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Tuesday, 21 August 1906


Sir JOHN FORREST (Swan) (Treasurer) . - I regret that I am called upon at this late hour to reply to the debate, but as it is the desire of the Government that the debate shall conclude tonight, I shall endeavour to so condense my remarks that I will occupy the attention of the Committee for only a very short time. I thank honorable members for the way in which they have criticised the Budget. I think that the statements which have been made as to increased expenditure, and in regard to supposed extravagance on the part of the Commonwealth, are not well founded. A great deal has been said about the estimated increase of £525,374 in the expenditure this year, but when honorable members analyze the figures, thev will recognise that all the increases are justifiable. The estimated expenditure this year is £413,942 in excess of last year's estimate. We have to remember, however, that we saved last year £111,000, and that, as has been the case every year since the establishment of Federation, we mav find at the end of the financial year that our estimate has not been reached. The estimated increase of £525,374 is made up as follows : - Sugar bounties, as provided by law, .£130,394; defence - owing to changes in the cadet system and increases in other directions - £72,451 ; new works, defence material, &c, .£160,004; elections and electoral expenses, which do not occur every year, £55>9°o ; repatriation of kanakas, which is new expenditure, £25,000 ; increase in the estimates of the Post and Telegraph Department, set off by increase of revenue, £68,714; and difference between sundry increases and decreases, £12,911. None of these items could have been avoided, and the charge of extravagance cannot be applied to am of them. For my own part, I think that the more closely honorable members examine these figures, the more readily they will agree that the increase is what might have been expected. The debate has centered principally round the proposals of the Government in regard to penny postage and the taking over of the debts of the States. With regard to the former, it must be remembered that more than half the population of Australia already enjoys penny postage to a limited extent. Except in South Australia, where the rate is uniformly 2d., the people living in most of the cities and towns of the Commonwealth are charged only id. for. the delivery of letters within those centres of population, while the rate is only id. throughout Victoria. We have already made uniform and reduced our telegraph rates, with the result that the community has benefited, and the revenue has been increased. To those who say that we cannot afford penny postage, I would submit the following figures : -

Thus it will be seen that, after allowing £157,000 for possible loss of revenue by the adoption of penny postage, the estimated revenue for this year is .£131,000 more than the estimated revenue for last year, while the estimated expenditure for this year is only £88,687 more than the actual expenditure for last year. The actual postal revenue received in 1905-6 was £[2,824,182, and the expenditure was £2,637,516, leaving a profit on the year of £186,666. For the financial year 1906-7 the estimated revenue is £2. 813, 000, and the estimated expenditure £2,726,203, an estimated profit of £86,797, and this profit is after allowing £157,000 as the loss of revenue due to the penny post.


Mr Storrer - The Deputy PostmasterGeneral for Tasmania ' has estimated the loss to that State at £22,000.


Sir JOHN FORREST - My figures were obtained from the Postmaster-General. The proposal to establish penny postage was objected to for various reasons, but chiefly because the Governments of the various States want more money.


Mr DAVID THOMSON (CAPRICORNIA, QUEENSLAND) - There is already a loss on the working of the Postal Department in Queensland.


Sir JOHN FORREST - I have just shown that the estimated postal revenue of Queensland is £11,000 more this year than it was last year, notwithstanding an allowance of £29,000 for penny post, and our contention is that the expansion of revenue in all the States is a justification for our proposal. Moreover, it is a liberal and generous proposal to make, and will undoubtedly be acceptable to the people. It is not equality of treatment that the inhabitants of Victoria should enjoy penny postage throughout their State, and the inhabitants of the various cities and towns in four of the other States should enjoy penny postage within certain areas, while the toilers, who are the backbone of the country, are not permitted to share those benefits.


Mr DAVID THOMSON (CAPRICORNIA, QUEENSLAND) - It would be better to raise the postage in the towns.


Sir JOHN FORREST - My desire is to take off burdens, not to impose additional ones. I wish I had more time in which to reply to the criticisms levelled against our proposals for taking over the debts of the States, and particularly to deal with the scheme of the honorable member for Mernda. In my opinion, he has, to a large extent, ignored the provisions of the Constitution. If we were the members of a Convention, engaged in devising a scheme for the taking over of the debts of the States by the Common- wealth, untrammelled bv the provisions of the Constitution, we might be able to act on different lines from those proposed' to be followed by the Government. But the Constitution will not allow us to take over all the debts of the States, and section 94 of the Constitution to which the honorable member for Mernda referred as being of a temporary character is of a permanent character, and will have to be observed unless it is amended. Then, again, the honorable member proposed that we should at once arrange to return a fixed sum to the States; but that can only be done after the 31st December, 19 10, because section 87, the Braddon section, meanwhile stands in the way. Unless the Constitution is amended, that section must continue in operation until the date mentioned, and thereafter until Parliament otherwise provides. Then, again, the Constitution makes provision of the most definite character, in section 105, as well as in section 87, which the honorable member for Mernda seems to have ignored. It is there laid down in the most absolute terms that each State shall pay its own debts and the interest due upon them, and shall indemnify the Commonwealth for any payments made by it in respect to interest or principal in connexion with such debts. The honorable member for Mernda seemed to infer that I wished to take over only. £103,000,000 of the States debts. I have been misunderstood by him in this matter, and the press seem to have also misunderstood me - although paragraph 8 of my memorandum reads as follows: -

