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Friday, 25 September 1936

Senator HARDY (New South Wales) . - Opportunity presents itself in a budget debate to comment, not only on the Commonwealth finances, but also on the general financial structure of the nation. Through the enactment of the financial agreement, the Commonwealth has become responsible for the Stale debts, and therefore the comments I shall make on the financial position will have a national, and not merely a Commonwealth, bearing. I hope to reveal some of the lessons of the depression, and show how they may be applied to guide us in the future. Despite the opinion expressed by the Leader of the Opposition (Sena tor Collings) that the members of the Government were bereft of statesmanship, the Government can, I think, claim a high degree of that elusive quality. Any one who listened to the Leader of the Opposition must have felt that his expectations were unfulfilled when he mentioned the existing conditions of Australia. I have heard Senator Collings speak many times in this Senate, and he never fails to conjure visions of the misery of the unemployed and the under-nourishment of thousands of children, and to tell how the great masters of private enterprise are crushing their employees. It is easy to persuade some people that they are suffering an injustice. That is what the Leader of the Opposition in this chamber has been endeavouring to do. There is a remarkable discrepancy between his criticism of the budget and that of the Leader of his party in the House of Representatives. Speaking on the budget earlier in the week, Mr. Curtin said - lt would be churlish of me to deny that the .budget makes clear a very substantial recovery in the Australian economic structure. The Opposition, no less than every other section of the community, is glad that this is the case.

Senator Collings - Of course we are. I admitted that.

Senator HARDY -The honorable gentleman says now that he admits it, although in his concluding remarks this afternoon he declared that the budget which, according to the Leader of his party makes clear a very substantial recovery in the economic structure of the Commonwealth, gives evidence of complete bankruptcy of statesmanship on the part of this Government. He also claims for the Scullin Government much of the credit that, properly, is given to this Government for the financial recovery of Australia. Quite conveniently he ignores the fact that the Scullin Government has been out of office for a great many years.

Senator Collings - Nevertheless, this Government has benefited to the amount of £74,000,000 through savings made possible by the Scullin Government.

Senator HARDY - I turn now to consider the position with regard to taxation. I was surprised to hear the Leader of the Opposition this afternoon declare himself against the principle of high taxes, and then indict this Government on the ground that it took too much from the collective incomes of the people. I cannot help but remember also that he is one of the representatives of Queensland in this chamber, and that on other occasions, when it suited him to support his case, he has spoken with considerable enthusiasm about the position of his State, suggesting, of course, that the conditions there were the direct result of wise administration by a Labour Government. This is strange, in view of the fact that Queensland is the most highly taxed State of the Commonwealth.

Senator Collings - The thing that matters is the incidence of taxation. I do not object to high taxes if they are imposed on the right people.

Senator HARDY - Let us see how the taxation burden is placed upon the shoulders of the people of Queensland - the State which Senator Collings so ardently supports. In the financial year 1914-15, the tax burden in Queensland was £1 8s. 2d. and the average for the other States was £1 8s. 3d., so all were practically level at that time. In the period 1931-35, the burden of taxation in Queensland was £60s. 7d. per capita, as compared with the average of £5 5s.1d. for the Commonwealth. Another striking comparison is that the tax burden in Queensland was 40 per cent. higher than in Victoria.

We have some right to expect logic from the Leader of the Opposition ; often we do not get it. I fail to see how he can logically indict the Commonwealth Government because, as he puts it, it takes too much by way of taxes from the people, and at the same time uphold the Queensland Government, which taxes its people much more heavily than any other State Government in the Commonwealth.

Senator Collings - I approve the action of the Queensland Government because it imposes taxes on the right people.

Senator HARDY - It is obvious that Mr. Curtin does not quite see eye to eye with the honorable senator,' because when he was speaking to the budget in the House of Representatives, Mr. Curtin said -

Furthermore, in remitting taxation, the Government increases the proportion of its total yield derived indirectly from that derived directly; it disregards to a greater extent than heretofore the principle of levying taxation on the basis of ability to pay; and in regard to income tax, both from personal exertion and from property, its policy gives a much more substantial saving to incomes of the higher ranges than to those of the lower ranges.

