipated Labor seats, expressed as a whole of all seats which were available, than the anticipated percentage of Labor votes in a given State. Of course, the resulting boundaries are never entirely in accord with overall percentages but one would expect them to be close. If Labor were to get 50 per cent of the votes one would expect it to get about 50 per cent of the seats, not about 60 per cent or 70 per cent of the seats which would have been the result, particularly under the scandalous proposal for New South Wales.

We have debated a number of electoral Bills here. I understand that the Minister for Services and Property may be bringing back a number of Bills to replace a Bill which was defeated not long ago. But that remains to be seen. There were a number of proposals. I am on the record as having stated the attitude of the Opposition to that package of proposals which would have made life far more favourable for the Labor Party at election time. This Bill is in the same category, although I think that for some people it has some superficial appeal.

I refer to what seem to me to be the 4 major purposes of the Bill. Regrettably they are party political purposes in favour of the Australian Labor Party. Firstly, there is a series of provisions that all candidates for Parliament should disclose the source of their financial support, with some exceptions; secondly, there is a provision that all political parties should have to disclose the source of their funds; thirdly, there is a series of provisions which provide for the appointment of registered party agents and official agents for disclosure of funds for auditing and for many other cost causing features which would add greatly to the cost, complexities, difficulties and general expenses of political parties. I interpose that that is certainly of interest to the Opposition parties, if not to the Labor Party with its great trade union backing. Fourthly, there are provisions in regard to the limitation of expenditure by persons or parties according to certain arbitrary requirements which have not been spelt out and explained and which do not appear to have any specific justification. On that point I add that there must be justification because I acknowledge openly the understanding of these matters by the Munster, to put the situation mildly.

I am sure that anything which is contained in this Bill has the motive which I have already suggested. Of course the Minister will have an opportunity- I hope he exercises it in replying to this debate- to explain to us what the Bill is all about because that does not appear in his second reading speeches. The principal aim of the Bill is to make it difficult for persons to pay donations to political parties on the Opposition side. Exposure means that many firms will not wish to indicate that they want to support a political parry. Those which do and which are prepared to do so openly are of course immediately open to trade union pressures against their activities. Who, for one moment, would think in the present climate of trade union influence and activity in this country that they would hesitate for one minute to exercise that influence in favour of the Labor Party? Of course that brings us immediately to a consideration of the propriety of making donations to any political party. The fact is that if we are to have free elections then we cannot remove the right of people to support a candidate or a political party.

It may well be that there are improprieties or injustices at times but we cannot remove that financing. All parties can operate only by the receipt of donations. I suppose the Australian Labor Party is in the privileged position of having very large donations made to it by the trade union movement and by business. The trade union movement is the Labor Party’s special advantage. It can receive a lot of donations in cash and a lot of assistance in kind from shop stewards and trade union leaders. Facilities can be made available at election times and several unions can get together and pay for an advertisement without the cash passing through any Labor Party account or that of an honourable member. I shall come to that matter in a moment. So the Labor Party has that advantage. Sometimes in an advertisement the sponsors are apparently disclosed. Sometimes they are not. Nevertheless I simply point out at the beginning that the right of one to make a donation is a part of our democratic process. It could hardly proceed without the receipt of those funds. We know how important the receipt of those funds is to the Labor Party. There exists- I have a copy in my files- a letter which was sent out by the Prime Minister in the 1972 or 1974 elections to thousands of businesses asking for donations. Incidentally, the Prime Minister gave some assurances about the conduct of the Government towards business which read in a very ironic way now when one looks at the results.

Mr Daly:

– Do not tell me that the Liberal Party does not send out letters asking for donations.

Mr GARLAND:

– Of course. I hope the Minister will do me the courtesy of listening to my argument. I was not arguing against that for one moment. I have already told the House that that is an activity which is indulged in by parties. I am making the point, because the Labor Parry seems at times to indicate that it does not deal in this area, that those letters have gone out. I believe that in 1972 the Australian Labor Party received a substantial amount of money in that way. If it had wished and if it thought the principle of disclosure was so high, then why on earth did it not table details of the donations which it received? Here we are being told that this is an honourable thing to do and that anybody concerned with morality should make full disclosure. It is open to the Minister and to the Labor Party to make that disclosure if they wish to do so. I hope that in addition to the receipts they will give some details of how they encourage the donations.

We know that the Labor Party had a number of meetings with businessmen and others in Melbourne and Sydney in 1971, 1972, 1973 and early 1974. Those dates and occasions can be supplied if the Government wishes to press the point. Certain moving speeches were made to those who came along. They were told that the Government was not socialist and not interested in nationalisation. As a matter of fact, they were told that the Labor Party was really a great friend of business and of equity and they were encouraged to make donations. The Labor Party has not willingly disclosed any of those details as to whom it got the donations from and to what purposes it put them. But what we do know, as it is on the record, is that a member who is in fact a back bench member of this Government, received from a certain company $74,000-1 think that sum is correct- and lo and behold we find out that the Prime Minister did not know anything about it.

Mr Daly:

– Under this legislation he would have.

Mr GARLAND Right. Under this legislation he would have. What I am saying is that if the Labor Party is so keen on this method- we are opposing the method in case that has escaped the Minister- why on earth was that not disclosed? Members of the Labor Party kept it a close secret I remind the Minister that the honourable member for Port Adelaide (Mr Young), who is the member concerned and a leading supporter of the Labor Party- he has just come into the chambera man I suppose whose views have to be listened to a little because he is a former President of the Australian Labor Party, had this to say:

My criticism of the Bill is that it does not go far enough.

This is the man who received all this money and did not tell anybody.

Mr Donald Cameron:
GRIFFITH, QUEENSLAND · LP

Mr GARLAND Yes, $74,000. 1 am reminded of the amount again. The honourable member for Port Adelaide said:

My criticism of the Bill is that it does not go far enough. I would have no donations at all to political parties or to candidates.

This is the recipent talking-

I think all the money that is used to educate the people about policies of the various political parties ought to come from the public purse.

We will come to that argument very quickly. Of course, that means that only established parties and the incumbents themselves are really given any assistance if the money is to come out in that way. The Americans looked into this system very closely and have seen at close quarters the fallacy of it. This Government of course actually adopts that principle in another way. It has set up a propaganda ministry in Australia. It is called, I think, the Department of the Media, is it not? Anyway, it is spending $35,000 a day. It must be pretty incompetent because the Labor Party on the polls cannot do better than 35 per cent of the total votes. Nevertheless, that goes to show what one can do when one is in government. One can employ hundreds of public relations men and print all sorts of material and send them around the country. That is why disclosure needs to be made, so that the Government will see where the money is coming from and try to lop it off if it is coming to the Opposition side, and continue to spend large sums on government official propaganda.

We know also of the existence of a slush fund of which at least the Prime Minister and the Deputy Prime Minister (Mr Crean)- there may be more- are signatories. That apparently has been going on for a long time. I do not confine it to the present Leader and Deputy Leader of the Australian Labor Party. My understanding- the Minister for Services and Property might care to give us more details on this- is that large sums of money go into it and that nobody knows where they come from. I wonder why the Government requires this legislation to disclose all that detail. Surely, as a man of high principle- we know that the Prime Minister is a man of very high principlewhy has he not offered to the Parliament, since he has been the Leader and Deputy Leader of his Party, a list of all the sources? After all, this is a principle in which he believes.

Surely the Prime Minister is not intending to insist on a quid pro quo because we can see from his record the high principle that is involved in this legislation. One can see it in his political appointments of the heads of departments and in the way he will not responsibly answer questions, either at question time without notice or, more importantly, questions put on notice which give him quite a lot of time to consider what he would say. But full responses are not given.

It is becoming notorious among the Australian people that evasion is the stock in trade of the Prime Minister when questions are asked of him on television. Members of the Labor Party, I think, believe basically that anything can be done by the use of money. It is their attitude to government. In the last 2Vt years we have seen a tremendous spending spree and an ignoring of where the funds were coming from. Of course the result has been economic difficulties for a large number of Australians. The Budget just brought in is an attempt at least to sort out some priorities, though of course it is a tragic Budget and will result in tremendous problems for Australians.

We see here that when Government supporters are discussing money in relation to elections they believe that if people have a lot of money they will always win. A little earlier I made the point that the money being spent by the Government through the Department of the Media through its vast army of public relations men- they are a vast army- is nevertheless not having much success if its aim is to get votes. Who can doubt that is the aim? Government supporters have this preoccupation with disclosure which they hope will help them. As I have pointed out, it is part of their package to try to improve their electoral prospects. They believe that with these disclosure proposals they can frighten off a lot of people from making donations to the Liberal Party and the National

Country Party while they, with their trade union resources, can go on from strength to strength.

I make this point for the attention of the Labor Party- if a party is not acceptable to the public and if the public does not believe that it is doing a good job, then it does not matter how much money the party has. It will not make much difference. I have referred to the 4 major objectives of this Bill. I have referred in particular to the aim to provide for disclosure. I have referred to the imprecision of many of the provisions, the lack of justification offered as to why they should be implemented. I hope that we will hear something- we did not when the Bill was being debated last time either in this House or in the Senate- about all those gaps which may give more justification particularly to the fourth area that I mentioned.

A very fine speech was made about this Bill by Senator Missen. Because the proceedings were interrupted, it commenced on 20 February this year and concluded on 25 February. I suggest that anybody really interested in this subject in an objective way should have a look at that speech. He quoted a document which the honourable member for Griffith, Mr Donald Cameron, had and to which he had referred on a number of occasions in this House. It was dated June 1974 and was written by a Mr Bart Lourigan who is, I understand, an important member of the Australian Labor Party in Queensland. There are a number of interesting things in the document. The honourable member for Griffith and I made sure that a copy was put on the table in the Library and it is available for anybody who is interested to read. I refer to a sentence on page 7 of that document. It is a report made about the shocking state of affairs in Queensland from the Labor Party’s point of view at that time, and I do not think it has improved much since. This is what Mr Lourigan said in reporting to his Executive:

Brisbane is the only State capital without a Federal Minister and the facilities which would normally be made available to one. To remedy this, the State President -

This is of the Labor Party- and the State Secretary requested Mr Whitlam -

The Prime Minister- to open a Press office in Brisbane manned by a member of the Prime Minister’s staff.

That request, I understand, was agreed to -

Mr Katter:

– Very much so.

Mr GARLAND:

-‘Very much so’ I am told by my honourable friend from Kennedy. Let us be quite clear and, if we can, try to draw some distinction between that document and the statement made by the honourable member for Port Adelaide which I quoted earlier.

Mr Kelly:

– Is that coming out of taxpayers funds?

Mr GARLAND:

-Of course. It is coming out of Government funds. There is nowhere else it can come from and the only people who put funds into the Government’s coffers are the taxpayers of this country. So there we have a blatant request, and that blatant request was answered in full, for Government support of Labor Party propaganda. It is also an illustration of the point I was making earlier that money does not cure everything in this world, because the Government has not done any better in Brisbane since the office was opened. But we have there an admission- the suggestion was accepted- that Government resources are being used for propaganda purposes. The point hardly needs to be made fully. Nevertheless, it is an open admission.

I turn to another section of the Bill which calls for the creation of positions of Party agentsofficial agents- and which requires these persons to do a number of onerous things, including making returns after an election and dealing with donations that have been made in the flurry of the campaign and so on. It is all part of an effort of the Government to try to create disclosure on one side which will give the Labor Party some sort of advantage. Unfortunately, as I have said, the provisions of this Bill are clearly designed to provide, by typical artificial control, for the interests of the Party which is presently in power.

I have made this point in respect of another electoral Bill. I believe it to be important. We should not as representatives of major political parties- let alone as representatives of the largest political party in this country- squeeze out the rights of individuals to stand. I know that in the history of elections in Australia independents have rarely been elected, but some have been elected. When they are elected they usually play an important part in the proceedings of the Parliament. I believe it is a very important principle in our parliamentary representative democracy that individuals have the right to stand and have the chance of being elected. I repeat that independents have been elected. When that has happened it has usually been for a very strong reason. It has been an expression of a strong feeling by the electors of this country.

References have been made in various speeches by supporters of the Government to the situation which pertains in the United States of America and, in particular, to the debates which have been carried on there- with considerable sophistication- about election methods. Of course, much of that pre-dates Watergate. I might add that Watergate, of course, led to a lot of further discussion. In passing, I make the point that the 2 systems are not strictly comparable. Our system in the House of Representatives and our system of Cabinet responsibility are entirely different from the system in the United States. In Australia there is an executive outside the Parliament. In referring to political donations- coming closer to home- the trade union movement in Australia and its attitude to political parties is entirely different from that of the trade union movement in the United States. There is a complete difference in the relationship and political activities of unions in Australia from those which exist in the United States. I think it is regrettable, though perhaps it is changing, that the trade unions in the main are strongly on one side of the fence. Perhaps in business the reverse applies. Personally, I think I can see a breaking down in that attitude. I think the Government’s recent efforts at managing this country have led many blue collar unionists to come to the conclusion that they are better off supporting the Liberal Party. Maybe one could identify one or two areas in which attitudes have gone the opposite way.

I conclude on the note I have made in relation to other electoral laws, that if the Government was really sincere about trying to improve electoral laws and procedures- I freely admit that there are many difficult areas- an improvement could be achieved. The Government is inclined to use the more emotive word ‘reform’. Everything the Government does is reform, but everything done by anyone with a contrary view is reaction. Of course, that is a lot of nonsense. There are no blacks and whites in this field at all. Dealing with the principles of this Bill, people clearly have the right to support candidates and parties. They should not be restricted unduly in exercising that right. Clearly, persons are entitled also to a high degree of privacy. Those two principles are clearly breached by this Bill. The clauses are unfair and, I believe, are in many cases unworkable.

I should like to conclude by saying that if the Federal Government were sincere in endeavouring to get improvement, instead of bringing partisan Bills into this place it would endeavour to have some joint consideration of improvements by all parties, and if there are independent members perhaps they could be involved also, so that there could be some consideration and common ground could be found in many areas. For instance, when the Electoral Laws Amendment Bill was before us not very long ago there were many clauses with which the Opposition agreed. There were many with which we did not. agree because, as I have said, that Bill was an attempt to favour the Labor Party. The Government presented us with an all or nothing approach and so we had to defeat the whole Bill.

Mr Daly:

- Mr Lewis does not agree. Mr Lewis has just brought them in.

Mr GARLAND:

-There is a lot of truth in that. The Government put forward those proposals. They were examined by the electoral officers and a good deal of common ground was found in them. But when the Government introduces in this place proposals which attempt to stop many people from making postal votes, which attempt to close down polling booths and which carries on this business of optional preferences- which the Minister for Services and Property (Mr Daly) has misrepresented so much- the Opposition, of course, has a view on it. What is more, in the present climate the Opposition is entitled to be particularly suspicious of the activities of the Minister and of this Government because of what we hear are the motives behind this Bill. I am suggesting that instead of introducing a Bill here and giving us a take it or leave it proposition, discussions should take place with the Opposition. The Government would have then a greater chance of the Bill being passed. The Government will not do that because it wants something that is partisan. This Bill is partisan. It is imprecise and, of course, the Opposition must oppose it.

Mr YOUNG:
Port Adelaide

– I wish to refer to 3 items. On no fewer than 3 occasions the honourable member for Curtin (Mr Garland) said he was going to finish on a note or finish on a point. He droned on for 20 minutes and, of course, did not talk about the ramifications of this Bill. I understand that on a couple of occasions earlier he referred to me when I was acting as Secretary of the Labor Party. He referred to donations that were given to me. Credit must be paid to Rupert Murdoch, I suppose, because he is the only newspaper owner in Australia who, at times, does change his mind. If we examine the history of other so-called newspaper barons, we find that they are traditional in their support of the conservative and reactionary policies of the Liberal Party and the National Country Party of Australia.

The real issue here, of course, is what we are going to allow to develop in future and what have we learnt from our experiences since Federation, particularly since the advent of television and the high cost of conducting a campaign. I think it is relevant to quote from what a Senator O’Connor said when he introduced the first Commonwealth Bill in the Senate. As VicePresident of the Executive Council he said:

If we wish to secure a true reflex of the opinions of the electors we must have a system which will not allow the choice of the electors to be handicapped for no other reason than the inability of a candidate to find the enormous amount of money required to enable him to compete with other candidates.

That is exactly what will happen in Australia. It has already happened and it can be pointed to at recent elections in Australia- both national and State. Candidates now, of course, are all being prejudiced by their inability to raise the enormous amounts of money which are donated to their opponents. I do not put forward as a grizzle that the Labor Party traditionally has not been able to raise the huge sums of money which our opponents have been able to raise. The laws have been there and they have been broken. Nevertheless, the people who have been able best to exploit the system have been the conservative forces of this country.

We can rise here and make allegations about the millions of dollars paid to the. conservative parties by the Shell Company of Australia Ltd, the Bank of New South Wales and Mount Isa Mines Ltd, and to some extent those claims may be accurate. But until such time as we carry out the spirit of this Bill and until such time as details are laid on the table of this House as to who is or is not making political donations, we can continue to make the allegations and people will believe us. On the other hand, the Opposition can make similar allegations about the Australian Labor Party. But I doubt very much whether anyone in Australia would believe that the 3 companies that I mentioned would dare put pen to paper to send cheques to the Australian Labor Party for election purposes. So, we must live with this era of allegation, of innuendo and of dragging the Parliament and parliamentarians in our society under our system down in the mud because we refuse to face up to reality.

Someone once described this legislation, of which the present Bill is one, as the Watergate Bills. I think that statement perhaps overestimates the effect of what these Bills may achieve. Nevertheless, one cannot disregard the enormous impact that the Watergate incident had on the American people. We know that Watergate occurred because of the manipulation of the backers of the political parties and of people who were breaking the laws. Let us look at what has happened in Australia in this regard. In 1 970, for instance, the honourable member for Prospect (Dr Klugman) asked the then Minister for the Interior, Mr Hunt, who was responsible for electoral matters, how many members of the then Government had breached the laws by not filling in their electoral returns. It would come as a surprise to no member of this Parliament to find that amongst those members were several Ministers, including Mr Hughes, Mr Snedden, Mr Nigel Bowen, Mr Wentworth and Mr Peacock. Those were the Ministers among the 9 members of the then Government who had forgotten or refused to fill in the necessary declaration or who had taken the stand as so many members before them of saying that the filling in of a declaration that they had each spent only $500 in the course of a House of Representatives election campaign was an absolute farce. So, the laws of the past have been inadequate. They have not faced up to the needs of the situation.

Australia has a tradition that there should be some equality about the manner in which an election is approached. Why should people outside the political arena have this enormous influence on what happens within the political arena? Why should one candidate be so prejudiced in his efforts to be elected to this chamber by the fact that he is unable to attract to his support those who can write cheques for vast sums of money. We are not stopping that system although, as I have said to the Minister for Services and Property (Mr Daly) on many occasions, we should be seeking to stop completely all private donations to political parties, politicians and candidates. The laws relating to the media should be changed to permit political parties enough time to express correctly, properly and constructively to the people their views, so that we can get away from the ‘soap advertisements ‘ which have now developed in Australia. We should say that each political party according to its support at the previous election should be given that right by the laws relating to the media and that the funds required are supplied by the Government. I do not take one step back from that suggestion. The honourable member for Curtin referred to the system that ought to be adopted in Australia. The provisions of this Bill do not go that far. All we are saying is that we recognise what is going on and that the people of Australia are entitled to know.

We are entitled to know, for instance, when the National Country Party announces that it is seeking $lm in contributions, as it recently did, where that money comes from. We know what that Party is going to do with that money, that Sim, which will come to that Party. We understand that its traditional supporters, the beef producers, are not going all that well and obviously they are not going to provide those funds. Who is, and for what purpose? It seems to me that there is great justification in espousing the cause of the disclosure of donations to political parties in Australia. Very few members on this side of the chamber have had experience in the raising of funds. Very few of us have been asked to keep confidences about what goes on between donor and political party or employee of political party. On this question this country and its politicians are heading into a maze from which we will never emerge if we do not adopt the measures which the Government has put forward at this time. At least our proposals, if adopted, will enable people to know who is backing each political party and for what purpose.

Mr Donald Cameron:
GRIFFITH, QUEENSLAND · LP

– What about the trade unions?

Mr YOUNG:

– The trade unions never hide their contributions. One has only to look at their balance sheets. In my opinion, every trade union would be included in my proposal and would be barred from making political donations. As the system stands at the moment the trade unions are the only organisations which disclose their donations. Have a look at the balance sheet of any trade union; political donations are set out therein. Obviously trade unions do not provide funds to their traditional opponents, the conservative forces of this country.

Mr Donald Cameron:
GRIFFITH, QUEENSLAND · LP

– You are their Party.

Mr YOUNG:

– The honourable member will see those details set out in their balance sheets. He can ring up the secretary and he will be given the information.

Mr Donald Cameron:
GRIFFITH, QUEENSLAND · LP

– You are their Party. You are their captive.

Mr DEPUTY SPEAKER (Dr Jenkins)Order! The honourable member for Griffith will cease interjecting.

Mr YOUNG:

– The honourable member for Griffith says that we are their Party and that they ought to disclose their donations. I agree. But the honourable member’s Party is the party for the Shell Oil Company of Australia Ltd and the Bank of New South Wales. Those companies ought to disclose that fact because they are owned by and operate on behalf of shareholders. Some of our supporters happen to be shareholders in such companies and they ought to be told that some of their money invested in these companies is being used to support their political opponents. But these great citadels of honesty and of private enterprise are not game to disclose to the people of Australia how much in the way of political donations they make in this country or where or when those donations are made. That is all we ask. We ask for the adoption of a realistic approach to political expenditure in Australia.

To say that someone has to conduct a campaign for the House of Representatives with $500 only or for a Senate election with $1,000 only is an absolute farce and all honourablemembers opposite know it. They believe they must attack these measures before there is any future election. Someone has said that we are only taking this action because it is for the benefit of the Australian Labor Party. It is for the benefit of the 13 million people who live in Australia to know whether we are above board or below board. If we are under suspicion, we are placing ourselves under suspicion. The people are not doing that. We are doing it to ourselves. We are doing it to those people who served previously in this Parliament and to those who will serve in this place after we have gone; we will be condemned for it.

The opportunity is presented to us in the Bill, which has again been introduced by the Minister for Services and Property, to adopt policies which can be beneficial to all of us. As I said, the legislation does not go far enough, but it does allow people to make their donations and makes it mandatory for the source of any donations to be disclosed and for people to be honest about their donations. It allows each of the candidates and the political parties to have an increased ceiling of expenditure and that amount ought to be enough. How sick are we to allow political propaganda to become in this country because we have adopted all the suggestions of the market research people and of the slick advertising people? We do not go on radio and television and make a serious contribution to political debate about the questions that ought to be debated by the people of this country at election time. We go on for 30 seconds with some slick message. The Australian Democratic Labor Party used to show Chinese soldiers marching across the Sydney Harbour Bridge. That is the way we try to persuade the people of Australia how to vote.

The laws relating to the media and to electoral matters are treated with greater urgency by and receive more attention in this Parliament than most other measures which come before it. Members opposite would be doing themselves, this country and their political parties a great service by supporting this legislation. But they are going to back down from that support because most of them do not understand what is involved. They run their own local parish pump election campaigns but do not know what is going on between the national leaders and the major contributors to party funds. They do not know what is going on between the political machine and the major donors. They do not know what commitments are being made.

Mr Corbett:

– How do you know?

Mr YOUNG:

– Because I have been through it.

Mr Corbett:

– Have you?

Mr YOUNG:

– Yes, and the honourable member would do very well to listen. One of these days he will read what I have said and say: ‘How right that was’. The millions and millions of dollars which have been paid to the National Country Party and the Liberal Party by major companies will be exposed. These funds have not been provided by the citizens of this country whom honourable members opposite say they are protecting here and representing here by the policies that they propose. Honourable members opposite are representing the major cartels and the multinational organisations. They are not game enough to rise and say: ‘Yes, we are. Here is a record of the money that they have given us to conduct our campaigns of vilification against our political opponents*. If the Labor Party, the trade union movement and our other supporters are prepared to put on the line where funds donated to the Labor Party come from, why are not honourable members opposite? What are they hiding? The traditional stand will be again taken by the conservatives. They have to protect their backers, especially now. Their major backers do not want any interference by government in the way in which they conduct their affairs. From 1949 until 1972 they had things all their own way. They do not want any government interference. That may just happen to impose some sort of handicap upon them. How stupid and how ridiculous they are to maintain such a stand. If we do not adopt these measures now they will be adopted by another Parliament in the future and, in adopting them, that Parliament in the future will condemn the stand that we have taken and we will be ridiculing ourselves and opening this Parliament and each individual in it to all the innuendoes and allegations that will be made in the future.

Mr WENTWORTH:
Mackellar

– Members of the Opposition have been asked who are their backers. At the last election our backers were almost half the people of Australia. At the present moment our backers are twothirds of the people of Australia. Every supporter of the Government knows that and every honourable member on the Government side of the chamber is trembling about his prospects of retaining his seat at any future election. Those are our backers. We have just heard from a member of this House who has been closely associated with fund-raising and all the chicanery that has gone on behind the scenes in fundraising for the Australian Labor Party. We have just heard from somebody who has been closely connected with the trade union movement.

I intend to say something about the trade union movement in a moment, but before I do so I want to say that the honourable member’s Party has, according to a statutory declaration, I think, or evidence given by someone in a witness box, received $70,000 from Mr Rupert Murdoch- I think that he is very sorry now that he paid it, but he paid it; I do not know what it was paid for, but that is something which stands on the record. It ill becomes a member of that Party to stand and say: ‘We have.no wealthy backers. We do not take money in secret.’ Good heavens! Sometimes the truth surfaces. I wonder how much of what has happened in this respect within the Labor Party still lies below the surface.

That is not the main thing that I wanted to say. I want to approach this matter in a most serious vein. I agree that the present law needs amending. I and, I think, every other member of this House would agree that the present law is ridiculous. But I believe that the proposal which the Government has now brought forward is a treacherous, double-dealing proposal and that it should be thrown out without any reservations. The Government has put forward a fascist proposal. It has been proposed that only the Australian Labor Party should have adequate resources for political organisation. If the Government gets this Bill through the Parliament it will endeavour to use a position which we never should have allowed to develop in order corruptly to continue its tenure of office and the tenure of office of governments of the same political persuasion.

The matter has come about in this way: The Australian Labor Party says that it is a trade union party- and so it is in a sense. But what is happening in the trade unions is something that is most vile and improper. People who are politically opposed to the Government are being dragooned into support of. it and being dragooned into giving financial support of millions and millions of dollars to organisers who call themselves union organisers but who are really organisers for the Labor Party. They call themselves union organisers but they do only a little organising for their members. They organise mostly in the interests of the Labor Party. That is going on all the time. It may be said that people may band together and support what they want to support with their contributions. That is fine and good. But it should be remembered that in many callings- indeed in most callings- one cannot work to earn one’s living unless one gives subservience to the trade union movement.

There are many people in the trade union movement who honestly wish to support the Australian Labor Party, but there is a large number of people in the trade union movement who, understandably and rightly, oppose the Australian Labor Party- they may even dislike and hate the Australian Labor Party- and who have to support with their dues a union machine whose efforts day in and day out- not just at election times and not just with a few hundred thousand dollars but with many millions of dollars every year- are primarily directed towards the support of a political party which those trade unionists themselves oppose. That is a fascist principle. The trade union movement has become a fascist movement because it says that a person cannot work and earn a living at his calling unless he is a member of a trade union and if he is a member of a trade union he will be paying his dues- not just the political levies, which are unimportant; they are only on the surface- for a machine which is devoted primarily to opposing what he thinks politically. That is really conscription of labour. That is the essence of fascism- the corrupt state. The individual cannot express himself and he cannot earn his living unless he kowtows to a clique of Labor bosses whose political affiliations are not his. I know that there are many people in the trade union movementperhaps even the majority of them- who honestly wish to support the Labor Party.

Mr Donald Cameron:
GRIFFITH, QUEENSLAND · LP

– Not the majority.

Mr WENTWORTH:

– I think that the majority in the trade union movement still wish to do so even at this moment.

Mr Katter:

– That would be doubtful.

Mr WENTWORTH:

-Let me be as fair and factual as I can. I do know that there are hundreds of thousands- maybe millions- of people in the trade union movement who are opposed to the Labor Party and who have to pay their subscriptions knowing full well that a great deal of their subscriptions is being paid not for industrial purposes and not for the purposes of the union but in order to further the interests of the Aus.tralian Labor Party. The Australian Labor Party calls itself the child of the trade union movement. It boasts that that is what it is. It is to the shame of honourable members on this side of the House that when we were in government we allowed the state of affairs to develop and continue whereby millions of dollars are being taken every year from people and used for political purposes which are exactly opposite to those of some if not many of the subscribers of it. Maybe our constitutional powers were limited. I know that there are difficulties in this respect.

In point of fact this Bill says that no political party except the Labor Party shall have the financial capacity to organise. The Labor Party is going to live not on its formal organisation but on the trade union organisation whereby money is being extorted for so-called industrial purposes and is being used to maintain a gang of what are virtually Labor officials, Labor organisations. This is corrupt; this is fascist; this is something which we should not allow to continue, and I believe it is to our shame as a Liberal government that we allowed it to develop to the point that it has. People are entitled surely to earn their living without being forced to contribute to the political purposes of a party to which they are opposed. This is the position which has developed in Australia. Now we have the ultimate impertinence in this Bill because it is drawn in such a way that the trade union official who is virtually a political agent of the Labor Party, who is getting millions of dollars as an agent of the Labor Party and who pretends that he is getting this money for industrial purposes- what nonsense, and everybody knows it is nonsense- is going to escape the meshes of the Bill. So the Labor Party will have immense funds continuing at its disposal, funds which will be used in the future as they have been used in the past, to corrupt the electorate.

Honourable members know the kind of propaganda which goes on in trade unions day in, day out, propaganda such as: ‘You must support the Labor Party even if you think it is wrong; we are trade unionists, we must support our Party, the Labor Party’. This is said and reiterated time and time again. This money- these millions of dollars- is available. This is the corruption- the political corruption- that occurs in unions that are using union money to further causes to which many unionists are opposed. This is the real thing that is wrong with Australian politics.

The British trade unions have brought Great Britain to her knees. In a short generation they have taken her from a world power to a third rate state. They are exporting what is called the British sickness, a terrible and shameful phrase and one that we do not like to hear because it is true. We know that the inflation and the economic ills in Australia, as in Great Britain, stem very largely from the excesses of the trade union movement. We know that the capacity of the country to pay high real wages and to have a high standard of living is being impaired by the go-slow, feather-bedding strikes, the disruptions and the other things the trade union movement is sponsoring.

The present Government has spent a political generation whistling for the wind. It may well be appalled now with the whirlwind which it has conjured up. We have in this Bill an attempt by the Government to fasten this trade union dictatorship not just around the necks of the trade unionists but around the necks of all the Australian people. The real impact of this Bill is that one party, and one party only, will have financial resources- millions of dollars- much greater than any of its political opponents ever had, because the Labor propaganda machine is fed by money to which its rivals have no access at all and to which they have never had any pretensions. The Labor Party is the wealthy party. It is now saying: ‘Nobody in the Australian community is to have any resources to organise against the dictatorship of the trade union movement’. This is what tins Bill means. This is really corruption in excelsus. This is the attempt to make this kind of corruption permanent for the Australian people.

I conclude by saying, as I said at the beginning of my speech, that I believe that the present law requires drastic amendment, but it does not require the kind of amendment which is put forward in this Bill. The Government- the sponsor of this Bill- has used the need for amendment as a means of launching a treacherous attack on the Australian people. I remind the House of what happened in June 1972 when the present Prime Minister (Mr Whitlam), then the Leader of the Opposition, went crawling to a communist union in order to get funds. He got a cheque for $25,000 or something like that. But that was merely peanuts. That was not really what he wanted. What he wanted was the backing of that communist trade union machine for the continuing propaganda of the Labor Party, and the use of millions of dollars, much of them extorted from people who were opposed to the Labor Party. He wanted that machine behind him. In order to get that machine behind him he gave certain pledges which are set down in the union minutes which have already been read into Hansard and which I will not repeat. Those pledges were disgraceful; they were cowardly; they were treacherous. But his Government had endeavoured to implement the pledges which he then gave to the communists.

It is not just a case of payments which are made at election time. Do not let us run away with the idea that the Australian public is entirely unsophisticated and that it votes only on the election campaign. The Australian electorate is wiser than that. It forms opinions outside the election campaign and it votes on them. But no electorate, however wise and however sophisticated, can stand up against the continuous propaganda, the Hitler tactic of the big lie all the time repeated. Just as the German people fell for the Nazis and the Hitler lie- the big repeated he- so even the Australian electorate will fall if it gets propaganda only from one side, if it has this incubus always of the trade unions which are able to get money from their opponents and from people who are unionists, who are opposed to the Labor Party but who are not allowed to work at their trade unless they join the union and pay its dues. The unions use that money ostensibly for industrial purposes, but actually, as all honourable members know- every honourable member on the other side of the House knows this very well- every year those millions of dollars are being used all the time in a continuous campaign of the big he to distort and to corrupt the views of the Australian people. This practice has to be stopped. But the Government does not propose to stop it; the Government proposes to do just the opposite. The Government proposes in this Bill, which I hope will be thrown out because it deserves to be thrown out, to still every political voice which would be opposed to the views which it puts forward and which it had the trade union megaphone to din continuously into the ears of the Australian people.

Mr RIORDAN:
Minister for Housing and Construction · Phillip · ALP

– I have listened with some interest to the statements made by the honourable member for Mackellar (Mr Wentworth) and find them to be grossly misleading, which I do not suppose will worry him too much. But let me start off with the basic premise: The honourable member says that trade union officials spend most of their time organising for the Australian Labor Party. I brand that statement as false- utterly and completely false- and beyond the honourable member’s capacity to prove. The honourable member takes the view that the trade union movement is made up of officials in a monolithic way, all of whom are members of the Labor Party. I know a person who holds a senior office in a trade union with which I used to be closely associated in one form or another and who also holds senior office in the Liberal Party. He must be very recreant indeed when he attends Australian Council of Trade Union congresses and various trade union gatherings if he does not uncover this deep seated plot that the honourable member for Mackellar has just found out about. What a remarkable thing! There has obviously been another serious leak from the Australian Security Intelligence Organisation. The honourable member for Mackellar, who in every speech that he has ever made about the trade union movement has suggested that it is completely dominated by the communists, has now discovered that it is completely dominated by fascists. What a remarkable change! Who else has heard of this dramatic event? Nobody, and I suggest that nobody really will.

I ask the House to look at this simple fact: Trade unions in Australia, or at least those trade unions which are registered under the Conciliation and Arbitration Act, are severely and strictly regulated by law. Their funds and how they shall spend them are regulated by laws of this Parliament. Each year the trade unions are required to file returns with the Commonwealth Industrial Registrar. Their funds may be spent only- and I emphasise the word ‘only’- in the pursuit of their stated objectives, which must be registered and which cannot be contrary to the provisions of the Conciliation and Arbitration Act. Any member of the Liberal Party, the National Country Party, the Communist Party, the Labor Party or any member with no Party affiliation has the right to obtain financial assistance to take action in the Industrial Court to prevent any registered union from spending money which is not within the objects of that union.

Mr Donald Cameron:
GRIFFITH, QUEENSLAND · LP

– The wool is over your eyes.

Mr RIORDAN:

– That intelligent comment coming from the honourable member for Griffith is not even up to his normal standard. The Federal law reports, and previously the Commonwealth arbitration reports, contain numerous cases where individual unionists have successfully challenged the right of a union official to spend money in one form or another. I say this to honourable members opposite: You are obsessed with what trade unions can or cannot do. What about being a bit concerned about public companies which completely misuse the funds of investors? What is to be our attitude to the campaign to which you are party in respect of the Australian Government Insurance Corporation? What are we to do about the huge sums of money that are being pilfered from policy holders and syphoned off those who are saving for their retirement to support your miserable political aims?

The whole debate strikes me as being somewhat irregular and, to say the least, somewhat unusual. The allegation is that if this law is passed and contributors to political Party funds will have to be disclosed, the Labor Party will have no difficulty getting funds but the Liberal Party will not get any. That is a remarkable assertion. It might be right; I do not know. It is not the intention of this Government. But the assumption behind the assertion is that those who contribute to the Liberal Party and the National Country Party are ashamed of it and they do not want to own up to making a contribution, or that the Liberal Party and the National Country Party are ashamed of their contributors. We on this side of the Parliament are not ashamed of anybody who makes a contribution to our funds. We do not mind that being disclosed because we have nothing to be ashamed of. Those who contribute to Labor Party funds know that there is no string to their contribution. They know that they will get no particular favour for their contribution.

I wonder whether the same is true of the Liberal Party. For example, in recent months I have been advised that the International Telephone and Telegraph organisation, which has become notorious for its infamy in political vote-buying in illicit contributions to political funds, made a very substantial donation some years ago to the Liberal Party and that that donation was made in anticipation of obtaining a contract for equipment for the Postmaster-General’s Department. That donation ran into hundreds of thousands of dollars. That organisation was justifiably upset when its Australian offshoot did not get the contract and it reacted rather sharply.

I believe that those who have nothing to hide will stand up and support this legislation. What possible opposition can there be? Why should the Australian people not know the source of political funds in this country? Those who have nothing to hide will be prepared to have an open book. This question of disclosure of contributions is becoming a very live issue in the electorate. Just less than 2 years ago, in October 1973, the then Leader of the Opposition, the right honourable member for Bruce (Mr Snedden)- all honourable members will know him; he was the leader of the fire-walkers- when speaking in this House on behalf of the Liberal Party stated, as recorded on page 2238 of Hansard of 17 October 1973:

We support legislation which provides for the disclosure of political party funds.

But in February of this year that statement was denied by his followers. Even then the writing was clearly on the wall for him. The right honourable member for Bruce apparently wanted to disclose the source of political party funds; obviously he was overruled. The right honourable gentleman was a man of integrity. He did not want to keep those hidden skeletons in the cupboard; he wanted a situation in which everybody knew. Obviously that did not suit the forces which were out to depose him, and which are now in control of the Liberal Party. They are ashamed of their contributors and their contributors are ashamed to admit that they support them.

There have been scandals throughout the world. The honourable member for Mackellar speaks of corruption. I wish he would turn his attention to some of the infamous practices of some of the international cartels, oil companies and mining corporations which operate around the world. The disclosures that have emerged from Watergate and the disclosures that have emerged from the investigations of the United States Senate committees indicate that absolutely corrupt practices have been engaged in by the companies. I suggest that they may be operating in Australia also. If they are not, it is a remarkable situation indeed. Our friends opposite want to keep the cover over it. I leave it to the House to decide their motivation.

All the abuse and smearing of the trade union movement and all the attempts to cloud this issue will fail because there is one simple, single issue. I ask honourable members opposite: Are you or are you not prepared to come clean? Are you or are you not prepared to disclose to the Australian electorate the source of your funds? Of course your rich and powerful friends will not let you; those to whom you have made promises about mining concessions and mineral concessions if you ever get back into government will not let you do it. You are in the position of captives.

The Opposition’s theme, which was first developed by the honourable member for Moreton (Mr Killen) when this legislation was previously before this Parliament, is that the legislation discriminates against the Liberal and National Country Parties. It discriminates only if their contributors are ashamed of them or if they are ashamed of their contributors. Men of integrity, men of honour, will stand up in this Parliament and say: ‘I have nothing to hide’. A man of honour would say: ‘I am prepared to disclose to my peers, to my electors, the source of my funds’. Honourable members opposite, by their behaviour earlier this year and again today are showing that they have a great deal to hide, that they have much to be ashamed of. I wish they would change their attitude, because this reform is required by the Australian electorate and is a very desirable political reform.

Mr KATTER:
Kennedy

-Mr Deputy Speaker -

Mr Nicholls:

- Mr Deputy Speaker, I propose that the question be now put.

Mr Daly:

– No.

Mr KATTER:

-May I thank the Leader of the House (Mr Daly) for recognising that there has not been one speaker from the National Country Party of Australia up to this moment. He at least apparently has a sense of democracy. Some 12 months ago I had the rather unenviable experience of being suspended from this House because I happened to point up to the coat of arms above the Speaker’s chair and suggest that the Government should take it down and put up a great red swastika. Admittedly that was not a particularly commendable action, but it appears to me that the cause of my offering that commentthat was the dictatorial attitude that has come into the Australian Labor Party- is very much in evidence in the Bill we are debating at the present time. I would say that this message is getting through loud and clear to the Australian people.

Australia generally, over the whole spectrum of political loyalties, until a few years ago was predominantly what we propose to call Labor aligned. The slide in the popularity of the Labor Party recently has been dramatic. The last gallup poll released showed that the Labor Party was attracting only 35 per cent support throughout the length and breadth of this nation, while the Opposition Parties were attracting 57 per cent support. Is anyone going to suggest for a moment that people who make up the 20 per cent lost to the Labor Party have suddenly and dramatically abandoned their working class principles? Not for one moment. On reflection, and intelligently following what is happening in this chamber and in the other place, they are beginning to detect that the present Labor Party is no longer the Labor Party to which they paid allegiance. If they had any doubts about the dictatorial attitude of the Labor Party they would do well to examine this Bill.

We have heard the Minister for Housing and Construction (Mr Riordan) say that the Party to which honourable members opposite belong is not ashamed to reveal the funds that have been made available to it. Then why in heaven ‘s name did it not tell us about the $74,000 that Rupert Murdoch made available to it? Has anyone in this House ever suggested that the Labor Party received that $74,000? Why does it not disclose the deal that it came to with Kenneth Myer? There was no secret about all this. Kenneth Myer openly supported the Labor Party. Does it make sense that a multi-millionaire should support a party that was supposedly concerned with the underprivileged and the workers? What about all the great businessmen who signed that full page advertisement that appeared in the newspapers before the 1972 election, who courageously declared that there should be a change, that there would be a new order, that we would see the business world suddenly brought to life! Suddenly brought to life indeed! It is a corpse, and this Budget has put it further in its grave.

I am speaking in this debate purely because I feel that the claims made by the Labor Party, particularly those about the National Country Party and the great funds we supposedly receive from the multinational companies, are a joke. As a matter of fact, I had cause recently overseas to have a discussion with a member of one of these multinationals in regard to something happening in my own area. He gave me a little glass paperweight and said: ‘Be very careful now. Whatever you do, don’t tell the Labor Party about this or you may be accused of receiving some sort of remuneration’. Quite honestly, I did not know whether I should accept the paperweight or not. It was not worth the $25,000 that each of us was supposed to have received. So this nonsense goes on.

There has been a lot of discussion here today which has stressed the fact that unions levy themselves to provide funds for the Australian Labor Party. This is common knowledge. I do not know why the Minister for Housing and Construction became so disturbed about all this because he knows the facts as well as I do. I have a particular advantage in this matter because I have been on the executive of 3 unions. I have attended a Trades and Labour congress as a fully accredited delegate and so I have had some opportunity, because I was a very dedicated member of the Australian Labor Party when it was the genuine Labor Party, of knowing something of what occurs in these matters. I will not deal with that now, but some day I am going to kiss and tell. Do honourable members know the story about kiss and tell? The time for that has not arrived but, sufficiently provoked, one day I may give one of the people in the Press Gallery a story he will probably use. It could be very interesting. But this I can say: There is an illusion on the part of honourable members opposite that the heavens opened up and God came down and said: ‘Unless you have “ALP” after your name you could not possibly be concerned with the underprivileged, people who are in need. You just are not concerned’. Of course He did not say that. I know He did not say that. When I went over to Singapore in the Concorde I looked out the window when we were at 60 000 feet and He was not there, but I did communicate with Him, and He did not say this at all.

The point I want to bring out is that the whole of this concept that the union movement and unionists are dedicated Labor people is the greatest farce of all time. Let me tell honourable members why. Recently in my own city of Mount Isa we held a rally to change the name of my Party.

Mr DEPUTY SPEAKER (Mr Innes:
MELBOURNE, VICTORIA

-Order! The honourable member has been straying very wide of the mark. He has not referred to the Bill in any shape or form. I have given him a lot of latitude, but I would like him to concentrate on some specific aspects of the Bill.

Mr KATTER:

-Mr Deputy Speaker, may I point out that the point I am trying to stress is the fact, as has been stressed by previous speakers, that there is this reservoir of funds available to the Government through the unions- and that is the levies that are applying. What I am trying to point out is that this source of funds could well be running dry. What I would like to say and what I intended to say when I rose to my feet is that not for a moment do any of us on the Opposition side of the House disagree with the proposition that a review of the legislation relating to elections and the raising of election funds should most certainly be examined. Mr Deputy Speaker, you might have noticed that I stumbled there. I am trying to avoid the word that is used so frequently by the Labor Party, and that is ‘reform ‘, but I say that the legislation should be reexamined. Do not hesitate to correct me, Mr Deputy Speaker.

Mr DEPUTY SPEAKER:

-I certainly will not. I will never hesitate.

Mr KATTER:

– I have the utmost respect for you, Sir, because I have not been involved in the union movement to the same extent as you have. I would like to say that there has been a change in attitude. Only recently in the city of Mt Isa the new president of the electorate council- a Mr Big in a particular area in the National Party- was announced and he is an underground worker. That may shatter honourable members opposite a little. I will go a bit further. We have formed an industrial branch of the National Party in a place called Pentland. Anyone can telephone and ask for the president and they will find that he is a meat worker. That is going to worry honourable members opposite a bit too. It has been said that meat workers were a pack of corns. I think that six of the 7 members of the executive are all meat workers. This is a branch of the National Party, so boys you are in real trouble. You may have a lot of difficulty from now on in getting levies.

I think that this Bill personifies the very substance of what is worrying the Australian people. Above all they cherish their freedoms. They cherish the freedom to go broke if they wish. They cherish the freedom to go to the doctor of their own choice. They cherish the freedom to make voluntary contributions if they so wish. They have detected something in tins Government’s policies. I sympathise with many people on the other side of the House, including the Minister for Housing and Construction for whom I have a great deal of respect. I sympathise with the Leader of the House because I think in his heart of hearts he could not accept -

Mr Adermann:

– He has not got a heart.

Mr KATTER:

– Yes, but he does have something in place of a heart. I do feel that something ticks over and he must say to himself: ‘God, this is not the Party to which I contributed 50 years ago when I was a young man of 25 years’. I am sure this does occur to rum and that he becomes most unhappy. The whole structure of the Australian Labor Party has been shaken to its foundations by its very own actions such as those contained in this Bill. The Labor Party wants to apply some sort of restriction which would be effective against us but which would have little effect on itself. I have a lot of notes here and I would like to have spoken for my full time but because of the indulgence of the Leader of the House who permitted me to speak at all I will conclude on this note: Do not let the Labor Party try to inflict on us restrictions such as a ball and chain with which it would have no part because its source of funds is strictly under its own jack boot type of control.

Mr MORRIS:
Shortland

-We have heard at best a good deal of irrelevance from members on the Opposition side in relation to this legislation but I would like to pick up probably the singular point that the honourable member for Kennedy (Mr Katter) mentioned and that was freedom. That is really what this legislation is all about. He said he cherished freedom. All Australians cherish freedom. I know that the poultry farmers who would like to run more fowls and produce more eggs in New South Wales are being fined because -

Mr Bourchier:

– They are now licensed.

Mr MORRIS:

– Or course they are licensed. The New South Wales Liberal-Country Party Government licensed them. Where is the freedom of the poultry farmer? Where is the freedom of the dairy farmer who wants to produce milk and sell milk? They wanted to gaol one fellow in New South Wales a few months ago for selling or producing milk.

Mr Daly:

-Not the Liberal-Country Party?

Mr MORRIS:

– The Liberal-Country Party. These are the people who talk about freedom. What about the wheat farmer? He cherishes freedom too. What about the quotas which a Liberal-Country Party Government put on his production and said: ‘No, you cannot plant wheat. You will market the wheat the way we say that you can market it.’ What about his freedom to follow the occupation of his individual choice? What about his personal rights as a citizen? That is really what this legislation is all about- ensuring the freedom of political opportunity. It is about removing the financial barriers that were set by those who now sit opposite and induced by those who sit opposite to prevent the ordinary citizen, the ordinary Australian, from participating in a parliamentary process. They know as well as we know, as well as all thinking Australians know, that without some kind of financial backing for campaign funds one cannot participate in an election campaign with some hope of success. They created the situation. The electoral laws that they created and superintended for 23 years brought about the present situation and the most minor move to try to improve that opportunity, that equality, is opposed by them in every respect. Every type of legislation to reform the electoral system which has been put forward has been opposed by the

Opposition Parties, For a member of the National Country Party to stand and speak about cherishing freedom is to me so much hollow hypocrisy. They have denied freedom to so many people, to so many citizens during their tenure in office and they will continue to deny freedom.

All this Bill seeks to do is to provide for the public examination of the sources of campaign funds for political parties. What is wrong with that? Is there something terrible about people knowing this? Are the public not entitled to know where the funds that go into electoral campaigns come from? I can only reiterate the point made by the Minister for Housing and Construction (Mr Riordan). Either the Opposition Parties are ashamed to reveal the source of their campaign funds or their donors are ashamed to reveal their connection with them. Or is the reason more likely to be the one that was brought forward by the honourable member for Gwydir (Mr Hunt) in this House on 13 February 1975 when, in relation to this Bill, he is reported at page 295 of Hansard to have said:

If this Bill becomes law it will tend to reduce the level of financial support to political parties especially from those donors who would wish to remain anonymous. It would more seriously affect the Liberal and Country Parties than it would the Labor Party. Let us be frank about this.

Why do donors wish to remain anonymous? What are the pressures being exerted upon the Liberal-Country Parties? Let us consider the proposed Australian Government Insurance Corporation. Who was connected with the Australian Mutual Provident Society? Who is using the facilities of the AMP? None other than the National Country Party. They are the people who are utilising the services of the policy holders- the citizens of Australia who are paying the premiums- to support the campaigns of the National Country Party or the Liberal Party. Is this the kind of freedom the honourable member for Kennedy is talking about? Has he some other definition that applies only to the LiberalCountry Party coalition?

As recently as yesterday there was a report in the Financial Review referring to the director of the Queensland National Party campaign who came out with a statement that it wishes to raise $1m. This is the National Party of Queensland. The law that operates is a law that was brought into operation by the people that he would be supporting in an election campaign. The law permits expenditure of $500 a candidate but here is a responsible organiser in the Country Party saying ‘We want $1m’. I do not know how many times one divides $1m to get $500 a head, but that is law and order for the National Country Party. I move to the Liberal Party and refer to a letter from the Liberal Party of Australia, New South Wales division, Western Metropolitan Region, dated 1 1 September 1974. It reads:

Dear Sir.

Re: The Survival of the Liberal Party

The Industrial, Business and Professional Communities are facing mounting financial problems and possible collapse- so is the Liberal Party.

Frankly, the stark position of the Liberal Party is that it must raise $5,000 within the Western Metropolitan Region in conjunction with similar fund raising efforts throughout New South Wales or collapse.

The letter is signed by M. E. Lajovic. I turn now to the Leader of the Country Party (Mr Anthony) who sent a letter dated April 1974 to one of my constituents. This letter was mentioned by the Minister for Services and Property (Mr Daly) on earlier occasions. In this letter the Leader of the Country Party mentioned that the Opposition was facing the greatest electoral battle in its history- an unsuccessful electoral battle. I will not read the letter. I will simply read the postscript to refute the contributions of earlier speakers from the other side of the House. It reads:

You may be interested to know donations so far from the Mining Industry vary from amounts of $500 to $5,000.

