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Wednesday, 24 February 1932


Mr SCULLIN (Yarra) .- This bill, I am sure, will evoke a considerable amount of interest in Australia. While it may have been drafted for a specific purpose, I consider that it will have more far-reaching effects than its sponsors anticipate. Broadly, the bill may be divided into two parts, the first purports to remove doubts as to the liability of the Commonwealth to meet an obligation under the Financial Agreement when a State defaults, and the second to provide drastic means to recover from a defaulting State an amount paid by the Commonwealth Government under the agreement. Dealing with the first part, I contend that there is no need for legislation to do what this measure purports to do. It is said that the object is to remove a doubt as to the liability of the Commonwealthwhen a State defaults; but any doubt that exists to-day in the minds of bondholders in any part of the world has been created by the present Government's action in delaying to pay the interest due by New South Wales when the Government of that State made default. The Commonwealth Government, in effect, joined the Government of New South Wales in default for a period of three weeks, and paid the interest due only when public opinion became too strong for it to go any further on the lines it originally intended to follow.

Under the permanent provisions of the Financial Agreement, it is laid down that the Commonwealth will take over the public debts of the States. If the

Commonwealth Government doe3' that, it surely accepts liability for those debts. "The agreement then contains these words -

And will in respect of the debts so taken over assume as between the Commonwealth and the States the liabilities of the States to bondholders.

If the words " assume as between the Commonwealth and the States " are held legally not to mean that the Commonwealth. Government is directly responsible to the bondholders, or, in other words, that the bondholders must sue the States and not the Commonwealth, that does not relieve the Commonwealth of its liability. The Commonwealth Government under the agreement must assume liability for the debts of, not only a defaulting State, but of each of the States. There was a default last March when my Government was in office, and we accepted responsibility in the matter. "We were fortified by the opinions of our own Crown Law authorities, and of outside counsel as well - of one in. Melbourne and another in Sydney. That opinion is on. the files in the Attorney-General's Department as a guide to the present Government. Our reading of the agreement, supported by the opinion of counsel, was that the Commonwealth Government was liable for the debts of a defaulting State, and we did not hesitate to pay the interest owing by New South' "Wales, and to pay it on the due date. As I have said, the first doubt on this question, since the Financial Agreement was made, has been raised by the present Government. "What was the first announcement of the Prime Minister with respect to the financial position of the New South "Wales Government? It was not that the Commonwealth Government could not pay the interest due. He did not assure the bondholders overseas that they would be paid, but he said that the Commonwealth Government would be trustees for the bondholders, and would take action against the State to recover the money owing, and would pay it to the bondholders as it was recovered. As day after day went by, discussion took place as to how long it would take to obtain the interest owing, and as to whether the Commonwealth Government could impound certain loan money in order to have the liability of New South "Wales discharged quickly; but all the discussion went to suggest that the Commonwealth Government was but a trustee, and that it would collect the money from the defaulting State, and pay it over to the bondholders. But public opinion, and particularly the opinion of the press that supports the present Government, was rather strong, and after an outcry, the Government decided, three weeks after the due date, and before any money had been collected from the defaulting State, to meet the interest payments due by New South "Wales. A number of excuses have been given for the delay, one being that this was done to bring it home to the people that there had been default by the Government of New South "Wales. To whom did it "bring it home?" Not to the people of New South Wales or of Australia, but to the bondholders in Great Britain.. "What care overseas investors for the internal political troubles of this country ? "What they are concerned about is that the interest on their bonds, which are guaranteed by the Commonwealth Government, is paid on the due date.

A serious 1 blow was struck at the prestige of the Commonwealth when the present Government defaulted, temporarily it is true, but still it defaulted in regard to payment which was not made on the due date. The final excuse given in this House last week for this default was that the Government had received only one day's notice of the intention of the New South "Wales Government to default. The facts as related by the Prime Minister (Mr. Lyons) in his statement show that, on the 24th March, the Premier of New' South "Wales (Mr. Lang) announced that, unless he received £500,000 from the Loan Council, he would be unable to pay the interest due by New South "Wales. That interest was not due until the 1st April, therefore I do not know why it is stressed, that this Government received notice only the previous evening. The notification to the present Government was received on the 2Sth January, and the due date was the 1st February, four days later. "When the default occurred last year, the Premier of New South "Wales notified my Government on the 24th March, and the interest was due on the 1st April, eight days later.

