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Tuesday, 25 September 1906

Senator MILLEN (NEW SOUTH WALES) - Are the Government making any proposal to take those debts over? Not a bit.

Senator Playford - We are proposing to take the power.

Senator MILLEN - Exactly. The Government say. that they want power to do certain things, and I ask the Minister of Defence whether the Government, as a matter of Cabinet policy, has determined to take over the whole of the debts?

Senator Playford - Not at once.

Senator MILLEN - Or at any time?

Senator Playford - Here it is - all laid out by Sir John Forrest.

Senator MILLEN - If it comes down to " Here it is - all laid out by Sir John Forrest," we might as well go home.

Senator Playford - The Government have approved.

Senator MILLEN - The Government have approved of what?

Senator Playford - Of Sir John Forrest's scheme.

Senator MILLEN - The Government have not matured a scheme for taking over the States debts, or, if they have matured a scheme, they have not disclosed it to the public. Before we attempted to alter the Constitution to enable certain steps to be taken, the Government ought to have made up their mind that those steps would, if possible, be taken. But the Ministry have not yet determined that it is possible to take over the whole of the debts, even if this alteration of the Constitution be made. We have not arrived at any determination with the States as to whether they are willing to face the probably necessary restrictions on their future action if the debts be taken over. What are we altering the Constitution for? It is proposed to alter the Constitution on the mere chance - as a sort of legislative fishing excursion

Senator Givens - To " go blind."

Senator MILLEN - If it were not for the fear of Mr. Judkins that would be a very apt description on the part of Senator Givens. Whatever I might do in my lighter moments, I am not prepared to "go blind" in the amending of the Constitution. For the Government to invite us to amend the Constitution, when, if the amendment be secured, they are not prepared to take any steps in consequence appears to me to be putting the cart before the horse. If the Government had any definite scheme advantageous in itself and acceptable to the States, and there was some portion of the Constitution which was a hindrance or a block, I could understand the Government coming to Parliament and the country and saying - " Here is the scheme we propose; unfortunately, one of the provisions in the Constitution stands in the way, and we ask you to remove the difficulty and enable us to give effect to the scheme we have matured." But the Government have not done anything of the kind.

Senator Playford - Oh, yes, we have; the scheme is all right.

Senator MILLEN - The Minister may talk in that way, but-

Senator Playford - Perhaps Senator Millen will read the scheme?

Senator MILLEN - I have read Sir John Forrest's scheme, and I shall deal with it presently. Is the Minister of Defence prepared to say that the Ministry have absolutely approved of the scheme, and will make it a plank of the Ministerial platform? If that be so, I may remind the honorable gentleman that there are still in Australia sovereign entities known as States, and that those States are not prepared to be brushed on one side by the honorable gentleman's assurance that Sir

John Forrest has approved of a certain course of action.

Senator Playford - The Ministry have approved.

Senator MILLEN - Any scheme ought to have been discussed with the States, and then if there had been found to be a provision in the Constitution which operated as a block, an amendment could have been proposed in the direction known to be necessary. But we are now asked to amend the Constitution on the off-chance, that, if we do so, some scheme may ultimately be accepted by the States and the Commonwealth. I direct attention to what I regard as the most marvellous position I ever heard of in either public or private life. The Commonwealth, or certain of the leading men connected with the Commonwealth Parliament, are becoming greatly excited with the idea that thev shall be allowed to take over' somebody else's liabilities. It is not the States which are worrying about this matter, but a few Federal gentlemen, who seem to think that they have a special mission to do something of .magnitude. I ask any honorable senator what would happen if someone came rushing after him post haste, imploring to be allowed to take over his liabilities? It is a peculiar position; and I must say that if any one came after me in that way I should not keep him waiting long. Why this haste? Why is it that Sir John Forrest, Sir George Turner, Mr. Knox. Mr. Harper, and one or two others are trying to excel themselves, and each other, in a wild desire to take over somebody else's debts?

Senator Givens - Who are Knox and Harper ?

Senator MILLEN - I have read the schemes of those gentlemen, and I conclude that thev consider themselves qualified to offer advice to us on financial questions.

Senator O'Keefe - The honorable senator will admit that one of the chief arguments in favour of Federation was the consolidation of the States debts.

Senator MILLEN - So many utterly ridiculous promises and statements were made at that time, that-

Senator O'Keefe - That is no answer; does the honorable senator admit that what I have stated was one of the chief arguments used to. induce people to vote for Federation ?

Senator MILLEN - I know it was one of the inducements held out, but it was an inducement for which there was no moral or actual justification.

Senator O'Keefe - But it may furnish a reason why so many gentlemen are anxious to deal with the matter.

Senator MILLEN - That may be; but it was pointed out that as a result of Federation, we were to have savings in every direction. Listening to the arguments then used; I know that I came to the conclusion that if we had a big enough Federation we could run the Commonwealth Government for nothing. It was pointed out that under the States there were halfadozen commanders-in-chief, whereas under the Commonwealth there would be only one; and that in other directions there would be an enormous saving. With regard to the public debt it was said that we were going to save from 10s. to 20s. in every £100 of debt. But all who had looked into the matter knew that the gentlemen who made those promises were victims of their own zeal.