Yours faithfully,

D.ANTHONY

So let me put paid to the suggestions from honourable members opposite that they do not know the source of their funds or they do not want to disclose it.

Finally, the point made by the honourable member for Mackellar (Mr Wentworth) about fascist principles had a great deal of pertinence to the debate because here today operating in the private sector of the community is the exact thing about which he complained- the moguls of the insurance industry coercing employees in the industry into signing petitions, writing innocuous letters, giving their time and utilising policy holders’ money to promote the political causes of those who sit opposite. The Bill seeks only to ensure that the public of Australia know where political funds come from and that Australians have a much better level of opportunity- in short, equal political opportunity for all Australians. I commend the Bill to the House.

Question put.

The House divided. (Mr Speaker-Hon. G. G. D. Scholes)

AYES: 58

NOES: 54

Majority……. 4

AYES

NOES

Question so resolved in the affirmative.

Bill read a second time.

Third Reading

Leave granted for third reading to be moved forthwith.

Bill (on motion by Mr Daly) read a third time.

Sitting suspended from 12.59 to 2.15 p.m.

page 282

OMBUDSMAN BILL 1975

In Committee

Consideration resumed from 5 June 1975.

Clause 9.

The CHAIRMAN (Dr Jenkins:
SCULLIN, VICTORIA

-Order! The Committee is considering clause 9 and circulated amendments Nos 1 (a), 8 and 9 moved by the Attorney-General on 5 June 1 975.

Amendments agreed to.

Clause, as amended, agreed to.

Clause 10.

Where-

  1. under an enactment, a person has a power to do an act or thing in the exercise of a discretion or otherwise;
  2. there is no enactment that prescribes a period within which the person is required to do or refuse to do the act or thing:
  3. an enactment provides that application may be made to the Administrative Appeals Tribunal for the review of decisions made in the exercise of that power; and
  4. a complaint has been made to the Ombudsman concerning a failure to do the act or thing in the exercise of that power, the Ombudsman, after having investigated the complaint, may, if he is of the opinion that there has been unreasonable delay in deciding whether to do the act or thing, grant to the complainant a certificate certifying, that, in the opinion of the Ombudsman, there has been unreasonable delay in deciding whether to do the act or thing and, if the Ombudsman does so, the person required or permitted to exercise the power, shall, for the purpose of enabling application to be made to the Administrative Appeals Tribunal under the enactment referred to in paragraph (c), be deemed to have made, on the date on which the certificate is granted, a decision, in the exercise of that power, not to do the act or thing.
Mr ENDERBY:
CanberraAttorneyGeneral · ALP

– I move:

Add at the end of the clause the following sub-clause:-

Where a board, committee or other unincorporated body constituted by 2 or more persons is empowered by an enactment to make decisions, sub-section ( 1 ) applies as if the board, committee or other body were a person empowered to make those decisions.’.

The purpose of this amendment is to insert a new sub-clause (2) to make it clear that clause 10 applies to the actions of a board, committee or other unincorporated body as well as to the actions of a body corporate or an individual person. I do not think it is necessary for me to say any more than that on the subject. I understand that the Opposition consents to this amendment.

Amendment agreed to.

Clause, as amended, agreed to.

Clauses 11 to 13- by leave- taken together, and agreed to.

Clause 14.

  1. Before entering any premises occupied by a Department or prescribed authority, an authorized person shall inform the principal officer of the Department or authority of his intention to enter the premises.
  2. An authorized person is not entitled, by virtue of this section, to inspect documents on premises occupied by a Department or a prescribed authority except by arrangement with the principal officer of the Department or prescribed authority.
  3. A reference under this section to an authorized person includes a reference to the Ombudsman and a Deputy Ombudsman.
The CHAIRMAN:

– Order! I note that the Attorney-General has 2 amendments circulated in his name to clause 14. It may be convenient for the Committee to consider those amendments together.

Mr Enderby:

– With the agreement of my good friend, I would adopt that suggestion.

The CHAIRMAN:

– Is that suggestion agreed to?

Mr Howard:

– Yes.

Mr ENDERBY:
CanberraAttorneyGeneral · ALP

– I move:

In sub-clause (3) after ‘entering’ insert, ‘, for the purposes of an investigation under this Act, .

Leave out sub-clause (4), substitute the following subclauses:

For the purposes of an investigation under this Act, an authorized person is’ entitled to inspect any documents relevant to the investigation kept at premises entered by him under this section, other than documents in respect of which a Minister has furnished a certificate under sub-section 9(3), at a reasonable time of the day arranged with the principal officer of the Department or prescribed authority concerned. (4a) Sub-section (4) shall not be taken to restrict the operation of section 9. ‘.

The first of my amendments relates to sub-clause (3) of clause 14 which requires an authorised person to inform the principal officer of a department or a prescribed authority of his intention to enter premises occupied by the department or the prescribed authority. It was intended that this would apply only where the entry is to be made for the purposes of an investigation under the Act. The proposed amendment would make this intention explicit.

As to the second amendment, I need only say that sub-clause (4) of clause 14, which would require an authorised person conducting an investigation on the premises of a department or prescribed authority to arrange with the principal officer of the department or authority for the inspection of documents on those premises, was intended to ensure that there was no undue interference with the normal working of the department or the authority and to give an opportunity for a Minister’s certificate to be obtained in respect of any classified documents that ought not to be produced to the ombudsman. On reflection, and as drafted, it seemed it could have the effect that the ombudsman could not inspect any documents except with consent. That could well produce, in a theoretically remote situation perhaps, a veto situation, which no one would want. No State ombudsman is subject to such a restriction. The sub-clause has been criticised as an undue limitation on the powers of the ombudsman. The proposed amendment is intended to give effect to the original intention.

Amendments agreed to.

Clause, as amended, agreed to.

Clauses 15 to 18- by leave- taken together, and agreed to.

Clause 19.

  1. The first reports under this section shall be submitted as soon as practicable after 30 June 197S, and shall relate to the operations of the Ombudsman during the period that commenced at the commencement of this Act and ended on that date.
  2. Where the Ombudsman refers in a report prepared by him in pursuance of sub-section ( 1 ) to an investigation made by him under this Act, the Ombudsman shall not, in referring to the investigation, set out opinions that are, either expressly or impliedly, critical of a Department, prescribed authority or person unless the Ombudsman had complied with subsection 8 (5) in relation to the investigation.
Mr ENDERBY:
CanberraAttorneyGeneral · ALP

-I move:

In sub-clause ( 5 ) leave out “1975”, substitute “ 1 976 “.

Honourable members will see that this amendment seeks to substitute ‘ 1 976 ‘ for ‘ 1 975 ‘, which is a consequence of the passage of dme.

Amendment agreed to.

Clause, as amended, agreed to.

Mr ENDERBY:
CanberraAttorneyGeneral · ALP

– I now move:

After clause 1 9 insert the following clause in Part II: - 1 9a. ( 1 ) The Ombudsman may, from time to time, submit to the Minister, for presentation to the Parliament, a report of the operations of the Ombudsman during a part of a year or a report concerning a particular investigation or particular investigations carried out under this Act.

The Ombudsman shall not, in a report submitted to the Minister under sub-section (1), refer to an investigation in relation to which he has made a report in accordance with sub-section IS (2) unless he is of the opinion that action that is adequate and appropriate in the circumstances has been taken with respect to the matters and recommendations included in that report.

The Minister shall cause a report submitted to him under sub-section (1) to be laid before each House of the Parliament within 15 sitting days of that House after its receipt by the Minister.

Where an Ombudsman refers in a report submitted under sub-section ( 1) to an investigation made by him under this Act, the Ombudsman shall not, in referring to the investigation, set out opinions that are, either expressly or impliedly, critical of a Department, prescribed authority or person unless the Ombudsman has complied with subsection 8 ( 5 ) in relation to the investigation. ‘.

Proposed new clause agreed to.

Clause 20 agreed to.

Clause 21.

  1. 1 ) An Ombudsman shall be appointed by the GovernorGeneral.
  2. An Ombudsman holds office on such terms and conditions (if any) in respect to matters not provided for in this Act as are determined by the Governor-General.
Mr HOWARD:
Bennelong

-With the concurrence of the Committee, I will move together the 2 amendments that I propose to clause 21. 1 move:

At the end of sub-clause ( 1 ) add: “but shall not be appointed until each House of the Parliament has approved of the proposed appointment”.

In sub-clause (2) omit “determined by the GovernorGeneral”, substitute “prescribed”.

I understand from the Attorney-General (Mr Enderby) that the Government has no objection to my second amendment which is to sub-clause (2) and which seeks to omit the words ‘determined by the Governor-General’ and substitute the word ‘prescribed’. My first amendment which seeks to add a proviso at the end of subclause ( 1 ) of clause 2 1 as it is presently drafted, is to the effect that the appointment of the ombudsman shall not be effective until such time as both Houses of the Parliament have approved the appointment. I appreciate the amendment might be met with the objection that it is normally the responsibility of the Executive to appoint persons to positions of this nature, and that argument I accept in most cases. The ombudsman does have a special role in relation to this Parliament. The ombudsman is obliged to report to this Parliament. The ombudsman in many respects is answerable to this Parliament. The establishment of the office of the ombudsman is meant in many ways to complement the role of this Parliament. In that respect, the appointment of the ombudsman can be distinguished from the appointment of other persons holding equally responsible positions. If indeed, the Parliament after the appointment of an ombudsman is to continue to have a creative interest in the activities of the ombudsman, I think that process will be aided if Parliament has the authority to vet the appointment of the ombudsman made and determined by the Executive. The purpose of having an Administrative Appeals Tribunal and an ombudsman is to emphasise that discretions of the Government are open to review. What better way to confirm that process than to give to the Parliament of the country a role in the appointment of the person who is to fill the position of ombudsman. I hope that the Government might see its way clear to accept that amendment.

The CHAIRMAN (Dr Jenkins:

-Before calling the Minister, I ask him: Are we taking these 2 amendments together? I understood that there was some general agreement. If there is not, I will have to put separate questions.

Mr Enderby:

– I indicate that the Government will accept amendment No. 5 proposed by the

Opposition, as indicated by my friend the honourable member for Bennelong, but oppose amendment No. 4.

Mr ELLICOTT:
Wentworth

-I rise to support amendment No. 4 which apparently the Government is opposing. When the Kerr Committee considered the office of ombudsman it came up with an office called the General Counsel for Grievances. That General Counsel was recommended on the basis that he would operate in an administrative or executive context. Now the Government in its wisdom has chosen not to follow that course and has rather seen the ombudsman- really, the General Counsel for Grievances was just another name for a type of ombudsman- as a person operating in the parliamentary role. Therefore it is tremendously important that if he is to operate in this parliamentary context he should be a person in whom the Parliament has confidence. In a sense, although he is not an officer of the Parliament he is a person who should have the respect of Parliament. Parliament should feel that he is well and truly part of the role of Parliament, inquiring into the actions of the Executive.

If that is so, that is a very good reason for either having the ombudsman appointed by Parliament or having his appointment approved by Parliament. It is on that basis that the Opposition has approached the matter. When this matter was dealt with by the Bland Committee it described the qualities of an ombudsman in these rather broad terms:

Finding the right man for the Ombudsman post could well prove even more difficult than drawing the legislation constituting his office and detailing his powers and functions. He must not see himself as the scourge of departments, a super administrator or a super censor, nor attempt to usurp the role of Parliament. Nor imagine himself the donee of some God given capabilities to reach a more ‘right’ conclusion than that under review. He has no role permitting him to take over the responsibilities of departments; he must never forget that accountability, particularly financial accountability, remains with them and their Ministers nor that political accountability rests with Ministers. While he has a role akin to that of an auditor, he must be on the lookout for means of removing grievances through improved procedures. He will rarely be m a position to halt departmental processes: he will generally deal with matters ex post facto. While his dedication to the protection of the rights of the citizen and the attainment by eligible persons of their entitlements under the law must be indubitable, he can be no policy maker or social reformer in his own cast.

He must have great humility and be devoid of prejudices and convictions: his role is to draw attention to defects in process and questionable decisions, not to make fresh decisions however much he may prefer alternatives.

I have taken the trouble to quote that paragraph, not because I agree with it but because I fear that the Government might follow it. If one were to try to find an ombudsman who had all those negative characteristics, I suggest he would be a squib. I am concerned that the Government might take that sort of description of the ombudsman into account when it comes to find the gentleman or the lady to occupy the position. Therefore I suggest that there is every reason to have the ombudsman approved by Parliament not only on the grounds of it being proper in the parliamentary context but also on the need for Parliament to be sure that the person does have the requisite bulldog qualities which are necessary in a true ombudsman. True, he must have tact. It is true that he must have administrative knowledge and capacity. Yet he must stand for the citizen. He must see his role as investigatory and remedial. He must be a person who stands above question and who has the complete confidence of both Houses of Parliament. I strongly urge the Attorney-General (Mr Enderby) to reconsider the matter. If he does not see fit to approve of the amendment here then I suggest that he give it some further reconsideration before the Bill comes before the Senate.

Mr ENDERBY:
CanberraAttorneyGeneral · ALP

– As I indicated before, the Goverment, cannot accept amendment No. 4 which has been proposed by the Opposition, notwithstanding the attempts by both previous speakers, that is the honourable member for Bennelong (Mr Howard) and the honourable member for Wentworth (Mr Ellicott), to persuade us to do so. We suggest that the principle is quite wrong and that it would be quite unworkable. I listened with great interest to the description of the parliamentary context in which an ombudsman would operate. I found myself not disagreeing with anything which I heard the honourable member for Bennelong say. But I also found myself thinking that judges, High Court judges and all manner of appointments are properly the responsibility of governments. If governments fail in that responsibility they are answerable here. I also had to remind myself, prompted by what the honourable member for Wentworth said, that one has to bear in mind the nature of party politics.

I suggest to the honourable member with the greatest respect that it would be asking too much of a Senate, an Upper House divided as it is at certain times in a nation’s history and often under the control- if I may say this- of an alliance of influences with Opposition and independent senators holding views which are not reflected in the House of Representatives. The appointment of such a serious or important position as ombudsman could become a plaything of party politics and could be abused. I do not want to turn the debate on this matter into a party harangue. I think that would be quite wrong. I invite both honourable gentlemen to reflect on how such a situation could be abused by party politics in the other place. I put to the honourable gentlemen: What would happen if the House of Representatives took a view about candidate A and the Senate took a view different from that and put forward candidate B? How would that difference of opinion be resolved according to the amendment which the Opposition has proposed? It would be a deadlock and we would not have an ombudsman.

Surely the correct principle to apply is the time-honoured one that governments appoint people to fill positions of this sort. If the government of the day does not appoint proper people it is rightly criticised. It is answerable here. Do not take away that position and give it to something which, in a nebulous way, is called the Parliament when behind the Parliament rests a whole range of competing influences which often are the result of party factions and differences. I say to the honourable member for Wentworth that the Government certainly will take into account his description of the qualities required of an ombudsman. We certainly do not want a damp squib. As he will appreciate we have already put a lot of thought into the question of who might be a proper appointee. There is no doubt that this Bill will become law in one form or another in the not too distant future. It is a matter of considerable concern to us that he should be the right person, man or woman. Surely it is the responsibility of government- not the responsibility of either House of Parliament, with all the interminable disputes which we know only too well, to our dismay, can take place between both Houses.

The CHAIRMAN:

– The question is: At the end of sub-clause (1) add: ‘but shall not be appointed until each House of the Parliament has approved of the proposed appointment’.

Amendment negatived.

Mr HOWARD:
Bennelong

– I move:

Omit ‘determined by the Governor-General’, substitute prescribed’.

I have already explained the basis of this amendment to the Committee.

Amendment agreed to.

Clause, as amended, agreed to.

Clause 22 agreed to.

Clause 23.

  1. The Deputy Ombudsman Tor the Australian Capital Territory has all the powers, and may exercise all the functions, of the Australian Ombudsman in relation to action taken by a Department or by a prescribed authority in the Australian Capital Territory, except the power to report to the Parliament under section 1 7.
  2. The Deputy Ombudsman for the Northern Territory has all the powers, and may exercise all the functions, of the Australian Ombudsman in relation to action taken by a Department or by a prescribed authority in the Northern Territory, except the power to report to the Parliament under section 17 and the power to report to the Legislative Assembly of the Northern Territory under sub-section 18(5).
  3. Nothing in this section prevents the exercise of a power or the performance of a function by the Australian Ombudsman.
Mr ENDERBY:
CanberraAttorneyGeneral · ALP

– Amendments No.15 and No. 16 circulated in my name are both consequential upon the insertion of the new clause 1 9a.

The CHAIRMAN (Dr Jenkins:

-I suggest that perhaps both amendments could be moved together, by agreement. There being no objection, that course will be followed.

Mr ENDERBY:

– I move:

At the end of sub-clause (2) add ‘or 19a’.

In sub-clause ( 3 ) after ‘ 1 7 ‘ add ‘or 1 9a ‘.

I need say no more about these amendments.

Amendments agreed to.

Clause, as amended, agreed to.

Clauses 24 to 32- by leave- taken together, and agreed to.

Clause 33.

  1. Subject to the jurisdiction of the High Court under paragraph 75 (v) of the Constitution, an investigation under this Act, a report or recommendation of the Ombudsman under this Act and an act done by the Ombudsman in connexion with such an investigation-

    1. shall not be challenged, appealed against, reviewed, quashed or called in question in any court; and
    2. is not subject to prohibition or injunction in any court, except on the ground that it is not authorized by this Act.
Mr HOWARD:
Bennelong

-I move:

Omit sub-clause (1).

This amendment seeks to delete from clause 33 the whole of sub-clause (1). I understand that the Government may be receptive to this amendment. I think the purpose of the amendment, on reading sub-clause (1), is self explanatory. The Opposition takes the view that the protection afforded to the Ombudsman or persons acting under the direction of the Ombudsman in subclause (2) is sufficient and that the correct protection that should be given in the circumstances is amply contained and that there is in effect no reason why the type of protection which was contemplated in sub-clause (1) should be afforded and that that sub-clause should be deleted.

Mr ENDERBY:
CanberraAttorneyGeneral · ALP

– The Government will not oppose this amendment. But in saying that I say it with no great degree of enthusiasm. It is an arguable point. We try to be realists and appreciate the situation that developed in the Senate with regard to the Administrative Appeals Tribunal Bill where a similar move succeeded. But the Government does not have any strong views on the matter. Probably I would lean towards leaving in sub-clause (1). I certainly do not feel sufficiently about the amendment to oppose it. One is driven back to this thought: If we have the right Ombudsman- we will certainly try hard to have the right person in that position- we have to give him a great degree of independence. We think on balance that is the position. We will not oppose the amendment.

Amendment agreed to.

Clause 33, as amended, agreed to.

Clause 34.

  1. 1 ) The Ombudsman may, by instrument in writing, delegate to a Deputy Ombudsman, to a member of the staff referred to in sub-section 31 (1) or, with the consent of the Minister, to any other person any of his powers under this Act, except this power of delegation or the power to report under section 15, 16, 17, 18 or 19.
Mr ENDERBY:
CanberraAttorneyGeneral · ALP

-I move:

In sub-clause ( 1 ) leave out ‘ 1 8 or 1 9 ‘, substitute ‘18, 1 9 or 19A’.

This amendment is consequential upon the earlier amendments I moved, I think Nos. 14 and 15, which are consequential upon the insertion of a new clause 19a.

Amendment agreed to.

Clause as amended, agreed to.

Clause 35.

  1. 1 ) In this section, ‘officer’ means-

    1. the Australian Ombudsman;
    2. a Deputy Australian Ombudsman;
    3. a person who is a member of the staff referred to in sub-section 3 1 ( 1 ); or
    4. a person, not being a person referred to in paragraph (b) or (c) to whom the Australian Ombudsman has delegated any of his powers under section 34.

  2. Subject to this section, an officer shall not, either directly or indirectly, except in the performance of his duty as an officer, and either while he is, or after he ceases to be, an officer, make a record of, or divulge or communicate to any person, any information acquired by him by reason of his being an officer, being information that was disclosed or obtained under the provisions of this Act.

Penalty: S500.

  1. Where a Minister furnishes to the Ombudsman a certificate in writing certifying that-

    1. the disclosure of information or documents concerning a specified matter or matters included in a specified class of matters; or
    2. the disclosure of a specified document or of documents included in a specified class of documents, would be prejudicial to the defence or security of Australia or would otherwise be contrary to the public interest, an officer shall not, either directly or indirectly and either while he is, or after he ceases to be, an officer, except as provided in subsection (5)-
    3. divulge or communicate to any person any information acquired by him under the provisions of this Act concerning such a matter or such a document;
    4. ) divulge or communicate any of the contents of such a document to any person; or
    5. furnish such a document, or a copy of, or an extract from, such a document, to any person.

Penalty: Imprisonment for 2 years.

Mr ENDERBY:
CanberraAttorneyGeneral · ALP

- Mr Chairman, I have 3 amendments to clause 35 circulated in my name. If it is appropriate I shall move them all together.

The CHAIRMAN (Dr Jenkins:

-I think it is a matter of whether you have reached any agreement with the Opposition.

Mr ENDERBY:

– I do not think they will be opposed by the Opposition. Therefore, I seek leave to move them together.

The CHAIRMAN:

– Is leave granted? There being no objection, leave is granted.

Mr ENDERBY:
ALP

-I move:

In sub-clause ( I ) add to the end of paragraph (d ) ‘or who is an authorised person’.

In sub-clause (2) leave out ‘except in the performance of his duty as an officer, ‘.

After sub-clause (2), insert the following sub-clause: (2a) Sub-section (2) does not prevent an officer-

from making a record of, or divulging or communicating to any person, information acquired by him in the performance of his duties as an officer and for purposes connected with the performance of the functions of the Ombudsman under this Act; or

from divulging or communicating information to a person-

if the information was furnished by an officer of a Department or prescribed authority in the performance of his duties as such an officer- with the consent of the principal officer of the Department or authority or of the responsible Minister; or

if the information was furnished by a person otherwise than as set out in sub-paragraph (i)- with the consent of the person who furnished the information. ‘.

Amendment No. 18, that is the first amendment to clause 35, relates to a clause which imposes a duty of secrecy. In its original form it was not comprehensive enough. It was intended to apply to all persons who were entitled under the Act to access to documents or other information. As drafted it does not extend to all persons who may be authorised to enter premises and conduct an investigation under clause 14 of the Bill. The amendment is designed to correct this deficiency.

Speaking briefly to amendment No. 19, the obligation of secrecy imposed by sub-clause (2) of clause 35 of the Bill has been criticised as leaving it uncertain whether the Ombudsman may disclose any information he obtained otherwise than where the Bill imposes on him a duty to do so as, for example, where he has a discretion to make a report. This amendment and the following amendment are designed to maintain the general obligation of secrecy but to make it clear that it does not prevent the disclosure of information for the purposes of the Ombudsman carrying out his functions under the Bill. The amendments do not affect the strict duty to maintain secrecy in respect of matters referred to in a certificate of a Minister given in accordance with subclause (4) of clause 35. Amendment No. 20 inserts new sub-clause (2a). I think it speaks for itself.

The CHAIRMAN:

-We are dealing with amendments 18, 19 and 20. There is an additional amendment circulated in the name of the Minister. Has that been circulated generally?

Mr ENDERBY:

– I understand so, Mr Chairman.

Mr Howard:

– Just by way of explanation, we are dealing with amendments 18, 19 and 20, not the amendment just circulated?

The CHAIRMAN:

– We are dealing with amendments Nos. 18, 19 and 20.

Amendments agreed to.

Mr ENDERBY:
CanberraAttorneyGeneral · ALP

– I move:

The amendment circulated by the honourable member for Bennelong (Mr Howard) would delete the words ‘or would otherwise be contrary to the public interest’. The Government opposes that because it takes the view that that would leave the whole issue very much at large- far too much at large. The Government recognises also, of course, that some compromise is perhaps appropriate. It is for that reason that the Government has moved its own amendment which would take out the words ‘would be prejudicial to the defence or security of Australia or would otherwise’ and substitute the words ‘for a reason specified in the certificate’. The reasons for this amendment were referred to when we dealt with sub-clause (6) of clause 9. If one examines that clause one will find that we have inserted the test in that clause. In that way, we hope that we have achieved some degree of consistency and have improved the Bill as a whole.

Mr HOWARD:
Bennelong

-The Opposition accepts the compromise proposed by the Attorney-General (Mr Enderby). I think it is obviously sensible to have this clause on the same basis as clause 9. The Opposition is agreeable to that course being followed.

Amendment agreed to.

Clause, as amended, agreed to.

Clause 36 agreed to.

Proposed new clause 36a.

Mr ENDERBY:
CanberraAttorneyGeneral · ALP

-I move:

The members of the Committee will recall that we deleted sub-clause (6) of clause 9. That was done for the reasons given at the time. I indicated at that stage that the Government would be seeking to insert proposed new clause 36a. Many criticisms were directed at sub-clause (6) of clause 9. One of those criticisms was that it would be restricted to a person attending before the Ombudsman, much as a person attends before a court on subpoena. It would attract only the circumstances described in clause 9(6) where there was an element of compulsion. It was certainly desired to give wider protection rather than have the narrow situation where there was compulsory attendance dependent upon a subpoena. For that reason the Government has moved proposed new clause 36A to take the place of clause 9(6). It seems to me to be straightforward.

Mr HOWARD:
Bennelong

-The Opposition will not oppose the insertion of this clause. We do enter a caution that perhaps in the light of experience in the operation of the Act it may well be found that the ambit of this new clause is too wide and that some persons may unreasonably suffer as the result of the making of malicious, frivolous or careless complaints. Whilst I accept the proposition of the AttorneyGeneral (Mr Enderby) that it is necessary to have protection of this kind in the Act and that the original clause 9 (6) was not the appropriate way of doing it, we do see some potential dangers in the wording of the new clause. Whilst we will not oppose the insertion of the proposed new clause we hope this particular matter will be kept under very careful review and that the appropriate person might in the future amend it if any damage is done.

Mr ENDERBY:
CanberraAttorneyGeneral · ALP

– Perhaps I could respond to what my friend, the honourable member for Bennelong (Mr Howard) has said. This Government obviously will keep the working of the Bill- or the Act, as it will be- under close review. It is an innovation to have an ombudsman system operating in Australia at the federal level. I have no doubt that there will be reasons for amendments with the passage of time and with the accumulation of experience. It is consistent with our intention to give the office of Ombudsman a very high status in the country that a clause such as proposed new clause 36a should be included in the Bill. If we do not have a clause like 36a and we do not have men and women of the highest calibre filling the role of Ombudsman then that office will not have the status that it should have and it will not be listened to with the respect that it should attract.

Proposed new clause agreed to.

Remainder of Bill- by leave- taken as a whole, and agreed to.

Bill, as amended, agreed to.

Bill reported with amendments; report- by leave- adopted.

Third Reading

Bill (on motion by Mr Enderby)- by leaveread a third time.

page 289

FOREIGN TAKEOVERS BILL 1975

Second Reading

Debate resumed from 22 May on motion by Mr Stewart:

That the Bill be now read a second time.

Mr LYNCH:
Flinders

-The Bill seeks to extend the ambit of the Companies (Foreign Take-overs) Act which, as the House will recall, was introduced by the former Government in 1972. The House will also recall that legislation was enacted following a detailed White Paper on foreign investment prepared by the Treasury and a major policy statement delivered in this House by the former Prime Minister on 26 September 1972. The Act, as was made clear at that time, was interim legislation designed to permit the Government to prevent take-overs contrary to the national interest. It was the announced intention of the former Government to introduce a complementary Bill in 1973 to establish an independent authority to advise the Government and to widen the coverage of the legislation.

In spite of the fact that the Act was introduced as an interim measure, it has been extended on 2 occasions by the present Government. In other words, a temporary measure in a significant area of public policy has been permitted by this Government to apply without amendment for more than Vh years. In his 1972 policy speech the Prime Minister (Mr Whitlam) claimed that it was ‘time to stop the great take-over of Australia’. He made the following commitment:

The protection of Australian enterprises against foreign takeover can only be achieved by explicit Government policy. We will establish a secretariat to report to the Government on all matters concerning the flow of foreign investment and of substantial takeovers and mergers.

The legislation before the House, 2Vi years after that initial statement, does not establish the secretariat foreshadowed by the Prime Minister nor is the legislation of such complexity that the delay can be explained satisfactorily. On 27 November 1973 the former Treasurer, Mr Crean, made the following statement to this House:

We are now in a position to identify essential requirements of reasonably effective legislation and work is in progress with a view to introduction of new legislation into the House.

In her speech on 28 February 1974 Her Majesty the Queen stated quite explicitly:

The Companies (Foreign Takeovers) Act will be repealed.

The Prime Minister, in his April 1974 policy speech, had this to say:

The Government will proceed with the further definition of guidelines for foreign investment and will extend the present systems of surveillance and review into a general screening process of foreign takeovers and new direct foreign investment. This screening process under the co-ordination of the Treasurer will seek to develop performance guidelines particularly in the areas of export franchises, research and development, licensing of technology, purchasing policies, and tax avoidance.

Notwithstanding the Prime Minister’s policy commitment the Act was again extended in December 1974 without amendment. Despite the public posturings by the Labor Party as to its alleged concern with the question of foreign investment, particularly the takeover of Australian companies by foreign interests, legislation in this area has been subject to conspicuous neglect. When the legislation was first introduced in 1972 the then spokesman for the Opposition, Mr Crean, the honourable member for Melbourne Ports, was highly critical of it. The present Minister for Minerals and Energy (Mr Connor) referred at that time to the legislation in the following terms:

This legislation is an outrage and it deserves the contempt of every decent, honest Australian.

Not only has the present Government administered for over 2Vi years legislation which it initially condemned when in Opposition; it has even now failed to implement the policy announcements which it has brought down and placed on public record. The legislation before the House does not provide for the secretariat promised by the Prime Minister in his 1972 policy speech. It does not provide the guidelines for foreign investment, export franchises, research and development, the licensing of technology, purchasing policies and tax avoidance promised by the Prime Minister in his April policy speech. No mention of the Prime Minister’s policy commitments in this regard was made by the Minister for Tourism and Recreation and Minister Assisting the Treasurer (Mr Stewart) during the course of his second reading speech. The Bill, in fact, simply represents the legislative measures which would have been introduced by the former Government early in 1973. It contains no new major initiatives by the Labor Administration.

The Minister has been at pains to seek to point out that a number of the significant areas not covered by the existing legislation have in fact been supervised by way of administrative arrangement. That is surely a very unsatisfactory explanation. In introducing the original Bill on 24 October 1972 the former Prime Minister made it clear that the types of takeovers not covered by the Act would be controlled administratively by departmental machinery until further legislation was introduced in 1973. The present Government has in fact admitted that the continued expansion of these administrative arrangements has led to direct abuse of the Act. In particular the former Treasurer, Mr Crean, said on 10 December 1974 that certain means of effecting takeovers not covered by the legislation had been used to circumvent the existing Act. Quite clearly the Government has facts before it which demonstrate that the Act has been subject to circumvention. In keeping with its overall policy of secrecy in matters of government, particularly in respect of economic matters and issues, no details of those abuses have been released to this House. The Minister in introducing the Bill now before the House, stated in his second reading speech: the lack of comprehensive foreign takeovers legislation has not been entirely satisfactory from the viewpoint of either the private sector or the Government.

The Government has simply been unable to provide any satisfactory explanation for its failure to act sufficiently early to prevent the abuses to which the Minister and the former Treasurer have adverted.

In essence the Bill before the House seeks to cover not only transactions in shares but also transactions in assets, including mineral rights. It also contains provisions which cover other classes of transactions which are a means of effecting takeovers and which, according to the Minister, have been used to circumvent the existing Act. Finally, transactions between foreigners will be treated in the same way as transactions between Australians and foreigners. The Opposition Parties do not oppose the Bill before the House, but I take this opportunity to indicate to the House that the Opposition Parties are presently reviewing all aspects of the foreign takeovers legislation together with the need to develop effective guidelines for the general field of overseas investment in Australia.

There are, of course, detailed matters which merit consideration. In this respect I thank the honourable member for Wentworth (Mr Ellicott) who, on behalf of one of his constituents, has made several positive suggestions as to how the legislation could be in fact significantly improved. One of the matters which merits consideration, for example, is the relationship of this Act with the Trade Practices Act. The procedures required to be followed in respect of takeovers are clearly different as between Australian companies and foreign companies seeking to effect a takeover. For example, mergers and takeovers not involving foreign companies are subject to public hearings and other procedures not contemplated by the foreign takeovers legislation. It could be argued therefore that Australian companies are required to comply with more rigorous requirements than are foreign companies in similar situations. That is just one of the areas in which the Opposition Parties clearly recognise the need for a fundamental overhaul both of this legislation and of the legislation which ought properly to exist concerning effective guidelines for overseas investment in Australia.

Although the legislation before the House represents only a partial response to the control of foreign investment in this country it will nevertheless enable the Government to examine all takeovers of Australian businesses by foreigners and to prohibit those that are considered to be contrary to the national interest. It is in that context that the Opposition does not oppose the measure before the House, which is in fact a further development of the legislation brought down by the former Administration in 1 972.

Mr CREAN:
Minister for Overseas Trade · Melbourne Ports · ALP

– I am pleased to know that the Opposition is supporting this measure, which should at least ensure it a speedy passage through both Houses of this Parliament. The Deputy Leader of the Opposition (Mr Lynch) has chided honourable members on this side of the House for being so tardy in getting to the stage of legislating. Had be been a bit more cooperative with respect to some of the other measures that we have tried to get through this House and, in particular, another place maybe we would have got around to doing this sooner than we have. I repeat what I said on an earlier occasion, that is, that the previous LiberalCountry Party Government rather belatedly in its dying hours as a government introduced the legislation that we are now repealing. The previous Prime Minister, Mr McMahon, introduced it after a certain amount of public pressure had been exerted upon him to do something in this area. I think that Government acted as it usually did. When almost everything that was worth taking over had been taken over, it decided to introduce legislation enabling it to prevent, limit or scrutinise future takeovers.

Mr James:

– It shut the gate after the horse had bolted.

Mr CREAN:

– It closed the stable door after the horse had bolted, as my friend the honourable member for Hunter has said. I take this opportunity to say a few things. The Deputy Leader of the Opposition, who is the shadow Treasurer, cited the fact that both I and one of my colleagues had been critical of this legislation when it was introduced because of its inadequacy. Well, I guess we were entitled to make that sort of criticism. We were certainly entitled to say that it ought to have been brought in a great deal sooner than it was. I have said previously too in the House that despite the skeletal nature of the Act, in many respects it has been a very effective piece of legislation and many matters that are not covered by the Act have been able to be dealt with by administrative arrangement. There has been a certain degree of cooperation with interests outside who want to promote changes in ownership of activity in Australia. At least they have co-operated in the spirit of the administrative arrangement as though in fact it was the law. Nevertheless, there are always difficulties when things are done administratively rather than legally. What we are doing here now is to codify and strengthen in certain respects the system that has prevailed.

The Act dealt only with the acquisition of shares in companies. It did nothing whatever in circumstances where a company could be taken over or dismembered, not by activities in regard to shares but simply by the buying of the assets with which a business was concerned. The other weakness was that the Act could do nothing in circumstances where one foreigner proposed to take over another foreigner so far as ownership in Austrafia was concerned. It seems to me that the Act in its rudimentary form does get down to the fundamental question about the ownership of economic activity in Australia by interests outside Australia. This is something that is described in the rather broad context of foreign investment. The Deputy Leader of the Opposition, who is the shadow Treasurer, chides us again because we have not laid down any guidelines for foreign investment. Sometimes one can lay down guidelines that do everything but guide. In some respects one is often better to be without guidelines and to treat each case on its merits. Basically this is the approach that has been taken by this Government with respect to foreign investment, that we look at each case on its merits.

In a simple sense nobody from overseas invests in this country unless he thinks there is something in it for him. Equally we in this country ought not to be interested in anybody wanting to invest in us unless there is something in it for us. There has to be a bargaining arrangement to start with. There has to be some possible advantage on each side. How we reconcile the advantage to them as against the advantage to us seems to be of the essence in this question of foreign investment. One can lay down guidelines that say there shall be no overseas investment in Austrafia in future unless the degree of Aus.tralian equity is at least 5 1 per cent. If we want to we can aim at an even higher or lower precentage. I suggest that it is better to be flexible in this sort of context than to be rigid.

These days a venture which is being planned three to four years ahead can involve expenditure not just of a few million dollars, perhaps not even just of several hundred million dollars, but even getting into the one or two billion class. It seems to me to be a little bit foolish, to say the least, to be categorical, irrespective of the nature of the activity, as to what the participating shares and equity should be. One can have rigid guidelines but all that they will do will be to guide the activity out of the country altogether. One would not achieve much by the rigidity of guidelines. On the other hand, this legislation at least makes it necessary for certain proposed activity to have to be notified. The legislation provides for a process of examination after the activity has been notified. The legislation also provides that after the examination in the national interest certain things may be prohibited and certain things may also be allowed. Candidly, I cannot see anything wrong with that kind of scrutiny being codified, and that is what is intended in the legislation.

Much has been said about the necessity for Australia to have foreign investment. Again I would ask those people who take these matters seriously to look at the document that comes down with the Budget which deals with the availability of capital in Australia. A table in the White Paper on national income shows the sources of investable funds or potential capital. Equally it shows how those funds are disbursed. Of course, investment in Australia is divided between what is called private investment, which tends to run pretty close to two-thirds of the total, and public investment, which makes up the remaining one-third. Over a long period of years the level of capital investment in Australia has run at about 25 per cent of gross domestic product. The White Paper shows that the GDP was $58.5 billion-that is as at 30 June 1975 and investment was something of the order of $14 billion of which the major part again was private and other other part public. Fortunately for Australia had it not been for an upsurge in public investment relative to private investment for the period ended June 1975 economic activity in Australia would have been much less than in fact it was. There was sluggardness in private investment and at this stage I do not want to go into the reasons for that. I think that sometimes that area which likes to call itself private enterprise is anything but enterprising. This area claims when it suits it that it is risk taking, but the last thing that it wants to do is to take a risk. Although there was an upsurge in public investment the rise was not as high as any of us would have liked it to have been.

Nevertheless, the salient point is that something like 90 per cent of private and public investment is internally generated. The overseas or foreign component of investment has been a minority, not a majority. During the period of the previous government there was no selectivity as to where that foreign investment would go. Certainly very huie of it went into the public sphere. Most of it went into the private sphere. When one took such areas as home building and so on out of the private sphere one could see that investment was being concentrated very heavily into manufacturing industry, and mining in particular. We have reached a stage where statistics which tend not only to be old but also, in some respects, inadequate suggest that in certain mining areas the concentration is very heavy in the direction of foreign investment. For those honourable members who are interested in the statistics, the White Paper shows that in the financial year ended June 1975 of all the dividends generated in Australia over one-third went to foreign interests. I think this tends to show- in a snapshot if you like- the concentration of foreign investment already achieved in Australia. Where we go from here seems to me to be the question that we should ponder perhaps a little more than we have in the past.

I have indicated that investment, particularly in its corporate form, is likely to occur in larger sums, that it will take several years to achieve and the reality is that each example may be looked at case by case rather than being bound down by formulae that one likes to say are guidelines. Our practice has been to look at the situation case by case. The situation is different in certain areas of investment. This Government has prohibited foreign entry into certain areas. Real estate is one example. Even under previous governments there were exemptions with regard to banking and broadcasting and television organisations, and the airways. We added to that list. Any country, in its own national interest, has to take certain things into account. The term national interest’ is mentioned in this legislation, but as my colleague on the other side of the House, the Deputy Leader of the Opposition (Mr Lynch) knows, ‘national interest’ is a very difficult term to define. It can be defined negatively rather than positively. It can be defined as taking into account the sorts of things which are listed in the speech which the then Acting Treasurer, the present Treasurer (Mr Hayden), made in this House in May.

Certain factors are taken into account, such as employment, whether such schemes will add to technology in Australia, and whether they will be fairly or unfairly competitive with existing structures. These are all factors that can be identified as somehow serving the national interest. To use a categorical definition that the national interest means such-and-such and nothing else is foolish. There may be some criticism of the failure to define the national interest in a better way than is done at present, but my colleague is learned in these matters and he knows the trickiness of lawyers who, when they want to be subtle, are certainly subtle and are serpents at the same time. But be that as it may.

We have been chided for not bringing in this legislation before. I have tried to defend our position. It was not easy to get through this House legislation affecting certain areas, and because what we tried to get through took some time there was less time at our disposal to deal with the rest. At least we renewed the Act that the previous Government passed. I pay honourable members opposite that compliment. Flimsy though the Act was, with sensible administrative arrangements and the creating of a second committee we have managed to get by. Hopefully what we now propose to write into law about the disposition of assets and so on will be passed. The spokesman for the Opposition has indicated that the Opposition offers no objection to the legislation; therefore it should have a speedy passage.

Honourable members might be interested to know that Australia’s sister Commonwealth country, Canada, sent people to Australia a few years ago to look at the working of our legislation. Canada embodied some of our administrative arrangements, as it saw or interpreted them, to form part of the law that it has passed in this area. I suppose both sides of the House can take credit for what has happened, flimsy though the arrangements may have been and even though they were criticised by us when they were introduced and have since been criticised by honourable members opposite for not being further extended by us. Nevertheless the legislation has worked fairly effectively and I think to the advantage of industry that very vague area we call the national interest. I commend the Bill to the House and hope that, as the shadow Treasurer indicated, there will be no opposition to it here and therefore presumably no opposition to it elsewhere.

Debate (on motion by Mr Ellicott) adjourned.

page 293

PAPUA NEW GUINEA INDEPENDENCE BILL 1975

Bill presented by Mr Whitlam and read a first time.

Second Reading

Mr WHITLAM:
Prime Minister · Werriwa · ALP

-I move:

The legislation which I now introduce- this Bill and the next 4 Bills which I shall move be read a second time- is historic for Papua New Guinea, for Australia, and for the European civilisation from which we Australians spring, for this is almost the last episode in the great postwar, post-imperial exercise of European decolonisation. By an extraordinary twist of history, Australia- herself once a colony- became one of the world’s last colonial powers. By this legislation, we not only divest ourselves of the last significant colony in the world, but we divest ourselves of our own colonial heritage. It should never be forgotten that in making our own former colony independent, we as Australians enhance our own independence. Australia was never truly free until Papua New Guinea became truly free.

The purpose of this legislation is to enable Papua New Guinea to become independent on 16 September 1975, the date nominated by the Papua New Guinea House of Assembly. The legislation includes 4 Bills which are associated in various ways with Papua New Guinea’s move to independence. I shall if I may, deal with each of the Bills in turn in this speech.

page 293

PAPUA NEW GUINEA INDEPENDENCE BILL

The proposed Papua New Guinea Constitution does not depend for its validity on enabling Australian legislation. The Constitution of an independent Papua New Guinea is not to be dependent on an Act by another Parliament in the way that the Australian Constitution depends on an Act of the Imperial Parliament- the Parliament of Wesminster. Consequently the Papua New Guinea Independence Bill is a short one. Clause 4 provides that at the expiration of 15 September Australia will cease to have any sovereignty, sovereign rights or rights of administration in Papua New Guinea. This will enable the Papua New Guinea Constitution to come into effect the next day as the supreme law of Papua New Guinea.

Clause 5 of the Bill repeals the Papua New Guinea Act 1949-75 under which Papua and the Trust Territory of New Guinea have been jointly administered for the past 26 years. It also ceases the extension to Papua New Guinea of every Act and imperial Act which hitherto extended. The Papua New Guinea Constitution will adopt those Acts and imperial Acts which Papua New Guinea wishes to continue as laws of Papua New Guinea.

The Bill represents the culmination of threequarters of a century of association of the Aus.tralian Parliament with the development of Papua New Guinea. It is the end of a long chapter. We believe it is also the beginning of a new, a better chapter in the continuing story of the association between our 2 neighbour nations. That association, as far as this Parliament is concerned, began on 12 November 1901 with a resolution that Australia should assume responsibility for the administration of what was then British New Guinea. Subsequently, of course, Australia assumed responsibility for the administration of what had been German New Guinea, first, under a League of Nations mandate and, since 1946, under the present United Nations Trusteeship Agreement, which Australia will discharge in full when Papua New Guinea becomes an independent nation on 16 September.

Successive Australian governments have given an undertaking to the Trusteeship Council and to the United Nations General Assembly to bring a united Papua New Guinea- the whole territory over which we assumed or were given controlnot just to independence but to united independence. We must all be worried at this moment that it is possible that we have failed to fulfil completely the mandate to carry out in full the trust we were given. Should that prove to be the case, it will be because, perhaps with the best will in the world, we delayed somewhat too long. At Goroka in April 1965 I had advocated independence by 1970.

What is certain, however, is that Australia’s major efforts to carry out the mandate and to fulfil her trusteeship were well and highly motivated. It would be impossible in this speech to pay tribute to all those Australians who have tried to serve Papua New Guinea well, and in so doing have tried to serve Australia well. It is best therefore that I confine myself exclusively to members of this present Parliament. The role of the honourable member for Kooyong (Mr Peacock) when he was Minister for External Territories was crucial. I frequently- here in Canberra and in Port Moresby- paid tribute to it. I do so again. I particularly wish to mention those who are now Ministers who accompanied me in my tours of Papua New Guinea in January 1970 and January 1971. They are the present Treasurer (Mr Hayden) and the Minister for Education (Mr Beazley), who were with me in 1970 and the present Minister for Defence (Mr Morrison) and Minister for Science and Consumer Affairs (Mr Clyde Cameron), who were with me in 1971. The Minister for Defence subsequently fulfilled the ultimate part of us all in this great work.

It is hard, in retrospect, to understand the obloquy, the hatred, the contempt, and even worse, the ridicule, which we brought upon ourselves in those far off days- a whole 5 years ago- when we first stated that the independence of Papua New Guinea was imminent and inevitable. It was not easy in those days to live with the accusation- as in particular, the Minister for Education, the Treasurer and I had to live with it in the early months of 1970- that we had stirred up and should be blamed for possible bloodshed. It was said of me- in the newspapers and in this Parliament- that by my efforts to point out the inescapable fact that Papua New Guinea was already providing more leaders than Australia could ever impose or be willing to provide, I would have ‘blood on my hands’. The words are those of the then Prime Minister, the right honourable member for Higgins (Mr Gorton). It was charged then against the present Minister for Education and myself that, by speaking to the people of Rabaul about how to achieve the ends they then sought by peaceful means, we were in fact provoking violence. Those were the charges made, in the Australian newspapers, in the Australian Parliament.

Our point then was this, as I said in Port Moresby in January 1 970:

Papua New Guinea is already rich in leadership. The time when that leadership will assume its full and proper responsibilities cannot be long delayed.

To put these matters in their full historical perspective I ask leave to have incorporated in Hansard 2 documents- the joint statement by the honourable members for Werriwa, Fremantle and Oxley at Port Moresby on 12 January 1970 and the joint statement by the honourable members for Werriwa, Hindmarsh and St George on 17 January 1971.

Mr DEPUTY SPEAKER (Dr Jenkins:
SCULLIN, VICTORIA

-Is leave granted? There being no objection, leave is granted. (The documents read as follows)-

page 294

LABOR’S PLAN FOR NEW GUINEA

page 294

STATEMENT BY THE LEADER OF THE OPPOSITION, MR E. G. WHITLAM, PORT MORESBY, 12 JANUARY 1970

In the past fortnight Mr Beazley, Mr Hayden and I have talked .to some thousands of New Guineans and talked with hundreds of elected persons, administrators, teachers and students who will soon be assuming even more responsibility for their country’s affairs. New Guinea is already rich in leadership. The time when that leadership will assume its full and proper responsibilities cannot and must not be long delayed.

The plain fact is that for the rest of this century Australian governments will be formed by either the Labor Party or the Liberal Party. All members of the Australian Parliament have supported the quadrupling of Australian aid in the past decade. While the consensus which existed on New Guinea during Sir Paul Hasluck’s administration has broken down under Mr Barnes, there is no divergence between the parties on this crucial point. It is Labor policy and it is Liberal policy that aid in finance and advice will continue. It is our firm belief that it will increase. It is certain that for the rest of this century at least Australia will be a donor nation to developing nations. New Guinea will long be a principal recipient.

To emphasise the solemnity and sincerity of this undertaking, we have suggested that Australian assistance should be made part of treaty arrangements between the constitutional government of an independent New Guinea and the Government of Australia.

The Australian Parliament has responsibilities beyond New Guinea. Its primary responsibility is to the people of Australia. It has the responsibility of protecting the reputation and the relations of the nation with all countries. These are the responsibilities of the elected persons of the Australian Parliament and the elected government, and of no others, elected or non-elected. The Australian Parliament cannot escape or share this responsibility.

Therefore it is either misleading or meaningless to assert that the decision for independence is one for the people of New Guinea alone. The form of independence is certainly for them to decide for themselves. The fact of independence has already been decided.

page 295

STEPS AFTER THE NEXT ELECTIONS

An Australian election must be held by the end of 1972 at the latest. It may be earlier. It is our belief that a Labor Government will emerge from those elections. We therefore felt it obligatory to indicate how a Labor Government would discharge its responsibilities to the people of Australia and its obligations to the people of New Guinea, including those Australians whose families and fortunes are at stake in New Guinea.

New Guineans will have home rule as soon as a Labor Government can make the necessary arrangements with the House of Assembly which will also be elected in 1972.

This means that laws made by the Assembly will no longer be subject to veto by the Australian Government; that all matters affecting the welfare of New Guinean people except defence and foreign affairs will be subject to laws made by the Assembly alone; and that those laws will be administered by a public service responsible only to the House of Assembly.

Australians who remain in the service of the New Guinea Government will equally be responsible to the House of Assembly, but the Australian Government will accept responsibility for their salaries and the welfare of their families.

The House of Assembly will decide the form of the constitution New Guinea is to have after independence.

It is certain that the assumption of an increasing measure of responsibility will accelerate the desire and ability to accept total responsibility. In this sense it is true that the people of New Guinea will decide their own time-table for independence.

Elements in the Administration, and in the expatriate community, are anxious to postpone every delegation of power to the Papua-New Guinea people into an indefinite future. Most disturbing is the open hostility in the Administration to those who have, if perhaps in gravely mistaken ways, attempted to assert their rights. The manner in which the Department of External Territories endeavoured to enforce the sale of Bougainville land disqualifies those responsible for the policy from any claim to have the well-being of the people at heart. Batons and tear gas have no place in land sales. This incredible exercise in the techniques of violent expropriation has shaken confidence. It threatens to create deep and enduring hatred against Australia and Australians. It is a factor underlying the Mataungan misunderstandings.

page 295

IMMEDIATE STEPS

A reasonable rninimum wage;

An arbitration system for plantation workers and all labourers;

An end to the shame whereby Australia’s name is associated with plantation wages of $5 a month or less- the worst wages in the Pacific and probably the worst in the world.

In New Guinea every industrial dispute is automatically a dispute between an Australian or an Australian company on one hand and New Guineans on the other. The Territory has moved to the position where the Workers’ Associations should be treated seriously. We heard from workers’ leaders, engaged in struggles to lift wages as low as $6 a week, that’ claims to private employers for wage increases simply went unacknowledged. Even worse, the Administration itself for months on end ignored wage claims from officially recognised workers’ associations. It needs to be quite clear that salary and wage discrimination is the basis of every other form of discrimination.

