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Thursday, 15 May 1924


Mr PRATTEN (Martin) . - I move-

That, in the opinion of this House, in view of the economic and financial position of the Commonwealth, and especially in relation to overseas exchange and credits., the Government should immediately initiate a policy calculated to rectify conditions which are penalizing our export trade and frustrating the beneficial effects intended to be produced by the National policy of Tariff Protection.

Shortly before the recent adjournment of this House I had the temerity to place before honorable members the views I hold with regard to some phases of the economic position of the Commonwealth. Since then I have been much interested in the many communications I have received, and the many comments that have been made in the press, upon the subject. Many different points of view have been published, but it is fully evident that there is a considerable body of public opinion throughout the Commonwealth - especially amongst those who have professed to have studied the subject - which holds that many phases of our internal -and external finance are unsound. Some anonymous press correspondents have done their best to cloud the issues, but I desire to again encroach upon the time of this Parliament to emphasize that, in my opinion, our economic position and our economic problems overshadow all the other political problems with which we are faced to-day, as within the ambit of their adjustment and solution all other problems come, and without some effort towards their solution we are ostrich-like in our legislation, and will not face economic facts. It is obvious that our public debt, our production, our development, our population, and our international trade are all correlated, and a- further examination of our present economic position may take us a step or two- further towards getting a better perspective of the real position.

Going back a little in 0,ur history, we find that in 1840 we had no public debts; in 1860, they amounted to £12,000,000; and the summarized figures show that, on the average, they have doubled every ten years: that is to- say, in 1870 our public debts were, in round figures, £25,000,000, in 1880, £50,000,000; in 1890, £100,000,000; in 1900, £200,000,000 ; and in 1920, £800,000,000. Since 1929, the Commonwealth debt has increased by £30,000,000, and the States' by £120,000,000; so that if borrowings are kept up at the same rate as during the last three years the increase by 1930 over our public debt in 1920 will be a further sum of much over £400,000,000, or a total during the current decade considerably greater than the whole of Australia's borrowings prior to the outbreak of the war. Obviously, that sort of thing cannot continue. This is not a party question. We all know that the curtailment of governmental expenditure and the necessary imposition of taxation to keep the country solvent, is not popular, but it is the responsibility of those who hold the reins of government in the Federal and State arenas of Australia to carefully and seriously consider the position ; otherwise, we nsk a deterioration in national prestige, and ultimately- a. diminution of national credit that may bring us to the position occupied by some of the South American Republics, with the repercussion that it inevitably must have upon the whole of the work, production, comfort, happiness, and character of our people.

Some optimists argue that a rapid influx of people would considerably lighten the load of debt which the people of Australia are carrying to-day, and the Treasurer (Dr. Earle Page) has drawndown much criticism and ridicule upon his devoted head by making the suggestion that further borrowing should be limited to our present load per head of population - that is to say, that our present net debt of, say, £160 or £170 per head, is big enough, and an era of frenzied finance would be reached if future borrowings exceeded that amount. Fun has been made of the Treasurer's proposal that every baby or immigrant arriving here should justify the borrowing of a.n additional £160; but the basic idea in his mind, I am sure, was that the extreme safety limit of debt per head had been reached, and I, personally, welcome any proposal that will set some definite limit to our financial orgies. The argument that a rapid increase in population -would partly relieve or spread our load of debt is admissible, but such a result is most improbable, in view of the facts. I have already shown that the public debt has about doubled itself in every decade since 1870, but the increase of population in the decade ended 1880 was only "35 per cent.; in the decade ended 1890, 41 per cent. ; 1900, 20 per cent. ; 1910, 17^ per cent. ; and 1920, 22 per cent.; so that, whereas the increase in our public debt from 1870 to 1920 was over 3,000 per cent., the increase in our population for the same period was only 235 per cent, It will be seen that our public debt has been, increasing more than ten times faster than our population. There is nothing, therefore, to' be found in this direction that will give any consolation to those who consider that the prodigality of the past, and even the present, can be countered by an increase of population.