The present Government had this advantage, that my Government had had to blaze a new trail. We had no precedent to guide us ; but this Government had the benefit of our inquiries and of the opinions that we had received from counsel. We had created a precedent, and four days' notice should have been sufficient in their case. The Commonwealth Bani Board was sitting at the time, and immediate arrangements could have been made to raise the necessary money. Even assuming that four days' notice was not sufficient, or that eight days was insufficient, why was the payment delayed for three weeks? That question has not been answered in any of the explanations or excuses offered by the Ministry^

This bill gives no greater security to the bondholders than they have at the present time. Any doubt as to the Commonwealth's responsibilities has been raised by the delay of the Government in paying the money with respect to which the recent default was made. This legislation reallY raises doubt as to the existence of a contract under the Financial Agreement with the bondholders; but I claim that the agreement is a contract, under which the bondholders have the backing of, not only the State to whom their money was lent, but also the Commonwealth Government, which is liable for the interest payments. If legislation is passed declaring that the Commonwealth is liable for such payments, it will be tantamount to admitting to the bondholders that no such liability exists without such legislation; that they are not protected by the Financial Agreement, and that they will be protected only by legislation of this Parliament which can be amended at any time by any government. That, instead of strengthening our credit, will weaken it. It weakens confidence in- the agreement itself, and it merely covers up a blunder which the Government made in not meeting the liability when it fell due.


Mr Beasley - Does it cover up that blunder ?


Mr SCULLIN - It is an attempt to do so. It is rather amusing to find the Government of the Commonwealth bringing down legislation the purport of which is to compel itself in future to pay promptly. What need is there for it? The last Government had no legislation. We paid promptly, and all this Go'vernment needed to do was to follow the example we set it. We paid the money when it was due, and we did not proclaim the fact from the house-top. The Financial Agreement is a contract, and a protection to the bondholders. This legislation is not a contract.


Mr Nairn - The Financial Agreement is not a contract between the bondholders and the Commonwealth Government.


Mr SCULLIN - It is a contract between the Commonwealth and the States, under which the Commonwealth assumes liability to pay the money if a State does not. It is similar to the backing of a bill by one man for another. This measure, therefore, is unnecessary, and is introduced only as an afterthought, to cover up what was a blunder on the part of the Government. The Government has rectified its blunder, and has paid the money, but I do not believe in bringing down unnecessary legislation in order to cover up an administrative mistake.

The other and more serious part of this bill requires very grave consideration, and the exercise of calm judgment, free from personalities and political prejudices. In my opinion, it is too serious a matter to be mixed up with considerations of party politics. The trouble which it is now sought to correct started in Feburary, 1930, when, at the Premiers Conference, the Premier of New South Wales announced what has become known as the Lang plan, under which it wa9 proposed to refuse to pay interest on bonds held overseas. The first New South Wales payments after that announcement fell due on the 1st April last. The Premier of New South Wales was asked by my Government whether he desired us to make arrangements with the Commonwealth Bank for advances to his Government in order that he might meet the payment which was falling due, and though it was proposed that his Government" should be treated as the other State Governments, his reply was " No ". He said that he did not intend to pay. That, of course, was a policy of straightout repudiation. The Loan Council, there- fore, decided that it would arrange for no further loans to "New South Wales. That was a logical decision, because no one can expect to continue to receive loans after he has announced his intention of not paying interest on them. That state of default on overseas interest lasted for five months, and it applied also in respect of some local interest. Altogether the New South Wales Government defaulted in respect of £6,000,000 which the Commonwealth had to pay. The Commonwealth withheld certain sums of money due from it to the "New South Wales Government, so that the net default was £4,500,000. "Notwithstanding the relief that the Government of "New South Wales had during this period, amounting by the end of the last financial year to £4,500,000 it became evident by July that it would not be able to carry on even under those conditions. The Lang plan had failed. A number of public servants walked home one pay-day without having received their money. If that did not prove the failure of the plan, I do r/ot know what could. "Not only that, but information was given to us that storekeepers throughout "New South Wales, during the very week that we were sitting in Melbourne, were about to refuse to cash the sustenance orders issued by the New South Wales Government because they had not been paid for a considerable time. A very serious position then arose. The Premier of New South Wales came to Canberra and appealed to the Commonwealth Government for help. He withdrew entirely from the position he had taken up ; he declared that he was prepared to accept responsibility for the unpaid interest, and on those conditions he was allowed to rejoin the Loan Council. Later, he rushed through Parliament a measure designed to effect certain economies in administration. He attended a meeting of the Loan Council which reviewed the position. His Government stepped into line with other governments of Australia, so far as any one could judge, and having done so, was treated in the same way as the other governments.