There has been a clear deterioration in race relations, reflected in the movement of battalions of police to Bougainville and Rabaul. There are more police m Rabaul than in any Australian city except Sydney and Melbourne. Australians in Papua-New Guinea are not in their own country. The whole direction of administration needs re-orientation. The basis of Australian policy should be discrimination in favour of the people whose country this is. Only discrimination in favour of the underprivileged can reduce inequality.

The Department of External Territories, which rules, should become a Department of Pacific Relations, which advises. Australian officers should not be masters but envoys, not rulers but helpers. The best of them are. There is cause for pride in much done in health, education, communications, agriculture, and public works, and in the defence services. There is no cause whatever for pride in labour relations. This is the Achilles heel of the whole Australian position in New Guinea. It is full of danger’ for the near and distant future.

Nor can we have any pride in the fact that in the five largest towns there is no local government, and no businesses, factories or even taxis owned by locals. In New Guinea commercial enterprise has become synonymous with expatriate enterprise.

We have tried to impart a feeling not only of urgency but of self-confidence in the ability of New Guineans to make their own decisions. There are New Guineans who are well equipped to fill the highest political and administrative positions in their country. Indeed, no Australian could claim the contrary without reflecting on Australia’s record of administration at its crucial point.

The House of Assembly and its members should now be taken seriously as the representatives of their people and treated by all Australians with proper respect and seriousness.

The only thing in which New Guinea is really unique among the countries of the world is that alone among significant populations its people make no final decisions on any matter affecting their welfare.

It is not unique in its economy, in the difference of economic standards between sections of the country, its educational or social standards, its need for economic aid from abroad, its need for advisers, the diversity of its local customs, or even the multiplicity of its languages.

All these matters present complex and difficult problems for any future government of New Guinea.

None of these problems require colonial rule for their solution or easing. In fact, many of them will worsen if foreign techniques, methods, laws and customs continue to exclude local custom, knowledge and experience.

An outside administration cannot teach or impose unity. It can by errors unite a people against it. This is the very situation which Australians at home will not permit, and Australians in New Guinea must most avoid.

page 296

QUESTION

STATEMENT BY THE LEADER OF THE AUSTRALIAN LABOR PARTY, MR E. G. WHITLAM, Q.C., M.P., PORT MORESBY: 17.1.1971

In the past year the political climate of Papua-New Guinea has been transformed. A year ago proposals for early self-government were met with official hostility and public dismay. Some elementary truths about the early and inevitable end of colonialism in Papua-New Guinea held the terror of the novel and the unknown. Now the most significant leaders of Papua-New Guinea and significant sections of the population accept that they must shortly come to terms with their own future as a self-governing nation. It has been a remarkable proof of the power of an idea. There can be no turning back now.

For the past fortnight my colleagues and I have met and talked with some hundreds of the present and future leaders of Papua-New Guinea. Despite the vast improvement in the level of political debate in every part of the Territory, it is clear that political education has been woefully deficient. Again and again we asked the people if they had ever heard the Administration explain the advantages of selfgovernment. Invariably, the answer was ‘no’. With the shining exception of the new Administrator himself, it would seem that practically nothing has been done to dispel confusion and fear about the meaning and consequences of selfgovernment. On the contrary, needless anxiety and false fears have been planted and nourished. Consequently my colleagues and I found that in many parts of the Territory our visit became a mission of reassurance that Australia’s contribution to the welfare of Papua-New Guinea would be enhanced and expanded after self-government and later after independence.

There can be no qualification about the depth of the commitment of the Australian Labor Party in this matter. The representative nature of the colleagues who have been with me in the Territory would alone ensure that. Beyond personal commitment, the Labor Party as a whole finds its most deeply-held conscientious convictions affronted in PapuaNew Guinea. It would be impossible for a party like ours to condone or connive at vast inequalities, entrenched privilege, blatant exploitation and racial discrimination. These inescapable attributes of colonialism disfigure life in this colony, as in all other colonies. They debase the dedication, enterprise and energy devoted over the years by the many thousands of fine Australians who have worked in this Territory.

Australia’s role as a colonial power is a wrong thing in itself. It would be bad for us as a nation, even if we were able to isolate ourselves from the pressures and opinions of all other countries; but we enjoy no such luxury of isolation. In particular, we live in a region in which every one of our neighbours for thousands of miles around were former colonies. Each detests colonialism. To all these neighbours and all our fellow members of the Commonwealth of Nations every justification the Australian Government makes for dragging its feet in Papua-New Guinea, every argument about the inability of native peoples to govern themselves smacks of racial superiority.

Australia’s major diplomatic effort, not only at the United Nations but in most world capitals, is devoted to justifying the official position on Papua-New Guinea. This is a sterile exercise. It cripples our power for any constructive diplomatic initiatives. We are needlessly placed on the defensive; it needlessly complicates our relations with our neighbours and our friends, including our chief ally, the United States, which possesses the world’s most powerful black community.

All Australians must now realise how damaging and dangerous a reputation Australia’s present policies produce. We are a European nation on the fringe of the most populous and deprived coloured nations in the world. What the world sees about Australia is that we have an Aboriginal population with the highest infant mortality rate on earth; that we have eagerly supported the most unpopular war in modern times on the ground that Asia should be a battle-ground of our freedom; that we fail to oppose the sale of arms to South Africa; that the whole world believes that our immigration policy is based on colour and that we run one of the world’s last colonies. We may rightly profess our good intentions and feel that we are merely the victims of special circumstances; but the combination of such policies leans heavily indeed on the world’s goodwill and on Australia’s credibility. The true patriot therefore will not seek to justify and prolong these policies but will seek to change them.

In Papua-New Guinea, it will be found increasingly that the question for the timing of self-government involves a quibble about the matter of 2 or 3 years. Even if the Gorton Government were to survive, self-government will come in the lifetime of the next House of Representatives. The Australian Government has a clear duty to speed up preparations for the inevitable day. Target dates for selfgovernment and independence should be set now, as we are obliged to do by the unopposed decision of the United Nations General Assembly. The official members of the

House of Assembly should be removed now. Elected ministers should be made responsible to the House of Assembly in fact. Political education should receive top priority. The Australian Parliament should immediately ratify the International Labour Organisation conventions on plantation workers and on race relations; a new set of labour laws and ordinances should be drafted and approved to make labour laws and conditions conform with these conventions. Employment preference should be given to unionists. The Australian Government should spell out clearly the entitlements of Australian public servants and should make it plain that it accepts responsibility for their future welfare, both in the Territory and in Australia; only if this is done can localisation of the public service proceed speedily and smoothly. There is no need to wait until 1972 for these things to be done; they constitute in themselves the essence of selfgovernment.

Australians and Australian companies have a particular interest in the establishment of a self-governing New Guinea.

By its very nature, an Australian Administration committed to its own eventual abdication cannot guarantee the validity or permanency of business and investment arrangements it may make.

The best safeguard against expropriation is that an indigenous independent government should accept responsibility for the laws and arrangements under which property is held and capital invested.

There are clear risks in the present situation in which all employers and businessmen are expatriates while New Guineans are only employees and customers.

In the final analysis the attitudes of the Australian Labor Party to Papua-New Guinea involve a convinced judgment about the very nature of man. We cannot accept that nations should be ruled by other nations; we cannot accept that men do not wish to be free; we cannot accept that the people of Papua-New Guinea are some special exception in a world where millions have died for national independence. It may be true that men cannot be forced to be free; it is certainly true that men cannot be forced to rule others. An Australian Labor Government will not be blackmailed into accepting an unnatural role as rulers over those who have had no say and can have no say in electing us. Australia’s obligation in the United Nations is to hand over Papua-New Guinea as a single entity as soon as possible. Papua-New Guinea has a chance of remaining united only if self-government comes quickly. Self-government in itself will be the real unifying force in this country. To delay self-government is to promote separatism. Self-government must be given quickly to the people as a whole; otherwise section after section will seize with anger and bitterness towards us what we should grant wholly and wholeheartedly.

Mr WHITLAM:
ALP

– I thank honourable members. In these 2 statements the joint and continuing theme is that Papua New Guinea was already providing leadership at all levels greater than that which Australia was able or willing any longer to provide in Papua New Guinea.

I now come to the other Bills. The Papua New Guinea Bill 1975 gives effect to an announcement the then Minister assisting the Minister for Foreign Affairs in matters relating to Papua New Guinea made on 16 September 1974 that Australia would hand over to Papua New Guinea the administration of the Pocklington

Reef Islands. These islands are a small uninhabited group 130 kilometres east of the southeastern tip of Papua New Guinea. The Bill provides for the islands to be brought within the territorial scope of Papua New Guinea, so that at independence that country will exercise full sovereignty over the islands. The Bill also gives Papua New Guinea authority to enact off-shore legislation in the area around the islands. Papua New Guinea already has authority to enact legislation dealing with its off-shore adjacent areas as denned in the Australian Petroleum (Submerged Lands) Act, but these adjacent areas do not include Pocklington Reef Islands. Clause 4 of the Bill amends the present authorisation and enables Papua New Guinea to enact legislation dealing with off-shore areas other than those to which the Australian Petroleum (Submerged Lands) Act applies.

The Papua New Guinea Loans Guarantee Bill 1975 seeks the approval of Parliament to the continuation of the Australian Government guarantee, provided for in section 75a of the Papua New Guinea Act 1949-1975, in respect of loans raised by the Papua New Guinea Government from Australian and PNG sources prior to independence until such time as the loans in question have matured and been repaid. I would mention that loans Papua New Guinea has raised from overseas sources are guaranteed until final maturity under separate legislation. The guarantees to be continued by this legislation and those provided in respect of overseas borrowings have assisted Papua New Guinea in undertaking its borrowing programs.

The purpose of Papua New Guinea (Staffing Assistance) Bill 1975 is to amend the Papua New Guinea (Staffing Assistance) Act 1973 to introduce the new staffing aid arrangements which have recently been agreed between the Australian Government and the Papua New Guinea Government.

The Papua New Guinea (Staffing Assistance) Act 1973 established the Australian staffing assistance group as the framework under which former permanent overseas officers and contract officers from Australia could continue to serve in Papua New Guinea after self-government. Following a recent review of the future of these arrangements, it has been agreed with the Papua New Guinea Government that the direct employment by the Australian Government of the 2700 members of the group- some of whom occupy senior and influential positions in the Papua New Guinea Public Service- is not in the immediate or long-term interests of either

Government, and should be discontinued. Accordingly, the 2 Governments have agreed that the group be wound up on 30 June next year and that new arrangements be introduced as from 30 June this year to encourage those officers in the group whose services are still required to transfer over to direct contract employment with the Papua New Guinea Government as soon as practicable.

The Papua New Guinea (Staffing Assistance) Bill 1975 seeks to modify the present employment security scheme arrangements for those members of the group who agree to transfer over to direct contract employment with the Papua New Guinea Government. Most of the necessary changes required can and will be made by amendment of the existing regulations made under the Act. These will be explained in detail in due course.

I turn finally to the Social Security Bill (No. 2) 1975. The object of this Bill is to amend the Social Security Act to enable former residents of external territories, including Papua New Guinea, to qualify for social services pensions if they come to Australia to live. It is proposed that residence in an external territory other than Norfolk Island will count as residence in Australia for the purpose of satisfying the residence qualifications for Austraiian social service pensions. Residence in Norfolk Island is excluded from the ambit of the Bill in view of the recent appointment of a royal commission into matters, including social security, relating to Norfolk Island.

Most Australian expatriates living in the Terri.tories will have already satisfied Australian pensions residence requirements. There are, however, many people who have lived in external territories for many years, sometimes for most of their lives, and who, if they were to come to live in Australia, would not be residentially qualified for Australian pensions under existing legislation. I am sure honourable members will agree it is appropriate that the valuable contribution made by these people to Territory development should be recognised. The estimated cost of the proposals in this Bill is $750,000 for the balance of the fiscal year 1 975-76 and $ 1 m in a full year.

These Bills together constitute the final legislative act- the last legislative instrument- in the relations between the Australian Parliament and Papua New Guinea. They constitute a new beginning in the relations between 2 free and independent nations. Previously, I had incorporated in Hansard statements of intent from the Australian Labor Party, now the Austraiian

Government, towards a free united independent Papua New Guinea. Those pledges have been reinforced by statement after statement since we became the Government of Australia. They were pledges made not just for an Australian party, but for the Australian nation. They hold and hold firm- for the Australian Labor Party, for the Australian Government, for the Australian people.

The people of Papua New Guinea know from their long experience- and let me re-state it- that Australia keeps her promises. But let this also be pointed out: A free Papua New Guinea is not a seventh State of Australia. It is a free and independent nation. The Chief Minister of Papua New Guinea is not a premier of a dependent, a claimant, State. Nationhood is real. Independence is real. Freedom is real. The Parliament- the House of Assembly- of Papua New Guinea is representative of a truly sovereign nation with true, valid, genuine international independent standing in the world. The House of Assembly of Papua New Guinea is the Parliament of a sovereign nation. Papua New Guinea must aspire to that true sovereignty which no State under the Australian Constitution could ever have, or has ever had. Internationally, the Australian States do not exist. Papua New Guinea as a nation does exist. It will be recognised throughout the world as a new nation on 16 September. All other nations will have to sit up and take notice of Papua New Guinea from now on. On 16 September, Papua New Guinea achieves true and genuine sovereignty which no Australian State- the 6 former colonies- ever had, or can ever have.

By these Bills, we give Papua New Guinea its true international standing. Papua New Guinea from now on is going to need international aid. The absolute guarantee we give in this Australian Parliament is that aid will continue to come from Australia. But if free Papua New Guinea chooses in its own wisdom to augment that international aid from any other source, there can be, there should be, no complaint from Australia. Australia’s responsibilities towards Papua New Guinea are inescapable, but Papua New Guinea has no special responsibilities towards Australia. Papua New Guinea has no more responsibilities towards Australia than any other independent nation has towards Australia. We have not divested ourselves of political authority over Papua New Guinea just in order to keep it in financial bondage. Papua New Guinea will always have the first call on Australian aid. For the rest of this century it will be given in the terms in letter and in spirit which I outlined 5 years ago and 4 years ago in the statements which I have incorporated and in my frequent statements since made.

But Australian aid is given to a free and independent nation- not to a claimant State of Australia. It is given to a nation which by its present leadership and all that we know of its proud, diverse people, is well able to work out its own destiny- in its own way. When that nation seeks assistance from abroad, Australia will surely be the first to answer that call- as we are pledged to do. But to confine the limits of assistance to that which Austrafia alone shall give would be to confine the limits of independence of Papua New Guinea itself.

By these Bills we intend to give Papua New Guinea genuine independence- not a phoney independence. These Bills, I know, will pass unanimously in both our Houses. Let us be sure, however, exactly what we are trying to achievethe creation of a truly independent nation. Few legislatures in the history of mankind have been given a more honourable duty.

Debate (on motion by Mr Peacock) adjourned.

page 299

PAPUA NEW GUINEA BILL 1975

Bill presented by Mr Whitlam, and read a first time.

Second Reading

Mr WHITLAM:
Prime Minister · Werriwa · ALP

)-I move:

Debate (on motion by Mr Peacock) adjourned.

page 299

PAPUA NEW GUINEA LOANS GUARANTEE BILL 1975

Bill presented by Mr Whitlam, and read a first time.

Second Reading

Mr WHITLAM:
Prime Minister · Werriwa · ALP

)-I move:

Debate (on motion by Mr Peacock) adjourned.

page 299

PAPUA NEW GUINEA (STAFFING ASSISTANCE) BILL 1975

Bill presented by Mr Whitlam, and read a first time.

Second Reading

Mr WHITLAM:
Prime Minister · Werriwa · ALP

-I move:

Debate (on motion by Mr Peacock) adjourned.

page 299

SOCIAL SERVICES BILL (No. 2) 1975

Bill presented by Mr Whitlam, and read a first time.

Second Reading

Mr WHITLAM:
Prime Minister · Werriwa · ALP

That the Bill be now read a second time.

Debate (on motion by Mr Peacock) adjourned.

page 299

LOAN BILL 1975

Bill presented by Mr Hayden, and read a first time.

Second Reading

Mr HAYDEN:
Treasurer · Oxley · ALP

– I move:

This Bill is a machinery measure which is required to secure authority to borrow amounts for the financing of defence expenditure which will need to be charged to the Loan Fund during the financial year 1975-76. The Australian Government’s financial transactions are recorded in 3 separate funds- the Consolidated Revenue Fund, the Loan Fund and the Trust Fund. Honourable members will, however, be aware from the summaries presented in Budget Paper No. A- Estimates of Receipts and Summary of Estimated Expenditure- that estimated expenditures for 1975-76 normally charged to the Consolidated Revenue Fund substantially exceed the estimated receipts of that Fund.

The prospective deficit in the Consolidated Revenue Fund, which is only part of the estimated overall deficit which I announced in my Budget speech, must be met in one way or another within the total of the financing arrangements for funding the overall deficit. In this kind of situation, successive governments have obtained authority to charge to the Loan Fund some expenditures which would normally be met from the Consolidated Revenue Fund. That is the purpose of this Bill which will authorise borrowings for defence purposes so that defence expenditures from appropriations approved by the Parliament can be charged to the Loan Fund rather than to the Consolidated Revenue Fund.

The Bill does not authorise additional defence expenditures. It will simply allow us to reallocate from the Consolidated Revenue Fund to the Loan Fund part of the expenditures of the Department of Defence already authorised in the Supply Act (No. 1) 1975-76 and which are subsequently authorised in the 1975-76 Appropriation Acts. When this Bill is enacted I shall move an amendment to Appropriation Bill (No. 1) 1975-76, to permit defence expenditure specified in that Bill to be charged to the Loan Fund.

It is not possible at this stage of the financial year to be at all precise as to the amount of defence expenditure which will have to be charged to the Loan Fund. That amount, which can be expected to be sizable, will be a residual affected by all other transactions of the Consolidated Revenue Fund. It is for this reason that the Bill does not specify a fixed amount of borrowing. Instead, like similar Bills introduced in recent years both by this Government and by previous governments, the Bill seeks authority to borrow, to finance defence expenditures authorised by the Parliament, amounts not in excess of what is considered necessary to avoid a deficit in the Consolidated Revenue Fund. The timing and amounts of borrowings and the particular form of securities to be issued will be determined as part and parcel of the Government’s overall domestic borrowing activities throughout the financial year. As I have said, the Bill is a machinery measure, and it follows the pattern of similar Bills enacted in past years. I commend the Bill to honourable members.

Debate (on motion by Mr Peacock) adjourned.

page 300

CUSTOMS TARIFF PROPOSALS

Mr ENDERBY:
CanberraAttorneyGeneral · ALP

– I move:

The Customs Tariff Proposals I have just tabled relate to proposed alterations to the Customs Tariff 1966-1974. Proposals No. 25 give effect to the Government’s decision on recommendations made by the Industries Assistance Commission in its report on bags and sacks of man-made fibre. Tariff quotas will apply to bags and sacks of man-made fibre, other than wool packs. A penalty rate of duty of 18c each will apply to imports in excess of quota, unless they are to be used to contain exports from Australia. A comprehensive summary of the changes and the duty rates is being circulated to honourable members. I commend the proposals.

Debate (on motion by Dr Edwards) adjourned.

page 300

FOREIGN TAKEOVERS BILL 1975

Second Reading

Debate resumed.

Mr SNEDDEN:
Bruce

-This legislation is a continuation of legislation that was introduced in 1972. One recalls that it was introduced in the last few months of the term of the last Government. It was preceded by a statement made by the then Prime Minister, the right honourable member for Lowe (Mr McMahon). At that time I had the great privilege, as Treasurer, of working very closely in the development of that policy statement that was to be made. As honourable members will be aware, it emerged basically out of the Treasury and out of my own considerations of it as Treasurer, to which Cabinet and the then Prime Minister added their contribution. I say that by way of background and to prove nothing other than at the time the Australian Labor Party in Oppositionit is now in Government- said that the statement and the legislation were totally inadequate and that when it became the Government it would have very comprehensive legislation to introduce. That has not eventuated, and it cannot eventuate.

What happened when the Labor Party came into office was that it extended for another year the life of the legislation which we had passed- I think it was in October 1972- and which was declared to be interim legislation. A year later, lo and behold, it extended the operation of the interim legislation for yet another year. Now we have this legislation which does not carry the issue any further than extending the areas covered to take account of actions by companies to avoid the legislation. Therefore it will extend to some other areas. In that respect I support the legislation. I support the legislation because it was necessary at the time. It remains necessary. I support the legislation to the extent that it has sought to cover gaps which have been exposed over the 2 years of its operation.

I think it is worth recalling to the House the way in which that legislation was to operate. I might mention in passing that in the second reading speech the Minister for Tourism and Recreation and Minister Assisting the Treasurer (Mr Stewart) who presented it on behalf of the present Treasurer, Mr Hayden- I mention him by name because the speech refers to a statement made by a predecessor of his as Treasurer, Mr Crean- said:

The measures have worked reasonably well.

That is an implicit as well as an explicit statement because there has been no change in the method adopted in the regional statement and in the interim legislation. The Minister went on to say:

Briefly, in addition to company takeovers effected by means of acquisition of voting shares, the Bill will cover 3 other areas:

First, takeovers covered by the 1972 policy measures, that is, takeovers of businesses by means of asset acquisitions and takeovers of mineral rights.

Second, takeover methods which have been used to evade the operation of the 1972 statutory and policy measures for the control of foreign takeovers. These comprise company takeovers effected by means of acquisitions of shares other than voting shares; company takeovers effected by means of splitting a large shareholding into small nominee groups where this has the effect of increasing the voting rights attached to the shareholding; business takeovers effected by means of leases or licences over the assets of a business; and business takeovers effected by agreements and arrangements relating to broad representation rights and rights to participate in the management or profits of a business.

So these areas have been identified as a route which can be taken to avoid the effect of the legislation. The third area covered was transfers of control of business from one foreign group to another. That area is full of very significant difficulties.

The Minister also said in his second reading speech:

The Government considers that it would not be feasible or desirable to attempt to examine all overseas transactions in the shares of a company incorporated outside Australia … on rare occasions, such transactions could result in a change in the control of a major Australian business that would be against the national interest. The Bill accordingly provides that a share deal which results in a change in the control of a company incorporated outside Australia will be examinable where either SO per cent or more of the assets of that company are held in Australia or where its Australian assets amount to more than $3m.

I cannot imagine a proposal which is more likely to create confusion in relation to the development of Australian industry in partnership with overseas investors. Can anybody imagine company A involved in a takeover procedure with company B, in the Unites States of America, United Kingdom, Germany, France or wherever it might be, if the amount involved exceeds $3m wanting to come to the Australian Treasurer and to the Overseas Takeover Committee and asking whether because their assets, which are probably a very small part of the total corporate conglomerate existing in Australia exceed the prescribed amount, the takeover is permissible? That small amount could frustrate a takeover. It is a foolish proposition.

The next point that I wish to make is that this Bill perpetuates the proposal that its provisions will be controlled sheerly by the discretion of the

Treasurer. It is certainly true that, in the 1972 statement, a policy was expressed by which it would be considered, and that policy in fact has not been changed to any appreciable degree up to today. The purpose of that statement and of the interim legislation- specifically called interim legislation- was to enable consideration which would determine the Treasurer’s mind and put those proposals in legislative form. Also to be determined was whether it was proper to leave the sole discretion to a Minister, whether it was the Treasurer or any other Minister, when the decision of that Minister was not challengable in any way and was not correctable if he acted on wrong premises. I think it is wrong for the Government to introduce legislation and just blandly say that it has proved impracticable, consistent with the needs for flexibility, to express the criteria which the precision required by legislative form would need.

Companies wishing to invest in Australia, to engage in takeovers, joint ventures or whatever it may be, are entitled to certainty. They have no certainty under these provisions. The rules can be altered at any time; even in the midst of a proposal which is being developed between an overseas company and an Australian company, the rules can be changed. What would have been permitted will now be excluded, and that will operate to the disadvantage not only of the overseas company but also of the Australian company. If it is to the disadvantage of the overseas company, it has the effect of generating a lack of confidence in the Australian Government and the way in which it operates. So, we suffer not only from the overseas company concerned but also through the whole range of companies which have an interest in investment in Australia. We also suffer very greatly through the Australian company which has been frustrated in the business arrangement which it wishes to pursue. That can affect Australian shareholders very seriously. It can affect the share of the market which the Australian company has. It can lead to a whole range of Australian companies being doubtful about entering into arrangements with the overseas company. Quite clearly it is up to the Government to express its policy in legislation form, which previously it lacked.

It may be argued that, with changing economic circumstances, these requirements cannot be put in a piece of legislation. That is an argument which can be put and has been put. lt may have some merit to it. But there is no reason why one of two things cannot happen. The first is that the policy considerations can be expressed in a sub-legislative form, that is, by regulation. Then, until the regulation is changed, people can rely upon the regulation. Any change in the regulation is subject to the scrutiny of the national Parliament, either in the House of Representatives or in the Senate. I do not believe that it is beyond the drafting capacity of the Parliamentary Counsel to draft such a provision. It may be beyond the policy building capacity of the Government, but I would hope that the Government would not admit to such a shortcoming.

The other point which it is very important to emphasise is that Mr Hayden as Treasurer will receive a report from the Overseas Takeover Committee- a body still existing; it has no statutory form- in which that Committee would advise him. Having received that advice, the Treasurer will take whatever decision he chooses. He will merely say that the takeover is agreed to or the takeover is refused. There is no requirement for him to give any reasons whatever for his decisions. Even if he gave reasons, the reasons could not be tested. He could not be corrected if he acted wrongly, capriciously or- and I do not suggest it of him as a personmaliciously because he did not like a particular Australian company or a particular overseas company.

The bases of the policy are quite sound. I must say that they are sound because we established them, and they remain sound. But they are the net economic benefits in relation to such matters as competition, productive capacity, technological change, development of new markets, production, quality, the range of goods and services and the level of prices and efficiency which would be sufficient to justify a change in the foreign control of the businesses concerned. If they pass those national interest tests, there are additional criteria which are scarcely necessary really. The Treasurer is required to be satisfied that the takeover company would follow practices consistent with Australia ‘s interests. It needs to be pointed out that if a company comes into Australia, that company is subject to all the laws of Australia. It is subject to the tax laws and to the Companies Act. It is subject to policy decisions put into legislative form. Not only that, it is subject to the will of the Government when the Government expresses its wishes to the company. Quite clearly these could be put in a sublegislative form, even if not in a legislative form. The Government should consider the way in which the sole discretion of the Treasurer can be challenged and corrected if necessary. It is not sufficient to leave the matter solely to an amorphous committee on foreign takeovers to advise the Treasurer, and to leave it at that.

Overseas investment in Austrafia is particularly important to us. We must remember about overseas investment in Australia that it is essential that there be certainty in respect of both the Australian company and the overseas company. If we have that certainty, we can attract overseas investment. We will want overseas investment in Australia. The need for it is developing very strongly already. Without overseas investment, we cannot have the contributions which those overseas companies can give. Overseas involvement in Austrafia provides 4 major benefits for us. The first is technology. We do not have the capacity to develop our own technology in all areas. We do not have the capacity to involve the money which I would like to see involved in scientific investigation so that we can tap the resources of inventiveness and innovation which Australia possesses. We must have that technology. We do not want Australia to develop with people working with outmoded technology. Without that technology we cannot have productivity and we cannot compete with our competitors on overseas markets, and we will not be able to compete in our domestic market against imported goods.

We must have know-how to increase productivity. We must have the development of commodity markets. We can achieve that through the third point, that is, by marketing. By overseas involvement in Austrafia we can have a very much greater access to overseas markets. The mere fact that we have Australian companies associated with overseas companies opens up a very wide range of markets for us. Quite clearly we should not permit- we have the power to do this- overseas companies to put franchise restrictions on the Australian subsidiaries so they cannot export where they want or compete where they want. We need the access to markets which overseas capital would bring.

The fourth important point is that overseas investment in Australia supplements our domestic capital formation. To close the door to overseas investment in Australia will mean reduced growth and reduced productivity in Austrafia. It will inevitably lead to lower living standards. I do not mean absolutely lower than they are today; I mean that we will be a less achieving nation and what might be an increase of a factor of twenty will, in the future, be an increase of a factor of ten in our standard of living. If anyone wants examples of how overseas investment can build a country let them not forget to look at the way the American economy was built up on the basis of overseas capital, technology, access to markets and capital formation. The same thing can happen in other countries. We should not forego that ourselves. All developing nations want overseas capital. We must remember that we are in the curious position of being both developed, in the sense of a high living standard with a manufacturing capacity, and underdeveloped because of our massive raw resources which we need to put to the use of the Australian people to improve our standard of living and our capacity.

There are a couple of points which I shall mention in relation to this matter. I have heard arguments that we should require a 5 1 per cent ownership in all Australian commercial manufacturing enterprises. In my judgment that is a false position. If we were to require a 5 1 per cent ownership in all Australian enterprises it would mean for the time being a total incapacity to invest money in any new enterprises. It would require a redistribution of investment capital in a way which would be quite traumatic for us. The question then is: Could we set this target for the future? In the future we may be able to set that target for the future beyond that, but I think that at this stage it would be a bad error for us to adopt that course because it is not achievable by a great number of companies. If we have that as an objective presumably there will be an implied obligation to reach it. That would, in just the same way, redistribute the investment of capital in Australia. This would then spread and not increase the control in Australia by overseas companies. Everybody knows that 15 per cent, which is the basis of the legislation, in many instances will give control. So what advantage is it to say there must be a 51 per cent equity ownership if, in fact, control is within a small group of 15 per cent of the shareholders? I reject that proposition.

I want to see joint ventures. But I do not want joint ventures on the basis that an overseas company comes to Australia and issues capital to the Australian public as shareholders in the overseas company. As individual shareholders they would have no real capacity to influence the policy of that overseas company. If it is a joint venture and if all the Australian equity which is put out is in a single Australian entity, then we have an entity which can be in partnership in a joint venture arrangement with the overseas company. I believe that in this way we can encourage to the fullest overseas entry into Australia to assist us in the great job of developing Australia. No country has greater resources per capita than we have. No people have a greater right to expect achievement and rising living standards. But we will need the partnership and the co-operation of overseas capital in Australia to achieve that. If we do not achieve it we will have failed not only this generation but also future generations.

Mr KEATING:
Blaxland

-I do not disagree with a lot of what the right honourable member for Bruce (Mr Snedden) has said, but I think he is speaking a lot wider than the ambit of the legislation permits. He talked about overseas companies and corporations being entitled to certainty. Perhaps they are entitled to certainty when they invest in a fledgling industry, but are they entitled to certainty when they want to come in and take over an Australian business? I do not know the intention of the Department of the Treasury or of the Treasurer (Mr Hayden) in some of the aspects of this Foreign Takeovers Bill. But I bet that when we get down to the kernel of the matter, with the overseas provisions and the question of companies dealing company to company in another country we will find that they are largely conditioned by the New Zealand experience where a company like Industrial Equity Ltd has been a corporate raider in Australia operating across the Tasman. If it has any corporate problems it adjusts things in New Zealand so as to suit the situation here. These sorts of things have been going on.

We can look at all the classic takeover merchants. Slater, Walker Ltd has built up a fortune in Great Britain out of the simple technique of taking over on the stock exchange companies with undervalued assets. So if one could find an accountant of an old firm who would co-operate and tell one what the real asset valuation of a company was- money directors are lazy and like to see a good return on profit as a percentage of capital and so they leave the capital value of the assets underwritten- the underwritten assets would be a fair mark for a corporate raider.

Mr Les Johnson:
HUGHES, NEW SOUTH WALES · ALP

– Drug Houses of Australia Ltd.

Mr KEATING:

– Drug Houses of Australia Ltd as mentioned by the Minister for Aboriginal Affairs. Some other examples are Tjuringa Securities Ltd, Angus and Robertson Ltd and Toledo Berkel (Australia) Ltd. We can think of dozens of them. One of the classic cases was Angus and Robertson where Gordon Barton of Ipec Insurance Ltd fame came in and bought Angus and Robertson for a song. The takeover company stripped the assets, grabbed the building and left the business as virtually a hollow shell. The publishing section was taken to Great Britain. The last I saw of that once famous Australian publishing company was when it was selling books and records in a shopfront in Pitt

Street, Sydney. This legislation is to protect Aus.tralian companies against that sort of thing. There is nothing good and productive about this type of activity. The legislation is being beefed up to cover this sort of contingency.

Members of the Liberal Party point proudly to the fact that they were the people who brought in the legislation. The position is as the honourable member for Hunter (Mr James) said earlier: The horse has bolted. Because of the sad history of Australia, because of the pressures of the National Country Parry of Australia upon the Liberal Party and because of the undervalued currency in 1970, 1971 and 1972 there was a rush of money into this country. This happened to coincide with the fact that the wild west stock exchanges of Australia had most of Australia’s major companies in a position where their shares were available on the Australian stock exchanges at less than the asset backing of the company on a shareholding basis or on the value of the shares. So such companies were a prime target for takeover not only by the larger predator Australian companies but also by foreign companies in particular which had a bet running to nothing. The undervalued currency at one stage had to be revalued so such companies made a capital gain and got in on the ground floor in relation to assets which were very cheap. This was because the former government did nothing about a securities and exchange commission or about dragging the wild west stock exchanges into line. When the mining boom blew out in 1970 all it left was a lot of disappointed people. Confidence in any significant way has not yet returned to the stock exchanges of Austrafia since the mining boom experience. So we had company assets available cheaply even to Australians, but considering that our currency was undervalued they were exceptionally cheap to foreigners. That is why the Government has been interested in protecting these things.

It saddens me that members of the Liberal Party keep talking about the great benefits of foreign investment in Australia. I do not have such a dogmatic view that I say that every foreign company in Australia is bad or that such companies do not contribute anything to Australia because that is not true. But by the same token there is an enormous capacity for Australians to finance their own wellbeing and their own development. Australian capital savings are about the highest per capita in the world. Australian domestic capital formation is exceptionally high on the basis of local savings when compared with most countries.

The Fitzgerald report of only 1 8 months ago, the inquiry into the Australian mining industry, revealed that even in large corporations like Hamersley Iron Pty Ltd in Western Australia, though there was a lot of money standing to the credit of foreign corporations in fact most of it had been raised in the Australian capital market. It was not money that the companies had brought from Great Britain or the United States to Australia; it was money which they raised in Australia. That is the case with Esso-BHP. Some of the money was raised by the Broken Hill Pty Company Ltd in Australia and some was put in by Esso, foreign money, but most of it for that corporation was raised in Australia from the Australian capital market. So the consideration of the proposition that we should stand in awe of foreign capital I just do not think holds up. That is why the Government has been interested to make sure that this foreign takeover legislation has some teeth in it.

As I said before, the legislation was introduced by the McMahon Government after there had been an enormous number of takeovers. One could turn up the Australian Financial Review in 1970 on a Monday or Tuesday, the day it printed all of the current financial takeovers, and see there more than a page of details of takeovers every week, for the reasons I mentioned before. When pressure was applied, finally the McMahon Government had to do something about the situation. It brought in this piece of legislation, inadequate as it was.

Mr Armitage:

– Fear of the wrath of the people.

Mr KEATING:

– That is right. The legislation was introduced, inadequate as it was, because the issue of economic nationalism was a growing and important issue, and it was an election yearthat was another consideration. Over the period the Foreign Takeovers Committee of the Treasury has advised successive Treasurers, and even though the Act limits the power only to disqualifications of taking over the acquisition of voting shares. On a policy basis and on an administrative basis the Treasurer was able to investigate takeovers and to refuse some takeovers. Though we had not power under the Act to do it in many cases- it was voluntary- this was nevertheless accepted by the companies concerned because they realised that it needed only the passing through the Parliament of an Act to provide the power if they wanted to run the gauntlet of refusing to accept the decision of the Treasurer in that regard. We have looked at the experience of working with this legislation on a voluntary basis and with the advice of the

Foreign Takeovers Committee. We have extended, in heu of bringing in this Bill, the former Act on 2 occasions to make it current until, I think, the end of this year.

Mr Garland:

– Are you working outside the law?

Mr KEATING:

– It is not a matter of working outside the law; it is a matter of the Commonwealth Parliament having the power to pass an Act in this matter. The stick is in the cupboard. It is only a matter of bringing it out. The companies understood that the Parliament had the power. It was only a matter of the Government bringing it in. But the companies also understood that the Government was interested to bring in the right Bill with decent -

Mr Garland:

– Illegal pressure.

Mr KEATING:

– It has nothing to do with illegal pressure. The honourable member for Curtin is typical of all the lackeys from Western Australia who -

Mr DEPUTY SPEAKER:

- (Mr Keith Johnson)- Order! I ask the honourable member for Curtin to cease his constant interjecting.

Mr Garland:
Mr DEPUTY SPEAKER:

-I should not like the honourable member to be answering back to the Chair.

Mr KEATING:

– The honourable gentleman is caught up in the Western Australian mentality of laying slavishly to foriegn capital. It is a state of mind in the West, led by the guru of foreign money, Sir Charles Court, the Premier of Western Australia. Of course, all of the Federal members of the Liberal Party from Western Australia follow the old Western Australian foreign money guru. One notices that they are very quick to take up the point. Whenever the national interest is considered, whether it is talked about in terms of foreign takeovers or quantitative restrictions on capital inflow, there is always the bleating from the Opposition. The honourable gentleman talks now about Parliament exerting illegal pressure. There was nothing illegal about it. The Treasurer forbad certain takeovers and companies recognised that he had the power and the Parliament had the power, if the Parliament decided, to enact legislation to cover the situation.

Now legislation has come in to cover more than just the acquisition of voting shares. We all know that there are plenty of ways to skin a cat. Control can be gained not just by taking over the voting shares. One can look at the questions of mineral rights and the takeover of assets of a company and other things like splitting shareholdings so that a large shareholding group split into a number of smaller groups has greater voting power than perhaps one group would have; business takeovers by means of leases or licences over the assets of a business; the arrangements of boards and the commercial bigamy of boards which can be used to usurp powers of a company from a distance. These are matters which the legislation will cover to see that the evasions of the 1 972 Act of Parliament do not continue. But perhaps the most important of the methods is the one that the right honourable member for Bruce dwelt upon, namely, the transfer of control of businesses from one foreign group to another foreign group outside Australia. I do not think the provision dealing with this is there to be nasty or to be difficult; it is there to protect the Australian interest.

Of course not every takeover or prospective takeover which comes under the review of the Committee will be refused. That has not been the experience in the past. But in many cases, if it is just a takeover operation for asset stripping or the like there is no reason why it should not be refused. For one company to take over another out of Australia to operate a business in Australia which still operates in much the same way as the other company did, I would see no objection, and probably the Treasurer of the day would see no objection to its taking place. But the old asset strippers are in trouble around the world and everyone has woken up to them.

One of the difficulties these days is that there needs to be a revaluation of assets because a lot of companies find a continuing need to borrow money and they have to show the valuations of their company’s assets to banks, etc. There has been a need to upgrade those things. The days when a board could leave the company’s assets under-valued to make the returns look good have passed. Of course when they did that they were sitting ducks for the takeover experts to come in and just grab them up. Nevertheless, under the legislation the Treasurer remains the responsible Minister. This means that the Parliament can always exert some influence and representations can be made about a certain company or a particular group of companies.

While the Foreign Takeovers Committee is still there to give advice to the Treasurer, nevertheless the Treasurer is in a position where he can reject that advice if he feels that the advice does not correspond with the real situation. I think it is always a good rule to keep ministerial control over important areas, particularly in the corporate area, where the companies find difficulty in dealing with the bureaucracy- I think it is fair to say a lot of companies find difficulty in dealing with bureaucracies- and to keep an avenue open at the political level where members of Parliament can make representations to companies and companies can make representations to a Minister. That is a good thing and not a bad thing. I do not think that the assumption that leaving the matter in the hands of the Treasurer is not as good as leaving it in the hands of a number of people in the bureaucracy is a sound one. After all, the Treasurer is a person elected to the Parliament and is not a member of the Public Service of the Commonwealth. Therefore I think that is a feature that should not be condemned as it was by the right honourable member for Bruce.

I shall recount some of the details that the Treasurer mentioned when he first introduced the legislation in respect of the criteria the Foreign Takeovers Committee shall look at in respect of a proposed foreign takeover. The first criterion forjudging a proposed foreign takeover under the Bill will be whether, against a background of existing circumstances in the industry concerned, the takeover would lead either directly or indirectly to net economic benefits in relation to such matters as competition, productive capacity, technological change, development of new markets, production, quality and range of products and services, level of prices and efficiency which would be sufficient to justify the change to foreign control of the business concerned. If the proposed takeover is judged not to be against the national interest on this basis, the following additional criteria will also be taken into account: Whether, after the takeover, the business concerned could be expected to follow practices consistent with Australia’s interest in matters such as exports, imports, local processing of materials produced, research and development and industrial relations; and whether the takeover would be consistent with the Government’s objectives in relation to such matters as defence, the environment and conservation, urban and regional development and the preservation of Aboriginal land rights. In making judgments as to whether particular foreign takeovers would be against the national interest on any of the foregoing grounds, due weight will be given to the extent of the Australian participation in ownership, control and management that would remain after the takeover, and to the interests of employees, shareholders and creditors of the business subject to the takeover proposal.

I wanted to record those specific criteria in Hansard because I think it is important always to keep in focus the criteria behind the takeover considerations and the takeover legislation. I am glad that the Opposition sees fit to support this legislation though it goes down hard with a few honourable members opposite. I think it is a progressive measure. It does strengthen any government’s hand in dealing with companies seeking to take over companies operating in Austrafia or indeed Australian companies. I think it is fair to say that a lot of takeovers that have occurred in Australia have not been for the good of Austrafia. There is no reason we should permit a foreign company to take over a company which operates efficiently and effectively in the Australian context and which is an Australian company. That has been the case in many companies in the manufacturing sector. It has been particularly the case of companies in the food processing line. If honourable members, for instance, look at a company like General Foods of the United States, they will find that that company bought up many of the traditional food processing companies in Australia which operated competitively, efficiently and profitably. It has not served those companies, or Australia, well that they are now owned by a foreign company. They, should never have been owned by a foreign company. They should have been encouraged to remain as Australian corporate entities, and today they are not.

I have nothing against a foreign company coming to Australia and setting up an industry which is perhaps peculiar to another country for which we do not have the technology or the management in Australia. There are plenty of areas in which this will take place in the future. But to have those companies come into Australia and take over companies which have operated with Australian expertise and Australian management and have operated profitably and well, I think, is against Australia’s interests. If, in the 23 years of Liberal-Country Party Government that preceded the election of this Government to office, the same sort of sentiment had prevailed then we probably would have seen legislation enacted much earlier which would have prevented some of the major takeovers of the late 1950s and 1960s which means that those companies will never again belong to Australians.

As I said earlier, because of the criminal activities of the Country Party in pressuring the Liberals to keep the Australian currency undervalued for so long to suit primary producers -

Mr Corbett:

– That argument has worn thin.

Mr KEATING:

– No, it has not worn thin. If the honourable member wants to get back to it, it is the root cause of the inflationary bout which we have had since the mining boom. That was the trouble. Every economist in Australia will tell the honourable member that because of the corrupt activities of the Country Party and its corruptive influence on the Liberal Party the currency remained undervalued and assets were available cheaply in Australia for foreigners to come in and grab them. An Act of Parliament is required. If honourable members knew the domestic politics of the Opposition, they would be aware that when the Act was originally introduced by the McMahon Government it was done so in the face of opposition from the Country Party which has remained the lackeys of any business in Australia which wanted to buy them up. That is the situation and the context in which this legislation was introduced. It should have been introduced a lot earlier. We have waited until experience has shown that this is the right Bill to deal with the current situation. It deserves the support of all members of the House and I hope it will receive the support of the Senate.

Mr Ian Robinson:
COWPER, NEW SOUTH WALES · CP; NCP from May 1975

-The legislation to extend the Bill which prevents foreign takeovers now before the House must be supported. In doing so, however, I want to deprecate the attitude of the Government in this matter.

Mr Keating:

– You would.

Mr Ian Robinson:
COWPER, NEW SOUTH WALES · CP; NCP from May 1975

-I want to do so particularly on the grounds that members such as the honourable member for Blaxland who interjected seem to regard it as the sole political right of members of his Party to express views on and to assert principles and all that goes with it. At this juncture some comment is warranted on the origin of the legislation. When we recall that the original legislation was put on the statute book by the Liberal-Country Party Government in 1972, 1 think it ill behoves members such as the honourable member for Blaxland and others, in a quite misleading and mischievous way, to denigrate the Opposition whenever the question of foreign takeover, foreign investment and foreign ownership is debated in this country.

One must recall that for many years- for a couple of decades, in fact- under a LiberalCountry Party Government, there was tremendous expansion and growth in this nation. That was done without any sell-out or takeover of the kind that prejudiced the development of Australia or the utilisation of Australia’s natural resources. We have listened to comments this afternoon and on other occasions which, of course, give a very misleading picture of the lead-up to this legislation and the circumstances which brought it about. I want to recall, however, that in the period prior to 1972 administration by a Liberal-Country Party Government in this matter was effective, proper and in every respect was designed to achieve- and in fact did achieve- the results that were needed to give this country the kind of expansion and development which we then enjoyed but which has now, at the hands of the present Government, been well and truly lost.

Let us take, for example, the population trend. Let us go back 20 years. At that time we had a miserable population level in this country of about 4 million or 5 million. If we take the growth factor that occurred in the post-war period it could be sustained only by the development of our natural resources. This was done under guidelines laid down by the previous Government and, of course, implemented by the administration of that Government in a most effective way.

Mr Armitage:

– When?

Mr Ian Robinson:
COWPER, NEW SOUTH WALES · CP; NCP from May 1975

– The honourable member says ‘when?’. He, of course, does not want to remember that those guidelines which operated as a directive to the Reserve Bank, which put certain restrictions on capital coming into this country, the purpose for which that capital could be utilised and the nature of the businesses and enterprises to which it could be directed, really did a tremendous job of work for the development of this country. The honourable member who is attempting to interject again knows very well that former Ministers for Trade- I particularly refer to Sir John McEwen- had a policy which was in Arm hands and which really did implement the guidelines which were there and which are still the basis of the legislation being dealt with this afternoon. Those guidelines are very carefully referred to by the Treasurer (Mr Hayden) in his second reading speech and by the Minister for Overseas Trade (Mr Crean) in his contribution to the debate a little while ago, and in such a manner as to disclose that there is still a recognition of the importance of not having a star chamber process to determine what should and should not be done but that there should be guidelines which can be relied upon and implemented in a discreet, proper and realistic manner in the interests of investment in Australia. The honourable member who interjected would not understand that for a number of reasons.

I want to recall the catch-cry of members of the Australian Labor Party in this House, led particularly by the former honourable member for Riverina and the honourable member for Dawson (Dr Patterson) and a number of others in 1971-72. So blatant was their campaign that they denied the truth of the real issues involved. Over many years they talked about Australia being sold out. Then we had the clowning operation of members of the then Opposition floating publicly a buy back Australia campaign and even calling for contributions from the public. Of course members of the unsuspecting public, no doubt in great numbers, forwarded funds to a member whose name was publicised at the time. I think there would be reference to this matter in Hansard. He was going to buy back the Simpson Desert or do something of that kind. I wonder where the funds went. Of course, all of that was an effective campaign, based purely on emotions, to try to stir up and to undermine the real situation that existed in Australia at that time. We were in great need of funds to develop the natural resources of Australia but, of course, we insisted upon the implementation of the guidelines which prevented takeovers, which prevented a sell-out and which required investment to be done on orthodox and legitimate grounds. That was achieved despite the interference of the then Opposition.

What have we seen since that time? In the space of a little more than 2 years the present Government has relied upon the legislation introduced by the previous Government. All that we will be doing this afternoon in passing the BUI that is before the House will be to strengthen slightly those guidelines and the subsequent legislation and, in so doing, really to maintain what had been carried on for a quite long time before that. There is obviously good reason for this being the real pOliCy of the Government today. That good reason is because it has found to its dismay that it cannot attract investment into Austrafia. It has tried aU sorts of phoney means of bringing funds into the arena of the private sector. It has, of course, sought through the notorious channels that have been referred to in this House in previous debates to raise funds overseas in a manner that really reflects the incompetence and the stupidity of certain members of the Government.

What has the Minister for Minerals and Energy (Mr Connor) tried to do? He has tried to nationalise major Australian interests by seeking loan funds running into $3,000m or $4,000m from dubious sources overseas. Comparing that with the kind of system that has applied in the last couple of decades is like comparing a kindergarten with a full blown senior school as to knowing what it is aU about. The kindergarten approach that we have seen on the part of the Government really has been the cause of the drying up of funds for investment in Australian development. As a consequence we are now experiencing one of the worst depressions in this field in Australia’s history.

Last night’s Budget did nothing to correct the morass, the mess, the hideous situation in which we find ourselves whereby we have people unemployed and we have no development taking place of a nature that wil be revenue producing for this country and that wil provide job opportunities of the kind that could be offered. This is at a time when it is vital that we have basic development because, without it, we will not be able to withstand the pressures of the present economic climate, either in terms of trade or in terms of the economic situation internally or externally. This legislation fortunately does go part of the way towards giving some assurance to the people who would seek to invest in this country. I was pleased to hear some of the expressions made by the Minister for Overseas Trade in this regard. At least he was realistic in the speech that he made. What a contrast that was to the clowning by other honourable members on the Government side of the chamber, including the honourable member for Chifley, who interjected a short time ago.

Mr Armitage:

– I Will reply to what you have said.

Mr Ian Robinson:
COWPER, NEW SOUTH WALES · CP; NCP from May 1975

-If the honourable member for Chifley does reply he will just parrot the old claim that Austrafia has been sold out and that the Liberal-Country Party Government did not know its job. But who Will deny that today’s depression is very largely the result of the effect of the kind of policies, the kind of attitudes and the kind of stupidity that have flowed from the Government benches in the short time that the present Government has been in office?

I want to refer in particular to the reference made to this legislation by the Deputy Leader of the Opposition (Mr Lynch) and the right honourable member for Bruce (Mr Snedden). I believe that both of them traversed the important ingredients of the BUI- the various provisions it contains- and made very objective comment on them. For my part I say that the National Country Party of Australia has for a very long time adhered to the principle that we must not sell out Austrafia. In supporting this legislation it again cements that very firm conviction, but with the provisos which are so vital that where there is need for participation on a joint venture basis or participation on the basis that Australian capital is not available to undertake some major project or other, or where the development of natural resources cannot proceed without the assistance of overseas capital then it is right and proper that through this legislation, the previous legislation and the guidelines that preceded that, this kind of development should take place.

Time does not permit one to traverse the history of foreign investment in Australia, but suffice it to say that without it we would be a miserable example as a nation. Without what has been done over the years, with a few exceptions, this country would not be standing in the position it is in at the present dme. I take one enterprise as an example- the great Mt Isa development. There was not enough Austraiian capital to open that venture. The mineral lying there was known to exist but risk capital was required and backing was required to get the project going. It was an unprofitable venture for something like ten or fifteen years. Without overseas assistance the job just could not have been done. Relate that to the miserable attempts being made at the present time by the Government to implement a nationalisation policy in the areas in which major development is required. In that respect I think of the pipeline venture, which could have been undertaken and completed by private enterprise.