Senator Givens - If we have no power to restrict future borrowing by the States there will be no advantage in taking over the States debts.

Senator MILLEN - I shall deal with that point, but at present I am' referring to the anxiety on the part of a limited number of gentlemen that the Commonwealth shall take over the States debts', and to the fact that the States are not troubling themselves at all in the matter. There have been no deputations asking the Federal authorities to take over the States debts ; and I ask why it is that we find this limited number of Federal politicians - statesmen, if they like - so anxious, even to the extent of amending the Constitution, for the Commonwealth to be allowed to take over the liabilities of the States ?

Senator O'Keefe - Is it not a fact that in every States Parliament there is a great deal of anxiety as to what will happen when the Braddon section ceases to operate?

Senator MILLEN - The honorable senator is anticipating me a little. I shall show directly why I think it is necessary thatwe should not deal with the States debts by themselves, but with them as part of the whole financial position, which we shall shortly have to pass under review. So far as the States debts are concerned, I repeat that the States have never troubled about the matter. Whenever the matter has been brought up at Conferences of Premiers, the States have shown themselves extremely indifferent in the matter of transferring the debts, but extremely tenacious of their right to continue to borrow if they think fit. When Senator Pearce was speaking I asked, by way of interjection, what advantage he could point out in the federalizing of the States debts. The honorable senator mentioned two advantages - a saving in interest, and a lessening in the borrowing propensities of the States. The whole of the arguments we have heard this morning in favour of the Bill, and the schemes put forward, rest on the assumption that there is to be a saving in interest. What substance is there in that contention ? I asked Senator Pearce once or twice toquote some authorities in favour of his contention. I have every respect for the eminent gentleman Senator Pearce mentioned - Sir John Forrest. But Sir John Forrest is one of the gentlemenwho have put forward a scheme for federalizing the debts; and it is a matter of common experience, in political, as in other walks of life, that where people have arrived at certain conclusions, they will find means and arguments to support those conclusions. On whose authority is Sir John Forrest speaking ? I do not know that Sir John Forrest, simply because he lias been Treasurer of Western Australia, is in a better position, to judge as to the possibility of the federalization of the debts effecting a saving in interest than is anybody else. But I do know that there are certain recognised authorities in London, on whose advice all the States Governments have been content to act from time to time. I would refer honorable senators to the ablest memorandum on this subject that I have been able to obtain - the memorandum prepared by Mr. Coghlan, Agent-General for New South Wales, and presented to either this or the other branch of the Parliament on 22nd June last. It is dated 28th March. 1906, so that it is a recent document. I presume that honorable senators have read it. Throughout this somewhat lengthy memorandum we find a very clear definite expression of opinion on the part of Mr. Coghlan - an opinion based upon the views of the. eminent financial authorities whom: he consulted - that the Commonwealth cannot hope for some time to effect any saving. I shall make two quotations from this memorandum. At page 4, Mr. Coghlan points out that -

If the Commonwealth were to take the place of the various States in the London money market -

And that is what is proposed. Conversion loans are not suggested. It is merely proposed that the Commonwealth shall at first take the place of the States, paying interest and redeeming the loans as they fall due - it would probably not be able at first to obtain money on better terms than the States could do for themselves. Some of the leading brokers who deal with Australian stocks in this country - men of wide knowledge of financial conditions - have been consulted in this matter, and their views are in agreement with those herein expressed.

He goes on to point out - and I invite Senator Pearce's attention to this statement -

Many sanguine forecasts have been made as to the monetary gain arising by the transfer of the State debts to the Commonwealth. It has been seriously contended that the rate of interest, 3.7 per cent., which our 'loans now average, can probably be reduced by the operation of consolidation and conversion to under 3 per cent. This is a hone impossible to realize.

Senator Playford - He was referring to the state of the market at the time he wrote.

Senator O'Keefe - But the memorandum is a very recent one.

Senator MILLEN - Yes, it is dated 28th March, 1906. If it were necessary I could give a dozen quotations from this report showing that Mr. Coghlan makes it abundantly clear that, after consulting the best authorities with whom he could come in touch, he is unmistakably of opinion that there is no possibility for some years of the Federation floating loans upon terms more advantageous than those obtained by the States.

Senator Playford - That is only an opinion.

Senator MILLEN - Quite sot and the same may be said with regard to the views of Sir John Forrest.

Senator Playford - Mr. Coghlan based these opinions upon the conditions existing when he wrote that memorandum. He was not referring to what might happen later on.

Senator MILLEN - He says that for some years we cannot hope to float loans on better terms than the States.

Senator Playford - The Treasurer does not say that we should at once effect a saving.

Senator MILLEN - No, but in the memorandum in which he suggests that we should be able to save some millions of pounds, he takes credit for the saving which he declares the Federation would effect from the moment a conversion took place.

Senator Guthrie - He consulted high financial authorities in London.

