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Wednesday, 27 April 1932


Mr BRUCE (FLINDERS, VICTORIA) (Assistant Treasurer) . - As the Prime Minister (Mr. Lyons) has told the House, this is a bill to amend the Financial Agreements Enforcement Act. Its object is, first, to protect those persons in New South Wales who comply with the Commonwealth law, and, secondly, to increase the powers of the Commonwealth, so that it may act more effectively for the recovery from the Government of New South Wales of the moneys paid on behalf of that State by the Commonwealth.

In considering the measure we have to decide whether or not it is necessary that the Commonwealth should recover from New South Wales the money paid by it on behalf of that State. Before proceeding to discuss that question, I desire to say a word or two in reply to statements made during this debate. The right honorable the Leader of the Opposition (Mr. Scullin) and the honorable member for Darling (Mr. Blakeley), speaking with one voice, made it clear that the attitude of the Opposition to this measure had been carefully considered. They were non-committal, and contributed nothing of value to the debate. The course agreed upon between those honorable" gentlemen, and, no doubt, by the whole of their party, is to endeavour to make this matter appear to be, to use the words of the honorable member for Darling (Mr. Blakeley), " a political dogfight." I suggest that this is unworthy of the official Opposition, having regard to the fact that we are now dealing with one of the gravest problems with which this Parliament has ever been confronted. I shall leave their remarks at that.

The leader of the Country party (Dr. Earle Page), and the honorable member for Gippsland (Mr. Paterson) both treated this subject with the seriousness which it demands, and stated that they and their party are prepared to support the Government in its present action.

The honorable member for Hunter (Mr. James) made a bitter attack on me, attributing utter impropriety to all my actions and motives, but the only comment I have now to make on his speech, and on that of the- honorable member for Dalley (Mr. Rosevear), is that the opinions expressed by those honorable members on the issue before the House are tragically wrong, and their adoption by the people' of Australia would inevitably result in disaster to this country. The honorable member for Hunter defended the dishonorable and disgraceful actions of theGovernment of New South Wales. He tried to extenuate them by saying that they have been taken' to benefit widows and orphans, and to relieve the poor and suffering in the State of New South Wales. Yet, if the facts are examined, it must be seen that the Government of New South Wales is bringing more and more trouble upon the very persons whom, I have no doubt, the honorable member sincerely desires to help and protect.

The honorable member is gravely misinformed on many points. He and the honorable member for Dalley reiterated the opinion that, if Australia defaulted, it would be doing merely what has been done already by other countries; that, indeed, it would be almost a courageous act for Australia to follow their lead. No doubt they draw their inspiration from the speeches of Mr. Lang, who, notwithstanding the constant repetition of his statements, knows perfectly well that what he is saying is absolutely untrue, and is deliberately attempting to deceive the people. The other day he told the public of Australia that the attitude of the New South Wales Government was analogous to that of Great Britain, and he said that, if he was to be condemned, so should Mr. Ramsay MacDonald. That statement was absolutely false. Australia is in exactly the same position as Great Britain with regard to what relief from interest payments is now being experienced. That relief applies only to war debts, regarding which there have been arrangements made between different countries. An absolute moratorium has been declared, during which there is a cessation of all interest payments on war debts. By that, Great

Britain has certainly benefited, and so has Australia. At the present time this country is not paying one penny of interest on the amount of its war debt due to the British Government.

Let us consider the class of debts that are now being repudiated by the Lang Government. The arrangements for the suspension of interest payments and for the reduction of indebtedness to which I have referred have been made between governments; they apply to debts owed by one government to another. But in no case has Great Britain refused to meet her obligations to her own bondholders, to whom she is paying interest in full on the thousands of milli.ons of pounds borrowed for war purposes. Not one farthing of the indebtedness due to her own people has been repudiated by Britain, nor has she taken any dishonorable action with regard to it. The New South Wales Government, on the other hand, has refused, to pay interest on money advanced for the purpose of carrying on public works in that State. That money is not owing to rich capitalists or persons of great means, but to the very class which the honorable member for Hunter desires to protect. Does the honorable member realize that the number of bondholders in Great Britain who hold Australian securities is about 500,000, and that the amount of interest drawn by them averages about £50 per annum? Yet those are the persons who are described by honorable members opposite as " bloodsucking Shylocks " to whom we should refuse to pay interest!