Later Mr. Curtin said -

Notwithstanding all of the Government's boasts regarding the remissions of taxation already effected, the fact remains that the present Treasurer, during the last financial year, took more from the Australian public than any of his predecessors.

Senator Collings - I also said that.

Senator HARDY - Yes, but the honorable senator omitted to add that it was possible for a government to take more by way of taxes collectively, and at the same time to lighten the burden on individual taxpayers, which is an important distinction.

Let us further examine the official figures, to discover the . source of the Government's revenue. In 1935-36 collections from customs and excise duties amounted to £37,850,000, and represented 49.03 per cent. of the total revenue. Would Senator Collings eliminate that source of revenue? It could, of course, be eliminated by a total prohibition of imports; but if that were done some other source would have to be discovered. Would not a prohibition of imports be reflected in a rise of internal prices, and would not this in turn be a form of indirect taxation? The sales tax of which SenatorCollings complains is another form of indirect tax concerning which there has been much animated discussion in recent years. Last year it contributed £8,850,000, or only 11.47 per cent. of the total revenue. The burden of the sales tax is being progressively reduced, and we have had the Government's assurance that as soon as the finances permit it will be abolished altogether.

Senator Collings - Let us hope that it will.

Senator HARDY - The flour tax collections last year amounted to £900,000, and represented 1.17 per cent. of the total revenue. I come now to the amount collected by way of income tax, which was the real burden of the complaint by the Leader of the Opposition. He admitted,, when I interjected during his speech, that the policy of his party was to "sock" the rich, or, as one of his supporters said, to " sock 'em ", the implication, of course, being that there exists in thi3 country a group of millionaires who are not bearing their fair share of the tax burden. The figures which I am about to present to the Senate show that the richer section in this community has already been very effectively taxed.

Senator J V MACDONALD (QUEENSLAND) - A man who died recently in Melbourne had £250,000 at call in his bank.

Senator HARDY - When complaint is made that the allegedly rich people are not contributing their quota of taxes their critics omit to mention the percentage which they contribute to the revenue. The taxation returns for 1934-35 give in some details figures which should be of interest to honorable senators. The first group deals with income taxpayers having incomes up to £200 a year. In this group there were 139,482 persons whose contributions amounted to £194,000, representing 28s. a head, or 2.7 per cent, of the total income tax collected. In the next group, taxpayers with incomes ranging from £4 to £10 a week, 49,510 persons contributed £362,423, representing 5 per cent, of the total collections. The third group is of persons with incomes ranging from £10 to £20 a week - Senator Collings will not allege that these people are millionaires - and I find that 25,000 taxpayers in this category contributed £626,000, or 8 per cent, of the total collections. I come now to the group of alleged millionaires - these people who, according to Senator Collings and his friends, are not carrying their fair share of the income tax burden. I refer to individuals with incomes of £1,000 a year and upwards, of whom there arc only 17,796 in the Common.real th. They contributed last year £3,647,000, or exactly 50 per cent, of the Total of the income tax collections.

Senator COLLINGS - What had they left after paying their taxes?

Senator HARDY - In order to help his case, the honorable senator this after noon urged that this Government had failed to, as he put it, " sock " the rich.

Senator Collings - I did not say that. That was the honorable senator's inelegant expression.

Senator HARDY - The figures which I have given show conclusively that those people who are able to pay taxes are, in fact, carrying their full share of the burden.

I commend to Senator Collings a little book which I read when I was a small boy. It tells the story of the man who killed the goose that laid the golden egg.

Senator Collings - The rich in this country do not lay any golden egg3; the working classes lay the golden eggs and the rich collect them.

Senator HARDY - With regard to the allegation of the Leader of the Opposition (Senator Collings), that the Government is slowly increasing the burden of taxation-

Senator Collings - I did not say slowly.

