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Wednesday, 7 July 1920


Sir JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) (Minister for the Navy) . - (By leave.) - The war loan expenditure of the Commonwealth has practically absorbed the war loans already raised, and it becomes necessary to raise further money to meet expenditure in the financial year just beginning. The money will be used principally to pay for settling soldiers on the land, for the building of war service homes, for the repatriation of soldiers generally, and for certain small outstanding liabilities for carrying on the war. Inquiries have been made in London with a view to ascertaining whether a loan could be raised there. The information received from my late colleague before his unfortunate resignation, and since from other sources, shows that, owing to the very large investments in industrial and commercial ventures and other causes, the amount of money available has recently been considerably curtailed, and lenders are asking for such rates of interest as practically prohibit the Commonwealth going on the London market. The loan of £2,500,000 just put on the market in England by the New SouthWales Government at 61/2 per cent. at par was only applied for to the extent of441/2 per cent. by the public,551/2per cent. being left in the hands of the underwriters, while the rates being paid for high class British Treasury

Bills or loans in England are up to 7 per cent. A condition of affairs even more acute exists in America. I have heard on good authority that the New York financiers quoted recently a rate of71/2 per cent, to a Government with a term of fifteen years. It is very doubtful if money can be obtained in America at the present time on the highest class security for less than 8 per cent.

The Commonwealth Government, while realizing that in the circumstances it is necessary to reduce borrowing as far as possible, has certain definite obligations to the returned soldiers and in respect of the war which can be met out of loans only. The cost of land settlement of soldiers has been much greater than was anticipated, and, notwithstanding efforts to reduce the cost of this phase of repatriation work, heavy expenditure in this direction will continue for some considerable time. The cost of settling the soldiers varies greatly in the States, and my colleague is at present engaged with the State Lands Ministers in reviewing the whole question from this stand-point, and we are hopeful of securing some modification of these conditions. Present information indicates large expenditure on war service homes during this financial year.

Of the war gratuities, which amount to nearly £30,000,000, the Government has undertaken to pay special classes in cash, to meet which the banks have agreed to provide about £6,000,000 on the understanding that the Commonwealth will raise and repay the money at the earliest opportunity. In addition, the Government will redeem £10,000,000 of the war gratuity bonds before the end of this financial year. That sum must also be raised, unless the German war indemnity, which has been specially earmarked for the purpose, becomes available.

These obligations must be met, and the Government is, therefore, compelled to approach the Australian people with the view of raising a loan of £25,000,000. This loan it is proposed to call the " Second Peace Loan."

The nominal rate of interest will be 6 per cent. per annum, but a bonus to be given with the first interest payment will make the effective rate about £61s. per cent. per annum on the average for the whole period of the loan. The effective rate of the last loan was £5 6s. The rate of this loan is, therefore, roughly, 3/4 per cent. higher than the last. The principal will be repayable at par on 15th December, 1930. Subscriptions to the loan will close on 6th September next, and instalments will be payable as follows : - 10 per cent. to be lodged with application. 20 per cent. on 4th October, 1920. 20 per cent. on 1st November, 1920. 25 per cent. on 6th December, 1920. 25 per cent. on 5th January, 1921.

Interest will be subject to Commonwealth taxation, but will be free of State income tax.

To raise a loan on more liberal terms tends to depress the value of stocks already held, and it is but fair to guard against this as much as possible. We have accordingly provided that subscribers to the new loan will have the privilege of converting at face value an equal amount of stock or bonds which they hold in connexion with previous War Loans. This concession is a valuable one, and, it is expected, will induce many persons holding stock and bonds in previous War Loan issues to freely subscribe to the new one.

