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Wednesday, 26 October 1904


Mr ROBINSON (Wannon) - I rise only to deal with one portion of the Treasurer's statement, namely, that relating to the taking over of the debts of the various States by the Federal Parliament. Had it not been for the reference made by the right honorable gentleman to this matter. I should not have spoken. The Minister was good enough to invite honorable members to deal with this question, and I make that my excuse for troubling the Committee at this stage. The taking over of the States' debts is the most important duty that confronts the Federal Parliament. It is second to none in importance to 'he people of Australia, and is one which, if properly dealt with, should have a very happy influence upon the finances of the States and of the Commonwealth. I have read with considerable interest the whole of the report of the proceedings of the Conference of States Treasurers called last February by the right honorable member for Balaclava, who was then Treasurer in the Deakin Government. I have considered the various questions raised at that Conference by the Treasurer, and the answers given to them by the representatives of the States, and I intend to deal with one or two of the points that were then discussed. In the first place, I think there can be no doubt that the agreement between the various Treasurers that the whole of the debts of the States should be taken over by the Commonwealth is an eminently sound one. It would be impracticable to take over only a portion of the debts. To do so might lead to our improving the position of some of the creditors of the States, and injuring the position of other creditors ; and therefore the only practical method for the Commonwealth to adopt is to take over the whole of the States' debts. There was a general agreement, I think, on that question^ and it was a very sound and salutary one. A great difference of opinion arose on two points - as to what form the indemnity of the Commonwealth should take, and as to what control should be exercised over the future borrowings of the' States. These were the lions in the path, and if we could dispose of them the solution of this problem would not be difficult. I think, on consideration, that the demand of the Federal Treasurer that the railway revenues of the States should be ear-marked for interest and sinking fund purposes is a sound one. When that proposal was first made I took up the same attitude of antagonism as was adopted at the outset by the Treasurers of the various States. Most of those gentlemen, on consideration, however, came to the opinion that the demand made by the Federal Treasurer was a reasonable one, and I was glad to notice that the representatives of Victoria - Mr. Irvine and Mr. Davies - arrived at the same conclusion. In this connexion I wish to refer to a remark which has been made by members of the State /Parliament of' Victoria, and which has been frequently made in the public press, and at public meetings, that is, that if the Commonwealth takes over the debts of the States, it must take over also the assets on the security of which those debts were contracted, namely, the railways. That is an unsound proposition. There is no necessary connexion between taking over the debts, and taking over the railways, and I do not think that the taking over of the railways is involved in the suggestion of the Treasurer that the railway revenue should be earmarked. The real security for the debts of the States is, not the properties on which the money has been spent, but the taxable capacity of the people. The Consolidated Revenue of the States is charged with the interest upon the loans raised by them ; but it is the taxable capacity of the people which the British and other money lenders have as security for their advances.


Mr Kelly - Would the honorable and learned member allow the States to contract new debts after the Commonwealth had taken over. their present debts?


Mr ROBINSON - I shall deal with that matter later on. It is no more necessary for the Commonwealth, in taking over the debts of the States, to "take over the railways, than to take over the schools, waterworks, public buildings, and other public works on which the borrowed money has been spent. If I thought that the federalization of the debts of the States involved the federalization of the railways, I would oppose it, because I do not think that the Commonwealth could at the present time manage the railways of Australia as well as they are managed by the States. The earmarking of.. the railway revenue is the simplest means which can be devised to indemnify the Commonwealth, and would involve the least confusion in State finance. While it is necessary that the Commonwealth should be indemnified and protected, it is also essential that the States should be protected, and the one practicable means of protecting them which has been suggested is the extension of the Braddon provision of the Constitution - section 87 - until the year 1925. That arrangement would, I think, meet with universal acceptance, as would also the counter proposal of the Treasurer, which amounts to very much the same thing. But unless the States got some such protection, they would be. foolish to allow the . Commonwealth to take over their debts, and' T have ho doubt that the Treasurer and the Government feel that some protection should be given to them. I agree with the Treasurer that if the Commonwealth takes over the debts of the States, there must be only one public borrower in the future, because it would be a mistake to have seven borrowers. In my opinion, we can best secure the advantages which would arise from the federalization of the debts of the States by doing all borrowing through' the Commonwealth authority. Within the next five or six years; loans to the amount of £20,000,000 or £25,000,000 fall due, and the Commonwealth, in renewing and converting, could not allow the market to be spoiled by an indifferent or extravagant States Treasurer, who wished to borrow for his own purposes. We have seen the injury done to the other States by the spendthrift finance which, for a period of three or four years, characterized the neighbouring State, and spoilt the prospects of the late Victorian conversion loan and of loans floated by other States. That experience is sufficient to show that if the debts are federalized, the Commonwealth should be the only borrower. Otherwise the Federal Treasurer, when attempting to raise a conversion loan, would be at the mercy of a reckless or improvident States (Treasurer, to the injury of the whole community. But while the Commonwealth must be protected by a limitation on the borrowing of the States, the States must be protected from the unrestricted borrowing of the Commonwealth. This is a matter in regard to which the Federal Treasurer should make an advance. The Treasurer of Western Australia, speaking at. the Conference, is reported on page 54 of its proceedings to have said -