Senator HARDY - 1 draw attention to the address of the Leader of the Opposition in the House of Representatives (Mr. Curtin), who said that the budget showed the real recovery of Australia. Docs Senator Collings think that the burden of taxation for the past two years has seriously interfered with the rate of recovery? I say that it has not. The improved position is reflected in the increased employment and the greater national income, and in many other ways. The Statistician's figures show that individual contributions by taxpayers will be less in 1936-37 than in 1935-36. In the latter year the total taxes, both direct and indirect, were £9 8s. 5d. a head compared with an estimate of £9 ls. 4d. for the current year. Since 1932-33 the Government has remitted taxes, estimated on a cumulative basis, to amount to approximately £50,000,000.

Senator Collings - The lower-paid section of the community has not benefited a great deal.

Senator HARDY - The total remissions granted during 1932-33 were £2,100,000. Of that sum about £750,000 represents remissions of sales tax. Does the Leader of the Opposition not think that those remissions decreased the hurden of indirect taxation?

Senator Collings - They meant very little to the working classes.

Senator HARDY - Then why does not the honorable gentleman advocate the retention of the sales tax? In the same year the income tax burden was lightened by about £500,000. I emphasize that these remissions affected principally persons with small incomes. The total remissions granted during 1933-34 amounted to about £7,050,000, of which sales tax remissions represented £2,570,000. Does not that indicate a lightening of the burden of indirect taxation?

Senator Collings - Of course it does. But why not give to the Senate the figures in relation to land tax?

Senator HARDY - Remissions of taxes in 1934-35 amounted to £620,000, and in the following year to £560,000. It is estimated, that the remissions for the current year will total £5,275,000. The total remissions for the five years ending June, 1937, are estimated at £15,605,000. The cumulative effect is a lightening of the burden by nearly £50,000,000.

Senator Collings - To whom did the bulk of those remissions go?

Senator Hardy - To the indirect taxpayers.

Senator Collings - No.

Senator HARDY - While the remissions of income tax, which is a direct burden on the taxpayer, represent only £5,205,000 for the five years, sales tax remissions alone total £6,740,000. Does the Leader of the Opposition still think that the Government has not lifted the indirect burden from the taxpayer?

Senator Collings - I thank tho Government for doing that.

Senator HARDY - Having, I trust, convinced the Leader of the Opposition that he was wrong, I now come to the national financial structure. Unless some untoward event, such as an international upheaval, occurs, I firmly believe that Australia has entered upon a period of plenty, and is well on the path to recovery. If that assumption be correct we should heed the lesson of the seven fat years and the seven lean years in Egypt, and in the years of plenty provide for the lean years which will assuredly follow.

Senator Collings - There has always been plenty in Australia.

Senator HARDY - I disagree with the honorable senator. Were the honorable gentleman the managing director of a company which was operating at a profit, he would, from time to time have to decide whether the whole of the profits should be distributed to the shareholders, or whether a ' cautions policy, including the building up of reserves against times of adversity, should be followed. What applies in the commercial world can apply also in national affairs. Just as the farmer in years of plenty should make provision for droughts, so the nation, in good times, should make provision to meet financial difficulties in the future. There is a tendency to forget what happened in 1930 and 1931. Honorable senators may remember that in 1931 the leading economists of this country gathered together in an endeavour to formulate a national plan for Australia to follow. To the most casual observer it was obvious that . drastic reconstruction was necessary. The most striking feature of the report of the experts was that in 1929-30 the deficits of the Australian Governments Totalled £11,130,000, and that the deficits for 1930-31 were estimated at £31,150,000, and, further, that unless action were taken, the deficits in the following year would reach £39,080,000. In the light of that information it was clear that without a definite plan for the reconstruction of the national finances and prompt action on the part of governments, Australia would face national bankruptcy. A comparison of the position of Australia at thai time with present-day conditions forces us to the conclusion that the present administration has acted wisely. Undoubtedly the best economic investment ever made by the people of Australia was the putting of the present Government into office. Financial reconstruction having been proved necessary, the Government had to consider whether it was possible to plan recovery within Australia's own internal economy. A study of the situation made it clear that the key to the situation was the servicing of Australia's overseas debt.

Senator COLLINGS - The Scullin Government met that situation by imposing customs prohibitions.