Viewing our enormous public indebtedness from another angle, however, perhaps we may derive a little comfort. From the stand-point of the national wealth of the country, created by the work and production of the people and aided by the many natural advantages that the Commonwealth possesses, the position is more hopeful, and a true perspective of Australia's economic position cannot be given without taking into consideration this point of view. The only endeavour ever made to obtain reliable statistics concerning our national wealth was in the year 1915, when a census was attempted. I do> not regard the resultant figures published by the Commonwealth Statistician as more than, a very Tough approximation of the values of fixed and movable commodities owned by the people of this Commonwealth, nor does the Statistician profess that such figures as he published are more than that; but in order to1 probe the question of our national finance from this stand-point we have no other figures to start with, so I use them, with much reserve, as a basis upon which to give, in my opinion, some rough indication of the position. The partial census referred to, showed that the national wealth in 1915 was likely to be a sum approaching £2,000,000,000, and I believe to-day, in view of the rise in credit values, and the prices of our products, coupled with the increase in the value of production, that the total national wealth or credit of all Australia's people, including Government assets, would be a sum very roughly approximating something approaching £3,000,000,000. It must not be forgotten that of this sum nearly half is in land values, and half of the remainder probably in fixed assets such as railways, Government works, buildings, factories, and machinery. There would not be many hundreds of millions of movable assets, and the gold in the Treasury, plus the amount held by private banks and individuals, is less than £50,000,000, so that the proportion of gold to national wealth is less than 2 per cant. Real wealth is only the stored up products of industry, and the standard of our national wealth is a credit valuation based upon- productive assets.

Out of a debt, Federal, State, and Municipal, of, say, £950,000,000, there are certain assets such as railways, tramways, and public works, which are a fair set-off against part. of it. The value of these assets, of course, depends .upon their ability to function in such a way as to return or give in value the yearly interest they cost. Assuming, they do, we should still have a dead debt of, say, £600,000,000, and on the figures. I have quoted, the Governments of the past have pledged, outside their reproduction assets, 20 per cent, of the present values of land, railways, buildings, machinery, gold, movable assets and national credit of all descriptions to the public creditor at home and abroad.

The figures of Commonwealth pro- 'duction also justify some optimism if our economic position is faced now. Although the values of primary and secondary production have not been increasing in the same ratio as our public debt, there is a marked and marvellous increase, which largely explains how we have been permitted to arrive at the- present public financial position, a position, perhaps, of only evanescent prosperity without] feeling much financial dislocation, and with an avoidance of hard times for our people. Our agricultural, pastoral, dairying, mining, manufacturing, and minor industries produced in 1881, a total value of £71,000,000; in 1901. that value had increased to £114,000,000; in 1911, to £188,000,000; and in 1921, to the enormous sum of £393,000,000, although the figures in the following year fell considerably. I think it sounder, and a fairer comparison, to take the value rather than the volume of commodities produced in order to keep the line of comparison even. Summarizing these figures : Since 1881 our debt has increased sixteen times, primary and secondary production nearly six times, whilst our population has only just doubled itself.

Obviously, the great war has been responsible for, a large proportion of our load of debt. While it may be an excuse for the present position, the debt nevertheless is there, and the position must lie faced. Admittedly, we are not so badly off as other countries, but w.e would have

Australia healthy economically as well- as physically, and it is willi that idea that I pursue my subject. The basis, of course, of the whole of our credits; wealth, and ability to bear a- load of debt; with its annually recurring- interest; and our ability also to ultimately redeem it, is the work and production of the country. I think 1 have shown £ha£ from, every stand-point public borrowing has far outstripped development, whether from the aspect of the increase in population, or increase in national credit, in land values and other things, or the vitally important increase in the volume of our production.

What gives one most comfort in connexion with our economic position today are the figures for the last twenty years of Federation. Although in this period our public debt, including Avar expenditure, increased more than four times, and our population did not double itself, general bank deposits increased more than three times, Savings Bank deposits more than five times, Commonwealth and State revenue nearly four times, and primary and secondary production in value considerably more than three times the figures of 1901. Fortunately for us, too, the trend of public borrowing in recent years has been in the direction of co-opting the work and; production of Australia and the new wealth, created within our borders in order that we may ourselves supply the credits required for purposes of government, instead of seeking it abroad. The net result, of this is that £250,000,000 of the total Commonwealth debt of £410,000,000, or more than two-thirds of it, has been obtained in Australia, and less than onethird., or £130,000,000, is owing in London.

