Submission No. 364, McMahon To Cabinet

Canberra, 17 July 1967

Confidential

Analysis of submission no. 401:1 Grant for Papua and New Guinea Administration

The Minister for Territories is seeking a Commonwealth grant of $81 million for the Administration of the Territory ofPapua and New Guinea in 1967–68. This is $11 million or 15.7 per cent greater than the $70 million grant we approved in 1966–67. Our grant, however, was underspent by some $200,000 so the increase the Minister is seeking represents about 16 per cent.

2. Grants to the Administration have increased very rapidly:–

3. The approved grant of $70.0 million to the Administration for 1966–67 enabled the Treasurer of the Territory to present to the House of Assembly last year a budget totalling $120 million of which the Commonwealth grant accounted for 58.3 per cent. Later in the year, the Treasurer of the Administration considered that his estimate of receipts from internal revenue had been somewhat conservative and he introduced a supplementary budget providing for additional expenditure of $1.87 million. In the event, however, expenditure by the Administration in 1966–67 was lower than expected at an estimated $120.1 million of which the Commonwealth grant represented 58.1 per cent.

4. The grant of $81.0 million requested for 1967–68 would represent a greater rate of increase in the grant (16 per cent) than in any year since 1963–64. The Administration’s internal revenues are, however, expected to increase this year by nearly 27 per cent and the Minister indicates that, if necessary, new revenue measures will be introduced to ensure this. Together with the proposed Commqnwealth grant, these revenue sources plus loans would enable the Administration to introduce a Territory budget of $145.05 million, $24.85 million or almost 21 per cent greater than last year’s expenditure. Of such a budget, the proposed grant would represent 55.8 per cent—a lower percentage than last year.

5. It is, I think, encouraging to note that only a few years ago the Commonwealth grant constituted two–thirds of the Territory’s revenue and that although our grants have increased each year since then, the grant represented only some 58 per cent of the 1966–67 budget. As the Minister agrees, this is a trend that, it is to be hoped, will continue, since our purpose in contributing funds to the Territory is to assist in the generation and expansion of local income that will be so necessary if ever the Territory is to become economically viable.

6. I should also mention that statistics recently released in the Territory show that in the monetary sector of the Territory’s economy, the gross product has been growing at an average annual rate of 12.7 per cent. This is a very satisfactory rate of growth and, to my mind, disposes of any claims that in economic terms development is not proceeding apace.

7. I turn now from these general observations to several specific components of the proposed $145.05 million outlay.

Expatriate recruitment

8. Twelve months ago the Minister hoped to recruit 571 expatriate officers to the Territory in 1966–67. In the light of our grant and local revenues, this target was reduced to 400. In the event, the Administration achieved a net recruitment of only 180. As the Minister explains, the budget figures now before us include $1.7 million for salaries for the net recruitment of 600 expatriate officers—that is last year’s shortfall of 220 plus a fresh target of 380. I have noted that there was a net gain of 614 overseas staff in 1965–66 but of course a year earlier only about 170 new recruits were obtained against a target of 400. Even allowing for the fact that the House of Assembly did cause some upset last year (because the House was critical of the high proportion of the budget being spent on expatriate staff) and the fact that there is now to be a provident scheme for contract officers, a net figure of 600 (which I understand will require a gross intake of 1100 recruits) does seem optimistic and I suggest that there could be room for some savings in this area.

Papua and New Guinea Development Bank

9. Last year $1 million was provided in the Territory budget for the initial capital of the Development Bank. The Bank, however, did not open its doors for business until this month (6th July) so that apart from payment of administrative expenses the initial capital is virtually intact. The Minister now proposes that a further $6 million should be included in the Administration’s budget for payment to the Development Bank to give it capital of about $7 million.

10. The Minister mentions that the World Bank proposed that the Administration should subscribe $6 million a year for five years. But a capital grant of$6 million in the first year of business appears to be over generous, particularly since there is as yet no guide to the amount of business the Bank may be able to transact. An amount of $500,000 is payable by the Bank to Harrisons and Crosfield during the year as a call on share capital. Thus if a capital payment of $2.5 million were made to the Bank in 1967–68 it would have initial uncommitted resources for its first year of business of about $3 million. This would represent about one–sixth of the total advances now outstanding to all banks operating in the Territory. If during the year we find that the demands on the Bank are greater than this, I would be prepared to discuss with the Minister the possibility of increasing the Bank’s capital later in the year. I see no point in tying up our own funds prematurely.

11. I think we can find some guide to the appropriate size of the Territory’s budget for 1967–68 if we make our starting point last year’s expenditure minus the special amounts contributed to the University, the Institute of Higher Technical Education and the Development Bank. The various additions to this figure that I envisage are then shown as follows:—

| $m.| $m.
—|—|—
Estimated Expenditure 1966–67| | 120.1
Less 1966-67 Expenditure on[:]| |
University| 1.8|
Institute of Higher Technical Education| 0.4|
Development Bank| 1.0| 3.2
| | 116.9
Allow a generous 12.0 per cent| |
Allow a generous 12.0 per cent| | 14.0
| | 130.9
Add proposed expenditure for 1967-68 on[:]| |
University| 2.9|
Institute of Higher Technical Education| 1.1|
Housing Commission| 0.5|
Development Bank (say)| 2.5| 7.0
Add salary increases granted to overseas
and local officers (including effect of National
Wages Case)| | 1.3
Possible Budget 1967–68| | 139.2

12. If we assume that the Commonwealth grant should represent between 55 and 56 per cent of the total Territory Budget (the Minister’s figure is 55.8 per cent), the amount of grant to be provided towards a budget of $139.2 million would be about $77 million. The matter can, however, be looked at in another way. If we take the Administration’s estimate of local revenue receipts of $56 million (after any necessary new measures) and add to that a figure of loan receipts of $7.0 million (which I believe to be nearer the mark than the Administration’s estimate of $8.05 million), a grant of $77 million would allow introduction of a budget totalling $140 million–an overall increase of 15.9 per cent on 1966—67: the average annual increase in Administration budgets over the last three years has been 16 per cent.

13. All in all, I am prepared to support a grant of $77 million, which would be 10 per cent greater than our original grant last year. This would be on the understanding that not more than $2.5 million is contributed to the Development Bank from the Territory budget and assumes that the Bank will have to find this year the $500,000 required as a capital subscription to Harrisons and Crosfield.

14. I agree with the Minister that should the House of Assembly attempt to vary the budget in a way unacceptable to the Government the amount of the grant and arrangements for Australian assistance should be reviewed by Cabinet.

[NAA: A5842, 364]

1 Document 132.