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Wednesday, 21 October 1931


Mr CROUCH (Corangamite) .- I do not propose to repeat at length my remarks of June last. On that occasion I said that, in my opinion, the Government was making a mistake in endeavouring to arrange for the voluntary conversion of our internal indebtedness. It should have been compulsory on all without exception. During this debate nearly every honorable member who has spoken, irrespective of party, has expressed his pleasure and surprise that the amount unconverted is so small.

The Treasurer (Mr. Theodore), the Leader of the Opposition (Mr. Lyons), the honorable member for Gippsland (Mr. Paterson), have all stated that they were agreeably surprised that less than £17,000,000 worth of bonds were unconverted. That being so, the Government must have had some alternative in mind, as if it were possible to arrange without "compulsion the larger expected amount it should be easy to arrange without compulsion the smaller sum. A challenge was issued by the Government to all honorable members when they criticized the reduction in salaries and social services, to suggest alternatives. Throe alternatives have been suggested in regard to the conversion scheme. One was proposed originally at the Premiers Conference, but was not proceeded with at tho request of the Leader of the Opposition. That was to impose a tax of 25 per cent, on unconverted bonds. Another alternative was proposed by the Treasurer, when he was speaking in this House on the original bill, and that was his threat that bondholders who dissented would probably be subject to a tax of 22£ per cent. The third alternative was submitted last night by the honorable member for Gippsland. He certainly produced figures to support his argument, but he forgot tho fact that the adoption of his alternative would prevent the Government from assisting the small bondholders.


Mr Paterson - I did not forget that. I mentioned it specifically.


Mr CROUCH - The position of the small bondholder, whose interests are most important, was not given sufficient consideration under that alternative, and consequently I cannot regard it as satisfactory. I understand that the Deputy Leader of the Opposition, who will speak later on this motion, has another alternative to suggest, because in May last he published over his signature in a number of country newspapers an article headed " Voluntary Conversion Loan " ; " Why We Opposed Compulsion " ; " Upholding Australia's Credit." At the outset the honorable gentleman said -

It is appropriate that I should explain the reasons that led the members of the Opposition to urge a voluntary appeal, rather than the plan previously favoured by the conference. The earlier proposal was that the people should bo asked to convert voluntarily and.be told at the same time that if they refused to come into the voluntary conversion there would be a tax of 25 per cent, imposed on the interest on their existing holdings.

He went on to say -

It may he urged that this is all very well, but what will happen if the voluntary proposal fails, and, in proportion, as it does fail, what are we going to do. I suggest that it is a mistake always to work out every contingency to its logical conclusion in matters of this kind. Let mc give a homely illustration. A father, when he asks his child to do what is right, makes a very grave mistake if he always associates with the request or direction a threat of what will happen if the child does not do as he is told. Grown-up people aro very much the same in this respect.

We must deal with the position as it stands to-day. If the conversion proposal fails, and, to the extent that it fails, a new position will arise, with which we can deal at the appropriate time.

I am waiting with some interest to hear the alternative of the Deputy Leader of the Opposition now that the appropriate time has arrived. I regret to say that although the conversion scheme has been lauded as a great success because of only 3 per cent, of the bondholders dissenting, it resulted in a much smaller response on the part of tho people than I expected.


Mr Theodore - The honorable member was optimistic.


Mr CROUCH - The reason is that at the time there was current in the community a sense of injustice regarding the way in which the bondholders had been treated. In the first place, statements were published and requests made over the signature of both the Prime Minister and the Treasurer to oversea traders who had moneys to invest to communicate with the Treasurer informing him of the amount. That action in itself caused injustice. For some time I have been endeavouring to ascertain the reason for giving special treatment to oversea traders. The honorable member for Indi (Mr. Jones) asked in this House why they had been placed in a privileged position, and he was told that it was in accordance with the original legislation and the recommendation of the Premiers Conference. That goes back, not to causes, but to statements. I wish to find the real cause for giving the overseas traders special treatment over our own traders. The fact that the Premiers Conference recommended that action shows that it must have had some reason for it. To-day I asked the Treasurer the following questions: -

1.   Whether any arrangement with or promise to the overseas traders who lent money in the last Commonwealth loan was made other than that made in the prospectus to Australian lenders?

