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Wednesday, 24 February 1932

Mr SPEAKER (Hon G H Mackay - The honorable member for Perth (Mr. Nairn) is entitled to make his speech in his own way. Those honorable members who disagree with his views will, in their turn, have every opportunity of expressing their opinions. I warn members that these frequent interruptions will not be tolerated.

Mr NAIRN - Under the Financial Agreement the Commonwealth is not liable to bondholders outside Australia who lent their money prior to that agreement. In the framing of the agreement, the Commonwealth was careful to limit its contract as between the Commonwealth and the States, and the overseas bondholders being no party to the contract between the Commonwealth and the States, are not able to enforce that contract. A further precautionary measure taken by the Commonwealth is the provision that the undertaking to be responsible for the debts of the States is subject to the performance by the States of the parts of the agreement which they have consented to observe. Therefore, the Commonwealth cannot, in any case, be liable for the debts of New South

Wales, unless and until that State performs its part of the agreement. At the present time, the Commonwealth, undoubtedly, has no responsibility to the bondholders overseas who lent their money to the States prior to the financial agreement. The amount lent by those bondholders is about £159,000,000, and it is proposed that the Commonwealth should voluntarily accept the liability to those bondholders. This is set out in specific terms in clause 4, which provides that the Commonwealth will pay them both the interest and the principal when due, and that they may bring a suit against the Commonwealth in the High Court for the payment of the interest, and the principal when due. The seriousness of that position may well be realized in November next, when, if this bill is passed, the Commonwealth will be under a direct obligation to bondholders overseas to pay £13,000,000 due by the State of New South Wales. At the present time, I do not know whether the Government has in view the means of providing that money; but it seems to me that extreme difficulty may be experienced in raising the amount, at any rate, at a reasonable interest rate. To-day, Commonwealth 5 per cents. can bo bought on the London market at £80. I cannot imagine persons overseas lending at 5 per cent., or less, when they can get a bigger rate of interest from the same debtors simply by purchasing existing bonds in the open market. On the present quotations the Commonwealth would have to pay, as an equivalent, over 6 per cent. in. order to convert the overseas loans. I hope that nobody, without the express authority of this Parliament, will make further borrowings for any purpose at increased interest rates.

The object of the Commonwealth voluntarily undertaking responsibility for State debts, amounting, in all, to nearly £400,000,000, and particularly for the £159,000,000 borrowed by the defaulting State of New South Wales, has not, so far as I have heard, been explained to this House. I take it that the Assistant Treasurer is going to London with the object of making arrangements with regard to this indebtedness, and I believe that he is the most competent man in Australia to assist in putting this country on an improved financial basis, and, particularly in obtaining a reduction of the amount of interest which we owe abroad. It is desirable that the representative of this country should go properly accredited, but it is possible, if we undertake this responsibility, that we may be paying too high a price for the credentials our representative will carry. In the first place, there may be great difficulty in his meeting our overseas creditors in order to make - a deal with them to obtain a reduction of interest rates.

Mr Beasley - But he has denied that he has any intention of doing that.

Mr NAIRN - I am not informed as to just what his policy is, but I believe that the people of Australia are looking forward to obtaining some reduction in the amount of interest which is payable overseas.

Mr Beasley - They are not merely looking for it; they are demanding it.