Senator Playford - He consulted all the best financial authorities.

Senator MILLEN - Mr. Coghlandid the same. Without casting any reflection upon Sir John Forrest - accepting his memorandum as being, entirely well founded - I am prepared to accept as my guide Mr. Coghlan, an official who is not advocating a scheme framed and put forward by himself, but is simply an inquirer on behalf of the Commonwealth, rather than the Treasurer, who, having formulated a scheme of his own, has necessarily an unconscious inducement to find arguments in support of it.

Senator Playford - The Treasurer did not formulate his scheme until he returned from London.

Senator MILLEN - That is immaterial. The object that he had in view is apparent. It seems to me that there is a very strong desire on the part of many_ of those associated with Federal politics to draw greater power to the Federation. Such a. policy may be right or wrong; I am not going to discuss it, but I think that we find in it an explanation of this desire on the part of successive Treasurers to go on increasing the centralization at the expense of the States. This is not the time to discuss that point; but I think I have pointed out the explanation for the extraordinary position taken up by successive Federal Treasurers, who have become so extremely anxious that the Commonwealth shall take over the States debts, whilst the States themselves evince no concern about the matter. I wish to read a- short extract from an article in the Daily Telegraph by Mr. Nash, whose views are entitled to be accepted with every respect as those of one of the first of Australian financial authorities.

Senator Pearce - Has the honorable senator ever read the article written by him in pre-Federation days, in which he forecast the first Federal Tariff? He only went astray to the extent! of about £2,000,000.

Senator MILLEN - As to the revenue that it would yield?

Senator Pearce - Yes, and the articles that would be taxed.

Senator Drake - We made many alterations in the Tariff as submitted.

Senator MILLEN - It is ridiculous to refer to the article in question as an indication that Mr. Nash is not a gentleman of considerable financial abilities. He- had a perfect right to assume, from preelection pledges made by those who were leading the Federal movement, that we should have a moderate revenue Tariff. He was disappointed in that regard, and hence his estimate proved incorrect. I shall leave the facts to which Mr. Nash points to speak for themselves. He says -

Sir JohnForrest has put forward a statement that there will be a saving by the year 1952 of £15,646,016 if the State debts are taken over by the Commonwealth - that is, on the supposition that the credit of the Commonwealth is all through better than that of the States to the extent of £ per cent, per annum in interest. He might add that if the credit pf the 'Commonwealth were good for 1 per cent, advantage the whole of the debts might be liquidated out of the savings effected. The point to be decided is whether the credit of the Commonwealth will be any better than that of the States - or even as good ?

Senator Pearcepointed out .what he described as the common-sense view - that men with money to invest would prefer to lend it on the joint security of the Commonwealth rather than upon the security of the individual States. At first sight that appears to be a very strong argument. I would ask him, however, to listen to this further statement by Mr. Nash -

What is the position? New South Wales has a debt of £85,000,000, the bulk of which is earning more than the interest, and last year the revenue of this State was £12,300,000, and there was a surplus of £900,000, after redeeming £360,000 debt. But the Commonwealth, if it took over the debts, would have a liability of £237,000,000, without any assets, with an income of under £12,000,000, and an expenditure of £14,000,000, and for the excess of expenditure it would have to depend upon contributions from the States, which looks in the sounder financial position, quite apart from the desire of the Commonwealth to augment its expenditure in other directions and its socialistic tendencies. Under these conditions we entirely disbelieve in the credit of the Commonwealth being better than that of the States.

I ask honorable senators not to lose sight of these figures. If the Commonwealth were to take over the debts of the States, she would have, under the present financial adjustment, an annual expenditure of £[14,000,000, and an annual income of only ,£12,000,000. I am asked to believe that the Commonwealth, in those circumstances, could negotiate a loan on the

London market better than could New South Wales, which had, last year, a surplus of nearly £[1,250,000 and which, as against its public debt of £[85,000,000, has revenue-earning assets representing more than the whole amount of interest.

Senator Pearce - Having regard to the fact that it has unlimited powers of taxation, why should the Commonwealth have a deficit of nearly £[2,000,000?

Senator MILLEN - If the honorable senator turns to Mr. Coghlan's memorandum he will find that one of the principal factors which money-lenders take into account is the extent to which' a country is taxed !in order to raise revenue. If a national crisis arose, the Commonwealth could raise twice the amount mentioned.

Senator Pearce - London financiers would take into consideration the total taxing 'powers of the Commonwealth. If it relieved the States of the payment of the interest, additional taxation would not have to be imposed.

Senator MILLEN - The honorable senator is arguing on the assumption that, in proportion to the extent to which the Federation taxes the public, the States would remit taxation. Can he point to any instance in which taxation has been remitted by the States?

Senator Pearce - The States have not transferred their debts.

Senator MILLEN - That is immaterial.

Senator Pearce - We have not relieved them of the expenditure.

Senator MILLEN - Have we not relieved New South Wales of the expenditure upon the public Departments which have been transferred to the Commonwealth, and has not the result of Federation been to give that State a large increase of revenue?

