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Tuesday, 13 October 1931

Mr SPEAKER - I shall name the honorable member for Adelaide if he continues to interject.

Mr THEODORE - 1 may discuss that with the honorable member some other time.

Mr SPEAKER - Honorable members must realize that while the Treasurer is speaking I shall require them to behave in an orderly fashion, and if they persist in interjecting after they have been called to order, they will be summarily dealt with.

Mr THEODORE - The Government could not adopt the first method which I outlined, because it could not have found the money to redeem the securities when they fell due.

Mr Gabb - Do a great many of the securities fall clue together, or are they fairly well spread out?

Mr THEODORE - A very considerable portion of the unconverted securities are maturing this year, or in 1932. In the present state of the money market it would be impossible to raise funds to redeem those securities, some of which fell due on the 10th August last, and others mature on the 15th December next, while still others are due for repayment in December of next year. If we raise the money in Australia, we shall exhaust the market, and make it impossible to secure funds for the relief of unemployment, and the rehabilitation of industry. It would need practically all the available resources of the money market to redeem the securities of dissentients.

The second proposal was to tax the holdings of dissentients, and in that way to force them to accept their share of the national sacrifice. Most of these securities mature so soon, however, that the Government could not, even if it imposed a tax of as much as 100 per cent, on the interest payable for the remaining period, obtain from the dissentients as much as will be sacrificed by those who have converted their holdings. For that reason the taxation proposal was not regarded as reasonable.

Mr Maxwell - In any case, it would have been merely giving with one hand, and taking away with the other.

Mr THEODORE - There are those who contend that we could tax interest heavily, even, possibly, up to 100 per cent., without involving ourselves in a breach of contract; but I do not say that that is-, a sound argument. Of course, it is quite impracticable to raise by. taxation sufficient to redeem the securities falling due in December next. Even if we taxed to the fullest extent the interest now payable, the taxation would be on only a half-year's interest. If those security holders were paid off, and their interest were taxed, they would not have contributed in anything like the same measure as those who have converted. The only effective way in which an equivalent sacrifice could be brought about would be to impose a capital levy upon unconverted bonds; but it is thought by the Government that a better course to follow is that adopted under this bill, that of compelling conversion in the terms arranged for the conversion of the main public debt of Australia, and endeavouring to ,meet cases of hardship, to particulars of which I shall refer later. If we can make proper provision to meet such cases, these can be no real complaint about the policy adopted at the Premiers Conference, and the action of the Government in seeking to enforce the conversion of the whole of the unconverted stock.

There is a point which honorable members must keep in mind, both with regard to the real measure of sacrifice made by the holders of the old bonds, and with regard to the nature of the hardship that some holders who are forced to convert may suffer. Some say that it is wrong that we should compulsorily convert certain holdings, because the owners of those securities may need their money. It is true that if the maturity date is altered to a much later date, we may inflict hardship upon the bondholder, that is to say, he will be deprived of his money for a longer period ; but most of the cases of hardship that are usually alluded to in this connexion are those in which the maturity date is an early one - this year, next year, or the year after. The bonds had a certain market value before the conversion was provided for, and they will have a market value after compulsory conversion has taken place. They have a market value to-day. If honorable members will consider the case of the person who is holding long-dated securities, and is complaining of being compelled to convert, it will be seen that he is really no worse off to-day than before, with regard to having access to his capital. Nor is there a great difference between the market value of the present securities and that of the old. If the bondholder wanted his money under the old security, he had to sell it, and accept the market price for it, and he will have to do the same under the new security.

Mr Watkins - Will not the Commonwealth Bank make advances on the new security ?

Mr THEODORE - Yes ; the bond or stock is just as good a security now as it was before the conversion operation. Whether the bank has funds with which to make advances is another matter; but I think that the new security is an infinitely better one, for the purpose of bank advances.

To compare the old with the new market values, I have had worked out the average net prices of the 5¼ per cent. stock maturing in 1936, 1938, 1939, 1941, 1942 and 1943. I take the 5¼ per cent. stock because, with the 22½ per cent. reduction, the net interest is brought down to about £41s. 4d. per cent., and this stock is, therefore, comparable with the present 4 per cent. stock. The average mid-month prices on the Stock Exchange were - April, £920s. 4d.; May, £88 10s.8d.; June, £80 17s. 7d.; and July, £788s. 6d. The average price in the last two months was a little under £80 for the 5¼ per cent. stock. Now, take the net prices of the 4 per cent, securities in the new loan. We find that on the 12th October, the 1938 stock was quoted at £84 5s.; the 1941 stock, at £82 8s. 9d.; the 1944 stock at £818s. 9d.; and the stock of later dates was from £785s. to £800s.1d. The lesson to be learned is that the market value of the existing securities, even with the reduced rates of interest, is about on a par with the market value of the old securities.