Mr NAIRN - " Demand " is hardly the word which a debtor ought to use. An honest debtor does not use the word " demand," because that implies that he has a right to a reduction of interest rates. It would be better if we can carry the business through honestly, and on the same grounds upon which we obtained a reduction of interest on our internal debts, namely, that the country cannot pay the full amount of interest. I believe that Australia will not be able to pay the full amount of interest due to its overseas bondholders. I have observed that all the other debtor countries of the world are asking for, and most of them have obtained, substantial remissions in respect of their indebtedness. Even Great Britain has had to obtain a moratorium. For these reasons Australia is entitled to raise the question of obtaining some reduction also. I hope that that will be one of the main objects of the Acting Treasurer (Mr. Bruce) when he is abroad. His task will be rendered difficult, however, if we pledge the Commonwealth to pay nearly £400,000,000 representing the external public indebtedness of Australia, and particularly if the Commonwealth pledges itself in regard to that portion of the debt owing by New South Wales. When one goes bargaining it is always a good thing to have something left to bargain with. At the pre sent time, if the Acting Treasurer were to go to London, he, would be representing a Commonwealth which had no legal responsibility for the debts of the States, but after this bill- is passed the Commonwealth will be at the mercy of the creditors abroad. There is no need to put Australia into that position. In the present circumstances the overseas bondholders must realize that they have very little to look for in regard to that portion of the Australian debt owed by New South Wales. I am not referring now to the £80,000,000 which we owe to the British Government. I have no doubt that we shall get a fair deal in respect to that. The majority of our debts, however, are owing to private persons and corporations. Indeed, the great bulk of our debts are due to trustees. I am referring now, of course, to pre-agreement debts. The various States of the Commonwealth used purposely to go on the market at intervals of a few months in order to get as much as possible of the trust moneys which were constantly becoming available for investment. Trustees are in an exceptional position. A trustee has a duty to the persons for whom he holds funds, and he is not in a position to give away anything even if he so desires. Many trustees hold money for infants, and nobody, not even a court, is authorized to give away anything to the detriment of an infant. In Australia, when we reduced the interest rate on our internal indebtedness, we protected trustees by means of statutes passed by the various State Parliaments' against any legal consequences of their action in agreeing to accept a reduction of interest. No such legislation, however, exists abroad, and as I see the position, trustees as a class will be unable to accept any reduction of interest. If this responsibility is accepted in the form proposed by the bill, trustees holding Australian Government bonds will demand, not only the interest, but also the principal. It will be their duty to do so. If they do not they will be liable under the law for a breach of duty. This means that the Commonwealth Government is liable to be sued in its own courts for payment of the sum of £13,000,000 which is shortly falling due. _ Should that position arise, Mr. Lang will be in a position in which he will be able to sneer at the discomfiture of the Commonwealth Government.

I cannot see any occasion for accepting this responsibility. It is a great error to undertake liabilities which at present do not lie on the Commonwealth. If we wish to be generous to the bondholders abroad, we can be generous at any time. We can adopt the policy which the Prime Minister has formulated, and pay as long as we can, but if the Commonwealth enters into an obligation with the bondholders abroad, which it may not be able to fulfil when the time comes, it will commit a grave error of judgment.

Moreover, if the Commonwealth accepts this responsibility, the new arrangement will probably work out in this way: New South Wales contains about two-fifths of the population of Australia. If that State does not pay its debts, or its proportion of the Commonwealth's liabilities as a whole, the people representing the remaining three-fifths of the population will have to meet the whole of the debt, including that owing by New South Wales. It has been predicted that the Government of New South Wales will be defeated at the next opportunity. That may happen, but there is no guarantee that it will take place. I have no great admiration for the public opinion of Sydney.

Mr Beasley - The New South Wales Government will not be defeated at the next election.

Mr NAIRN - The honorable member and his friends represent a very large element of public opinion in New South Wales - the criminal public opinion of Sydney.

Mr Beasley - I take strong exception to that remark, Mr. Speaker. The honorable member stated that the people I represent in this Parliament are criminals. I ask that he make an unqualified withdrawal of that statement.

The ACTING SPEAKER (Mr. Bell). - I did not understand the honorable member to say that the honorable member for West Sydney or his friends were criminals. I understood that he was referring to a political .party in New South Wales.

Mr NAIRN - I withdraw the expression " criminal ". What I meant was that there is in New South Wales, and particularly in Sydney, a very large body of public opinion which takes delight in repudiating its debts. I see that body of opinion expressed in this House by the honorable member for West Sydney (Mr. Beasley). "Criminal" is perhaps a hard word, but these people are certainly defaulters. They pride themselves on their dishonesty. The Government of New South Wales, which holds these opinions, will, in the normal course of events, be in power for another eighteen months, and there is no saying that, at the next elections, they may not be putback into power. If that occurs, the people of Australia outside New South Wales will be left to carry the whole of the burden of Commonwealth liability.

This acceptance by the Commonwealth of increased responsibility goes right outside the terms of the Financial Agreement. It is, as a matter of fact, entirely inconsistent with the agreement, which provides that the Commonwealth shall pay the interest due to bondholders on condition that the States responsible first find the money owing. The Financial Agreement provides that the Commonwealth shall arrange for the conversion of debts, subject to the States carrying out their part of the agreement. It is entirely beyond the terms of the Financial Agreement for the Commonwealth to accept responsibility for nearly £400,000,000 of Australian debt, in regard to which, at the present time, it has no responsibility at all. Though I may be accused of being a State-righter in this respect, it appears to me that the inequality of the arrangement arises from the fact that the liability is being thrown upon the people of Australia outside New South Wales. As regards the general policy of the bill, I commend the Government for its determination to take some action, at any rate, to compel the State of New South Wales to stand up to its obligations.

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