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Wednesday, 21 October 1931

Mr SCULLIN (Yarra) (Prime Minister) . - TEe importance of the success of the recent loan conversion, to which the Deputy Leader of the Opposition (Mr. Latham) and other honorable members have referred, cannot be too greatly stressed. In opening the loan campaign, the National Appeal Committee said -

A successful conversion operation will demonstrate to the world that Australians a« a whole have faith in the future of their own country, anil thai they are prepared to make personal sacrifices towards a restoration of financial stability.

The response to the appeal has demonstrated the truth of that statement. Not even the most optimistic among us dared to predict that £541,000,000 of our internal indebtedness of £558,000,000, would be converted. It is particularly gratifying that 231,000 bondholders, representing £510,000,000 of the outstanding debt, voluntarily notified their willingness to convert. The ultimate advantage to Australia of that voluntary conversion will, I am convinced, prove to those who responded to the appeal that their action has materially contributed to the welfare of Australia. I mention this matter at the outset, because those who have spoken have given more attention to those who did not convert than to those who converted. I desire to emphasize the country's obligation to those who converted their holdings.

Honorable Members. - Hear, hear !

Mr SCULLIN - The conversion loan having proved so successful, it now remains for the Parliaments of the Commonwealth and the States to decide how the securities of the dissentients are to be dealt with. If the response to the appeal had been less overwhelmingly in favour of a voluntary conversion, the objections raised to the proposals in this bill could not have been advanced. The Deputy Leader of the Opposition admitted that, had the amount held by those who dissented been large, he would have been forced to accept the principle underlying this measure.

Mr Gabb - In that event, inability to pay would have been proved; that is not so now.

Mr SCULLIN - The amount unconverted is about £16,500,000, or approximately 3 per cent, of our internal debt. Had the amount voluntarily converted been only 80 per cent, instead of 97 per cent, of our indebtedness we should still have regarded the response as wonderful, but that would have left us with £100,000,000 unconverted, and no choice but to introduce a measure like that now before us. The relative insignificance of the unconverted holdings does not provide a sound argument for exempting the holders of those bonds from the reduction of interest involved in the conversion loan, nor should it entitle them to preferential treatment as compared with those who voluntarily converted their holdings. Surely it is within the knowledge of honorable members that the conversion involves hardship to many who converted? As a member of the National Appeal Committee, I was in a position to know that hundreds of communications were received daily from bondholders who made it clear that conversion would involve hardship. There are as many cases of real hardship among those who converted their holdings a* among those who did not convert.

Mr Paterson - We admit that.

Mr SCULLIN - It must not be overlooked that there are outstanding cases of selfishness among those who did not convert their holdings. It was suggested that the names of dissentients should be published, but the Government refused to allow that. If the names were published, honorable members would be startled. Some alleged great Australian patriots, holding bonds valued at £50,000, and over, did not convert any of their holdings; nor did they give any reason or excuse for refusing to do so.

Mr Bell - In that case, their names ought to be published.

Mr White - Were there any trade unions among them ?

Mr SCULLIN - I do not know of any trade union which possesses £50,000. Whatever course we adopt must be founded on a principle which has regard to the nation's best interests. It has beersuggested by the Leader of the Opposition (Mr. Lyons), the Deputy Leader of the Opposition (Mr. Latham) and th Deputy Leader of the Country party (Mr. Paterson) that Australia's best interest? would be served by abandoning the plan of conversion incorporated in this bill. That would involve payment to the dissentients of interest at the old rates, ae well as the repayment of the principal amount of their securities on the duc dates. Assuming, for the moment, thai such a proposal were practicable - and J propose to show that it is not practicable - let us consider whether it would be in the best interests of Australia. In the first place it would mean that those who dissented would be placed in a position much more favorable than that of those who converted. Those whose voluntary conversion involved hardship, but without whose assistance we could not have accomplished so wonderful a result, would, under such a scheme, be in a worse position than those who dissented ! I emphasize that the real advantage to Australia of the conversion is not confined to the reduction of interest. There are two other aspects of the subject which ought to be emphasized. The first is that the conversion relieves the country of tremendous conversion obligations in the near future. The other - and this, in my opinion, is the most important aspect of all - is that the action of those who voluntarily converted their holdings has done more to raise the credit of Australia in the eyes of the world, aud of Australians1 themselves, than anything else could possibly have done.

Mr Gullett - This bill spoils all that.

