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Wednesday, 27 April 1932


Mr LYONS (Wilmot) (Prime Minister and Treasurer) . - I move -

That the bill be now read a second time.

The introduction of this measure is the taking of another step towards the recovery by the Commonwealth Government from the Government of New South Wales, of moneys that have been paid bythe Commonwealth on behalf of the State. The amounts due and payable by the State, which have not been paid, have been certified by the Commonwealth Auditor-General in accordance with the provisions of the Financial Agreements Enforcement Act, which was recently passed by this Parliament.

It is proposed to amend that act, and it is appropriate that I should preface my remarks on the bill with some reference to the legal and financial position which has arisen from the default of the Government of the State of New South Wales. Although the act was assented to on the 12th March last, no action to enforce it was taken by the Commonwealth Government until its validity had been upheld by the High Court. Immediately the act was assented to, the Government of New South Wales applied to the High Court for an injunction to prevent its operation, and the resultant proceedings before that tribunal were a test of the validity of our legislation. The High Court, on the 6th

April, held that Part II. of the act was valid. The Government of New South Wales then applied for leave to appeal to the Privy Council, but its application was refused by the High Court. It subsequently took action to prevent the trading banks from complying with section 15 of the act. Again it met with failure. The validity of the act has been exhaustively tested, and the legislation of this Parliament has been upheld by 'the highest tribunal in the land, notwithstanding the fears expressed by some honorable members of this and another place that it might be held to be unconstitutional.

On the loth March last., the AuditorGeneral furnished a certificate which disclosed that the amount in respect of which the Government, of New South Wales had defaulted at that date was £1,172,427, and that, after allowing for set-offs on account of moneys due by the Commonwealth to the State of New South Wales the not amount of the default of that State was then £924,082.


Mr Scullin - Has the court declared that to be the amount in default?


Mr LYONS - No ; that is the amount that has been certified to by the AuditorGeneral, and the law has been complied with by the issuing of his certificate.

On the 7th April a proclamation was issued prescribing that income tax, not including unemployment relief tax, which was definitely excluded, should he payable to the Commonwealth Treasurer. On the same date public notices were issued explaining how these payments were to be made. On the 9th April a second certificate was given by the Auditor-General which, taken in conjunction with the first, showed that, after allowing, for all set-offs, the net amount due to the Commonwealth by New South Wales in respect of its default was approximately £2,000,000.

On the 11th April a proclamation was issued prescribing that certain other State taxation should be paid to the Commonwealth Treasurer. This taxation included betting, race-course admission, totalisator and entertainment taxes. Demands were also made on the banks under section 15 of the act to furnish information as to the moneys standing to the credit of the New South Wales

Government, and to pay such moneys to the Commonwealth Bank.


Mr James - Motherhood endowment moneys !


Mr LYONS - If the money in the bank, was the only money that Mr. Lang had available for motherhood endowment payments, he had not enough to meet those payments for half an hour. A demand was also made upon the trading banks to pay within two months to the Commonwealth Bank any moneys that they might subsequently receive on account of the New South Wales Government.

When the Financial Agreement Enforcement Bill was under consideration in this House the New South Wales Government had defaulted only in respect of external interest payments; but since then it has defaulted also in regard to internal interest payments.


Mr James - The Commonwealth Government is forcing it to do so.


Mr LYONS - It is not forcing it to do so ; it is merely endeavouring to recover amounts which the Commonwealth has already paid on behalf of New South Wales. The latest default by New South Wales occurred in respect of a payment due on the loth April. At present New South Wales is in default in interest and exchange by £2,730,541. Against this amount is to be set £505,341, a sum made up mainly of contributions towards interest -on the debts of New South Wales due by the Commonwealth under the Financial . Agreement. The net amount of the State's default is therefore £2,225,200.

Regulations have been made recently to give the Commonwealth Government power to obtain taxation documents relating to Commonwealth and State assessments in New South Wales which had been impounded. The impounding of these documents has made it impossible, for the time being, to issue assessment notices, and this is creating additional difficulties for the Commonwealth. Since "those regulations were drawn up no further action has been taken in pursuance of the regulations.