The charge was. made by the honorable member for Hunter that the brutal tyranny exercised by the Commonwealth Government in getting this legislation passed through this Parliament is forcing Mr. Lang to cease from doing those things on which he has sci much at heart ; that we have made it impossible for Mr. Lang- to continue the payments to widows and orphans and to maintain all the other social services that have been provided in the past in New South Wales. No doubt the honorable member truly believes that the action of the Commonwealth Government has caused the present situation in New South Wales, but that is contrary to the facts. Mr. Lang ought to be in a better position to meet the cost of those social services than he would have been in in ordinary circumstances, because the figures quoted by the Prime Minister (Mr. Lyons) show that, since the end of January, when the default began, Mr. Lang has failed to meet obligations totalling £2,730,000. As a set-off the Commonwealth Government has retained £505,000; therefore, Mr. Lang is £2,225,000 better off than he would have been had he paid his debts, and should be in a position to meet those obligations which, he says, we ' are preventing him from paying. The fact is gradually being disclosed that he has been deceiving the people. He has been talking of building up a fund to pay child endowment in New South Wales, but it is now proved that that fund is bankrupt and rotten to the core. This is due, not to any action of the Commonwealth Government, but to the position into which Mr. Lang has brought New South Wales. His difficulty in meeting his obligations with respect to social services is attributable solely to the condition into which New South Wales has drifted since he assumed office.

The question to which we must address our minds is whether it is possible to obtain the reduction, of our overseas interest by negotiation. Many people seem to be unaware that the difficulty of bringing this about by negotiation is insuperable. It is suggested that we should, by negotiation, induce those persons overseas, who hold Australian securities, to agree to the reduction of interest in the same manner as the bondholders in Australia voluntarily, and with amazing patriotism, agreed to convert our internal debt to a lower rate of interest. I would remind the House that to enable effect to be given to the desire of those Australian bondholders who wished to 'help their country in its hour of need, it was necessary to pass through every State Parliament an act empowering trustees to convert such stock as they held, and it is, of course, impossible for us to pass such legislation with respect to the holders of bonds contracted for overseas. It is almost certain that the great majority of the stocks held overseas is trustee stock, held on behalf of beneficiaries, and the trustees of such stock have no power to agree to any alteration of the contracts concerning it. As for attempting to negotiate with overseas bondholders, I would say that there is nobody who represents them, or could speak for them. There is a committee of foreign bondholders, but it represents only the interests of stockholders as a whole, in cases of default, when it does its best to recover something for those whom it represents; there is no organization with whom negotiations could be carried on regarding the rate of interest on Australian overseas debts. Therefore, we would have to negotiate with the bondholders individually. We should then find that half of them are trustees, who could not, even if they wished to do so, make any concession. And all the time, Australia's credit would be getting lower and lower. In the last-few days, Australian stocks have slumped badly in London owing to Mr. Lang's declaration at the recent Premiers Conference. Since the 21.st March, our leading stocks have fallen more than 10 per cent. Australian 5 per cents, have fallen from over £90 to about £80. The drop would be much greater if we tried to negotiate in London under impossible circumstances to bring about a reduction of our interest there. The idea is impracticable, and the public should know it.