Mr SCULLIN - No. This bill embodies the principle which was accepted at the Premiers Conference, namely, that those who rendered such magnificent service to Australia shall not be placed in a worse position than those who rendered no service. The Deputy Leader of the Opposition said that the argument that those who dissented would, by this bill, be placed in a better position than those who converted, was not relevant to the principle involved. I disagree with him. It is contrary to the spirit of the conversion, plan to place dissentients in a better position than those who, in many cases at great personal sacrifice, came to the assistance of their country. At the Premiers Conference it was never suggested that bondholders who converted should be placed in a worse position than those who dissented. The first decision of that conference - a decision which was broadcast throughout Australia - was that the interest on the bonds of those who did not convert should be subject to a tax of 25 peT cent., levied at the source. The press of Australia described that as a penalty tax - the " big stick ". That proposal had the endorsement of every member present at the conference.

Mr Gullett - It was afterwards abandoned.

Mr SCULLIN - It was abandoned only because the tax-free bonds constituted a problem which could not be overcome. The conference then had to decide whether it would go on with the plan, which provided for a reduction of salaries, pensions, and social services, while allowing bondholders to escape. To ensure that that would not happen, and that legislation would be passed through the several Parliaments of Australia to subject dissentients to a sacrifice at least equal to that suffered by those who converted, the Leaders of the Opposition in both Houses of this Parliament were invited to participate in the conference. Had those who attended the conference not been convinced that the passing of such legislation was ensured they would not have accepted the agreement.

Mr Gullett - Such a thing was not even hinted at.

Mr SCULLIN - Let us examine the facts. The Deputy Leader of the Opposition to-day spoke about contracts. He gave a lecture on the principles of contract. I agree with him on the subject of contracts, but I put it to the honorable member that some contracts are implied and not written. The conference was attended by representatives of seven governments, who were unanimous in their decisions. It is easy for those who have not the responsibility of office to quote figures in a light and airy way and to say that this and that can be done, but the governments who had the job to do said differently. Three of them were Nationalist Governments. The Deputy Leader of the Opposition has said that a complete payment on the due date is impossible. That is true. That is exactly what we say, and that is why we. have introduced this measure. He said that he would have accepted it if the amount of unconverted holdings were larger. He does not accept it now because the amount is small. Let me give to honorable members the story as briefly as I can. When we called the Leader of the Opposition, the Deputy Leader, and the Leader of the Opposition in another place into the conference we had reached a position in which we had to feel assured that if we launched a voluntary conversion scheme we would be able to deal with unconverted bonds as adequately and equitably as we intended to deal with converted bonds. On no other basis would we adopt the plan. The honorable member for Henty (Mr. Gullett) has said that that was never hinted at. I ask him to listen to tho report of the proceedings, which is on record, and has been dis.tributed among honorable members. First of all, the leaders of the Opposition met us, and we had a discussion for the best part of the day. "We adjourned. Then a conference took place between (.he Treasurer, the leaders of the Opposition, and myself, and, as a result we submitted to the main conference a resolution, which I moved, and which the Leader of the Opposition did not second because, as he said, he was not an actual delegate, but he spoke after me in support of it.

Mr E RILEY (SOUTH SYDNEY, NEW SOUTH WALES) - Whom is the Prime Minister referring to as the Leader of the Opposition?

Mr SCULLIN - I refer to the honorable member for Wilmot (Mr. Lyons). This is the resolution -

The conference, including the leaders of the Opposition in the Federal Parliament, having most carefully considered the financial position of the Commonwealth and the States, and recognizing the national inability to meet existing government charges, is unanimously of the opinion that to prevent national default in the immediate future and a general failure to meet government payments, all expenditure, Including interest on government securities and other interest, and that upon governmental Salaries and wages, pensions and other services, must bc substantially reduced.

The resolution continued -

The necessary sacrifice is due to national Inability to pay and it must, therefore, be shared by all.

How is it to be shared by all, if Ave do what honorable members opposite advocate, and pay full interest rates to those who refused to convert their bonds, and pay the principal in. full on the date of maturity?

Mr E RILEY (SOUTH SYDNEY, NEW SOUTH WALES) - Were all the States represented at the conference?

Mr SCULLIN - Yes, and their representatives, together with the leaders of the Opposition, unanimously carried this resolution.

Mr Bernard Corser - The States are now passing the necessary legislation.