Sitting suspended from 1 to 2.30 p.m.

Senator MILLEN - Dealing with the contention of the advocates of this Bill, that a saving of interest would be effected by the federalization of States debts, I have quoted from the document prepared by Mr. Coghlan in support of the view I express, that that is entirely problematical. I should like to direct the attention of Senator Playford. who seems to attach so much) importance to Sir John Forrest's memorandum, to what that right honorable gentleman has to SaX on the subject. It will be found that he does not claim that there will be any immediate saving. At page 102 of his paper I find that he speaks of it in paragraph 1 as only an "eventual result," and, in a later paragraph, he uses the words "Australian Consols would in time ..." So that Sir John Forrest does not claim that there is any immediate prospect of saving as the result of federalizing the States debts.

Senator Playford - He, therefore, does not in any way controvert what Mr. Coghlan says. They appear to be of the same opinion.

Senator MILLEN - I accept that, and it is sufficient for mv argument to say that both these authorities agree that there is no prospect of an immediate saving, and that any saving to be made will come eventually, if at all. I emphasize this point, because it shows that the matter under discussion is not at all urgent. Another question I wish to deal with is that of borrowing by the States. Senator Pearce has put forward as two advantages to be derived from the federalization of the States debts, first, a saving of interest - and with that I have dealt - and, second, that it would have a tendency to check the propensity to borrow on the part of the States. We have no guarantee, nor have we any reasonable anticipation of that. I find, on referring again 'to the documents that the Premiers, at their Conference, made it quite clear that thev were not prepared to give up, or even to have any. restriction placed upon, their right to borrow. Sir John Forrest appears to have agreed to the contention they then advanced. I may, on this point, quote again from Mr. Coghlan's memorandum. It will be found that, at page 5, he says -

The transfer of existing loan obligations of the States to the Commonwealth coupled with the right of the States to continue borrowing in the London market would lead to disastrous results.

I do not think that that sentence needs amplifying. The position which would arise if the Federation were to take oyer the States debts, and leave the States with a clean sheet, and at liberty to continue to borrow as much as they pleased, would, undoubtedly, in the language of Mr. Coghlan, lead to results that would be absolutely disastrous.

Senator Stewart - And leave them in full possession of the assets.

Senator MILLEN - Just so. Sir John Forrest agrees to that proposition. In an appendix to the document he has prepared, at page 109, there is a table bearing upon the proposal of the States Premiers. It is practically set out that, according to their proposal, the States are to have full liberty to borrow, only they must borrow through the Commonwealth. The proposal set out, and to which Sir John Forrest agreed, is that, if a State Treasurer desires to borrow, he can notify the Federal Treasurer of his intention to float a loan The Federal Treasurer can then confer, presumably, with London financiers, and advise the State Treasurer as to what the prospects are. But the State Treasurer has the right, after the advice has been received, to say whether the loan shall be proceeded with or not. Practically, the only difference is that to-day the State Government conducts its negotiations with the London financiers itself, and under the proposal here made it would conduct them through) the Commonwealth Treasurer. It will be admitted that that difference is quite immaterial.

Senator Playford - No, the Commonwealth would operate; the loan would be floated by the Commonwealth, and would be a portion of Australian consols.

Senator MILLEN - If Senator Playford finds any satisfaction in the name, he is welcome to it. I am pointing out that the procedure would be exactly the same as at present, except that the Federal Treasurer would be the individual who would formally launch the loan.

Senator Stewart - He would be responsible.

Senator MILLEN - But it would not in any way restrict the rights of the States to borrow. At present, if the Government of a State wishes to borrow, it confers with its advisers in London, and may, or may not, act upon the advice received; and all that is proposed here is to place the Federal Treasurer in the position of an inquiring agent for the State Government.

Senator Playford - More than that. He is placed in the position of floating the loan as a Commonwealth loan.

Senator MILLEN - I do not quite follow the Minister. The Federal Treasurer has no right to veto such a loan ; the State Government could go on with a proposed loan even if the Federal Treasurer were absolutely assured, on the advice he received, that to float a State loan at that particular time would be disastrous. The State Government could still say to the Federal Treasurer - " We do not care what the results will be, you go ahead and float the loan." The proposal puts the Federal

Treasurer actually into the position of an agent. That is the only position he can occupy under the proposal to which Sir John Forrest has agreed. I do not think that desirable.

Senator Playford - I think that was first mooted by the previous Treasurer, Sir George Turner.

Senator MILLEN - It does not matter who mooted it, it is embodied in Sir John Forrest's proposal, and he has agreed to it, although it is quite clear that he recognises the danger underlying it. The exact proposal is set out in these words -

That within three months after the receipt of such notice -

That is the notice of the State Treasurer to the Federal Treasurer that a loan is desired - the Federal Treasurer shall ascertain the terms and extent of the proposed loan, and notify the State Treasurer thereof, who shall elect whether to proceed with the loan or not to the Commonwealth.