Mr Scullin - It shows that the new security is the better one.


Mr Bell - The Treasurer has given the quotations after it was known that the compulsory conversion was to be brought about.

Mr THEODORE - That may have had some effect on the market price; but it should not have done so. Even if we take the earlier months - April, May, and June - there are higher prices, the average being about £90. But what would be the trend of the market to-day if there had been no rehabilitation plan, and no conversion loan ?

Mr Bell - We do not know.

Mr THEODORE - But we can make a very good estimate.

Mr Scullin - Look at the rise of nearly £16 in the price of Australian securities in London in the last fortnight.

Mr THEODORE - Yes. The prices of Australian securities, at the present time are sound, and are bound to improve, so long as we continue to manage our financial affairs properly, and maintain sane government in Australia. Under the rehabilitation plan, including the conversion loan operation, I think that the value of our securities will be enhanced and not reduced.

The number of bondholders who dissented from the conversion is 29,113, and the amount of their holdings is £16,655,769. The following table shows how these bondholders are distributed throughout the Commonwealth: -

By February, 1933, about £9,600,000 of the holdings of dissentients would ordinarily have matured. It will be agreed that great difficulty would be experienced in the next three years in redeeming the maturing bonds. It is certainly impossible to meet the securities maturing before the end of next December.

Mr Maxwell - What is the average holding of the dissenting bondholders?

Mr THEODORE - I have an analysis of the dissentients, and the securities falling due up to 1938 and after. The figures are as follow7 : -

Mr CROUCH (CORANGAMITE, VICTORIA) - Does that exceed the amount to be paid in the same period to the privileged overseas holders?

Mr THEODORE - No. The amount to be repaid with respect to trade investments is about £3,800,000. In regard to the nature of the holdings, the following analysis has been made -


Some individuals who hold very large blocks of government securities have dissented from conversion. Five persons with holdings of about £50,000 each ; a similar number holding about £100,000 each, and two with over £200,000 each have dissented, as have also two others, each of whom held over £1,000,000. We must consider these facts in our attempts to act fairly towards all bondholders in any scheme of compulsory conversion.

I want now to show how the Ministers at the Premiers Conference endeavoured to meet the various problems involved. On the 1st September, 1931, after the conversion operation had closed, and when the results were fairly well known, a statement was issued by the Prime Minister on behalf of the Premiers Conference. That statement, which is included in the printed report of the conference which has been tabled to-day, reads -

The Premiers Conference considered the progress results of the National Debt Conversion Loan, which showed that conversions totalling £450,000,000 had been lodged and that dissent had been notified in respect of £14,230,000.

Those figures have since been increased. The statement proceeds-

The conference feels that a complete voluntary conversion would be a wonderful achievement for Australia, and appeals to all those who have dissented to reconsider their decision in the national interest.

Conference was unanimously of opinion that persons who have dissented cannot be placed in a more favorable position than those who have converted.

Advices received by the loan authorities showed that the postponement of dates of maturity under the conversion loan will cause personal hardship in certain cases of individual holders. This hardship is most acute in the cases of small investors whose entire savings have been invested in shortdated government securities, and who were dependent upon repayment of these securities on the due date in order to provide for their necessary maintenance.

The conference is of opinion that, these cases can be mct by a proportion of the Government sinking funds being made available from time to time for redeeming a proportion of the holdings of individuals whose circumstances necessitate this form of relief.

Correspondence received indicates that many small holders who dissented would not have dissented if they had known that provision would be made to meet genuine eases of personal hardship. They also are accordingly invited to withdraw their dissent.

When the conference re-assembled on the 2nd September, the chairman reported the progress that had been made with the loan conversion appeal, and after discussion it was agreed that an appeal should be made to dissentients to send in notice of the withdrawal of their dissent not later than the 7th September. After that notification appeared in the press, 2,740 notices of dissent were withdrawn, the amount involved being £2,565,628. Those figures are not included in the totals I have given regarding notices of dissent. On the 4th September, the chairman laid on the table of the conference a draft agreement, and later it was resolved -

That, in view of the fact that holdings of 97 per cent. of government securities have been voluntarily converted, the conference agrees that the small proportion of securities which have not been converted,be converted on the same terms as the others, and that legislative action accordingly be taken.