There was recently a considerable amount of propaganda, particularly during the last election, bearing on this mat ter, and I think that it is appropriate that I should refer to the matter during the consideration of this bill. It is relevant to our present discussion. The people were exhorted with great effect throughout Australia, and particularly in New South Wales, to "change tlie Federal Government, and you will shift the Lang Government". The story was that the Scullin Government was weak.


Mr Archdale Parkhill - Hear, hear !


Mr SCULLIN - Perhaps the honorable member will be sorry presently for being a little premature. It was stated that the Scullin Government was weak. It had the New South Wales Government down, and should have used the opportunity to destroy that Government. I took the attitude that the position of the Commonwealth Government in relation to State Governments was to keep out politics. It is not an act of courage to destroy or kick any one when he is down; it is an act of cowardice. At that time I was presiding over the Premiers Conference, and, as acting chairman, over the Loan Council, and I thought it my duty to ignore completely political and personal considerations. We looked beyond the author of the Lang plan, and disregarded the plan which had dishonored Australia, and disrupted my party. If we had been actuated by political and personal motives we might have been more severe, because it must be admitted that no party in politics to-day has suffered more from the Lang plan and its author than my party has done. However, we looked beyond that and considered the welfare of the people of a great State. We saw that unless we provided assistance the public servants of New South Wales would go unpaid. We saw the possibility of thousands of people who had been receiving government sustenance going in want and hunger. Therefore, when the head of the New South Wales Government intimated that he was prepared to recant, to withdraw from the position he had taken up, to accept responsibility for the debts of his Government, and to continue to do so in the future, we took the right course. We admitted him to the Loan Council, and te a share of the money advanced to the States. Though there has been some criticism of my Government in that regard, our action was endorsed by the Premiers Conference, and the Loan Council. Moreover, it was fully endorsed I am glad to say by the Attorney-General, (Mr. Latham) last Friday. I wish to put on record an extract from the AttorneyGeneral's speech in order to show how fully he approved of what my Government did. The Attorney-General said -

I believe that the Government, in the circumstances then existing, acted in the right way. It was the proper course to issue a writ, and then seek to arrange an agreement rather than continue protracted litigation between the Commonwealth and a State on such a matter. It was right for the Commonwealth Government to act, at that time at least, upon the assumption that the agreement would be carried out by New South Wales, and I have no objections to offer to what the Commonwealth Government then did.

That is a very full acknowledgment. that the Commonwealth Government at that time did the right thing, but that statement is in marked contrast to/many of the statements made during the last election, statements which helped to put the AttorneyGeneral and his party into power.

It has been said that all that Mr. Lang did when he rejoined the Loan Council, and acknowledged his indebtedness in respect to the money owing by his Government, was to sign an I.O.TJ. backed by the Commonwealth. That is true, but that is all that any other Australian Government has done. No other government has been able to do more. "We all signed I.O.U's We all took put treasury-bills that were cashed by the Commonwealth Bank, and traded by it to the other banks. That was the only way in which governments were able to carry on in face of their recurring deficits. Why should that be held to the blame of the Commonwealth Government which agreed to admit the New South Wales Government to the scheme for financing State Governments. Under the Premiers plan all the Governments of Australia agreed to balance their budgets, and it is amusing to hear the supporters of Mr. Lang in this chamber condemning wholesale and retail the. Premiers plan which Mr. Lang, together with the other leaders of State Governments, accepted.


Mr Rosevear - Tell the whole story; he did not reduce wages.


Mr SCULLIN - He did reduce wages. He informed the Premiers Conference that the reductions of expenditure he had made by legislation, plus the 5 per cent, wages tax, represented a reduction of 20 per cent, in the earnings of men employed by the Crown in New South Wales. Having come into line with the other Governments, the Government of New South Wales received equality of financial treatment; advances were made to it for the payment of the public servants, the relief of the unemployed, and the conduct of the affairs of the State. There was no agreement then that any government should receive one penny more than was allotted to it under the Premiers plan. A definite scheme for the checking of the advances was adopted; because of the lag of revenue the advances must be larger in March than in June. The Premiers agreed that an officer of the Commonwealth Bank should check the advances to each State Government from month to month, and the officers of the Commonwealth Treasury, working in conjunction with State officials, were to see that each State received the amount due to it under the plan. That was the arrangement up to the time when my Government left office. Now we are informed that the Government of New South Wales will exceed by £3,000,000 the specified limit of expenditure, and because the Loan Council refused to make any further advances to him, Mr. Lang has defaulted. I have not heard the explanation for that extra £3,000,000; it may be that the checking officers had not complete information before them. But I repeat that my Government had not agreed to issue treasury-bills to any State more than the amount provided for in the Premiers plan; it was essential that all governments should share equitably in the money available.