I recommend that legislative provision be made for taking over by the Commonwealth of the whole of the existing State debts, which amounted in the aggregate on 30th June, 1965, to ^236,680,739; but, as by section 105 of the Constitution only the State debts " as existing at the establishment of the Commonwealth," which on the same date amounted to ^201,983,386 (vide Tables D and F herewith), can be legally dealt with, and, as it must take some time to obtain an amendment of the Constitution, I advise that the legislation should provide for dealing with the ^201,983,386 at once, and that the balance of £34,697,353 be dealt with so soon as the required amendment of the Constitution is obtained. By adopting this course the conversion or redemption of loans approaching maturity could be dealt with at once by the Commonwealth.

Then I go on to say in sub-paragraph (1) of paragraph 8 that I recommend -

That a law be passed enabling the whole of the State debts to be converted before maturity, or redeemed at maturity by the Commonwealth (subject in regard to debts incurred since. 1st

January, 1901, to the necessary amendment of the Constitution), by such successive operations as may be thought fit.

It is also objected that the proposals of the Government are of a temporary, and not of a permanent, character. So far as I am personally concerned, I am quite willing that they should be made to extend, if not indefinitely, at any rate for a long period ; but I still think that it is unwise to make any such provision. It is not in the interests of the States that any permanent arrangement should be made now. The limitation as to time is in the interests of both parties, and especially in the interests of the States. I think that .fifteen years hence we shall be in a far better position than at present to finally deal with this matter. In the meantime, we shall be working under the plan proposed, and shall have opportunities to judge as to its suitability or otherwise. My own opinion is that it will work well, and continue in operation for many years. At any rate, this Parliament will retain all its powers, and will be able to deal with the whole question far more effectively, and, I believe, far more wisely at the end of 1920 than at the present time. The proposals of the honorable member for Mernda and of others who have been good enough to criticise the proposals of the Government, are that the Commonwealth should at once take over the whole of the States debts, and -become at once responsible for the payment of interest and the repayment of the principal. This proposal would confer upon the present holders of stock any profit that might arise from the transfer. In mv memorandum I expressed my matured opinion on this proposal, after having consulted eminent financial authorities in England, in the following terms : -

The financial authorities whom I consulted in London were unanimous in the opinion that it would be disadvantageous to place the Commonwealth brand on State stocks before conversion, as such action would prevent the possibility of any profitable conversion, and would be making to the existing holders a present of any increase in price caused by the additional Commonwealth security.


Mr Henry Willis - Of course, it might, but how could we obtain the profit?


Sir JOHN FORREST - We would be likely to derive a profit, because the holders of stock would come to us. It is always better to be sought after than to go seeking. If, when the existing State bonds are approaching maturity, or even when they are a long way off maturity, the bond-holders find that the Commonwealth stocks of the same denomination and currency are more negotiable, and are bringing a better price than similar States) stocks, they will come to us and seek to exchange stock for stock, vide paragraph 6, sub-paragraph 6, of my memorandum. Should this occur, we shall then be in a position to indicate the terms on which we would be prepared to exchange Commonwealth stock for the State stock.


Mr Henry Willis - Will thev give £4 for £3?