I turn now to the question how a reduction of our interest may be possible,. Everybody realizes that a reduction is desirable. Our war debts are in a class apart. We hope that the present moratorium will be continued, and that if we do not have a final settlement at the Conference on Reparations and War Debts, which is to be held in June, at least the present arrangement will be continued. As to our ordinary debts, every thinking person realizes that the burden of debtor countries has become almost intolerable, owing to the terrific fall in commodity -world prices. Fortunately, in many respects, Australia is not the only debtor country. The debtor countries are in the majority, and, owing to the world position, it is now a matter of concern to the creditor countries that something should be done to ease the position of the debtor countries and to assist them to prosperity. A satisfactory conclusion can be reached only by a great international movement for the proper handling of war debts, and for putting the world's finances on an improved basis.

Sitting suspended from 6.15 to 8 p.m.


Mr BRUCE (FLINDERS, VICTORIA) - If the burden at present pressing upon debtor countries - a burden made heavier by the prevailing low level of commodity prices - could be eased by the general reduction of interest rates, it would benefit, not only the debtor countries, but the creditor countries as well. There are, however, difficulties in the. way of this. It has been suggested that a period of low interest rates might be brought about by international agreement. That would enable huge conversions of the debts owed by various coun-tries to be made on the basis of reduced interest rates. It is evident that the benefit which could be derived by each debtor country from any such action would depend upon the level at which its credit stood in the eyes of the world. Australia's object to-day should be the improvement of her credit by every possible means; so that when a suitable opportunity occurs, our credits being good, we shall be able to convert some of our debts at a lower rate of interest.

I use the word " some " advisedly, because there is considerable misunderstanding in many quarters about the rates of interest charged on Australia's indebtedness. Those who glibly discuss this matter talk as if Australia's chief aim should be to get the interest rate on all her debts reduced, whereas Australia has in the past borrowed a great deal of money at cheap rates, that is to say, at rates lower than any at which we could reasonably hope to convert. It is the higher interest-bearing securities that we require to convert. Our total external indebtedness is just short of £600,000,000. Of that we have borrowed £97,000,000 at rates less than 4 per cent.; £166,000,000 at 4 per cent., or under 5 per cent.; £237,000,000 at 5 per cent.; and £98,000,000 at over 5 per cent. It is only in respect of those securities bearing the higher rates of interest that we could expect to negotiate profitable conversions. Even Mr. Lang, that apostle Of the policy of reducing interest rates - when in his more respectable moods, and not declaring straightout repudiation - has never suggested that interest rates should be reduced below 3 per cent. Well, at present nearly £100,000,000 of our indebtedness carries an interest rate of approximately 3 per cent. On £30,000,000 we pay 3 per cent; on £5,000,000 we pay £3 2s. per cent.; on £53,000,000 we pay 3£ per cent. ; on £3,700,000 we pay 3-} per cent.; and on. £50,000,000 we pay 4 per cent. Practically all our bonds bearing interest at more than 5 pei: cent, may, under the terms of the contract, bc redeemed by us at any time.

That part of our war debt which we owe to Britain is included in the sum: I have mentioned. I understand that today the honorable member for Dalley (Mr. Rosevear) said that Australia was paying to Britain 6 per cent, interest on money for which Britain herself was paying only 3 per cent. That statement has been made quite freely by various gentlemen who subscribe to what is known as the Lang plan, though it is not true. Under the Hoover moratorium, we arc not now paying interest, nor contributing to the sinking fund in respect to the overseas war debt; but the rate of interest we were paying was £4 18s. 4d. - not 6 - per cent., and the balance went towards liquidating the debt by creating a sinking fund. The average rate of interest which Britain herself is paying on the money she lent to us is approximately the same as we have been paying to her.

As I have said, the measure of relief which we may expect from any interest reduction schemes will depend upon the state of our credit with creditor countries. The condition of our credit, in turn, will depend upon the success of our efforts to overcome our difficulties; whether, in fact, we have convinced the world that we are an honest, honorable, and upright people, determined to meet our obligations, a people whose word can be taken, and whose securities it is safe to buy.


Mr Gregory - If we are unable to do this, what will happen in respect of the sum of £13,000,000 which is due for repayment in November next?


