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Wednesday, 28 March 1928

Senator Sir GEORGE PEARCE (Western Australia) (Vice-President of the Executive Council) [5.57]. - I have been somewhat struck by the tone adopted in this debate by certain honorable senators, who have referred to the Commonwealth in terms which would lead one to suppose that it is a foreign body, in the shaping of whose destinies Australians do not share. As a matter of fact, it has the same taxpayers and the same voters as the States. I also draw attention to the adulation that the per capita system has received. I could understand the representatives of New South Wales and Victoria bowing down before that system, which suits them admirably, but that a representative of any of the smaller States should have aught that is good to say about it is surprising. There is a test which can easily be applied. If the per capita system is just and equitable to States like Western Australia and Tasmania, why do they find it necessary to approach the Commonwealth for special grants? The fact that they do is the strongest possible condemnation of the per capita system, and proves that it is inequitable and unjust to those States.

Senator Needhamanalysed what he said would be the position of Western Australia under this agreement over a perio'd pf 58 years. I agree with one speaker who said that it is dangerous to adopt the role of a prophet, and forecast .what will happen in 58 years. The honorable senator compared the estimated benefits to Western Australia under the agreement with the amount which that State would receive under the system of per capita payments. There was no guarantee that that system would survive the next elections, yet all his forecasts and prophecies were based upon the assumption that it would continue for the next 58 years! Assuming that it was a permanency - a very tall assumption - he arrived at the conclusion, that had already been arrived at by an honorable member from Western Australia in another place, that under the agreement that State will be worse off to the extent of £20,000,000 than it would be under the per capita system. The obvious inference is that, in his opinion, this agreement is not sufficiently liberal to Western Australia. I point out, however, that the views of the Leader of the Opposition in this chamber are in strange contrast to those of the Leader of the Opposition in another place. That gentleman said that his is a good bargain for the States and a bad one for the Commonwealth; that we are giving away too much; and that the agreement ties the hands of the Commonwealth. I commend to Senator Verran Mr. Charlton's references to certain coming obligations of tie Commonwealth respecting such matters as child endowment, unemployment insurance, widows' pensions, and industrial arbitration, because a good deal of significance attaches to them. What did he have in his mind when he made those references, except that those schemes should be financed by the Commonwealth at the expense, if necessary, of the payments to the States and that the States would have to re-adjust their finances accordingly. Apparently the interests of the States were not to be considered. The views which he expressed, however, are consistent with those held for some years by the Labour party. But for the opposition, of that party, the per capita system would have been embodied in the Constitution in 1910, when the Liberal party proposed to make it permanent. That scheme was opposed by the Labour party, and the electors rejected it.

Let us now consider Senator Needham's attempt to belittle the agreement by making an unfavorable comparison with a permanent per capita system. His party would oppose that system just as strenuously to-day as they did in the past, if the Government brought it forward. The comparison which he has made serves little or no purpose. . He has compared assured payments with payments under the per capita system which cannot be assured; in other words, a certainty with an uncertainty. But quite apart from that aspect, his figures are altogether astray, and do not truly represent the position. In the first place, his estimates of payments to Western Australia have been based on an estimated increase of population at the rate of 3 per cent, per annum. Where is that increase to come from? It cannot be the result of the natural increase, which is only l£ per cent. It can be achieved only by immigration on a large scale, which he. and his party are always attacking. Are we to understand that they are likely to have a change of heart, which will lead them to support immigration? That is the only way ±o ensure an increase in the population at the rate of 3 per cent, per annum. The population of Western Australia admittedly has doubled since the inception of federation ; but an analysis of the figures shows that that is largely attributable to the boom which was caused by the discovery of gold in the early days. The increase in the last six years has been, approximately, 2.65 per cent., as compared with the average Australian increase of 2.1 per cent. For the sake of argument, let us agree that that high rate of 2.65 per cent, will continue for the next 58 years. On that basis the per capita payments would amount to £66,000,000, not £74,000,000, as stated by the honorable senator.