The terms of the loan, although still below the price of loans elsewhere, are the best ever offered by the Commonwealth in Australia, and are such as to give a good return to persons having money for investment. The higher rate of interest offered for a long term will, it is believed, be attractive to the investing public. As the payment of instalment's is spread over a period of five months, the Government hopes that farmers and woolgrowers who receive the value of their produce during that time will, with the assistance of the banks, be able to contribute liberally to the new loan. As in previous occasions, the Government is prepared ' to help persons who have not the ready money to meet the instalments of the loan as they fall due, and arrangements will be made with the Australian banks to make advances at a rate of 5 per cent. per annum to customers who have a good prospect of paying the money within eighteen months. Under these arrangements, the banks will advance up to 90 per cent. of the bonds subscribed for, and no security other than the bonds themselves will be required.

The Government will arrange, as was done in the case of previous loans, for the appointment of Committees to assist in obtaining subscriptions. These bodies have materially assisted in the past; their efforts have been greatly appreciated ; and their work in connexion with the forthcoming loan, it is expected, will greatly contribute to its success.

As before stated, the new loan is required mainly for the expenses of repatriation, and the Government confidently looks to the generous people of Australia to voluntarily subscribe the sum which is necesary to meet the obligations of the Commonwealth. The terms offered to subscribers to the new loan are in themselves very attractive as an investment. Apart from that aspect of the matter, however, the Government has obligations to the soldiers which must be fulfilled. This can only be done by the whole-hearted support of the people. During the war, while the issue was still in doubt, the people of Australia provided the means asked for by the Government. Victory has been secured largely by the efforts of those whom we are bound in honour to restore to peaceful and prosperous occupations in their own land for the freedom and security of which they fought.

To raise the money is an imperative necessity. The privileges of citizenship carry with them corresponding duties. The obligations of the Commonwealth to the soldiers to whose valour and sacrifice we owe our lives, our liberties and all that we have, must be honoured. To invest in this loan is both good business and good patriotism; and every citizen should, as far as his means permit, do his duty by contributing to it. We much prefer the voluntary method of raising the money, but if that method fails to provide what is required, it will be incumbent upon us to adopt other means. It must be made perfectly clear that those who endeavour to evade theirduty cannot be permitted to do so.

Now, there are one or two observations which I would like to make upon the statement I have just made. The first has to do with the rate of interest. The nominal rate offered by the Commonwealth is slightly higher than that paid by the States for recent issues. It is necessary to offer a higher nominal rate because the States' loans are free of both State and Commonwealth Income Tax, whereas the Commonwealth loan is subject to Commonwealth taxation, which is on a much higher scale than that imposed by the States. The governing factor in connexion with the rate of interest is the price of money all over the world. This has gone up very considerably. One has only to examine the returns upon bonds and stocks of various countries, and more particularly in London, as well as in Australia, to see just what it means. I have before me a list of stocks in London, together with particulars concerning their yield to the investor at the present time. For instance, our Commonwealth 51/2 per cent. stock, redeemable in June, 1927, yields altogether £6 18s. per cent. at present. Other stocks, of the British Government, are yielding £7 2s. 6d. and £7 7s. 6d. Victorian 31/2 per cent. inscribed stock, redeemable in 1923, is giving a rate of interest amounting to £7 12s. 3d. at present in the London market, while other stocks go even higher. I notice, as a further example, that City of Sydney 4 per cent. stock is returning in London now £7 15s.

I have another statement before me, taken from the Times of 7th May last, giving the prices for national war bonds. Some of them, redeemable in 1922, at a redemption price of £102, and with a present price of £96 10s., are yielding £7 6s. per cent. Reference to the information before me will inform honorable members that other stocks are yielding similarly. There is quite a list of them. Our own stocks here are yielding in much the same way. For instance our 41/2 per cent. bonds, redeemable in 1925, are yielding £6 7s. 4d. on the market. Our 5 per cent. stock, redeemable in 1923, is returning £6 . 19s.11d. Our 5 per cent: bonds, redeemable in 1927, are quoted at £6 14s. 7d.


Mr Tudor - That is, if you have the money now to buy those bonds at the rate at which they are selling on the market; but if you put the money in you are not getting anything like that.