2.   Was the bulk of the overseas traders' money lent for their own convenience at a high rate of interest for a short period to save an unusually high rate of exchange?

3.   What is the reason that these overseas lenders are placed in a privileged position over Australian lenders in regard to repayment dates? -

Tho Treasurer replied -

1.   No. The option of investing for a period of two years was given partly with a view to attracting trade moneys, and oversea traders were specially invited to subscribe to the loan.

2.   - The rate of interest for the two-year period was (J per cent. The telegraphic rate of exchange on London was !) per cent., and difficulty was being experienced in securing exchange. Presumably the investment met the convenience of many oversea traders.

3.   Before the terms of the conversion loan were fixed, representations were made to the Conference of Commonwealth and State Ministers that, owing to exchange difficulties, large amounts of Government securities had been purchased with oversea trade moneys as short term investments. The conference considered that as these were not moneys available for permanent investment but were required for Carrying on trade, arrangements should bo made for the issue of short-dated securities on the conversion of the old securities. Provision was accordingly made in the Commonwealth Debt Conversion Act which was passed by Parliament in August last,

The Treasurer says that we cannot interfere with trade. I say that the Australian trader who ,is a bondholder should also be considered.


Mr Theodore - The Australian trader is not in a position comparable with that of the oversea trader. He was not compelled to put his money into that class of investment.


Mr CROUCH - He did it to help the country. Many Australian traders had invested money in loans to mature in 1932, at which time the money would he urgently needed. Trade does not always consist of barter, because at times it depends upon investments of some sort that must give a definite return at a stated period. During the debate on the original legislation the statement was made, and it was not contradicted, that these oversea investors consisted largely of American oil men, machinery men and motor men.


Mr Theodore - The oversea investors consisted to a very small degree of American oil men.


Mr CROUCH - Then we can assume that they largely consisted of American machinery men and motor importers. There was a feeling of resentment among many people, and it came to a head in ' a circular which stated that special and preferential treatment was being given to oversea traders. As a result, many bondholders refused to convert their holdings. There is also in the community resentment of the injustice , which f expressed strongly during the debate of June last; that feeling still exists. Many people who lent their money at 3 per cent, and 3£ per cent, to the State Governments - the lowest rate of interest paid on any security in Australia - were forced, under the conversion scheme, to accept an interest rate, in one instance, as low as 2.2 per cent.


Mr Theodore - Not on an original holding.


Mr CROUCH - With this special condition: that no bondholder who had not purchased bonds since about 1914, was to receive an interest rate of less than 3 per cent. That condition would have been fair had it been universally applied. What happened ? I found that the bonds maturing in June, 1931, could be bought at from £78 to £82. No discrimination was made in that case, although the return, even from the converted issue, would be 8.25 per cent, to those who bought bonds of that issue.


Mr Theodore - Did the honorable member say that those who bought stock in 1931 received this concession?


Mr CROUCH - Until just recently, stocks were quoted on the exchange at £79 and £82, at which figure they would return the purchaser as much as 8.25 per cent. It was possible to buy such stocks at those figures even after the period for signifying willingness to convert had closed, because the bonds of those who had not consented, and who had not returned their bonds to the banks, were open for sale. Until the sale of stock was closed three weeks after the date upon which notification of conversion could be sent in, the bonds were selling on the market at prices which returned 7 and 8 per cent. Yet holders of 3 per cent, and 31/2 per cent, bonds have had their interest return reduced under the conversion scheme, in some cases, to as low as 2.2 per cent.


Mr Theodore - The honorable member should understand that those who bought the 3 per cent, and 31/2 per cent, bonds probably did so at a price which returned them 7 per cent, or 8 per cent.


Mr CROUCH - No discrimination should have been made to the disadvantage of the holders of 3 per cent, and 31/2 per cent. State bonds, as compared with those who held Commonwealth war bonds, and other bonds bearing high interest.