With regard to. the States., taking the aggregate indebtedness as, say, £540,000,000, about two-fifths, or £234,000,000, has been obtained in Australia and slightly under three-fifths elsewhere. An examination of the increase in States' debts- during the last six years shows that, out of £145,000,000 in additional loans, over £100,000,00.0 has been raised in Australia, and less than £50,000.000 abroad ; and whereas in 1901, of the total State indebtedness 14 per cent, was owing in- Australia and 86 per cent, abroad, in 1923 43$ per cent, of the total owing than had been raised in Australia and 56$ per cent, elsewhere. Adding Federal and State indebtedness together, in order to get a tine perspective, and fixing it approximately at £940,000,000, over £500,000,000 has been raised by internal loans and the balance from abroad. The situation has been improving, as, since 1915 the addition to our loan indebtedness of £570,000,000 in all has, comparatively speaking, only increased our debt abroad by £185,000,000. The proportions, therefore, of internal and external borrowings, Federal and State, since 1915 have been 66 per cent, internal and 33 per cent, external. These figures indicate that in recent years, at all events, the much sounder policy has been adopted of seeking new loan requirements from our own people, who "have supplied Federal and State Governments with a credit of nearly £400,000,000 in a little over eight years. How much stronger, financially and otherwise, we shall be if we can continue that policy, and eventually owe no public debts to anybody but ourselves!

Another point of prime importance in the consideration of our economic position is the fact that the average rate of interest actually paid during this last decade has increased, so far as the Commonwealth is concerned, from £3 12s. 6d. to £5 per cent., and for the States from £3 12s. to £4 7s. 6d. per cent. During the life of this Parliament, if we live our allotted term, about £200,000,000 of Federal and States' debts will fall due, to be redeemed or renewed, and judging by the recent Federal loan the time is fast approaching when interest charges, as compared with our average of ten years ago, will have increased at least 75 per cent. Unless the money market alters, these charges will ultimately, on our present debt, be as great, owing to the increase in the cost of credit, as they would have been upon a debt of £1,750,000,000 ten years ago, so that, on the basis of cost to- the country, every pound borrowed now will cost us in permanent interest as much as £1 15s. of borrowed money did ten years ago. In my opinion, the rate of interest for some years on future internal borrowings and renewals, subject to taxation, has been set by the Federal Government in connexion with the late gratuity loan, and as we have been thrown back on our own resources we at least know where we are, and what we have to do. I submit that we must readjust our economic thought, otherwise the already heavy and extravagant load of taxation must be increased, the continued development of the country will be hampered, confidence will gradually diminish, and with the loss of confidence will come the diminution of credit and values, because credit and values are built upon confidence, and are nothing else.

Now comes the question : What are we going to do about it all? What policy can we adopt to' enable the people of Australia to carry their present debt with safety, and to secure reasonably sane governmental finance for future years. Various sinking funds have been established - some with good intentions, others with pious aspirations, some suggested possibly by expediency, and some' - I say it with bated breath - in a spirit of hypocrisy. The sum total for the six States does not show any serious attempt to face the question. New South Wales, for instance, with a gross indebtedness of £180,000,000, has a sinking fund, established many years ago, of £400,000. The Commonwealth has done better, and has provided a sinking fund of ^ per cent. ; but there is a danger that it may be at the mercy of a temporary majority in Parliament. Of course, the mention of sinking funds tickles the ear of the electors, and provides a muchneeded soporific in connexion with our financial outlook; but, in spite of the well-meaning efforts of the Government, I do not think that this question of a castiron and irrevocable sinking fund has yet been adequately discussed. Apparently jio sinking fund provision is mandatory upon future Parliaments unless incorporated in the Constitution. No matter how desirous we may be of placing the finances of the Commonwealth upon a better foundation; no matter how much we pay into a sinking fund, the fund, being outside the Constitution, will be subject to the will of a parliamentary majority from time to time, and consequently at the mercy of future impecunious Treasurers or extravagant Governments, backed by the necessary parliamentary majority. If the principle of the establishment of sinking funds were placed before the people for incorporation in the Constitution, and carried, it would tlo much to stabilize out most unsatisfactory public financial position, especially seeing that the heavy repayments due to the Commonwealth through loan expenditure to the States will come eventually to tho Commonwealth, and bc added to tho statutory -1 per cent, sinking fund already enacted.


