Submission No. 349, Barnes To Cabinet

Canberra, 7 July 1966

Confidential

Grant for Papua and New Guinea Administration in 1966/67

This submission seeks approval for a Commonwealth grant of $72.9 million to the Papua and New Guinea Administration in 1966/67.

2. The proposed grant is $10.9 million or 17.6% more than the grant of $62 million for 1965/66. This abnormally large increase is necessary because of the rather higher rise in expenditure confronting the Administration—arising from the establishment of tertiary education institutions and the Development Bank, the necessity to take special measures for the Police, and prospective increases in the salaries of overseas officers consequent upon increases granted to the Third Division of the Commonwealth Public Service in Australia—coupled with the inability in the short term to increase internal revenue as fast as necessary to meet it.

3. A summary comparison of the proposed Administration budget for 1966/67 with the estimated results for 1965/66 is as follows:—

The salient points of this comparison are—

(i) an increase in the budget of 17.9%;

(ii) an estimated increase in local revenue of 19.5%; and,

(iii) an increase from 40.0% to 40.2% in the proportion of total estimated expenditure to be met from internal revenue and loan raisings and a corresponding decline from 60.0% to 59.8% in the proportion to be met from Commonwealth grant.

Expenditure

4. The draft Administration budget for 1966/67 gives priority to those expenditures which would both directly strengthen the productive potential of the Territory and advance the indigenous population. Expansion in non-economic areas has been restricted but in doing so the aim has been to avoid repercussions that would seriously affect the Government’s fundamental policy objectives.

5. A functional classification of the proposed budget is given at Attachment ‘A’.2 This shows a small decline in the percentage of the budget for the economic sector. Substantial additional expenditure in the health and education and general administrative sectors of the budget arising from earlier decisions on the establishment of tertiary education institutions and a special programme of housing for overseas officers and from special measures taken for the Police preclude a relative growth in the proportion of the budget for economic activities.

6. Total expenditure in 1966/67 is estimated at $121.84 million, which is $18.44 million more than in 1965/66. A broad outline of the main components making up the additional overall requirement of $18.44 million is—

(a)| Capital works and equipment—including $1.2 million for special housing project to provide houses for overseas officers necessary for economic development programme (Cabinet Decision No. 1086 (M) of21 st July, 1965).3 The major variations in expenditure are given in Attachment ‘B’ .4| $M
—|—|—
(b)| Recruitment—| 4.88
(i)| 1965/66—additional cost for a full year
$M
2.05
$M
(ii)| 1966/67—571 Overseas*5 1 ,625 Local
1.00
2.8
1.28| 3.33
(c)| Police Constabulary—conversion to full cash wage, revision of salary scales, improved allowances| 0.90
(d)| verseas officers—proposed application of Commonwealth Public Service Third Division work value salary increases| 0.70
(e)| Other salary and wage costs for staff on strength at 30th June, 1966| 0.85
(f)| General Maintenance—additional cost of maintaining a rising total value of Administration assets| 1.01
(g)| University of Papua and New Guinea (Approved by Cabinet Decision No. 760 of 15th March, 1965)6| 1.69
(h)| Institute of Higher Technical Education (Approved by Cabinet Decision No. 760 of 15th March, 1965)7| 0.59
(i)| Development Bank (Approved by Cabinet Decision No. 1171 of 26th August, 1965)8| 1.00
(j)| Public borrowing—interest and redemption| 0.33
(k)| Refunds of income tax| 0.31
(l)| Forestry consultants| 0.20
(m)| Census| 0.15
(n)| Identifiable price rises (other than in capital works and salaries)| 0.36
(o)| Additional supplies and services for programmes being implemented by growing staff| 2.14
| | 18.44

Receipts

Internal Revenue

7. On the basis of levies at 30th June, 1966, internal revenue in 1966/67 is estimated at $41.25 million or 17.4% more than estimated revenue for 1965/66. At the June session of the House of Assembly a draft Income Tax Ordinance was taken to the second reading. If adopted, this Ordinance would impose, from 1st July, 1966, income tax on incomes too low to attract tax under the present system (based on Australian conditions). A flat rate tax of 2 per centum is proposed. An urban worker receiving a minimum wage of $6 per week would have 12 cents deducted from his weekly wage. This new measure is a significant advance in the establishment of a direct taxation structure applicable to the circumstances of the indigenes. It is expected to yield $750,000 in 1966/67.