Mr BRUCE (FLINDERS, VICTORIA) -- A little while ago there was every prospect of our being able to handle that loan satisfactorily. The impression caused by Australia's adoption of the Premiers plan, and her obvious and determined effort to overcome her difficul ties, had greatly enhanced her credit abroad. As the result, within a period of six weeks towards the latter part of last year, Australian securities advanced, on an average, by approximately twenty points. Had the position been maintained, there was every prospect that we should be able to work our stocks up to a point at which there would have been no difficulty in converting the securities falling due in November. This debt represents money borrowed by .New South Wales. However, the action of Mr. Lang, when for the second time he repudiated his obligations, went back on his undertakings, broke his pledged word, and departed from the Premiers plan after swearing to carry it out, so damaged Australia's credit that Australian stocks immediately began to fall, and the chances of carrying out a successful conversion were greatly diminished. Mr. Lang's most recent actions have still further aggravated the difficulty. Since the middle of March there has been a slump in Australian securities of approximately ten points, this loan of £13.000,000 being one of those affected. Previously, the securities representing this loan had risen as high as 95 per cent., but they have now fallen, back to 91. This slump has made successful conversion nearly impossible.

It is only with high credit that we can get low interest rates. Had the improvement in 'our credit been maintained, it is almost certain that, at the end of this year, we should have been able to convert at a lower rate of interest the securities then falling due. To-day there is grave danger that we may not be able to convert those securities at all, and, unless a change takes place in the meantime, if we are able to convert, them, it will be on the basis, not of 'lower, but of higher interest rates, thus perpetuating the evil we wish to mitigate. The £13,000,000 loan which falls due in November next represents only a small portion of the vast sum, amounting to hundreds of millions of pounds, that must be converted or paid off within the next few years. Unless we go forward in a determined manner to reestablish our credit abroad, we shall find, when the time comes to convert other securities, that our interest burden, far from being lightened, will become even heavier than it is to-day. Therefore; the

Government intends to press forward with its action under the Financial Agreements Enforcement Act. We are now asking Parliament to amend the act so as to increase the power of the Government. The Prime Minister has said that he will take all requisite steps to make the State of New South Wales honour its obligations.


Mr E J HARRISON (WENTWORTH, NEW SOUTH WALES) - The Government of New South Wales.


Mr BRUCE (FLINDERS, VICTORIA) - I should have said the Government of New South Wales. If we examine the situation, we shall see that it is absolutely necessary that New South Wales shall pay the interest owing on its own debts, and honour its obligations, unless Australia as a whole is to fail to meet her obligations, and defaults on her interest payments. If New South Wales, the biggest and richest of the States, containing two-fifths of the population of the whole Commonwealth, persists in the attitude that she will not pay interest on her indebtedness-


Mr James - She does not say that she will not, but that she cannot.


Mr BRUCE (FLINDERS, VICTORIA) - I remind the honorable member that, when his leader first defaulted, his declaration was " I won't." Only recently has he changed his cry to " I can't." If this powerful State of New South Wales will not bear its own burden, the rest of Australia must do so for her, or allow Australia to default. Victoria, Queensland, South Australia, Western Australia, and Tasmania will all have to carry heavier burdens because the biggest and richest of the States chooses not to pay what she has contracted to pay. Over any long period this burden would become too great for the rest of Australia to bear, and the Commonwealth would have no alternative 'but to default.