What is happening at the present time? First of all there is to be the expenditure of a huge amount of public funds. Public funds that ought to have been made available for other purposes are being channelled into this particular venture. What will be the ultimate result? Despite the reluctance of the Minister for Minerals and Energy to answer questions on this issue this morning, I am sure that history will disclose very clearly that nationalisation of this project was a great mistake for Australia. Funds that could have been spent on so many other aspects of community welfare and administration have been sunk into this project, which could have been undertaken by private enterprise. I think it will turn out to be a real error of judgment on the part of the present Government. I instance that because it is the kind of project that could have been undertaken by an Australian company without the need to call upon foreign investment to any extent to see it through.

That is just one example. If we find that the same kind of attitudes and policies are being applied in relation to the implementation of the legislation which is now before the House I am afraid that the provisions of the legislation will fall very short of what they could in fact do in the interests of development and expansion. All of this relates, of course, to important considerations, not just of this legislation in isolation but of the overall financial policy of the Government, its export policy, its export earning policy in particular, its policy on natural resources and especially its policy in relation to minerals. The Opposition has tried for months to get the Minister for Minerals and Energy to tell this Parliament, to tell Australia and to tell the nation what his real policy is on the development of our mineral resources. Thus far we have been totally unsuccessful in persuading the Minister to make any clear statement, to enunciate any policy whatsoever so that this nation can know where it is going, except of course to know that it is going down the drain in this direction.

In supporting this legislation I submit that this legislation alone is totally insufficient. If we are to restore confidence in this country, if we are to restore our economic structure and if we are to restore full employment all of these other matters need to be taken into account. I believe it is a tragedy that the Treasurer (Mr Hayden) failed to make any competent contribution in this direction in his Budget Speech last night. He would have known that the legislation we are now considering was on the notice paper and would be dealt with by this Parliament during the current week. I believe that there was an opportunity to tell Australia and the world what we really plan to do to restore confidence and to again see a resurgence in the development of Australia’s natural resources. This is all tied up with the question of foreign investment in this country and of attracting the funds required. No one can deny that funds are not required. The tragic efforts of the Government to seek funds to the extent of $3,000m or $4,000m prove conclusively that the Government recognises that there is a need for vast sums of money to be utilised if we are to bridge the gap that already exists. If we are to restore to some semblance of common sense a businesslike approach in regard to Australia’s future this legislation is very important. But it falls to the ground unless the other matters to which I have referred are given adequate attention.

I make one final appeal. It is time for members of the ALP- it is time for those rather hotheaded members of the back bench of the Government- to give up their propaganda against private enterprise and foreign investment, to become realists and to see that their folly has produced the unemployment problem that we have today and has put Australia into the position of losing its respect internationally for investment. It is time for the Government to restore confidence and to get this nation on the move again.

Mr ARMITAGE:
Chifley

-I think that surely I could be excused for being a little confused as to what was really the attitude of the honourable member for Cowper (Mr Ian Robinson). Was he supporting the Bill or was he opposing it? On two occasions I heard him say that he supported the Bill. But the whole tenor of his speech was that of a person who opposed the whole spirit and concept of the legislation- a person who advocated the continual and continuing sellout of Austalian industry to overseas sources. His whole speech was one of advocacy of fresh takeovers of Austalian industry. For that reason one cannot help feeling that what he really means is that the Opposition will support the Bill as it is but when it gets back into office it will administer the legislation in such a way that it will not matter whether the legislation is enacted or not.

Mr Jacobi:

– They will scuttle it.

Mr ARMITAGE:

– As the honourable member says, in effect they would scuttle it. Of course, they would leave it on the statute book but by administrative means make sure that they carried on their past policies which involved the takeover of large segments of Australia’s industry and resources. Of course, the greatest advocate of this, as the honourable member quite rightly pointed out, was Sir John McEwen. He was a great advocate in his day. Without a doubt it has always been the Country Party tail- I am not quite sure what that Party now calls itself; I think the latest is the National Country Party which is a consortium of the Country Party and the Democratic Labor Party- that has wagged the dog. As the Leader of the House (Mr Daly) has pointed out on innumerable occasions the National Country Party is notorious for having received large segments of overseas funds into their slush funds. Is it any wonder that for that reason it is so strongly in favour of continuing a policy which it carried out when it was in governmenta policy of a continual sell-out of Australia’s own assets, mineral resources and companies to overseas interests? I think that we also need to realise that this sell-out includes not only industry and resources but real estate as well- large segments of Australia’s real estate. In other words, members of the National Country Party are supporting this Bill today only because they are afraid of the wrath of the Australian people who want Australia owned by Australians. They know that this is the case. They know that if they oppose the Bill they will show their hand. That is the whole motive of the honourable member for Cowper.

I think that one has to look at the history of how the original interim legislation- the 1972 legislation- was introduced in this House on the eve of an election. The Bill was enacted on 9 November. The election was on 2 December. This gave the then government a great opportunity to do something on a very important issue. The legislation was introduced into this House only for the simple reason that the Labor Party Opposition of that day had continually carried out a campaign to ensure that Australia was not completely sold out to overseas interests. That is the history of the legislation and I once again repeat the dates. The election was held on 2 December. The legislation received royal assent on 9 November 1972, less than a month before the election. In other words, one could only call the legislation a little bit of window dressing. The then government did virtually nothing in terms of that legislation. The honourable member for Cowper had better check back on his facts because the policies which have since been carried out in terms of that legislation were carried out by the Australian Labor Party Government.

Let us look at how the legislation has operated. The interim legislation was renewed for another year in 1973 and for another year in 1974. But- and this is important- contrary to what the right honourable member for Bruce (Mr Snedden) said, the legislation was fortified by administrative action on the part of the Government. Such action was carried out with the co-operation of both Australian and overseas interests, and we give full marks for that. The legislation before us, of course, wil give teeth to the Government’s policy and wil remove the opportunity for companies to evade the policy of this Government. It is important that the legislation should contain this provision.

Mr James:

– Long overdue.

Mr ARMITAGE:

-As the honourable member for Hunter says, these measures are long overdue. We have not hurried or been panicked into this. We have carefully watched how the original legislation operated, and we have carefully assessed it. In December 1974, in a paper brought down by the then Treasurer, there was a full outline of the Government’s POliCY to be expressed in future legislation. That POliCY is now laid down in the BUI before the House. After some of the hysterical remarks of the honourable member for Cowper, I think it is very important to understand the Government’s policy on overseas funds coming into this country and on takeovers of Australian industry. It is a very simple policy and it is in writing in the Federal platform of the Australian Labor Party. We do not hide our platforms around the corner. Any person may go to any ALP office or to the Federal office in Canberra and buy a copy of our platform across the counter. Our policy is laid out clearly and publicly for everyone to see. Furthermore, it is fully expounded and explained in the statement made in this Parliament by the Treasurer in December 1974. What is the policy in simplicity? In simplicity, it amounts to this: A Labor Government is not opposed to the introduction of foreign investment, provided that foreign investment brings new know-how, new techniques or equipment which could not otherwise be provided. That is the policy. We insist that wherever practicable, there should be reasonable Australian equity in the organisation concerned.

Mr James:

– Mexico has had it for years.

Mr ARMITAGE:

– Yes, and look at Canada. We warned the previous Government. I could go back to 1962 when we warned the LiberalCountry Party Government as it was thenbefore the Country Party changed its name to the National Country Party and amalgamated with the Democratic Labor Party- that unless it took action on this issue it would get the same reactions as were occurring in Canada. In Canada, the Government has taken action to preserve its national heritage, the. same as we have had to take action. I press the point that the previous Government took action by way of interim legislation in 1972, which did not have enough teeth in it, only because it was forced to by the campaign carried out by the then Labor Opposition. I refer again to our policy. We do object to the takeover by overseas organisations of” the existing Australian enterprises- and I include Australia’s resources- which are operating efficiently and effectively. We do not object to the injection of overseas capital in an industry if that injection will bring know-how, techniques or equipment which would not be provided otherwise. We insist that wherever practicable there should be reasonable Australian equity.

Mr James:

– No more Coca Cola.

Mr ARMITAGE:

– Yes, I think we could even make Coca Cola with our own capital. The 1972 legislation, as I mentioned, was extended in 1 973 and 1974 and added to it by decision of the Government were administrative practices which operated with the voluntary co-operation of Australian and foreign interests. This was done because the original Bill affected only the means of acquisition of voting shares. It did not affect incorporated or unincorporated businesses by way of acquisitions of assets and mineral rights. Accordingly, administrative practices were introduced to maintain some control over incorporated or unincorporated businesses by means of acquisitions of assets and mineral rights.

This Bill, in addition to dealing with company takeovers affected by acquisitions of voting shares, contains a number of other new provisions. I quote the following passage from the second reading speech of the Minister Assisting the Treasurer:

First, takeovers covered by the 1972 policy measures, that is, takeovers of businesses by means of asset acquisitions and takeovers of mineral rights.

Second, takeover methods which have been used to evade-

I emphasise the word ‘evade ‘, the operation of the 1972 statutory and policy measures for the control of foreign takeovers. These comprise company takeovers effected by means of acquisitions of shares other than voting shares; company takeovers effected by means of splitting a large shareholding into small nominee groups where this has the effect of increasing the voting rights attached to the shareholding; business takeovers effected by means of leases or licences over the assets of a business; and business takeovers effected by agreements and arrangements relating to board representation rights and rights to participate in the management or profits of a business. (The main practical effect of these extensions will probably be to discourage use of such methods of evasion . . .)

Third, transfers of control of business from one foreign group to another.

In other words, we are looking at both acquisitions by overseas interests of Australian undertakings and the vetting, in cases where one foreign group already owns Australian assets where those assets are then being purchased or acquired in some manner by another foreign group. The Bill will also provide for the screening of certain transactions in the shares of a company incorporated outside Australia. That is the third provision. This provision is a logical consequence of the Bill’s coverage of transfers of control from one foreign group to another. We have no intention- it would be practically impossibleto vet every single instance, but we will make sure that a share deal which results in a change in the control of a company incorporated outside Australia will be examinable where either 50 per cent or more of the assets of that company are held in Australia or where the Australian assets amount to more than $3m.

Then we come down to a criterion which will be applied in administration of the new Act when implemented. Needless to say, the precise criterion has not been laid down in the Act because it is important and essential that it should be reasonably resilient, that there should be a need for flexibility to meet changing conditions. The criterion to be applied in the administration of the new Act will be whether against the background of existing circumstances in the industry concerned the takeover would lead either directly or indirectly to net economic benefits in relation to such matters as competition, productive capacity, technological change, development of new markets, production, quality and range of products and services, level of prices and efficiency which will be sufficient to justify the change in foreign control of the business concerned. If the proposed takeover is then judged not to be against the national interest, additional criteria will be taken into account, namely, whether after the takeover the business concerned could be expected to follow practices consistent with Australia’s interests in matters such as exports, imports, local processing of material produced, research and development, and industrial relations, and whether the takeover would be consistent with the Government’s objectives in relation to such matters as defence, environment and conservation, urban and regional development, and the preservation of Aboriginal land. Also taken into account- this goes particularly to whether or not the takeover is in the national interest- will be the extent of the Australian participation in ownership, control and management that would remain after the takeover, and the interests of the employees, shareholders and creditors of the business subject to the takeover proposal.

As I mentioned, this is in accord completely with the policy of the Australian Labor Party contained in its national platform, which is available for any individual to buy across the counter at any ALP office. It is equally in accord with the principles laid down in the statement delivered by the Government in this Parliament in December 1974. It is a very logical policy. There is nothing hysterical, as the honourable member for Cowper tried to suggest. Far to the contrary, it is a policy which will prevent evasion of the policy of this Government and put teeth in the legislation which did not exist under the original temporary legislation, or interim legislation, as it is called. Furthermore, it will ensure that there can still be introductions of overseas investment into Australia where that investment is going to bring worthwhile benefit to Austrafia; but it will also ensure, in the implementation of the criteria which will be used to administer the Act, that

Australian industry will not be unnecessarily taken over by overseas interests, as was occurring up to December 1972.

I finalise on this point, and I think the honourable member for Cowper and his friends in the consortium of the Country Party and the Democratic Labor Party now called the National Country Party should take note of it: In 1958 the Labor Opposition started warning the then government of the effects of its policies of deliberately encouraging the takeover of Australian industry by overseas interests. It took honourable members opposite 14 years from 1958 to 1972 to do anything about it, and then it introduced legislation which did not have the necessary teeth.

Mr Jacobi:

– It was a political gimmick.

Mr ARMITAGE:

– As the honourable member says, it was a political gimmick. It was done to try to protect the political skins of honourable members opposite. They knew that the wrath of the people was on them. They knew that the people opposed the takeover of Australia’s assets and resources by overseas interests. They tried to introduce a window dressing measure. It has been indicated by the speeches of honourable members opposite such as the honourable member for Cowper here today that if there were a change of government tomorrow they would go back to their despicable practices of the past.

Mr CONNOLLY:
Bradfield

-The Liberal Party and our colleagues in Opposition and soon in government, the National Country Party of Australia, are supporting this legislation because we believe that there is a need to control foreign investment and takeovers of Australian companies within Australia. Regrettably, the honourable member for Chifley (Mr Armitage) who has been in this House many years, does not seem to have a complete knowledge of the history of the legislation nor of the events which led up to it. As far back as 1965 the then LiberalCountry Party government brought in regulations to establish guidelines for foreign firms operating in Austrafia in relation to their borrowing of funds within Australia. This had the effect of encouraging overseas ventures to bring capital into this country. We have seen only too well over the last Vh years in particular the effect of government policies which were initiated without a reasonable understanding of the deep need to develop a sensitive appreciation of the role of the private sector.

Investors including foreign investors in recent times have not had the opportunity, to invest with any sense of security consequently the rate of foreign investment, especially in terms of private capital investment, nas fallen substantially from $600m in 1971-72 to minus $106m in 1973-74. I regret that the Statistician has not given us any more recent figures. I have no doubt, however, that when the figures are published we will see a further catastrophic fall in the rate of investment. In fact we now have a net loss of over $ 100m leaving Australia because of the economic situation which we all know only too well has been the responsibility of a government which has initiated policies which are irresponsible and have not taken into account the true situation of the Australian economy. With foreign investment we are dealing with a very delicate plant. It is a plant which matured after the Second World War in an atmoshpere of sustained economic growth. We achieved unprecedented national prosperity and growth not only because of our own efforts but because of the participation of foreign investment capital in this nation. Nevertheless there is a need to control the activities of foreign companies in Australia. I made that point in my first comments on this legislation. However, it remains to be seen whether this Government has any right to claim, as it obviously does, authorship for this legislation, because in fact the draft of this Bill was prepared by the Cabinet of the McMahon Government. As this Parliament is well aware, legislation was introduced on an interim level to try to overcome some of the problems which had become manifest by 1972.

The fact that the Foreign Takeovers Act of 1972, has continued up to the present time, merely shows the difficulty which the present Government has had, despite what it told the Australian people in December 1972, in formulating an effective foreign investment policy for this nation. Anybody who wants to read the figures cannot help concluding that to take out of our domestic economic framework the very real involvement of overseas capital would lead us into a situation from which we would have considerable difficulty in extricating ourselves. Regrettably that position has already been reached.

The legislation introduced by the McMahon Government in October 1972 gave effect to measures announced by the then Prime Minister as early as 26 September of the same year. The Bill enabled the Treasurer to prohibit a foreign takeover proposal from being implemented if contrary to the national interest. It is worth pointing out that the national interests as then defined by Mr McMahon in this House were virtually identical in terms to the definition used by the

Minister assisting the Treasurer (Mr Stewart) in his second reading speech on 22 May this year.

The McMahon legislation was intended as only a temporary measure, as I have already pointed out. Nevertheless it has been extended by the Whitlam Government on no fewer than 2 occasions- first in 1973 and later in 1974 and it has taken 2Vi years to draft this new legislation. The present Act does suffer from certain limitationsfor example it does not give the Treasurer the power to screen takeovers of assets and companies which are foreign-controlled but which have some Australian equity. Thus many takeovers have been consummated in recent years on an asset basis to escape the provisions of the Act. Similarly, some foreign companies have been able to structure their shareholdings to give the false appearance of being Australian controlled. This is achieved by share splitting or by concentrating control with one group of shareholders while another group simply has equity without the same degree of control. For example- I quoted this case when the legislation was last being extended in this House- Industrial Equity announced in May 1974 that it had restructured its issued shares by restricting the voting rights of overseas shareholders and large bundles of shares were placed in the hands of the staff superannuation fund. It is precisely to overcome that sort of activity which is quite obviously directed at finding loopholes in the legislation and therefore is not in Australie ‘s national interests that we are supporting this legislation. We believe, as we did when the original text was drafted in December 1972, that it goes a long way towards overcoming some of the more obvious problems we are facing in respect to foreign interest

The Act has been administered in the past by the Committee on Foreign Takeovers. This was originally established by the McMahon Government. The Committee consisted of officers from various departments, including the Treasury. Information requested by the Committee then had to be placed in the hands of the Treasurer. It is worth pointing out, however, that in June 1 974 the present Prime Minister (Mr Whitlam) announced the establishment of another committee, the Committee on Foreign Investment. It has never been explained to this House at least what are the distinctions in terms of the area of responsibility of these 2 committees. The latter one apparently reports to the Treasurer also and comprises representatives from the Department of Overseas Trade, the Department of Minerals and Energy and the Department of Manufacturing Industry. Its function is to provide advice on foreign investment proposals coming under notice through the exchange control mechanism, but which do not involve takeovers of Australian business. The Committee examines loans which foreign companies intend to arrange. If it decides that an intended loan requires further investigation, the approval or prohibition may take a further 4 months. Many companies are not clear as to which of these Committees they are supposed to be approaching. Therefore there has been a considerable degree of administrative overlap between the 2 committees. The confusion will, we hope, be overcome in this new legislation.

In addition, this Government in December 1972 decided that 25 per cent of all overseas loans should be deposited with the Reserve Bank. The effect which that had in the following months on the rate of overseas investment was also a contributory factor to the very major downturn in the Australian economy which we have seen take place since then. In fact I noticed today a comment in the 5 November 1974 issue of the Australian Financial Review about how it was expected that the Government’s decision to soften the requirements for the investment in the minerals industry would result in an inflow into Australia’s mining industry sector of some $4,000m. They called it a ‘coming mineral boom’. Regretably such optimism has certainly not seen fruit. If there is one thing Australia does need today more than she has in the last 5 years at least, it is an infusion of confidence both domestically and also from overseas to ensure that a serious attempt is made to increase the extent of investment in productive enterprises which will give Australians new jobs. One of the major difficulties we are facing as a result of Government policies is that the downturn in the economy is now having serious ramifications at all levels.

Foreign investment, as other speakers have pointed out, has made a very valuable contribution to the growth, efficiency and diversification of the Australian economy. In fact, many of our vast natural resources would probably never have been discovered and certainly not utilised but for foreign investment and risk capital. For example, if the new legislation had been operative, say, 10 years ago it is likely that companies such as Hamersley, Utah and Esso would not have been involved in resource development in Australia. It is worth pointing out that Esso was one of the companies which was responsible for finding the oil in Bass Strait which remains today the only viable oil field discovered in Australia. Without foreign investment, therefore,

Australia would be a less prosperous country. We would lack a firm industrial base which is essential for both economic development and strategic considerations.

We must also appreciate that restrictions on foreign investment and the resulting increased demand in Australia for equity participation to replace foreign capital will mean that less capital resources are available for development under Australian control. Thus, the Government must ensure that foreign investors are not frightened away from Australia. Although at the eleventh hour it is all very well for people to say, as Ministers have said in recent months, that the present Australian Government welcomes investment, the fact of the matter is that the record of the Government over at least the last 2 years does not support such a view.

Australia is at present experiencing a serious degree of capital starvation. I cited figures earlier to emphasise that point. The structure of the Australian capital markets has been basically altered by Labor through its desire to inject further funds into public projects at the expense of the private sector. This has resulted as a serious impairment to productivity in industry which in turn jeopardises both Labor’s programs and real private income. The Government should note that private capital spending weakened by more than 5 per cent in real terms during the last March quarter alone, and new capital spending fell from $1,1 79m in the December quarter to $ 1,161m. It is worth pointing out that the Chairman of the Australian Industry Development Corporation, Sir Alan Westerman, has estimated that Austrafia is likely to need at least $ 1,560m during the next decade to finance mining and industrial ventures alone. Thus it is important to recognise the role which foreign investment will continue to play in Australia’s growth. It is now essential that foreign investment is not discouraged. Of course there is a need to ensure that foreign investment is available to the sectors of the Australian economy where it is required in the national interest, and that the terms upon which foreign investment comes into this country are equitable and give a reasonable return both to the investor and to Australian business.

There are a number of matters of specific relevance to this legislation to which I would like to draw the attention of the House. For example, there does not seem to be any provision in the Bill for an appeal against a ruling by the Treasurer. The power which the Treasurer has under this legislation is very broad indeed. Reasons for the prohibition of an acquisition could, under the provisions of the Bill, be given in rather imprecise terms. The Treasurer could simply declare that the proposed takeover is against the national interest without having to go into any further explanation. Under the Trade Practices Act, it is worth pointing out that a corporation must demonstrate a substantial public benefit. Under the Companies (Foreign Takeovers) Act, which we are debating, the Treasurer merely has to be satisfied that the merger will not be contrary to the national interest. I would suggest that there is a case, as was pointed out by the Deputy Leader of the Opposition, for the Government to re-examine this to ascertain whether the actual administration of this legislation cannot be brought into line with that of the provisions of the Trade Practices Act. There is no point in having 2 Bills with 2 sets of complementary machinery. Both the tests and the procedures used for the latter Act appear to be less rigorous than the public benefit test under section 90 (5). Moreover, the non-public nature of the Treasury considerations as allowed for under this legislation, namely an interdepartmental committee, means that many interested persons will be unaware of the proposed acquisition of Australian assets and therefore cannot be in a position to make submissions to the Committee which they are able to do under the Trade Practices Act.

I also suggest that the factors specifically regarded as crucial in assessing mergers under section 50 of the Trade Practices Act, namely a substantial lessening of competition in the market and substantial public benefit, are not necessarily pre-requisites to a finding of no objection by the Committee on Foreign Takeovers. The procedure by which the Treasurer may override the Committee and the tests applied could well mean in practice the exact opposite of what I presume the Government intends, namely that foreign corporations may be able to receive more favourable treatment than their domestic counterparts can at present. There is a danger that, in the long run foreign control may increase by means denied to domestic companies. Perhaps the best way to solve this problem would be to adopt a system under which all mergers would be subject to the same authorisation provisions as under the Trade Practices Act, and that the Treasurer should have an additional right of control by way of veto or otherwise under a Companies (Foreign Takeovers) Act. Thus all companies would be on an equal footing. I fear that the new Companies (Foreign Takeovers) Bill will have the effect of aggravating the existing situation by treating foreign assets acquisitions in the same manner as shares and will increase to an unprecented extent the Treasurer’s powers under section 90 ( 1 1 ).

Another apparent weakness in the legislation is that the Treasurer may not prohibit a proposal by a foreign person who already controls a corporation to increase the extent of his ownership of that corporation. This would appear to be an omission because if the Government’s objective is to maximise the control of companies jointly owned by Australian and overseas interests, then such increases of control should be examined. It is worth pointing out, for example, that the present Minister for Minerals and Energy (Mr Connor) stated in this House on 23 October 1 974 that he would be farming out a large number of surrendered off-shore leases on a 50-50 basis and that four of the major oil companies at present were lined up waiting to participate with us on that basis. I would like to know whether in fact companies entering into contracts with the Government, even on a 50-50 basis, would be subject to examination by the Foreign Takeovers Committee.

In addition an examinable proposal under the legislation includes the acquisition of voting or non-voting rights in a corporation which has considered total assets greater than $3m. The Bill defines the value of assets in terms of balance sheet and book values. It could be more appropriate, I would suggest, for market values to be taken into account. For instance, if a mining company makes a discovery then the market value of the company will rise dramatically although its book value may well remain low. At the present time, for example, many companies are considerably undervalued in terms of their market value compared with their book value. Therefore assessing market values could be carried out by a suitably qualified person in relation to the application of this legislation. The Act should also include provision for foreign companies operating in Australia to supply information to the various stock exchanges on their activities as is presently required of Australian companies. There is no adequate provision for this in the legislation.

In relation to the Securities and Exchange Bill, which is presently in another place, I think there is a case for some co-ordination of legislation rather than what appears to be an unnecessary degree of ad hock activity in this type of policy formulation. There is no doubt that foreign companies acting in Australia should be open to public scrutiny at least to the same extent as Australian public companies. In other words, a comprehensive foreign investment policy requires that the operations of foreign owned companies be supervised so that they are consistent with the national interest. If necessary, additional legislation could be introduced to facilitate the employment of Australian personnel in managerial positions and majority Australian representation on the board of directors. Taxation surveillance of overseas firms with subsidiaries operating in Australia is also necessary to ensure that they do not avoid taxation. But the important thing to. remember is that we need to have a reasonable partnership of Australian opportunity with foreign expertise, of foreign investment with Australian resources, because only through that partnership can this country develop to the extent to which it is obviously capable and thereby take a major step forward in overcoming the very real economic difficulties facing us at present.

Mr JACOBI:
Hawker

– I rise to support the Bill. It is pleasing to note that on this very rare occasion the Opposition will join with us in supporting the legislation. As I understand it the Bui introduces legislation for the screening of foreign takeovers of Australian businesses and the prohibition of such takeovers as are determined by the Treasurer to be against the national interest. Since foreign takeover controls were first introduced in 1972 they have operated on the following basis: Firstly, the interim legislationthe Companies (Foreign Take-Overs) Act 1972-1974- extends to foreign takeovers of companies effected by means of acquisitions of voting shares; and secondly, the policy measures taken in December 1974 when the Government announced its comprehensive foreign takeover legislation proposals, extended to takeovers of incorporated or unincorporated business by means of acquisitions of assets, and mineral rights.

As I understand it, the likely effect of the new proposals will be, firstly, takeovers of businesses by means of asset acquisitions and takeovers of mineral rights. As the existing legislation is confined to transactions, the acquisition of assets has been used on occasions to avoid the terms of the Act. However, this kind of thing appears to be infrequent, and the main reason for the observation is that companies are aware of the nature of the existing legislation and the Government’s stated intention to close the loopholes. There is also the possibility of retrospection that may apply to any new legislation we may bring in. At present the Government has no control over the transfer of control of businesses from one foreign group to another although the transactions may mean that the effective control of an Australian business can change hands without there being any change in the legal ownership of the Australian business. This may occur if the Australian business is owned by an overseas company which is taken over by another foreign interest.

It would not be feasible or desirable to attempt to examine all overseas transactions in the shares of a company incorporated outside Australia. The intention is to limit the examinations to transactions which on rare occasions could result in a change in control of major Australian businesses which would be against the national interest. Therefore the Bill provides that a transaction involving voting or non-voting shares which results in a change of control of a company incorporated outside Austrafia will be examinable where 5 1 per cent or more of the assets of that company are held within Australia or where its Australian assets exceed $3m.

Let me refer to recent cases of foreigners involved in Australian businesses where the Government has no power under the existing Act to intervene. I was very interested in the case of Delhi International Oil which proposed to sell 50 per cent of its shares in the Cooper Basin reserve to the French Aquitaine group. The second case was the proposed sale of the St Martin’s property group to interests from Kuwait. In another case the Martin Corporation sold its 40 per cent of the shares in a Western Australian finance companyGeneral Investment Company Ltd- to the New Zealand Broadlands group. This was a transaction between foreigners outside the scope of existing legislation. It was referred to the foreign investment committee which investigates cases where no action can be taken under the existing Act and which involve foreign investment and exchange control.

The Government expects that it may be necessary to invoke the extension of the legislation only on very rare occasions, so its effect on foreign investment may not be significant. It is proposed that the criteria for determining national interest be widened to take into account all competition, productive capacity, development of new markets, conservation, urban development and the preservation of Aboriginal land rights. This will increase the chances of foreign takeovers in this category being found to be against the national interest.

I want to make some observations on the remarks made by the right honourable member for Bruce (Mr Snedden), the honourable member for Cowper (Mr Ian Robinson) and the honourable member for Bradfield (Mr Connolly). I would like to try to explode some of the repeated cliches and myths surrounding the

Government’s policy particularly in the field of minerals and energy which is crucial to the national interest. In my view there are subtle methods by which overseas corporations can control our vital industries other than by share transactions, manipulations or board nominee manipulations. Let me give some examples about which I am extremely concerned at the moment. I intend to draw them to the attention of the Minister for Minerals and Energy (Mr Connor). The first is the reorganisation of the Aberfoyle group of companies which is now under the control of Cominco, a big Canadian mining group. This will bring the new Que River or Macintosh deposits under the control of the Canadian company through Aberfoyle. I believe that this reorganisation is in progress. Details have not been announced.

Let us have a look at what rules will govern the ball-game in this particular context. As I understand it, the leasing of the deposits by the Tasmanian Government will have no regard to ownership, unless the Tasmanian Government follows the legislation operating in South Australia to the effect that no new leases are to be granted other than to companies with a 50 per cent or more Australian ownership. I understand that that situation applies in New South Wales but I may be wrong. We can intervene as a government by refusing or limiting export sales of copper, lead or zinc from the new Macintosh field when it comes into operation. Obviously this would be too late and not effective in any way towards preserving the national interest. Alternatively the Tasmanian Government could refuse the lease unless the company controlling the lease were Australian controlled. It ought to be realised that this particular deposit in the Macintosh field in Tasmania is of world importance both in size and grade. Yet it is my belief that it is destined under the present legislative conditions to become overseas controlled.

Let us look at another concept not provided for in this legislation. I refer to a very subtle method of control. The consortia controlling Robe River, Savage River or the Gove bauxite deposits illustrate how foreign companies with minority equity interests control the working of major Australian mining resources and reap continuing benefits regardless of the profitability or otherwise of the operation. This is accomplished by having management and sales agreements with the consortium partners. In effect, they can obviate this legislation. An example is the Cleveland-Cliffs Iron Co. With only 12 per cent equity it receives 1 *V** per cent of the selling price, other than in relation to sales to Japan. The royalty for technical know-how and the management fee are all profit to Cleveland-Cliffs. Whereas Robe River Ltd, the Australian company, which is the Bond corporation, with a $100m investment and a 35 per cent interest, receives no return at all as far as the non-profitable stage of the Robe development operation is concerned. Surely under normal circumstances a public company with a 35 per cent interest would control the whole operation? But without management and technological expertise the $100m investment remains in the hands and at the mercy of foreign companies.

In effect Savage River Mines, Gove Joint Venture and Robe River are operations in Australia which have succumbed to the financial strength and professed expertise of foreign companies. They obtain semi-processed Australian minerals at bargain prices for industrial uses in their respective countries. In other words, they capitalise on the finished product. Agreed, consortiums, we would all agree, I think, are a sound way of developing large mineral deposits. But it is most important that such ventures have an Australian bias and Australian management, expertise and control. I was very interested in the remarks of the 3 previous speakers from the Opposition side about the need for foreign investment, technology, managerial expertise and capital to invest in the risk sector, particularly in mining. It is my belief that the reason for the need for foreign investment and technology is largely because of the lack of courage by individual investors in Australia and the lack of any foresight or courage by the financial institutions, whether they be merchant banks, banks, insurance companies or stock exchanges.

Basically, it ought to be remembered that nearly all the major mining fields in Australia have been discovered by Australian technology or personnel and not by overseas technology or persons. I shall cite an example which worries me greatly. Pan-Continental disposed of 25 per cent of its shares at less than $ 1 and possibly as low as 50c to Consolidated Gold Fields Australia Ltd at a time when the control of the company could have been obtained for $750,000. Not one stockbroking firm, financial institution, merchant bank, insurance company or individual in this country was prepared to take an investment in Pan-Continental. Yet today that is regarded as one of the largest and richest uranium fields in the world. Its shares stand at $6 plus. That is an indictment of Federal and State governments and financial institutions in this country.

There is another matter to which I want to make reference. The 3 honourable members who spoke for the Opposition talked about risk capital exploration which had been developed by overseas corporations in this country. Utah Development, Hamersley Holdings Ltd and Thiess Peabody Mitsui Coal Pty Ltd are perhaps 3 of the biggest mining ventures in the world. Their fields were discoverd by Australians and were recorded by the Bureau of Mines in respective States. In the case of Hamersley, it was recorded as early as 1880 in Western Australia. In the case of the Bowen Basin deposits, they were discovered by Leichhardt in 1827. A full report on the depth and volume of the Bowen Basin coking and steaming coal deposits was tabled in the Queensland Parliament in 1879. Let us not have this nonsense that we have to get foreign capital into this country to discover our national wealth which has been known for over a century.

I have a second question which I ask honourable gentlemen opposite when they talk about the need for foreign capital. If anybody invests in Utah, Thiess Peabody Mitsui or Hamersley, does anybody in this House assume that the development capital which is poured into Australia is equity capital? Surely nobody on either side will put that as a logical proposition. Let it be remembered that 75 per cent of the capital to develop Hamersley in Western Australia was created from internal resources. The whole of the Hamersley managerial and technological expertise was Australian. We ought to ask the question: Why is it that an overseas corporation like Utah, Kaiser Aluminium and Chemical Corporation or Peabody can in fact raise the necessary risk capital on the international market? That is where they got their capital. It was not from shareholders. Yet we in this country do not have faith in our internal financial institutions or we do not galvanise our internal financial institutions to raise the same capital on the international market. I say quite sincerely that that is an indictment of the Federal and State government and of the institutions in this country.

I agree with the honourable member for Bradfield. I think it is time that somewhere along the line we set out the guidelines to establish the necessary confidence and security in the financial market in this country to encourage investors, whether they be private or from the merchant banking fields, insurance corporations or government, and to galvanise the internal capital to preserve and maintain these resources which are the real wealth of this country. It is my belief that the legislation now before the House is a constructive method by which we can retain control of what in effect is our national interest. I support the legislation.

Mr RUDDOCK:
Parramatta

– I rise to support this Foreign Takeovers Bill, not because it is the most perfect piece of legislation but simply because it will enable the job to be done adequately in the circumstances.

Mr Kevin Cairns:
LILLEY, QUEENSLAND · LP

– It is less than semi-perfect.

Mr RUDDOCK:

-I thank my honourable friend for his valuable interjection. Of course there is evidence in much of the legislation which shows that it is imperfect. But if we seek to make it perfect we are told that we are obstructionists. I think these matters ought to be seen in that perspective. The Bill is adequately expressed, for its purpose, in the explanatory memorandum which states:

The screening of proposed acquisitions and arrangements which would give foreign persons -

Persons is defined as including foreign corporations- control of Australian businesses,

The prohibition of such proposals that are determined by the Treasurer to be against the national interest,

The ‘unscrambling’ of such acquisitions and the ‘unwinding’ of such arrangements which are completed without due notice having been given to the Treasurer and which are determined by the Treasurer to be against the national interest.

This Bill supersedes the Companies (Foreign Takeovers) Act 1972 and as it was amended in 1973 and 1974. I believe the crux of the legislation is embodied in that part which enables the Treasurer to prohibit proposals which he sees to be against the national interest. I refer particularly to clauses 18,19 and 20 in which the control of take-overs and like transactions is set out. There are essentially 3 points to the Treasurer exercising that control. He has to be satisfied as to 3 matters which are:

  1. a person proposes, or persons propose, to acquire shares in a corporation or a corporation proposes to issue shares:

  2. the proposed acquisition or acquisitions or the proposed issue would have the result that-

    1. in the case of a corporation not controlled by foreign persons- the corporation would be controlled by foreign persons; or
    2. in the case of a corporation controlled by foreign persons- the corporation would continue to be controlled by foreign persons, but those persons would include a person who is not, or would not include a person who is, one of the foreign persons first referred to in this sub-paragraph; and
  3. that result would be contrary to the national interest, the Treasurer may -

It is not obligatory upon him- make an order prohibiting the proposed acquisition-

And so on. That is the control. There are no guidelines that set out what is in the national interest. The Press statement to which we were referred when the public announcement was made, which indicated what would be done in this Bill, makes it clear that the Government has in mind certain criteria. Those criteria I find set out on page 6 of the Press release annexed to the explanatory memorandum. It states:

The first criterion forjudging a proposed foreign takeover will be: whether, against the background of existing circumstances in the industry concerned, the takeover would lead, either directly or indirectly, to net economic benefits in relation to such matters as competition, productive capacity, technological change, development of new markets, production quality and range of products and services, level of prices and efficiency which would be sufficient to justify the change in foreign control of the particular industry that would result from the takeover.

It continues:

If the proposed takeover is judged not to be against the national interest on this basis, the following additional criteria will also be taken into account:

Whether after the takeover, the business concerned could be expected to follow practices consistent with Australia’s interest in matters such as exports, imports, local processing of materials produced, research and development and industrial relations; and

Whether the takeover would be consistent with the Government’s objectives for defence, the environment and conservation, urban and regional development or the preservation of Aboriginal land rights.

In making judgments as to whether particular foreign takeovers would be against the national interest on any of the foregoing grounds, due weight will be given to:

The extent of Australian participation in ownership, control and management that would remain after the takeover; and

The interests of employees or shareholders of the business subject to the takeover.

The reason I have read those provisions is that it is clear that the Government has in mind circumstances by which the national interest will be judged. In the comparable Canadian legislation, the Foreign Investment Review Act, which we have heard praised by the Deputy Prime Minister and Minister for Overseas Trade (Mr Crean)- this is an Act to do the same as our Act is to do in terms of controlling foreign investmentthe factors to be taken into account in arriving at an assessment are set out. I have with me the appropriate legislation, printed in French and English, from Canada. I refer the Minister to section 2 of that Act in which the purpose of it is set out. Section 2(2) is summarised in a simple brochure that is available from the Canadian High Commission here in Canberra. It states:

A takeover will only be permitted if it offers significant benefit to Canada when the following factors are considered:

It goes on and deals with the effect of the acquisition, the degree of significant participation by Canadians and it deals with the effect of acquisition on productivity, industrial efficiency, technological development, product innovation, product variety in Canada, the effect of acquisition on competition with any industry or industries in Canada and so on. These important factors are set out. I believe they are set out to guide any court, if it happens ever to be in a position to review a Minister’s discretion and exercise of discretion. In other words if the courts are to provide any reasonable legal review this is to give them some basis upon which the criteria, the judgment of what is in the national interest, can be judged. There are no criteria in the Australian legislation by which this is to be judged.

The question of criteria was referred to by the honourable member for Chifley (Mr Armitage). He dealt, I think adequately, with the very reasons why there ought to be criteria in this legislation. He asked: ‘What will happen if there is a change of government to a government which has a different view as to the manner in which this discretion ought to be used?’ He said that maybe the Opposition would not use the discretion in the same way as the Government would. I think his judgment is quite correct. We may well not use it in the same way as he would. I would be concerned if the judgment were not to be exercised at all. I do not think that would be the case, but I would be concerned. I think it is clear that if the Government has some criteria and if they were set out in the legislation Australians would be satisfied that there was to be a proper basis upon which judgment would be exercised. The honourable member’s point was valid but in fact it shows up the total inadequacy of this legislation.

I want to deal shortly in the time left to me with a number of other points. This Government prides itself on its attitude to open government. I have on today’s notice paper at page 8805 question No. 2255 addressed to the Treasurer. It asks:

With reference to the Prime Minister’s answer to my question No. 1779 (Hansard, 5 December 1974, page 4763), has his attention been drawn to the book of Mr J. J. Spigelman entitled Secrecy- Political Censorship in Australia and, in particular, An Inside Dopester’s Index of 100 Examples of Secrecy,-

I am sure all honourable members have been referred to this by the number of questions that I have asked. I asked also:

Has his attention also been drawn to indexed item 47- Treasury studies of foreign takeovers?

I asked:

In respect of that item, has it been made publicly available since 1972; if so, when, and in what manner, and by whom was the disclosure made? If the item has not been made publicly available, what is the reason for the continuing secrecy?

Quite clearly the Government has no intention of allowing open government in this field. It has no intention of allowing the public to know what the criteria are and in fact the studies that have been made of which the Prime Minister was very critical at the time have not been made available for public scrutiny either. The question which I asked back in April has not been answered. I am pleased that the Treasurer (Mr Hayden) is in the chamber and has remained here during this debate. I hope he will ask his officers to look into why this question has not been answered and will indicate clearly, if this information is not to be made public, what the reasons for the continued secrecy are.

In this area, with the sort of discretions we have, a great deal of harm can be done- harm that is exemplified by the sort of headlines that we have seen in newspapers over a long period when the Government has gone on its binges of foreign company attacks. They read: “Scare-off” foreign takeover laws begin to bite’, ‘List for check on foreign grabs’, ‘Reserve Bank to act’, ‘Australia is not for sale, foreign investors told’. These are the sort of headlines that we have seen as honourable members opposite seek publicity. With the sort of Act that we have without guidelines a great deal of harm can be done when that sort of power is exercised in the hands of the wrong people.

But if one is to be realistic, the matter which is of greatest concern to me as a member of this House is the prospect that always exists that our taxation laws might not work adequately to ensure that foreign companies in Australia provide the proper taxation revenue to Australia. One sees articles appearing in various journals. One I noticed was in Business Week of December 1970. The article was titled ‘Finding ways to beat the tax bite’. It dealt with transfer pricing and foreign havens. In the United States and in other countries a great deal of attention has been devoted to amending taxation legislation to ensure that foreign companies, by their very pricing activities and their international affiliates, are not able to avoid domestic taxation laws.

I have here a paper that was prepared by a friend of mine who certainly was against a proposal that the honourable member for Mackellar (Mr Wentworth) put up at one time dealing with a discriminatory form of tax against foreign companies. Considering the Europa Oil case, the

New Zealand case which set out much of the basis upon which the Australian Taxation Commissioner might be able to review transactions which are designed to shift taxation, he wrote:

Where … the transaction is not so ‘blatant’, the Commissioner may have difficulties.

This was in relation to the Europa Oil case. He continued:

If, for example, in the Europa Oil case the routing of the crude oil supplies through the Bahamian subsidiary did have commercial significance, then the decision may have been resolved differently. In that particular case, the taxpayer could not justify the structure of the transaction on any ground other than tax planning.

This gentleman went on to consider for me the part of the United States’ legislation which is comparable to our own Income Tax Act at section 136 and also sections 38 to 43 of our Income Tax Assessment Act. He considered the United States section of the Inland Revenue Code. I will read the relevant paragraph of his advice on this section and will later seek to incorporate certain information which I intend to offer to the Minister so that I can conclude my remarks quickly. He stated:

The comparable provision for allocation of income in the United States is section 482 of the Internal Revenue Code. This provision applies not only to transactions between U.S. companies and foreign companies, but also to transactions which are wholly domestic, i.e., between domestic U.S. companies. It gives the Commissioner the power to distribute, apportion or allocate income between related parties ‘ to such extent as is necessary in order to prevent evasion of taxes or clearly to reflect the income of any such parties’. To remove any doubt as to how the section operates, clearly detailed regulations have been issued. These cover most situations and provides taxpayers with a fair degree of certainty in structuring their commercial operations on a basis which will be acceptable to the tax authorities. A copy of this section and of the regulations is enclosed . . .

He gave those to me. The relative sections are set out in the CCH. Standard Federal Tax Reports, pages 36, 247 to 36, 285. 1 seek leave to incorporate those pages of that report in Hansard.

Mr DEPUTY SPEAKER (Mr Armitage:
CHIFLEY, NEW SOUTH WALES

-Is leave granted? There being no objection, leave is granted. (The document read as follows)-

page 320

PARAGRAPH 2990 ALLOCATION OF INCOME AND DEDUCTIONS AMONG TAXPAYERS

Section 482 1954 Code. In any case of two or more organisations, trades, or businesses (whether or not incorporated, whether or not organised in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, the Secretary or his delegate may distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among such organisations, trades, or businesses, if he determines that such distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organisations, trades, or businesses.

Regulations

Paragraph 2991 Section 1.482-1. Allocation of income and deductions among taxpayers.- (a) Definitions. When used in this section and in Section 1 .482-2-

  1. The term ‘organisation’ includes any organisation of any kind, whether it be a sole proprietorship, a partnership, a trust, an estate, an association, or a corporation (as each is defined or understood in the Internal Revenue Code or the regulations thereunder), irrespective of the place where organised, where operated, or where its trade or business is conducted, and regardless of whether domestic or foreign, whether exempt, whether affiliated, or whether a party to a consolidated return.
  2. The term ‘trade’ or ‘business’ includes any trade or business activity, of any kind, regardless of whether or where organised, whether owned individually or otherwise, and regardless of the place where carried on.
  3. The term ‘controlled’ includes any kind of control, direct or indirect, whether legally enforceable, and however exercisable or exercised. It is the reality of the control which is decisive, not its form or the mode of its exercise. A presumption of control arises if income or deductions have been arbitrarily shifted.
  4. The term ‘controlled taxpayer’ means any one of two or more organisations, trades, or businesses owned or controlled directly or indirectly by the same interests.
  5. The terms ‘group’ and ‘group of controlled taxpayers’ mean the organisations, trades, or businesses owned or controlled by the same interests.

  6. The term ‘true taxable income’ means, in the case of a controlled taxpayer, the taxable income (or, as the case may be, any item or element affecting taxable income) which would have resulted to the controlled taxpayer, had it in the conduct of its affairs (or, as the case may be, in the particular contract, transaction, arrangement, or other act) dealt with the other member or members of the group at arm’s length. It does not mean the income, the deductions, the credits, the allowances, or the item or element of income, deductions, credits, or allowances, resulting to the controlled taxpayer by reason of the particular contract, transaction, or arrangement, the controlled taxpayer, or the interests controlling it, chose to make (even though such contact, transaction, or arrangement be legally binding upon the parties thereto).

    1. Scope and purpose. (1) The purpose of section 482 is to place a controlled taxpayer on a tax parity with an uncontrolled taxpayer, by determining, according to the standard of an uncontrolled taxpayer, the true taxable income from the property and business of a controlled taxpayer. The interests controlling a group of controlled taxpayers are assumed to have complete power to cause each controlled taxpayer so to conduct its affairs that its transactions and accounting records truly reflect the taxable income from the property and business of each of the controlled taxpayers. If, however, this has not been done, and the taxable incomes are thereby understated, the district director shall intervene, and, by making such distributions, apportionments, or allocations as he may deem necessary of gross income, deductions, credits, or allowances, or of any item or element affecting taxable income, between or among the controlled taxpayers constituting the group, shall determine the true taxable income of each controlled taxpayer. The standard to be applied in every case is that of an uncontrolled taxpayer dealing at arm’s length with another uncontrolled taxpayer.
  7. Section 482 and this section apply to the case of any controlled taxpayer, whether such taxpayer makes a separate or a consolidated return. If a controlled taxpayer makes a separate return, the determination is of its true separate taxable income. If a controlled taxpayer is a party to a consolidated return, the true consolidated taxable income of the affiliated group and the true separate taxable income of the controlled taxpayer are determined consistently with the principles of a consolidated return.

  8. Section 482 grants no right to a controlled taxpayer to apply its provisions at Will nor does it grant any right to compel the district director to apply such provisions. It is not intended (except in the case of the computation of consolidated taxable income under a consolidated return) to effect in any case such a distribution, apportionment, or allocation of gross income, deductions, credits, or allowances, or any item of gross income, deductions, credits, or allowances as would produce a result equivalent to a computation of consolidated taxable income under subchapter A, chapter 6 of the Code.

    1. Application. Transactions between one controlled taxpayer and another will be subjected to special scrutiny to ascertain whether the common control is being used to reduce, avoid, or escape taxes. In determining the true taxable income of a controlled taxpayer, the district director is not restricted to the case of improper accounting, to the case of a fraudulent, colorable, or sham transaction, or to the case of a device designed to reduce or avoid tax by shifting or distorting income, deductions, credits, or allowances. The authority to determine true taxable income extends to any case in which either by inadvertence or design the taxable income, in whole or in part, of a controlled taxpayer, is other than it would have been had the taxpayer in the conduct of his affairs been an uncontrolled taxpayer dealing at arm’s length with another uncontrolled taxpayer.
    2. Method of allocation. (1) The method of allocating, apportioning, or distributing income, deductions, credits, and allowances to be used by the district director in any case, including the form of the adjustments and the character and source of amounts allocated, shall be determined with reference to the substance of the particular transactions or arrangements which result in the avoidance of taxes or the failure to clearly reflect income. The appropriate adjustments may take the form of an increase or decrease in gross income, increase or decrease in deductions (including depreciation), increase or decrease in basis of assets (including inventory), or any other adjustment which may be appropriate under the circumstances. See section 1.482-2 for specific rules relating to methods of allocation in the case of several types of business transactions.

  9. Whenever the district director makes adjustments to the income of one member of a group of controlled taxpayers (such adjustments being referred to in this paragraph as ‘primary’ adjustments) he shall also make appropriate correlative adjustments to the income of any other member of the group involved in the allocation. The correlative adjustment shall actually be made if the U.S. income tax liability of the other member would be affected for any pending taxable year. Thus, if the district director makes an allocation of income, he shall not only increase the income of one member of the group, but shall decrease the income of the other member if such adjustment would have an effect on the U.S. income tax liability of the other member for any pending taxable year. For the purposes of this subparagraph, a pending taxable year’ is any taxable year with respect to which the U.S. income tax return of the other member has been filed by the time the allocation is made, and with respect to which a credit or refund is not barred by the operation of any law or rule of law. If a correlative adjustment is not actually made because it would have no effect on the U.S. income tax liability of the other member involved in the allocation for any pending taxable year, such adjustment shall nevertheless be deemed to have been made for the purpose of determining the U.S. income tax liability of such member for a later taxable year, or for the purposes of determining the U.S. income tax liability of any person for any taxable year. The district director shall furnish to the taxpayer with respect to which the primary adjustment is made a written statement of the amount and nature of the correlative adjustment which is deemed to have been made. For purposes of this subparagraph, a primary adjustment shall not be considered to have been made (and therefore a correlative adjustment is not required to be made) until the first occurring of the following events with respect to the primary adjustment:

    1. The date of assessment of the tax following execution by the taxpayer of a Form 870 (Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment ) with respect to such adjustment,
    2. Acceptance of a Form 870-AD (Offer of Waiver of Restriction on Assessment and Collection of Deficiency in Tax and Acceptance off Overassessment)
    3. Payment of the deficiency,
    4. Stipulation in the Tax Court of the United States, or
    1. Final determination of tax liability by offerincompromise, closing agreement, or court action.

The principles of this subparagraph may be illustrated by the following examples in each of which it is assumed that X and Y are members of the same group of controlled entities and that they regularly compute their incomes on the basis of a calendar year:

Example ( 1 ). Assume that in 1 968 the district director proposes to adjust X’s income for 1966 to reflect an arm’s length rental charge for Y’s use of X’s tangible property in 1966; that X consents to an assessment reflecting such adjustment by executing a Waiver, Form 870; and that an assessment of the tax with respect to such adjustment is made in 1 968. The primary adjustment is therefore considered to have been made in 1968. Assume further that both X and Y are United States corporations and that Y had net operating losses in 1963, 1964, 1965, 1966, and 1967. Although a correlative adjustment would not have an effect on Y’s U.S. income tax liability for any pending taxable year, an adjustment increasing Y’s net operating loss for 1966 shall be deemed to have been made for the purposes of determining Y’s U.S. income tax liability for 1968 or a later taxable year to which the increased operating loss may be carried. The district director shall notify X in writing of the amount and nature of the adjustment which is deemed to have been made to Y.

