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Friday, 17 August 1906


Sir PHILIP' FYSH (DENISON, TASMANIA) - Quite so, but I am referring to our accumulations of wealth. The savings bank returns, as well as those of the banks of issue, bear testimony to what the people, by their thrift,' are accomplishing for themselves, and I should like to remind our honorable friends of the Labour Party that the achievements of Australia, to which the right honorable gentleman referred, are the result of action taken by Parliaments long before a Labour Party was known to parliamentary history. Members of States Parliaments have been seeking, day by day, and year by year, to do everything possible to aid and abet the efforts of the people to improve their position. I can say, as the result of a parliamentary experience extending over fifty years, that in no session of a State Parliament have the representatives failed to show every desire to meet the wishes of the people, to provide public works, to give them employment, to assist them to secure good wages, and to settle on the landWhat more could have been done? What more have we to do? The figures submitted by the Treasurer show that New South Wales closed the financial year with a surplus of £1,000,000, and that even the weaker State of Tasmania can show a surplus of £20,000, notwithstanding that during the last five years she has had to gather in from new sources revenue to the extent of nearly £200,000 per annum. But what will be her position during the current financial year when, instead of receiving as she did last year £8,000 as her share of the surplus revenue, she will suffer a loss of £14,900? In these circumstances, the Treasurer of Tasmania instead of being; able to show a surplus of £20,000 at the end of the current financial year will find that he has a debit, apart altogether from the loss of £20,000, which that State must suffer under the penny postage scheme. I am forced to allude to the position of Tasmania, since it illustrates what will be the effect on the smaller States of" the Union, if the Commonwealth continues to increase its expenditure. If we relieve the people, as we .have done, of taxation in the shape of duties on tea and kerosene, whilst at the same time we grant bounties to encourage various industries and increase our expenditure in other directions, Tasmania in all probability next year will have a deficiency of £60,000, notwithstanding that she has already had to seek' new means of raising revenue to the extent of £200,000 per annum. The situation is becoming very serious, and I am satisfied that at the next general election candidates will be pledged by the people of Tasmania to vote against every Government that will not seek to meet the position by a proper adjustment of revenue and expenditure. In dealing with the Budget proposals, I have not digressed into the dozen or more by-ways by which a speech may be prolonged, since I am anxious to devote special attention to the more important portion of the Treasurer's proposals in relation to the conversion or. consolidation of the States debts. I have read carefully all that has been written and said on this subject, and when in Cabinet, was fairly well drilled by the right honorable member for Balaclava, who presented numerous capable and thoughtful papers, evidencing much research, with reference to this question. In these papers the right honorable gentleman showed the great difficulty with which the position is surrounded. He pointed out the difficulties with respect to the varying rates of interest, and the varying periods over which the loans extended. He dealt particularly with the complications arising from the fact that if we take over only a proportion of the debts df the States, we must .necessarily leave them with a certain proportion not backed up by the revenue from Customs and Excise, which was pledged under their various Loan Acts, as the source from which the bondholder would obtain payment of his interest. These are all very serious problems, the like of which never arose in connexion with the various major or minor conversions or consolidations to which effect has been given by the Imperial (Parliament. When we look back at the conversion of 6 per cents, into 5 per cents, by Pelham in 1751, to the conversion of £150,000,000 made by Vansittart in 1822, to the major conversion of £250,000,000 by Goulbourn in 1844, and to that of £558,000,000 made by Goschen in 1.888 - and these are the major conversions that have taken place during the last 150 years - we find that no such difficulties confronted those who undertook them. Varying rates of interest prevailed, but it was found possible to consolidate and to convert. The 5 per cents, were reduced to a\ per cent, and 4 per cent, consols. It was then that we heard of " consols " for the first time. Then we had a later conversion, under which the 4J and 4 per cents, were reduced to 3J per cents. When I had the pleasure of being on the London Stock Exchange in 1847 we used to deal with the reduced 3 per cents., the 3 per cents, consols, and the 2f per cents. It was with these three divisions of the Imperial debt that Mr. Goschen had to deal in 1888, when he put to the Imperial Parliament the question which .had been, asked by all his predecessors as to whether or not it would be wise to issue 3 per cents, in place of 35 per cents., and to give the bonus which would be absolutely necessary under such a conversion. When a man who is receiving £3 10s. interest in respect of a bond for £100 is asked to accept only £3 by way of interest, it is natural that he should demand some premium in capital for agreeing to such a conversion. I shall refer later on to that point, and also to the remarks made to-day by the honorable member for Wide Bay, who considers that it would be exceedingly unwise to enlarge the capital responsibility by reducing the interest. It must be patent to honorable members that if we converted a 4 per cent, stock into a 3 per cent, one we could not expect to obtain more than about £80 or £85 for it, and that at the end of the period for which the loan was granted we should have to lose the difference between that amount and £100. In dealing with the proposals of the Treasurer, we have to consider whether we can convert at 3 per cent., and whether the people of the States will agree, as the- honorable member for Mernda has said, to view the whole matter in a broad Federal spirit. If we can achieve these two ends everything will be satisfactory. We cannot, however, establish 3 per cent, consols on our present amount of capital debt. If the market would permit us at any time to borrow at 3 per cent, the position would be different; but we have to bear in mind that we can borrow at that rate only when the market is favorable to us. Market variations are so frequent that we seldom hear of low rates prevailing for an extended period. Whilst we might to-day float a loan of £50,000,000 at 3 per cent, on its face value of £100, five years hence the market might be completely altered. However, if the market remains satisfactory and we can convert at 3 per. cent, the scheme propounded by the honorable member will prove a most admirable one. The question to be asked is whether the peoples of the States will recognise in the