Mr SCULLIN - That is so. They have all signed the agreement. During the discussion at the conference the Premier of New South Wales objected to the resolution on the ground that the conversion loan was not made compulsory. He said -

I hold the opinion strongly that the conversion loan will not succeed unless it is placed on a compulsory basis.

I quote that to show the discussion that took place upon that point. The Treasurer (Mr. Theodore) replied -

The resolution which was brought forward this morning as a result of a consultation between, the Commonwealth Ministers and the leaders of the Opposition in the Commonwealth Parliament, does not water down that principle of all-round sacrifice. It put it in a way that will better ensure the success of the conversion loan.

I also stated that Mr. Lang's impression of the resolution was that there was to b3 a request made to bondholders, and if they did not convert, that was to be the final word in the matter, and that, therefore, a number of people would evade their share of the sacrifice. That impression, I stated, was wrong. We had taken up the stand that all must share in the sacrifice, and we had not departed at all from that. No one person at the conference challenged that statement. Every delegate - the Leader of the Opposition, the Deputy Leader of the Opposition, and the Leader of the Opposition in the Senate - supported it. I ask honorable members who heard the Deputy Leader of the Opposition this afternoon to listen to what he said at the conference. He followed the matter up, and drew attention to some of the features of the resolution. In reply to Mr. Lang, who argued that some were to escape because of the voluntary scheme, the honorable member emphasized phases in the resolution, one of which was that all expenditure, including interest on government securities and other interest, must be substantially reduced. He said -

These are the conditions we ask the citizens to bear in mind in considering the proposal that is made . . . We go on in the third paragraph to say that the necessary sacrifice must be shared by all.

Mr Gullett - Was the voluntary provision in the original legislation a sham?

Mr SCULLIN - I am giving the honorable member facts. It was never contemplated that those who did not convert would be placed in a position better than that of those who did convert.

Mr Gullett - Then the act lied.

Mr SCULLIN - The honorable member said just now that there never was a hint of that in the conference.

Mr Gullett - If I read the act aright there was not.

Mr SCULLIN - The Deputy Leader of the Opposition continued -

There is the unequivocal statement that everybody must share in the sacrifice.

That statement is on record, was printed and distributed.

Mr Maxwell - It only shows that while it was nominally a voluntary conversion it was, in fact, compulsory.

Mr SCULLIN - It shows that the people were given an opportunity to convert voluntarily, on the clear understanding that they would not be in a worse position than those who did not convert. I had interviews day after day, and the officials of the Treasury had interviews, with numerous persons. We were asked for advice. My advice to the bondholders was to convert. Some of them said to rn c, " I may want this money." I said to them, "You will not be in a worse position if you convert." We have to keep faith with them. The Deputy Leader of the Opposition further said -

We go on to say that a plan has been devised under which bondholders may make their contributions to the general sacrifice by accepting the lower rate of interest wihch the existing position makes unavoidable.

The Leader of the Opposition said -

From tho beginning I have said that every section of the community must bear its fair share of the sacrifice. In the motion now before the conference, which has been agreed to by the representatives of the Opposition in the Federal Parliament and by the representatives of the Commonwealth Government, that declaration is made again.

Yet, last week, the Leader of the Opposition advocated in this House a policy that instead of making every section, of the community share in the sacrifice, would exempt one section entirely. Before we went into the conference, before the resolution was drafted', and during the general discussion on it, I put this pertinent question to the leaders of the Opposition, "If they were on the public platform advocating this conversion, what answer would they make to this question : What are you going to do with those who do not convert " ? Sir

George Pearce was the next speaker, and he said in answer to that question -

I would point out that I have committed myself to a conversion loan, tlie new stock carrying 4 per cent, interest. I would then 6.?.y to the people that I believed that they would convert voluntarily, but if they did not do it voluntarily,. Parliament would have to consider what other steps it should take.

I believe that Sir George Pearce will in another place stand to that statement. There was no equivocation about it. These facts show that when the loan was launched it had been made quite clear that a sacrifice of interest was necessary to prevent default in the immediate future and that acceptance of the lower rate of interest was unavoidable. The Leader of the Opposition, speaking on this bill last week, made it- clear that the basis for the conversion loan was the need for a reduction of interest. His opening sentence was -

The urgent need of the debt conversion plan was a financial position so desperate that it was perfectly clear to all who examined it that every section of the community would be called upon to make a sacrifice.

