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Wednesday, 16 March 1932

Mr LYONS - I have no knowledge that it has been attended to. 1 informed the Premier of the amount due and payable and unpaid by New South Wales, and requested payment of it. I also informed him that in the event of a continuance of the failure on the part of New South Wales to meet its financial obligations, it was proposed to invoke the provisions of the act. New South Wales not having since met. those obligations, the Commonwealth Government is forced to proceed under the act.

The Premier of New South Wales has informed me that he is advised that the act is ultra vires of the Commonwealth Constitution1, and has asked for an undertaking not to put it into operation pending the hearing of the action which the State proposes to bring to test its validity. The Commonwealth Government is prepared to assist in every way to secure an early decision as to the validity of the act, and the New South Wales Government will find that no obstacles will be placed in its way by the Commonwealth Government, but rather that every assistance will be forthcoming to facilitate the action which it proposes to take.

But the amount already in default and the amounts becoming due by New South Wales for overseas interest are so large that delay in putting the measure into operation may seriously affect the finances, not only of the Commonwealth Government, but also of the other States.

Mr Ward - Including Tasmania?

Mr LYONS - Yes; of Tasmania and every other State. All the States as well as the Commonwealth must be seriously affected by the failure of the New South Wales Government to meet its commitments, and the obligation thus thrust upon the Commonwealth Government of providing money for this purpose.

The amount for which the New South Wales Government is now in default exceeds £900,000. It is, of course, impossible to say what further defaults will be made by the Government of New South Wales. To date there have been several defaults of interest due overseas and two defaults in respect of interest due in Australia to the Commonwealth Bank, but the interest due in Australia to private bondholders has been paid by the State to date. If we assume that the State Government will maintain the same attitude in the future, the amount in default will increase month by month, and will, after allowing credit for amounts withheld by the Commonwealth, amount to £4,500,000 by the 30th June; and if the State does not pay the Australian interest, the amount in default may reach nearly £6,000,000 by the 30th June.

Mr Rosevear - There are too many " if s " about this statement; why not get down to facts?

Mr LYONS - I am surely entitled to assume that the New South Wales Government will continue to do in the future what it has done in the past.

The Commonwealth Government can deal only with the position as it now exists. Accordingly it proposes to take such action as is necessary to recover the amount now due by the State. At the same time, it cannot neglect consideration of the possibilities of the future, and must safeguard itself against further default by the State Government. Honorable members will recollect that the act provides that both Houses of the Parliament may resolve that particular classes of revenue of a State may, subject to certain procedure, be made payable to the Commonwealth, but it also provides that it is not obligatory that all the classes of revenue specified in the resolution of the Parliament shall be included in one proclamation. Different classes of revenue may be included in different proclamations. All the various classes of revenue that might be attached are included in the resolution; but not necessarily all, or even more than one class, will be included in the proclamation. The different classes may be included in different proclamations. This elasticity is necessary to enable the Commonwealth to recover amounts in default with the least disturbance of existing arrangements.

The need for such a provision will be seen on an examination of the position. The amount of the present default is £924,082. The estimated yield of income taxes in New South Wales, apart from unemployment taxes, during the next eight weeks, would be sufficient to provide that amount; so that, if no further default took place, it would be necessary only to proclaim that income taxes due to the State of New South Wales would be payable to the Commonwealth for a period of about two months.

Mr Scullin - Does this resolution cover future default?

Mr LYONS - It covers the classes of revenue that would be attached if future default occurred; but the Government does not at present intend to deal with revenues other than those that are sufficient to meet the present default. It is necessary that this resolution shall make provision for covering any default that may take place between now and the next meeting of the Parliament, because a further resolution can be obtained only from the Parliament,

Mr Makin - Would not a certificate of the Auditor-General be required in regard to any future default?

Mr LYONS - Undoubtedly ; the act provides for that. But the present resolution covers various classes of revenue that will be sufficient to effect recovery in the event of a further certificate being given by the Auditor-General relating to further default. It must be recognized, however, that if the default increases, the income tax receipts may not suffice to meet the default. I have already stated that there are possibilities of the default increasing to £4,500,000, or, perhaps, £6,000,000, by the 30th June. To protect the interests of the Commonwealth and the other States, the Commonwealth Government must, therefore, ask Parliament to give it power to require payment from time to time to the Federal Treasurer of such revenues as may be necessary to meet the amounts in default. It i3 for this reason that the motion now before the House covers several classes of revenue. The yields of these revenues, up to the 30th June, according to the information available to the Commonwealth, may be estimated as follow : -


These classes of taxation, which are those covered by the motion would suffice to meet the interest payments of the State for the balance of the year, even if the overseas defaults were continued, and the default were extended by the State Government to interest payments due to Australian bondholders.

The Government considers it desh able to ask Parliament to give such authority now as will enable the Commonwealth to deal with the position as it develops. If the default does not increase, the Government's course will be clear. It will proclaim only such revenues as are necessary to meet the amount of the present default. The revenue from income tax. excluding the unemployment relief tax, for the next eight weeks would be sufficient to cover the existing default, and there would be no necessity to proclaim any class of revenue beyond that of ordinary income tax. But if the default increases, the Government must have power to recover larger sums.