Assuming that the Commonwealth took over the whole of the debts, and that there was a limitation of the borrowing powers of the States, on a sort of automatic basis, so that, say the States were restricted to borrowing , £5,000,000 per annum; if the Commonwealth in the same period went on the market for £2,000,000, what would be the position of Australian credit? There is just as much danger of the Commonwealth overborrowing as of the States over-borrowing.

I think that that position was not met by the right honorable member for Balaclava.


Sir George Turner - It can be met only bv the action of this Parliament in restricting the borrowing of the Commonwealth.


Mr ROBINSON - As all borrowing by the States should be done through, and to a considerable extent at the discretion of, the Commonwealth, so we should pass a selfdenying ordinance, and provide that the Commonwealth shall not borrow more than a certain amount in any given year, lest the extravagance of the Commonwealth Parliament injure the States, just as the extravagance of the States Parliaments might injure the Commonwealth. If that were conceded, I think that an arrangement between the two parties could be arrived at without delay.


Sir George Turner - I did not propose to limit the borrowing of the States in any way, beyond asking for sufficient security for the payment of interest.


Mr ROBINSON - The right honorable gentleman did not propose a direct limitation, but his suggestion implied an indirect one. He said that if a State applied to the Commonwealth for permission to float a loan when, or about the time when, a Commonwealth conversion loan was to be put on the market, the State would have to give way, so as not to injure the prospects of the Commonwealth loan.


Sir George Turner - The Commonwealth could borrow in large amounts, and lend the States what they required. The Commonwealth Treasurer would take favorable opportunities to borrow, and would keep large sums always on hand, which he could deposit at interest.


Mr ROBINSON - Yes; but the Commonwealth Treasurer would have to be cautious in his borrowings if a conversion project were in the air. Considering the temper of this and the last Parliament, I think that we could easily agree to limit the Commonwealth power to borrow, and if we did that, a good deal of the difficulty would be overcome. A limitation on the power to borrow is desirable in the cass of nearly all Parliaments, because excessive borrowing is the rock upon which so many young democracies come to grief. In America they have found it desirable to limit the borrowing powers of the States, and the people there have at various conventions restricted the powers of their State Legislatures in that respect. Young communities are too apt to rush to the money lender. What has been justified in the experience of America is justified here. We should put a restriction upon the borrowing powers of the Commonwealth.


Mr Mcwilliams - The Commonwealth does not intend to borrow.


Mr ROBINSON - There is no legal restriction upon its right to borrow; but if the States were given a guarantee that the Commonwealth borrowing would be restricted, just as to some extent the States borrowing would be restricted, I think an arrangement between the two parties would be much easier. All the members of. the Conference were agreed that there should be a sinking fund attached to each conversion loan to secure the repayment of the money, and the particular form which these sinking funds should take is a matter which, though it has not received much consideration, deserves a great deal. Mr. Speaker, in a memorandum which he presented- to the Conference, touched on this very important point, and paragraph 12 of it contains some remarks which seem to me to be very sensible and weighty. They are these- -

