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Tuesday, 25 September 1906

Senator DRAKE (Queensland) . - I am glad that we have an opportunity, even at this late period of the session, to discuss the State debts question, since it is a subject of the greatest importance, especially to the States which are weakest, financially speaking. It has been considered on more than one occasion in the other branch of the Legislature. The first Treasurer of the Commonwealth made certain proposals to a Conference of State Treasurers', which were afterwards brought before the House of Representatives, but nothing came of them. Then a scheme was propounded by the honorable member for Kooyong, and partly considered. Later, the present Treasurer visited England, and, on his return, put forward another scheme, and during its discussion a fourth was suggested by the honorable member for Mernda. But though I have read some of the discussions, it appears to me that not one of the schemes was ever definitely accepted or rejected. They were merely brought forward, looked at, and talked about, and though no! decision seems to have been arrived at in regard to any one of them, the Government have brought in a proposal to amend the Constitution, apparently leaving the consideration of all those schemes' to a later occasion. I believe that an invitation has been issued to the States Treasurers to assemble, and consider them after this definite action has been taken. That seems to me to be treating the States Treasurers with rather scant courtesy. I am glad that at last we have an opportunity, though it has been long delayed, of expressing an opinion on this very important question, because, in a matter of this kind, it is not sufficient that the other branch of the Parliament should discuss schemes and either come or not come to a decision. We have, I hope in the Senate men who are just as capable of understanding and expressing an opinion about the question as there are inthe other Chamber. From time to time a scheme has been brought forward, talked about, and dropped, and at the present time the Minister of Defence, although he is proposing to amend the Constitution in a most important particular cannot tell us of any definite schemewhich is entertained by the Government. There are four schemes floating in the air; dissatisfaction has been expressed with every one of them ; and the Treasurers of the States have been invited to meet after we have finished with this Bill, probably to tell us what they think of our action. Although this most important question of how the transfer of the States debts is to be accomplished, has not been seriously tackled by the Government, yet we are asked by them to amend the Constitution.

Senator Playford - We cannot take over all the debts unless we alter the Constitution, so that it would be of no use to proceed in that direction.

Senator Sir Josiah Symon - There is no definite proposal to take them over.

Senator DRAKE - I shall deal with that point directly. It is as clear as daylight that the proper course of proceeding is for the Parliament to consider the matter, and come to a decision before it amends the Constitution, and not after that step has been taken to consider what it is going to do.

Senator Sir Josiah Symon - It may not be necessary to amend the Constitution.

Senator DRAKE - I think that some honorable members in another place have been under a considerable misapprehension about the Bill. For months and months the probability of a proposal to amend the Constitution being submitted has been discussed. On each occasion it has been suggested that all that the Parliament would "be asked to do would be to amend the Constitution in order that the States debts, which haveaccrued since the establishment of Federation, might be taken over. That was the one thing which was to be effected by the proposed alteration.

Senator Playford - Hear, hear. That is the only thing there is to do.

Senator DRAKE - I am glad that the Minister has made that remark. At the present time he does not know what the Bill proposes to do, and I did not know until I received a copy of it. He says that the only proposal in the Bill is to amend the Constitution so as to enable States debts which have accrued since the establishment of the Commonwealth to be taken over. But that is not what the Bill proposes to do. It proposes to sweep out of the Constitution the safeguard, provided particularly for the weaker States, that when any portion of the States debts is taken over a proportional part should be taken over from each State. For what purpose' is that safeguard to be swept out of the Constitution? It can be ascertained by looking at paragraph b of clause 2. which proposes to insert the word "redeem " after the word "convert," in section 105 of the Constitution. . Why is it desired to insert that word? It is simply to enable the taking over of a loan, which is no part of a debt that has been taken over by the Commonwealth. As I propose to speak at some length, I shall anticipate my conclusions. The object of the Bill is, I think, to sweep out of the Constitution the provision that safeguards the smaller States by requiring a proportional part of all the debts which are taken over to be taken from each of the States, and the word "redeem" is sought to be inserted in section 105 in order to enable the Commonwealth to take up a Victorian loan of , £4,000,000, which will fall due next year.