Mr Duncan-Hughes - If provision for a sinking fund were incorporated in the Constitution, it could be taken out again by the people.


Mr PRATTEN - Yes : but it would be much more difficult to alter the Constitution than to amend an Act. Clearly, the time for co-operation in connexion with State and Federal borrowings is overdue. If nothing can be achieved in this direction by mutual statutory agreement, the people must be called upon to decide how far we can continue this competition for further loans and dear money One outstanding feature of the figures I have quoted is the large comparative increase in -the credit that has been supplied to the various Governments by the people of Australia. These show that, since 1911, the total loans owing by the Commonwealth amount to £410.000,000, out of which £280,000,000 have been floated in Australia and £130,000,000 in London. Of the £270,000,000 floated by the States since 1911, £156,000,000 have been provided by the people of Australia, and £114,000,000 have been raised abroad. Summarized, the figures disclose that, since 1911, we have raised £436,000,000 in the Commonwealth out of a total of £680,000,000 borrowed, or an average of nearly £40,000,000 per year. , Since I last spoke in this House upon Australia's economic position there has been some disagreement expressed with regard to suggested remedies for what is clearly an anomalous position. It seems to me clear that Government borrowings abroad waste the credit of the people of Australia, as Australian credits abroad cannot reach us in tiny other way than by the importation of goods. Experience proves that excess credits abroad always place a premium, through the exchange position, upon- the importation of goods into Australia, and automatically take an exchange toll from the whole of our exports. The absence of any co-ordinated banking authority here .precludes any credits owned by Australia abroad, through excess of exports, the high prices of her commodities in the world's markets, Government borrowing, or from any other cause, being returned in any other form than as imported goods. If proof is required that Government borrowings abroad result only in the importation of more .goods, it is to be found in a detailed examination of our import figures and the increase in debts abroad. It will, I think, be generally acknowledged that, in order to keep out of further debt, our exports should exceed our imports to the extent of the interest on our debts abroad plus amounts spent by our people abroad, together with other services and remittances. For instance, we have to provide increasing amounts for interest charges on our debts abroad, according to the extent of those debts. At present, a sum of about £20,000,000 per annum is required, and, in addition to that, a large sum, on the average, is spent each year by travellers abroad on the purchase of pleasure and for dividends, remittances, and other things, and unless our exports exceed our imports to the extent of these factors together, we are incurring further indebtedness.


Mr Charlton - Is that £20,000,000, Federal and State combined ?


Mr PRATTEN - Yes. By the increased volume of imports over these factors, less any compensating factor, mathematical law would expect to find a corresponding increase in our indebtedness abroad. On a detailed examination of the position the evidence meets the expectation. Let us test the most recent period for which figures are available - the period 1918-19, to 1922-23- with only minor gold movements to complicate the figures. For those five years our imports were valued at £600,000,000. Add to that an average of £17,000,000 per annum for interest, and, say, a balance of, £5,000,000 per annum for money spent abroad and remittances from the Commonwealth, together with other invisible imports and services over and above those received, and we arrive at another £110,000,000 for the five years. That would give us a total debit figure against the Commonwealth - visible and invisible' - for the five years' period of £710,000,000. Our export figures during these five years amounted to £642,000,000, showing a net balance against the Commonwealth pf £68,000,000. The actual increase in the indebtedness of Australia abroad during this period was, £70,000,000, being, Federal, £28,000,000; and State, £42,000,000. There have been, also, during the last five years, apart 'altogether from the visible import and export figures, a mass oE invisible exports .lot included in this table. These have arisen by excess prices and profits cn wool in England, which directly and indirectly account for the excess banking credits available there now. This afternoon, the Prime Minister, in answer to a question, stated that Australia's share of the wool realization profits was £34,000,000. So far as I know, this sum has never been included in our export figures. That amount is over and above the flat rate of the export balance of our wool crop.