He subsequently said -

When subsequently definite sacrifices were imposed by Parliament upon taxpayers, oldage and invalid pensioners, war pensioners, and the Public Service of the Commonwealth and the States, the fact became increasingly obvious that those who were drawing interest from the Governments of Australia would han to accept less than they had hitherto received.

Mr Latham - I stated that this afternoon in the proposals that I made.

Mr SCULLIN - Not at all.

Mr Latham - My attitude has been consistent throughout.

Mr SCULLIN - The only way in which the honorable member can be consistent is to stand to what he advocated at the conference, and to support this bill.

Mr Latham - That is a matter of opinion.

Mr SCULLIN - It is a matter of stern facts which were considered and deliberated upon by all the Governments of Australia. I am sorry if honorable members have not before them all the facts and figures that are in the possession of the various Governments, but it is not practicable to divulge them.

Mr Maxwell - Does the Prime Minister say that the dissenters should not be paid in full, not because we cannot pay them, but because it would not be fair to those who have converted their bonds ?

Mr SCULLIN - I repeat that we have a greater obligation to those who converted than to those who did not, and I propose to show that if what is advocated by members of the Opposition were done, we should inflict injustice On. those who converted.

Mr Prowse - Do not include all members of the Opposition.

Mr SCULLIN - The facts I have quoted prove that when the conversion loan was launched, the people understood that the conversion of their securities at low interest rates was unavoidable if the nation was to be saved from default. Their sacrifice has saved the country from default, and it has also saved the securities of those who dissented. The overwhelming majority of the bondholders recognized the position, and agreed to convert. They were given to understand that the general sacrifice involved in accepting the lower rate of interest was. unavoidable. Despite these facts, the Leader of the Opposition now suggests that the minority who dissented should be exempt from having their interest reduced, and that every effort should be made, despite the difficulties of the financial position, to' find money to pay them off when their bonds mature. I am convinced that many who converted would not have done so had they believed that Australia would be able to continue paying them interest on the old basis, and to pay off their bonds on maturity, nor would they have converted if they had believed that those who refused to convert would be paid the old rate of interest. If we allow the dissentients to escape the sacrifice suffered by those who converted, the overwhelming majority of the bondholders might well say that the governments of Australia, together with the leaders of the Opposition of the Federal Parliament, had deceived them. The principle which I suggest must guide us is that those who dissented cannot be placed in a more favorable position than tho e who converted. If that principle be accepted, no better course can be adopted than to place dissenters on a parity with those who converted. That is what this bill provides for.

We now come to the question whether we are able to pay off the dissenting bondholders. The Leader of the Opposition suggested that we should use money from the sinking fund to the amount of £6,000,000 for paying off dissentients. He said that the balance of the dissentients should be paid off, either by raising money in the market, or with money obtained from the Commonwealth Bank. It is remarkable how one thing i3 regarded as inflation, and another thing is not. It would not be inflation to raise money to pay off these people, but it would be inflation if we raised money in the same way for the relief of unemployment 1 The Leader of the Opposition suggested, in effect, that we should concentrate our future loan efforts on government relief to bondholders who have 'dissented, and not on the relief of unemployment; that we should provide £6,000,000 during two years from the sinking fund, although, as I shall show presently, that sum could not be obtained. The loan market would be adversely affected if we attempted to raise money to pay off loans, and the security of those who had converted would be depreciated.

I come now to the question asked by the honorable member for Fawkner (Mr. Maxwell) : "Would the Government pay off the bondholders if it could?" If, by doing so, an injury would be done to the securities of those who have converted, the answer is " No ". There is a fallacy in the arguments of the Leader of the Opposition and the Deputy Leader of the Opposition. The securities of those who have converted will not be adversely affected by the measure now before us, but the measure will, if carried, have the effect of increasing the financial stability of the country. We have not singled out the holders of £16,500,000 worth of bonds, and said to them that we will not pay them their interest, or repay the principal on due date. We have taken a poll of bond-holders, and the holders of 97 per cent, of the total internal debt, namely, £558,000,000, have agreed to the conversion.

Mr Maxwell - If the Government believed it to be right to pay the dissentients, could it do so?