The question of the sinking fund demands some remark. As commonly understood, a sinking fund is a fund to begin with the issue of a loan, and to accrue during its currency, so that in twenty, or perhaps fifty years, when the loan falls due, the amount of accumulated sinking fund will meet the whole obligation. This is most wasteful finance, and an utter neglect to make any provision for repayment is only one degree worse. The folly of any person, or body of persons, on one hand borrowing a large sum of money at borrowers' interest, and for a long term, and on the other hand accumulating and lending a sum of money ultimately equalling the sum borrowed, but obtaining for it only lenders' interest, needs hardly to be dwelt on, to say nothing of the perpetual temptation which such a hoard must ever be. (Great Britain is never guilty of such folly and waste). . . . The important point is that the sinking fund should be established, and that every half year, as it accrues, it should be applied immediately to the purchase, on notice, or on the market, of outstanding stock, which must be at once cancelled, and never re-issued ; and so the loss of interest is avoided, and the accumulated fund, so tempting to a needy Treasurer or a foolish Parliament, never exists.

In the case of some sinking funds, it is provided that money shall be paid into them, and shall accumulate at interest until a sum equal to the original loan has been made up. As Sir Frederick Holder pointed out, a totally different system is in vogue in Great Britain - a system which I think should be adopted here. A certain sum should be set apart every year for the national debt fund. Of that sum, a portion should be devoted to the payment of interest, and the balance to the repurchase of stock. No large sum should be accumulated as in the case of some of the Australian sinking funds. The idea of Australian Governments up to the present seems to have been to establish funds in connexion with which large sums of money should be allowed to accumulate, with the idea that within thirty or forty years there would be a sufficient amount of money in hand to liquidate the loan in respect of which the fund was established. Sir Frederick Holder pointed out that this was a vicious practice, and experience has shown that his view was correct. Mr. J. Scott Keltie, the editor of the Statesman's YearBook, and the author of an admirable article on " Sinking Funds " in the Encyclopoedia Britannica^ says -

Unless carefully managed, a sinking fund is likely to prove a snare. Where it is the genuine result of surplus revenue, and not of money, which is in reality borrowed, the only sure method of making it accomplish its purpose is to sink it yearly in the discharge of debt. Where it is allowed to accumulate at "compound interest" there is great danger of its being diverted from its purpose, and the debt increased instead of diminished.


Sir George Turner - I think that all the Treasurers admitted that that was the only safe course to adopt.


Mr ROBINSON - That point was scarcely dealt with at the Conference, and I think that I am justified in referring to this matter, because of the fate of the various sinking funds established ' in Victoria. Their history shows the absolute necessity for placing any sinking fund established by the Commonwealth- absolutely out of the reach of Parliament and of the Treasurer. I say this without reflecting in any way upon this Parliament, or upon the Commonwealth Treasurer. I make the statement because all the sinking funds that have been established in Victoria have met with a sad fate. In 1895, the Victorian Parliament was dealing with a Land Bill specially relating to the Mallee country, and the present Minister of Trade and Customs suggested, in the course of debate, that the revenue from the Mallee lands should be set aside to form a sinking fund or redemption fund for paying off loans. Sir George Tu,ner was then Premier, and Senator Best was the Minister of Lands. The Government adopted that most admirable plan., which seemed to be a step in the right direction. In 1898, Sir George Turner, who was then Treasurer of Victoria, established two other redemption funds, one called the Inscribed Stock Redemption Fund, and the other the Victorian Loans Redemption Fund. The former of these related solely to the loans floated on the London market. It was thought that if all loans floated in London were subject to a provision that a certain percentage should be paid off year by year, the chances of successful flotation would be increased, and a definite step would be taken towards establishing sinking funds in connexion with all fresh loans. The money was to be used in purchasing stock, which was to be cancelled, the loan being gradually (extinguished by this process. It is interesting to notice how feebly the principle was carried out. The Government fixed a rate of J per cent, as the redemption payment.


Sir George Turner - We fixed a £ per cent, for each half-year.


Mr ROBINSON - Yes, but the £ per cent, was to be calculated merely upon the total amount of the loan, and any saving of interest was not to be paid into the fund, so .that it would take about 200 years to extinguish the loan.


Sir George Turner - That was an omission, on my part. I should have made provision similar to that proposed in connexion with the Commonwealth Loan Bill.