Senator Clemons - Does not the honorable and learned senator think that the expression "any part thereof" in paragraph a has the same meaning ?

Senator DRAKE - Certainly. It is proposed that " any part thereof " may be taken over, but the Government are asking the Parliament to sweep out of the section the safeguard I mentioned, in order that the Commonwealth may be able to take the whole portion from the debt of one State. Their reason for proposing to insert the word " redeem " is because it is considered, and I think quite rightly, that the word " convert ' ' means converting a portion of a debt whch has already been taken over, and therefore they want power to redeem a loan which has not been taken over. When we look at how the debts will mature, we find that Victoria has a loan of £4,000,000 falling due next year, and a loan of £2,000,000 falling due in 1908 - shehas smaller loans falling due - and that New South Wales has a loan of nearly. £3,000,000 falling due in 1908. According to the Constitution, the balance of the Customs and Excise revenue may be handed to the States or used in payment of the interest on States debts which have been taken over. Up to lastyear, that balance was sufficient to pay the interest on all the States debts which existed at the establishment of the Commonwealth. The Commonwealth has handed over to the States about £7,000,000 a year, and the interest on the States debts of £201,000,000 would come to within a few thousand pounds of that amount. The way in which the Government are proceeding - their extravagance in many respects, such as, for instance, in the introducing of penny postage - is gradually dissipating that fund. The Government propose to alter the

Constitution so that in future they may be able to raise revenue by Customs and Excise duties, and devote the money to special purposes, that is to say, to divert the three-fourths from the fund which is now available for the payment of the interest on the States debts. Putting these proposals together, it seems clear to me that, with the sources of revenue being dried up, and the expenditure of the Commonwealth constantly increasing, the fund at the disposal of the Commonwealth to pay the interest on the States debts will become less and less as the years proceed. What will then happen ? If there is not sufficient money available to pay the interest on the debts of the States owing at the present time, and if the Government adopt the policy of taking up States loans as they fall due bv means of the power which the Commonwealth has of taking over States debts, clearly the time must come when it will have no funds available to pay the interest on any more debts. Let us look at the importance of that position. The last Victorian debt will fall due in 1920, which is comparatively near at hand. Queensland debts will go on until 1951 ; Western Australia will have a small debt falling due a few years hence, and then she will have no debts accruing for some time. Up to the present time the Commonwealth has shown no disposition to raise more money for the purpose of paying the interest on the States debts. At the present rate of expenditure the time must soon come when the funds available for the payment of interest will give out, and, thus, special significance attaches to an amendment of the Constitution which would enable the Commonwealth to take up large loans of the big States as they fell due, quite irrespective of the interests of the smaller States which are now safeguarded by the provision that the debts must be taken over- in proportion to the population of the States.

Senator DAWSON (QUEENSLAND) - Does the honorable senator object to the word " redeem " ?

Senator DRAKE - I think that we have a right to know with what object the word " redeem " is to be inserted. As the Constitution stands at present, it provides for the conversion of the debts taken over bv the Commonwealth, whereas the word "redeem" might apply to the taking up of a loan that was not part of the debt taken over.

Senator Pearce - The insertion of theword "redeem"' would merely give the Commonwealth the alternative .of converting or paying off a loan by using the sinking, fund.

Senator Playford - We can do noharm by inserting the word.

Senator DRAKE - Senator Pearceconfirms the opinion that I have formed with, regard to this amendment, and the proposal to delete the provision that the debts, shall be taken over in proportion to the population of the respective States. Apparently, the object is to enable the Commonwealth to take up the larger Statesdebts as they fall due, without regard tothe interests of other States whose debtsWill fall due later on.

Senator Playford - We shall take upthose debts as they fall due also. 1 Senator Pearce. - The honorable senatorhas not told us how it would injure the other States.

Senator DRAKE - The Commonwealth has in its hands every year a certain amount of money derived from Customs and Exciseduties which it must either hand over to theTreasurers of the States, or apply to the payment of the interest on the States debts. Last year the amount left in hand wasabout enough to pay the interest on thedebts that existed at the time that the Commonwealth was established, but this year there will not be a sufficiently large amountavailable. There is no- sign of any intention on the .part of the Commonwealth toincrease that amount, but, on the other, hand, there is every indication that if the financial proposals of the Government arecarried put, the balance will be sadly diminished. If certain debts are taken up asthey fall due, the Commonwealth may not have a sufficient amount of money availableto take up other loans which mature later on.