It should not be necessary for me to emphasize that the party which I lead does not believe in repudiation ; we proved that in the most crucial test to which any government could be subjected. We stand for the fulfilment of the nation's obligations and the enforcement of its rights. We have no sympathy with any government which deliberately dishonours its contractual obligations, and we are prepared to support the Commonwealth Government in taking proper steps to compel a State Government to observe the laws of honest dealing which every government enforces on its own citizens. The belief has been fostered that a government, by refusing to pay the moneys it owes, can give greater assistance to the needy. That is a fallacy. The greatest help that can be given at this period to those in need is the provision of work for the unemployed, and I see no way of substantially relieving unemployment without a considerable extension of credits. Credits cannot be extended if confidence is destroyed. Credit depends on the belief that the borrower will repay, and if everybody announced even before he borrowed that his deliberate policy was to default, who would lend? Destruction of credit would be followed immediately by the cessation of all activities of governments, banks and industries. In what way would that benefit the unemployed and needy? If the members of the Opposition were asked merely whether the Commonwealth Government should exercise its rights under the Financial Agreement to recover the amounts due to it by New South Wales, we should unhesitatingly answer in the affirmative. We would support any proper legal action by the Commonwealth Government. But the measure now before the House raises two issues - (1) is this legislation a valid exercise of the powers conferred on this Parliament under the Constitution as amended; and (2), if it is valid, is it a proper exercise of such powers? No doubt the validity of the bill will be tested. Section 105a of the Constitution enables this Parliament to enter into agreements with the State Parliaments, and gives to it power to legislate for the carrying out of such agreements. Upon that power to legislate this bill is based. I am not a lawyer, but my duties as a parliamentarian have required me for many years to study the drafting and operation of laws, and I can claim at least some knowledge of the spirit of the Constitution, and the Financial Agreement. Does any honorable member believe that when the State Governments and the people of Australia agreed that this Parliament should have power to legislate to carry out that agreement, they contemplated anything more than the carrying out of the agreement according to law? What is the law? The law of the Commonwealth is what this Parliament declares it to be, subject to the very important limitation that we can legislate only within our constitutional powers. The amended Constitution gives to this Parliament power to legislate to carry out the agreement, but Parliament cannot make a law giving to itself airy new right under the agreement. I am not a States-righter ; I have always contended that there should be one sovereign parliament in Australia. But there are seven sovereign parliaments, and their sovereignty must be recognized until the people will otherwise. The States and the electors, when giving this Parliament power to carry out the Financial Agreement, expected that it would be carried out according to accepted law, a principle of which is that no party shall be judge in his own cause. That applies to parliaments and governments as much as to individuals. But this measure violates that principle. Although drafted specifically to counter the default of one State, it will apply to all States. It lays down a definite procedure. The Commonwealth Auditor-General may certify that a certain sum is due by a State government to the Commonwealth Government. After that certificate has been gazetted application may be made by the Attorney-General to the High Court for a declaration that such sum is due and payable to the Commonwealth. The certificate of the Auditor-General shall be considered prima facie evidence in the court of the amount due. The declaration of the court shall have the force of a judgment, and shall become a charge upon all the revenues of the State concerned. Specified revenues will be those specified by resolution of this Parliament. The ordinary procedure for the recovery of a debt is to issue a writ for the amount due and abide by the judgment of the court. That was the course which my government adopted, and would have continued, had not Mr. Lang repented and accepted responsibility for the interest liability of his State. On that course the present Government also began. It issued a writ against the Government of New South Wales, and why it introduces this legislation in the meantime, I cannot say. There may be a motive that is not apparent on the surface. The Prime Minister and the Attorney-General have stated that the ordinary processes of law are too dilatory, and would result in protracted litigation ; and, apparently, the Government fears that before the court could give judgment on the writ, the State Government would collect and spend its revenue, and nothing would be left for the Commonwealth to collect. That is a short-sighted view. Do honorable members imagine that when, in accordance with the certificate of the Auditor-General that a certain amount is due and payable by a State, the High Court issues a declaration, which, in effect, garnishees the revenues of the State, the decision will not be challenged ? Not only will the amount due be questioned by the Government of New South Wales, but the constitutionality of this legislation will be challenged. Protracted argument on the constitutional issue is bound to ensue, and this will open up a wonderful opportunity for the legal fraternity. Will it take longer to get a judgment of the High Court on a writ for the recovery of money due and payable, than to get a declaration from the court on the constitutionality of this legislation and also a judgment on the amount claimed? I prophesy that the latter course will occupy twice as much time as ordinary procedure by writ.