Further proof is not necessary to show that our bright and airy methods of borrowing abroad, and the professed inability of our present banking system to meet the exigencies of our international trade settlements, other than by the importation of goods, will, if persisted in, ultimately bring about our economic downfall, or will make us the bond-slaves of our creditors abroad. Owing to the present banking system in Australia, excess credits abroad now place a premium, through the incidence of exchange, upon the importation of goods into Australia, and automatically levy an exchange toll upon the whole of our exports. British exchanges to-day clearly indicate that the excess of Australian credits abroad has not only had the effect of forcing more imported goods on to the market here, but has enabled importers to land every £100 worth of goods nearly 3 per cent, cheaper than they otherwise could, while on the other hand, the exporter has had to take nearly 3 per cent, less than London parity for his products. One writer recently summed up the position in these words : -

Because Governments must get moneys from London for public works, and because investors desire to alter the location of their securities., primary producers get les"s for their produce, and the buyer of imported goods obtains some concession on his purchases.

Apart from statistical import and export figures, for some time large excess credits belonging to Australia have been owned in London. These excess credits are probably now mostly owned by the banks operating here. They have been built up by borrowing in London and by the excess prices obtained for our wool over export parity, together with Bawra operations. The flood of imports we have received during this last year or two is the only direct result of our good fortune. No attempt has been made through any banking organization to protect the true interests of Australia in this matter, because the British banking system, which the British manufacturers have built up, has provided tremendous monopolistic power. As I see it, the British banking system has been framed, designed, mid carried out for decades in order to swell British exports, to sell British manufactured goods, .and to facilitate the importation into Britain of raw materials. The shareholders or owners of these banks are wedded to British manufacturing supremacy; their whole interest lies in this direction. Consequently, the policy of the British banks - which, is largely in the hands of manufacturing and trading interests - is designed and carried out in order to continue and perpetuate this system. This policy has also been partially grafted upon Australia by the British registered banks operating here, and, iu my opinion, the Australian registered banks have found themselves compelled to follow suit, in order to protect their interests, trade, and customers. The only means we have of settling our interest bill abroad and of squaring the ledger is with the excess of exports over imports, and, as I have shown that we have not done this, the present position of Australian exchange is absolutely opposed to economic laws. The exchange . is against the exporter and in favour of the importer, although we are running further into debt, and the figures seem. to show that on the average we have not even been liquidating our yearly interest bill abroad. If a man goes to the banks here and wants an overdraft, it is much easier to get a substantial advance against the importation of goods from abroad into this country than one for the purpose of the development of the country by primary or secondary industry. We seem to be vainly kicking against the pricks. I again submit for the most careful consideration of the Treasurer that his urgent duty is not to allow such a state of affairs to continue. I am surprised that he has hitherto failed to tackle Australia's most urgent problem.

With regard to the point that we cannot get any foreign credit balances to Australia, except in the form of goods - because Australia's banking system is an appendage to that of Britain - I desire to draw the attention of the House to an illustration of my point. As most honorable members know, I am interested, and have been for many years past, in the development of Australian tin-mining enterprise in Malaya. I know that the whole of Australia's trade with Java and the East, as well as Indian and all other Asiatic trade, has to be adjusted in London. There are no direct banking facilities between Australia and foreign ports only 500 miles north of our coasts. Bills of exchange, bank drafts, and remittances of all sorts have to be cleared through London. At the present time there is a startling and vivid illustration of this fact within my own personal knowledge which I think I should give the House.