Senator Pearce - The honorable senator apparently expects that our revenue will remain stationary.

Senator DRAKE - Not at all. Undersome circumstances the Customs revenuemay increase, but it will not keep pace with the expenditure, of the Government if wego on as we have been going. Honorablesenators must be aware of the financial proposals of the Government for increased' expenditure, and of their intention to sacrifice from ^200,000 to ,£300,000 in connexion with the penny postage proposal". Some years ago I ventured to form my own> opinion with regard to the transfer of the:

States debts, and I came to the conclusion that no amendment of the Constitution was necessary. I think that the scheme sanctioned by the Constitution for the transfer of the States debts is the right one, and in any case, it has been indorsed by the people of Australia. I contend that it should have been carried out from the very first.

Senator Trenwith - Was not the honorable senator a member of the first Federal Government ?

Senator DRAKE - Yes, and I take my full share of any responsibility for its sins of omission or commission. In considering the provision in the Constitution, we should be careful to use the right terms. It is provided that Parliament may take over from the States their public debts. Presumably the term "take over" is synonymous with the expression " assume the liability " used in the American Constitution. Therefore, the Commonwealth may assume the liability of the States with regard to their public debts as existing at the establishment of the Commonwealth. This assumption of liability is frequently confused with the conversion of loans, but the expressions have different meanings. First, the Commonwealth has to decide to take over the debts. When it does so, it will assume the liability. of the States. Then it may proceed to convert, renew, or consolidate such debts.

Senator Trenwith - It can renew, consolidate, or redeem.

Senator DRAKE - That is the position of things after the taking over. Mv contention is that the meaning of" the Constitution is that Parliament - of course, by an Act of the Parliament - having taken over the 'debts, has assumed the liability of the States, and stands in the position of the States. Then, of course, it is quite legitimate for the Commonwealth to proceed to "convert, renew, or consolidate" - to do what it likes in fact. The Commonwealth pays the interest for the States, and may make any arrangements in order, for instance, to reduce the amount of interest that it has to pay. It is very important to remember that for this reason : We are asked who is going to benefit from the conversion ; and that seems to be a moot point. The Minister of Defence told us last night that any benefit which accrues will go to the States. I think - subject to correction, but this is the way my thinking leads ne - that it was intended that any benefit that arose from the conversion, should be that of the Commonwealth. That is to say, it should be shared by all the people, irrespective of the States to which they belong. If the plan, of the Minister of Defence were adopted, it seems to me that the bookkeeping principle would have 10 be continued for eternity. Suppose there were a Victorian loan coming due next year, and bearing interest at 4 per cent. Suppose the Commonwealth were to convert that loan at per cent. According to the view of the Minister of Defence, the State of Victoria for all time would receive the benefit of that reduction of interest, or at all events would receive that benefit for the whole term of the conversion loan ; and perhaps when that loan were converted, say, at per cent., it' would still receive the benefit of the reduction of interest. If that were the case, the bookkeeping system would continue for all time. What I think is contemplated by the Constitution is that as soon as the Commonwealth Parliament has passed an Act taking over a certain proportion of the debts of the States, it assumes the liability for those debts. The States are relieved from the pressure of that obligation. The Commonwealth pays the interest; and if the Commonwealth can make any advantage by consolidating, converting, or renewing, the benefit inures to the whole people of the Commonwealth

Senator Trenwith - All savings made ought to be paid into a sinking fund.

Senator DRAKE - -The Commonwealth would arrange for establishing a sinking fund in its own interest, in order to be able eventually to wipe out the debts altogether.

Senator Trenwith - The saving should, so to, speak, be an extra means of augmenting the sinking fund.