Senator HARDY - Although not at the time a member of the Senate, I well remember the evidence given by Sir Robert Gibson, the then Governor of tho Commonwealth Bank, at the bar of the Senate. When questioned regarding the export of gold, he said -

If it were left for me to decide, I would rather send my gold away than default. I would prefer to discharge my external obligations even if I suffered hardship.

That statement was endorsed by practically every leader of public thought. At a vital conference of Premiers in 1931 the following resolution was agreed to -

This conference denounces the policy of repudiating interest payments on the public debt as declared by the Premier 'of New South Wales, Mr. Lang. The proposal involves a deliberate breach of contract between that Government and those who subscribed to public loans and would bring dishonour upon the nation as a whole.

I quote that resolution in order to show that the dominant thought in the minds of those responsible for rehabilitating Australia's finances and constructing a national emergency plan was the servicing of our overseas debt. With the exception of Mr. Lang, the Premiers were convinced that, in the interest of Australia, all contractual obligations should be met. Dealing with the consequences of default the experts reported -

Unless the present drift in Austraiian finances is stopped, the end will be default. The evils which would follow such default would be immeasurably greater than any hardships which the nation need be asked to face in order to restore Australia to a sound position.

I think that every honorable senator will agree that, were it not for Australia's external obligations, the internal readjustment rendered necessary by the fall of export prices would have been much easier. The servicing of our overseas liability was the axis of all plans of reconstruction. Therefore I suggest that in times of plenty a wise government should follow a course which will place the country in so favorable a position that when bad times come again the situation can be met without having to give too much consideration to the external position.

As honorable senators are well aware, Australia's debt is domiciled in Australia, London and New York. Associated with it are several disturbing features. I wish to make it clear that I refer not to the debt of the Commonwealth only but to the national debt which, although it includes State debts, is, under the financial agreement, the responsibility of the Commonwealth. In 1928-29 the national debt was £1,104,000,000. By 1935-36 it had risen to £1,255.000,000, an increase of £151,000,000. If the public debt continues to increase at the same rate I venture to suggest that it will ultimately mop up the savings which have been effected as a result of our loan conversion operations. Though our conversions have been very successful, nevertheless the resultant saving of £13,000,000 will be absorbed if the national debt continues to rise. We have no reason to say that if it does continue to rise we shall be able to face the next economic onslaught with a greater burden on our shoulders than we bore in 1931.

The sinking fund was a very wise provision introduced by Dr. Earle Page for the purpose of liquidating our national debt within a period of 58 years. The principle was right, but let us consider whether its operation is successful. Are our sinking fund contributions adequate for the purpose for which the fund was created? During the period 1928-29 to 1935-36, while the national debt increased by £151.000,000, the contributions to the sinking fund amounted to only £59,918,000; in other words, during that period, in spite of the contributions to the sinking fund and its application to the debt our total liability increased by £91,836,000. To put it in another way, every £1 contributed to the sinking fund for debt redemption was outstripped by an added liability of £2. In order that we may be able to operate sinking funds on a scale sufficiently large to effect a reduction of liability I suggest particularly when we are experiencing a return of prosperity, that the Government should consider increasing the contributions. In introducing the budget for 1936-37, the Treasurer (Mr. Casey) said -

Vor1936-37, the receipts are estimated at £0,717,000. The receipts for the national debt sinking fund for 1930-37 will approximate £9,100,000 of which £4,100,000 will accrue to the Commonwealth sinking fund and £5,000,000 to the State sinking fund. The receipts of the sinking fund, both the Commonwealth and State, are used solely for debt redemption. The greater part of the money available is used in the purchase of Australian governmental securities in the open market in Australia, London and New York.