Although the validity of the Financial Agreements Enforcement Act has been upheld, the Premier of New South Wales and his Government have continued to default, and to resist the efforts of the Commonwealth Government to recover from Stale revenues the amount which the Commonwealth has paid on behalf of New South Wales in respect of its default. If the State continues to default in its internal and external interest payments until the 30th June, the gross amount of its default will be £7,200,000. Against this amount the Commonwealth Government will be able to offset about £1,500,000, being moneys due by the Commonwealth to New South Wales. This will leave the net amount of the default by New South Wales at the 30th June at £5,700,000 which must be recovered under the Financial Agreements Enforcement Act from the State revenues.

The action of the New South Wales Government in continuing to default is a definite menace to the financial stability and solvency, not only of New South Wales, but of every State in the Commonwealth, and is tending unceasingly to damage the reputation and credit not only of the States, but also of the Commonwealth. If the State Government is allowed to continue its present course, very grave difficulties lie ahead of the Commonwealth Government, and of all the State Governments. The actions of Mr. Lang and his Government are also destroying the credit of this country overseas at a time when it is essential that we should maintain our credit. In the immediate future we have to meet a conversion loan of £18,000,000 on account of the New South Wales Government, but its conduct is making an already difficult task infinitely more difficult.

The steps which the Commonwealth Government have taken in this matter have been rendered necessary by the sheer dishonesty of the New South Wales Government. The Commonwealth Government has not sought to recover one penny which does not belong to it, and which it has not already paid on account of New South Wales. Even if the New South Wales Government insists on continuing its dishonest conduct it is essentialthat the Commonwealth Government shall do its best tt> save the reputation of Australia in the eyes of the world. We are not seeking to make a farthing of profit out of these transactions; we are simply seeking to protect the good name of the

Commonwealth. That has been the impelling force behind every move which we have taken.

If the. New South Wales Government is allowed to continue to default up to and beyond the end of June the Commonwealth Government will only be able to meet its indebtedness -with the help of the Commonwealth Bank. But the position is worse than that. If the New South Wales Government continues on its present course, the time is not far distant when all the other State Governments and the Commonwealth Government will also have to default. It is because we are concerned about the position of. the other States and also about the position of the people of New South Wales - because the citizens of New South Wales are also citizens of Australia, and Commonwealth electors and taxpayers - that we are so much concerned about maintaining our good name and reputation in Australia, and in other parts of the world. If, as the honorable member for Hunter (Mr. James) has said, the people of New South Wales are satisfied with the conduct of Mr. Lang and his Government, why are not that gentleman and his followers prepared to face the issue immediately on the platforms of this country?

The Commonwealth Government firmly believes that the people of New South Wales are overwhelmingly behind the action it has taken. If honorable members who support the Lang Government feel that the people of New South Wales are behind its policy, why all this delay in seeking the verdict' of the electors? Every month that that verdict is delayed will increase the difficulties of the people of New South Wales, aud, indeed, of the people of the whole Commonwealth. It is for that reason that the Commonwealth Government has made these payments on behalf of the Government of New South Wales; but Ministers feel that they owe it to the taxpayers of the Commonwealth to recover those moneys from the State. The Commonwealth Government has become liable to the banks from which it has obtained the money to make these payments; it has accepted that liability in the name of the taxpayers of Australia. In this matter, the Commonwealth Government represents the taxpayers.

A sense of duty to the taxpayers of the Commonwealth has actuated the Government in proceeding to recover for them the money that it has expended on behalf of the taxpayers of one State. Having taken the first step, the Government, in this measure, now proceeds to take another step; and I say, advisedly, after a full consideration of every aspect of the question, that it will see this matter through until finality has been reached. This legislation will make it possible for the Commonwealth Government to do certain things which it has set out to do; it will also remove certain doubts which have arisen regarding the existing legislation.

Under section 8 of the principal act, no action can be commenced by a State against persons who make payments to the Commonwealth in accordance with the terms of that act; but it is possible that the State may impose fines or other penalties upon them. Clause 2, therefore, inserts a provision prohibiting the imposition of any fine, penalty, forfeiture, or other disability upon any person by reason of his having made payments to the Commonwealth of moneys which, but for the Commonwealth legislation, would have been payable t'o -the State, or by reason of the fact that he has not. paid the amount in question to the State.