I may be told that clause 6 overcomes my objection, because it proposes to cut right across the procedure provided in clause 5, and to ignore the court. Under it the Auditor-General may issue a certificate as to the amount of money due and payable by the State, whereupon both Houses of Parliament may by resolution approve of the certificate and specify the revenues of the State which are to be seized. The High Court will be passed by; a sovereign government may take action against another sovereign government without the intervention of that tribunal, which was created to interpret the constitutional relations of Australian governments. That can be done even if action is pending in dispute as to the amount due and payable. The creditor can go right ahead and take the revenues in payment of the debt which he says is due to him although the debtor may dis- pute it. That is an extraordinary proceeding for a creditor to take in order to recover from a debtor. We are told that while proceedings are taking place, application may be made to the court for a declaration. The proposal is first to seize the revenue of the State and then to apply to the court to decide whether the money is owing. The Attorney-General in explaining this clause said -

This is designed to meet cases of urgency in which Parliament is prepared to act without a declaration of the High Court having first been obtained. It is provided that a declaration may be obtained from the High Court while the procedure outlined is going on.

The application to the High Court rests with the Federal Attorney-General only. " That a declaration may be obtained ': are the words contained in the bill, but there is nothing in it to say that such a declaration must be obtained. So that, apparently, action can be taken to seize the revenues of a State merely by obtaining a certificate from the Auditor-General and passing a motion in Parliament. Such action could continue without reference to the High Court to decide whether a particular amount was due and payable by the State.


Mr Gabb - The other party could take action.


Mr SCULLIN - Not under this bill; that is what I am stressing. The bill does not confer equal rights, because only the Federal Attorney-General can apply to the court for a declaration. I shall mention later the only action that the States can take. This legislation cuts right across the recognized principle of law that no man shall be judge and accuser in his own cause.


Mr White - We need extraordinary measures to meet extraordinary cases.


Mr SCULLIN - We need to take steps that will be successful and not lead to disaster. This proposal is: seize the revenues first, apply to the court later. There is nothing, however, in this hill giving the right to a State to go to the court to decide such a question. Can it be argued that the States intended to give to the Commonwealth, under section 105a of the Constitution, power to dig out one of the foundation stones upon which our system of society rests? I refer to the proposed overthrowing of that fundamental principle " no man shall he the judge and accuser in his own cause." Surely if the nation insists on the individual observing that principle, it should, itself, observe it. Surely a principle that is good enough for the individual should be good enough for the nation. The Financial Agreement is an agreement between parties - the seven sovereign governments - which are supposed to be on an equality. The method of applying and carrying out this agreement should be equitable. If the Commonwealth defaults to the States - and it could so default - no State may take the measures that are being adopted under this legislation to recover from the Commonwealth. This is, therefore, a one-sided arrangement. Only one party to the agreement can adopt this extraordinary legislation and give effect to it. Moreover, if the Commonwealth defaults to a State, and this legislation is passed, the Commonwealth can set itself up as the judge in its own cause, and can declare that it does not owe the money in dispute to the State. Surely that is wrong. The Commonwealth can specify the amount due to it, and take action to seize it from the revenues of a State without reference to the High Court. Therefore it is to be the judge as well as the accuser in this case, and if the Commonwealth defaulted to a State, it could be the judge and the defender in another case. That extraordinary position could arise. I object to this legislation as opposed to equity, and for other reasons that are more cogent at the present time. I object to it because any action against a sovereign government, which cannot be backed up by an absolute certainty, and about which there is the slightest suspicion as to its legality and its equity, is most dangerous, and must naturally arouse resentment. This section is not just.


Mr White - Default is not just.


Mr SCULLIN - Default is not just, and default on the part of New South Wales has aroused resentment; but two wrongs do not make a right. It is important that this country should correct a wrong, and I am warning this Parliament to do it in the right way so that there may be no kick back.


Mr White - What is the right way?


Mr SCULLIN - I indicated it in the action that the Labour Government took. The States have sovereign rights; that cannot be disputed. They have control of their own revenues. The High Court is the only authority that can interpret the Constitution. It has to determine the powers andrights of every government. If the Federal Parliament assumes rights or powers without reference to the High Court, or without taking a referendum to confer such powers, such action is provocative and dangerous, and gives warrant or excuse, at any rate, for resistance, that is wherein the danger lies. The AttorneyGeneral (Mr. Latham) when explaining the bill on Friday last - and I give him credit for having explained it clearly and lucidly, leaving no doubt as to its intention - spoke of the previous proceedings commenced by the Labour Government, by which we proposed to obtain judgment in the court for the amount due. He referred to a suggestion, not of the Government, but of some one else, that receivers should be appointed to receive the revenues of the State after judgment had been obtained against it. He said -

If a receiver were put into State offices under a judgment of the High Court, forcible resistance might lead to serious civil trouble.