In other words £9,000,000 is allocated according to the domicile of the debt; approximately £4,000,000 is to be sent overseas and the balance is to be used to redeem the Australian debt. I question the merits of that proposal as an efficient long-range policy. While advocating an increase of the sinking fund contributions, at the same time I consider that the fund should be used solely for the redemption of overseas loans. Honorable senators will remember that in the earlier part of my speech, I stated that the position of the overseas- debt in 1931 more or less influenced the plan of reconstruction which we had to face at that time. I now suggest that instead of distributing the redemption payments over the whole of the debt field we should apply them where they are most required, that is, in the redemption of our overseas debt. This action should follow as a result of the lessons of the depression. From a review of the figures, I am absolutely convinced that the flexibility of the Australian loan market is infinitely greater than that of the overseas loan market. I am certain that in times of difficulty it is possible to have a greater degree of flexibility in debt conversion operations in Australia than is possible overseas. In other words, in time of difficulty, there are greater possibilities for debt conversion in Australia than there are in overseas loan markets. I am advocating a complete cessation of overseas borrowing and the future domiciling of all debts within Australia. Immediately a crisis arrives, the interest rates which we are paying become common knowledge and a matter of public concern. In 1931, the overseas interest rate was £4 14s. lid. per cent., while the Australian rate was £5 6s. lOd. per cent. Those in control of the Trea sury bench then commenced operations designed to reduce the interest burden on our debt structure. Though an attack was made on the internal and overseas markets, it took us until 1936 to reduce the average rate overseas from its original figure of £4 14s. lid. to £4 ls. 3d. per cent. The figures in relation to interest payments show a gradual tapering off over the whole of that period, and demonstrate the difficulty of reducing the interest burden in respect of the overseas debt. That is not the only story, because, as part of a national policy, we may decide to manage our currency in such a way as to depart from sterling. As a matter of fact, we did that, and to-day, as a result, the rate of exchange between Australia and London is 25 per cent. When the incidence of the exchange rate is taken into account, it will be seen that instead of the interest rate on our London debt being £4 ls. 3d. per cent., it is actually £5 ls. 7d. per cent. It may be suggested that with a return to sterling that rate will be reduced. That is perfectly correct, but who would suggest that we should return to sterling? It might even be proposed that Australia should depart still further from sterling. If that happens the interest burden will correspondingly increase. The point I am making is -that the rate of interest on our overseas debt would be affected to a certain degree by the control of our own internal economy and the relation of our currency to the currency of the country in which the debt is domiciled. In contrast to our experience overseas, no great difficulty was experienced in effecting a reduction of interest rates within Australia. In 1931, the Australian rate was £5 6s. 10d., by 1932 it had fallen to £3 18s. 9d. per cent, and to-day it is £3 12s. 9d. per cent. When speaking. on the budget debate, the Leader of the Opposition in the House of Representatives (Mr. Curtin) mentioned this as evidence of good finance by the Scullin Government. That is not correct. It is only an example of the relative flexibility of the domestic and overseas loan markets. My final point is that the fall of the overseas interest rate over six years amounted to only 13s. 8d. per cent., whilst in Australia the fall in one year was 28s. Id. per cent., and in six years 34s. Id. per cent. In other words, the Australian rate was reduced by nearly three times the amount of the reduction effected in the overseas rate. Therefore, is it not reasonable to suggest that during the next four or five years we should profit by the lessons of the past and apply the whole of the contributions to the national debt sinking fund towards the reduction of our overseas debt? Why not attack the market which proves to be more inflexible in times of crisis? Most likely the Leader of the Government (Senator Pearce) will reply that we shall be unable to do that because it would affect the credit of this country overseas, and that the policy of this Government has been steadily to build up that credit. But I should like to draw the attention of the right honorable gentleman to the fact that up to 1923 practically no sinking fund was in existence, though, at that time, we had already borrowed £900,000,000. Would the right honorable gentleman contend that a decision to apply the whole of the sinking funds towards the redemption of the overseas debt would result in a national catastrophe or injure our credit overseas? I say, definitely, that it would not. Another point must be considered in regard to this matter. When we split our sinking funds, and send £4,000,000 overseas, exchange has to be paid on that sum so that the annual redemption operation overseas cost approximately £1,000,000. If instead of applying portion of the fund for the immediate retirement of overseas loans the sinking fund were steadily built up until the exchange position became more favorable, a considerable saving would result.