It was after that unanimous decision of the Premiers Conference that the proposed new agreement was drawn up by the Solicitor-General for the Commonwealth in consultation with the Crown Solicitor of Victoria. The agreement was carefully considered by the Premiers and other Ministers attending the conference. It was regarded only as a tentative agreement, subject to alteration after consultation between each of the. Premiers and their respective Crown Law authorities ; but, with that exception, the agreement was signed there and then by the representative of each of the governments. As a result of consultations between the Crown Law authorities of the Commonwealth and some of the States, it was found that modifications were necessary, and, consequently, it was decided to substitute a new agreement for the draft agreement then approved. The agreement which I now submit to the House for ratification differs from that accepted by the Premiers only because of representations made by the legal authorities mentioned. I have indicated what took place at the Premiers Conference to show the unanimity which existed among the Governments of Australia.

The Leader of the Opposition (Mr. Lyons) asked whether any considerable number of persons who had agreed to convert a portion of their holdings were included among the dissentients. While it is impossible, at this stage, to say what proportion of dissenters come within that category, it is evident, from correspondence received by the Treasury, the banks, and the inscribed stock registries in the States, that some bondholders have agreed to convert a portion of their holdings while dissenting with respect to the remainder. I do not know the amount involved.

After a full discussion, the Premiers Conference decided that the only logical way to deal with dissentients was to compel them to come under the conversion loan plan in the same way that those who voluntarily converted their holdings did. At the same time, it was recognized that cases of genuine hardship would haveto be met. That such cases were not confined to dissentients, correspondence received by the Treasury, the various banks, and the registrars of stock showed clearly. Thosecases were carefully considered. The Treasury examined 491 cases of dissent with a view to ascertaining the reasons for not converting. The following statement shows the reasons given : -


Mr Paterson - Were those cases typical of a large number of dissentients?

Mr THEODORE - The dissentients number over 20,000. I propose to give the House a few typical examples to show the reasons why bondholders were unwilling to convert their holdings. The first is that of a bondholder who had invested £300 in 6 per cent. bonds maturing in December, 1932. The investment represented the life savings of an elderly couple, who stated that they would be deprived of sustenance if their holdings were converted. A second case is that of a man who voluntarily converted £500 out of a total of £800. He is 70 years of age, and, being unable to work, desires to retain £300, to be paid to him in instalments, if necessary, in order to meet living expenses. Another is a case in which a widow has bonds to the amount of £1,600, maturing in 1937-38. Her husband is dead, and she has four young children to rear. The maintenance of the family is dependent upon an income from government securities. This woman does not draw the widows' pension. Another woman has bonds amounting to £300, maturing in 1933. Her earnings as a music teacher are negligible. She has £108 locked up in the Government Savings Bank of New South Wales, and needs the £300 for maintenance purposes. Still another woman has bonds to the value of £500, maturing in 1931, held in trust for her mother, an invalid requiring the constant attention of a qualified nurse, who is paid £2 10s. a week. The only other income of this couple is £15s. per week received from the sale of a house, the purchase money of which is £20 in arrears. It will be necessary to realize on the bonds to provide maintenance. A man of 61 has bonds amounting to £100, due 1931. He is out of employment, and has no prospects. His son is also unemployed. He has a son-in-law, with a wife and three children, who cannot obtain work. The father's savings are almost exhausted, and the family will shortly have to apply for charity. There is a widow of 70 who holds bonds to the value of £200. She is in bad health, has £100 in the Government Savings Bank of New South Wales, but no other means. A woman with bonds to the value of £528 has a son who has sustained a fractured spine, entailing heavy medical and hospital expenses. The boy has been in hospital for six months, and the mother has only a very small income. An elderly couple, the husband being an invalid, have bonds amounting to £450, but no other means. One man with bonds to the value of £1,050, held on behalf of his aged mother, who is now bedridden, requires some of this money to maintain her. [Leaveto continue given.]

Mr Maxwell - Are those cases taken at random from the list?

Mr THEODORE - Yes, and they are typical. They undoubtedly indicate the necessity for special consideration where the circumstances warrant it.

Mr Gabb - Are they cases of the kind that will receive consideration ?

Mr THEODORE - Yes. If the honorable member will have patience, he will shortly learn the class of consideration that it is proposed to extend to them. I have already indicated that when the Premiers met in conference in Melbourne, it was realized that cases of hardship would result from the conversion. Immediately after the loan had closed the Prime Minister made a statement to the effect that action would be taken to meet cases of real hardship, and, on that assurance, people were appealed to to withdraw their dissent.

Mr Jones - Is it not possible that there are many similar cases that have not notified the hardship they are suffer- ing?

Mr THEODORE - Yes. Relief will be granted to those who have converted as well as to dissenting bondholders, where hardship is proved. When considering claims for relief, requirements for maintenance must take precedence, and next will come unalterable commitments, for mortgages on homes,&c. Each case will be dealt with on its merits. Generally speaking, the payments for bonds are not desired in lump sums, but can be made in small amounts, to meet needs, periodically.

Mr Beasley - Will the Minister decide the matter?