Senator Stewart - Does that mean that he can borrow directly, or through the Commonwealth, as he pleases ?

Senator MILLEN - No; it means that the State Government can determine after the receipt of the advice obtained by the Federal authorities whether 'to proceed1 with the loan or not. If the State Government determines to proceed with the loan the Federal Treasurer will be absolutelyimpotent. He will have to place the loan on the London market, even though it should be against his own opinion, and against the advice he has received. He will have no power of veto or revision. All he can do is to secure advice in London, and place it before the State Treasurer. If, having considered that advice, the State Treasurer still determines that the loan shall be floated, the Commonwealth authorities will be absolutely impotent. Although, and here is the point, they are absolutely responsible for the payment of interest on the loan, and for its redemption, they will have no voice in saying whether the loan shall be put on the market or not. A more unbusiness-like proposition I have never been called upon to consider. Sir John Forrest evidently saw the danger of that proposal, although he agreed to it because he seeks to limit lt as to time. At page 105 of his report, in paragraph r6, he says -

It is, I think, inadvisable at the present time to ask the States to undertake f.or all time not to borrow on the London market except through the Commonwealth.

That rather negative way of stating the matter does, I think, show that there is a doubt in Sir John Forrest's mind as to the wisdom of the proposal, although he has marked his agreement to it by a side note to the proposal. It shows that Sir John Forrest is himself conversant with the danger which must underlie any proposition that one 'Government shall be called upon to accept responsibility for a loan, and another shall have the right to say whether the loan shall be floated. I have said that there is no urgency in this matter, and that is the chief reason I advance against the consideration of this Bill to-day. It seems to me that in considering a portion only of the financial questions which call for our attention, the Government are going to work in a most slovenly way. The question of taking over the debts of the States should not be considered bv itself, but as a part of the whole financial relationship existing between the States and the Federation. To propose to deal with a portion of the financial question is to deal with it incompletely, and to further complicate matters when later on we are called upon, as we shall' be, to consider other branches of the financial relationship existing between the States and the Federation. In Sir John Forrest's memorandum, the right honorable gentleman sets out in the very first page that in considering the financial position, we ought to take into review the questions of the taking over of the States debts ; the amount of the States debts to be taken over; the continuance or otherwise of section 87 of the Constitution ; the amount and basis of the annual payments to the States under the bookkeeping system ; and future borrowing by the States. All these matters, if not immediately under review, must come under review shortly, and I am unable to understand why the Government should propose to deal with one portion of the financial question in this haphazard fashion rather than with a complete scheme, bringing the whole matter under review and affording an opportunity to determine it once and for all time. If this Bill be passed, all the other branches of the subject will still have to be considered, and any one of them may have an important bearing .upon the terms on which we should take over the States debts. Let us take, for instance, "the question of the distribution of revenue upon the -per capita basis, which has already occupied the attention of the Senate. In considering that question we are at once brought face to face with the question of the transfer of the

States debts or the taking over of some other liability of the States. The same thing applies in considering the distribution of the surplus revenue over and above the three-fourths which the Commonwealth is bound to return to the States. Let us take again the amount of the debts it is proposed to take over. These' vary very much. Tasmania has a debt per head of ,£52, Queensland £%o, Victoria £[40, South Australia -06, Western Australia t:u, and New South Wales .£55. " There is great variation there, and when we come to look at the revenue to be returned, I find that the variation in the amounts to be distributed to the different States is equally great, whether distributed on the present basis or on a per capita basis. How oan any one divorce these subjects? We should consider all these financial questions at one time. We might find that the adoption of the per capita system of distribution of expenditure and revenue might be of special advantage to one State, and the taking over of the debts might give a corresponding relief to another State, and we should thus have that give and take, which we understood would operate when Federation was inaugurated. To take over the States debts bv themselves will simply render the final adjustment of the financial relations between the Commonwealth and the States more complicated and difficult. What I wish to see is a complete divorce between Federal and States finance. I know of nothing more pernicious 1 an , a system which throws upon one Government the responsibility of raising revenue, and gives to another the privilege of expending that revenue. Whether in private or in State matters there can be only one result of such a system - the spending body will always be dissatisfied. That is the position of the States to-day,. We continually hear complaints from them concerning the method by which the Federal authorities conduct their affairs. It does not seem to matter how much revenue the Federation receives, we mav receive twice as much as we do. and return twice as much to the States, and they will spend it without difficulty,bbecause the responsibility of raising it will not rest on their shoulders.

I wish to make each Government complete in itself, as the more frequently thev come into contact the greater the opportunity will there be for friction to arise between them.

Senator Stewart - How does the honorable senator propose to do it?

Senator MILLEN - Certainly not by, dealing with a portion of our financial arrangements. The whole subject ought to be brought under review at the one time.

Senator Stewart - We cannot do it bytaking over the whole of the States debts.

Senator Playford - Yes, we can. We would have no money to repay then.