8. Consequent upon the increase of 2½% in Australian income tax in the 1965 budget, Territory income tax rates were increased by the same percentage. As well, higher import duties were levied, excise on beer and cigarettes was lifted (twice in the case of cigarettes), and postage and telephone charges were raised. In the circumstances, it is considered that the proposed change in income tax is the only revenue raising measure that should be contemplated in 1966/67.

9. The estimate of $42.0 million for internal revenue is 19.5% greater than estimated revenue in 1965/66 and 50.4% greater than revenue collected in 1964/65.

Public Borrowings

10. Public borrowings in 1966/67 are estimated at $6.94 million—$0.78 million more than in 1965/66.

Commonwealth Grant

11. The proposed Commonwealth grant of $72.90 million is $10.90 million or 17.6% greater than the grant of$62.0 million for 1965/66.1t represents 59.8% of total estimated receipts, the lowest percentage in the post-war years.

Contingent Liabilities

12. No provision has been made in the draft Administration budget for—

(a) any increase in the salaries of overseas officers flowing from the Commonwealth Conciliation and Arbitration Commission’s decision on the National Basic Wage Case (an increase of$1 per week would cost $0.29 million per annum, gross); and

(b) any increase in the salaries of local officers as a result of arbitration proceeding.

Further, the amount of $0.7 million that has been included for increases in the salaries of overseas officers (paragraph 6 above) is the best estimate that could be made, in advance of the Arbitrator’s determination and the working out of its application, of the likely cost to the Administration in 1966/67.

13. In view of the magnitude of the amounts involved, it is proposed that provision be made in the Commonwealth’s Additional Estimates for 1966/67 for a supplementary grant to the Administration for the additional expenditure in which it becomes involved through the processes of arbitration in the two cases referred to above and for the amount by which expenditure arising from the application of the Australian Third Division salary increases to overseas officers exceeds $0.7 million.

14. The year 1965/66 saw a concerted effort by the Administration to give emphasis to economic development. In 1966/67 the Administration will continue to strive for the utmost economic development practicable. To permit this a substantial increase in Commonwealth grant is undoubtedly necessary.

15. As well as providing for the normal growth in expenditure on administration resulting for example from the full year cost of recruitment in 1965/66 and increases in costs and for increased expenditure resulting from further recruitment, the Administration budget for 1966/67 must accommodate outlays of some magnitude on several exceptional items which all happen to rank simultaneously for inclusion in the 1966/67 budget and none of which can reasonably be deferred. The establishment of new institutions, in accordance with earlier Cabinet decisions, requires $3.28 million; expenditure on housing for overseas officers under the special contract made with Cabinet authority is estimated at $1.2 million; special measures resulting from the Report of the Committee of Enquiry into the Conditions of Service of the Police Force amount to $1.9 million; and arbitration salary increases for overseas officers involve $0.7 million. While in each year exceptional items arise for attention, there is an abundance of such items in 1966/67. This coincidence of new and heavy demands has created a serious budget problem.

16. The level of grant proposed and the estimated total revenue based on that level of grant is by no means high enough to avoid difficulties arising, in the particular situation of the Territory, because from the point of view of most of the local people not enough schools, hospitals, roads, etc. will be built and on the other hand they will be obliged (even the minimum wage category) to pay new taxes. Thus although the increase now sought in the Commonwealth grant is greater than for the last two years and about the same as in 1963/64 it is considered to give a reasonable practical answer to a budget problem which is particularly difficult this year.

Recommendation

17. I recommend an initial grant of $72.9 million to the Papua and New Guinea Administration in 1966/67 and that provision for a supplementary grant to the Administration be made in Additional Estimates as discussed in paragraph 13 above.

[NAA: A5841, 349]

1 A footnote in the original here instructed that the ‘excess of expenditure over receipts in 1965/66 of $90,000 was met from a balance of$160,000 in the Consolidated Revenue Fund at 1st July, 1965’.

2 Not printed.

3 Not printed.

4 Not printed.

5 A footnote on the source document here read ‘Cabinet Decision No.I 086(M) of 21st July, 1965’ (notprinted).

6 Not printed.

7 Not printed.