These Australian tin-mining companies, after purchasing dredges in Australia with Australian credit or capital - the terms are synonymous - and getting to work, say, in the Federated Malay States, naturally, if they are well run, accumulate profits there from time to time. These profits are owned by the shareholders, who are partly Australian, and can be made available to them only by the following method : - The credit accumulated in Penang or Singapore is transferred to London at a banking charge, which is, comparatively speaking, small, owing to the stability of the Straits dollar currency. That credit in London is absorbed by some. Australian bank or importer with a London office, and is available in Australia to the shareholders in the profitmaking tin companies at the current rate of exchange, which, to-day, would make £100 in London worth £97 here. For every £100 worth of credit created in the Malay States the Australian shareholders, owing to the exigencies of exchange, receive £97. But even this depreciated credit must ultimately be settled by importing goods, because if the tin companies could not sell their drafts to Australian banks in London for the purpose of importing goods, or to London offices of Australian importers, the profi!s made by Australian capital on tin mining enterprise in Malaya could, under present banking conditions, be returned to shareholders only in the form of goods. Therefore, every £1 made by Australians iu tin mining in Malaya swells the volume of imports into Australia to a corresponding extent, and profits made there compel surplus imports into Australia from London. Whatever export or import trade may be done with the developing East, and whatever profits may be due to Australian enterprise abroad, whether in Europe, Asia, Africa, or America, owing to the grafting of the British banking system upon Australia, a toll is levied upon Australian production and a bonus is given on goods sent hero, even from countries not a thousand miles from our shores. The editor of the Australian Investment Digest truly said -

Perhaps none of the post-war conditions that are engaging the attention of the world today is so important or so little understood as international finance. There is such a mass of literature that the average business man lacks the time, and very frequently tho inclination, to study the subject. It is, however, as interesting as it is complex.

Many of my critics seem to lose sight of the fact that Australia is a debtor nation abroad. They argue academically, some in text-book phrases, that if we do not import we cannot export, and so on, while they lose sight of our enormous indebtedness abroad and the yearly interest required to keep us even out of further debt. It is quite obvious that to balance our national ledger there must be a difference in favour of our export trade over our import trade of at least the amount of our interest bill, plus the private spendings and remittances of our peopleabroad. There is one grain of comfort, however, and that is the unanimity that exists among those who have troubled to study the subject, in the appreciation of the fact that the further pledging of Australia's credit abroad, and all favorable trade balances, are adjusted and returned to' us under present banking methods by goods, and by goods alone. The problem of German reparations shows clearly and conclusively that such is the case with that question. Unfortunately some economists, ostrichlike, have failed entirely to read the lessons of the war, but if we fail to len ni these lessons, and do not see how wo can benefit by applying them, we deserve to continue, as we ave to-day, at the mercy of international financiers. This excess of imports, if continued, will cause serious trouble to us. An unfinancial storekeeper can appear prosperous, and even feel so, so long as he oan get plenty of credit. Stop this and his position is very much worse than, if he had had no kindly lender and had been compelled to live on his means, and balance at least expenditure and receipts. There are many kindly lenders in Britain to-day who know that whatever further credit we pledge with them must be taken but in their goods. We must have a favorable balance of trade, even to keep out of further debt. "Fortunately, we have the- products to sell. Surely, also, the reverse position appertains, and if we do not, or cannot, sell more, we must buy less. We want trade within the Empire, but we ought to do much less purchasing abroad than we are now doing. There is a " nigger in the wood pile " somewhere, and I believe that we see what he is like. Those who are satisfied with Australia's present economic position deserve no better appellation than the " SaireyGamps " of the nation's childhood. I have been much interested in reading the many and varied press comments that have been made recently in connexion with the problem under review. The financial editor of the Sydney Morning Herald recently said -

That we should find our wealth held abroad lui inconvenience would appear on anomaly, but the anomaly disappears when we discover that the trouble is caused not by our wealth, but by a clashing of the. Australian borrowing policy with Australian protective policy.

And to quote further -

If a Government raises a loan in London, there is a transfer of credit from the' English lender to the Government borrower. That credit can be transferred here by means of imports only. .

If there were no Government borrowing abroad our imports would very greatly decrease. It would toko all our exports to pay for interest on our debt abroad and the import of goods which are not produced or manufactured in Australia. In fact, the probabilities ure that we would have to be content with a very much lessened consumption of imported goods which we now consider necessary. If wo stopped borrowing abroad we should have to develop our country more wholly by local capital. Wo can do it.' The question is would it be more profitable to do it. . . .

To borrow abroad and develop with constructive material made locally is lunacy. . . .

Here, then, we have the clashing of policies in Australia. We borrow abroad in order to hasten the development of our land. That means purchase of. goods abroad for development. Yet when we bring these goods to Australia, we say " we must encourage Australian secondary production," and so we confiscate part of the goods for the service of the superior government. In other words, we use a considerable portion of the borrowed money, not as capital, but as revenue.







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