Mr SCULLIN -We could do it only by inflicting an injury on those who converted. Why should we think only of the welfare of the dissentients? There is ample evidence that those who have converted are, in many cases, faced with difficulties as great as or even greater than those confronting dissentients. Moreover, it is impracticable, having regard to the obligations of the sinking fund in other directions, for it to provide £6,000,000 in two years for paying off dissenting bondholders. The Commonwealth Debt Sinking Fund Commission wont into this matter very fully, and decided that, having regard to its other commitments, it could provide £2,000,000 id meet cases of hardship this year, and £1,000,000, or probably a little more, next year. The Leader of the Opposition said that there would be £3,000,000 available in each of the next two years, but I remind him that he is not in possession of the figures or the knowledge which is available to the sinking fund commissioners. The Treasurer gave an assurance last night to the honorable member for Gippsland (Mr. Paterson) that only £2,000,000 would be available from this source. It was originally thought that only £1,250,000 would be available, but this amount was increased after the commissioners had gone into the matter. Honorable members will understand that it is not possible to disclose all the details. It is sufficient to say that the utmost which can be extracted from that source is £2,000,000. The honorable member for Gippsland made out a very reasonable case if his figures had been correct, but I assure him that they were wrong. The honorable member quoted £500,000 as the amount of the contractual obligations of the sinking fund overseas. The fact is that obligations amounting to £600,000 must be discharged, and this, together with exchange, brings the total sum up to nearly £1,000,000.

Mr Paterson - The figures I quoted were given to me by an official of the Treasury. I was informed that the amount was something over £400,000.

Mr SCULLIN - £500,000 is due in London, and £100,000 in New York. To that, exchange must be added. Taking the bonds of dissentients which fell due on the 10th August last at approximately £1,500,000, and those falling due in December next at £2,750,000, we get a total of £4,250,000 required up to December next whereas the total amount which is available from the sinking fund up to the 30th June next is £2,000,000. If we are to pay off the amounts immediately maturing we must go on the market right away. To do so would at once weaken the securities of those who have converted. It would be an outright breach of faith with those who have taken out consolidated stock. We owe these bondholders a heavy obligation, and we must do everything in our power to support the market as much as possible.

Mr Coleman - How would the market receive an application for a loan to pay off dissenting bondholders?

Mr SCULLIN - I ask honorable members what response we could hope from the market for a loan to pay off bondholders who refused to convert. Even if the figures relating to the sinking fund, as quoted by the honorable member for Gippsland and others, were correct - and they are not - the sinking fund still has obligations to all the bondholders, not to any section of them. The sinking fund must be applied in the interests of all bondholders, not of a few privileged persons who refused to convert. It also has obligations overseas very much greater than what are regarded as its contractual obligations of £1,000,000 or so. Half our total debt is held overseas.

Mr Paterson - The Prime Minister will admit that it would be foolish to cancel our overseas debt at the present time with the exchange rate as it is.

Mr Theodore - We can invest money profitably overseas because of the low prices at which bonds can be bought.

Mr SCULLIN - Yes. It is possible to invest money more profitably overseas than in Australia. Dissentients' bonds falling due for redemption up to February, 1933, total about £9,600,000. As I have pointed out, it would be a breach of faith to those who have converted if we applied the sinking fund moneys to the redemption of those bonds, and disregarded all the other bondholders in Australia and abroad.

I desire to quote the opinion of an outside financial authority on the measure now before us. It is the opinion of one who is probably the keenest financial critic in the newspaper world, the editor of the Financial Times, in Loudon, and was published after the bill had been introduced by the Treasurer. I quote from the Sydney Morning Herald of the 16th October, as follows : -

The Financial Times directs attention to \\\& Australian conversion, and says that, Repugnant as the idea of compulsion is, it would manifestly be unfair that the dissenting minority should bo allowed to profit by the country's misfortunes and the publicspirited action of the overwhelming majority of their fellow bondholders.

An important feature of the bill is the provision for the relief of hardship amongst bondholders. It is designed to overcome the difficulties which caused most of the dissent. It was not so much the reduction of interest, as the deferment of payment of principal, that caused dissent. Many bondholders were evidently relying on the repayment of a portion of their capital at an early date to provide living expenses, or to meet definite commitments. The average holding of those who dissented was small. If we omit holdings exceeding £10,000, the average of the others is about £400. The Treasurer has stated that, in the present financial year, the sinking fund commission is willing to provide up to £2,000,000 for the purposes of this The amount to be provided next year will not bo so large, as the sinking fund commitments for other purposes will then be greater, but the officers of the Treasury and the Commonwealth Bank, who deal with bondholders, think that it will be possible to provide all necessary relief. AVith proper provision for assisting those in need, and having regard to the circumstances in which the conversion was launched, the plan contained in this bill is the best course open to the governments of Australia.

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