Example (2). Assume that X and Y are United States corporations; that X is in the business of rendering engineering services; that in 1968 the district director proposes to adjust X’s income for 1 966 to reflect an arm ‘s length fee for the rendition of engineering services by X in 1966 relating to the construction of Y’s factory; that X consents to an assessment reflecting such adjustment by executing a Waiver, Form 870; and that an assessment of the tax with respect to such adjustment is made in 1968. Assume further that fees for such services would properly constitute a capital expenditure by Y, and that Y does not place the factory in service until 1969. Although a correlative adjustment (increase in basis) would not have an effect on Y ‘s U.S. income tax liability for a pending taxable year, an adjustment increasing the basis of Y’s assets for 1966 shall be deemed to have been made in 1 968 for the purpose of computing allowable depreciation or gain or loss on disposition for 1969 and any future taxable year. The district director shall notify X in writing of the amount and nature of the adjustment which is deemed to have been made to Y.

Example (3). Assume that X is a U.S. taxpayer and Y is a foreign taxpayer not engaged in a trade or business in the United States; that in 1968 the district director proposes to adjust X’s income for 1966 to reflect an arm’s length interest charge on a loan made to Y; that X consents to an assessment reflecting such allocation by executing a Waiver, Form 870; and that an assessment of the tax with respect to such adjustment is made in 1968. Although a correlative adjustment would not have an effect on Y’s U.S. income tax liability, an adjustment in Y’s income for 1966 shall be deemed to have been made in 1968 for the purposes of determining the amount of Y’s earnings and profits for 1966 and subsequent years, and of any other effect it may have on any person ‘s U.S. income tax liability for any taxable year. The district director shall notify X in writing of the amount and nature of the allocation which is deemed to have been made toY.

  1. In making distributions, apportionments, or allocations between two members of a group of controlled entities with respect to particular transactions, the district director shall consider the effect upon such members of an arrangement between them for reimbursement within a reasonable period before or after the taxable year if the taxpayer can establish that such an arrangement in fact existed during the taxable year under consideration. The district director shall also consider the effect of any other nonarm’s length transaction between them in the taxable year which, if taken into account, would result in a setoff against any allocation which would otherwise be made, provided the taxpayer is able to establish with reasonable specificity that the transaction was not at arm’s length and the amount of the appropriate arm ‘s length charge. For purposes of the preceding sentence, the term arm’s length refers to the amount which was charged or would have been charged in independent transactions with unrelated parties under the same or similar circumstances considering all the relevant facts and without regard to the rules found in section 1 .482-2 by which certain charges are deemed to be equal to arm’s length. For example, assume that one member of a group performs services which benefit a second member, which would in itself require an allocation to reflect an arm’s length charge for the performance of such services. Assume further that the first member can establish that during the same taxable year the second member engages in other nonarm’s length transactions which benefit the first member, such as by selling products to the first member at a discount, or purchasing products from the first member at a premium, or paying royalties to the first member in an excessive amount. In such cases, the value of the benefits received by the first member as a result of the other activities will be set off against the allocation which would otherwise be made. If the effect of the set-off is to change the characterisation or source of the income or deductions, or otherwise distort taxable income, in such a manner as to affect the United States tax liability of any member, allocations will be made to reflect the correct amount of each category of income or deductions. In order to establish that a set-off to the adjustments proposed by the district director is appropriate, the taxpayer must notify the district director of the basis of any claimed set-off at any time before the expiration of the period ending 30 days after the date of a letter by which the district director transmits an examination report notifying the taxpayer of proposed adjustments or before 16 July 1968, whichever is later. The principles of this subparagaph may be illustrated by the following examples, in each of which it is assumed that P and S are calendar year corporations and are both members of the same group of controlled entities:

Example ( 1 ). P performs services in 1 966 for the benefit of S in connection with S’s manufacture and sale of a product. S does not pay P for such services in 1966, but in consideration for such services, agrees in 1966 to pay P a percentage of the amount of sales of the product in 1966 through 1970. In 1966 it appeared this agreement would provide adequate consideration for the services. No allocation will be made with respect to the services performed by P.

Example (2). P renders services to S in connection with the construction of S’s factory. An arm’s length charge for such services, determined under paragraph (b) of section 1.482-2, would be $100,000. During the same taxable year P makes available to S a machine to be used in such construction. P bills S $ 123,000 for the services, but does not bill for the use of the machine. No allocation will be made with respect to the excessive charge for services or the undercharge for the machine if P can establish that the excessive charge for services was equal to an arm’s length charge for the use of the machine, and if the taxable income and income tax liabilities of P and S are not distorted.

Example (3). Assume the same facts as in example (2), except that if P had reported $25,000 as rental income and $25,000 less service income, it would have been subject to the tax on personal holding companies. Allocations will be made to reflect the correct amounts of rental income and service income.

  1. If the members of a group of controlled taxpayers engage in transactions with one another, the district director may distribute, apportion, or allocate income, deductions, credits, or allowances to reflect the true taxable income of the individual members under the standards set forth in this section and in section 1.482-2 notwithstanding the fact that the ultimate income anticipated from a series of transactions may not be realized or is realized during a later period. For example, if one member of a controlled group sells a product at less than an arm’s length price to a second member of the group in one taxable year and the second member resells the product to an unrelated party in the next taxable year, the district director may make an appropriate allocation to reflect an arm’s length price for the sale of the product in the first taxable year, notwithstanding that the second member of the group had not realised any gross income from the resale of the product in the first year. Similarly, if one member of a group lends money to a second member of the group in a taxable year, the district director may make an appropriate allocation to reflect an arm’s length charge for interest during such taxable year even if the second member does not realise income during such year. The provisions of this subparagraph apply even if the gross income contemplated from a series of transactions is never, in fact, realised by the other members.
  2. Section 482 may, when necessary to prevent the avoidance of taxes or to clearly reflect income, be applied in circumstances described in sections of the Code (such as section 351) providing for nonrecognition of gain or loss. See, for example, National Securities Corporation v. Commissioner of Internal Revenue, 137 F. 2d 600 (3rd Cir. 1943), cert, denied 320 U.S. 794(1943).

  3. If payment or reimbursement for the sale, exchange, or use of property, the rendition of services, or the advance of other consideration among members of a group of controlled entities was prevented, or would have been prevented, at the time of the transaction because of currency or other restrictions imposed under the laws of any foreign country, any distributions, apportionments, or allocations which may be made under section 482 with respect to such transactions may be treated as deferrable income or deductions, providing the taxpayer has, for the year to which the distributions, apportionments, or allocations relate, elected to use a method of accounting in which the reporting of deferrable income is deferred until the income ceases to be deferrable income. Under such method of accounting, referred to in this section as the deferred income method of accounting, any payments or reimbursements which were prevented or would have been prevented, and any deductions attributable directly or indirectly to such payments or reimbursements, shall be deferred until they cease to be deferrable under such method of accounting. If such method of accounting has not been elected with respect to the taxable year to which the allocations under section 482 relate, the taxpayer may elect such method with respect to such allocations (but not with respect to other deferrable income) at any time before the first occurring of the following events with respect to the allocations:

    1. Execution by the taxpayer of Form 870 (Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance off Overassessment)
    2. Expiration of the period ending 30 days after the date of a letter by which the district director transmits an examination report notifying the taxpayer of the proposed adjustments reflecting such allocations or before July 16 1968, whichever is later; or
    3. Execution of a closing agreement or offerin.compromise. The principles of this subparagraph may be illustrated by the following example in which it is assumed that X, a domestic corporation, and Y, a foreign corporation, are members of the same group of controlled entities:

Example. X, which is in the business of rendering a certain type of service to unrelated parties, renders such services for the benefit of Y in 1965. The direct and indirect costs allocable to such services are $60,000, and an arm’s length charge for such services is $ 100,000. Assume that the district director proposes to increase X’s income by $100,000, but that the country in which Y is located would have blocked payment in 1965 for such services. If, prior to the first occurring of the events described in subdivisions (i), (ii), or (iii) of this subparagraph, X elects to use the deferred income method of accounting with respect to such allocation, the $100,000 allocation and the $60,000 of costs are deferrable until such amounts cease to be deferrable under X’s method of accounting. Reg. Section 1.482-1. 10 Historical Comment: Proposed 12.10.60. Adopted 4.13.62 by T. D. 6595. Amended 4.15.68 by T.D. 6952 as to allocation of income and deductions and sources of income.

Regulations

Paragraph 2992 Section 1.482-2. Determination of taxable income in specific situations.- (a) Loans or advances- ( 1 ) In general. Where one member of a group of controlled endues makes a loan or advance directly or indirectly to, or otherwise becomes a creditor of, another, member of such group, and charges no interest, or charges interest at a rate which is not equal to an arm’s length rate as defined in subparagraph (2) of this paragraph, the district director may make appropriate allocations to reflect an arm ‘s length interest rate for the use of such loan or advance.

  1. Arm’s length interest rate. For the purposes of this paragraph, the arm’s length interest rate shall be the rate of interest which was charged, or would have been charged at the time the indebtedness arose, in independent transactions with or between unrelated, parties under similar circumstances. All relevant factors will be considered, including the amount and duration of the loan, the security involved, the credit standing of the borrower, and the interest rate prevailing at the situs of the lender or creditor for comparable loans. If the creditor was not regularly engaged in the business of making loans or advances of the same general type as the loan or advance in question to unrelated parties, the arm’s length rate for purposes of this paragraph shall be-

    1. The rate of interest actually charged if at least 4 but not in excess of 6 per cent per annum simple interest,
    2. 5 per cent per annum simple interest if no interest was charged or if the rate of interest charged was less than 4, or in excess of 6 per cent per annum simple interest, unless the taxpayer establishes a more appropriate rate under the standards set forth in the first sentence of this subparagraph. For purposes of the preceding sentence if the rate actually charged is greater than 6 per cent per annum simple interest and less than the rate determined under the standards set forth in the first sentence of this sub-paragraph, or if the rate actually charged is less than 4 per cent per annum simple interest and greater than the rate determined under the standards set forth in the first sentence of this subparagraph, then the rate actually charged shall be deemed to be a more appropriate rate under the standards set forth in the first sentence of this sub-paragraph. Notwithstanding the other provisions of this sub-paragraph if the loan or advance represents the proceeds of a loan obtained by the lender at the situs of the borrower the arm’s length rate shall be equal to the rate actually paid by the lender increased by an amount which reflects the costs or deductions incurred by the lender in borrowing such amounts and making such loans, unless the taxpayer establishes a more appropriate rate under the standards set forth in the first sentence of this subparagraph.
    3. Loans or advances to which sub-paragraph (1) applies. Sub-paragraph ( 1) of this paragraph applies to all forms of bona fide indebtedness and includes:
    4. Loans or advances of money or other consideration (whether or not evidenced by a written instrument), and
    5. Indebtedness arising in the ordinary course of business out of sales, leases, or the rendition of services by or between members of the group, or any other similar extension of credit.

Sub-paragraph (1) of this paragraph does not apply to alleged indebtedness which was in fact a contribution of capital or a distribution by a corporation with respect to its shares. The interest period shall commence at the date the indebtedness arises, except that with respect to indebtedness described in sub-division (ii) of this sub-paragraph that is not evidenced by a written instrument requiring payment of interest, the interest period shall not commence until a date 6 months after the date the indebtedness arises, or until a later date if the taxpayer is able to demonstrate that either it or others in its industry, as a regular trade practice, permit comparable balances in the case of simiar transactions with unrelated parties to remain outstanding for a longer period without charging interest. For the purpose of determining the period of time for which a balance is outstanding, payments or credits shall be applied against the earliest balance outstanding, unless the taxpayer applies such payments or credits in some other order on its books in accordance with an agreement or understanding of the parties if the taxpayer can demonstrate that either it or others in its industry, as a regular trade practice, enter into such agreements or understandings.

  1. Performance of services for another- ( 1 ) General rule. Where one member of a group of controlled entities performs marketing, managerial, administrative, technical, or other services for the benefit of, or on behalf of another member of the group without charge, or at a charge which is not equal to an arm’s length charge as defined in subparagraph (3) of this paragraph, the district director may make appropriate allocations to reflect an arm’s length charge for such services.

    1. Benefit test, (i) Allocations may be made to reflect arm’s length charges with respect to services undertaken for the joint benefit of the members of a group of controlled entities, as well as with respect to services performed by one member of the group exclusively for the benefit of another member of the group. Any allocations made shall be consistent with the relative benefits intended from the services, based upon the facts known at the time the services were rendered, and shall be made even if the potential benefits anticipated are not realised. No allocations shall be made if the probable benefits to the other members were so indirect or remote that unrelated parties would not have charged for such services. In general, allocations may be made if the service, at the time it was performed, related to the carrying on of an activity by another member or was intended to benefit another member, either in the member’s overall operations or in its day-to-day activities. The principles of this subdivision may be illustrated by the following examples in each of which it is assumed that X and Y are corporate members of the same group of controlled entities:

Example ( 1 ). X ‘s International Division engages in a wide range of sales promotion activities. Although most of these activities are undertaken exclusively for the benefit of X ‘s international operations, some are intended to jointly benefit both X and Y and others are undertaken exclusively for the benefit of Y. The district director may make an allocation to reflect an arm’s length charge with respect to the activities undertaken for the joint benefit of X and Y consistent with the relative benefits intended as well as with respect to the services performed exclusively for the benefit of Y.

Example (2). X operates an international airline, and Y owns and operates hotels in several cities which are serviced by X. X, in conjunction with its advertising of the airline, often pictures Y’s hotels and mentions Y’s name. Although such advertising was primarily intended to benefit X’s airline operations, it was reasonable to anticipate that there would be substantial benefits to Y resulting from patronage by travelers who responded to X’s advertising. Since an unrelated hotel operator would have been charged for such advertising, the district director may make an appropriate allocation to reflect an arm’s length charge consistent with the relative benefits intended.

Example (3). Assume the same facts as in Example (2) except that X’s advertising neither mentions nor pictures Y’s hotels. Although it is reasonable to anticipate that increased air travel attributable to X’s advertising will result in some benefit to Y due to increased patronage by air travellers, the district director will not make an allocation with respect to such advertising since the probable benefit to Y was so indirect and remote that an unrelated hotel operator would not have been charged for such advertising.

  1. Allocations will generally not be made if the service is merely a duplication of a service which the related party has independently performed or is performing for itself. In this connection, the ability to independently perform the service (in terms of qualification and availability of personnel) shall be taken into account. The principles of this subdivision may be illustrated by the following examples, in each of which it is assumed that X and Y are corporate members of the same group of controlled entities:

Example ( 1). At the request of Y, the financial staff of X makes an analysis to determine the amount and source of the borrowing needs of Y. Y does not have personnel qualified to make the analysis, and it does not undertake the same analysis. The district director may make an appropriate allocation to reflect an arm’s length charge for such analysis.

Example (2). Y, which has a qualified financial staff, makes an analysis to determine the amount and source of its borrowing needs. Its report, recommending a loan from a bank, is submitted to X. X’s financial staff reviews the analysis to determine whether X should advise Y to reconsider its plan. No allocation should be made with respect to X’s review.

  1. Arm’s length charge. For the purpose of this paragraph an arm’s length charge for services rendered shall be the amount which was charged or would have been charged for the same or similar services in independent transactions with or between unrelated parties under similar circumstances considering all relevant facts. However, except in the case of services which are an integral pan of the business activity of either the member rendering the services or the member receiving the benefit of the services (as described in subparagraph (7) of this paragraph), the arm’s length charge shall be deemed equal to the costs or deductions incurred with respect to such services by the member or members rendering such services unless the taxpayer establishes a more appropriate charge under the standards set forth in the first sentence of this subparagraph. Where costs or deductions are a factor in applying the provisions of this paragraph adequate books and records must be maintained by taxpayers to permit verification of such costs or deductions by the Internal Revenue Service.

    1. Costs or deductions to be taken into account, (i) Where the amount of an arm’s length charge for services is determined with reference to the costs or deductions incurred with respect to such services, it is necessary to take into account on some reasonable basis all the costs or deductions which are directly or indirectly related to the service performed.
    2. Direct costs or deductions are those identified specifically with a particular service. These include, but are not limited to, costs or deductions for compensation, bonuses, and travel expenses attributable to employees directly engaged in performing such services, for material and supplies directly consumed in rendering such services, and for other costs such as the cost of overseas cables in connection with such services.
    3. Indirect costs or deductions are those which are not specifically identified with a particular activity or service but which relate to the direct costs referred to in subdivision (ii) of this subparagraph. Indirect costs or deductions generally include costs or deductions with respect to utilities, occupancy, supervisory and clerical compensation, and other overhead burden of the department incurring the direct costs or deductions referred to in subdivision (ii) of this paragraph. Indirect costs or deductions also generally include an appropriate share of the costs or deductions relating to supporting departments and other applicable general and administrative expenses to the extent reasonably allocable to a particular service or activity. Thus, for example, if a domestic corporation’s advertising department performs services for the direct benefit of a foreign subsidiary, in addition to direct costs of such department, such as salaries of employees and fees paid to advertising agencies or consultants, which are attributable to such foreign advertising, indirect costs must be taken into account on some reasonable basis in determining the amount of costs or deductions with respect to which the arm’s length charge to the foreign subsidiary is to be determined. These generally include depreciation, rent, property taxes, other costs of occupancy, and other overhead costs of the advertising department itself, and allocations of costs from other departments which service the advertising department, such as the personnel, accounting, payroll, and maintenance departments, and other applicable general and administrative expenses including compensation of top management.
    4. Costs and deductions not to be taken into account. Costs or deductions of the member rendering the services which are not to be taken into account in determining the amount of an arm ‘s length charge for services include-
    5. Interest expense on indebtedness not incurred specifically for the benefit of another member of the group.
    6. Expenses associated with the issuance of stock and maintenance of shareholder relations, and
    7. Expenses of compliance with regulations or policies imposed upon the member rendering the services by its government which are not directly related to the service in question.
    8. Methods, (i) Where an arm’s length charge for services rendered is determined with reference to costs or deductions, and a member has allocated and apportioned costs or deductions to reflect arm’s length charges by employing in a consistent manner a method of allocation and apportionment which is reasonable and in keeping with sound accounting practice, such method will not be disturbed. If the member has not employed a method of allocation and apportionment which is reasonable and in keeping with sound accounting practice, the method of allocating and apportioning costs or deductions for the purpose of determining the amount of arm’s length charges shall be based on the particular circumstances involved.
    9. The methods of allocation and apportionment referred to in this subparagraph are applicable both in allocating and apportioning indirect costs to a particular activity or service (see subparagraph (4) (iii) of this paragraph), and in allocating and apportioning the total costs (direct and indirect) of a particular activity or service where such activity or service is undertaken for the joint benefit of two or more members of a group (see subparagraph (2) (i) of this paragraph). While the use of one or more bases may be appropriate under the circumstances, in establishing the method of allocation and apportionment, . appropriate consideration should be given to all bases and factors, including, for example, total expenses, asset size, sales, manufacturing expenses, payroll, space utilized, and time spent. The costs incurred by supporting departments may be apportioned to other departments on the basis of reasonable overall estimates, or such costs may be reflected in the other departments’ costs by means of application of reasonable departmental overhead rates. Allocations and apportionments of costs or deductions must be made on the basis of the full cost as opposed to the incremental cost. Thus, if an electronic data processing machine, which is rented by the taxpayer, is used for the joint benefit of itself and other members of a controlled group, the determination of the arm’s length charge to each member must be made with reference to the full rent and cost of operating the machine by each member, even if the additional use of the machine for the benefit of the other members did not increase the cost to the taxpayer.
    10. Practices actually employed to apportion costs or expenses in connection with the preparation of statements and analyses for the use of management, creditors, minority shareholders, joint venturers, clients, customers, potential investors, or other parties or agencies in interest shall be considered by the district director. Similarly, in determining the extent to which allocations are to be made to or from foreign members of a controlled group, practices employed by the domestic members of a controlled group in apportioning costs between themselves shall also be considered if the relationships with the foreign members of the group are comparable to the relationships between the domestic members of the group. For example, if, for purposes of reporting to public stockholders or to a governmental agency, a corporation apportions the costs attributable to its executive officers among the domestic members of a controlled group on a reasonable and consistent basis, and such officers exercise comparable control over foreign members of such group, such domestic apportionment practice will be taken into consideration in determining the amount of allocations to be made to the foreign members.
    11. Certain services. An arm’s length charge shall not be deemed equal to costs or deductions with respect to services which are an integral part of the business activity of either the member rendering the services (referred to in this subparagraph as the ‘rendered’) or the member receiving the benefit of the services (referred to in this subparagraph as the ‘recipient’). Subdivisions (i) through (iv) of this subparagraph describe those situations in which services shall be considered an integral part of the business activity of a member of a group of controlled entities.
    12. Services are an integral part of the business activity of a member of a controlled group where either the Tenderer or the recipient is engaged in the trade or business of rendering similar services to one or more unrelated parties.
    13. (a) Services are an integral part of the business activity of a member of a controlled group where the renderer renders services to one or more related parties as one of its principal activities. Except in the case of services which constitute a manufacturing, production, extraction, or construction activity, it will be presumed that the renderer does not render services to related parties as one of its principal activities if the cost of services of the renderer attributable to the rendition of services for the taxable year to related parties do not exceed 25 per cent of the total costs or deductions of the renderer for the taxable year. Where the cost of services rendered to related parties is in excess of 25 per cent of the total costs or deductions of the renderer for the taxable year or where the 25 per cent test does not apply, the determination of whether the rendition of such services is one of the principal activities of the renderer will be based on the facts and circumstances of each particular case. Such facts and circumstances may include the time devoted to the rendition of the services, the relative cost of the services, the regularity with which the services are rendered, the amount of capital investment, the risk of loss involved, and whether the services are in the nature of supporting services or independent of the other activities of the renderer.
    14. For purposes of the 25 per cent test provided in this sub-division (ii), the cost of services rendered to related parties shall include all costs or deductions directly or indirectly related to the rendition of such services including the cost of services which constitute a manufacturing, production, extraction, or construction activity; and the total costs or deductions of the renderer for the taxable year shall exclude amounts properly reflected in the cost of goods sold of the renderer. Where any of the costs or deductions of the renderer do not reflect arm’s length consideration and no adjustment is made under any provision of the Internal Revenue Code to reflect arm’s length consideration, the 25 per cent test will not apply if, had an arm’s length charge been made, the costs or deductions attributable to the renderer ‘s rendition of services to related entities would exceed 25 per cent of the total costs or deductions of the renderer for the taxable year.
    15. For purposes of the 25 per cent test in this subdivision (ii), a consolidated group (as defined in this subdivision (c)) may, at the option of the taxpayer, be considered as the renderer where one or more members of the consolidated group render services for the benefit of or on behalf of a related party which is not a member of the consolidated group. In such case, the cost of services rendered by members of the consolidated group to any related parties not members of the consolidated group, as well as the total costs or deductions of the members of the consolidated group, shall be considered in the aggregate to determine if such services constitute a principal activity of the renderer. Where a consolidated group is considered the renderer in accordance with this subdivision (c), the costs or deductions referred to in this subdivision (ii) shall not include costs or deductions paid or accrued to any member of the consolidated group. In addition to the preceding provisions of this subdivision (c), if part or all of the services rendered by a member of a consolidated group to any related party not a member of the consolidated group are similar to services rendered by any other member of the consolidated group to unrelated parties as part of a trade or business, the 25 per cent test in this subdivision (ii) shall be applied with respect to such similar services without regard to this subdivision (c). For purposes of this subdivision (c), the term “consolidated group” means all members of a group of controlled entities created or organized within a single country and subjected to an income tax by such country on the basis of their combined income.
    16. Services are an integral part of the business activity of a member of a controlled group where the renderer is peculiarly capable of rendering the services and such services are a principal element in the operations of the recipient. The renderer is peculiarly capable of rendering the services where the renderer, in connection with the rendition of such services, makes use of a particularly advantageous situation or circumstance such as by utilization of special skills and reputation, utilization of an influential relationship with customers, or utilization of its intangible property (as defined in paragraph (d)(3) of this section). However, the renderer will not be considered peculiarly capable of rendering services unless the value of the services is substantially in excess of the costs or deductions of the renderer attributable to such services.
    17. Services are an integral part of the business activity of a member of a controlled group where the recipient has received the benefit of a substantial amount of services from one or more related parties during its taxable year. For purposes of this subdivision, services rendered by one or more related parties shall be considered substantial in amount if the total costs or deductions of the related party or parties rendering services to the recipient during its taxable year which are directly or indirectly related to such services exceed an amount equal to 25 per cent of the total costs or deductions of the recipient during its taxable year. For purposes of the preceding sentence, the total costs or deductions of the recipient shall include the renderers’ costs or deductions directly or indirectly related to the rendition of such services and shall exclude any amounts paid or accrued to the renderers by the recipient for such services and shall also exclude any amounts paid or accrued for materials the cost of which is properly reflected in the cost of goods sold of the recipient. At the option of the taxpayer, where the taxpayer establishes that the amount of the total costs or deductions of a recipient for the recipient’s taxable year are abnormally low due to the commencement or cessation of an operation by the recipient, or other unusual circumstances of a nonrecurring nature, the costs or deductions referred to in the preceding two sentences shall be the total of such amount for the 3-year period immediately preceding the close of the taxable year of the recipient (or for the first 3 years of operation of the recipient if the recipient had been in operation for less than 3 years as of the close of the taxable year in * which the services in issue were rendered ).
    18. The principles of subdivisions (i) through (iv) of this sub-paragraph may be illustrated by the following examples:

Application of subdivision (i):

Example ( 1 ). Y is engaged in the business of selling merchandise and X, an entity related to Y, is a printing company regularly engaged in printing and mailing advertising literature for unrelated parties. X also prints circulars advertising Y’s products, mails the circulars to potential customers of Y, and in addition, performs the art work involved in the preparation of the circulars. Since the printing, mailing, and art work services rendered by X to Y are similar to the printing and mailing services rendered by X as X’s trade or business, the services rendered to Y are an integral part of the business activity of X as described in sub-division (i) of this subparagraph.

Application of sub-division (ii):

Example (2). V, W, X, and Y are members of the same group of controlled entities. Each member of the group files a separate income tax return. X renders wrecking services to V, W, and Y, and, in addition, sells building materials to unrelated parties. The total costs or deductions incurred by X for the taxable year (exclusive of amounts properly reflected in the cost of goods sold of X) are $4m. The total costs or deductions of X for the taxable year which are directly or indirectly related to the services rendered to V, W, and Y, are $650,000. Since $650,000 is less than 25 per cent of the total costs or deductions of X (exclusive of amounts properly reflected in the cost of goods sold of X) for the taxable year ($4,000,000 multiply by 25 per cent equals $ 1,000,000), the services rendered by X to V, W, and Y will not be considered one of X’s principal activities within the meaning of subdivision (ii) of this sub-paragraph.

Example (3). Assume the same facts as in example (2), except that the total costs or deductions of X for the taxable year which are directly or indirectly related to the services rendered to V, W, and Y are $1,800,000. Assume in addition, that there is a high risk of loss involved in the rendition of the wrecking services by X, that X has a large investment in the wrecking equipment, and that a substantial amount of X’s time is devoted to the rendition of wrecking services to V, W, and Y. Since $1,800,000 is greater than 25 per cent of the total costs or deductions of X for the taxable year (exclusive of amounts properly reflected in the cost of goods sold of X), i.e., $1m, the services rendered by X to V, W, and Y will not be automatically excluded from classification as one of the principal activities of X as in example (2), and consideration must be given to the facts and circumstances of the particular case. Based on the facts and circumstances in this case, X would be considered to render wrecking services to related parties as one of its principal activities. Thus, the wrecking services are an integral part of the business activity of X as described in sub-division (ii) of this subparagraph.

Example (4). Z is a domestic corporation and has several foreign subsidiaries. Z and X, a domestic subsidiary of Z, have exercised the privilege granted under section 1501 to file a consolidated return and, therefore, constitute a “consolidated group” within the meaning of subdivision (ii) (c) of this sub-paragraph. Pursuant to (c) of sub-division (ii), the taxpayer treats X and Z as the renderer. The sole function of X is to provide accounting, billing, communication, and travel services to the foreign subsidiaries of Z. Z also provides some other services for the benefit of its foreign subsidiaries. The total costs or deductions of X and Z related to the services rendered for the benefit of the foreign subsidiaries is $750,000. Of that amount, $710,000 represents the costs of X, which are X’s total operating costs. The total costs or deductions of X and Z for the taxable year with respect to their operations (exclusive of amounts properly reflected in the cost of goods sold of X and Z) is $6,500,000. Since the total costs or deductions related to the services rendered to the foreign subsidiaries ($750,000) is less than 25 per cent of the total costs or deductions of X and Z (exclusive of amounts properly reflected in the costs of goods sold of X or Z) in the aggregate ($6,500,000 multiply by 25 per cent equals $1,625,000), the services rendered by X and Z to the foreign subsidiaries will not be considered one of the principal activities of X and Z within the meaning of subdivision (ii) of this sub-paragraph.

Example (5). Assume the same facts as in example (4), execpt that all the communication services rendered for the benefit of the foreign subsidiaries are rendered by X and that Z renders communication services to unrelated parties as part of its trade or business. X is regularly engaged in rendering communication services to foreign subsidiaries and devotes a substantial amount of its time to this activity. The costs or deductions of X related to the rendition of the communication services to the foreign subsidiaries are $355,000. By application of the provisions of (c) of subdivision (ii) of this subparagraph, the services provided by X and Z to related entities other than the communication services will not be considered one of the principal activities of X and Z. However, since Z renders communication services to unrelated parties as a part of its trade or business, the communication services rendered by X to the foreign subsidiaries will be subject to the provisions of subdivision (ii) without regard to (c) of subdivision (ii). Since the costs or deductions of X related to the rendition of the communication services ($355,000) are in excess of 25 per cent of the total costs or deductions of X (exclusive of amounts properly reflected in the cost of goods sold of X) for the taxable year (7 10,000 x 25 per cent equals $177,500), the determination of whether X renders the communication services as one of its principal activities will depend on the particular facts and circumstances. The given facts and circumstances indicate that X renders the communication services as one of its principal activities.

Example (6). X and Y are members of the same group of controlled entities. Y produces and sells product D. As a pan of the production process, Y sends materials to X who converts the materials into component pans. This conversion activity constitutes only a portion of X’s operations. X then ships the component parts back to Y who assembles them (along with other components) into the finished product for sale to unrelated parties. Since the services rendered by X to Y constitute a manufacturing activity, the 25-per cent test in subdivision (ii) of this subparagraph does not apply.

Example (7). X and Y are members of the same group of controlled entities. X manufactures product D for distribution and sale in the United States, Canada, and Mexico. Y manufactures product D for distribution and sale in South and Central America. Due to a breakdown of machinery, Y is forced to cease its manufacturing operations for a 1 -month period. In order to meet demand for product D during the shutdown period, Y sends partially finished goods to X. X, for that period, completes the manufacture of product D for Y and ships the finished product back to Y. The costs or deductions of X related to the manufacturing services rendered to Y are $750,000. The total cost or deductions of X are $24,000,000. Since the services in issue constitute a manufacturing activiity, the 25 per cent test in subdivision (ii) of this subparagraph does not apply. However, under these facts and circumstances- i.e., the insubstantiality of the services rendered to Y in relation to X’s total operations, the lack of regularity with which the services are rendered, and the short duration for which the services are rendered- X’s rendition of manufacturing services to Y is not considered one of X ‘s principal activities within the meaning of subdivision (ii) of this subparagraph.

Example (8). Assume the same facts as in example (7) except that, instead of temporarily ceasing operations, Y requests assistance from X in correcting the defects in the manufacturing equipment. In response, X sends a team of engineers to discover and correct the defects without the necessity of a shutdown. Although the services performed by the engineers were related to a manufacturing activity, the services are essentially supporting in nature and, therefore, do not constitute a manufacturing, production, extraction, or construction activity. Thus, the 25 per cent test in subdivision (ii) of this subparagraph applies.

Example (9). X is a domestic manufacturing corporation. Y, a foreign subsidiary of X, has decided to construct a plant in Country A. In connection with the construction of Y’s plant, X draws up the architectural plans for the plant, arranges the financing of the construction, negotiates with various Government authorities in Country A, invites bids from unrelated parties for several phases of construction, and negotiates, on Y’s behalf, the contracts with unrelated parties who are retained to carry out certain phases of the construction. Although the unrelated parties retained by X for Y perform the physical construction, the aggregate services performed by X for Y are such that they, in themselves, constitute a construction activity. Thus, the 25 per cent test in subdivision (ii) of this subparagraph does not apply with respect to such services.

Application of subdivision (iii):

Example ( 10). X and Y are members of the same group of controlled entities. X is a finance company engaged in financing automobile loans. In connection with such loans it requires the borrower to have life insurance in the amount of the loan. Although X’s borrowers are not required to take out life insurance from any particular insurance company, at the same time that the loan agreement is being finalized, X’s employees suggest that the borrower take out life insurance from Y, which is an agency for life insurance companies. Since there would be a delay in the processing of the loan if some other company were selected by the borrower, almost all of X’s borrowers take out life insurance through Y. Because of this utilization of its influential relationship with its borrowers, X is peculiarly capable of rendering selling services to Y and, since a substantial amount of Y’s business is derived from X’s borrowers, such selling services are a principal element in the operation of Y’s insurance business. In addition, the value of the services is substantially in excess of the costs incurred by X. Thus, the selling services rendered by X to Y are an integral pan of the business activity of a member of the controlled group as described in subdivision (iii) of this subparagraph.

Example ( 1 1 ). X and Y are members of the same group of controlled entities. Y is a manufacturer of product E. In past years product E has not always operated properly because of imperfections present in the finished product. X owns an exclusive patented process by which such imperfections can be detected and removed prior to sale of the product, thereby greatly increasing the marketability of the product. In connection with its manufacturing operations Y sends its products to X for inspection which involves utilization of the patented process. The inspection of Y’s products by X is not one of the principal activities of X. However, X is peculiarly capable of rendering the inspection services to Y because of its utilization of the patented process. Since this inspection greatly increases the marketability of product E it is extremely valuable. Such value is substantially in excess of the cost incurred by X in rendition of such services. Because of the impact of the inspection on sales, such services are a principal element in the operations of Y. Thus, the inspection services rendered by X to Y are an integral pan of the business activity of a member of the controlled group as described in subdivision (iii) of this subparagraph.

Example (12). Assume the same facts as in example (11) except that Y owns the patented process for detecting the imperfections. Y, however, does not have the facilities to implement the inspection process. Therefore, Y sends its products to X for inspection which involves utilization of the patented process owned by Y. Since Y owns the patent, X is not peculiarly capable of rendering the inspection services to Y within the meaning of subdivision (iii) of this subparagraph.

Example (13). Assume the same facts as in example (12) except that X and Y both own interests in the patented process as a result of having developed the process pursuant to a bona fide cost sharing plan (within the meaning of paragraph (d) (4) of this section). Since Y owns the requisite interest in the patent, X is not peculiarly capable of rendering the inspection services to Y within the meaning of subdivision (iii) of this subparagraph.

Example ( 1 4). X and Y are members of the same group of controlled entities. X is a large manufacturing concern. X’s accounting depanment has, for many years, maintained the financial records of Y, a distributor of X’s products. Although X is able to render these accounting services more efficiently than others due to its thorough familiarity with the operations of Y, X is not peculiarly capable of rendering the accounting services to Y because such familiarity does not, in and of itself, constitute a particularly advantageous situation or circumstance within the meaning of subdivision (iii) of this subparagraph. Furthermore, under these circumstances, the accounting services are supporting in nature and, therfore do not constitute a principal element in the operations of Y. Thus, the accounting services rendered by X to Y are not an integral part of the business activity of either X or Y within the meaning of subdivision (iii) of this subparagraph.

Application of subdivision (iv):

Example (15). Corporations X, Y, and Z are members of the same group of controlled entities. X is a manufacturer, and Y and Z are distributors of X’s products. X provides a variety of services to Y including billing, shipping, accounting, and other general and administrative services. During Y’s taxable year, on several occasions, Z renders selling and other promotional services to Y. None of the services rendered to Y constitute one of the principal activities of any of the Tenderers within the meaning of subdivision (ii) of this subparagraph. Y’s total costs and deductions for Y’s taxable year (exclusive of amounts paid to X and Z for services rendered and amounts paid for goods purchased for resale) are $ 1 ,600,000. The total direct and indirect costs of X and Z for services rendered to Y during Y’s taxable year are as follows:

Since the total costs or deductions of X and Z related to the rendition of services to Y exceed the amount equal to 25 per cent of the total costs or deductions of Y (exclusive of amounts paid to X and Z for the services rendered and amounts paid for goods purchased for resale) plus the total costs or deductions of X and Z related to the rendition of services to Y ($1,150,000 divided by [$1,600,000 plus $1,150,000] equals 41.8 per cent), the services rendered by X and Z to Y are substantial within the meaning of subdivision (iv) of this subparagraph. Thus, the services rendered by X and Z to Y are an integral part of the business activity of Y as described in subdivision (iv) of this subparagraph.

Example ( 16). Assume the same facts as in example (15) except that the taxpayer establishes that, due to a major change in the operations of Y, Y’s total costs or deductions for Y’s taxable year were abnormally low. Y has always used the calendar year as its taxable year. Y’s total costs and deductions for the 2 years immediately preceding the taxable year in issue (exclusive of amounts paid to X and Z for services rendered and amounts paid for goods purchased for resale) were $6m and $6,200,000 respectively. The total direct and indirect costs of X and Z for services rendered to Y were $1,150,000 for each of the 3 years. Applying the same formula to the costs or deductions for the 3 years immediately preceding the close of the taxable year in issue, the costs or deductions of X and Z related to the rendition of services to Y (3 multiplied by $ 1 , 1 50,000 equals $3,450,000) amount to 20 per cent of the sum of the total costs or deductions of Y (exclusive of amounts paid to X and Z for the services rendered and amounts paid for goods purchased for resale) plus the total costs or deductions of X and Z related to the rendition of services to Y ($3,450,000 divided by [$ 1 ,600,000 plus $6,000,000 plus $6,200,000 plus $3,450,000] equals 20 per cent). If the taxpayer chooses to use the 3-year period, the services rendered by X and Z to Y are not substantial with.ing the meaning of sub-division (iv) of this sub-paragraph. Thus, the services will not be an integral part of the business activity of a member of the controlled group as described in sub-division (iv) of this sub-paragraph.

  1. Services rendered in connection with the transfer of property. Where tangible or intangible property is transferred, sold, assigned, loaned, leased, or otherwise made available in any manner by one member of a group to another member of the group and services are rendered by the transferor to the transferee in connection with the transfer, the amount of any allocation that may be appropriate with respect to such transfer shall be determined in accordance with the rules of paragraph (c), (d), or (e) of this section whichever is appropriate and a separate allocation with respect to such services under this paragraph shall not be made. Services are rendered in connection with the transfer of property where such services are merely ancillary and subsidiary to the transfer of the property or to the commencement of effective use of the property by the transferee. Whether or not services are merely ancillary and subsidiary to a property transfer is a question of fact. Ancillary and subsidiary services could be performed, for example, in promoting the transaction by demonstrating and explaining the use of the property, or by assisting in the effective ‘ starting-up ‘ of the property transferred, or by performing under a guarantee relating to such effective starting-up. Thus, where an employee of one member of a group, acting under the instructions of his employer, reveals a valuable secret process owned by his employer to a related entity, and at the same time supervises the integration of such process into the manufacturing operation of the related entity, such services could be considered to be rendered in connection with the transfer, and, if so considered, shall not be the basis for a separate allocation. However, if the employee continues to render services to the related entity by supervising the manufacturing operation after the secret process has been effectively integrated into such operation, a separate allocation with respect to such additional services may be made in accordance with the rules of this paragraph.

    1. Use of tangible property- (1) General rule. Where possession, use, or occupancy of tangible property owned or leased by one member of a group of controlled entities (referred to in this paragraph as the owner) is transferred by lease or other arrangement to another member of such group (referred to in this paragraph as the user) without charge or at a charge which is not equal to an arm’s length rental charge (as denned in sub-division (i) of sub-paragraph (2) of this paragraph), the district director may make appropriate allocations to properly reflect such arm’s length charge. Where possession, use, or occupancy of only a portion of such property is transferred, the determination of the arm’s length charge and the allocation shall be made with reference to the portion transferred.

  2. ) Arm ‘s length charge, (i) For the purposes of this paragraph, an arm’s length rental charge shall be the amount of rent which was charged, or would have been charged for the use of the same or similar property, during the time it was in use, in independent transactions with or between unrelated parties under similar circumstances considering the period and location of the use, the owner’s investment in the property or rent paid for the property, expenses of maintaining the property, the type of property involved, its condition, and all other relevant facts. If neither the owner nor the user was engaged in the trade or business of renting property, the arm’s length rental charge for the taxable year shall be deemed to be equal to the amount specified in sub-division (ii) or (iii) of this sub-paragraph, whichever is appropriate, unless the taxpayer establishes a more appropriate charge under the standards set forth in the first sentance of this subdivision. For purposes of this sub-division, an owner or user shall be considered to be in the trade or business of renting property if it engages in the trade or business of renting property of the same general type as the property in question to unrelated parties. An owner or user will not be considered to be engaged in the trade or business of renting property of the same general type solely on the basis of casual or infrequent rentals of property which is predominantly used in its trade or business.

    1. Except as otherwise provided in subdivision (iii) of this subparagraph the amount referred to in subdivision (i) of this subparagraph for the taxable year shall be equal to the sum of the following amounts attributable to the property:
    1. The amount which bears the same ratio to the depreciable basis of the property divided by the total useful life of the property in the hands of the owner as the number of days which the property is owned by the owner (in the taxable year) bears to 365. For this purpose, the depreciable basis of the property shall be the original cost or other basis of the property in the hands of the owner adjusted by items properly chargeable to capital account (as provided in section 1.1016-2) and reduced by estimated salvage value but without adjustment for exhaustion, wear and tear, obsolescence, etc. (as provided in section 1.1016-3). For this purpose, total useful life depreciable basis, and salvage value shall be estimated on the basis of facts and circumstances known to exist at the time that possession, use, or occupancy of the property was transferred to the user. However, if substantial adjustments to the adjusted basis other than for exhaustion, wear and tear, obsolescene, etc., are made, total useful life, depreciable basis, and salvage value shall be redetermined on the basis of the facts and circumstances known to exist as of the time at which such adjustments become substantial. For purposes of the preceding sentence, adjustments shall be considered substantial if at any time the total adjustments subsequent to the time at which the property was transferred to user or subsequent to the most recent redetermination under this subdivision (a), whichever is later, exceeds 25 per cent of the depreciable basis of the property.
    2. b) The amount which bears the same ratio to 3 per cent of the depreciable basis of the property (as determined in subdivision (ii) (a) of this subparagraph) as the number of days which the property is owned by the owner (in the taxable year) bears to 365.
    3. The amount of all expenses directly and indirectly connected which the property paid or accrued by the owner of the property during the taxable year. Such expenses include real estate, personal property, or other taxes on the property, expenses of maintenance and repair, cost of utilities, management expenses, and other similar expenses. Such amount does not include interest expense.
    4. The amount of all expenses directly and indirectly connected with the possession, use, or occupancy of the property by the user paid or accrued by the owner during the taxable year. Such expenses include services rendered in connection with the transfer of the property within the meaning of paragraph (b) (8) of this section and other similar expenses. For purposes of this subdivision any capital expenditures, within the meaning of section 263 of the Code, with respect to the possession, use or occupancy of the property by the user incurred in any taxable year shall be deemed to be expenses paid or accrued by the owner during the taxable year to the extent that they may be properly amortized for the taxable year.

If the property was used by more than one party (whether related or unrelated) during the taxable year of the owner, then only a portion of the sum of the amounts provided in (a) through (c) of this subdivision shall be taken into account with respect to each user. Such portion is that proportion of such sum which the number of days (in the taxable year) the property was actually used by the user bears to the number of days (in the taxable year) the property was actually used by all parties (whether related or unrelated), unless it appears that some other measure (such as hours of use) is more appropriate. There must also be taken into account with respect to each user those expenses which are included in the amount provided in (d) of this subdivision which are attributable to the possession, use, or occupancy of the property by the particular user during the taxable year of the owner.

  1. Where possession, use, or occupancy of tangible property leased by the owner (lessee) is transferred by sublease or other arrangement to the user, the amount referred to in subdivision (i) of this subparagraph shall be equal to all the deductions claimed by the owner (lessee) which are attributable to the property for the period such property is used by the user. Where only a portion of such property was transferred, any allocations shall be made with reference to the portion transferred. The deductions to be considered include the rent paid or accrued by the owner (lessee) during the period of use and all other deductions directly and indirectly connected with the property paid or accrued by the owner (lessee) during such period. Such deductions include deductions for maintenance and repair, utilities, management, and other similar deductions.
  2. Transfer or use of intangible property- ( 1 ) In general, (i) Except as otherwise provided in subparagraph (4) of this paragraph, where intangible property or an interest therein is transferred, sold, assigned, loaned, or otherwise made available in any manner by one member of a group of controlled entities (referred to in this paragraph as the transferor) to another member of the group (referred to in this paragraph as the transferee) for other than an arm’s length consideration, the district director may take appropriate allocations to reflect an arm’s length consideration for such property or its use. Subparagraph (2) of this paragraph provides rules for determining the form an amount of an appropriate allocation, subparagraph (3) of this paragraph provides a definition of “intangible property”, and subparagraph (4) of this paragraph provides rules with respect of certain cost-sharing arrangements in connection with the development of intangible property. For purposes of this paragraph, an interest in intangible property may take the form of the right to use such property.
  3. (a) In the absence of a bona fide cost-sharing arrangement (as defined in subparagraph (4) of this paragraph), where one member of a group of related entities undertakes the development of intangible property as a developer within the meaning of (c) of this subdivision, no allocation with respect to such development activity shall be made under the rules of this paragraph or any other paragraph of this section (except as provided in sub-division (b) of this division) until such time as any property developed, or any interest therein, is or is deemed to be transferred, sold, assigned, loaned, or otherwise made available in any manner by the developer to a related entity in a transfer subject to the rules of this paragraph. Where a member of the group other than the developer acquires an interest in the property developed by virtue of obtaining a patent or copyright, or by any other means, the developer shall be deemed to have transferred such interest in such property to the acquiring member in a transaction subject to the rules of this paragraph. For example, if one member of a group (the developer) undertakes to develop a new patentable product and the costs of development are incurred by that entity over a period of 3 years, no allocation with respect to that entity’s activity shall be made during such period. The amount of any allocation that may be appropriate at the expiration of such development period when, for example, the patent on the product is transferred, or deemed transferred, to a related entity for other than an arm’s length consideration, shall be determined in accordance with the rules of this paragraph.
  4. Where one member of a group renders assistance in the form of loans, services, or the use of tangible or intangible property to a developer in connection with an attempt to develop intangible property, the amount of any allocation that may be appropriate with respect to such assistance shall be determined in accordance with the rules of the appropriate paragraph or paragraphs of this section. Thus, where one entity allows a related entity, which is the developer, to use tangible property, such as laboratory equipment, in connection with the development of intangible property, the amount of any allocation that may be appropriate with respect to such use shall be determined in accordance with the rules of paragraph (c) of this section. In the event that the district director does not exercise his discretion to make allocations with respect to the assistance rendered to the developer, the value of the assistance shall be allowed as a set-off against any allocation that the district director may make under this paragraph as a result of the transfer of the intangible property to the entity rendering the assistance.
  5. The determination as to which member of a group of related entities is a developer and which members of the group are rendering assistance to the developer in connection with its development activities shall be based upon all the facts and circumstances of the individual case. Of all the facts and circumstances to be taken into account in making this determination, greatest weight shall be given to the relative amounts of all the direct and indirect costs of development and the corresponding risks of development borne by the various members of the group, and the relative values of the use of any intangible property of members of the group which is made available without adequate consideration for use in connection with the development activity, which property is likely to contribute to a substantial extent in the production of intangible property. For this purpose, the risk to be borne with respect to development activity is the possibility that such activity will not result in the production of intangible property or that the intangible property produced will not be of sufficient value to allow for the recovery of the costs of developing it. A member will not be considered to have borne the costs and corresponding risks of development unless such member is committed to bearing such costs in advance of, or contemporaneously with their incurrence and without regard to the success of the project. Other factors that may be relevant in determining which member of the group is the developer include the location of the development activity, the capabilities of the various members to carry on the project independently, and the degree of control over the project exercised by the various members.
  6. The principles of this subdivision (ii) may be illustrated by the following examples in which it is assumed that X and Y are corporate members of the same group:

Example ( 1 ). X, at the request of Y, undertakes to develop a ne -v machine which will function effectively in the climate in which Y’s factory is located. Y agrees to bear all the direct and indirect costs of the project whether or not X successfully develops the machine. Assume that X does not make any of its own intangible property available for use in connection with the project. The machine is successfully developed and Y obtains possession of the intangible property necessary to produce such machine. Based on the facts and circumstances as stated, Y shall be considered to be the developer of the intangible property and, therefore, Y shall not be treated as having obtained the property in a transfer subject to the rules of this paragraph. Any amount which may be allocable with respect to the assistance rendered by X shall be determined in accordance with the rules of (b) of this subdivision.

Example (2). Assume the same facts as in example (1) except that Y agrees to reimburse X for its costs only in the event that the property is successfully developed. In such case X is the developer and Y is deemed to have received the property in a transfer subject to the rules of this paragraph.

Therefore, the district director may make an allocation to reflect an arm’s length consideration for such property.

Example (3). In 1967 X undertakes to develop product M in its research and development department. X incurs direct and indirect costs of $1,000,000 per year in connection with the project in 1967, 1968, and 1969. In connection with the project, X employs the formula for compound N, which it owns, and which is likely to contribute substantially to the success of the project. The value of the use of the formula for compound N in connection with this project is $750,000. In 1 968, 4 chemists employed by Y spend 6 months working on the project in X’s laboratory. The salary and other expenses connected with the chemists’ employment for that period ($100,000) are paid by Y, for which no charge is made to X. In 1969, product M is perfected and Y obtains patents thereon. X is considered to be the developer of product M since, among other things, it bore the greatest relative share of the costs and risks incurred in connection with this project and made available intangible property (formula for compound N) which was likely to contribute substantially in the development of product M. Accordingly, no allocation with respect to X’s development activity should be made before 1969. The property is deemed to have been transferred to Y at that time by virtue of the fact that Y obtained the patent rights to product M. In such case the district director may make an allocation to reflect an arm’s length consideration for such transfer. In the event that the district director makes such an allocation and he has not made or does not make an allocation for 1968 with respect to the services of the chemists in accordance with the principles of paragraph (b) of this section, the value of the assistance shall be allowed as a set off against the amount of the allocation reflecting an arm’s length consideration for the transfer of the intangible property.