Senator DRAKE - It seems to me that the saving must inure to the Commonwealth. It would lead to inextricable confusion if we attempted to transfer that benefit to the Treasuries of the different States. I am fortified in my opinion by Quick and Garran. The correctness of these annotators of the Constitution is to me marvellous. I find that almost invariably the views of the learned authors of this book prove to be correct in the working out of the financial problems of the Constitution. ' The view which' they take is that the words "convert, renew, or consolidate," are unnecessary. They say

These words were inserted on Sir George Turner's motion at the Adelaide Convention; but they hardly seem to be necessary.

Senator Trenwith - Hear, hear.

Senator DRAKE - That is the view which I take.

The powers of conversion, renewal, and consolidation would seem to be necessarily incidental to the power to take over the debts - or, at least, to be included in the power to boizow money on the public credit of the Commonwealth.

When the Commonwealth has taken over the debts and assumed the liability, it fol- lows, as a matter of course, that it may " convert, renew, or consolidate," or do anything it likes with the debts it has taken over.

Senator Sir Josiah Symon - Because when it assumes the liability it is the debtor, and may make its own arrangements for payment.

Senator DRAKE - Quite so. To return to section 105 of the Constitution, I point out that power is given to take over the whole of the debts as existing at the establishment of the Commonwealth. I do not think that the fact of my having been a member of the first Federal Government should preclude me from expressing my individual opinion that what should have been done in the first session of our Parliament was to introduce a Bill to transfer the whole of the debts of the States to the Commonwealth. There was one objection to that course, and that was that we did not know at the time what the Customs and Excise revenue would yield. It was clear under the Constitution - though some of the Treasurers of the States stated that they were in doubt with regard to it - that the three- fourths Customs and Excise revenue that was to be returned to the States meant three-fourths of the total revenue; that is to say that at least that amount was to go to the States in the aggregate. Some of the States Treasurers considered that each State individually should receive at least three-fourths of the amount collected in each State, but that view was entirely a misapprehension. The amount that had to be returned to the States, of course, varied considerably, not only in consequence of variations in the yield of revenue from Customs and Excise, but also in consequence of different rates of expenditure that had been initiated before Federation by the States. So that it came about that, though from the first there

The States shall indemnify the Commonwealth in respect of the debts taken over, and thereafter the interest payable in respect of the debts shall be deducted and retained from the portions of the surplus revenue of the Commonwealth, payable to the several States, or -

I desire to show that this was anticipated :

If such surplus is insufficient, or if there is no surplus, then the deficiency or the whole amount shall be paid by the several States.

Senator Trenwith - That answers the honorable senator's objection that the fund is decreasing.

Senator DRAKE - Except to this extent: - The trouble was - and I know that this is what Sir George Turner felt - that, under such circumstances, it would happen that some States would be indebted to the Commonwealth. How, then, if those States refused to pay up their debts, would the Commonwealth enforce them? What Sir George Turner urged was that it was necessary that certain of the States should hypothecate their railway revenue to make up the deficiency between what was due to them on account of Customs and Excise revenue, and what was paid for them by the Commonwealth on account of interest on their debts. In reply to that I say, first of all, thatI think we might have trusted the States. I do not think that they would be more likely to repudiate their obligations to the Commonwealth than they would be to repudiate their debts to the English lenders. Therefore, I think that the scheme of taking over the debts might have been carried out from the beginning. We might have gone ahead under section 105 of the Constitution, and brought forward a Bill to take over the whole of the debts existing at the time of the establishment of the Commonwealth. I must allude to another section in passing, because it seems to me to be intimately connected with section 105. I fancy that a good many people have not realized the meaning of section 96, which deals with the allocation of expenditure from Customs and Excise. The section reads -

During .a period of ten years after the establishment of the Commonwealth and thereafter until the Parliament otherwise provides-

The very words of the Braddon section - the Parliament may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit.

Does not that mean that if the Commonwealth had taken over the whole of the States debts, and if it had happened that a particular State found it extremely inconvenient - in consequence of its Customs revenue having declined, and of its expenditure having increased - to provide the balance with which to pay interest upon its debt, the Commonwealth would have had power during those ten years to say that the payment of interest might be deferred for that time ? It would have been able to s.ay that it could stand over. It was quite competent ' for this Parliament to have taken over all the States debts which existed at the time the Federation was established, because the balance of Customs and Excise revenue in its hands was more than sufficient to pay interest upon them.