Mr THEODORE - The final responsibility is always with the Minister. The scheme which the Government is propounding will enable the administration to be done by the Commonwealth Savings Bank, which has offices throughout the Commonwealth, and whose officers are experienced in dealing with a similar class of business. Where cases of special difficulty arise, which involve consideration as a separate class, the question whether such classes can be met will be referred to the Commonwealth Treasurer. The Treasury will devote £1,250,000 up to the 30th lune next out of the accruing sinking funds to meet cases of hardship, and not less than £1,000,000 per annum thereafter for several years.

The Government has consulted with the Commonwealth Bank, and the details of the scheme are now being completed. I believe that if it is found that cases of real hardship will require the disbursement of a greater amount than I have mentioned, it will be possible to arrange with the Commonwealth Bank to provide additional funds. I have discussed the matter with the chairman of directors of the bank, and he agrees with me that that should be possible. The bond scheme that is contemplated will be a thoroughly sound one, and should be satisfactory to bondholders.

Mr Beasley - To whom will claimants apply ? The Commonwealth Savings Hank?

Mr THEODORE - Although they have been considered in draft, the details of . the scheme have not yet been completed. Bondholders will make a declaration as to their circumstances, the nature of the bonds held, amount, when acquired, and so on. The Government has no information to go on except such statements, but it does not wish to subject bondholders to an inquisitorial investigation. Applicants are merely required to convey the facts to the officers who will have the discretionary power of deciding claims.

Mr Lyons - Would this be a proper way to invest sinking funds?

Mr THEODORE - Yes, but it is first necessary to obtain the sanction of the trustees of the National Debt Sinking Fund. As chairman of that body, I have convened a meeting to take place in Canberra on Thursday next, when I shall submit the proposal to my colleagues. It is not strictly in accordance with the usual practice of the trustees, who invest the funds where they will earn most money, either by the retirement of existing securities or by some other means of investment. However, as the Commonwealth Government has no other fund to draw upon for the purpose, I am of the opinion that the trustees will agree to the proposal. It is in conformity with the legislation governing the administration of the sinking fund, as it will secure the retirement of an equivalent amount of outstanding loans. I admit frankly that the trustees could retire a greater proportion of the funds by using this £1,250,000. to buy stock at a discount upon the market. At the same time, I do not think that any honorable member will quarrel with the proposed use of the sinking fund.

The agreement incorporated in the bill does not bear the signature of the Premier of Western Australia, but I anticipate that by the time we are in committee I shall be able to substitute for the present schedule another bearing the signatures of all the parties to the agreement. There will be no alteration of the text of it. As set out in the schedule, it is the agreement accepted by all the parties. Wc are still awaiting the signature of Western Australia.

Mr Coleman - Has the agreement been ratified by all the State Parliaments ?

Mr THEODORE - No; but it will not come into force until it has received ratification in all the seven Parliaments. Like the first debt conversion agreement, it will be followed up by a Commonwealth Debt Conversion Bill, to carry into effect the terms of the agreement.

The State of Victoria has been told by its legal advisers that as additional authority for the Commonwealth legislation, it is prudent that the State should also pass legislation referring the subject-matter to the Commonwealth Parliament, or empowering it to legislate to give effect to the agreement. The Commonwealth Crown Law authorities do not agree that it is necessary for the States to do this, but if the States are willing to take the action which the legal advisers to the Victorian Government have recommended it will make assurance doubly sure.

Mr Archdale Parkhill - This measure has already passed the New South Wales Legislative Assembly.

Mr THEODORE - Yes, but the agreement is not yet signed. The position is exactly as I have explained; we are still awaiting the signature of the Western Australian Government, which, I anticipate, will coma to hand before this bill gets through the committee stage.

I suggest that it would be convenient and would save a good deal of time if the debate on the bill I am now moving, and that on the Commonwealth Debt Conversion Bill (No. 2) were taken together. The subjects covered by both measures are inextricably interwoven, and there can be no difference in the elements of debate oneither.

Mr White - Incases of hardship will the bond be redeemed at par?

Mr THEODORE - If the arrangement with the bank is that the Commonwealth Savings Bank will take over the bond, creating a deposit in the name of the bondholder, it will be done at par. But the conditions have not yet been fully settled, and I ask honorable members to refrain from asking for further information on the point until I am able to submit to the House the full details.

Debate (on motion by Mr.Lyons) adjourned.

Mr SPEAKER (Hon Norman Makin - As the two measures, the Debt Conversion Agreement Bill ''No. 2) and the Commonwealth Debt Conversion Bill (No. 2) are of a cognate character, the debate on both can be taken on the first, but no honorable member will be deprived of the right, if he so desires, to speak on the second.

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