  1. Arm’s length consideration. (i) An arm’s length consideration shall be in a form which is consistent with the form which would be adopted in transactions between unrelated parties under the same circumstances. To the extent appropriate, an arm’s length consideration may take any one or more of the following forms: (a) royalties based on the transferee’s output, sales, profits, or any other measure; (b) lumpsum payments; or (c) any other form, including reciprocal licensing rights, which might reasonably have been adopted by unrelated parties under the circumstances, provided that the parties can establish that such form was adopted pursuant to an arrangement which in fact existed between them. However, where the transferee pays nominal or no consideration for the property or interest therein and where the transferor has retained a substantial interest in the property, an allocation shall be presumed not to take the form of a lumpsum payment.
  2. In determining the amount of an arm’s length consideration, the standard to be applied is the amount that would have been paid by an unrelated party for the same intangible property under the same circumstances. Where there have been transfers by the transferor to unrelated parties involving the same or similar intangible property under the same or similar circumstances the amount of the consideration for such transfers shall generally be the best indication of an arm ‘s length consideration.
  3. Where a sufficiently similar transaction involving an unrelated party cannot be found, the following factors, to the extent appropriate (depending upon the type of intangible property and the form of the transfer), may be considered in arriving at the amount of the arm’s length consideration:
  4. The prevailing rates in the same industry or for similar property,

  5. The offers of competing transferors or the bids of competing transferees,

    1. The terms of the transfer, including limitations on the geographic area covered and the exclusive or nonexclusive character of any rights granted,
    2. The uniqueness of the property and the period for which it is likely to remain unique,
    3. The degree and duration of protection afforded to the property under the laws of the relevant countries,
    4. Value of services rendered by the transferor to the transferee in connection with the transfer within the meaning ofparagraph (b)(8) of this section,
    5. Prospective profits to be realized or costs to be saved by the transferee through its use or subsequent transfer of the property,
    6. The capital investment and starting up expenses required of the transferee,
    7. The next subdivision is (j ),
    8. The availability of substitutes for the property transferred,
    9. The arm’s length rates and prices paid by unrelated parties where the property is resold or sublicensed to such parties,
    10. The costs incurred by the transferor in developing the property, and
    11. Any other fact or circumstance which unrelated parties would have been likely to consider in determining the amount of an arm ‘s length consideration for the property.
  6. Definition of intangible property. (i) Solely for the purposes of this section, intangible property shall consist of the items described in subdivision (ii) of this subparagraph, provided that such items have substantial value independent of the services of individual persons.
  7. The items referred to in subdivision (i) of this subparagraph are as follows:
  8. Patents, inventions, formulas, processes, designs, patterns, and other similar items;
  9. Copyrights, literary, musical, or artistic compositions, and other similar items;

  10. Trademarks, trade names, brand names, and other similar items;

    1. Franchises, licenses, contracts, and other similar items;
    2. Methods, programs, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists, technical data, and other similar items.
    1. Sharing of costs and risks. Where a member of a group of controlled entities acquires an interest in intangible property as a participatingparty in a bona fide cost sharing arrangement with respect to the development of such intangible property, the district director shall not make allocations with respect to such acquisition except as may be appropriate to reflect each participant’s arm’s length share of the costs and risks of developing the property. A bona fide cost sharing arrangement is an agreement, in writing, between two or more members of a group of controlled entities providing for the sharing of the costs and risks of developing intangible property in return for a specified interest in the intangible property that may be produced. In order for the arrangement to qualify as a bona fide arrangement, it must reflect an effort in good faith by the participating members to bear their respective shares of all the costs and risks of development on an arm’s length basis. In order for the sharing of costs and risks to be considered on an arm ‘s length basis, the terms and conditions must be comparable to those which would have been adopted by unrelated parties similarly situated had they entered into such an arrangement. If an oral cost sharing arrangement, entered into prior to April 16, 1968, and continued in effect after that date, is otherwise in compliance with the standards prescribed in this subparagraph, it shall constitute a bona fide cost sharing arrangement if it is reduced to writing prior to January 1, 1969.
  11. Sales of tangible property-( 1 ) In general, (i) Where one member of a group of controlled entities (referred to in this paragraph as the “seller”) sells or otherwise disposes of tangible property to another member of such group (referred to in this paragraph as the “buyer”) at other than an arm’s length price (such a sale being referred to in this paragraph as a “controlled sale”), the district director may make appropriate allocations between the seller and the buyer to reflect an arm’s length price for such sale or disposition. An arm’s length price is the price that an unrelated party would have paid under the same circumstances for the property involved in the controlled sale. Since unrelated parties normally sell products at a profit, an arm’s length price normally involves a profit to the seller.
  12. Subparagraphs (2), (3), and (4) of this paragraph describe three methods of determining an arm’s length price and the standards for applying each method. They are, respectively, the comparable uncontrolled price method, the resale price method, and the cost plus method. In addition, a special rule is provided in subdivision (v) of this subparagraph for use (notwithstanding any other provision of this subdivision) in determining an arm’s length price for an ore or mineral. If there are comparable uncontrolled sales as defined in subparagraph (2) of this paragraph, the comparable uncontrolled price method must be utilized because it is the method likely to result in the most accurate estimate of an arm’s length price (for the reason that it is based upon the price actually paid by unrelated parties for the same or similar products). If there are no comparable uncontrolled sales, then the resale price method must be utilized if the standards for its application are met because it is the method likely to result in the next most accurate estimate in such instances (for the reason that, in such instances, the arm’s length price determined under such method is based more directly upon actual arm’s length transactions than is the cost plus method). A typical situation where the resale price method may be required is where a manufacturer sells products to a related distributor which, without further processing, resells the products in uncontrolled transactions. If all the standards for the mandatory application of the resale price method are not satisfied, then, as provided in subparagraph (3) (iii) of this paragraph, either that method or the cost plus method may be used, depending upon which method is more feasible and is likely to result in a more accurate estimate of an arm’s length price. A typical situation where the cost plus method may be appropriate is where a manufacturer sells products to a related entity which performs substantial manufacturing, assembly, or other processing of the product or adds significant value by reason of its utilization of its intangible property prior to resale in uncontrolled transactions.
  13. Where the standards for applying one of the three methods of pricing described in subdivision (ii) of this subparagraph are met, such method must, for the purposes of this paragraph, be utilized unless the taxpayer can establish that, considering all the facts and circumstances, some method of pricing other than those described in subdivision (ii) of this sub-paragraph is clearly more appropriate. Where none of the three methods of pricing described in subdivision (ii) of this subparagraph can reasonably be applied under the facts and circumstances as they exist m a particular case, some appropriate method of pricing other than those described in subdivision (ii) of this subparagraph, or variations on such methods, can be used.
  14. The methods of determining arm’s length prices described in this section are stated in terms of their application to individual sales of property. However, because of the possibility that a taxpayer may make controlled sales of many different products, or many separate sales of the same product, it may be impractical to analyze every sale for the purposes of determining the arm’s length price. It is therefore permissible to determine or verify arm ‘s length prices by applying the appropriate methods of pricing to product lines or other groupings where it is impractical to ascertain an arm’s length price for each product or sale. In addition, the district director may determine or verify the arm’s length price of all sales to a related entity by employing reasonable statistical sampling techniques.
  15. The price for a mineral product which is sold at the stage at which rnining or extraction ends shall be determined under the provisions of section 1 .6 1 3-3 and 1.613-4.
  16. Comparable uncontrolled price method, (i) Under the method of pricing described as the “comparable uncontrolled price method”, the arm’s length price of a controlled sale is equal to the price paid in comparable uncontrolled sales, adjusted as provided in subdivision (ii) of this subparagraph.
  17. “Uncontrolled sales” are sales in which the seller and the buyers are not members of the same controlled group. These include (a) sales made by a member of the controlled group to an unrelated party, (b) sales made to a member of the controlled group by an unrelated party, and (c) sales made in which the parties are not members of the controlled group and are not related to each other. However, uncontrolled sales do not include sales at unrealistic prices, as for example where a member makes uncontrolled sales in small quantities at a price designed to justify a nonarm’s length price on a large volume of controlled sales. Uncontrolled sales are considered comparable to controlled sales if the physical property and circumstances involved in the uncontrolled sales are identical to the physical property and circumstances involved in the controlled sales, or if such properties and circumstances are so nearly identical that any differences either have no effect on price, or such differences can be reflected by a reasonable number of adjustments to the price of uncontrolled sales. For this purpose, differences can be reflected by adjusting prices only where such differences have a definite and reasonably ascertainable effect on price. If the differences can be reflected by such adjustment, then the price of the uncontrolled sale as adjusted constitutes the comparable uncontrolled sale price. Some of the differences which may affect the price of property are differences in the quality of the product, terms of sale, intangible property associated with the sale, time of sale, and the level of the market and the geographic market in which the sale takes place. Whether and to what extent differences in the various properties and circumstances affect price, and whether differences render sales noncomparable depends upon the particular circumstances and property involved. The principles of this subdivision may be illustrated by the following examples, in each of which it is assumed that X makes both controlled and uncontrolled sales of the identical property:

Example ( 1). Assume that the circumstances surrounding the controlled and the uncontrolled sales are identical, except for the fact that the controlled sales price is a delivered price and the uncontrolled sales are made f. o. b. X’s factory. Since differences in terms of transportation and insurance generally have a definite and reasonably ascertainable effect on price, such differences do not normally render the uncontrolled sales noncomparable to the controlled sales.

Example (2). Assume that the circumstances surrounding the controlled and uncontrolled sales are identical, except for the fact that X affixes its valuable trademark in the controlled sales, and does not affix its trademark in uncontrolled sales. Since the effects on price of differences in intangible property associated with the sale of tangible property, such as trademarks, are normally not reasonably ascertainable, such differences would normally render the uncontrolled sales noncomparable

Example (3). Assume that the circumstances surrounding the controlled and uncontrolled sales are identical except for the fact that X, a manufacturer of business machines, makes certain minor modifications in the physical properties of the machines to satisfy safety specifications or other specific requirements of a customer in controlled sales, and does not make these modifications in uncontrolled sales. Since minor physical differences in the product generally have a definite and reasonably ascertainable effect on prices, such differences do not normally render the uncontrolled sales noncomparable to the controlled sales.

  1. Where there are two or more comparable uncontrolled sales susceptible of adjustment as defined in subdivision (ii) of this subparagraph, the comparable uncontrolled sale or sales requiring the fewest and simplest adjustments provided in subdivision (ii) of this subparagraph should generally be selected. Thus, for example, if a taxpayer makes comparable uncontrolled sales of a particular product which differ from the controlled sale only with respect to the terms of delivery and makes other comparable uncontrolled sales of the product which differ from the controlled sale with respect to both terms of delivery and terms of payment, the comparable uncontrolled sales differing only with respect to terms of delivery should be selected as the comparable uncontrolled sale.
  2. One of the circumstances which may affect the price of property is the fact that the seller may desire to make sales at less than a normal profit for the primary purpose of establishing or maintaining a market for his products. Thus, a seller may be willing to reduce the price of a product, for a time, in order to introduce his product into an area or in order to meet competition. However, controlled sales may be priced in such a manner only if such price would have been charged in an uncontrolled sale under comparable circumstances. Such fact may be demonstrated by showing that the buyer in the controlled sale made corresponding reductions in the resale price to uncontrolled purchasers, or that such buyer engaged in substantially greater sales promotion activities with respect to the product involved in the controlled sale than with respect to other products. For example, assume X, a manufacturer of batteries, commences to sell car batteries to Y, a subsidiary of X, for resale in a new market. In its existing markets X’s batteries sell to independent retailers at $20 per unit, and X sells them to wholesalers at $17 per unit. Y also sells X’s batteries to independent retailers at $20 per unit. X’s batteries are not known in the new market in which Y is operating. In order to engage competitively in the new market Y incurs selling and advertising costs substantially higher than those incurred for its sales of other products. Under these circumstances X may sell to Y, for a time, at less than $17 to take into account the increased selling and advertising activities of Y in penetrating and establishing the new market. This may be done even though it may result in a transfer price from X to Y which is below X’s full costs of manufacturing the product.
  3. Resale price method (i) Under the pricing method described as the “resale price method”, the arm’s length price of a controlled sale is equal to the applicable resale price (as defined in subdivision (iv) or (v) of this subparagraph), reduced by an appropriate markup, and adjusted as provided in subdivision (ix) of this subparagraph. An appropriate markup is computed by multiplying the applicable resale price by the appropriate markup percentage as defined in subdivision (vi) of this subparagraph. Thus, where one member of a group of controlled entities sells property to another member which resells the property in uncontrolled sales, if the applicable resale price of the property involved in the uncontrolled sale is $100 and the appropriate markup percentage for resales by the buyer is 20 per cent, the arm ‘s length price of the controlled sale is $80 ($100 minus .~C per cent multiplied by $100), adjusted as provided in subdivision (ix) of this subparagraph.
  4. The resale price method must be used to compute an arm’s length price of a controlled sale if aU the following circumstances exist:
  5. There are no comparable uncontrolled sales as defined in subparagraph (2) of this paragraph.
  6. An applicable resale price, as defined in subdivision (iv) or (v) of this subparagraph, is available with respect to resales made within a reasonable time before or after the time of the controlled sale.
  7. The buyer (reseller) has not added more than an insubstantial amount to the value of the property by physically altering the product before resale. For this purpose packaging, repacking, labelling, or minor assembly of property does not constitute physical alteration.
  8. The buyer (reseller) has not added more than an insubstantial amount to the value of the property by the use of intangible property. See section 1.482-2(d) (3) for the definition of intangible property.
  9. Notwithstanding the fact that one or both of the requirements of subdivision (ti) (c) or (d) of this subparagraph may not be met, the resale price method may be used if such method is more feasible and is likely to result in a more accurate determination of an arm’s length price than the use of the cost plus method. Thus, even though one of the requirements of such subdivision is not satisfied, the resale price method may nevertheless be more appropriate than the cost plus method because the computations and evaluations required under the former method may be fewer and easier to make than under the latter method. In general, the resale price method is more appropriate when the functions performed by the seller are more extensive and more difficult to evaluate than the functions performed by the buyer (reseller). The principle of this subdivision may be illustrated by the following examples in each of which it is assumed that corporation X developed a valuable patent covering product M which it manufacturers and sells to corporation Y in a controlled sale, and for which there is no comparable uncontrolled sale:

Example ( 1 ). Corporation Y adds a component to product M and resells the assembled product in an uncontrolled sale within a reasonable time after the controlled sale of product M. Assume further that the addition of the component added more than an insubstantial amount to the value of product M, but that Y’s function in purchasing the component and assembling the product prior to sale was subject to reasonably precise valuation. Although the controlled sale and resale does not meet the requirements of subdivision (ii) (c) of this subparagraph, the resale price method may be used under the circumstances because that method involves computations and evaluations which are fewer and easier to make than under the cost plus method. This is because X’s use of a patent may be more difficult to evaluate in determining an appropriate gross profit percentage under the cost plus method, than is evaluation of Y’s assembling function in determining the appropriate markup percentage under the resale price method.

Example (2). Corporation Y resells product M in an uncontrolled sale within a reasonable time after the controlled sale after attaching its valuable trademark to it. Assume further that it can be demonstrated through comparison with other uncontrolled sales of Y that the addition of Y’s trademark to a product usually adds 25 per cent to the markup on its sales. On the other hand, the effect of X ‘s use of its patent is difficult to evaluate in applying the cost plus method because no reasonable standard of comparison is available. Although the controlled sale and resale does not meet the requirements of sub-division (ii) (d) of this sub-paragraph, the resale price method may be used because that method involves computations and evaluations which are fewer and easier to make than under the cost plus method. This is be-‘ cause, under the circumstances, X’s use of a patent is more difficult to evaluate in determining an appropriate gross profit percentage under the cost plus method, than is evaluation of the use of Y’s trademark in determining the appropriate markup percentage under the resale price method.

  1. For the purposes of this sub-paragraph the “applicable resale price “ is the price at which it is anticipated that property purchased in the controlled sale will be resold by the buyer in an uncontrolled sale. The “applicable resale price” will generally be equal to either the price at which current resales of the same property are being made or the resale price of the particular item of property involved.
  2. Where the property purchased in the controlled sale is resold in another controlled sale, the “applicable resale price” is the price at which such property is finally resold in an uncontrolled sale, providing that the series of sales as a whole meets all the requirements of subdivision (ii) of this sub-paragraph or that the resale price method is used pursuant to sub-division (iii) of this sub-paragraph. In such case, the determination of the appropriate markup percentage shall take into account the function or functions performed by all members of the group participating in the series of sales and resales. Thus, if X sells a product to Y in a controlled sale, Y sells the product to Z in a controlled sale, and Z sells the product in an uncontrolled sale, the resale price method must be used if Y and Z together have not added more than an insubstantial amount to the value of the product through physical alteration or the application of intangible property, and the final resale occurs within a reasonable time of the sale from X to Y. In such case, the applicable resale price is the price at which Z sells the product in the uncontrolled sale, and the appropriate markup percentage shall take into account the functions performed by both Y and Z
  3. For the purposes of this sub-paragraph, the appropriate markup percentage is equal to the percentage of gross profit (expresses as a percentage of sales) earned by the buyer (reseller) or another party on the resale of property which is both purchased and resold in an uncontrolled transaction, which resale is most similar to the applicable resale of the property involved in the controlled sale. The following are the most important characteristics to be considered in determining the similarity of resales:
  4. The type of property involved in the sales. For example: machine tools, men’s furnishings, small household appliances.
  5. The functions performed by the reseller with respect to the property. For example: packaging, labelling, delivering, maintenance of inventory, minor assembly, advertising, selling at wholesale, selling at retail, billing, maintenance of accounts receivable, and servicing.
  6. The effect on price of any intangible property utilized by the reseller in connection with the property resold. For example: patents, trademarks, trade names.
  7. The geographic market in which the functions are performed by the reseller.

In general, the similarity to be sought relates to the probable effect upon the markup percentage of any differences in such characteristics between the uncontrolled purchases and resales on the one hand and the controlled purchases and resales on the other hand. Thus, close physical similarity of the property involved in the sales compared is not required under the resale price method since a lack of close physical similarity is not necessarily indicative of dissimilar markup percentages.

  1. Whenever possible, markup percentages should be derived from uncontrolled purchases and resales of the buyer (reseller) involved in the controlled sale, because similar characteristics are more likely to be found among different resales of property made by the same reseller than among sales made by other resellers. In the absence of resales by the same buyer (reseller) which meet the standards of sub-division (vi) of this sub-paragraph, evidence of an appropriate markup percentage may be derived from resales by other resellers selling in the same or a similar market in which the controlled buyer (reseller) is selling, providing such resellers perform comparable functions. Where the functions performed by the reseller is similar to the functions performed by a sales agent which does not take title, such sales agent will be considered a reseller for the purpose of determining an appropriate markup percentage under this sub-paragraph and the commission earned by such sales agent, expressed as a percentage of the sales price of the goods, may constitute the appropriate markup percentage. If the controlled buyer (reseller) is located in a foreign country and information on resale by other resellers in the same foreign market is not available, then markup percentages earned by United States resellers performing comparable functions may be used. In the absence of data on markup percentages of particular sales or groups of sales, the prevailing markup percentage in the particular industry involved may be appropriate.
  2. In calculating the markup percentage earned on uncontrolled purchases and resales, and in applying such percentage to the applicable resale price to determine the appropriate markup, the same elements which enter into the computation of the sales price and the costs of goods sold of the property involved in the comparable uncontrolled purchases and resales should enter into such computation in the case of the property involved in the controlled purchases and resales. Thus, if freight-in and packaging expense are elements of the cost of goods sold in comparable uncontrolled purchases, then such elements should also be taken into account in computing the cost of goods sold of the controlled purchase. Similarly, if the comparable markup percentage is based upon net sales (after reduction for returns and allowances) of uncontrolled resellers, such percentage must be applied to net sales of the buyer (reseller).
  3. In determining an arm’s length price appropriate adjustment must be made to reflect any material differences between the uncontrolled purchases and resales used as the basis for the calculation pf the appropriate markup percentage and the resales of property involved in the controlled sale. The differences referred to in this subdivision are those differences in functions or circumstances which have a definite and reasonably ascertainable effect on price. The principles of this subdivision may be illustrated by the following example:

Example. Assume that X and Y are members of the same group of controlled entities and that Y purchases electric mixers from X and electric toasters from uncontrolled entities. Y performs substantially similar functions with respect to resales of both the mixers and the toasters, except that it does not warrant the toasters, but does provide a 90-day warranty for the mixers. Y normally earns a gross profit on toasters of 20 per cent of gross selling price. The 20 per cent gross profit on the resale of toasters is an appropriate markup percentage, but the price of the controlled sale computed with reference to such rate must be adjusted to reflect the difference in terms (the warranty).

  1. Cost plus method, (i) Under the pricing method described as the “cost plus method”, the arm’s length price of a controlled sale of property shall be computed by adding to the cost of producing such property (as computed in subdivision (ii) of this sub-paragraph), an amount which is equal to such cost multiplied by the appropriate gross profit percentage (as computed in subdivision (iii) of this subparagraph), plus or minus any adjustments as provided in subdivision (v) of this sub-paragraph.
  2. For the purposes of this subparagraph, the cost of producing the property involved in the controlled sale, and the costs which enter into the computation of the appropriate gross profit percentage shall be computed in a consistent manner in accordance with sound accounting practices for allocating or apportioning costs, which neither favors nor burdens controlled sales in comparison with uncontrolled sales. Thus, if the costs used in computing the appropriate gross profit percentage are comprised of the full cost of goods sold, including direct and indirect costs, then the cost of producing the property involved in the controlled sales must be comprised of the full cost of goods sold, including direct and indirect costs. On the other hand, if the costs used in computing the appropriate gross profit percentage are comprised only of direct costs, the cost of producing the property involved in the controlled sale must be comprised only of direct costs. The term “cost of producing”, as used in this subparagraph, includes the cost of acquiring property which is held for resale.
  3. For the purposes of this subparagraph, the appropriate gross profit percentage is equal to the gross profit percentage (expressed as a percentage of cost) earned by the seller or another party on the uncontrolled sale or sales of property which are most similar to the controlled sale in question. The following are the most important characteristics to be considered in determining the similarity of the uncontrolled sale or sales:
  4. The type of property involved in the sales. For example: machine tools, men’s furnishings, small household appliances.
  5. The functions performed by the seller with respect to the property sold. For example: contract manufacturing, product assembly, selling activity, processing, servicing, delivering.
  6. The effect of any intangible property used by the seller in connection with the property sold. For example: patents, trademarks, trade names.
  7. The geographic market in which the functions are performed by the seller.

In general, the similarity to be sought relates to the probable effect upon the margin of gross profit of any differences in such characteristics between the uncontrolled sales and the controlled sale. Thus, close physical similarity of the property involved in the sales compared is not required under the cost plus method since a lack of close physical similarity is not necessarily indicative of dissimilar profit margins. See subparagraph (2) (iv) of this paragraph, relating to sales made at less than a normal profit for the primary purpose of establishing or maintaining a market.

  1. Whenever possible, gross profit percentages should be derived from uncontrolled sales made by the seller involved in the controlled sale, because similar characteristics are more likely to be found among sales of property made by the same seller than among sales made by other sellers. In the absence of such sales, evidence of an appropriate gross profit percentage may be derived from similar uncontrolled sales by other sellers whether or not such sellers are members of the controlled group. Where the function performed by the seller is similar to the function performed by a purchasing agent which does not take title, such purchasing agent will be considered a seller for the purpose of determining an appropriate gross profit percentage under this subparagraph and the commission earned by such purchasing agent, expressed as a percentage of the purchase price of the goods, may constitute the appropriate gross profit percentage. In the absence of data on gross profit percentages of particular sales or groups of sales which are similar to the controlled sale, the prevailing gross profit percentages in the particular industry involved may be appropriate.

    1. Where the most similar sale or sales from which the appropriate gross profit percentage is derived differ in any material respect from the controlled sale, the arm’s length price which is computed by applying such percentage must be adjusted to reflect such differences to the extent such differences would warrant an adjustment of price in uncontrolled transactions. The differences referred to in this subdivision are those differences which have a definite and reasonably ascertainable effect on price. Registration Section 1.482-2. 10 Historical Comment: Proposed 8.2.66. Adopted 4.15.68 by T. D. 6952. Amended 7.24.68 by T. D. 6964. Amended 1.17.69 by T. D. 6998, to provide more specific rules for the allocation of income and deductions among taxpayers. Amended 3. 10.72 by T. D. 7 1 70. 2993 Determination of Taxable Income of a Controlled Taxpayer

CCH Explanation 01 Control.- The law provides that where two or more organizations, trades, or businesses are owned or controlled by the same interests, the Commissioner is authorized to distribute, apportion, or allocate gross income, deductions, credits or allowances between them, if he determines it is necessary to do so in order to prevent evasion of taxes or clearly to reflect the income of such trades or businesses. Thus, two corporations, each owning 50 per cent of a shopping center, had the requisite control for Section 482 purposes, even though they operated competing department stores(.0341, below).

The Commissioner is authorized to allocate credits or allowances, as well as gross income and deductions, between related organizations, trades, or businesses, whether or not incorporated.

The Commissioner is authorized to avail himself of this provision in his own discretion. The provision is not limited to corporations. It is applicable to businesses owned by individuals or partnerships, and to any class of organization.

To be able to rely upon Section 482, however, he must notify the taxpayers involved of his determination under Section 482 (see .265, below).

Where an existing business is split up into multiple corporations, the provisions of Code Section 1551, as well as the above provision, should be considered. Code Section 1551 provides for the disallowance of the $25,000 surtax exemption for a transferee corporation which is controlled by the transferor or its stockholders (paragraph 49 1 5 et seq.). Also, unless it serves a business purpose, it is possible that the split-up will be disregarded and the corporations treated as one, under Code Section 369. See Paragraph 2266.06.

Minimising taxes.- The provisions of Code Section 482 (substantially the same under all Acts since 1928) have been the subject of surprisingly little application. This ‘silent policeman’ has been fortified with regulations which warrant consideration in connection with the vulnerability of many tax-saving plans.

The provisions of Section 482, though sparingly applied in the past, become increasingly important when tax-saving methods become the target of scrutiny, as they are at present.

The use of Section 482 as a ‘silent policeman’ was extended and fortified by the Second Circuit in Advance Machinery Exchange, Inc. v. Com., .034, below, notwithstanding the apparent restraining influence interposed by other cases.

It was held that where the taxpayer, two other corporations and an individual, although ostensibly separate entities, all engaged in the same business at the same location, used the same equipment with the same employees, and, to a large extent, supplied the same customers, the Commissioner was justified in taxing the income of all four businesses to the taxpayer.

The problem, as usual, involved essentially the legal sanctity of the corporate entity for tax purposes. The instant case was further entangled with considerations of Section 61 and the excess profits tax law, as urged upon the court by the parties.

The government cannot compel an affiliated group of corporations to file a consolidated return. Any such intention to employ Section 482 for that purpose has been expressly disclaimed in the regulations. It may, however, examine intercompany transactions of these entities to see that they are bona fide- to determine, for instance, that the prices and terms in such transactions between them are such as would have been reached between parties which are not affiliated.

This search for tax manipulations, moreover, is not confined to corporations. It is within the purview of Section 482 to look through the transactions of any related interests, whether or not incorporated ‘ and ‘ whether or not affiliated ‘. In all such cases the Commissioner is authorized to distribute, apportion, or allocate gross income or deductions between or among ‘ such organizations, trades, or businesses, ‘ if he determines it necessary to prevent evasion of taxes or clearly to reflect the income of any of such ‘organizations, trades, or businesses.’

In the Advance Machinery Exchange case (.034, below), the Appeals Court, in affirming, adopted the Tax Court’s view of the law based on findings of fact that were both simple and undisputed. Individual A organized taxpayer to deal in used machinery. Subsequently, he organized another corporation and also a holding company. Thereafter, A proceeded to engage in this business while he and his son were officers and directors of all these corporations. It was clear that the taxpayer-corporation served as the connecting link for the business conducted by A and the two other corporations. Though legally separate entities, they were engaged in the same business at the same location, used the same equipment, the same employees, and to a large extent supplied the same customers. The income from all four businesses (including A’s) was held to be properly taxable to the corporation-taxpayer. There was, in reality, but one taxable entity to which all of the income was attributable. This was the first such holding based on Section 482.

Chain of related businesses- The Commissioner invoked both Section 482 and the general provisions of Section 61. Taxpayer argued that if the formal tax entities are not to be charged with the income they each receive, then any attribution of income to another taxpayer under Section 482 must be to A and his son as individuals, on the premise that they were the ones who controlled all four enterprises. It was charged, for instance, that it was they, through multiple books and entries, who were able to control the allocation of net profits. Such a claim was obviously based on the broad principle that taxable income should be charged to him who earns it. Thus, in Briggs-Killian Co., .014, below, an allocation of income to the corporation was not warranted where an agreement between its stockholders and a third person (involving rental of equipment from the corporation) was found to be an undertaking of individuals and not that of the corporation-taxpayer.

The instant case might be susceptible of taxpayer’s interpretation if the facts had approximated those in MilesConley Co., Inc., .043, below, where the sole stockholder of a corporation organized a sole proprietorship to take over related but subordinate interests. In that case the income of the proprietorship, earned through the sole proprieter’s services and capital, could not be allocated to the corporation. In the instant case of Advance Machinery, one of the corporations was supposedly organized to take care of all ‘deals’, but such did not turn out to be the case. The other entities, including taxpayer and A, likewise transacted the business described as ‘deals’. They were not ‘relieved of this type of business,’ as the Tax Court expressed it. Moreover, the facts in Miles-Conley were not subject to the weakness, as in the instant case, of finding a connecting link in a chain of related businesses upon which to fix the tax liability, the Commissioner’s determination having the presumption of correctness.

Consideration of Section 61 not excluded.- If any general rule can be laid down, it is that a corporation will be looked upon as a legal entity until sufficient reason to the contrary appears. It is when the notion of legal entity is used to defeat public convenience, justify wrong, or protect fraud that the law will regard the corporation as an association of ‘persons’. The Supreme Court stated in Moline Properties, Inc. v. U.S., 319 U.S. 436, 43-1 USTC paragraph 9464, that ‘whether the purpose be to gain an advantage under the law of the state of incorporation or to avoid or to comply with the demands of creditors or to serve the creator’s personal or undisclosed convenience, so long as that purpose is the equivalent of business activity or is followed by the carrying on of business, the corporation remains a separate taxable entity’.

In fixing upon the corporation in the Advance Machinery Exchange case (.034, below), not the individuals, as ‘the taxpayer’, the decision of the court was made to rest upon the cardinal point that the other enterprises organized by A were not mere shams. They were used for business purposes. The authority to determine true net income will extend to any case in which by either inadvertence or design the taxable income, in whole or in part, of a controlled taxpayer, is other than it would have been had the taxpayer in the conduct of its business been an uncontrolled taxpayer dealing at arm’s length with another uncontrolled taxpayer.

It was not necessary to decide whether what the Commissioner did was sustainable under Code Section 61 alone. Although the Commissioner is not free under Code Section 482 to require affiliated corporations to consolidate their incomes, he may allocate the income among them if they are engaged in related trades or businesses, in order to prevent evasion of taxes or clearly to reflect the income of any such organizations, ‘just as he may do that in respect to other taxpayers, and to do so to whatever extent that may be necessary to accomplish the purpose of that section. ‘

While Code Section 482 permits reallocation of income, it does not permit the Commissioner to disregard valid entities altogether. Here, it was determined that there were four such entities but that only one, in fact, earned the income which had been divided among all four. That one was the taxpayer. Consequently, it was that entity to which all the income was properly allocated.

Reg. Section 1.482-2 sets forth standards for the application of Code Section 482 of cases involving the pricing of tangible property sold by one member of a controlled group to another, and cases in which intangible property, such as patents, copyrights, and trademarks, is made available by one member to another.

Reg. Section 1.482-2 also sets forth standards for determining taxable income of controlled groups in cases involving loans, the rendering of services and the use or sale of tangible or intangible property. The gist of this Regulation is that, in any transaction involving controlled groups, the member receiving a benefit must make adequate reimbursement to the member furnishing the benefit. If the member fails to do so, the District Director may adjust incomes within the group by applying an arm ‘s length charge or price to the transaction.

In general, the arm’s length cost or price is that which would have been charged for the same or similar benefits in independent transactions with unrelated parties under similar circumstances, considering all relevant facts.

In making distributions or allocations between two members of a group for particular transactions, the District Director considers the effect of an arrangement between them for reimbursement within a reasonable period before or after the taxable year (assuming the agreement existed during the taxable year). Also, he takes into account the effect of any other non-arm’s length transaction between them in the taxable year which would offset the allocation to be made (the taxpayer must establish that the transaction was not at arm ‘s length and the amount of the appropriate arm’s length charge) (Reg. Section 1.482-1 (d) (3)).

The District Director may make the allocations even though the ultimate income expected to be realized by the group is realized during a later year or may never be realized (Reg. Section 1.482-1 (d)(4)).

If currency or other restrictions of a foreign country prevent the payment or reimbursement for the sale, exchange or use of property, the rendition of services, or the advance of other consideration between two members of a group, any distributions or allocations under Section 482 may be deferred upon election by the taxpayer until the payment or reimbursement is no longer deferrable (Reg. Section 1.482-1 (d)(6)).

Reg. Section 1.482-2 provides rules for:

  1. Loans or advances. Interest should be charged on loans or advances made by one member of a controlled group to another. If the creditor is regularly engaged in the business of making loans or advances, the arm’s length interest rate should be charged. Upon failure to do so, the District Director can determine what interest should have been charged. Where the creditor is not in the business of loaning money or making advances, either an arm’s length rate based on the facts and circumstances or a ‘safe haven’ rate is acceptable. A safe haven rate is one which is at least 4 per cent but not more than 6 per cent simple interest per annum. Also, the safe haven rate zone is extended if the arm’s length rate based on the facts is less than 4 per cent or more than 6 per cent. Thus, if the arm’s length rate based on the facts is 2.S per cent, then the actual rate charged will not be disturbed if it is at least 2.S per cent but not more than 6 per cent. If the rate actually charged is not an arm ‘s length or safe haven rate under the above rules, the Commissioner may set up an allocation reflecting an annual rate of 5 per cent simple interest. (Reg. Section 1.482-2 (a)).
  2. Performance of services. Where a service by one member of a group to another member is rendered for less than an arm’s length charge, the District Director may make appropriate allocations to reflect an arm’s length charge for that service. (Reg. Section 1.482-2 (b).) The arm’s length charge is equal to the costs (direct and indirect) or deductions incurred by the member performing the service (Reg. Section 1.482-2 (b) (3)), except in cases where the service is an integral part of the business activity of either member (Reg. Section 1.482-2 (b)(7)).
  3. Use of tangible property. If tangible property is made available by one member of the group to another, the latter should be charged the arm’s length rental charge. If neither party is in the business of renting, the allocation generally would be an amount equal to the sum of the allowable depreciation, plus 3 per cent of the depreciable basis of the property and the amount of all direct or indirect expenses (exclusive of interest expense) connected with the property (Reg. Section 1.482-2 (c).)
  4. Use of transfer of intangible property. If intangible property (such as patents, copyrights or trademarks) is transferred, sold, assigned, loaned, or otherwise made available by one member of the group to another member for other than an arm’s length consideration, the District Director may make the allocation.

General rules for cost-sharing arrangements in connection with the development of intangible property are also set forth. (Reg. Section 1.482-2 (d).)

  1. Sales of tangible property. Where one member of a group of controlled entities sells or otherwise disposes of tangible property to another at other than an arm ‘s length price, a proper allocation will be made between the seller and the buyer. Reg. Section 1.482-2 (e) describes in detail three methods which may be used in determining the arm’s length price:

    1. Comparable uncontrolled price method.- This method must be used if there are comparable uncontrolled sales (sales between outsiders or a member and an outsider where the property sold and the circumstances involved are identical, or nearly identical, to those in the controlled sale). To the extent they are not identical, adjustments are made. (Reg. Section 1.482-2 (c)(2).)
    2. Resale price method.- If there are no comparable uncontrolled sales, the resale price method must be used if the standards for its application are met. A typical situation where this method is required is where a manufacturer sells products to a related distributor which, without further processing, resells the products to unrelated parties. (Reg. Section 1.482-2 (e)(3).)
    3. Cost plus method.- If the standards for application of the resale price method are not satisfied, either that method or the cost plus method is used, depending on which is more feasible and will produce a more accurate arm’s length price. Normally, the cost plus method is appropriate where a manufacturer sells products to a related entity which performs substantial manufacturing, assembly, or other processing of the product or adds significant value by use of its intangible property (trademark, for example) before resale. (Reg. Section 1.482-2 (e) (4).)

Under both the comparable uncontrolled price method and the resale price method, market conditions faced by the affiliate are taken into account. Thus, goods may be sold, for a period, at a price which is below the full cost of manufacture in order to establish or maintain a market. (Reg. Section 1.482-2 (e) (2) (iv) and (3) (iv).’

Assuming that the requirements of one of the above three methods are met, it must be used unless the taxpayer can show that some other method is clearly more appropriate. Where none of the three methods can reasonably be applied, some other appropriate method can be used. (Reg. Section 1.482-2 (e)(1) (iii).)

Where a taxpayer makes controlled sales of many different products or many sales of the same product and it is impractical to figure an arm’s length price for each product or sale, it is permissible to apply the proper method of pricing to product lines or other groupings. Also, the District Director may use statistical sampling techniques to verify or determine the arm’s length price of all sales to a related entity. (Reg. Section 1.482-2 (e) ( 1) (iv).)

In the case of a mineral product which is sold at the stage at which mining or extraction ends, the arm’s length price shall be determined under Reg. Sub-sections 1.613-3 and 1.613-4.

Registered Section 1.482-2 is designed to give taxpayers, including those engaged in exporting to foreign subsidiaries, guidance as to the manner in which they may carry out transactions with their affiliates with reasonable confidence that audit of these transactions by the IRS will not result in increased tax liabilities under Code Section 482. The IRS has announced that it is not its policy to make minimal allocations. Rather, adjustments will be proposed only in cases where there have been significant deviations from arm’s length dealings or significant shifting of income (IRS Release, August 2, 1966, 667 CCH paragraph 6685).

Foreign corporations.- For policy and procedure governing the application of Code Section 482 to controlling United States taxpayers of foreign corporations, see .06-. 1 1 , below. 012 Adjustment of accounts- Where a U.S. taxpayer’s income has been increased by allocations under Section 482, it may request permission to receive payment from the entity whose income was decreased by the allocations in an amount equal to a part or all of the amount allocated, without further tax consequences. But the transactions resulting in the allocation must not have had tax avoidance as one of the principal purposes. See Rev. .Proc. 65-17 at .0133 below. 0 123 Existence of income for allocation.- The Tax Court has concluded that the purpose of Code Sec. 482 is to clearly reflect existing income. It does not give the Commissioner authority to set up income where none exists. Thus, he was not allowed to allocate rental income to a corporation for the use of a related corporation’s equipment where no rent was paid (Tennessee-Arkansas Gravel Co., .15 below). Nor was he permitted to allocate interest income to a corporation where it made a non-interest-bearing loan to its parent corporation (Smith-Bridgman & Co., .15 below). But interest income was allocable where the Commissioner showed that interest-free, borrowed funds produced income for a subsidiary (Kerry Investment Co., . 1 5 below).

Also, a district court has ruled that the Commissioner may not ignore the substance of the group relationship. Hence, where the parent of a finance group borrowed funds for use by its subsidiaries and charged interest expense only to those that did not have impaired capital, the Commissioner should have reallocated the interest charges among all the subsidiaries so as to untangle the distortion. He was not allowed to impute interest only to those subsidiaries with impaired capital and thereby create income for the group where none had been realized (Liberty Loan Corp., . 1 5 below).

The Second Circuit, however, has accepted the Commissioner’s ‘imaginary income’ concept. It held that two 50 per cent corporate owners of a corporate borrower had to include in their income a portion of the borrower’s gross income to the extent of the interest they would have received (at a 5 per cent rate) if the loan- made without interest- had been at arm ‘s length ( B. Forman Co., Inc., . 1 5 below).

This ‘creation of income’ question is an IRS prime issue which the IRS ordinarily will insist on litigating and will not concede or compromise (IRS List of Prime Issues, l-l-73).-CCH.

Mr RUDDOCK:

-I thank the House. I would hope in considering those sections the Minister might look carefully at the United States law to see whether our own law can be widened to ensure that foreign companies, which are taxpayers in Australia bear their fair burden as do all Austraiian taxpayers.

Question resolved in the affirmative.

Bill read a second time.

Third Reading

Leave granted for third reading to be moved forthwith.

Bill (on motion by Mr Hayden) read a third time.

Sitting suspended from 5.58 to 8p.m.

page 338

DEFENCE FORCE RE-ORGANIZATION BILL 1975

Second Reading

Debate resumed from 29 May, on motion by Mr Barnard:

That the Bill be now read a second time.

Mr SPEAKER:

-I call the honourable member for Moreton. (Quorum formed)

Mr KILLEN:
Moreton

-The House turns its attention to a Bill which is compendiously described as the Defence Force ReOrganisation Bill 1975. It may seem at first blush to resort to the platitude to describe this Bill as one of far reaching significance. But it is, nevertheless, a Bill which in terms of the defence services of this country is most certainly the most far reaching Bill which has ever been introduced into this Parliament.

Having said that, I am wondering whether I may lay bare my attitude to the Bill, to its sponsors and to the Government. May I make it clear- I trust pluperfect clear- that for my part those who serve in the armed services are persons for whom I have nothing but unfeigned admiration and affection. For those who serve in the Public Service, supporting them, I have nothing but the utmost respect. Many of them are men and women with whom I have worked intimately over a long period. Many of them are men and women I have known in this place for some 20 years. That is a long time to be able to survive politically in this place.

Mr Mulder:

– Too long.

Mr KILLEN:

– I know that there is a pang of regret from some honourable gentlemen opposite, but at least I have been able to escape their ingenuity, whether cultivated or real. So, when I turn to this Bill I hope that no person in this House or outside of it will take the view that I am seeking to put a point of opinion which in any way is calculated to incite, cultivate or lead to any sense of antagonism between those who serve in the armed Services and those who are in the Public Service of this country. This is, as I say, a Bill which is of very great consequence to this country. Those remarks are by way of preliminary observation.

May I proceed to give on behalf of the Opposition our stand and our attitude with respect to defence? I can do it in capsule form. I think that the simple reality of Australia’s responsibility today is that we are very much on our own and that we have indeed a completely new gathering of responsibilities. Nothing should be done in this country in any way to detract from the totality of our effort.

Quite crucial to Australia’s defence is our defence organisation. It is not enough that we have courage galore and equipment at our disposal. Courage and equipment are 2 splendid estatestrie quality of courage and the capacity to say: Yes, these Services are perfectly equipped’. That is not enough. We must have a defence organisation that meets the requirements of contemporary circumstances. It is against that background that one considers the circumstances in relation to which this Bill has been drawn.

Unless there is a defence organisation that has an efficient administrative capacity, nothing availeth. I do not seek to comport myself with the opinions of my own creation in this field. I would like to assure my honourable friend opposite, the Minister for Defence (Mr Morrison), and all his colleagues and supporters, that in no way have I sought to elevate what one might regard as one’s own opinion on this matter. I have reached out with no other discipline than the discipline of my own profession, which is given to searching for facts. I have been encouraged no end to inquire with the depths of discovery and indeed anxiety as to the real significance of this Bill.

I have turned away from what may have been my own opinions and my own disposition as to the significance of administration in defence matters. I have gone to probably two of the greatest military commanders that our contemporary generation has ever known.

I have gone in the first place to an opinion expressed by Field-Marshal Montgomery. I beg of my friends opposite not to treat this as some jocose matter. We are dealing with the safety of our nation. Surely to heavens that must command some priority of importance. Dealing with the subject of administration, Field-Marshal Montgomery in his celebrated A History of Warfare: made the following observation.

In my own case, I very soon learnt by hard experience that the administrative situation in rear must be commensurate with what I wanted to achieve in battle in the forward area.

That is a simple, stark, commanding expression of opinion. I looked also at the view offered by

Field-Marshal Wavell in his Trinity College lecture at Cambridge in 1 939.

Mr Daly:

– You are getting back a bit, Jim.

Mr KILLEN:

– If we could bring the Minister for Services and Property up to date it would be a handsome reward. I am sorry that the Minister has seen nothing more angry in the matter of conflict than the sights of Kings Cross. FieldMarshal Wavell was impressed by the views of Socrates. (Honourable members interjecting)-

Mr KILLEN:

– Honourable members opposite may laugh at that.

Mr Morrison:

– How many divisions did he control?

Mr KILLEN:

– The Minister for Defence takes the same view as Stalin did of the Pope. How many divisions does he command, overlooking the power of prayer? May I observe in passing about honourable members opposite that thou art desperately in need of it. Wavell went back to Socrates. Nothing has happened since which has in any way disturbed this. Socrates observed that the general must know how to get his men their rations and every other kind of stores needed for war. Wavell went on to make this observation:

It begins with the matter of administration, which is the real crux of generalship, to my mind; and places tactics, the handling of troops in battle, at the end of his qualifications instead of at the beginning, where most people place it.

No less a commander than Wavell placed administration ahead of tactics. I think that this House should be cautioned as to what this Bill is all about by the splendid injunctions of those two great commanders of our experience.

Mr Daly:

– What division was Socrates in?

Mr KILLEN:

– Some honourable members opposite have adopted what I can describe only as a view that is based essentially on levity. Can honourable members imagine what would happen if this country were attacked? ,

Mr Morrison:

– And you were the Minister for Defence.

Mr KILLEN:

– At least the enemy would have more on its side than Blue Poles and the Minister for Services and Property. I was about to call him the Minister for Security! Fancy describing him as the Minister for Security. I do not think he could keep a gaol if he were locked up in Long Bay himself.

This Bill is concerned with defence administration. It has 187 clauses; it has 10 Schedules. It seeks to amend no fewer than 14 Acts of Parliament. Before I come to what I would describe as the main thrust of the Bill I wish to deal with one or two peripheral matters. I do so without any offence to the authors of the Bill. I say to the Government: This Bill has been drawn by a Government which has a sturdy sense of commitment to a pseudo-nationalism. One finds throughout the Bill that the word ‘Commonwealth’ is being eliminated. I hope the House understands that the word ‘Commonwealth’ is being eliminated.

Mr Duthie:

– Hear, hear!

Mr KILLEN I am grateful to the honourable member for the interjection. Honourable members opposite do not even know where to divide the blame for that blemish in performance. I think it is about time that supporters of the Government abandoned their sense of solecism in this direction and read some of the history books. Our nation is not the Australian nation; it is the Commonwealth of Australia. I hope the Minister for Defence will pay some heed to that. If, for example, he looks at the Commonwealth of Austrafia Constitution Act he will find recited there words to the effect that the ‘people of the various States, uniting under the province of Almighty God, have agreed to unite in one indissoluble Commonwealth’. Section 1 of our Commonwealth Constitution speaks of the legislative power of the Commonwealth. Section 51 speaks about the peace, order and good government of the Commonwealth. Section 61 speaks about the executive power of the Commonwealth. Section 71 speaks about the judicial power of the Commonwealth. I am fed up with what I would describe as the phantom intellectuals who are seeking to create the impression that the term Commonwealth of Australia’ is an anachronism. One finds that no better represented than in this Bill. I move on to what may be regarded by some as a matter of no import- the dropping of the term ‘Royal Australian Air Force ‘.

Mr Morrison:

– Where is that done?

Mr KILLEN:

– I will tell the Minister for Defence this: I have been through this Bill with the anxiety and the discipline of one given over to examining the creations of the Government of which he is a member and I have found, for example, that clause 112 of the Bill seeks to amend section 4 of the Courts- Martial Appeals Act by dropping the term ‘Royal Australian Commonwealth’. It does not avail the Minister or any of his supporters to say: ‘Oh, well, my predecessor- the former Minister for Defencedid not worry very much about this ‘. It may be to some a minutia, but why do it? It does not affect anything. It is one of the most vulgar, egregious displays of republicanism that has ever been made by the present Government. Even if the honourable member for Blaxland (Mr Keating), who is trying to interject, were swept to a sense of ecstasy to command the normal cerebal processes, I would not expect him to understand what I am talking about, but who would have known that the honourable gentlemen, even by accident, may have lightened upon what is involved.

Mr Keating:

– ‘Royal Australian Commonwealth ‘ is not there.

Mr KILLEN:

– I said ‘Royal Australian Air Force’. Why delete the term ‘Royal Australian Air Force’ from the Courts-Martial Appeals Act.

Mr Whan:

– You said the ‘Royal Australian Commonwealth’.

Mr KILLEN:

– I would not expect the honourable member for Eden-Monaro, who has interjected with a sense of vigour which would startle a blancmange, to understand what I am talking about. I come to the main thrust of the Bill.

Mr Morrison:

– Hear, hear!

Mr KILLEN:

– I am delighted that the Minister receives my views with such enthusiasm. Let me tell the House in short form what this Bill does. It represents a form of impertinence, of course. It has presumed upon the approval of this Parliament, that the Parliament would approve of the Bill. A lot that has been done has been done administratively. The Bill in a very real sense is something that hovers precariously between being a paradox and being a sham.

Let me invite the House to consider the fact that the Bill proposes the abolition of the 3 Service boards- the Military Board, the Naval Board and the Air Board- two of them creatures of statute; one of them a creation by dint of regulation, and so in a very real sense, I suppose, also a creation of statute. It seeks for the first time in the experience of this country to establish a Chief of Defence Force Staff- a supremo. It seeks for the first time to create in defence what is described by one of the authors of the Bill as a diarchy. I do not know whether it is a sign of incipient old age that I shrink from dogma, but I have yet to be convinced that a diarchy is a form of organisation that flourishes. One can go back to the emperor Theodosius who graced this earth in the fourth century BC. One can proceed from there on and try to find an example of a diarchical organisation working. It seems to me to be a rather curious indulgence in intellectual vanity to believe that we can enable it to work today.

I draw the attention of the House to what may be described, I think not inappropriately, as being the very centrepiece of this legislation, and that is clause 7 which on the one hand proposes to repeal sections 8, 9 and 9A of the Defence Act and at the same time revives those sections in new form. One of the proposed new sections says that the Chief of Defence Force Staff shall command the Defence Force. I hesitate to inflict on the House my own opinion as to what that may be. But I cannot, nevertheless, refrain from saying that I have the utmost doubt as to the constitutional validity of the purported conferment of the command in chief of the armed Services upon any person. It is in clear conflict, in my opinion, with section 68 of the Constitution which vests the command in chief of the military Services in the Governor-General. It may be true that by dint of the conventions of responsible government over the years that command in chief vested in the Governor-General has been trammelled by the fact that upon the advice of the Executive Council the Governor-General exercises that power. But here is an attempt to alter explicitly section 68 of the Constitution. I invite my friend, the Minister for Defence, to consider just that.

Even though that may be regarded as some curious sentimental grievance, I turn to what is the major effect of this Bill. There is to be provided a joint administration of the armed Services of the defence forces between the Secretary of the Department of Defence and the Chief of the Defence Force Staff. There are 2 exceptions to that by dint of proposed new section 9a. One is matters falling within the command of the Defence Force and the other is any other matter specified by the Minister. I ask the Minister for Defence quite purposefully: What is described or defined as a matter of command? What is a matter of administration? His distinguished predecessor said that ministerial directives establishing the arrangement had been drafted in full consultation amongst the Chiefs of Staff. Why have they not been made public? They deserve to be made public.