Mr ROBINSON - If the sinking fund had been established upon the cumulative principle, the loans might have been paid off in sixty-six years, as distinguished from the 200 years that would Have been occupied under the plan adopted. The Victorian Loan Redemption Fund related only to loans floated in Victoria, and applied to the construction of works, the cost of which should have been defrayed out of revenue. The Treasurer agreed that a sum representing 5 per cent, of the cost of such works should be paid into the fund annually., so that in twenty years the whole of the loans would be paid off. It is interesting to observe how the Victorian Parliament, which has as much sense of its financial responsibility as has any other Parliament in Australia, juggled with the various redemption funds. When the revenue was falling off, the Victorian Treasurer, Mr. Shiels, invoked the sacred name of reform, and induced Parliament to pass an Act which enabled him to take all the funds in the Mallee Land Account, and pay them into the credit of the Inscribed Stock Redemption Fund. By this ingenious juggle he wiped out the Mallee Land Fund as a separate account, and broke faith with the people of Victoria by diverting moneys which were intended solely for redemption purposes to another purpose. This, I think, demonstrates the unwisdom of leaving sinking funds within the control of Parliament.


Sir George Turner - The Inscribed Stock Redemption Fund has been properly applied. V J 10 c


Mr ROBINSON - I do not think there, \ has been any re-purchase of local stock, i


Sir George Turner - Oh, yes.


Mr ROBINSON - The last time I inquired at the State Treasury I found that. £130,000 stood to the credit of the Vic,torian Loans Redemption Fund, and I suggested that that should be used for thepurpose of wiping out some portion of the public indebtedness


Sir George Turner - So far as the Inscribed Stock Redemption Fund is con1cerned, I sent £7,500 to England when1 the first instalment was received, and bought up our stock at the rate of £96. '


Mr ROBINSON - I am speaking of the1 Victorian .Loan Redemption Fund. I am aware that the Treasurer sent money .toEngland out of the Inscribed Stock Fund' for the purpose. of reducing our indebted-; ness in London, but I do not think that' any great purchases of local stock have been made. Another attempt was made to establish a sinking fund. Sir George Turner was very good at passing selfdenying ordinances, but was not so keen about carrying them into' effect. In 1897 he in'troduced a Trust Funds Bill. The State'' of Victoria had an accumulated deficiency which had not been funded, and it was proposed to pay it off by devoting any future' surpluses to that purpose. Ths deficiency; amounted to between ,£2, 000,000 to £2,500,000, and Sir George Turner pro-' posed to make it imperative that all future surpluses should be used to pay it off.' That was an excellent idea, and if it: had been carried out. half of the accumu-lated deficit would have been wiped out' by this time.


Sir George Turner - I paid off' £300, 000.


Mr ROBINSON - About one-quarter' of the surpluses have been so used, but the; balance has been applied to placating' members by constructing works' in- their constituencies and to doing anything, except' carrying out the provisions of the Trust; Funds Act. That again evidences the unwisdom of placing redemption funds in the hands of State Treasurers or State Parliaments. If these redemption funds are to be placed upon a sound basis it is absolutely imperative that they should be con; trolled by independent trustees. In Western Australia I understand that the trustees appointed- are bankers in the old world, who are a long way removed from the influences which can be brought to bear upon the State


Mr HUME COOK (BOURKE, VICTORIA) - Do not the Government propose to call another conference?


Mr ROBINSON - I understand that it is intended that another conference shall be held. I hope that the Treasurer will be successful in his efforts in that, direction. As he asks for constitutional limitations upon the borrowing powers of the States, I think that he might' reasonably consent to some limitation upon the power of this Parliament to borrow money, independently of conversion loans. If that concession were made to the States, I believe that this very vexed question would be settled. To my mind it is infinitely more important than any other question which could engage our attention. If properly dealt with, greater benefit would accrue to the community than will flow from the appointment of any Tariff Commission within the next century - more good would result from it than will be conferred by any arbitration law which we may enact. I think that its settlement would conduce to sound finance. The solution of this difficult problem could not be in better hands than those of the Treasurer. His attitude during the proceedings of the recent Conference proves that he is prepared to meet the States in a fair spirit. I hope that his suggestions will receive the attention which they deserve, and that the whole community will thus be benefited.







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