Commonwealth the right to throw on them the responsibility for £2,036,000 in a period of twenty years, or £100,000 a year. No doubt the proposal is a very tempting one, since it would cost New South Wales only £45,000 a year. We are told that, at the end of twenty years, the whole responsibility will rest upon the Commonwealth. The honorable member for' Mernda suggests the establishment of a sinking fund out of a saving of .6 per cent, to be made by the reduction of interest to 3 per cent., and he reckons that in sixty years the accumulated savings and interest will be sufficient to pay off the debt. Of course, the term might be made shorter by -.increasing the appropriations for the sinking fund. But it must be borne in mind that the money market will vary. Whilst the Commonwealth may be able to consolidate on one occasion at 3 per cent., it may on another occasion have to take £80 for £100. If it can borrow all that it needs at 3 per cent., and the people will permit us to take a responsibility of £100,000 a year, and agree to the appropriation of .6 per cent, for the establishment of a sinking fund, all will be well. But there are a good many conditions there.


Mr Harper - It is certain that the 'Commonwealth would do better on the money market than the States could do.


Sir PHILIP FYSH - The joint and several credits of the States will give a better security to the bond-holders than can be given by any one State. The discussion here to-day will no doubt strengthen the position of our bonds and stock in the English money market.


Mr Harper - The uncertainty of the market would prejudice the States if they borrowed individually more than it would prejudice the Commonwealth.


Sir PHILIP FYSH - Yes. It has been, said that if the Government converted, consolidated, or took over the debts of the States immediately, it would put up the money market in England against itself ; but I do not hold that view. No doubt the value of Australian stock would increase.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - That is, the ideas of holders in regard to its value would increase.


Sir PHILIP FYSH - Yes. Consequently sellers would get more for it; but the Commonwealth would not lose, because it would not be a buyer. It would redeem only on the face value of the bonds. On the. contrary, if the investing public raises the price of Commonwealth stock over the existing value of States bonds, then the Commonwealth will gain all the advantage when seeking in that strengthened market for new loans.


Mr Harper - And would have funds to buy up bonds when they became low enough in price to make that advisable.