What I am putting to my honourable friend is simply this: The capacity to distinguish between matters of command and matters of administration can in certain circumstances become almost impossible, and this is the very centre of anxiety of this Bill. If one were to look, for example, at annex E of the Report on the Reorganisation of the Defence Group of Departments- the Tange Committee’s report- one would find, for example, that a great variety of matters have been conferred upon the civilian side of the authority at the disposal of the Department of Defence. I refer to matters, for example, such as strategic policy and force development, supply and support services, resources and financial programs, defence manpower, organisation and management services, defence research and development and so on. I want to invite the Minister to tell the House where are the limits to matters of command and matters of administration.

May I indulge myself to this extent in the luxury of observing: What a curious way to run a defence force that the Minister of the day may seek to say: ‘Well, here is a matter which in my opinion comes within one of the exceptions ‘. I do not seek to recapitulate upon some of the very profound disquiet which has been echoed in a variety of ways throughout the defence Services of this country. But I do say this: Despite the view offered by people who hold a desperately elevated opinion of their own importance that they are clever, the far reaching significance of this Bill deserves further examination. The great paradox of this Bill is that its precise definition of those matters which are matters of command and matters of administration are not stated, and they deserve to be stated. It is a matter of infinite regret that the Tange Committee’s report- and please, I trust, no person will be disposed to say: Oh, you have had an opportunity to consider it since November 1 973 ‘-has in fact not been considered by this Parliament. I invite the Minister to give us an account of the sense of consideration given to this matter by the Cabinet.

Mr James:

– He will.

Mr KILLEN:

– Yes. I venture the view that it was put through in about half an hour. I invite the Minister to give an account of what was done with respect to the consideration of this Bill. For these reasons on behalf of the Opposition I move this amendment:

That all words after ‘That’ be omitted with a view to substituting the following words: the Bill be referred to a Select Committee of the House for a consideration of, and a report on, the clauses of the Bil!’.

The amendment does not take up any emphatic, dogmatic, doctrinal point of view with respect to the Bill. I have sought to express something of my own personal anxiety- I trust in a reflective way, not in a partisan way. I hope that my friend, the Minister for Defence, will find it within his disposition to agree with what has been expressed.

If the authors of this Bill take the view that this Bill commands the splendid virtues that have been asserted, surely there will not be the slightest hesitation to allow the Bill to be put to the scrutiny of close and earnest examination. We are not dealing with a Bill which seeks to advance the cause of one political party as against another. We are dealing with a Bill which involves the essential integrity of this nation. In my view, as a consequence, we are invited by dint of that circumstance to behave with circumspection and, I trust, with a sense of responsibility

Mr SPEAKER:

-Is the amendment seconded?

Mr McLeay:

– I second the amendment.

Mr CROSS:
Brisbane

– I am sure that honourable members on this side of the House were generally pleased when the honourable member for Moreton (Mr Killen) was appointed to the high position of shadow Minister for Defence on the Opposition side of the Parliament. We know his work, which was widely recognised, as the Minister for the Navy. He carried out that position with great distinction. He handed over the Navy to his successor- an honourable member on his own side of the House- in good repair. Having made that expression of goodwill, one must join issue with the honourable member in relation to many of the matters that he has put before us tonight. First of all he raised the question as to whether there was some suggestion of departing from the constitutional proprieties of this country by removing the word ‘Commonwealth’ and taking out the word ‘Royal’. I should like to direct the honourable member’s attention to the Defence Act as it stands at the moment; the term ‘Royal’ is not used. That Act refers to the Army Act and to the Air Force Act.

Mr Killen:

– Look at the courts-martial Act. That was the Act I was talking about.

Mr CROSS:

-Fine. When this matter was raised towards the end of 1973, the Prime Minister (Mr Whitlam) made a statement in London in which he pointed out that his advice was that it was proper for us to set out the arms of the Forces in the terms used in the Bill which is before us and that the use of the title ‘Royal’ was a matter for the discretion of Her Majesty the Queen. He made it clear that the Air Force of this country would still be known as the Royal Aus.tralian Air Force, the Navy would still be known as the Royal Australian Navy and the Army as the Royal Australian Army at the discretion of Her Majesty the Queen. From time to time it has been suggested- not only by my colleague, the honourable member for Moreton, but also by people like the Premier of Queensland- that there is some improper motive, some republican motive, some socialist motive in many of the things that this Government does, when no such motive exists.

Mr Howard:

– What about the photographs? Explain them away.

Mr CROSS:

– Obviously the Opposition is trying to distract me from some of the matters before the House. I should like to get back to them. The purpose of the Labor Party in this matter is well known. The Labor Party’s policy is to carry out that sort of re-organisation of the defence forces to which this Bill gives effect. This has been stated for many years. The former Government also had a look at this situation. The Morshead report was presented to that Government some 18 years ago but was never made a public document. Was it because the then Goverment, the present Opposition, was too concerned with inter-Service rivalries to give the Australian defence forces a modern administrative structure? That report has never seen the light of day.

There is an amendment before the House. We on the Government side will heartily oppose the amendment because this re-organisation of the defence forces has been under way for some time since the report was tabled in the Parliament in November 1973. It is not to say that it has not been available for scrutiny. Unlike the Morshead report which was presented to the former Government, this 1973 report was a public document. It was available throughout the Services, publicly, and to the Department. I speak only for the Joint Committee on Foreign Affairs and Defence when I say that we sought briefings from Sir Arthur Tange and from Sir Victor Smith, the Chairman of the Chiefs of Staff Committee. We had those briefings. We discussed at some considerable length these matters which we would all accept are matters of great importance. If the Opposition defence committees have not been similarly briefed it is its own fault, because this Government, unlike the previous Government, has made available senior officers of the Department of Defence to brief Opposition Parties.

Mr Killen:

– Hence our disquiet.

Mr CROSS:

-I should have thought that the Opposition would have been able to determine its attitude towards this Bill at this time after more than 18 months have elapsed. I would not have thought that the Opposition would have suggested that at this stage there is a need to refer the Bill for a further report, because this defence re-organisation is substantially under way and it is working very well. There were and there are people who do not like change. I suppose that none of us likes change. The individual Services were attached to their own Boards which were anachronistic and which go back to those times of classical antiquity that were mentioned by the honourable member for Moreton. But whilst those boards will exist until they are abolished by this Act, the fact is that the defence forces reorganisation is working well. All of us who have had contact with people in the defence forces know that those people recognise that the Australian armed forces are being given a modern administrative and command structure- a structure which makes clear the principle, which all honourable members of this House would support, that the forces are responsible to a Minister but that the military side of the structure, the command structure, is responsible not to a Chairman of the Chiefs of Staff Committee but to a Chief of the Defence Force Staff.

Mr Killen:

– You would not find one base in the country which would agree with that proposition.

Mr CROSS:

– I would be prepared to produce a few. This nation and this Parliament owe a great debt to Sir Arthur Tange, Mr Bruce White, Sir Victor Smith and those people who were associated with them in the preparation of this most comprehensive report. I think that even those people who criticise the report would realise that it has been the subject of a great deal of work. I am unhappy that the legislation has been so long in coming before this Parliament. I am pleased that the former Minister for Defence, the former honourable member for Bass, had the opportunity of introducing that legislation before his resignation from the Parliament. It was, and will be so judged in the future, one of his principal achievements.

What does this Bill bring about? It brings about an integrated organisation to replace 5 government departments and 3 boards of administration with a new structure. It takes away that inter-service rivalry where one service was able to play its case against the case of another service in terms of the provision of equipment, where sometimes one arm of the Services was able to obtain some advantage which prevented the flow of equipment to other arms of the Services. It means that on an integrated basis the problems of logistics and equipment will be looked at in a way that was not possible under the previous arrangements.

It was clear that the Chief of the Defence Force Staff and the service chiefs under him are advisers on military matters to the Minister. They have the right of access to the Minister enshrined in this legalisation, which did not exist under the previous legislation. There has been some attempt to play off the military versus civilian aspects of defence, to suggest that this legislation is a means of involving a much greater civilian role in the administration of the defence forces. If one looks at the actual establishment as it exists today and as it is proposed in the Budget currently before the House, one sees that no such change has taken place. Surely it is a fact of life that the effective administration of the defence force requires a co-operative role between the serving personnel and all of those very competent public servants who have been associated with the Department of Defence and with the previous service departments which have been merged into the Department of Defence.

I think this legislation is good legislation. I am sure it will stand the test of time. It brings to the Australian armed forces a modern administrative and command structure. It is not quite what was contained in the recommendation that was placed before the previous Government by Gen.meral Morshead but it meets a similar purpose. The previous Government was unable to grasp this task many years ago because it was unprepared to counter some of the conservatism that it knew it would meet among the individual arms of our forces. It is very much to the credit of Mr Barnard, our former Minister for Defence, that he was able to bring this about.

I believe that in the years ahead the Bill that we are putting forward today will be regarded in the defence forces as an historic document. The honourable member for Moreton has pointed out the fact that this is a Bill designed to serve the needs of the forces not only in times of peace but also in times of war. I am sure that in the unhappy event of this country going to war again, it will be found that the structure that the forces are now having brought to them in this legislation will serve them as well in war as it will in peace. This organisation is basically working. This legislation is necessary to cut away some of the remnants of the former structure that still exists and which cannot be removed without a change in the law. It is necessary to enable a finalisation of those administrative structures to be carried out. It is therefore vitally important legislation. It ought not to be deferred. We ought to be able to get on with this function of Government administratively, just as the Government has had to clear up the mess left by the previous Government in the matter of the lack of equipment of the armed forces.

Let us look at some of these questions, because essentially they were brought about by the structure that existed previously. As honourable members know, we are replacing Neptune aircraft that are approaching obsolescence. We have ordered a new tank to replace the Centurian. We are looking at many other aspects of re-equipment. These matters are being looked at from the equipment point of view and from the logistics point of view to give the Australian armed forces the equipment they need. This Bill seeks to give the Australian armed forces the administrative structure and the command structure they so badly need, and I commend it to the House.

Mr CADMAN:
Mitchell

-The matter we are discussing this evening and to which we are giving our very earnest attention is the defence of this nation. It is not a matter of integration of the defence forces, which the honourable member for Brisbane (Mr Cross) seemed to raise as the main argument for this piece of legislation. I do not think that matter is under debate. I think the discussion is about how it is to be done, how it is to be operated and how it is to be effective, so that in times of peace we have vigilance on the part of our defence forces, we have training going on and we have equipment assembled ready for use and people competent to use it, and that in times of war we have great activity and protection for the nation.

To assess this Bill we have too look at the circumstances under which it was drawn up and the circumstances of our country. The first is that the new organisation needs to be the best possible for peace but should be able to be adapted for war without undue delay. Out of 75 years of its history Australia, unfortunately, has been in combat for something like 26 years and has had forces overseas for 1 1 additional years- a total of 37 years out of 75. Under these circumstances it would hardly seem reasonable that the sole objective of this piece of legislation is to gear our defence forces for times of peace alone so that they will work smoothly in times of peace but when war comes, should it ever come again, there will be a big fiddle to find out what happens next.

I think we should refer to the Bill and particularly to the clauses which seem to provoke dissent and discussion. I start with clause 8, which provides that the Minister shall have the general control and administration of the defence force. I bring to the attention of the Minister for Defence (Mr Morrison) and of the House that under these circumstances it would appear that the role of the Governor-General is thrown into doubt. Whether or not the Governor-General is to remain the Commander-in-Chief of our defence forces has to be settled. We need to debate the constitutional issue. We need to find out how the chain of command is to operate. How is it to function, who has authority and to whom does he convey it? Who is responsible to that person exercising the command, and who is next in the line of command? There is nothing in the Bill, the second reading speech or the report to indicate how this should happen. Indeed there are no recommendations on the line of command anywhere in reference to these proposed changes. I refer the House to the evidence given to the Senate Standing Committee on Foreign Affairs and Defence by Air Vice-Marshal Hartnell. He raised very succinctly for that Committee the role of the Governor-General in section 68 of the Constitution. He said:

The Governor-General has a special role in the distribution of Defence authority. Under Section 68 of the Australian Constitution, and separately under Letters Patent, he is vested with command-in-chief of the Defence Force as the Queen’s representative. He is not a nominal CommanderinChief. He is actually vested with command.

These powers were given to the Governor-General himself and not to the Governor-General-in-Council. During the constitutional convention debates in Melbourne in 1898, an amendment was proposed that command-in-chief should only be exercised on the advice of the Executive Council. The amendment was lost.

Yet in this Bill we have the first inkling, indeed the first reference, of authority, control and administration relating to the Minister. There is no reference to the Governor-General in any way. Under clause 9 the Governor-General may appoint the Chief of the Defence Force Staff. I think this matter has to be ironed out. As a nation we suffer in the defence field because there is no understanding of where supreme authority lies. It would appear from the legislation that it may very well he in the Chief of the Defence Force Staff provided there is action and activity, but in all other fields it is a most nebulous area. Does it rely on the Secretary of the Department of Defence? Has the Secretary supreme say in things like administration? There is a list of what the civilly controlled section of the organisation may be responsible for. It could include such things as strategic policy and the development of the forces. How in the name of goodness can it be responsible for the development of the forces if it does not come under the command of somebody? The list includes material for the 3 Services, defence industry policy, contracts and quality assurance, supply and movements of transport of all services. Suppose in circumstances of an emergency ‘t was necessary for us to deploy a force on our north-western coast and the civil section of this organisation decided: That is our decision and we will not provide the transport. ‘ I do not see how there is any rhyme or reason within the proposals of this initial section of the Bill.

The only sensible way to deal with these issues is to grapple with them to find out where authority bes and who makes the decisions. Is it the Minister? Is it the Chief or is it the Secretary? The Minister obviously has powers. I think that this nation would like to see its representative being truly its representative and, in that role, the elected head of the defence Services. In times of peace when there is no need for great activity or build-up the Minister could convey the will of the nation to the defence Services in that way and not have somebody interposing his will or his ideas. I continue with the list and refer to Navy, Army and Air Force technical services, all Service facilities and accommodation, resources policy, planning and programming, budgeting and financial services, defence manpower, pay, recruitment, conditions of service, the personnel policy, training and education policy, organisation and management services, defence research, development and evaluation, and the Joint Intelligence Organisation. Now, there is a fine list. That is the responsibility of the civil part of the defence forces. One wonders what is left to the Chief of the Defence Force Staff.

I think I should at this stage refer the House again to another Senate committee report on the Australian Army which stressed at page 86 the fact that there is no single line of authority. The Senate reported:

At the present time these three streams come together at the ministerial level but it may be questioned whether this is an altogether satisfactory solution. The public service and military components of the Defence machine are closely interwoven but there is no single line of authority. The Departmental Secretary (currently responsible for advising the Minister on ‘policy, resources and organisation’) cannot issue instructions to the armed forces while the Chairman of the Chiefs of Staff Committee, or the Chief of Defence Force Staff under the proposed re-organisation of the Defence Department, cannot command the public service component.

Yet we have in the matter of appointments the Secretary and indeed the Minister having their say as to who should receive promotion above first star rank. I would like to see the Chief of the Defence Force Staff having a say in the promotions in the civil section of that service. Indeed, that seems fair and reasonable. Has this been settled? In the Tange Committee report section j indicates:

The proposal is to establish a single supply and support organisation within the Department of Defence and to appoint a senior executive to be chosen from persons both within and outside the Australian Public Service to head that organisation.

Is the Government going to grab people from everywhere? Perhaps some expertise in certain areas is warranted, but has it been written into the legislation. If it is not in it in detail it is there by innuendo. I would like to continue along the line of where authority lies. I have referred to Senate committee reports and the submission by Air Vice-Marshal Hartnell and Senate committee findings. If there is a need to look at the role of the Secretary I raise with the House clause 7 of the Bill which causes me some concern. In pan it reads: 9a. ( 1 ) Subject to section 8, the Secretary and the Chief of Defence Force Staff shall jointly have the administration of the Defence Force except with respect to-

  1. matters falling within the command of the Defence Force by the Chief of Defence Force Staff . . .

What is command? Goodness gracious me, if one goes to the Oxford dictionary and all over the place one can find it, but it is not in the Bill. What does the Government mean by the word ‘command’? What does it mean by the word administration’? Let us have it spelt out. Command, according to the Oxford dictionary, means to order with authority. It is distinct from leadership, which is to guide or show the way, with an emphasis on people. It is distinct from management, which is to handle, with an emphasis on resources. In the armed forces, leadership and management are no less important than in industry, but there is the further and particular need to order with authority, that is, to exercise command. Any defence force must have a command structure under which the various levels of authority have the ability to give lawful commands within their sphere of responsibility and to enforce obedience.

I will quote again from the evidence of Air Vice-Marshal Hartnell.

In the Australian Defence Force, the command structure operates efficiently outside Canberra. At the highest levels, however, there is no effective command structure.

I am not saying this matter has been looked at by us as a nation, but what an opportunity to do so. Is the Government going to roll the whole thing over and get it through by 10.30 tonight? Is it saying that we should not refer it to any committee because that is going to waste time? After all, the Tange Committee had 41 hours, I believe, with the Chiefs of Staff. Surely to goodness they ought to be able to organise or re-organise the defences of this nation in a week into something that will carry this nation on for the next 50 years! I would hardly have thought so. Air ViceMarshal Hartnell went on to say:

At the highest levels, however, there is no effective command structure. The requirement can be simply stated. It is for an orderly system, backed by appropriate legislation at each step, which permits the orderly transformation of parliamentary and Government policy into executive military action. There is, as yet, no such system in Australia.

The Minister’s speech in fact carries this somewhat further because the legislation does not spell it out in any great detail. The former Minister for Defence in introducing the legislation said:

The Secretary, as Permanent Head/Chief Officer of the Department, Will have legal responsibilities under the Audit Act and Treasury regulations; will be the link with the Government administration at large, and will be the adviser on policy, on organisation and on financial planning and programming.

He controls it. We are not talking about personalities. We are trying to assess the value of this legislation. In these circumstances the Secretary epitomises to me the Public Service section of the Defence forces. We have to strike a balance so that these men can work side by side. The Tange report talks about two-hatted gentlemen. I find that two-hatted gentlemen often become yes men. They play both sides and they cannot decide where they really belong. Let us decide who has command both in the civil section and in the forces section. I think that in these circumstances the role of the civil servants, epitomised as I said by the role of the Secretary, must be decided on. Are they to have the power of veto? Are they to work alongside Defence personnel? Are they to supplement and to allow the machinery to run smoothly? I do not know. I cannot find anything in the Bill which indicates that the Minister, the Government or the draftsman of this legislation have given it any thought or any detailed consideration. I come back again to the fact that the Minister is the link between society -our community, the people of Australia- and the defence forces. It is up to the Minister. We will hear the Minister. I think that we will be enlightened. I hope that we will be enlightened. I hope that he will refer the matter to a committee for examination. I would be pleased to hear his words of wisdom and experience in regard to command and administration.

I refer to the American Joint Chiefs of Staff and to their arrangements and responsibilities because it would seem that we could learn from other systems and from what other countries are doing. I understand that there are countries in our area, indeed close friends, which have opted for different systems of command and administration from the one we have selected. An article which I have asks:

What does a Joint Staff do besides staff the joint? To find out, we must first ascertain what it is that their bosses, the JCS, do- or ought to be doing. The Joint Chiefs of Staff are the principal military advisors to the President, the National Security Council, and the Secretary of Defense.

I take the word ‘Secretary’ to mean the Minister.

Mr Killen:

– Frightening, is it not?

Mr CADMAN:

– It is frightening. I only hope that we have some sort of national security council or watchdog. The article continues:

After first informing the Secretary of Defense, a member of the Joint Chiefs of Staff may make such recommendations to Congress relating to the Department of Defense as he may consider appropriate.

Subject to the authority and direction … the Joint Chiefs of Staff shall-

prepare strategic plans and provide for the strategic direction of the armed forces;

prepare joint logistic plans and assign logistic responsibilities to the armed forces in accordance with those plans;

establish unified commands in strategic areas;

review the major material and personnel requirements of the armed forces in accordance with strategic and logistic plans;

) formulate policies for the joint training of the armed forces.

I cannot see anything in our proposed legislation that shows as much foresight and as much thought. Indeed I would press upon the Minister the need for a defence council which would incorporate all the Chiefs of Staff, the Minister and the Secretary so that there would be proper consideration of these matters, so that there would be proper policy and financial control and so that there would be organisation, policy development and proper programming. Let us have in time of peace a defence force where there is not competition, where there is not diversity of purpose but where there is a single goal, one that is aiming for something that can be achieved in time of war- security for this nation.

Mr KERIN:
Macarthur

-The honourable member for Mitchell (Mr Cadman) quite properly addressed himself to the key features of the Bill and to the main points in contention. In doing so he quoted mainly from the doubts and discussions of Dr Tom Millar which have appeared in recent newspaper articles. I think that Dr Millar has also properly addressed himself to some of the key points of the Bill. What concerns me about the honourable member’s comments is that he did not really know which point of view he was arguing for when he spoke about control. One moment he seemed to think that the Minister had the control, the next moment he thought it was the Secretary and the next moment the Chiefs of Staff of the defence forces. Then he cited the American example. The Americans have a presidential system and the Senate has the right to veto the defence vote- the allocations of money. I think that there is some confusion in the Opposition’s argument.

The honourable member for Mitchell also mentioned the situation of the GovernorGeneral. The answer there is quite simple. The Governor-General remains the Commander- inChief. Under the existing legislation in time of war he could create a Chief. Now the Bill has simply appointed a Chief. In other words, what the Bill has done is to upgrade the command process by recognising in law the previous situation. The Bill provides’ a unified chain of command and for the first dme clearly defines the line of command. This is one of the great benefits and great attributes of the Bill. There is no sense asking for Oxford dictionary definitions of every word in a Bill. No Bill sets out to do that. This legislation is quite plain. Let me state quite openly that no government in this country in peace time has ever set out to achieve or has ever achieved a cohesive, thought-through, consistent logical defence policy. This Government has been trying to set up some of the very basic structures and I believe that it has been successful. The Government has been criticised for it I think that the processes that are now in train represent the most fundamental rethink of defence policy, structure and administration that this country has ever undertaken.

I do not know why the Opposition is so conservative on this matter. If honourable members opposite are doubtful of the facts I am sure that their doubts could be settled by contact with the Minister, with officials in the Department of Defence and with the Service chiefs in uniform in the Department. I do not think we need go back to Theodosius, Socrates, Blarney or Montgomery to solve the situation we face. They spoke very truly at the time, and the Government has set out to cure the problems that they saw. We have heard about royal charters and all the rest of it. The honourable member for Brisbane (Mr Cross) clearly pointed out the nonsense with respect to that. The Royal Australian Air Force and the Royal Australian Navy retain the royal charter. The honourable member for Moreton (Mr Killen) is quite unreconstructed in trying to approach this very important matter.

I understand some of the tensions that exist between civilians and the uniformed branches of the armed services. This is inherent in any defence structure in any democracy such as ours. I sympathise with some of the problems of the uniformed members. They do not like being challenged by people with limited experience and often they can far more easily absorb the processes inherent in defence thinking, situations and strategies than can some of the civilians. I refer to the military arts, the military disciplines and the training for combat and war. By and large these sorts of tensions cannot be avoided.

This Bill has tried to set out for the first time clear lines of command in the structure so that for the first time there can be a sensible interface. Let me try to sort out some of the problems to which the Opposition has quite properly directed attention. Reference was made to the powers of the Secretary of the Department of Defence. We all know that Sir Arthur Tange is regarded by some people as having a very powerful intellect but we also know that people in the uniformed sections of the defence structure have powerful intellects. All these things will be settled. Only a few weeks ago the Chief of Staff called the civilian and uniformed sections together in an exercise and we saw something coming up which excites me and which I believe makes this Bill worth while. I do not think that there are many problems relating to the defence structure of this country that we cannot solve. I do not know why the conservatives on the opposite side should try to raise so many shibboleths and red herrings in respect of this matter.

The basic powers of the Secretary as Permanent Head of the Department are set out in section 25(2) of the Public Service Act which reads as follows:

  1. The Permanent Head of a Department shall be responsible for its general working, and for all the business thereof and shall advise the Minister in all matters relating to the Department.

To the extent that specific powers are given in the Defence Act to the Chief of Defence Force Staff and the Chiefs of Staff these powers of the Secretary must be read down. In particular, under the new section 9a( 1), the administration of the Defence Force is vested jointly in the Secretary and the Chief of Defence Force Staff. Under the proposed new section 9(3) the Chief of Defence Force Staff and the Chiefs of Staff are given the responsibility of advising the Minister on matters relating to the command which is vested in them.

The next matter the honourable member for Moreton and the honourable member for Mitchell raised was the problem of command and administration. The honourable member for Moreton claimed that an assumption implicit in the reorganisation is that command is separate from administration. He also says that the assumption is that one set of people- the central organisation- should advise on defence policy and that another set of people- the armed forces- should carry it out. In this he misses a significant thrust of the new organisation. There has in fact been a move in the opposite direction. A very careful attempt has been made to concentrate wherever appropriate, policy advising and the application of policy in the one staff. For instance, the Chiefs of Staff play a significant role in the development of policy through their membership of higher defence committees. The twohatted arrangements whereby some senior Service officers have, at the same time, a responsi.bility within Defence Central for policy advising and a responsibility to their Chief of Staff for implementing is another example. This point is particularly valid for logistics and technical service areas which have been singled out for special comment by the honourable member for Mitchell.

Another problem which the Opposition has raised relates to the adequacy of this organisation in war time. As I said, honourable members opposite do not seem to be clear in their own minds just what line of command they want. This Bill has set this out clearly. No one would contend that the exact form of defence organisation required in war would or should be set up in peace time. The peace time organisation must be one that is suitable for the continuing improvement and development of the force structure, its equipments and skills, but which lends itself to a smooth transition to any war time situation. The new organisation provides a better basis than the one it is replacing for any transition from peace to war. In particular, it provides for the position of Chief of the Defence Force Staff, responsible to the Minister, and for the command of the total defence force in peace or war. It places centralised control of military operations and related military activities with the Chief of the Defence Force Staff while the Service Chiefs of Staff remain responsible for single service operations and their support.

It provides new functional arrangements in the Department of Defence which lead to improvements in administration, including better force structure planning and resource allocations and financial management. These improvements should prove their value in war as well as in peace and provide the necessary flexibility to adapt quickly to a changing situation. In particular it provides for a combination of Service and civilian officers in all appropriate policy matters and other elements in the new departmental organisation. As the new organisation stands it will be adequate to meet the requirement of any conflict of the kind Australia has experienced in the last 30 years. Structural changes in the organisation would not be necessary in these circumstances. For large scale conflicts changes may be necessary, not only in defence but also in areas such as a war Cabinet, munitions production, manpower controls, etc.

Another problem which the honourable member for Mitchell raised was the problem of civilian influence. Again I point out that it was not clear to me what he saw as being ideal or as being required. The new organisation increases considerably the direct influence of service officers in the formulation of defence policy advice and recommendations to the Minister and the Government. The Chief of the Defence Force Staff is made responsible to the Minister for the command of the Defence Force and each Chief of Staff for command of his Service. The Chief of the Defence Force Staff and the Chiefs of Staff of each Service will have access to the Minister either individually or through the Chiefs of Staff Committee. There is, therefore, ample scope for them to present their views to the Minister, either jointly or individually. The use by the Secretary of his powers as a Permanent Head under the Public Service Act will be qualified by the statutory powers of the Chief of the Defence Force Staff and by ministerial directive requiring responsiveness by the departmental structure to the needs of the Defence Force.

A substantial increase is recommended in the number of service officers directly participating in the work of the Department of Defence including the preparation of policy advice and recommendations to the Minister. For example, since December 1973 Service positions in the Central Defence Organisation have increased from some 130 to some 490. So it is quite clear that the situation in relation to civilians is not one that needs to be looked at in any sort of fear from any point of view. One could go on to itemise these things but they aTe spelled out in the Bill. Another matter which honourable members opposite raised was with respect to this civilmilitary relationship. I suppose one could concede that it would be surprising if a far-reaching organisation of this kind did not provoke varying reactions particularly at levels far removed from the centre. But successful formulation and implementation of defence policy requires inputs from both Service and civilian officers. The new departmental organisation was developed in continuous and close discussion among senior Service and civilian officers. The Chairman, Chiefs of Staff Committee, and the 3 Service Chiefs of Staff played an active part. The Chairman, Chiefs of Staff and, with small exceptions, the 3 Chiefs of Staff supported the proposed functions of the Chief of the Defence Force and of the Department of Defence.

In effecting the changes flowing from the abolition of the Service departments and of the Department of Supply, implementation of the new organisation has proceeded smoothly. As more Service officers take up their positions in the new departmental structure misunderstandings, particularly about the military-civil balance, are disappearing. I reiterate that there is no sense in trying to express conservative fears about this matter. The people actually involved in the reorganisation have lived through it. The Chief of the Defence Force Staff at present, General Hassett, has also promoted various changes in the armed Services over many years. He has written the changes. He has implemented them. He is living with them. All the people at the highest echelons within the armed Services have had this experience and know exactly what is happening. They endorse the proposals now before the House.

Another matter which the Opposition has raised relates to the powers of the Minister. There seem to be some doubts in the minds of honourable members as to what the powers of the Minister shall be. Let me just spell out some of these powers. Under the existing legislation each Service board has the control and administration of all matters relating to its service upon the policy directed by the Minister- that is with respect to the Navy, in accordance with the policy directed by the Minister- that is with respect to the Army; and subject to the policy laid down by the Minister- that is with respect to the Air Force. Under the proposed legislation the Minister has the general control and administration of the Defence Force. He may issue directions to the Chief of the Defence Force Staff and to the Chiefs of Staff in respect of the command vested in them and to the Secretary and to the Chief of the Defence Force Staff jointly in respect of their administration of the Defence Force. This seems to me to be a simple enough step. We are simply validating a process which has occurred in the past. Again we are setting up a more clearly defined line of command and a more clearly defined situation between the various arms of the defence structure.

A further matter raised by the honourable member for Mitchell was in respect to the need for a defence council. I would have thought that the legislation had quite clearly spelled out that there was no longer any need for a defence council, if there ever was one. The new organisation is carefully designed to ensure that all important matters are decided by the Minister or Cabinet after the Minister has been fully advised of all significant or relevant points of view. It is difficult to see how a defence council could be constituted as a fully executive body in the normal sense. Any decision would have to be subject to the agreement of the Minister. The Minister’s constitutional authority and responsibility cannot be restricted by any departmental committee. In any case, the provision by legislation of a council as an advisory body to the Minister is redundant. There is already an established series of Minister’s conferences between the Minister, the Minister assisting, Service Chiefs and departmental officers. The carefully devised higher committee structure in the new organisation, as well as the provisions for access to the Minister by the Chief of the Defence Force Staff and the Service Chiefs of Staff ensure that collective and considered professional military advice will reach the Minister in written form. He can call the committees to discuss the matter with him at will. Moreover, it is specified that the advice from the higher defence committees to the Minister must include any dissenting views of either service or civilian members if the dissenting member so wishes. No significant opinion can therefore be obscured or withheld.

I have addressed most of my comments to answering some of the arguments put forward by the Opposition. Finally I must clearly state the objectives of this legislation and why I believe that it is in the interests of this nation’s defence that they must be carried through. Perhaps we all know here tonight that the Opposition already intends to put this measure before a committee in the Senate, but I am quite sure that the Bill before the House will stand any examination because basically the ideas behind it are sound and essential for Australia’s defence. As I said at the beginning of this speech, there is a great need for Australia to look thoroughly at its defence structure in peace time. We have been not so much extravagant but we have been generous in respect to other people’s wars. For the first time we are looking at defence in terms of being rather bigger boys. We must look after ourselves from now on. The Government is orientating its defence effort towards the defence of Australia for the first time. For too long in the past there have been conflicts between the arms of the Services. This legislation is setting out to stop some of these useless conflicts. It is quite ridiculous to have the Royal Australian Navy the main enemy of the Royal Australian Air Force by implication with respect to some purchases of equipment. It has been quite ridiculous in the past for these sorts of conflicts to surface and for each of the Services to have its own Minister to perpetuate the conflicts in the Cabinet I commend the Bill to the House.

Mr KATTER:
Kennedy

-It seems that there is a great and urgent desire to change the whole of the structure, the environment and the thinking in regard to an Army which only some few years ago General Westmoreland- an American general, by the way, and that is of some significance; they do not throw out their praise very freely- described as the most magnificent of its kind in the world. So there could not have been too much wrong with the way things were being done in Australia.

Mr Cope:

– Who was the Minister then?

Mr KATTER:

-Being a modest man I do not want to make any further comment in that direction. Many factors have contributed to the decline of the defence capacity of this nation. The most fundamental, of course, is the political philosophy of the Labor Government which relegates defence to a priority so low that if the people on the other side of the House were frankly prepared to admit it, they would say that they are not seriously concerned with the defence and security of Australia. The result has been a rapid and tragic decline in the quality of our 3 armed Services. The resignation rate amongst officers has reduced our expertise to a critical degree. In less than 3 years more than 600 officers have resigned from the Army. In these times of sophisticated weaponry- new generation warfarethis is the sort of loss we cannot afford. The actual officer resignations from the 3 armed Services between December 1972 and June 1975 have been: Army 601; Navy 184; Royal Australian Air Force 468. In other words, lost to us were 1253 officers. Apart from the general attitude of this radically socialist Government towards defence, the most significant specific move it has made is its acceptance of what may be termed the Tange concept. The ambition of Sir Arthur Tange- in my opinion it has been his ambition for many years- is to have the Service chiefs and their responsibilities subjugated to civilian control. Admittedly the new approach has certain advantages. There was some wastage in resources and expertise with the independent operations of each of the armed forces- Navy, Army and Air Force. But did this justify the drastic reorganisation such as set out in the Tange report?

Let us examine the reaction of some of those most qualified to comment. I shall quote quite considerably. I refer firstly to the former Chief of the Naval Staff, Vice-Admiral Sir Richard Peek.

He criticised the abolition of single Service ministries in the newly integrated Department of Defence structure as inadequate to advise the Cabinet in major defence procurement matters. After all, procurement to the Navy, is its lifeblood. In a paper prepared for the Navy League of Australia, Sir Richard is critical of the naval policies of the present Government and particularly of its acceptance of the 15-year non threat strategic assessment. I think this is just a perfect classical example of the amateurs at work. They say: ‘We will not have a war for 15 years. We will not have a threat for 15 years. If you see something looming on the horizon you are nuts. It has to be some sort of an illusion because a Minister has decreed that there will be no threat for 15 years’. Citing the Government’s decisions on the now scrapped DDL project, the fast combat support ship and an apparently different role for maritime air surveillance, Admiral Peek believes that Cabinet has not been able adequately to discuss this matter. Obviously it would not be adequately equipped to discuss such a matter. He said:

I believe that there is a requirement for a Minister who has had time to read all the papers and to discuss with the experts the details of the project to be available to Cabinet and Caucus.

What Minister, whether he be a specific Minister for the Army, Navy or Air Force, would be able to do this? A single Minister for Defence, no matter competent, dedicated and hard working, has not the time to do these things.

Dr Tom Millar has been mentioned here tonight. I am at a loss to know why the honourable member for Macarthur (Mr Kerin) referred to him. If there is one expert that the Government supporters should not quote it is Dr Tom Millar. For those who do not know who Dr Tom Millar is, let me just give them some indication as to his status, his capacity to be able to speak with authority on these matters. He is Professorial Fellow in International Relations at the Australian National University, Director of the Australian Institute of International Affairs- I could go on and on. What does he say?

Shortly before he resigned his Cabinet post and parliamentary seat recently, the Minister for Defence, Mr Lance Barnard, introduced a Bill in the House of Representatives designed to re-organise the Department of Defence, the 3 former service departments (Navy, Army and Air), plus elements of the old Depanment of Supply, into a single Defence Department.

When that happened I looked at Lance Barnard and thought: ‘This man has been given some God-given capacity to handle an impossible task’. Maybe he just did not have, that capacity because we know what has happened to the

Army, Navy and Air Force. He had his advisers but he had to go to a government which was unsympathetic towards the defence question generally. Hence we have this fragmentation, this integration and this sad almost ending to what was once a magnificent defence force. Dr Millar continued:

This follows the recommendations of Sir Arthur Tange, Secretary of the Department, in the report he submitted to Mr Barnard in November 1973.

The Bill will be proceeded with . . .

That is the name of the game tonight- and, subject to the attitude adopted by the Senate, will presumably become law, during the Budget session of Parliament.

The point about it is, of course, as my colleague and splendid friend the honourable member for Moreton (Mr Killen) who is our shadow Minister for Defence has pointed out, that an attempt was made to present us with a complete fait accompli, but fortunately we were just able to stop it somewhere along the line. Steps have been taken which it will be difficult to reverse. Dr Millar continues:

Mr Barnard understandably saw the re organisation as a climax to the improvements in defence he had sought to introduce during his 2V4 years as Minister.

Here is a nice little paragraph:

It would be pleasant to agree with so decent and hard working a Minister, acting on what he felt was the best advice available.

I know some of the people who advised the Minister. They were the same people who advised me. Among them are people for whom I have the very highest and the most extreme respect. I am speaking of those involved on the civilian side. I know they acted with the best goodwill in the world but they, perhaps like Sir Arthur Tange, had a target to achieve and they attempted to do just that. The article by Dr Millar states further:

I have regretfully come to believe that despite the greatly increased service input into the Defence Department, the proposed re-organisation is a mistake of unprecedented magnitude- far beyond that of the short-lived pentropic division and with far greater implications for the defence and security of Australia . . .

For the first time in Australian history the Minister for Defence is given statutory authority for ‘general control and administration of the Defence Force’ (i.e. of the 3 services). He ceases to be a member of the Naval Board and the Military Board, which with the Air Board are to be abolished and their powers redistributed. The powers of service chiefs -

I ask honourable members to listen to this- are exercised subject to . . .

I ask honourable members who regard as important the freedom of decision of any particular government service to listen to this. This refers to someone who has the responsibility of defending this nation and who has the responsibility of making sure that everything is just right for the security of this nation. I shall repeat the words I quoted:

The powers of service chiefs are exercised subject to ‘any directions of the Minister’. Within the limits of legality, this is a proper requirement.

Mr Morrison:

– What was the previous arrangement? Why do you not spell that out?

Mr KATTER:

– I must answer this question. I want my answer to appear in Hansard. Is the Minister going to suggest that the previous arrangement was such that the Chiefs of Staff would have to seek the direction of the Minister? This is unthinkable and the Minister well knows it. Dr Millar states further:

In paragraph eight, the Minister said . . .

Mr Morrison:

– I wish you would hurry up.

Mr KATTER:

– The Minister will have his opportunity in a moment. Dr Millar stated:

In paragraph eight, the Minister said that the Act would give the CDFS and the three chiefs of staff ‘right of access to the Minister in respect of their responsibilities’ . . .

That is a pretty grand concession. The Chiefs of Staff would have right of access to the Minister. I am sure this would give them the right of access to the military genius of the world, the embodiment of brilliant tactical skill and all that goes with it. The article continues:

As shown above, the Bill states that a function of each of these four officers is ‘to advise the Minister, in such manner as the Minister directs’. The Minister could direct that such advice shall be rendered through his private secretary . . .

Here is a beauty! The Minister will delegate his authority if necessary through his private secretary. I do not know who the private secretary to the Minister is at the present time. Previous private secretaries have been very fine people indeed but their planning of some sort of strategic defence or attack could be a little questionable. I should like to talk for a moment about principles. Dr Millar states:

The draft legislation and the Minister’s speech give strong grounds for believing that the Bill is a giant step along the road to public service control of the armed forces.

Surprise! Surprise!

The fact that this trend has been going on for some years does not validate the concept or indeed some of the earlier changes in the same direction.

No one in the armed forces would question the principle of civil control, but under the Westminster system we have adopted this means control by a civilian Parliament and ministry, not by the Public Service.

In other words, one of the major objections that we have on this side of the House is that once again- this pattern has emerged in the legislation setting up the Darwin Reconstruction Commission and in other recent legislation introduced by the Government- giant steps are being made to give a Minister supreme control. This is the socialist concept of centralised control. When applied to our armed forces, it is a dangerous situation. The Minister today might be acceptable but the Minister tomorrow may have gone further left. After all, the Government is moving pretty rapidly in that direction. The Government has come to a halt at the present time because it is afraid that the people of Australia have woken up to their little escapades. That is one of the precise dangers. The Government is attempting to centralise power in the hands of one man. This is decisively and drastically dangerous in the hands of this Government.

I propose to conclude by pointing to some of the difficulties which inevitably must occur if we are to take the complete concept of the Tange report. If we are to follow it through slavishly then let me point to some of the difficulties which must inevitably emerge. First, it is basic to policy, whether it be defence policy or any other national POliCY such as transportation policy, that it be made by the Government on the advice of the appropriate Minister. This BUI, together with the Tange report, over-emphasises the role of the Secretary as a defence policy maker. I ask honourable members to absorb that. Second, armed forces are designed and exist for military operations. It is only in the general implementation of POliCY that they should expect to be under the control of a civilian hierarchy. Third, military strategy is about the planning for operations, movement and deployment of military forces. It is not the province of amateurs. Fourth, defence policy advice and analyses related to grand strategy are a joint civil and military task ranging over a whole spectrum of issues, international, economic and military.

Fifth- this is an important point- intelligence is primarily related to enemy intentions and capabilities together with the gathering of information for the benefit of the armed Services in countering enemy forces. Sixth, general financial administration- including programming and budgeting- is a civilian matter but must be based upon high level military advice and expertise. Seventh, the development of armed forces depends upon policy, military intelligence and proposed operational plans. It is a professional military matter. It should remain primarily in the hands of those equipped to handle it. Eighth, logistics must always form part of an integrated military plan. There is no way in which responsi.bility for this vital function can be put under a control separate from the overall military commander and made to work. Ninth, the administration of armed forces personnel in their capacities as soldiers, sailors and airmen is a skilled military task. An impersonal civilian approach could lead to untold problems of morale. It could and it has led not only to untold problems of morale but also, to a very great extent, to a complete collapse of morale. I say to honourable members in this House that it is with a great deal of pleasure that I vigorously support the amendment as moved by our shadow Minister for Defence, the honourable for Moreton.

Mr CONNOLLY:
Bradfield

-If there had remained at this late hour any members of the joint Opposition Parties with any doubts on the veracity of this legislation, there can be no doubts in their minds now. The position adopted by the Opposition as to the need to move an amendment in respect of this legislation so that it will be given further consideration in anotherplace does not need further comment. We have seen tonight from the attitude adopted by members of the Government and the levity which was expressed in relation to the comments made by my dear colleague, the honourable member for Moreton (Mr Killen), demonstrates once again that we have today in Australia a government which is simply not interested in the affairs of state, the most essential one of which is the safeguarding of the security and integrity of the people and of their sessions. It is for that reason that we do bring into question all aspects of defence which have been affected by Government policy.

We have not seen in any period of 2lh years any government successfully achieve the dire results which this one has done. More than 1253 officers have resigned from the Armed Services. On a conservative estimate that means that we have probably lost approximately 10 000 man years of experience. All of this has been hidden below the concept of a better defence forces retirement benefits scheme. The fact is that I have on either side of me 2 colleagues who resigned from the Australian Army because they were sick and tired of the way in which the present Government was administering the defence forces. What more evidence do we need to bring into question the very substance and the very principles which underlie this piece of very doubtful legislation?

Earlier, the honourable member for Kennedy (Mr Katter) made reference to the concept of no foreseeable threat for 15 years’ a reference which the Minister for Defence (Mr Morrison) found, to say the least, very upsetting. If the Minister has a better definition of the Government’s strategic doctrine, let us hear it. All honourable members on this side of the House and, I am sure, the people of this nation have heard all too often this concept of no foreseeable threat for 15 years. I use this as an additional leavening to add to the total incapacity of our defence forces to carry out the effective defence of ‘Fortress Australia’ another term which has been used by the Government.

We are in a position today where we must consider seriously exactly what the Government is doing for the defence of Australia and what is the administrative backup and formulation of policy upon which this defence is supposed to take place. Are there any members of this Parliament who are so bereft of knowledge of history that they cannot look back to what happened in western Europe- in fact, the entire world- in the 1 920s and the 1 930s? Why was it that no government in the world in the mid- 1920s appreciated the rise of Nazi Germany and of Japanese militarism? Not one nation! Yet, in a mere 15 years, the world was cast into the depths of the greatest war that mankind has ever known. That lesson should have taught us that we must be vigilant at all times. That old adage that the best way to fight a war is to know how to defend the peace is, of course, accurate. Therefore, any defence reorganisation policy must be based on the prime requisite that through that reorganisation and administration of the Department of Defence we will have the most efficient, and effective military force that this country can possibly muster. It is on that basis, that the Opposition has questioned the principles which underlie this legislation.

The honourable member for Macarthur (Mr Kerin) found it upsetting that we had made certain references to Dr Millar. As the honourable member for Kennedy so rightly pointed out, when speaking of Dr Millar we are dealing with a man with substantial prestige in this area. It is perhaps a pity that this Government which found Dr Millar quite capable of presenting a report on the school cadets and the reserve forces did not put the same gentleman to work on the Tange Committee. Perhaps, we would have found another attitude which was, to say the least, a little less affected by the closeness of the 3 competent gentlemen who made up that Committee to the work which they were expected to carry out. Nevertheless, the Government did not appoint Dr Millar to that Committee. Therefore, I think that the comments that he has made are worth consideration. It is not simply good enough to pass off his views as just the views of an academic crank, because Dr Millar is no academic crank. Therefore, I ask the House to go through with me some of the assumptions to which Dr Millar drew attention in relation to this legislation. He made this point first:

The new organisation needs to be the best possible one for peace, but should be able to be adapted for war without undue delay.

I think that I have laboured that point sufficiently. Perhaps I should add also that if we are to have integration, which is the essence of this legislation, between the military and the civilian arms of the Department of Defence, it is not difficult to imagine in times of defence crisis the difficulties that will arise in handling such a situation when no fewer than 12 committees which are to be established in accordance with the Tange report must be dealt with. Let me outline the areas covered by those committees. They include: The Defence Co-ordination Committee, the Defence Program Committee, the Chiefs of Staff Committee- that is fair enough- the Defence Management Committee, the Plans and Operations Committee, the Defence Force Structure Committee, the Defence Operations Requirements Group, the Programs and Estimates Committee, the Defence Conditions of Service Committee, the Defence Science Board, the Dockyard Policy Committee and the Defence Research Development (Trials and Evaluation) Review Committee. None of these committees are to be headed by military personnel. All these committees are to be headed by civilians. Yet we are expected to believe that in a time of national emergency these people will be able to fit in with the exigencies of the situation.

Let me quote the words of the honourable member for Macarthur. He said: ‘They do not like being challenged by civilians with limited experience’. Of course the military personnel do not like being challenged by civilians with limited experience. Who would? Which member of this House wants to go out into his or her electorate and be told by somebody that he could do the job better than the member does? We all go through this experience. We do not like it. Neither does the military man. Neither does the lawyer, the doctor or any other professional person. If one has any professional expertise, the least that one can expect from one’s masters is that they will give one the right to give sound advice and use one’s expertise for the purposes for which one studied in the first place. This is a problem which is demonstrated right through this legislation.

Let me emphasise to the House on another point made by the honourable member for Moreton. Proposed new section 8 provides:

The Minister shall have the general control and administration of the Defence Force . . .

Having read that provision, we find on the next 3 pages of the Bill how whatever little general control does exist within the whole context- and I beg the House to question with me what precisely is meant by ‘general control’- is gradually but surely whittled away by committees, by various administrative techniques and by the desire to build up an efficient administrative machine within the context of the Public Service model. But, when we are talking about the defence services, with all due respect we are not talking about the general Public Service model which is there to carry out civilian administration, not military administration. There is a very big difference between the two.

The second point that I wish to raise in this respect is to be found also in clause 6 of the Bill. Proposed new section 9A provides:

  1. 1 ) Subject to section 8, the Secretary and the Chief of Defence Force Staff shall jointly have the administration of the Defence Force except with respect to -

Various qualifications are then set out. I find it fascinating that the Secretary and the Chief of the Defence Force Staff shall jointly have the administration of the Defence Force. I do not see any suggestion that the Chief of the Defence Force Staff should jointly administer the Department of Defence with the Secretary of that Department. Of course he should not, because he is on a lower rung altogether. It is the Secretary of the Department of Defence who ultimately will have the final word on every aspect of administration relevant to the defence services. In times of peace it is not just tactics that are important; administration must also be considered. It was because there were generals like Rommel in the Afrika Corps in the Second World War who not only were past masters at tactics but also knew their administration, that the Germans were successful for so long, until they ran into Allied generals and fighting machines which were even better.

The lessons of military history are absolutely clear. We can go back to the days of Clausewitz, Napoleon Bonaparte or any of the great generals of the last 300 years, and the point is made that unless one has a very effective administrative machine backing up the military machine- I emphasise backing up the military machine- one will put one ‘s forces in time of war in a most parlous position. It is on this basis that we question this legislation because throughout the Bill we find this tendency to bureaucratise the military. Of course, we agree that there is a need at this time to co-ordinate the three defence Services. There is a case for the establishment of one Department of Defence. But I do say to the Minister, who served with me in the diplomatic service many years ago, that I question how he, with all his capacity and with the assistance of one man- I believe he has an assistant somewhere else- is going to be able to do the work which 5 ministers did in the previous governments of this nation. If the Minister is in fact to do anything more than, as I quoted in clause 15, have general control and if this Parliament is to have the capacity to control in any sense the military forces of this nation through the Minister of the day then the least the Government can do is to establish sufficient ministerial authority in this chamber.

I question, as have all the honourable members on this side of the House who have spoken in this debate, how one man can possibly handle the work of five. It simply cannot be done efficiently, therefore, we should have a Minister for Defence and 3 Assistant Ministers, all of whom would be responsible for various elements of the totality. At least we can then control through this Parliament the administration, and the defence forces. We have seen too often in the past that where Parliament has lost control of its armed forces the capacity of democracy to survive has been questioned. Although I am not suggesting for a moment that that necessarily will be the outcome in Australia the fact still remains if the lessons of history are to be learned I sincerely hope that they will be, at least by the members of this Parliament- that we will be prepared to take the obvious steps which this House requires and let there be effective responsibility to the Parliament through the Minister and through his assistants for all aspects of the defence administration.

Another point I wish to make is relevant to the question of the establishment of a defence council. With the destruction of the 3 Service boards, which probably was necessary within the context of establishing a united Department of Defence, the Opposition believes and with good reason that the links now between the Minister on the one hand and the heads of the Services on the other and their capacity to control the administration relevant to their Services are, to say the least, very tenuous indeed. We believe that one way in which this could be assisted to some extent would be the establishment of a national defence council, which would deal and act directly with the Minister and which would be made up of the 3 Service chiefs and the Secretary of the Department of Defence. Of course, as it is set out in the Tange report it is quite clear that the Secretary is in a position to deal individually with the heads of the Services on matters relevant to them but there is really no machinery by which the heads of the Services may adequately relate with each other on a lateral basis. Therefore, it is the lateral contact which is as important as anything else if we are to talk about the co-ordination of military activity.

My final point is that we have asked through our amendment that this legislation be sent to another place and be reconsidered. The security of Australia is too important to be handled lightly and to be merely passed over because this legislation is the result of the Tange report. I have the greatest respect for the Secretary of the Department of Defence, but the fact of the matter is that we have grave doubts about the effectiveness of this legislation. It is only right that evidence should be taken at this stage by the Parliament of Australia, pro and contra, that the present Chiefs of Staff should be allowed to give evidence and that this Parliament should be given the opportunity of making up its own mind as to whether or not this legislation establishes machinery that we want for the defence of our country.