Sir JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) (Minister for the Navy) - We have to recognise the main fact that the price of money has been raised very considerably and, accordingly, that we are bound to make our interest rate slightly higher.

There is another matter which I should mention, and that is the subject of provision in regard to old stocks. I find that in the Old Country they are converting some of their floating debt into Treasury Bonds, the currency varying from five to fifteen years ; and the inducements offered to the public to convert these moneys into fixed bonds are very remarkable. I have before me the latest prospectus, issued by the Imperial Treasury at the time. It is for the redemption of unfunded debt of early maturity. Honorable members will recollect that the Imperial authorities have to deal with about £1,300,000,000 sterling of unfunded debt, and they are making an effort to fix that debt in order that they may know exactly what is the financial outlook for the immediate future. This is what the prospectus says -

The bonds will carry interest at the rate of 5 per cent. per annum, payable half-yearly on the 1st May and 1st November, and, subject to the conditions stated below, will carry additional interest payable during the period ending 1st May, 1925, as follows : -

If and when during any half-year ended 1st May or 1st November, the Treasury Bills issued to the public were sold tothem at an average rate of discount (as certified by the Bank of England) exceeding 51/2 per cent. and under 61/2 per cent. per annum, additional interest will be payable on the interest date next succeeding such 1st May or 1st November at the rate of 1 per cent. per annum.

If and when such average rate of discount was 61/2 per cent. per annum or over, at the rate of 2 per cent. per annum.

The British Government, therefore, is actually paying up to 7 per cent. for these bonds, redeemable in from five to fifteen years.


Mr Hector Lamond - What is the term of our proposed new loan?


Sir JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) (Minister for the Navy) - The term is ten years. We have about £88,000,000 falling due in 1927, and that, I suggest, is about as much as we can expect to convert, even in the most favorable circumstances. My advice is that it would be better to extend the proposed new loan over a little longer period. It is much more convenient, of course, to convert our loans in big sums if the market befavorable; but, since we cannot guarantee future market conditions, it is deemed prudent to provide for the conversion in 1927 of the sum I have mentioned, leaving the proposed new loan to a later date. Referring again to the proposal of the British Government, I should like to read another clause of the prospectus -

The first interest payment, payable 1st November, 1920, will represent in the case of each bond interest to that date from the date on which the application was lodged and payment made for the bond, and will include additional interest at the rate of 2 per cent.' per annum.

This is provision for a bonus of 2 per cent. in addition to a possible rate of 7 per cent., and it indicates, I think, the difficulties which financiers all over the world are experiencing in endeavouring to place the public debt of a nation on a stable basis. There can be no doubt that the British Treasury would not pay these enormous rates did they not feel the necessity to make the financial outlook secure in the immediate future. They cannot afford to have a huge floating debt, and so they are prepared to pay extraordinarily high rates of interest, in order to rid themselves of this financial menace which otherwise would be hanging over them.


Mr West - Can the Minister say what steps the British Government is taking to wipe out the debt?


Sir JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) (Minister for the Navy) - As the honorable member is well aware, the British Government is doing a very great deal to reduce it.


Mr West - More than your Government has the courage to attempt.


Sir JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) (Minister for the Navy) - I suggest that my honorable friend should await the Budget statement. Then, perhaps, he will find scope for criticism of proposals which the Government will submit regarding this and other matters. Meantime, I should like to say a few words about repatriation.


Mr J H Catts - Is the British Government raising this money in England ?


Sir JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) (Minister for the Navy) - Yes; and it is making a great effort to free itself of troubles arising from its obligations in America.

Now a word or two about repatriation. The position, on the whole, is fairly satisfactory, though, as I have already pointed out, we have, in some cases, to pay extraordinarily high prices for the land on which to settle our soldiers. In some States, where land ischeap, the problem is an easy one; but. the position is different in other States where land values are appreciably higher, and its availability is very much less.


Mr Fenton - The Government has no oversight over this matter.


Sir JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) (Minister for the Navy) - The only oversight which the Government can exercise is in regard to finance.