The benefits to Western Australia under the agreement include interest payments as follows: - Fixed contribution of £473,432 per annum, which, in 58 years, will amount to £27,459,000; and an increased interest payment in respect of transferred properties totalling £11,047 per annum, which in the same period will amount to £641,000; making a total of £28,100,000, compared with the estimate £66,000,000 under the per. capita system - apparently a loss of £37,900,000. But that tells only half the story. Allowance must be made for the benefits that will accrue under the sinking fund provision. The Commonwealth will contribute at the rate of 2s. 6d. per cent, on existing debts and at the rate of 5s. per cent, on all new borrowing, for that period of 58 years. Accepting Senator Needham's estimate of £4,000,000 per annum as the amount that Western Australia will borrow, the total sinking-fund contributions of the Commonwealth will in 58 years redeem a debt of £66,000,000. During the period of 58 years, Western Australia will receive interest payments amounting to £37,900,000 less than would have been paid to that State had the per capita system been continued. She will, however, reap the benefit of sinking fund contributions by the Commonwealth, which will redeem a debt of £66,000,000. Senator Needham took no account of the accrued benefit to the States by reason of the advancement of Australia's credit which this agreement will effect. We have only to look to Canada, South Africa, and New Zealand to see what we can expect when this agreement is in force, and the Loan Council is operating. New Zealand and South African stocks are quoted on the London market at about £3 10s. per cent. better than comparable Australian stocks. In the case of South Africa particularly, with her racial problem, that is significant. "Will honorable senators say that the security offered by South Africa is greater than that which any Australian State can offer? The position is due entirely to our foolish, competitive and unregulated borrowing system, and to the absence of a proper sinking fund provision in some of the States.

Both Senator Chapman and Senator Verran referred to a royal commission appointed by the South Australian Government to inquire into the effect of federation on that State.

Senator Sampson - What was the personnel of the commission?

Senator Sir GEORGE PEARCE - I shall deal with that presently. Let me refer first to the inquiry into the disabilities sufferedby Western Australia through federation. The Commonwealth Government did not appoint three Western Australians to undertake the investigation. Instead, it appointed three gentlemen from the eastern States, who were in no way connected with Western Australia. They made an impartial investigation, and heard evidence from all sections of the community, not merely from civil servants in the employ of the Western Australian Government. The South Australian Government, on the other hand, appointed a royal commission of South Australians. Evidently it was determined to get a favorable verdict.

Senator Chapman - The commission was appointed merely to obtain data for future use.

Senator Sir GEORGE PEARCE - I thought that the honorable senator said that the commission appointed by the South Australian Government was comparable with that which investigated the position of Western Australia. If I have misunderstood him I shall not pursue the subject further. Listening to Senator Chapman's speech one would have thought that the Commonwealth Government was a foreign institution. Both he and Senator Herbert Hays referred to economies effected by the States, and to the heavy burden of taxation in all the States. I ask those honorable senators to name one responsibility now shouldered by the States which was not theirs in 1914. With the exception of the reduced purchasing value of the sovereign, the war did not add one responsibility to the States. On the other hand, I could name half a dozen responsibilities assumedby the Commonwealth since 1914 as the result of the war. I need only mention the war debt and the interest thereon, war pensions, and repatriation. Liabilities totalling £30,000,000 per annum have been added to the Commonwealth since 1914. Yet some honorable senators would have us believe that the States are the unfortunate victims and that in some way the Commonwealth is to blame. Apart from the reduced purchasing power of the sovereign, the States are in no worse position to-day than they were in 1914. That disability, however, is suffered by the Commonwealth as well as by the States.

Senator Herbert Hays - The States have to meet increased expenditure for developmental purposes.

Senator Sir GEORGE PEARCE - Senator Chapman devoted considerable time to explaining the disadvantages suffered by South Australia by reason of her lack of coal. I ask what that has to do with the financial agreement. Surely the honorable senator does not suggest that the continuation of the per capita payments would result in coal being found in South Australia. If there had been no federation South Australia would still suffer the disadvantage of lack of local coal supplies.

Senator Chapman - I said that Victoria and New South Wales, whose coal mines made secondary industries possible, benefited most from the tariff.

Senator Sir GEORGEPEARCE.Senator Carroll referred to the difficulty which will be experienced in connexion with the net debts of the States. If he will turn to the agreement he will see under the heading " Permanent provision ; Taking over States public debts " that it provides -

Subject to the provisions of this part of this agreement the Commonwealth will take over on the 1st July, 1929 - (1) The balance then unpaid of the gross public debt existing on 30th June, 1927; and (2) all other debts of each State existing on the 1st July, 1929, for moneys borrowed by that State which by this agreement are deemed to be moneys borrowed by the Commonwealth for and on behalf of that State - and will in respect of the debts so taken over assume as between the Commonwealth and the States the liabilities of the States to 'bond holders.