As the Attorney-General had himself raised this serious question of civil trouble, let me point out that there is more danger of civil trouble under the provisions of this bill than there would be if proceedings were taken in the ordinary way. As I have emphasized, every Australian government has sovereign rights, and the power to exercise them. All Australian governments have undoubtedly the power to exercise their rights by force. We control one force, and the States control others. Therein lies the fundamental weakness of our Constitution and federal system generally; but that is by the way. If we assume, as the AttorneyGeneral does, that a State government may defy the judgment of the High Court obtained in a proper constitutional way, when the Commonwealth is backed up by the Constitution and every legal form, will not that State exercise resistance under this measure? Will it not have a greater excuse for exercising resistance against a measure that defies the very Constitution and the High Court of Australia? "We have no right to place that excuse in the hands of a State. There is more likelihood of the State gaining public support for its action, regrettable as it may be, when we ourselves step outside the legal atmosphere, and make a decision in Parliament as a result, perhaps, of a panic election. Let us lift this issue out of the atmosphere of politics into the calm and judicial atmosphere of the High Court. If we do that, we shall have warrant for our action, and public approval behind it, and resistance by force will be less likely, and le&s dangerous even if made. "When the Government vests itself with legal authority which is obtained properly only from the High Court, it divests itself of the moral power, if not the legal power, which it possesses to administer the affairs of this country. It' may be said that we have to please certain people, but I am looking further ahead than the present moment, the next year, or the next two years, and disregarding altogether political considerations. We should take the broader and longer view. We have to cope with practical difficulties, besides the clanger that I have indicated. It is apparent that the money that will be specified is income taxation. One has only to look at the facts to ascertain that. Why this hurry to obtain a judgment so that action may be taken? What is the revenue that will be collected during the next two or three months?


Mr Fenton - The revenue from the State lottery may be specified.


Mr SCULLIN - We shall draw a blank if that is done. One of the major sources of income of a State is income taxation. All the machinery for the collection of ordinary income taxation, apart from that derived from more than one State, is controlled by the States, except in Western Australia. We have no machinery, outside of our head office, for the collection of income taxation, and it is quite possible that a State Treasurer may disband the whole staff of his taxation office, and hold up indefinitely the collection of income taxation. This would be a drastic step to take, and I think that there are people in this country sufficiently irrespon sible to take it; but we should not provide excuses for them to do it. We should have behind us the full backing of a judicial decision of the highest tribunal in the land in any action that is taken. A resolution of Parliament declaring how much is owing is not enough. Therein lies the fundamental weakness of the position which the Government has taken in this bill.

When the Income Tax Collection Bill, which was known as the Amalgamation Bill, was before this Parliament in 1923, I urged the Government of the day to reverse the scheme of it. I contended that the federal authority should be the sole collector of income tax for both the States and the Commonwealth. Honorable members can now see the wisdom of that contention. If a State authority told ite taxpayers not to pay, is there anything in this proposed legislation to compel them to pay? If there is, I cannot find it. If a State says " Do not pay, we will not prosecute " the taxpayers of New South Wales would enjoy a taxation holiday. I do not know what may happen, but such things as are sought to be done by means of this hill cannot be done successfully in a hurry, nor can they he done successfully without proper legal authority.

Proper legal steps can be taken to obtain any money that is owing, and it is surely desirable that they should be taken even if the money remains uncollected for a month or two. It would surely be much better to suffer a short delay than to create chaos and possibly disorder within a State. Drastic legislation of this kind will, no doubt, be met by drastic action. The bill seeks to authorize the seizing of State revenue without legal action. I can find nothing in the measure which provides machinery for the State concerned to approach the court in regard to any of the matters in dispute. The right to approach the court is given only to the Commonwealth. I am not a lawyer ; but I presume that a State could apply to the court for an injunction to restrain the Commonwealth from taking certain action. What a field for lawyers such an action would open up ! If that can be done what will happen regarding the so-called short cuts and quickness of action by avoiding the issue of writs ? An application for such an injunction would undoubtedly lead to a fierce legal battle. What would happen, in the meanwhile, to the unfortunate taxpayers of New South Wales ? To whom would they have to pay their taxes? I could not advise them on that question.