Senator Stewart - If the Customs revenue had decreased largely, how would the Commonwealth have paid the deficiency ?

Senator DRAKE - I will deal with that point presently. Of course, if the Customs revenue fell off, the States would become indebted to the Commonwealth in a larger amount, and °a larger demand would have to be made upon their revenue, in order that the Commonwealth might receive the interest which it had undertaken to pay to the public creditor.

Senator de Largie - What Senator Stewart asked was, how the Commonwealth would be able to pay it?

Senator DRAKE - The Commonwealth would make a call upon the States for it. Senator Stewart knows perfectly well that the Commonwealth has unlimited powers of taxation, and, if it chose to do so, it could derive a larger revenue from Customs and Excise.

Senator Stewart - Does the honorable senator think that the interest upon our national debt ought to be made a perpetual charge upon our Customs revenue?

Senator DRAKE - I think that the Customs is our best source of revenue at the present time. When we hear complaints from the States concerning their financial relations with the Commonwealth, Senator Stewart should recollect that the former have borrowed very largely, and that, to a great extent, they have done so upon the security of their Customs revenue. They have relied upon the revenue from the Customs for the money with which to pay interest upon their indebtedness.

Senator Stewart - They borrowed for developmental purposes, and the interest ought to be paid out of the revenue derived from their public works.

Senator DRAKE - I am aware that that is a pet scheme of the honorable senator, but I am now dealing with facts. It is undeniable that the States look to the Customs to provide them with the means with which they mav pay interest upon their indebtedness. In Queensland, prior to Federation, the Government derived 35. per cent, of their total revenue from the Customs House, which was a higher percentage than that obtained by any other State except Western Australia. When the Federation was established, the Treasurer of that State naturally expected to secure from the Commonwealth a large amount by way of Customs and Excise revenue to enable him to pav interest upon its indebtedness. The finances of Queensland are considerably upset when the Federal Treasurer returns to him a smaller amount than he anticipates. But I do not wish to be diverted from my main line of argument. I wish to make clear the nature of the scheme sanctioned by the Constitution. The section to which I have referred further provides that if the Commonwealth does not desire to take over the whole of the States debts, it may take over any portion of them, but always with the proviso that if it fakes over only a part of them it must take over a proportional part of the debts ofl each of the States. That is a fair principle to establish. Let us see what would have followed had we done that. If we had abandoned the larger scheme, we could have taken over a portion of the debts in such a way as to have absolutely relieved the States of their obligation in that connexion.

Senator Trenwith - It would be very undesirable to have two classes of Australian loans running simultaneously.

Senator DRAKE - When we shall have that state of things - if the Commonwealth takes over the States debts - right up to the period when the last loan matures.

Senator Sir Josiah Symon - What is to be the limit for taking over the subsequent debts ?

Senator DRAKE - Senator Trenwith is confusing the taking over with the conversion of the debts. The taking over of those debts would not make the slightest difference in that respect.

Senator Trenwith - But the taking over will mean the conversion.

Senator DRAKE - No. The two things are entirely separate. It is because they have been mixed up that there is so much misapprehension upon the subject. We have been returning to the States about £7,000,000 per annum, which has been available for the payment of interest upon their debts under section 87 of the Constitution ever since the establishment of the Federation. We could have taken over a stated proportion of the debts of each State so as to insure to the State Treasurers that they would be relieved for all time to that extent. We could have done it in such a way that no question would have been raised about the States being indebted to the Commonwealth, or about the difficulty of inducing them to hand over to the Commonwealth any sum with which to pay interest upon their debts. They would have been relieved absolutely of their liabilities in respect of the proportion of their debts which the Commonwealth took over. Assuming that we could not have taken over a sufficient proportion of their debts to absorb the £7,000,000 annually, we might have taken over, say, one-half or three-quarters of their debts. Thus we should have insured that £5,000,000 or £6,000,000 annually would be permanently appropriated for the payment of the States debts. To that extent the States Treasurers would have been for all time relieved. Now let us consider the nature of the. difficulty under which they have been labouring, as is evidenced by the discussions which have taken place whenever they have met the Commonwealth Treasurer in conference. Their trouble is that they have a large amount of interest to pay. In Queensland it aggregates about £1,200,000 per annum.