Mr Theodore - The 1st of August, 1914, was fixed by the Government as the date before which reduction of interest would apply, because no low interestbearing bonds have been issued since then.


Mr CROUCH - I am aware of that; but both the low interest bonds and the high interest bonds were on the market at the same time. The 3 per cent, and 31/2 per cent, bonds were selling at from £65 to £71, whereas the high interest bonds were selling at only £79 and £82. It was stipulated that the interest on one lot of bonds should not be reduced below 3 per cent., if they had been acquired before August, 1914, but no stipulation of any kind was made in respect of the others.


Mr Theodore - The concession was made to the original holders of the bonds, not to those who had dealt in them since 1914.


Mr CROUCH - Bonds which would return from 7 per cent, to 8 per cent, could be bought on the market until quite recently, and this created a sense of injustice in the minds of the holders of low-priced bonds who had converted them.


Mr Theodore - The honorable member is unconsciously misrepresenting the position.


Mr CROUCH - Very well, I shall leave it at that; but I am sure my facts and figures are right. I know, however, that many people gained the impression" that certain persons who bought Commonwealth stock at £83 were thereby able to make enormous profits.


Mr Jones - Would an oversea trader who bought a million pounds' worth of stock in the last loan be able to draw it out again in two years' time at par?


Mr Theodore - No.


Mr CROUCH - I am not dealing now with what has been done in regard to the investments of oversea traders. That, however, created a sense of injustice. Men who may have bought Commonwealth stock at £80 or £82 will receive preferential treatment, and be able to get back their capital at par in a very few years, while others who put, perhaps, the whole of their money into government stock will have to lose from £13 to £30 per cent, of their capital if they try to realize on their holdings.

Another injustice is that the banks were not required to stand up to their obligations. The only government which treated the overdrafts of the banks in the same way as the investors in government stock were treated was the Lang Government of New South Wales. In other States the reduction was only 1 per cent. It said that the banks would have to reduce interest rates by 221/2 per cent., like mortgagees, vendors under contract of sale, time-payment people, and others who had lent money at interest. It is to the credit of the Lang Government that it took this stand.


Mr Theodore - The South Australian Government was the first to bring in such a measure.


Mr CROUCH - Was the measure passed there and does it apply to the banks ?


Mr Theodore - Yes.


Mr CROUCH - Then, I am glad to be able to praise the Hill Government of South Australia as well. Those who managed this conversion loan on behalf of the banks seem to have gone out of their way to prevent its being a success. When I applied for conversion forms, they were forwarded to me together with forms upon which dissent might be notified.

A member of the Opposition, when speaking on this bill, said that in business affairs, when a meeting of creditors was held, the large creditors had to pay off the small creditors in order to overcome their opposition. That has not been my experience. Under the old Victorian Insolvency Act, and, if L remember rightly, under the present Bankruptcy Act, a majority of creditors in number and value has the power to hind dissentients. .In 1893, when the hanks had to make arrangements with their creditors, acts of parliament were passed in most of the_ States, under which a majority of depositors in number and amount - three-quarters, I think - was able to bind dissenting depositors. As a matter of fact, the process upon which we are now engaged has previously been carried into effect on several occasions.


Mr Maxwell - Except that on this occasion it is the debtors, and not the creditors, who are doing the binding.


Mr CROUCH - That may be so, but the overwhelming majority of the creditors should be able to bind the infinitesimal dissenting creditors and so prevent the whole scheme from failing, and we should remember that, although we have plenty of assets as a nation, we have, at the present time, no ready money. That was the position of the banks in 1893, and it is the position of many private persons and companies at the present time. Fortunately, the law provides that a minority of creditors cannot destroy a going concern, or force a company into liquidation if a sufficiently large majority of shareholders in number and value do not desire it. We are in the position- of a company which has liquidated 97 per cent, of its debts. I am sorry that it should now be necessary to bring about this compulsory conversion. I should much rather it had been done in June last, but I can see no alternative now, and I shall support the proposal.







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