Senator MILLEN - If my honorable friend has studied the memorandum of the Treasurer he will know that the latter had in his mind two things - either the possibility of payment by the Federation to the States, or the possibility of payment by the States to the Federation. Each of them is undesirable. It is far better to look thoroughly into the whole matter, especially as there is no urgency, and to see if we cannot devise a scheme which, either by a re-adjustment of the present method of distributing the revenue or by relieving the States of liabilities, as in the case of federalizing their debts, would be equitable to each State and reasonable to the Commonwealth, and which, at the same time, would place each State upon a sound financial basis. That is the objective I have in view.

Senator Stewart - We cannot do it by meddling with the States debts.

Senator MILLEN - I am not at all keen to fake over the States debts. It seems to me foolish to consider that question unless we also consider the other questions. Have we, for instance, yet made up our mind as to whether the Braddon section shall be continued indefinitely or whether we shall have fixed payments to the States ?

Senator Playford - If we take over the States debts, and pay the 'interest on them, we shall find that instead of our having to pay money to the whole of the States, some of them will have to pay money to us.

Senator MILLEN - Exactly ; aand there is the evil in another way.

Senator Stewart - We cannot separate Commonwealth and States finance in that way.

Senator MILLEN - Exactly. If the Minister of Defence had come down and said, " The Government propose to take over the States debts and to terminate the existence of the bookkeeping period and the Braddon section," 1 should have known what he meant. But he has made no proposal of that kind. On the contrary he has simply come down with a proposal which, so far as one can see or learn from anything he has or has not said, is simply a bald proposal to take power to transfer the States debts. We have no information as to the intention of the Government if the constitutional alteration be made.

Senator Playford - We can deal with that question next year. The Bill would only give the Commonwealth power to take over an additional £34,000,000 or £35,000,000 of debt.

Senator MILLEN - Just now the Minister said that if we took over the States debts that would settle the question of the Braddon section. It is not clear, however, that the States would agree to the removal of that provision unless they got a substantial guarantee in its place.

Senator Playford - " Unless otherwise provided," it will continue to operate.

Senator MILLEN - I want the Minister to say what provision he has to substitute, and not to simply submit a proposal to transfer the States debts without showing what his ultimate objective is, or on what basis he proposes to put the financial relations between the States and the Commonwealth. It is because I regard the proposal as so entirely incomplete and unsatisfactory that I propose to vote against the second reading of the Bill.

Senator Sir JOSIAHSYMON (South Australia) [2.48]. - I propose to confine myself, as much as possible, to the proposal which is contained within the four corners of the Bill. I do not think it necessary at this stage to discuss the propriety or otherwise of taking over the States debts. I donot intend to enter into details as to how the assumption of the liability, as I prefer to call it, is to work itself out, or whether any. and, if so, how much, profit would be gained by the Commonwealth - that is, by the people of Australia, either as States or as a nation - by a transaction of that kind. This morning we had some extremely useful explanations from a practical financial point of view, and some very cogent arguments which ought to be weighed by every honorable senator before he assents to the proposal of the Minister. Nor do I wish to look at the Bill from the stand-point that the Constitution is to be regarded as something sacred.I do not look upon the Constitution in that aspect at all. But I hold that there ought to be no alterations made unless they are urgently and imminently required. It is of no use to have a Constitution if every now and then, whenever a suggestion, which is more or less in the clouds, is made, we are to have a referendum of the people with a view to secure an amendment of it. Therefore, I do not resent the suggestion that is sometimes made against those who resist an amendment of the Constitution - we have sanctioned one already this session - which they hold as sacred. Whilst on the one hand I think that that is a perfectly legitimate observation to make as regards myself or any other of the old Federalists; on the other hand, I am quite sure that it is equally to the point to appeal to honorable senators to say that the Constitution, if not sacred, should not be lightly changed or altered. I regret that this Bill should have been introduced at this stage. With the utmost respect to those who have carefully considered the question of the transference of the States debts - three or four different proposals have emanated from competent men, and have been subject to the deliberations of conferences, and so on - I hold that a Bill of this kind is fancifiul, unnecessary, and uncalled for. We might as well, in relation to the Bill, be a, mere debating society dealing with a purely abstract subject. There is no concrete proposal with which we can deal, and say that the suggested alteration in the Constitution is necessary to give it effect

Senator Givens - It is all nebulous.

Senator Sir JOSIAH SYMON - That is the word to apply. Not merely has the Parliament decided on no policy ; not merely has it never assented to the proposition that we should enlarge our power of taking over States debts, so as to comprise debts incurred since Federation, but no Ministry has submitted a policy of that kind to Parliament. I cannot understand why the Bill should be introduced. We know that in commercial circles there is a practice called kite flying. I can only look upon the Bill as a kind of political kite that is set flying in order to give persons something to talk about or to' ascertain in which way the wind blows, or simply to occupy a little time. There can be no question that it is a Bill to effect a radical change in the Constitution. In his instructive speech. Senator Drake indicated, without elaborating them, two or three points in that connexion, to which I shall very briefly refer. The Bill involves an entirely new constitutional departure, which will affect the States and the States debts, and which will enlarge the power of the Commonwealth - because the consent of the States is not necessary - in a direction in which hitherto it has been expressly limited. I hope that we shall all think of the proposal in that way quite apart from any party consideration. It is our duty, I might almost say our religious duty, to the Constitution to see that it is carried out. I ask myself what has happened to render the proposed amendment necessary. Has there been any attempt to exercise the existing powers, and has it failed owing to some defect in the Constitution?