Senator Turley - It is £1,500,000 per annum now.

Senator DRAKE - Each of the other States occupies a similar position. They have to pay large sums as interest upon their indebtedness. They have been relying upon their Customs and Excise revenue to make these payments, and they now find that the amount which is being returned to them by the Federal Treasurer is year by year becoming less. We have been told that though Queensland has hitherto had returned to her about three-fourths of the Customs and Excise revenue collected in that State, this year she must expect to receive £83,000 short of that amount. The complaint of the States Treasurers is that it is not a fair thing that all the difficulty of making both ends meet should be thrown upon them. They urge that the Federal Treasurer can spend as much as he chooses up to the limits of the Braddon section, and can then throw upon them all the trouble of making both ends meet.

Senator Trenwith - No.

Senator DRAKE - When the Braddon section has expired, they will not have any assurance of getting back any portion of the Customs and Excise revenue, and they may be left, in the absence of any such revenue, with the whole of their debts to pay. What some ofthe States Treasurers ask for - and in this I think there has been some inclination to meet them - is a fixed amount in the place of the portion of revenue returned under the Braddon section, so that they might know that for all time they could rely on a certain amount.

Senator Playford - We could not do that, and also take over the debts.

Senator DRAKE - The position would then be that the Commonwealth Treasurer would be compelled by increased taxation, if necessary, to find the fixed amount for the States Treasurers year by year.

Senator DAWSON (QUEENSLAND) - And the States would spend up to the fixed amount.

Senator DRAKE - The States Treasurers, having a fixed amount, would know exactly what provision they had to make in the future.

Senator Higgs - The States Treasurers are asking the Federal Treasurer to do for them something that he cannot do for himself.

Senator DRAKE - In what way?

Senator Higgs - The States Treasurers are asking for a fixed amount of revenue each year. How can the Federal Treasurer say what amount he will get, seeing that the revenue is always a matter of uncertainty ?

Senator DRAKE - The Commonwealth Treasurer like the States Treasurers, could effect a balance in two ways; he could either restrict his expenditure or increase his revenue. The complaint of the States Treasurers is that, while all Treasurers ought to balance their revenue in one of these two ways, the whole obligation to do so is thrown on the States Treasurers, simply because the Commonwealth Treasurer has this big balance of Customs and Excise - a balance which, up to the year 19 10, he is under an obligation to return only in a certain proportion, but of which there may subsequently be no obligation to return any part. What the States Treasurers asked for - namely, a fixed amount - they could have .got in a very much better way if the Commonwealth had passed an Act to take over portions of the States debts, and thus relieved the States exactly to that extent. At present something like £7,000,000 is returned to the States ; and if sufficient of the States debts were taken over to require£6, 000,000 of that to be paid away in interest, the States Treasurers would know that, at all events, they were relieved of obligation to that extent. Senator Dawson interjected just now that if a fixed amount were returned the States Treasurers would spend it all, and go on borrowing; and I point out that there is nothing in the Bill before us to prevent the States continuing to borrow.

Senator DAWSON (QUEENSLAND) - If the States Treasurers get a stated sum they will live up to that sum

Senator DRAKE - The States Treasurers would still have the rest of their interest to make good, and would have to raise the necessary money. But they would know for certain - and this is the point - that the Commonwealth had undertaken to pay interest on their debts to the extent to which those debts were taken over.

Senator DAWSON (QUEENSLAND) - Has the honorable senator considered the likelihood that the States Treasurers would spend up to the fixed amount, and then cast about for other means of revenue?

Senator DRAKE - If a State had £1,500,000 in interest to pay, and the Commonwealth took over debts representing interest to the amount of £800,000 per annum, the State would know that it had still £700.000 to make good.

Senator Playford - The honorable senator's idea is that we ought to have done this long ago?

Senator DAWSON (QUEENSLAND) - The honorable senator's idea is that we ought to increase the Customs revenue.

Senator DRAKE - I do not say so.

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