Some persons talk lightly of default, but have they ever considered what that would mean to Australia? To-day, the supporters of the Lang plan say that they intend to keep every social service at the existing level; but they have forgotten that les3 than twelve months ago Mr. Lang himself attended a conference in Melbourne, and subscribed to the Premiers plan, because he agreed with the other Australian. Premiers, and the Prime Minister of the Commonwealth, that unless some such plan were given effect Aus tralia could not pay more than 12s. in the fi in respect of any of its commitments, including old-age pensions, child endowment, sustenance for the unemployed, and every other social activity in the community. Less than twelve months have passed since Mr. Lang, who is blindly supported by the advocates of the Lang plan, admitted that Australia had come to such a pass that unless drastic action were taken the inevitable result would be government payments on the basis of 12s. in the £1. Yet, to-day, these people are saying that we ought to default, and that we are at liberty to disregard our financial obligations altogether so long as the people of New South Wales are allowed to enjoy their present social benefits, such as child endowment, widows pensions, and sustenance for the unemployed. In such circumstances, it is certain that within a limited period we would reach a pass when it would be a question of the payment of not 12s. in the £1, but a mere pittance to those who to-day are benefiting by the social services of this country. What would it mean to Australia if we were to default? There would be, in the first instance, an immediate flight of capital from this country. Those persons who could realize on their assets would send their money elsewhere to prevent a worse catastrophe befalling them. The supply of London funds of sterling to buy the Australian £1 would be dried up, and the immediate effect would be a tremendous raising of the exchange. The value of the Australian £1 would drop against sterling, and that would bring about the very result which has been objected to this afternoon, when it was pointed out that the raising of the exchange increases the burden on budgets. The exchange would be increased, not by 5 per cent, or 10 per cent., but by 30 per cent., 40 per cent., 50 per cent., and even more, and the burden on budgets would become absolutely unbearable, so that we could not raise revenues to meet it. There would than he no funds from which to pay social services. Our obligations would, have increased, and our revenues would have dropped because of diminished production. The position would become worse and worse, until we had in this country a state of chaos which to-day we cannot realize, notwithstanding the trials and tribulations through which we are passing. That is inevitably what must happen if the Lang plan is given effect in Australia.

It is time, therefore, that the Australian people rose up in their wrath, and destroyed the advocates of the Lang plan, which if followed must force Australia along the path to dishonour and disaster. It is tragic that we should have in Australia persons who advocate such a plan, persons who are misleading the people into thinking that they would be benefited by its operation.. Australia is probably the only country in the world which has an actual chance of returning to prosperity within a reasonable period of time. If, by means of an international effort, the general price levels of commodities were raised, and we in Australia had kept our currency upon a proper basis, holding the position as at present, no one could calculate the immediate benefit to Australia ; the reaction would be probably the most marvellous experienced by any country in the world. We must remember that Australia to-day is better equipped than it has been at any other time in its history to take advantage of a revival in world prices. T'hese hard times, if they have done nothing else, have caused us to be better equipped to take advantage of any benefit that may come in our direction. That opportunity will not long be postponed. The Prime Minister (Mr. Lyons) said this afternoon that if we can only hold this nation steady for another year or two there is not the slightest doubt that we shall emerge triumphantly from our difficulties. Surely it is worth the while of the people of Australia to make every conceivable effort to reach that goal - a goal which is not very far ahead. During the war, we showed that we were a people who when faced with adversity would stand fast and firm. At that time we had troubles to face similar to those which are operating to-day. As the war dragged on, and the pressure became greater, those of little heart in the community contended that we should refuse to send more troops, and should negotiate forthwith for peace; they were prepared to end the war at any price. But the more courageous stood fast. We saw the war through, and Australia emerged from it with its name, its prestige, and its reputation enhanced. Today, in a time of peace, we are experiencing a similar period of trial and tribulation, and' again there are among us timorous souls who advocate that we a? a nation should follow the dishonorable course, so that some immediate relief may be given to the community generally. I believe that the people of this nation will again stand fast and firm, and will refuse to accept the opinions and doctrines of these counsellors of cowardice which would lead us to destruction. There is an obligation upon us all to do everything possible to hold the nation firm. For that reason, whatever it may mean, we must take action against the Government of New South Wales and the Premier of that State, to compel them to stand to their obligations, and to prevent them from bringing on. Australia ruin and chaos, which is what would inevitably be tho effect of the adoption of the Lang plan.







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