Sir PHILIP FYSH - Yes. If our stock went up to 4 per cent, to-morrow, it would not injure us, though holders who could sell at that price would gain. Ten or twelve years ago I was in communication with a London actuary in regard to the management of our debts by Commissioners or trustees, and he went so far as to suggest that such persons, if appointed, should be given a lien over the revenue of the State. I replied at once that I was sure that no State in Australia, poor or rich, would give such a lien. He assured me that the arrangement which he suggested would put a gilt edge on our securities. But they will be gilt-edged because of the fact that the Commonwealth can collect its own revenue. So long as the people of England know that we are prospering year by year, and are making proper provision for the repayment of our debts, they will be prepared to allow us, as an integral part of the Empire, to borrow as much as we require 'for useful purposes. There is one other point with which I wish to deal. I presume that the honorable member intends to do away with the issue of bonds, and to substitute inscription, which is so simple a process as to make the other absurd. Bonds can be bought only for amounts like £100, £200, or £400, and the possessor has to keep them in his safe ; but under- the system of inscription, such as I provided for in Tasmania in 1894, persons can go to the Treasury, and without being put to the inconvenience of having to provide even hundreds, can advance to the Government any amounts they please. The clerk at the counter takes the money, their names are entered, in a ledger, and next day they "accept" the stock, as it is called, by placing their signatures in the ledger. Thus, if any one wishes to make sure that his trustee has properly invested his money in stock, he has only to consult this ledger. Imperial stocks are dealt with in exactly the same way. A man gives his broker the necessary instructions to purchase stock, the transfer is made at the bank, and the whole transaction is completed without any difficulty or trouble. The right honorable member for Balaclava followed the practice instituted by me, and issued inscribed stock for municipal loans in Victoria, and the same system has been resorted to in connexion with local municipal borrowing. On one occasion, in Tasmania, I borrowed £1,000,000 at 3 per cent, within a very short time without the cost of one penny. I believe that when the conversion of the States debts is taken in hand by us, we shall be able to adopt the same method that was followed in France when that nation had to pay, £200,000,000 to Germany. The authorities merely invited the people to lodge their money in the public exchequer, and had nothing to do with syndicates, or brokers, or bankers. The people threw their wealth on the Treasury counter, and had their stock inscribed. We have in the past conducted our borrowing operations upon the most extravagant lines, and have been paying very exorbitantly for any work that has been done for us. During the last years of the Federal Council I brought under notice the extravagant system of borrowing that was adopted by the various States. Out of every £100 borrowed, £2 had to be paid to a syndicate, and an allowance of \ per cent, for brokerage, and of \ per cent, to the bank for inscribing the stock, had to be made, in addition to \ per cent, when the stock was paid off. The result was that cut of every £100 borrowed we received only about £96. In addition to all' this, some of the States had to pay the banks £100, whilst others paid £600, per annum for tile management of the inscribed stock.


Mr BRUCE SMITH (PARKES, NEW SOUTH WALES) - Was not that because the stocks were not in demand ?


Sir PHILIP FYSH - No ; whether the stocks had been in good demand or not, we should have had to pay the bank for looking after the inscribing of the stock. When I was in London some years ago, I learned from our bankers that the operations in our stocks were largely increasing.' I hope that the Treasurer Will be able to afford us some information as to the changes by means of transfer and new purchases that have taken place during the past few years. I think that he will find that our stocks are becoming popular, and that not only trustees, but dealers, and others who invest for only a year or two are taking them up. I tender my hearty thanks to the honorable member for Mernda, as well as to the right honorable member for Balaclava, and to the honorable member for Kooyong, for the attention that they have devoted to this very important subject.


Mr Henry Willis - The honorable member has said nothing as to future borrowing by the States.


Sir PHILIP FYSH - I think that it must be recognised that once the States debts are consolidated, the States must not borrow in the open market. They must recognise the necessity of placing themselves under some restriction, but I am not sure as to how they can surrender their sovereign power.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - They are not in the mood to surrender anything more at present.


Sir PHILIP FYSH - I am afraid not. They may not be inclined to renounce their right to borrow, and I am sure that there is no hope; - and thank God for it - of their giving up their railways. The Commonwealth would be rearing up a very Frankenstein if it took over the railways, and added to the already numerous list of public servants 60.000 or 70,000 railway employes. The idea of the Commonwealth taking over the railways is monstrous. If the States, however, choose to pledge their railwav revenue for certain purposes that will be another matter. The difficulty is that, although a State may renounce its borrowing rights to-day, a subsequent Parliament may repeal the act of renunciation. I think that the States will have to consent to refrain from borrowing except from their own people, or through the Commonwealth. They cannot expect to borrow through the Commonwealth, except for the purpose of carrying out approved works. They should not in any case come into the open market in competition with the Commonwealth. Whilst we have not done anything of a practical character, so far as the States debts question is concerned up to the present time, we have ventilated the subject, and have imparted a tone to the discussion which I hope will develop into that high Federal spirit we all desire to see manifested when we are dealing with the affairs of the Commonwealth. I believe that when the bookkeeping period is abandoned, when the revenue of the Commonwealth is distributed per capita, and the States debts are taken over regardless of the consideration that one State may have to undertake a little more responsibility than another, we shall have reached the goal which we have been striving for years to attain, and shall have achieved the true unity which was held in view when the Commonwealth was established.







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