Senator Givens - We have not even taken over a portion of the States debts corresponding to the value of the transferred properties.

Senator Sir JOSIAH SYMON - We have done nothing. Why should we enlarge the powers of the Constitution? Surely in all conscience we have enough to do under the Constitution as it is ! Let us exercise the power it gives us before we seek to arrogate to ourselves more power. If we should find that a great national purpose cannot be fulfilled, then the Government might fairly come to the Parliament and the people and say, " Let us enlarge the Constitution to enable that to be done." But we are in a situation in which all the inquiries which we make of ourselves must be answered in the negative. What is it that the Bill proposes to do? The power in the Constitution was inserted after the greatest care and deliberation, and for a purpose which will be very obvious to honorable senators when I make a few quotations. It was inserted to enable the Commonwealth to take over the debts of the States existing at the time of its establishment. The Convention also provided that if only part of the debts were to be taken over it should be a fro rata proportion. That is, that we could not take over part of the debts of one State and leave the other States with their debts, because they were bad and heavy, or bearing too high a rate of interest. That would have been utterly unjust, and therefore the Convention provided that if there was to be a partial taking over of the debts it should be on a fair and just proportion, as between the different States, according to population, and in that way no one State should have a right to complain that, the debts of another State had been preferred to its debts. Senator Drake called that provision a safeguard, but I call it an essential condition in the Constitution. I think that it was absolutely necessary, in order that justice should be done, that that provision should be inserted. The Convention thought so after a very exhaustive deliberation. Now, what is proposed in the Bill? It is proposed, first of all, to repeal the provision which limits the debts that are to be taken over to those existing at the establishment of the Constitution. Then it is proposed to repeal altogether the essential condition that there shall be a just proportion maintained if only a part of the debts be taken over. I am one of those who are anxious te magnify the power and jurisdiction of the Commonwealth as much as I possibly can. But I am not going to magnify thiem in this way, and in this direction. We are asked to extend this power of the Commonwealth without the consent of the States - without saying to them, "With your leave or by your leave." We are asked to put it within the power of the Commonwealth regardless of proportion, and of the interests of one State as against another, to take over the debt or any part thereof of any State, and leave the rest lamenting. Is, not that a radical alteration Of the Constitution ? It is not like the alteration of the Constitution affecting Senate elections. I had some observations to make to honorable senators then, but as they thought fit to agree to what was proposed there was nothing more to be said, because it was intended to meet a difficulty that had arisen. But no difficulty has arisen in this case. This is simply a Bill to effect a root and branch alteration in -a vital part of the Constitution in a very lighthearted unconsidered way. The provision of the Constitution is clear, intelligible, careful, just. But this Bill asks- us to complicate the forthcoming elections by expounding - in opposition it may be to this proposa - complicated questions with regard toStates debts which are already settled under the Constitution. From that point of view alone it would be utterly unjust. -But let me enforce that aspect. It is not simply because the constitutional provision and the Bill are absolutely antagonistic - because the one is a repeal of the other - that we ought to say that we will not entertain what is proposed. Let us look at the origin of the constitutional provision. Some people seem to have forgotten the basis upon which it was inserted. What was .it ? It was this : When the American and Canadian Constitutions were, framed the people of those countries were faced with exactly the same position as we are in Australia; except that of course in the United States the problem was infinitely more complicated and more difficult than is our little problem. I quite agree with Senator Drake in his lament that something has not been done before to settle the States debts problem. He has expressed himself as willing to take a share of the blame, though I do not think that much rests on his shoulders. But there is nothing in our problem that is anything like so troublesome or so apparently insuperable as that which faced the statesmen of the United States 125 years ago. There the Federal Government became responsible for the whole of the debts incurred prior to the Union. When the Canadians entered into their Union under section m of their British North America Act, the Dominion Government became liable for the debts and liabilities of each of the Provinces as they existed at the time of the Union. It was part of the bargain ; my honorable friends who are introducing this measure forget that in the United States it was part of the bargain ; in Canada it was part of the bargain, and in Australia it was part of ' the bargain. Why?. Because it" was essential that the Commonwealth on its establishment should take over that fertile and enormous source of revenue, Customs and Excise, from the States, as well as other taxing powers to which I need not refer. As a consequence, it would have been proper to do what was done in Canada - -namely, to make the Commonwealth assume the liabilities of the States at the time of Federation. Then we should have had no trouble about the Braddon section. But we were a timid people in the Convention. We knew perfectly well that there was a great deal of sensitiveness as to the conditions under which the debts existed, and that the States might desire to be directly consulted. It was mainly with a view of smoothing the way that the method embodied in the Constitution was adopted". But the essential foundation of the whole thing was that on the establishment of the Commonwealth we should take away the Customs and Excise source of revenue from the States. Otherwise there would be no obligation upon the Commonwealth to assume responsibility for any part of the debts. But what is the security for the debts of Australia? Not our railways, nor our telephones, nor our telegraphs, nor our public buildings. It is the tax-paying power of the citizens. Of course, we are prepared to tell our' creditors that if they distrust the honesty or the tax-paying power of the people of Australia they have the railways and other public property to look to as security. But that is not the real basis of security for a national loan, lt is the tax-paying power of the people, with" the honesty and honour of the tax-payers pertaining to it. When the Commonwealth took away a great deal of the fruit of that tax-paying power, it is obvious that it had to do what the statesmen of the United States and Canada did, namely, to provide for assuming the liability for then existing debts. But that responsibility did not apply to subsequent debts. How could it? If the States chose to contract debts after Federation on the basis of the tax-paying power left to them, what have we to do with that constitutionally? Nothing whatever. It will be a proper thing when we come to deal with the taking over of the debts to provide, if we like, '.hat the .States shall curtail their borrowing, or to endeavour in some way or other to prevent extravagance. I do not say that (hat will be unfair, and I do not know that the States will think it so unreasonable that they will object. But there is no reason in the wide world why we should, under the Constitution, ask for power to take over subsequent debts, or that the States, even if they wished to do so, should request us to seek that power. But, as I said a minute ago, in the Commonwealth, as in the United States, and in Canada, it was part of the bargain to take over the then existing debts ; and, when in the Convention we came to frame the part of the Constitution dealing with this subject, a number of us felt that it was very desirable that the provision with regard to taking* over the debts should not be permissive, but compulsory. My honorable friend Mr. Glynn, in the Melbourne session of the Convention, moved an amendment to strike out the word "mav" and substitute "shall." That amendment was negatived because another amendment was moved later on b- Mr., now Sir, William McMillan, to the effect that the Commonwealth should only take over debts with the consent of the States. Upon that Sir George Turner moved an amendment to leave out the word "may" and substitute "shall." That amendment was carried by one of the largest majorities recorded in -the Convention - a majority of seventeen. It was therefore made obligatory upon the Commonwealth to take over- the debts existing at the time of the establishment of Federation, so long as that was done with the consent of the States. Why? Because in that way the interests of the States would be safeguarded to the fullest possible extent. It so happened that in the course of the debate the suggestion was made to strike out the safeguard with regard to the proportion of debts that should be taken over. The strongest argument against that was used by my honorable friend Sir George Turner, in the sentences which I. shall take the liberty to quote to honorable senators, pointing out that power should not be given to the Commonwealth to take a choice of debts, because, if that were done, the good debts would be taken for the sake of the credit of the Commonwealth, leaving the bad debts with the States which, perhaps, could least afford to pay the heavy interest. That argument seems to me to be absolutely convincing as to the extreme undesirableness of this amendment of the Constitution.

