Canberra, 11 July 1967
Confidential
Grant for Papua and New Guinea Administration in 1967/68
This submission seeks approval for a Commonwealth grant of $81 million to the Papua and New Guinea Administration in 1967/68. The grant for 1966/67 was $69.8 million.1
2. Comparing the proposed 1967/68 Administration budget with that for 1966/67–
• total expected to rise from $120.10 million to $145.05 million—i.e. up 20.8%; internal revenue up from $44.25 million to $56 million, a 26.6% increase, new revenue measures being introduced during the year if found necessary to achieve this;
• loans up from $6.20 million to $8.05 million, almost 30% increase;
• share of the budget provided by Commonwealth grant would decrease from 58.1% to 55.8%—continuing the policy of reduction in dependence on the Commonwealth; the figure in 1961/62 was 67.8%;
• of the proposed increase of $24.95 million in the total budget, the Commonwealth is asked to provide $11 million, or 44.1 %.
3. On the expenditure side, the draft Administration budget for 1967/68 continues to give priority to those expenditures which both directly strengthen the productive potential of the Territory and advance the indigenous people. The functional classification of the proposed budget given in Attachment ‘A’2 shows a marked increase in the proportion of the budget devoted to the Commodity Producing Sector and a substantial increase for the whole of the Economic Sector. In 1967/68, 33.8% of the budget is for economic development, compared with the target of 34.7% suggested by the 1963/64 World Bank Mission.
4. Important elements in the proposed budget increase of $24.95 million are shown at Attachment ‘B’.3 This increase is required to give effect to existing policies; but with the opening of the Development Bank special emphasis is given to expanding the private sector at the expense of the public sector.
5. The proposed increase of $5 million in the budget provision for the Development Bank is a major element in the budget growth. The Bank opened for business on 6th July, 1967.4 The proposed provision in 1967/68 of $6 million would give it a capital of $7 million. This is a relatively small capital for a Development Bank established expressly to promote the rapid expansion of private enterprise and especially to finance the production of cash crops by indigenous agriculturalists. The World Bank Mission of 1963/64 recommended a Government contribution of $6 million a year for five years which together with $10 million from other sources would provide the total of $40 million which the Mission assessed as the credit requirements for five years. No subscription of private capital for the Development Bank is likely at present but this will be kept under notice. A provision of $6 million for the Bank in 1967/68 is the minimum allocation necessary to attract and vigorously encourage large scale private effort which will develop the Territory’s resources without the high costs involved in Government activities such as for housing and administrative overheads.
6. To provide the funds which are being diverted to the Bank for the express purpose of promoting the quick expansion of the private sector, Administration departmental activity has been restricted and this restriction will mean that Departments will be labouring under more than usual financial strains in 1967/68 in striving to carry out their functions in a period when constitutional development will require the Departments to put a growing proportion of time and effort into persuasion and consultation.
7. A net gain of about 600 overseas staff is provided for in the budget. There is no question {but} that overseas staff in this number is required for effective administration and to endeavour to achieve policy objectives. In 1965/66 there was a net gain of 614 overseas staff but last year’s achievement of an estimated 180 fell far short of the target of 401. There was, however, a period of uncertainty caused by decisions of the House of Assembly on the provision for recruitment expenses. The vote was reduced in September and then increased in March to a figure higher than the original one.5 As a result, 220 of the 600 net gain programmed for 1967/68 are a carry-over from the 1966/67 programme.
8. The expectation of achieving a net gain of 600 overseas staff in 1967/68 is based on—
(a) a streamlining of recruitment procedures and the entering into of forward commitments has put recruitment for 1967/68 in a much more advanced stage than the recruitment programmes of former years had reached at the same time-about 200 prospective engagements are already, at this stage in the new financial year, nearing completion;
(b) a more favourable housing situation than has existed in recent years resulting from the out–turn of some 340 houses under the ‘Special Housing Contract’; questionnaires have indicated that housing is one of the most important factors in recruitment and retention of officers;
(c) the implementation of the Provident Fund Scheme for Contract Officers from an early point of time;6
(d) a more vigorous recruitment drive, greater consultation with the States that has produced more co-operation from them and more and wider advertising.
9. An increase of slightly more than 20% in the Administration budget in 1966/67 compares with an average annual increase of 16% in the budget over the last three years. The greater increase in 1967/68 results largely from the new provision for the Development Bank, which alone accounts for slightly more than 4% of the increase in the budget. A further 1½% is accounted for by increased provision for the University and the Institute of Higher Technical Education. These increases must be accommodated in a budget which must expand substantially in any case to provide for Government sponsored accelerated economic, political and social development of the Territory. The proposed overall increase of $24.95 million is no more than is necessary to maintain the present pace of development which must be sustained if not speeded up in the years immediately ahead in an endeavour to make the Territory less dependent economically on external aid as quickly as practicable.
10. Current political development in the Territory and international pressures allow of no diminution in effort.
11. In accordance with the established principle that the Territory should meet an increasing proportion of the budget from its own resources, the Territory itself will through internal revenue and borrowing meet practically 56% of the proposed increase in the budget. An increase of $11 million in the Commonwealth grant (representing about 44% of the increase in the Territory budget) would I suggest be in accordance with the Government’s announced policy of continuing to spend more over the next few years on the development of the Territory.
12. Adoption of the Territory budget depends on the decision of the House of Assembly, but the Australian Government’s responsibilities require that it retain ultimate control over the pattern of the Territory budget. Cabinet endorsed this and agreed (Decision No. 547 of 21st September, 1966) that if policies fundamental to accelerated development were rejected by the House of Assembly, it would follow that the Government should re-examine the position including the level of Australian aid. In the event that the House should attempt to vary the budget in way unacceptable to the Government, the intention would be that the amount of the grant and the arrangements for Australian aid should be open to review.7
Recommendation
13. I recommend a grant of $81 million to the Papua and New Guinea Administration in 1967/68, the policy basis being as set out in paragraph 12.
[NAA: A5842, 401]
1 See Documents 47 and 50–2.
2 Not printed.
3 Not printed.
4 See footnote 2, Document 130.
5 See Documents 68–71 and 87.
6 See editorial note ‘PNG’s Australian public servants: morale and the future of the Territory’.
7 See Documents 69–71.