It is provided in the bill that payments to the Commonwealth will relieve the State taxpayers of their liability to the State. But surely such a provision could apply only after the Commonwealth Government had established its legal rights to the taxes! That could only be done by submitting the whole matter to the court for judgment. Until that action is taken how could this legislation relieve the taxpayers of New South Wales from their liability to pay taxes to the State Government? Until a judgment is obtained from the court that a certain amount is due and payable, the provisions of this bill must remain ineffective; otherwise the unfortunate taxpayers of New South Wales would have no protection whatever.


Mr Gabb - It would be legal for the Commonwealth to collect the money until the High Court decided otherwise.


Mr SCULLIN - Not at all. That is where I join issue with the honorable member.


Mr Gabb - The legislation of this Parliament overrides State legislation dealing with similar matters.


Mr SCULLIN - That is so; but the mere fact that this Parliament has said that a State owes the Commonwealth a certain amount of money does not mean that the State legally owes it. Such a question would have to be determined by the court. We cannot surely expect to be the judges in our own cause.


Mr Paterson - But suppose that a State admits a debt?


Mr SCULLIN - The State of New South Wales admits nothing.


Mr Lane - It has admitted the debt and then repudiated it.


Mr SCULLIN - I assure the honorable member that I am under no illusion as to the people with whom we are dealing.


Mr E J HARRISON (WENTWORTH, NEW SOUTH WALES) - The right honorable gentleman is supporting their repudiation.


Mr SCULLIN - The honorable member for Wentworth (Mr. E. J. Harrison) has not listened to my remarks or he would not have made such an unfair observation, though I have no doubt that my criticism of this bill will be subjected to quite a lot of similarly unfair comment. I am looking at this subject in a broad way.


Mr Archdale Parkhill - They are very fortunate in their apologist.


Mr SCULLIN - Any one would be unfortunate who had to rely upon the honorable member for Warringah (Mr. Archdale Parkhill) as an apologist. Any man who can say that one word that I have used to-day is an apology for the repudiation and default of the New South Wales Government does not understand the English language. I have been emphatic again and again in resisting repudiation. We shall support this Government in every proper legal procedure it takes to make the New South Wales Government pay its debts ; but we will not support draconian legislation of this description, which is a departure from all sound principles of justice. This measure, if it became law, would provide an excuse for those who do not want to observe the decencies of civilized life, and would also be used to justify a government adopting illegal measures of resistance.

Are we to affirm the principle that the Commonwealth is to be a dictator in the interpretation of a compact or agreement which has been entered into between equals? It is proposed that first of all our own officer shall declare how much a State owes, and that then this Parliament shall judge the matter and enforce action. Who would not resent procedure of that kind? Who will say that that would be a fair conduct of action as between creditor and debtor? Our officers may be thoroughly capable, but this Parliament is not the proper body to decide these matters. Would we be willing to allow an officer of a State to say how much our indebtedness to it might be?


Mr Lane - We should certainly have the right to make up our own accounts.


Mr SCULLIN - That is quite true; but they should be laid before the proper tribunal to be proved. Does the honorable member deny that? A man may be able to make up his accounts, but if there is dispute about them, he must surely submit them to some independent tribunal.


Mr Lane - Honest people pay their accounts without dispute.


Mr SCULLIN - Unfortunately, not all men are honest. We are trying to find a means of forcing a State to pay money which it owes, and is not willing to pay, and we should, in such a case, take every care to fortify ourselves with proper procedure. There should be nothing suspicious about our procedure. [Leave to continue given.} I thank honorable members for their consideration. I am trying to deal with this matter calmly and dispassionately, but I resent the suggestion that I am an apologist for repudiationists. I would walk out of public life rather than support repudiation by anybody or any government.


Mr Rosevear - The right honorable gentleman practises it.


Mr SCULLIN - That is not true. I shall deal, in committee, with some other aspects of this measure, and particularly with the proposals that the certificate of the Auditor-General shall be prima facie evidence that the money is due and payable and unpaid, and that the onus of proof on the subject shall rest with the State concerned. I can find nothing in the Financial Agreement to warrant such a provision. That, however, is a small thing in comparison with the other great principles with which I have dealt'.

Some of the provisions .of .the bill strike across principles of law which were in operation at the time the agreement was made, and particularly across the principle that, "he who affirms must prove ". Is a political party a proper body to determine the questions which must arise if this bill is passed ? Should not all such questions be submitted for decision to a court of law? A parliament dominated by a political party is not an appropriate body to determine such matters.