Before recommending Parliament to resolve that the several classes of revenue specified in the act may, in certain circumstances, be made payable to the Commonwealth, the Government carefully considered all the sources of revenue of the State. This consideration shows that certain classes of revenue can be made payable to the Commonwealth more readily than others. For instance, some revenues could be attached in the hands of State officers only, and such a procedure might entail difficulties. Other revenues could be intercepted before they reached the State. Then there are certain revenues on the payment of which action by the State is necessary; for instance, probate duties. These facts have been borne in mind in the drafting of the motion now before the House.

Mr Hughes - What proportion do the revenues to be attached bear to the total revenue of the State for the period from now to the end of the financial year?

Mr LYONS - I am afraid that I cannot furnish that precise information. We are dealing now only with the amount of revenue obtainable from ordinary income tax, for a period of eight weeks, which will cover the present default.

The desire of the Government is that the more practicable course; shall be adopted, and that the revenues which can be intercepted shall, in the first instance, be drawn upon.

So that there may be no misconception of the position by taxpayers, I desire to make quite clear the position which will arise on the adoption of this resolution. The resolution sets out what classes of revenue of the State of New South Wales may be made payable to the Treasurer of the Commonwealth. The obligation of the taxpayer to pay to the Federal Treasurer any particular tax or class of revenue named in the resolution does not, however, arise until a proclamation has been issued by the Commonwealth in -relation to that particular tax or class of revenue. The mere carrying of this resolution does not make the tax due to the State payable to the Commonwealth; it is only when a proclamation is issued specifying a particular tax or class of revenue that that applies. It is not intended at the present stage to issue a proclamation covering all the taxes or classes of revenue named in the resolution. One or two of those taxes or classes of revenue will, however, be proclaimed as soon as possible. When that is done, wide publicity will be given to the matter, so that all persons concerned may clearly understand what obligations are imposed on them under the Financial Agreements Enforcement Act. They will then know that the obligation is to pay to the Commonwealth and not to the State. The mere fact that all these classes of revenue and taxation are included in this resolution does nothing at the present stage to make them payable by the taxpayers to the Commonwealth, and the position will not be altered until the proclamation has been issued, when the widest publicity will be given to it.

Mr Watkins - Suppose the taxpayers paid the State income tax before the proclamation was issued. Would the Commonwealth then demand payment of the tax a second time?

Mr LYONS - Not at all. The urgent need for the action which the. Common wealth Government proposes to take was fully explained during the debates on the Financial Agreements Enforcement Bill. The position is that one State in the Commonwealth has deliberately refused to meet its contractual obligations for interest, and is seeking to place the burden of those obligations on the Commonwealth, and, through the Commonwealth, on the other States. Such a proceeding cannot be tolerated by the Commonwealth or by the other States. The action being taken to-day, and recent federal legislation with respect to this matter, have for their object the promotion of the interests of the Commonwealth and the whole of the States. This is not a matter of party politics; the Government is endeavouring to save the financial reputation of Australia, and of the individual States. It is suggested that the Government has some ridiculous motive affecting the festivities in connexion with the opening of the Sydney Harbour bridge on Saturday; but our sole object is to compel the Government of Nev,' South Wales to meet its obligations.

Mr James - Thereby starving the people of that State.

Mr LYONS - Nothing of the kind. The Commonwealth Government is merely taking action to recover from New South Wales moneys that we have already paid on its behalf. If this default were allowed to continue, and the Commonwealth Government, accepting as it does, liability for payments due by a defaulting State Government, were asked to meet default upon default, to find million upon million in order to meet the obligations of the State, the finances of not only New South Wales and the Commonwealth, but also of every State in the Commonwealth, would be wrecked, and that at an early stage. Governments, like individuals, must observe the moral code, and must meet the financial obligations into which they have entered with due deliberation. That is all that we are asking of the State Government of New South Wales. Every effort has been made to induce the Premier of that State to meet his commitments.- Even after the Financial Agreements Enforcement Act was passed, and before any attempt was made to put it into operation, the Premier of New South Wales was again reminded of the position, and asked to reimburse the Commonwealth the amounts that it had paid on behalf of the State. However, the Lang Government has evinced no desire to honour its obligations, and it is only just to the other States, and to the citizens of New South Wales, who, as a body, would repudiate the action that has been taken by the Lang Government, that the Commonwealth Government should endeavour by legitimate means to recover the amount that it has paid on behalf of the Government of New South Wales.

The reason why various classes of revenue are included in this motion which, in the aggregate, are greater than the amount that is due to the Commonwealth is that this Government must be able to recover all that is due to it in the event of the New South Wales Government again defaulting. If that precaution were not taken, and Mr. Lang again defaulted, Parliament would have to be called together specially to pass a further resolution. Under the terms of this motion, it is only necessary for the AuditorGeneral to issue a further certificate ag to the amount due.

Mr Gregory - Can that be done without a further vote of Parliament being taken ?

Mr LYONS - Yes. It will be admitted by those who are seriously concerned about the necessity to maintain the financial position and the honour of the Commonwealth that' the .power sought is entirely reasonable. I hope that the motion will be carried, not only in this House, but in another place. .

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