Mr MORRISON:
Minister for Defence · St George · ALP

– We have heard this evening from the honourable member for Moreton (Mr Killen). I am sure that we all have a great admiration for the 19th century eloquence of the honourable member. Regrettably, his thinking and that of the Opposition on defence is of exactly the same vintage. One of the great problems that I have found on sitting through this debate is that it is quite obvious that the members of the Opposition have not read the legislation and have not read the Tange report. Fortunately for every member of the Opposition who has made a speech tonight, Dr Millar produced an argument in a series of articles that was published very recently in the newspapers. Those articles, of course, were central to every point that was made by the Opposition tonight. Let us look at what has really happened with respect to the reorganisation that has been recommended by the Secretary of the Department of Defence and that has been supported by the Chairman of the Chiefs of Staff.

Mr Killen:

– That is untrue.

Mr MORRISON:

-It has been supported by the Chairman of the Chiefs of Staff. Mr Deputy

Speaker, I would be delighted to table documentation from the Chairman of the Chiefs of Staff, who wrote to Dr Millar putting forward the points of view that he very sincerely and according to his professional judgment supported the recommendations contained in the Tange report and the legislation that is before this House. The question that should be asked is whether we should take account of the advice of those people. I did not appoint Sir Arthur Tange as the Secretary of the Department of Defence.

Mr DEPUTY SPEAKER (Dr Jenkins)Order! The Minister suggested that he would table some documents. I ask the Minister whether he wants to do so.

Mr MORRISON:

-I would be delighted to do so, Mr Deputy Speaker, if I could be given leave to do so and if, having gone through the documents I have before me tonight, I can find them.

Mr DEPUTY SPEAKER:

-I was not sure about the Minister’s intention in that regard.

Mr MORRISON:

– Having now found the relevant document, I would be delighted to table a letter from Sir Victor Smith, the Chairman of the Chiefs of Staff, to Dr Tom Millar fully supporting the legislation advanced in this House by the Government.

Mr DEPUTY SPEAKER:

-Is leave granted? There being no objection, leave is granted.

Mr MORRISON:

– Might I also suggest, Mr Deputy Speaker, that the letter be incorporated m Hansard!

Mr DEPUTY SPEAKER:

-Is leave granted? There being no objection, leave is granted. (The letter read as follows)-

Chairman Chiefs of Staff Committee Department of Defence Canberra, A.C.T.

July, 1975

Dear Tom,

I was interested to read your article recently published in the Canberra Times. However, the article appears to be based on conclusions which you have reached from studying the Tange Report and the Defence Force Reorganisation Bill only. It is perhaps unfortunate that you did not consider having discussions with either Sir Arthur Tange or me before writing the article, as I believe that we could have assisted your knowledge of the subject. As you can imagine, there was considerable effort required in the compilation of the Tange Report, and the printed matter in the report is small evidence of the very numerous discussions and written papers which were associated with it.

I will not discuss all the points made in your article but will deal with some of them in order to support a proposal which I shall make later. You state, ‘In effect, therefore, the Secretary, discreetly but definitely, will have under the amended Act a joint command function with the CDFS.’ In the Tange Report (page 42) is stated, ‘Command is to be taken as meaning the authority which a commander in the military service lawfully exercises over his subordinates by virtue of rank or appointment. Command includes the authority and responsibility for effectively using available resources and for planning the employment of, organising, directing, coordinating and controlling military forces for the accomplishment of assigned duties. It also includes responsibility for the welfare, morale, and discipline of personnel under command.’ These are wide ranging responsibilities and as you rightly point out this command function is given to the CDFS and the Chiefs of Staff. It is not given to the Secretary of the Department.

You mention that Ministerial directives setting out the responsibilities of senior service and civilian officers must be public. You can assume that they will be published after their precise language has been endorsed by the Minister (they have already been agreed by the Chiefs of Staff and the Secretary except for two minor points). In its present text, the directive to the CDFS states, ‘Under normal circumstances you are to exercise your command through the Chiefs of Staff, using appropriate staff channels or through the appointed commander of a joint force or joint Service unit. ‘ Such a commonsense arrangement scarcely makes the CDFS the extraordinary appointment which you claim, or make the responsibilities and complications of decision making at the top far too great for one man. Incidentally, I should mention that the creation of the appointment of a CDFS was unanimously supported by members of the Chiefs of Staff Committee.

You raise the question of access to the Minister by the Chiefs of Staff. The present texts of the Ministerial directive to each Chief of Staff in respect of the latter ‘s responsibilities will state ‘advising the Minister for Defence through the Chief of Defence Force Staff, or directly in appropriate circumstances, on matters within your responsibilities.’ I suggest you denigrate the quality of Ministers when you suggest that a Minister would direct that such advice shall be rendered through the Minister’s private secretary. The purpose of the lawyer’s phrase ‘in such manner as etc’ is to incorporate the idea contained in the administrative language quoted above.

You mention that the philosophy and details of the proposals should be subject to scrutiny by the Senate Standing Committee on Foreign Affairs and Defence. You may not be aware that the reorganisation proposals have already been examined by the Joint Parliamentary Committee on Foreign Affairs and Defence at which evidence was given by senior officers.

I hope the few matters which I have mentioned give value to my proposal which is that, at your convenience, you should meet with Sir Arthur Tange (who is quite agreeable to such a meeting) and/or me in order that we might give you further information on this important subject. In any case, I would recommend that you study how, in the administration of each Service by Service Boards of which a Public Service Permanent Head was until quite recently a full member, public service officers have important functions as financial advisers and general counsellors on resources matters. A statement made by the then Prime Minister in 1958 makes these responsibilities quite clear. Again, the Head of the Department of Defence has important advisory responsibilities. In effect, the reorganisation does not create new responsibilities for public service officers; the responsibilities continue but the holders are changed in some cases. It is relevant to mention here that in the present text of the Ministerial directive to the Secretary is stated, ‘ Where advice to the Minister for Defence would affect the functions and responsibilities of the Chief of the Defence Force Staff, it is expected that joint advice will be prepared.’ You appear to have made the mistake of assuming that a stated function is an exclusive one.

The course of sending a letter to the newspapers was considered but was rejected owing to the great length of such a letter if it were to deal in detail with the various points which you have rasied. However, as your article may have been read by a number of Service personnel, and I would not wish them to accept the accuracy of some of the points which you have made, I propose sending a copy of this letter to the editors of Service journals inviting them to publish it if they wish. I trust you have no objection to this line of action.

Yours sincerely,

Victor Smith

DrT.B. Millar,

Director,

The Australian Institute of International Affairs,

Coombs Building,

Australian National University,

page 356

QUESTION

CANBERRA, A.C.T

Mr MORRISON:
ALP

– The Secretary of the Department of Defence was appointed not by the Labor Government but by the former LiberalCountry Party Government. The Chairman of the Chiefs of Staff was likewise appointed not by the Labor Government but by the previous Liberal-Country Party Government. Those two men, who have the expertise in the actual administration of departments and the actual command of forces, have put forward this proposition, which is a proposition that the Government has supported. Let us look at what is the proposition. First of all it is the abolition of the 3 Service boards. I did not hear one argument advanced by the Opposition to the effect that that was not a good thing. One just cannot run any form of defence force by a committee structure of boards. I will speak about Army generals if the honourable member for Moreton wishes. When Sir Thomas Blarney became the supreme commander of the Australian forces in 1942 the very first act that he undertook was to abolish the Army Military Board. What we are proposing is the wiping out of the anachronistic boards. There are 3 boards- the Army, Navy and Air boards. That is very important and very central to the legislation. Not one criticism of that decision has come forward. What we have done is to imbue the man who is the commander of the defence force with a statutory authority. The Chairman of the Chiefs of Staff- the present No. 1 serviceman in Australia- has no statutory authority. He occupies his position by convention. I am sure that the honourable member for Moreton and the other honourable gentlemen who sit opposite do not believe that the commander of an Australian force should be there by a convention but believe that his position should be there by a statute of this Parliament in which his powers are laid out by the elected representatives of the Australian people so that in the event of a crisis he may thoroughly command the Australian forces.

The positions of the Chiefs of Staff-of the Chief of Air Staff, the Chief of Naval Staff and the Chief of General Staff- also do not involve, because of the existence of the boards at present, the powers that we will be giving them under this legislation whereby they will be given by statute the direct command- not a command shared by a statutory committee but the direct commandover each of their services. I ask members of the Opposition: Where have they tonight come up with one suggestion, one recommendation, that seeks to improve this legislation.

Mr Killen:

– The Defence Council.

Mr MORRISON:

-I will come to the Defence Council in a moment. No, members of the Opposition have adopted a policy of obstruction; a policy of delay. They are holding the defence organisation of this country to ransom for just petty party political purposes. This is an Opposition which shows no concern at all for the defence of this country. The Opposition is made up of the very people who sent Australian defence forces to Vietnam; the very people who wasted hundreds of millions of dollars in defence establishments overseas and completely ignored the defence of Australia. These are the people who are now trying to delay and to obstruct a reorganisation of the Australian defence forces- a long overdue reorganisation because of their utter neglect.

Let me deal with a couple of the points that were made. The honourable member for Kennedy (Mr Katter) talked about the position of a Minister. I was glad to hear the honourable member for Mitchell (Mr Cadman) point out that under a democratic system any person who occupies the position of Minister for Defence has an authority from the elected representatives of the people through this Parliament. That will always be the position. The honourable member for Kennedy seemed to think that just because he did not happen to be the Minister for Defence, any powers given to the Minister were completely undemocratic or completely against the Services. But when he was Minister for the Army the power that he had under the legislation which specifically related to him was as follows:

Each Service board has the control and administration of all matters relating to its services . . .

As far as the Army board is concerned this control and administration is’in accordance with the policy directed by the Minister’. When the honourable member for Moreton was the Minister for the Navy, exactly the same thing occurredthe Service Board under his administration acted upon the policy directed by the Minister.

So there is nothing unusual in the legislation which lays down that the direction of the Services is under the control of an elected representative of the Australian people who sits in this Parliament and who is a Minister of the Crown.

Let me get down to a question on which the honourable member for Moreton and also the honourable member for Bradfield (Mr Connolly) invited me to comment, namely the question of what constitutes command. The honourable member for Moreton in his days as a Minister should have been aware of the Joint Services concept of command because it is a very precise concept. The concept is as follows:

Command is to be taken as meaning the authority - Mr Killen- Is the Minister being precise?

Mr MORRISON:

-Will the honourable member for Moreton allow me to answer the questions which he raised during the debate? As I was saying, the concept is as follows:

Command is to be taken as meaning the authority which a commander in the military service lawfully exercises over his subordinates by virtue of rank or appointment. Command includes the authority and responsibility for effectively using available resources and for planning the employment of, organising, directing, co-ordinating and controlling military forces m the accomplishment of assigned duties. It also includes the responsibility for the welfare, morale and discipline of personnel under command.

That is particularly clear. That is the concept and I am sure that the honourable gentlemen on the left of the honourable member for Moreton would believe that is the accepted concept. However, I cannot help it if he does not know military terminology. I have just stated this in words of one syllable because the honourable member for Moreton asked what was meant by ‘command’. That is precisely what ‘ command ‘ means.

Mr Killen:

– What about administration?

Mr MORRISON:

– The honourable member has asked about administration. The administration of the defence force is to be the joint responsibility of the Commander of Defence Force and the Secretary of the Department of Defence except- I will spell this out clearly- in relation to matters coming within the command, going back to the definition, vested in the Chief of Defence Force Staff and the Chiefs of Staff or in relation to matters specified by the Minister to be the responsibility of either the Secretary or the Chief of Defence Force.

There seems to be a great deal of concern about the position that is occupied by the Secretary of the Department and by civilian interests.

Mr Killen:

– Who wrote this speech for you?

Mr MORRISON:

-I am delighted that the honourable member did not have the opportunity to write it. Let us take the position of the Secretary of any department in the Public ServiceI will use the phrase ‘Commonwealth Public Service’ because I know that it is particularly appropriate to the honourable member for Moreton. The Secretary of a Commonwealth department has complete authority of the matters for which his department is responsible. Under this legislation the power of the Secretary- the Permanent Head- of the Department of Defence is read down because part of the powers that would be exercised under the normal Public Service concept of a Secretary or Head of a department, such as powers in the field of administration, are exercised by the Commander of the Defence Force.

Let me refer to Dr Millar and the arguments he used. Members of the Opposition seem to have read only the remarks of Dr Millar on this subject. I must ring Tom Millar tomorrow to congratulate him because if members of the Opposition has read his remarks they would have had very little to say. Dr Millar forgets in the arguments that he put forward that under the restructuring proposals there is right throughout the Defence Department an intermingling and an interchange of the positions. In each of the sections of the Department, in each of the branches of the Department, there are civilians and there are military people for the first time involved in strategic assessments. There are people involved in materials, in appropriations and in the whole range of matters concerned with defence. The Army, Navy and Air Force people are sitting down and working side by side with civilians. In certain cases they have responsibility over civilians; in other cases civilians have responsibility over military people. But there is necessary interweaving to provide an effective defence force, an effective defence back-up for our defence force in Austrafia.

Another matter to which I want to refer is the Defence Council. The honourable member for Bradfield put forward another Dr Millar proposition for a Defence Council. On one hand, the honourable member complained about too many committees and, on the other, he said: ‘Let us have at least another committee’. If he reads the legislation he will see that apart from the Chiefs of Staff Committee, which provides for the military side under the chairmanship of the Commander of Defence Force, there are a number of other committees. But the important thing is the access directly to the Minister that is provided in the legislation for each Chief of

Staff-the CNS, CAS and CGS-and the type of liaison and control that is contained in the Bill. It is a very effective form of liaison. The British have a Defence Council that never meets.

Mr Killen:

– That is quite untrue.

Mr MORRISON:

– Let the honourable member table the minutes of the last meeting of the British Defence Council. The organisation is I believe based upon the wisdom and the expertise of Australia’s chief defence experts. These are people whom members of the Opposition, in government, appointed. The present Government is prepared to take their advice on the basis of the expertise that they have. But what has the Opposition done tonight? It has come in blindly. Members of the Opposition have even gone back to Plato and Greece. They have gone back 3000 years, which is just about their concept of defence structuring, and they have sought to create obstacles and to postpone and delay the provisions that we have put forward in this legislation. The Australian Government will not put up with this obstructionism. This Government thoroughly opposes the amendment. We will oppose it here and I hope that a little common sense will prevail with the colleagues of honourable members opposite in the Senate and that they will not seek to delay this very important measure which is designed to ensure that the defence organisation of this country has the improvements that are very necessary and long overdue. In short, we oppose the amendment moved by the Opposition and we regret that honourable members opposite saw fit to move it.

Question put:

That the words proposed to be omitted (Mr Killen’s amendment) stand part of the question.

The House divided. (Mr Speaker-Hon. G. G. D. Scholes)

AYES: 61

NOES: 54

Majority……. 7

AYES

NOES

Question so resolved in the affirmative.

Original question resolved in the affirmative.

Bill read a second time.

In Committee

Clause 1 agreed to.

Clauses 2 and 3- by leave- taken together, and agreed to.

Clause 4 (Interpretation)

Mr KILLEN:
Moreton

– I must apologise to the Committee for having succumbed to the taunts of the Minister for Defence (Mr Morrison). He said that the dropping of the term ‘Commonwealth’ was not part of the Government’s program. I wish to draw the Committee ‘s attention to what is clearly part of what I describe as a sturdy commitment of attachment to pseudo-nationalism.

Mr Morrison:

– Rubbish.

Mr KILLEN:

– It is all right for the Minister for Defence to interject and to say ‘rubbish’. I want to give a clear illustration of what is a harmless provision in an Act and to invite the Committee ‘s attention to the significance of what the Government is doing. Clause 4, paragraph (c) states:

By omitting the definition of ‘The Commonwealth ‘;

I ask the Minister: What is the purpose of this?

Mr Sherry:

– What is so tragic about it?

Mr KILLEN:

– The honourable gentleman was not in the chamber when I drew attention to the fact -

Mr Sherry:

– I was listening to you avidly upstairs.

Mr KILLEN:

– I am sorry. I obviously made very slender impression on the honourable gentleman. I drew attention to the fact that section 1 of our Constitution bespeaks the uttering together in one indissoluble Commonwealth and the fact that the legislative power under section 51 is invested in the Commonwealth. Honourable members opposite may laugh about this sort of thing, but if the Government wants to alter it, alter it meaningfully, alter it consciously, if I may say so with great respect, why not seek to alter it honestly? But here we have this provision dropping the term ‘Commonwealth’. No explanation has tumbled from the lips of the Minister. I suppose that is a graphically mixed metaphor- to get anything to tumble from his lips. Nothing came from his predecessor as to the reason for the provision for what I describe as this gypsylike amendment. Why the provision to drop the term ‘Commonwealth’? It is in keeping with the Government’s planned program to extinguish from all public record in this country the term Commonwealth’. I have already alluded to the provisions of our own Constitution in sections 1, 51 and 61. They refer to the executive power of the Commonwealth, not of Australia, and to the judicial power of the Commonwealth. I can only describe the Minister’s coming in here illequipped, not even bothering to give an explanation, as a thorough-going display of impertinence.

I would like to know who gave the drafting instructions. Who was it who consciously set down and said: ‘I want the word ‘Commonwealth’ estinguished from the Defence Act’? Who is he? The Minister must answer for this. I tell the honourable gentleman that in one case he must have gone to sleep, because the term ‘Commonwealth’ was not deleted, but we will come to that later on. I invite the Minister to give an explanation as to why the term ‘Commonwealth’ was dropped.

Let me move on to paragraph (e) of clause 4. 1 hope I can persuade the honourable and learned Attorney-General (Mr Enderby) to listen to me. My problem is the huskiness in my throat. Water will not cure it. I need something stronger. Paragraph (e) makes this provision: by adding at the end thereof the following sub-section:-

  1. Unless the contrary intention appears, in this Act or in any other law-

    1. a reference to the Naval Forces or the Navy shall be read as a reference to the Australian Navy:

Why not the Royal Australian Navy? It goes on:

  1. a reference to the Military Forces or the Army shall be read as a reference to the Australian Army;
  2. a reference to the Air Force shall be read as . a reference to the Australian Air Force;

I have already drawn attention to the fact that under the Courts-Martial Appeals Act the term Royal Australian Air Force’ is dropped. Do not let the honourable gentleman come in here with his cultivated foreign affairs personality trying to convince me that the term ‘Royal Australian Air Force ‘ is not being dropped.

Mr Morrison:

– You have not read the Bill.

Mr KILLEN:

– The honourable gentleman indulges in these talks. He says: ‘You have not read the Bill’. I suppose one of my faults is that I do read Bills. Clause 1 12 of this Bill seeks to alter section 4 of the Courts-Martial Appeals Act, and the term ‘Royal Australian Air Force’ is dropped. Why? There is no explanation from the Minister. There was no explanation from his predecessor who is slugging it out on board a ship travelling to Europe. The honourable gentleman says to me: ‘Oh, you have not read the Bill’. He now has to go over to his advisers to get advice. Can honourable members imagine him sitting at the table on his own consulting his own cerebral processes? What a dangerous process it would be; what an impoverishing process it would be; what a hopeless process it would be. There is no explanation from the honourable gentleman at all as to why in that one instance in clause 4 the term ‘Commonwealth’ is dropped, no explanation as to why in any other Act it is to be the Air Force’. It is all very fine to point to the Air Force Act and to say -

Mr Fulton:

– What about the Army?

Mr KILLEN:

-I am dealing with the Royal Australian Air Force. It is a proud name, a proud title. It has been borne by very many gallant men and women, and I will not lightly stand in this Parliament and see that name expunged from the statute without wringing an explanation from the Minister responsible. I hope there is no ambiguity about that. That is all I ask of the honourable gentleman.

Mr Innes:

– Do not get excited.

Mr KILLEN:

– Excited? You have never seen me excited. I will tell you what; if the honourable gentleman did see me excited he would take to his heels as though he were appearing on Judgment Day.

Mr Cohen:

– It is all wasted. We are not on air.

Mr KILLEN:

– Unlike the honourable gentleman, it is not the air waves that interest me; it is this Parliament. I ask of the Ministers: Give us manfully, give us directly an explanation as to why in clause 4 the term ‘Commonwealth’ is to be abandoned and give us an explanation, in God’s name, as to why he seeks to remove by dint of proposed new section 4 (2) (c) from any other Act the term ‘Royal Australian Air Force’. I say to the honourable gentleman, without any heat, without any malice at all, that I think this Committee, this Parliament, is entitled to an explanation.

Mr MORRISON:
Minister for Defence · St George · ALP

– I very much regret that tonight the honourable member for Moreton (Mr Killen) has sought to make a mockery of a piece of legislation that is very relevant to the defence of this country. May I just take up a couple of points he made which are not relevant to the defence of this country but which were raised because the honourable member for Moreton has had little else to do but to pick up a few scant phrases in his preparation for this debate. The reason why the definition of Commonwealth is excluded from the new Bill is that the definition of Commonwealth in the old legislation said:

The Commonwealth’ includes the territories of the Commonwealth to which this Act extends.

Mr Killen:

– Like Christmas Island.

Mr MORRISON:

– The honourable gentleman would be very much aware that Christmas Island is not a territory of the Commonwealth. If he had been in the House this morning, he would have realised that the main territory for which the Commonwealth was responsible, Papua New Guinea, moves to independence in less than a month’s time. The honourable gentleman also talked about the Royal Australian Air Force. Nowhere in the Bill and nowhere in the old Defence Act is there any reference to the Royal Australian Air Force. The whole of the Air Force is dependent upon Acts. The main Act is not called the Royal Australian Air Force Act 1923-1973; it is simply called the Air Force Act 1 923- 1 973.

Clause agreed to.

The CHAIRMAN (Dr Jenkins:

-Order! It being half past 10 o’clock p.m., and in accordance with the order of the House of 1 1 July 1 974, I shall report progress.

Progress reported.

page 361

ADJOURNMENT

Mr SPEAKER:

-Order! It being after half past ten o’clock p.m., and in accordance with the order of the House of 1 1 July 1 974,I propose the question:

That the House do now adjourn.

Question resolved in the affirmative.

House adjourned at 10.31 p.m.

page 362

ANSWERS TO QUESTIONS UPON NOTICE

The following answers to questions upon notice were circulated:

National Aboriginal Consultative Committee (Question No. 497)

Mr Les Johnson:
HUGHES, NEW SOUTH WALES · ALP

– The answer to the honourable member’s question is as follows:

  1. 1 ) The National Aboriginal Consultative Committee has held five national meetings and passed a large number of resolutions, many of which are of a procedural nature. A copy of the resolutions is available in my office should honourable members wish to consult them.
  2. and (3) All recommendations from the National Aboriginal Consultative Committee are considered by me as Minister in the light of any advice which appears to be appropriate. The Council for Aboriginal Affairs has offered advice on certain aspects of the National Aboriginal Consultative Committee. It would be difficult to list all advice given but if after perusal of decisions the honourable member identifies the resolutions on which he wants information or details of what advice, if any, was given, every effort will be made to supply the information.
  3. Resolutions which call for action or decision by the Government are acted upon after further consideration in consultation with the National Aboriginal Consultative Committee.
  4. No. The Council now prepares written advice on matters referred to it by me or by the Permanent Head of my Department. The preparation of such advice does not require formal meetings.

Department of Aboriginal Affairs: Use of Management Consultant Firms (Question No. 814)

Mr Snedden:

asked the Minister for Aboriginal Affairs, upon notice:

  1. For what purpose has his Department used management consultant firms in the last 12 months.
  2. Which firms have been used.
  3. 3 ) What was the total cost.
Mr Les Johnson:
HUGHES, NEW SOUTH WALES · ALP

– The answer to the right honourable member’s question is as follows:

  1. 1 ) During the year ending 30 June 1 974 the Department of Aboriginal Affairs used, or funded the use by Aboriginal clients of, consultants in specialist fields including accounting, pastoral, animal husbandry, transport, mining and engineering. These consultants were used to investigate, advise on and, in some cases, supervise loans from the then Capital Fund for Aboriginal Enterprises, grants to Aboriginal organisations made from the Aboriginal Advancement Trust Account, and special projects undertaken by my Department. Some of the specialists engaged also style themselves Management Consultants ‘.
  2. The following firms were used:

Australian Agicultural Consulting and Management Co., Perth, Tamworth, Adelaide, Sydney

C. P. Bird and Associates, Perth

Wallace McMullin and Partners, Melbourne, Sydney, Darwin

Wilson Bishop Bowes and Craig, Alice Springs, Darwin

Gutteridge Hoskins and Davey, Melbourne, Sydney, Darwin

Aminco and Associates, St Leonards, N.S.W.

Peat Marwick Mitchell & Co., Darwin, Canberra

B. O. Smith & Sons, Sydney

W. D. Scott & Co. Pty Ltd, Adelaide

Rider Hunt and Partners, Townsville

C. S.I.R.O., Cronulla, N.S.W., Brisbane

John M. Sims & Co., Rockhampton

Goodwin and Mackenzie, Forbes, Gladstone

McLucas Drury & Co., Ravenshoe, Qld

G. A. Welch & Co., Cairns

Cyril F. Smith, Hampton

Harry Angus, Swan Hill

Irish Young and Outhwaite, Alice Springs

E. C. Mainwaring & Co., St Mary’s, N.S.W.

G. & N. Gamble, Islington, N.S.W.

McLean Curran & Co., Mayfield, N.S.W.

A. G. Broadley & Co., Condoblin, N.S.W.

Cloutier Brosgarth & Associates, Lismore, N.S.W.

Peter Briscoe, Albany, W.A.

Edwin V. Nixon and Partners, Canberra, A.C.T.

  1. McA. Smith, Caloundra, Qld

Skimmings and Marriott, Ballina, N.S.W.

J. C. Gold & Co., Sydney, N.S.W.

  1. P. McGowan and Associates, Swan Hill, Vic.

J.W. Brook & Co., Moorooka, Qld

John Luckens, Bourke, N.S.W.

Rae Allen and Ring, Murwillumbah, N.S.W., Coolangatta, Qld

E. F. Stephens, West Ryde, N.S.W.

Hancock Woodward & Hollick, Swan Hill, Vic.

R. B. F. Allen & Associates, Mortlake, Vic

Hewer, A. O. Edwards & Co., Hobart, Tas.

G. F. B. Peacocke & Co., Dubbo, N.S.W.

Bent and Cougle, Melbourne, Vic.

Angus M. McKinnon, Atherton, Qld

James E. Marshall, Kempsey, N.S.W.

Fell and Starkey, Darwin

W. M. Coulson, Echuca, Vic.

Harold G. Brown, Kyogle, N.S.W.

A. W. Fyfe, Wollongong, N.S.W.

Tester Porter & Co., Young, N.S. W.

  1. O. McLeod, Deniliquin, N.S.W.

Aberdeen Hogg and Associates, Kilmore, Vic.

H. F. K. Kelly, Deniliquin, N.S.W.

W. C. Chandler, Cairns, Qld

Alan Dulwich, Carnarvon, W.A.

Williams & Stevenson, Sydney

C. R. Garity & J. B. Hurd, Hobart

M. L. Bradford, Gladstone, Qld

Noel Douglas, Bombala, N.S.W.

Francis A. Jones & Associates, Fremantle, W.A.

Garrick Ashmead & Co., Dalby, Qld

Taaffe Klaas & Power, Townsville, Qld

C. J. Bloxham & Lineham, Bourke, N.S.W.

Gaffney Harvey and Ryan, Darwin

Fitzgerald Gunn& Partners, Adelaide

Brian H. Maguire & Associates, Leeton, N.S.W.

Henry Horstmann & Co., Brisbane

W. Brinkworth, Caboolture, Qld

Cameron Kirk Rose & Partners, Armidale, N.S.W.

A. M. Stewart, North Essendon, Vic.

Hill Miller & Assoc., Canberra

A. Y. Ellerman & Assoc., Deniliquin, N.S.W.

Pennington & Steele, Lutwyche, Qld

C. E. Smith & Co., Townsville, Qld.

J. M. Bradley, Narromine, N.S.W.

John Carpenter & Assoc., Darwin, N.T.

J. Vanderwal & Assoc., Darwin, N.T.

Agricultural Investment Services, Darwin

G. B. Courtice & Co., Bundaberg, Qld.

Hamilton Shaw and Shaw, Brisbane

Gary R. Strong, Mt Magnet, W.A.

Allan T. S. Strong, Maryborough, Qld.

A. K. Ritchie, Eastwood, N.S.W.

R. V. Musgrave & Co., Gunnedah, N.S.W.

D. B. Nicholls and Associates, Darwin

R. J. Pass, Geralton, W.A.

S. H. Tait & Co., Mackay, Qld.

A. C. Hogbin & Co., Coffs Harbour, N.S.W.

Barrie A. R. Percival, Darwin

W. B. Crang & Sons, Wentworth, N.S.W.

Whitson Dawson & Co., Mackay, Qld.

Willing English & Devin, Canberra

Fagg Bradford & Co., Gladstone, Qld.

Isles Homes & Co., Griffith, N.S.W.

Laurence Ah Toy, Darwin

Boyle McKie & Co., Murgon, Qld.

H. M. Bailey & Assoc., Osborne Park, W.A.

Brown Buddee & Assoc., Wellington, N.S.W.

Layh Hart Room & Hyland, Devonport, Tas.

Malcolm B. Thurgate, Nowra, N.S.W.

Kellie and Wheaton, Brompton, S.A.

C. C. Howells, Darwin

E. Jones and Co., Mackay, Qld

Richard Kothe & Martin, Bega, N.S.W.

W. T. Wright & Co., Kempsey, N.S.W.

J. M. Bullivant, Mount Isa, Qld.

John Tobin & Co., Nowra, N.S.W.

Cheesman Applegarth and Robertson, Toowoomba, Qld.

Every King & Co., Bendigo, Vic

J. B. Driscoll, Narrandera, N.S.W.

G. L. Goodwin, Moree, N.S.W.

Thomas & Tait Miller and Co., Nowra, N.S. W.

V. K. Truman & Assoc., Kalgoorlie, W.A.

R. L. Trillo, Hampshire, England

  1. Total cost for the year ended 30 June 1974 was $438,135.

Fire Fighting Procedures (Question No. 1156)

Mr Snedden:

asked the Minister for Aboriginal Affairs, upon notice:

  1. With reference to the answer to question No.548 (Hansard, 19 September 1974, page 1621) in which the Prime Minister indicated that the form and frequency of exercises in Government Departments in civil defence preparedness are as determined by individual Departments, on what dates in the last 1 8 months have exercises of this nature been conducted in his Department.
  2. Which officers and employees took part.
  3. How many officers and employees took part
  4. What was the purpose of each of the exercises.
  5. Does he accept that this is an area where the Australian Government can give a lead to other employers.
Mr Les Johnson:
HUGHES, NEW SOUTH WALES · ALP

– The answer to the right honourable member’s question is as follows:

  1. 1 ) Exercises in the nature of those understood to be of a Civil Defence character have not been undertaken in my Department in the last 18 months. However, discussions and preliminary arrangements with other Australian Government departments occupying the Tower Building in Woden, A.C.T., have been undertaken to facilitate evacuation of this multi-storey building in the event of an emergency.
  2. , (3) and (4) See reply to (1).
  3. See (3) of reply by the Prime Minister to Question No. 548 on 19 September 1974 (Hansard p. 1632).

Aboriginal Enterprises: Shareholders (Question No. 1307)

Mr Hunt:

asked the Minister for Aboriginal Affairs, upon notice:

  1. With reference to the companies named in the answer to my question No. 494 (Hansard, 1 August 1974, page 1042), what sum in public funds was provided to each of these companies by way of (a) grant and (b) loan.
  2. ) What sum is it proposed to provide in 1 974-75.
  3. Does the Auditor-General audit the accounts of each of these companies.
  4. If not, are audited accounts published.
Mr Les Johnson:
HUGHES, NEW SOUTH WALES · ALP

– The answer to the honourable member’s question is as follows:

  1. 1) The amounts provided to each of the companies to 30 June 1974 is as follows:

Aboriginal Arts and Crafts Pty Ltd

  1. grants $125,074;
  2. loans $5,000;
  3. Share Capital $185,000. Items (b) and (c) were provided by the former Capital Fund for Aboriginal Enterprises and now vest in the Aboriginal Loans Commission.

Aboriginal Tourist Industries Pry Ltd

Nil; Company has not commenced operations.

Aboriginal and Islander Products Pty Ltd

Share Capital $2. No grant or loan was provided.

Aboriginal and Islander Marketing Pty Ltd

Share Capital $100,000 (from Capital Fund for Aboriginal Enterprises now vesting in the Aboriginal Loans Commission). No grant or loan was provided.

Aboriginal Hostels Ltd

Grants $ 1 ,760,037. No loan was provided.

Applied Ecology Pty Ltd

Grants $ 1 ,254, 1 30. No loan was provided.

R. H. & W. E. Smith General Contracting Pty Ltd

This Company is basically a private enterprise which is receiving assistance from the Aboriginal Loans Commission in respect of which a confidential lender/client relationship is maintained.

Amanbidgi Pty Ltd

Grants $829,000. No loan was provided.

  1. The amounts provided for in 1974/75 are-

Aboriginal Arts and Crafts Pty Ltd

Grants $416,000; loans-nil.

Aboriginal Tourist Industries Pty Ltd

Nil.

Aboriginal Islander Products Pty Ltd and Applied Ecology Pty Ltd

Grants $800,000; loans-nil.

Aboriginal and Islander Marketing Pty Ltd

Nil.

Aboriginal Hostels Ltd

Grants $6,5 12,435; loans-nil.

R. H. & W. E. Smith General Contracting Pty Ltd

Comment ( 1 ) applies.

Amanbidgi Pty Ltd

Nil.

  1. The Auditor-General audits the accounts of Aboriginal Hostels Ltd. The accounts of the other companies are audited by registered Company auditors.
  2. Audited accounts are filed with the Registrar of Companies as required by respective companies legislation. Copies of the latest accounts/reports of the companies are available to the public on request from my Department.

Reserve Bank: Advances to Australian Dairy Produce Board (Question No. 1517)

Mr Lloyd:
MURRAY, VICTORIA

asked the Treasurer, upon notice:

  1. 1 ) Was the Reserve Bank instructed to restrict advances to the Australian Dairy Produce Board and to force the dairy factory co-operatives to borrow directly from the Bank rather than through the Board.
  2. If so, is the interest rate charged to these co-operatives by the Bank 0.5 per cent higher than if they could borrow all they needed through the Board.
  3. Has this margin been recently increased to 0.5 per cent higher when previously it was 0.25 per cent higher; if so, why.
  4. Has this instruction assisted the private and multinational dairy companies at the expense of the co-operatives.
Mr Hayden:
ALP

– The answer to the honourable member’s question is as follows:

  1. The Reserve Bank was not instructed to restrict advances to the Australian Dairy Produce Board. Any restriction on advances to the Board derived from the statutory provision which limited the Board to borrowing in respect of purchases of dairy produce intended for export. I understand that, in order to minimise the effect of this statutory constraint on the industry, and pending a review of the Dairy

Produce Export Control Act, the Board requested certain cooperatives which enjoyed access to Rural Credits Department accommodation on their own account, albeit at a marginally higher rate of interest, to borrow in respect of dairy produce other than that intended for export. The small additional interest cost of this arrangement was spread over the industry as a whole through the industry’s equalisation arrangements. When the Board was recently reconstituted as the Australian Dairy Corporation, the new Corporation was empowered to borrow in respect of all dairy produce, whether intended for export or domestic consumption. Thus the present arrangement will not operate in future seasons.

  1. See answer to (1).
  2. The rates effective from 15 July 1974 were adopted following adjustments in trading bank lending interest rates and movements at the time in interest rates generally.
  3. See answer to (1).

Poison Gas/Chemical Warfare Experiments (Question No. 1950)

Mr Kerin:

asked the Minister for Defence, upon notice:

  1. 1 ) Did poison gas/chemical warfare experiments take place in Australia during World War II.
  2. If so, where did these experiments take place, at what approximate dates, and for how long did any servicemen take part.
  3. 3 ) How many servicemen took part in the experiments.
  4. Did the servicemen taking part in the experiments come from a unit raised in the general Wollongong area.
  5. Did all servicemen taking part in the experiments do so as volunteers.
  6. Were servicemen taking part in the experiments required to sign a document of secrecy; if so, why.
  7. Were all or any servicemen taking part in the experiments named officially or unofficially as ‘guinea pigs’; if so why.
  8. Is there any relationship between the term ‘guinea pigs’ and eligibility for official visual recognition, that is Service medals or awards, or impartial consideration by the Department of Repatriation and Compensation.
  9. How many servicemen taking part in the experiments were discharged as a result of injuries they may have received during the experiments.
  10. 10) Did any servicemen taking part in the experiments serve in any unit subsequent to the experiments.
Mr Morrison:
ALP

– The answer to the honourable member’s question is as follows:

  1. 1 ) Yes. A report on the activities of the Chemical Defence Board is given in Chapter 17 of ‘The Role of Science and Industry-Australia in the War of 1939-45’ by D. P. Mellor. Attention is also drawn to the answers given by my predecessor in the House of 26 February and 15 April this year to related questions.
  2. Locations of trials were Townsville, Singleton, Forbes, Grafton, Innisfail, Tully, Cairns, Humpty-Doo, Darwin, Port Wakefield.

Trials took place at various times in 1943, 1944 and 1945. It is not known for how long individual servicemen took part in the trials.

  1. Total not known, but it appears that at least 400 volunteers participated in trials.
  2. According to the records only two men who took part in the trials are known to have come from a Wollongong unit- the 34th Battalion.
  3. It is assumed that they did act as volunteers since the records examined show no evidence to the contrary.
  4. The records examined showed no evidence of their having done so for these experiments but it is expected that those volunteering would have been required to give undertakings not to divulge information to which they might obtain access. This procedure would conform to the normal and necessary Defence practice of holding individuals responsible for protecting information, the release of which would be prejudicial to national security. The requirement for those concerned in the chemical warfare trials to give security undertakings would have been no different from similar requirements in many other operations affecting national security.
  5. The term ‘guinea pig’ does not appear in any Departmental (including Service) records that have been examined, except when referring to the rodent of that name. However, the term is used by the author of the official War History (reference in ( 1 ) above, on page 378) as follows:

When Gorrill moved to Townsville the physiologists became their own guinea pigs . . . ‘.

  1. No. It is understood, however, that all volunteers who participated in gas warfare trials were awarded commendation cards in recognition of their loyal and unselfish services. The Department of Repatriation and Compensation considers all cases impartially. Like my predecessor, I invite all who believe they are suffering from any disabilities resulting from chemical warfare trials, and have not already done so, to make applications to the relevant Deputy Commissioner for Repatriation in the State or Territory in which they live.
  2. Not known.
  3. Probably.

Wreck Bay: Aboriginal Community (Question No. 2185)

Mr Hunt:

asked the Minister for Aboriginal Affairs, upon notice:

  1. 1 ) What action has been taken to implement the Government’s policy of self-determination at Wreck Bay.
  2. What has the Government done to assist the Aboriginal people at Wreck Bay for whom it has direct responsibility.
Mr Les Johnson:
HUGHES, NEW SOUTH WALES · ALP

– The answer to the honourable member’s question is as follows:

  1. and (2) The Australian Government is working with the Aboriginal community at Wreck Bay to help it to overcome handicaps facing it, and to develop its capacity to manage its own affairs and increase its independence.

The problem which the Wreck Bay community initially focussed on was its poor housing. An early proposal to allocate $1,000,000 from the Aboriginal Advancement Trust Account to enable the immediate implementation of a housing reconstruction project was not proceeded with when the Wreck Bay community indicated that it wished to undertake the re-building itself.

The Aboriginal community at Wreck Bay has now formed the Wreck Bay Aboriginal Housing Company. The Housing Company, which all Aboriginal residents of Wreck Bay are eligible to join, plans to re-build the village at an approximate cost of $1 million. I now propose to fund the rebuilding of the village at Wreck Bay by a series of direct grants to the Aboriginal Housing Company.

The Aboriginal community has been vitally involved in the development of the town plan, and the design of the houses and facilities. It has been willingly assisted by my Department, the Department of the Capital Territory and the National Capital Development Commission. This assistance includes enabling the community to employ expertise it may require, and funds have already been advanced to enable the Housing Company to engage an architect to design and supervise the erection of approximately 32 homes and associated community facilities.

The Wreck Bay community is also concerned to obtain a lease of land on which to re-build the township. Proposals for a lease of the village area have been put to the housing Company by the Department of the Capital Territory. The proposed boundaries of the lease incorporates the present built up area and include Mary Bay Beach. The proposed lease will encroach marginally onto the adjoining Jervis Bay Nature Reserve.

An officer from my Department has been detailed to assist the people of Wreck Bay in their negotiations with the Department of the Capital Territory.

BARRA Sonobuoy System (Question No. 2488)

Mr Garland:

asked the Minister for Defence, upon notice:

  1. What is the present position, that can be stated publicly, of the development of the Australian Sonobuoy System, ‘BARRA’.
  2. Have sales been made; if so, what are the details.
  3. What publications or press releases record the developments since 1 December 1972.
Mr Morrison:
ALP

– The answer to the honourable member’s question is as follows:

  1. Britain and Australia are developing the BARRA sonics system through a collaborative arrangement in which Australia is developing the sonobuoys and Britain the airborne processing equipment. The Minister for Defence in the House of Representatives on 9 April 1974 stated that it was intended that Australia would fit the system to the LRMP replacement aircraft. This intention was reaffirmed in a statement by the Minister for Defence on 28 May 1975 on the selection of the Lockheed P3C Orion aircraft. That statement noted that the BARRA system promises to be superior to any other equipment of its type now available overseas or under development. Development in both countries is proceeding satisfactorily.
  2. Sales of the BARRA sonobuoy have not yet been made, however, under the terms of a Memorandum of Understanding about to be signed between Australia and Britain, orders will be exchanged between the two countries for sonobuoys and processing equipment.
  3. There have been no press releases on Project BARRA apart from that made by the Minister for Defence on the LRMP aircraft on 28 May 1975. Brief statements concerning the project have been made in the documents ‘Supply 1973 ‘ (page 6) and ‘Supply 1974’(page 5).

Government Reports: Publication (Question No. 2587)

Mr Kerin:

asked the Treasurer, upon notice:

  1. What reports, excluding annual reports, have been produced by his Department, by authorities for which he is responsible, and by ad hoc commissions, committees, task forces, etc., within his portfolio, since 5 December 1972.
  2. Which of these reports have not been published, and when does he expect them to be published.
Mr Hayden:
ALP

– The answer to the honourable member’s question is as follows:

I refer the honourable member to the Prime Minister’s answer to Question No. 2586 (Hansard 5 June 1975, page 3545).

Government Reports: Publication (Question No. 2613)

Mr Kerin:

asked the Minister for Science and Consumer Affairs, upon notice:

  1. What reports, excluding annual reports, have been produced by his Department, by authorities for which he is responsible, and by ad hoc commissions, committees, task forces, etc., within his portfolio, since 5 December 1972.
  2. Which of these reports have not been published, and when does he expect them to be published.
Mr Clyde Cameron:
HINDMARSH, SOUTH AUSTRALIA · ALP

– The answer to the honourable member’s question is as follows:

  1. and (2) I refer the honourable member to the Prime Minister’s answer to question on notice No. 2586 (Weekly Hansard No. 1 1, 5 June 1975, page 3545).

Citizen Military Forces: Administration (Question No. 2637)

Mr Killen:

asked the Minister for Defence, upon notice:

  1. Was the Committee of Inquiry into the Citizen Military Forces critical of the administrative system and procedures existing in the Citizen Military Forces.
  2. ) Were recommendations made with respect to administration; if so, what action has been taken to implement them.
Mr Morrison:
ALP

– The answer to the honourable member’s question is as follows:

  1. Yes.
  2. The Committee recommended ‘That administrative procedures be simplified, with greater delegation of authority to commanding officers’. Investigations into means of simplifying administrative procedures are proceeding concurrently with the reorganisation of the Army Reserve. The Army Reserve is currently being reorganised in accordance with the recommendations of the Millar Report. Admendments to delegation authorities will be necessary when the new organisation has been implemented.

Department of Environment: Legal Assistance (Question No. 2649)

Mr Hunt:

asked the Minister for Environment, upon notice:

  1. Has his Department or any agency under his control given any financial assistance for the conduct of litigation by private individuals in courts of Australia.
  2. If so, who were the persons to whom aid was given, and what were the circumstances that justified the financial assistance.
  3. What has been the financial cost in each case.
Mr Berinson:
ALP

– The answer to the honourable member’s question is as follows:

  1. No. Legal Assistance for environment and conservation groups is provided through the Australian Legal Aid Office.
  2. See answer to ( 1 ).
  3. See answer to (1).

Cocos (Keeling) Islands (Question No. 2721)

Mr Peacock:
KOOYONG, VICTORIA

asked the Minister representing the Minister for Foreign Affairs, upon notice:

What action has the Government taken to date with respect to the report of the United Nations Visiting Mission to the Cocos (Keeling) Islands in August 1974?

Mr Whitlam:
ALP

– The Foreign Minister has provided the following answer to the honourable member’s question:

I refer the honourable member to the statement which was made by the Australian representative in Sub-Committee II of the Committee of Twenty-four on 1 May 1975, which contains details of the action which the Australian Government has taken to date, or is proposing to take, with respect to the report of the United Nations Mission which visited the Cocos (Keeling) Islands in August 1974. Copies of this statement are available in the Parliamentary Library.

In addition to the measures outlined in the statement of 1 May 1975,I should add that the Government has announced the appointment of a senior officer of the Department of the Prime Minister and Cabinet, Mr R. J. Linford, as Administrator of the Cocos (Keeling) Islands. Mr Linford ‘s commission became effective on 23 July 1975. This appointment represents a substantial upgrading of the level of Government representation on the islands and is consistent with the UN Visiting Mission’s recommendation that the Australian Government should assume a more effective control and administration over the Territory.

Eight Nation Group (Question No. 2746)

Mr Peacock:

asked the Minister representing the Minister for Foreign Affairs, upon notice:

  1. 1 ) Has the Minister’s attention been drawn to a report in the Melbourne Sun-Pictorial on 7 October 1974 stating that the Prime Minister has proposed an Eight Nation group?
  2. If so, does the proposed group include the United . States of America, Canada, Britain, New Zealand, Indonesia, India and Malaysia?
  3. What is the purpose of the proposed group?
Mr Whitlam:
ALP

– The Minister for Foreign Affairs has provided the following answer to the honourable member’s question:

  1. 1 ) Yes, by this question.
  2. and (3) At no time has such a grouping been discussed.

Government Reports: Cost (Question No. 2790)

Mr Ruddock:

asked the Treasurer, upon notice:

  1. With reference to question No. 2587 of the Member for Macarthur, what has been the total cost to the Government of examination of issues and preparation of reports by his Department, by authorities for which he is responsible, and by ad hoc commissions, committees, task forces, etc., within his portfolio, since5 December 1972.
  2. What is the cost apportioned to each report referred to in part ( 1 ) of question No. 2587.
Mr Hayden:
ALP

– The answer to the honourable member’s question is as follows:

I refer the honourable member to the Prime Minister’s answer to question No. 2789 (Hansard, 5 June 1975, page 3546).

Government Reports: Cost (Question No. 2816)

Mr Ruddock:

asked the Minister for Science and Consumer Affairs, upon notice:

  1. With reference to question No. 2613 of the Member for Macarthur, what has been the total cost to the Government of examination of issues and preparation of reports by his Department, by authorities for which he is responsible, and by ad hoc commissions, committees, task forces, etc., within his portfolio, since 5 December 1 972.
  2. What is the cost apportioned to each report referred to in part ( 1 ) of question No. 2613.
Mr Clyde Cameron:
HINDMARSH, SOUTH AUSTRALIA · ALP

– The answer to the honourable member’s question is as follows:

  1. and (2) I refer the honourable member to the Prime Minister’s answer to question on notice No. 2789. (Weekly Hansard No. 1 1, 5 June 1975, pages 3546-3547).

Department of Police and Customs: Advertising (Question No. 2874)

Mr Snedden:

asked the Minister representing the Minister for Police and Customs, upon notice:

  1. 1 ) What is the advertising budget of the Department of Police and Customs for 1975-76.
  2. What types of advertising are entailed in expenditure of this amount.
  3. What were the corresponding figures for each of the last 5 years.
Mr Enderby:
ALP

– The Minister for Police and Customs has provided the following information for answer to the right honourable member’s question:

(1)$73,000.

) The advertising provided for is associated with recruitment and changes in departmental procedures.

–

1974-75-$59,326

1973-74- $31,188

1972-73-$26,987

1971-72- $20,628

1970-71-$34,845.

Illegal Fishing (Question No. 2556)

Mr Bungey:
CANNING, WESTERN AUSTRALIA

asked the Minister representing the Minister for Agriculture, upon notice:

  1. 1 ) How many Australian Government (a) vessels and (b) aircraft have been engaged in patrolling the north-west coast of Western Australia in each of the last three years.
  2. How many Indonesian fishing vessels have been reported or sighted fishing illegally off the north-west coast in those three years, and what action was taken.
  3. How many fishing vessels of nations other than Indonesia have been reported or sighted fishing illegally off the north-west coast in the last three years, and what action was taken.
  4. Is there an indication that Indonesian fishermen sighted fishing illegally in north-west waters were commercial fishermen.
Dr Patterson:
ALP

– The Minister for Agriculture has provided the following answer to the honourable member’s question:

  1. 1 ) Prior to January 1974 there were no scheduled patrols off the north-west coast of Western Australia. Surveillance of the area was undertaken on an ad hoc basis by defence units on passage through north-west waters on defence tasks.

From January 1974 to March 1975 scheduled patrolling of the area consisted of one RAN and one RAAF patrol per month.

In March 1975 the Australian Government assigned air and surface units of the RAAF and RAN to ‘Operation Trochus 75 ‘, especially mounted to deal with intrusions by Indonesian fishermen into waters adjacent to Australia. This commitment involves almost continuous patrols by RAN vessels with daily flights by Naval ‘Tracker’ aircraft. The RAAF provides fortnightly long-range patrols of distant waters.

  1. and (3) Fishing vessels from Indonesia and other foreign countries reported sighted operating illegally in waters off the north-west coast are as follows:

  1. Where sightings were investigated, one of the following courses of action resulted:

    1. vessel(s) apprehended and escorted to an Australian port.
    2. vessel(s) escorted from Australian Declared Fishing Zone.
    3. vessel(s) directed to vacate the area.
  2. vessel(s) investigated but no action required.

  3. The vessels enumerated at (a) and (c) were Taiwanese. The masters of those involved in (a) were each fined $4000 and the vessels, their catches and fishing equipment were forfeited; the masters of those involved in (c) were fined $200 each and the catches of the vessels were forfeited. Of the three Indonesian vessels involved in (b), the court found offences against Australian law proven in two cases but did not convict the masters; in the third case, the Western Australian Government did not proceed and the Australian Government considered the offence to have occurred outside its jurisdiction.

    1. Information gathered from the Indonesian fishermen suggests that operations of some of the vessels are commercially orientated whilst others are engaged solely in traditional fishing.

Cite as: Australia, House of Representatives, Debates, 20 August 1975, viewed 22 October 2017, <http://historichansard.net/hofreps/1975/19750820_reps_29_hor96/>.

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