Clause 3 inserts a1 new section 8a relating to cases in which the amounts payable under a State law for the issue of a licence certificate, or other document are paid to the Commonwealth in accordance with the terms of the Commonwealth act. In such cases, provided that all the other conditions imposed by the State law have been complied with, the State officer or employee whose duty it would he in the ordinary course of business to issue any such document, is required to issue it to the person concerned, upon production of a receipt showing that the correct amount has been paid to the Commonwealth. So far, no attempt' has been made to collect revenue of this kind, because it has been feared that the State might refuse to issue a licence unless it received the money. The clause further provides that failure on the part of a State officer or employee to comply with the provisions of this section will render him liable to prosecu- tion in terms of section 21 of the principal act.

Section 10 of the principal act provides that moneys which, but for the Commonwealth act, would be payable to the State, must not be paid to any person other than the Treasurer or an authorized person. Some classes of State revenue which are, or may be, subject to attachment under the act, are of such a nature that it may be deemed advisable to allow State officers to continue to collect them and to deal with them as directed by the Treasurer, with the object of such revenues ultimately reaching the Commonwealth.

Clause 4 amends section 10 to provide that the Governor-General may issue a proclamation declaring that a particular class of specified revenue is of such a nature that the payment of any moneys included in that class shall be made to an officer or an employee of the State, and that the officer or employee shall deal with such money as directed by the Treasurer. Upon the issue of such a proclamation, any officer or employee of the State who receives payments of the kind mentioned will be required to deal with them as directed by the Treasurer, and any failure on his part to do so will be a contravention of section 21 of the principal act.

A new section 13a, which will be inserted in the principal act by clause 5, provides that after a resolution has been passed by both Houses of the Parliament, each House may, a't any time, and from time to time, pass a further resolution specifying additional classes of State revenue to which sections 7 to 13 of the Commonwealth act shall apply. When such further resolution has been passed, the classes of revenue specified therein will be deemed to have been specified in the earlier resolution. At present, it is doubtful whether Parliament could, by resolution, specify any new class of revenue to be attached, even though the certificate of the Auditor-General was for an amount sufficient to cover the additional revenue sought to be attached, unless a further certificate were given by the Auditor-General. The new section will remove that doubt.

The object of clause 6 is twofold ; first, it alters the form of notice to be given to the banks under section 15 of the prin- cipal act; and, secondly, it empowers the Treasurer to release moneys which have keen paid to him under that section but which are, in substance, trust moneys, not moneys the property of the State. Fur.ther information about this can be given in committee.

In conclusion, I repeat that the Commonwealth Government is determined to follow the course which it proposed when introducing the Financial Agreements Enforcement Bii.1. We are not influenced by political or party motives; but are acting in the interests of all sections of the Australian community. We are resolved to uphold the good name of Australia, and its reputation for integrity. This nation has been tried by difficulties and depressions in the past, and it has always held its head high in the severest tests. Only to-day, for the first time in our history, do our people feel tempted to hang their heads in shame, because of the action, not of a State, but of one particular Government ; the action of one man, who has dominated the politics of his State and the government over which he presides. This Commonwealth Government is determined to uphold the reputation of Australia.


Mr James - It is a pity that the Prime Minister does not display as much interest in the welfare of the people of the Commonwealth as Mr. Lang has shown in the weill-being of the citizens of New South Wales. The Prime Minister's interest lies in people overseas.


Mr LYONS - If the State of New South Wales - I mean the Government of New South Wales, and I apologize to the people of that State for associating them with its present Government - is permitted to .continue its present dishonest course, , e,von greater -injury will befall the workers - for whom I know the honorable member for Hunter (Mr. James) to be concerned - than has come to them in recent years, and that is saying a great deal. Injury will come, not only to the workers of New South Wales, but also, unfortunately, .to those in remote parts of Australia who assisted in no .degree in the return to power of the present G.Orvernment of New South Wales. No country which loses its reputation for integrity and honesty .can expect to avoid the evils which follow repudiation of the kind for which the New South Wales Government stands. Therefore, my Government is determined to proceed on its present course, in order that it may eventually recover the amount due to" the Commonwealth, and convince the Government of New South Wales that continuance along the path which it has followed up to the present time would inevitably bring destruction upon the people of New South Wales and of the Commonwealth as a whole.

I appeal to honorable members generally to assist the Government. We have passed legislation which the High Court has declared to be valid, and since we are operating under the law of the land, any government that obstructs the efforts df the Commonwealth Government to operate under that legislation is acting in contravention of the law. I urge honorable members to forget party interests, and to act in this matter with a view to promoting the interests of the people of Australia generally, by assisting the Government to carry out the declared policy of this Parliament.







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