In regard to the New York indebtedness, I remind honorable senators that the cumulative reduction of taxes has been approximately £50,000,000. I do not begrudge that for one moment. 1. do not say that the remissions were unnecessary, but, at the same time, I sound a note of warning. We should seriously consider whether we can afford to continue to follow such a generous policy. No attempts of any kind have yet been made to effect conversions of loans raised in the United States of America, though, to-day, we owe that country £45,257,000. That debt bears an average rate of interest of 5.05 per cent., which is higher than the English rate, and considerably higher than the Australian rate. The actual rate which Australia is paying on the New York debt, however, after adding exchange, is 6.56 per cent. - a record in interest rates. Instead of allocating our sinking fund as at present, would it not be logical to use it to redeem the New York debt ? The position of Australia in the loan market of the United States of America is unfortunate, because Queensland, under a Labour government, broke all records by raising a loan on that market of £1,S43,000 at 7 per cent. That loan to-day is costing a little over 9 per cent, in Australian currency. Australia's total annual interest bill in the United States of America now amounts to £2,272,000. In respect of the American debt of £45,257,000, we are in a peculiarly good position because we possess optional rights in respect of £10,000,000 of the total. In all our loans we should endeavour to secure optional rights, thus combining the advantages of a short-term debt with the benefits and stability of one of longterm. Over £10,000,000 of the £45,000,000 now owing to the United States of America is at borrowers' option. We should exercise that option, and. try to clear up the New York position. We have heard a great deal from the Leader of the Opposition (Senator Collings), and also from the Leader of the Opposition in the House of Representatives (Mr. Curtin) concerning the remarkable achievement of converting internal loans in a time of crisis. I read Mr. Curtin's speech which was very good academically, although many of his statements were inaccurate. I should like, however, to point out that any credit due to the Scullin Government for its conversion operations in Australia has been completely nullified, because it did not attempt to tackle the greatest burden of all, which is the overseas market. The reason is clear. Its administration was so faulty, and it forced our credit in London so low, that conversion became impossible. The High Commissioner in London (Mr. Bruce) has been able to convert £198,000,000, but if Mr. Scullin had been in office today we would not be able to convert one penny.

Senator J V MACDONALD (QUEENSLAND) - Perhaps the honorable senator will say that the price of wheat would also be low.

Senator HARDY - No, but if the Labour party were in office, the credit of Australia would still continue to be low. I believe that the overseas conversions carried out by Mr. Bruce have been economic from the Australian view-point. It cost Australia a lot to convert its loans in the overseas market, but when the conditions of the market are taken into consideration the conditions obtained by Mr. Bruce were the most economical that could be got. The fact remains that those conversions have been made, and that Australia has regained a certain amount of financial stability, even if we have had to pay a fairly heavy penalty for it.

I have tried to show, in my comments on the overseas position, that in any economic onslaught which Australia may experience while possessing external indebtedness, financial reconstruction or planning must more or less be subject to the servicing of such indebtedness. That was the outstanding lesson of 1931. I again suggest that as we are now experiencing more prosperous conditions we should endeavour to reduce the burden, so that when next we have to face reconstruction we shall be able to do so without having to consider that dominant factor. We can operate on the overseas market to-day to a very great degree by changing the application of our sinking fund and by launching greater redemption operations. Instead of spreading it according to where the debt is domiciled, we should apply it wholly to the reduction of the overseas debt. Would not the people of Australia have subscribed to our internal loans if the sinking fund was being applied overseas? Most decidedly they would. The yearly deposit of £10,000,000 in the sinking fund can be increased by judicious finance, particularly when the revenue is buoyant, and by increasing the amount used to improve our overseas position. An attack should first be made on the New York position, where we possess definite optional conversion rights in respect of £10,000,000, on which a high rate of interest is being paid.

The budget is particularly well and impartially prepared, and in spite of what the Leader of the Opposition may say, will benefit all classes. The Leader of the Opposition in the House of Representatives said that the budget was a clear recognition of the recovery that has taken place in Australia. That recovery is, I submit, due to the administration of the present Government.

Debate (on motion by Senator E. B. Johnston) adjourned.

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