The Commonwealth will make to the States payments towards sinking funds not already provided for and also contribute to sinking funds already established. In the case of Western Australia or Tasmania the moneys so paid will not be applied to the extinction of the debts, say of Queensland, but to the debts of the States concerned. It will be seen therefore, that the arrangement does no injustice to Western Australia.

Senator Verran asked whether the agreement would lead to unification. It will not. The Constitution originally provided that the Commonwealth might take over the debts of the States existing at the time of federation. Senator Verran will agree that it would be foolish for the Commonwealth to take over the debts of the States which existed then and not those which have been incurred since federation. All that this agreement does is to seek the approval of the people to alter the Constitution so that it will apply to all the debts of the States.

Sitting suspended from 6.15 to 8p.m.

Senator Sir GEORGEPEARCE.I have shown Senator Verran that provision is made in the Constitution for taking over the State debts, and, therefore, it cannot be said that that feature of the agreement is a step towards unification. There are two other main features of the agreement to which I desire to refer. The first is the formation of a permanent Loan Council, and the second the proposed establishment of a sinking fund for the liquidation of all debts, payments into which are to be made by both the States and the Commonwealth. No one would argue that the formation of a Loan Council is a step in the direction of unification. On the contrary, it is a step in the direction of co-operation. In any case, if the States feel that the Commonwealth is wrongfully using its power on this council, they have the predominating voice; five of them can block the Commonwealth if they choose to do so. But, surely, no one would argue that in order to avoid the Scylla of unification, we should run on the Charybdis of making the Commonwealth, whose borrowing powers are also to be limited by the council, subservient to the States. What is sauce for the goose is sauce for the gander. If the formation of a Loan Council is a step in the direction of unification that has not yet been demonstrated.

In regard to the interesting graph ' Senator Lynch has displayed, all I have to say is that graphs are very instructive provided they are complete; but, unfortunately, the honorable senator's is not complete, inasmuch as it does not show the liabilities of the States. It shows that during the 58th and the 59th year there will be a drop of £8,400,000 in Commonwealth contributions to the States; but it does not show that in the same year there will be a drop of £3,000,000 in the liabilities of the States. Because their present debts will have been wiped out, and their necessity to contribute interest and sinking fund in respect of those debts, consequently, will have gone, there will be a drop in the annual liabilities of the States amounting to £30,000,000, so that, allowing for the £8,400,000, they will actually, be in that year in a better position to the extent of £21,600,000'. So much for that argument. Can any one say that it is a step in the direction of unification when for the first time the finances of the Commonwealth and of all the States are put on a sound basis, to provide that from the time this agreement is adopted, when any Government comes forward with a proposal to borrow money, it must at the same time ask its taxpayers to make pro vision not only for the payment of interest on the money that is borrowed, but also for a sinking fund to meet the debt when it becomes due! That is sound finance. I cannot see how it can make for unification. What might tend to unification is to have six States and the Commonwealth as competitors in the loan market. In 1923-4 there was full competition in a money market that was beginning to drop. State after State came into the market that year, and each, as it came in, had to raise the rate of interest, until the last State to enter the market offered 6 per cent., and had to pay' &i per cent., taking into consideration the actual amount at which its loan was floated. Last year, New South Wales stood out of the Loan Council, and not only had to pay a higher rate of interest for its money, hut also found the London money-lender laying it down as a condition of providing the money that the State should make due provision for a sinking fund.

The steps we are taking now are not leading in the direction of unification; they are leading in the opposite direction. The one thing that can bring about unification in Australia is the financial embarrassment of the States. This agreement is making for the financial soundness of the States. If the States are sound financially, and if the opinion of the people of Australia remains as it is to-day in favour of the federal form of government as opposed to a unified form, there is not a line in this bill that will help towards unification. I, therefore, commend the bill to honorable senators in the full belief that we are now taking a step* in the right direction - a step in the direction of the solvency of Australia, sound finance, and economy.

Question resolved in the affirmative;

Bill read a second time.

In committee:

Clauses 1 to 5 agreed to.

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