Sir JOHN FORREST - I listened very attentively to the honorable member, but his observations, I regret to say, did not carry conviction to my mind. I think that the authorities whom I consulted may be relied upon in this matter., I have had in writing from the Secretary of the Imperial Treasury the very substance of the paragraph which I have last read, and I fully rely upon his great knowledge and experience on this matter. In my opinion until we convert the loans, we should not pay the interest, but should leave that responsibility on the shoulders of the States. That is a far better plan than for the Commonwealth to pay the interest and to look to the States for the money. Difficulties might arise if we attempted to do as has been suggested. When one person has to find the money for another, difficulty sometimes arises in procuring the necessary funds at the proper time. On the other hand, if persons have to find money for themselves they generally do it much more readily. It has been complained on several occasions during this debate that the proposals of the Government are too liberal to the States. I am glad that our proposals are considered liberal to the States, as I recognise most thoroughly that this is a time when we should treat the States as liberally as possible, and recognise also to the full the great obligations that rest upon them. They have to provide for the maintenance of law and order, and Courts of Justice, for the development of the land and mines, and for all kinds of settlement. Thev have to make roads, and construct tramways and railways and other means of transit; they have to provide for water supply and harbor works ; and, in fact, for everything connected with the every-day life of the people. All these matters necessitate a large expenditure, and in these early days we must do our best to assist the States in every way that we can. A great deal has teen said by the honorable member for Mernda and the honorable member for Bland regarding what would happen if, after the Commonwealth had guaranteed the return of a fixed sum to the States, the revenue declined so that we had not the funds to permit us to carry out our compact. I would like to ask them what all the States have to do - and they have obligations to meet amounting to hundreds of thousands of pounds - when bad times come upon them? They have to effect all sorts of economies, and to furnish funds for their needs. The Commonwealth will have to do the same. If hard times come upon us, we shall have to curtail our expenditure, and to provide other sources of income. The argument that having guaranteed the return of so many million pounds to the States we might not be able to pay it, has no weight with me. If we undertake to provide a certain amount we shall have to find it in the same way that the States have to face their obligations. Although I do not anticipate any difficulty in that direction, I say that we should occupy exactly the same position as is occupied by anybody else, whether a private citizen or a Government, who enters into an obligation. It seems to me that I put the position very clearly in paragraph 12, which reads -

The effect of this plan would be that the Commonwealth, having arranged its taxation so as to provide sufficient funds to pay annually the required contribution to the States, and also sufficient to provide for all its own general and special expenditure, would then be free from any further financial obligation to the States. The States, on the other hand, would be free from uncertainty as to the amount they were to annually receive from the Commonwealth, while both Commonwealth and States would know their exact financial positions and obligations, and would have the burden separately placed upon them of making both ends meet. This is not the case at present, since any extra expenditure by the Commonwealth means a diminution of the amount returnable to the States.

Some honorable members have asked, " What is the object, of taking over the States debts? Why should we be in a hurryto take over their obligations, especially when the States themselves do not seem anxious for us to do so " ? My reply is that it was part of the understanding upon which the Federation was established. We believed then - and we still believe- that a great saving would result to the people of Australia if such an undertaking were pro- perl v managed. To my mind, the object which we should keep in view is that of affording relief to the States as soon as possible. That can best be done by applying any savings which we may make to a reduction of the annual payments by the States. The honorable member for Mernda is of opinion that any savings which we may effect should Le devoted to a sinking fund. My idea is that what the people of the States require is early relief. They desire that as a result of the taking over of the States debts they should pay less interest than they are at present paying. It must always be remembered in connexion with this matter that the Commonwealth would derive no benefit from any such saving. Every single sixpence of profit which might be' made would be placed to the credit of the particular State concerned. That was the intention of the Constitution, and was the main reason why provision was made for the transfer of the States debts to the 'Commonwealth. The honorable member for Mernda, under his scheme, hopes to make a large profit, but instead of devoting that profit to the particular States concerned, he would hand it over to the other States. I submit that that is not only unfair, but is not in accordance with the Constitution.


Mr Fisher - Where does he say that?


Sir JOHN FORREST - He says that ' the profit should be applied to paying off the debts of the other States.


Mr Fisher - Does he not calculate that their population will have greatly increased ?


Sir JOHN FORREST - After the States debts have been paid he does not say what will happen, but the assumption is that nothing whatever from Customs and Excise revenue will be returned to the States. But he proposes that in the interval any profits which might be made should be devoted to paving off the debts of the other States. In effect, his proposal broadly is that the Commonwealth should take over the whole of the Customs and Excise revenue for ever, and in return should assume responsibility for and pay off the States debts, amounting to £236,000,000. In fifty or sixty years after their taking over those debts would be liquidated, and then the Commonwealth would have all the Customs and Excise revenue, and return none of it to the States. I would point out that even in Canada the return to the States of a per capita amount is secured for ever, and that it was never intended that the whole of the Customs and Excise revenue should be retained by the Com|monwealth.


Mr Watson - The States would be very glad to forego their Customs and Excise revenue if they could get their debts paid.


Sir JOHN FORREST - Would they be prepared to forego it for ever?


Mr Watson - Yes.