Mr Fenton - Yes. You have to pay when the States send in the bill.


Sir JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) (Minister for the Navy) - We pay very willingly; and I hope we shall always do so, since there is very good security behind all money ear-marked for this purpose. But I shall deal with that matter shortly in a statement on the general loan situation. The total number of soldiers already settled upon the land in the Commonwealth is well over 17,000.


Mr Gabb - How many have had to go off the land in order to allow soldiers to settle on it?


Sir JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) (Minister for the Navy) - Of course, troubles will arise in connexion with this and other matters; and we can only seek to remedy difficulties as they arise.

I should like now to say a few words, upon the general loan situation, and then I shall have finished.

The public debtof the Commonwealth on the 30th June, 1920, in respect of war services was £335,300,000. That sum is comprised of the following items: - War loans raised in Commonwealth, £219,800,000; deduct repurchases and securities surrendered in payment of succession duties, £7,040,000; outstanding debt in Australia, £212,760,000; loans from Government of United Kingdom, £43,080,000 ; indebtedness to Government of United Kingdom for maintenance, transport, and equipment of Australian Imperial Force, £37,100,000; indebted ness to British Admiralty for transport of troops, victualling, repairs, and other services for Australian Fleet, £6,100,000; accrued deferred pay, Australian Imperial Force, to 30th June, 1920, £260,000; war gratuity (estimate), £30,000,000. Gross wax debt, £335,300,00.

The whole of that amount, however, has not been spent on active naval and military operations during the recent war. A sum of £22,000,000, representing expenditure on realizable assets, should be deducted, leaving a net war debt of £313,300,000. The £22,000,000 is made up as follows: - Indebtedness of States for loans for soldier land settlement, wheat silos, &c, to be refunded, £12,100,000; capital expenditure on warservice homes to be refunded, £4,900,000; present capital value of ships purchased or constructed out of war loan moneys (omitting wooden ships), £4,000,000; other recoverable expenditure charged to war loan, £1,000,000. Total, £22,000,000. The expenditure for repatriation is of a character much different from that required for the active conduct of the war, inasmuch as the land settlement of soldiers is a reproductive work, creating substantial assets equal to, if not greater in value than, the expenditure. Similarly, assets are created in building warservice homes. In both cases the money spent - really advanced - by the Commonwealth will be repaid with interest. I think it is time we began to emphasize this aspect of the case. Up to date the expenditure by the Commonwealth for land settlement, war service homes, and silos is £17,000,000. Several of the States have, during peace times, spent large sums on similar services. Shipbuilding and the purchase of ships which, during the war, were charged to War Loan, have also placed in the hands of the Commonwealth valuable vessels which have earned large profits for the revenue.

The amount shown above as owing to the United Kingdom, apart from the funded debt, totals £43,200,000. That figure does not include a temporary advance of £2,500,000 from the British Government to meet London payments, nor an amount of £4,800,000 owing for interest. The latter sum has been placed in a Trust Fund in the Treasury for payment when opportunity offers. Both sums will be paid as soon as the cash can be conveniently placed in London. As honorable members know, our great difficulty is to shift money from London to here and from here to London. It is that which is causing a great deal of our difficulty at the moment: it is not that the money is not available, but that there is difficulty in moving it between the two places.


Mr Richard Foster - Why should expenditure on silo construction be included in that category?


Sir JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) (Minister for the Navy) - I take it that the honorable member wishes to know why that expenditure should be regarded as a war obligation ?


Mr Richard Foster - Yes.


Sir JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) (Minister for the Navy) - I do not know that I can give any adequate reason just now. I suppose the money had to be found while the war was in progress, and it came out of war loan money, though, of course, it will be accounted for separately, and placed in a different category. I think I am right in calling attention to the deductions which should be made from our total war obligations, because all this expenditure cannot be called dead-weight war debt.


Mr Richard Foster - The inference is that the money is regarded as war expenditure because it was spent for the preservation of wheat which belonged to the Imperial Government.







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