I do not find myself in any disagreement with honorable members opposite as to the desirableness of the object in view in the introduction of this bill; but I am iu serious disagreement with them as to the methods which should be adopted. Moneys which arc due should be paid ; but the methods proposed in this bill for ensuring payment are entirely wrong. Neither a political party nor a parliament is a proper authority to deal with the matters which inevitably arise when accounts between governments are not met; such subjects should be submitted to a court for determination. The framers of our Constitution laid it down that the High Court, and not any political party, should deal with such matters. The High Court, sitting in a non-political atmosphere, would deal with these problems with a judicial mind, and all the interested parties should be heard before it.

I hold the view very strongly that no action should be taken to confiscate the revenues of another government until the High Court has determined that a debt has not been satisfied. The action which, the Government is proposing to take in this case is, in my opinion, a reversal of the proper procedure. The correct procedure was taken by my Government. When default occurred on the first occasion, writs were issued, proceedings were commenced in the High Court, and further financial accommodation was refused to the defaulting Government by the banks. This meant that the New South Wales Government could not' carry on beyond July. In that way, pressure was legitimately brought to bear upon it. It transpires that what was true of July last will be true of next July. But there would be no need for delay to occur on this occasion. Preliminary work has been done by the Attorney-General's Department which would make possible more rapid action this year. It will be remembered that last year a conference of Premiers was summoned to consider ways and means of meeting the situation, and in those circumstances legal action could hardly be pursued against the government concerned; but this year no Premiers Conference will intervene. Steps could therefore be taken immediately to obtain a judgment of the court. If judicial action of this kind were taken, all suspicion that party politics was a factor in the case would be allayed.

A judgment of the court should, of course, be obeyed by a State. We should not assume that any government would defy the court". If it did, its defiance would justify the taking of other steps. I suggest that every legal step should he taken to obtain payment. There should be proof of the debt, the obtaining of judgment, and the enforcement of judgment. These steps should be taken in the proper legal manner through the court and not by devious means through Parliament. The advice that I am offering to the Government on this subject will be found, before very long, to be sound. Expediency and short cuts in matters of this kind are extremely dangerous, particularly in the case of action against a sovereign government which has power to enforce its will just as this Government has. Perhaps the election propaganda indulged in by the Ministerial party demands something more spectacular than the ordinary processes of the courts. This measure is spectacular enough for anybody, but it is also charged with elements of disaster. The Prime Minister said "We must be resolute". I have no objection to his being resolute, but I suggest that this bill savours more of recklessness than of courage. Recklessness is not courage, nor is caution cowardice, and when drastic action is to be taken against a State, there should be no doubt as to its legality, before the action is taken. Action should even then be taken through the court, and not behind the back door of the court. There should be no suspicion of political influence or differential treatment as between the States. Any legislation intended to carry out the agreement should accord equal rights to all the parties to it. In my opinion, this bill does not conform with those principles. The Opposition cannot agree to the method by which the Government seeks legislative sanction to employ its power against New South Wales; but it will support sound and legitimate action taken in the way that I have indicated, through judicial channels, to carry out the financial agreement entered into between the Commonwealth and the State Governments.

Mr.NAIRN (Perth) [4.37].- The speech of the Leader of the Opposition amounts, in reality, to a plea to do nothing. He was not able to suggest to the House any effective way of dealing with the Government of New South Wales and its default. When that Government first defaulted, I raised objection to any payments being made by the rest of Australia on behalf of New South Wales. I am of the opinion that if the Prime Minister of the day had adopted a stiffer attitude to the Premier of New South Wales, and had refused to meet any of the payments with respect to which default had been made, we should have had a much less difficult situation than that which now confronts us. It seems to me that the only way of dealing with an outlaw, such as Mr. Lang undoubtedly is, is to starve him out, and there is no reason to be careful with regard to the means employed, provided they are effective. The means adopted by the late Government consisted in issuing a writ against the New South Wales Government. The Government dallied on for some months, but it did not go so far as to issue a statement of its claim. In fact, the writ was utterly ineffective, and the Government achieved nothing in the direction of compelling the Government of New South Wales to stand up to its obligations. One of the complaints of the Leader of the Opposition (Mr. Scullin) to-day, is against the proposal to attach the revenues of New South Wales, and he draws pictures of distress which might very well have come from Mr. Lang. I point out, however, that if a writ were issued and a judgment were obtained against New South Wales it could be enforced only by attaching the revenues of that State.


Mr Scullin - Why do you doubt a judgment being obtained?







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