Sir JOHN FORREST - I am positive they would not think of agreeing to such a proposal. Speaking for my own State, I say that Western Australia would not look at such a proposal. I have here a table which has been prepared by the Treasury officials, which shows that under the scheme of the honorable member for Mernda the people of New South Wales, Victoria, and Western Australia would contribute no less than £26,353,478 for the redemption of loans belonging to Queensland, South Australia, and Tasmania. The table reads -


Mr Fisher - That is a. valueless table, and it is not accurate.


Sir JOHN FORREST - It was prepared by the Acting-Secretary to the Treasury, and he assures me that it is absolutely accurate.


Mr Fisher - It is based upon the assumption that the population of the States will be the same sixty years hence as it is now.


Sir JOHN FORREST - I am quite sure that it is correct. If we are going to take over the debts of the States, and to ask each State to liquidate its own, why stop with taking over the present debts? It would be just as reasonable to ask one State to pay the debts of another State in the future for all time as to expect one State to pay the debts of another incurred in the past.


Mr Watson - Does the right honorable gentleman contemplate that the States shall continue to borrow as they may desire?


Sir JOHN FORREST - I believe that the States will have to continue to borrow in order to develop their territories.


Mr Watson - But without limitation ?


Sir JOHN FORREST - They will be limited by their power to pay interest and sinking fund. All I am saying is that the whole proposal is absolutely opposed to the bargain when Federation was established. It was clearly understood, and set forth in section 105 of the Constitution, that each State should pay its own debts and interest, and indemnify the Commonwealth for all moneys paid on its behalf. It is too late for me to add any more, though I am very glad to have had the opportunity to make these remarks. I wish to clearly state that, in my opinion, any attempt to sad'dle on one State the debt of another, will be regarded as a breach of faith under the Constitution, and any proposals which seek to interfere with the operation of section 105 of the Constitution would be regarded as most serious.


Mr Storrer - There is no provision in the Constitution for building railways.


Sir JOHN FORREST - There is provision for building railways in any State with the consent of that State. That, however, is not the question at the present moment. In dealing with all the matters to which I have referred, one has to keep in view the provisions of the Constitution, with which I hope there will be no desire, for some time, at any rate, to interfere. Any interference, except in temporary or very small matters of convenience, would give rise to much dissatisfaction and trouble. I hope, therefore, that we shall all do our best to work out the problem as nearly as we can on the basis of she Constitution, though no doubt there will be difficulties. We cannot take over the whole of the debts unless there be an alteration of section 105, It would mean that instead of taking over the debts as they existed at the commencement of the Commonwealth, we would take them over as they exist now.


Mr Watson - There is another alteration required to allow of debts as they mature being taken over.


Sir JOHN FORREST - That is a legal matter, on which I am not called to give an opinion. I think, however, that section 105 sufficiently covers the ground.


Mr Watson - I think the right honorable gentleman will find that he is mistaken.


Sir JOHN FORREST - The section is pretty wide, providing that theCommonwealth may take over the debts.


Mr Watson - In equal proportions.


Sir JOHN FORREST - The section says : -

The Parliament may take over from the States their public debts as existing at the establishment of the Commonwealth, or a proportion thereof.....

And so forth.


Mr Watson -"Or aproportion thereof."


Sir JOHN FORREST - There is the word "or." If, instead of taking the debts over as existing at the time of the Commonwealth, we take over the whole of the debts, we must take them as they arenow. The section goes on : - and may convert, renew, or consolidate such debts or any part thereof.


Mr Watson - The right honorable gentleman has left out an important part, to which I referred in my interjection.


Sir JOHN FORREST - That is an alternative provision.


Mr Watson - It is one of, the blocks.


Sir JOHN FORREST - I do not think it will act as a block.


Mr Watson - If we take over the whole of the debts, we shall make a present to the bond-holders of a large increment of value.


Sir JOHN FORREST - As I clearly stated, it is not intended to take the debts over, except as they mature. I pointed out that the proposal is to take the debts over, but not to take possession of them until they mature. At this late hour I shall not do more than thank honorable members for the attention they have given to, and the criticism they have bestowed on, my proposals. Whether we- agree or not, the result of the debate must be good: We all have the same object in view, though seeking to reach it by different roads, and the more we study the matter, the more likely are we to arrive at a solution acceptable not only to ourselves, but to the Parliaments and peoples of the States.


Mr Fisher - Will the right honorable gentleman undertake to afford time for a debate upon this matter before the session ends?'


Sir JOHN FORREST - I cannot answer that question, though I promise to speak to the Prime Minister on the subject.


Mr Fisher - It ought to be discussed, apart from every other question.


Sir JOHN FORREST - There will probably be another opportunity for discussion.

Question resolved in the affirmative.

Item agreed to.







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