Senator Drake - And yet that is what the Government proposes as soon as Sir George Turner ceases to be Treasurer.

Senator Sir JOSIAH SYMON - I do not believe that he would have done it. The passage which I shall quote is to be found in volume 2 of the Convention Debates (Melbourne Session, page 158.1) Sir George Turner said -

It seems to me that the proposal of the honorable member (Mr. McMillan) will allow the Federal authority to deal with the States individually. It will be able to say to Victoria - "We will take over your bad loans." By bad loans, I mean loans obtained at high rates, or short-dated loans, and it may discriminate be. tween the States. Some of the States may think that they are being treated unfairly and improperly, because some of their loans, which they may regard as good, may be taken over by the Federal authority, while loans of the other colonies, which they regard as bad, may also be taken over. I think it is a mistake that we should allow (he Commonwealth Parliament to deal in this way with the States. If I had my way I would at once transfer to it the whole of the debts of the States. I should throw the onus upon the Federal authority of paying the interest upon the States debts, because I believe that by doing so we should, in the future, prevent the extravagance which the Federal Treasurer might otherwise be forced into against his will, simply because there would be no surplus. We all know what the experience of these colonies has been in regard to surpluses, and that Treasurers are forced to spend surplus revenue in a way in which they know it ought not to be spent. I believe that if we took the proper course we should at once hand over to the Federal Parliament the liability for the payment of the interest upon the States debts. Under the Constitution we do not compel the Federal Parliament to raise any specified amount of revenue, but I wish to insert some provision which will have the effect of making the Federal Parliament expend its revenue instead of, what I am afraid it may do, squandering it. If I thought it would meet the views of the majority of honorable members, I should feel inclined to move the .omission of the word " may," with a view to the insertion of the word " shall," in order to test the feeling of the 'Convention in regard to this matter.

Which he did afterwards -

I think that the provision in the Bill as it stands -

That is what the Government now propose to repeal. is better than the proposal to allow the Federal Parliament to take over the debts of any one State.

What this Bill proposes, Sir George Turner condemned in the Convention of 1898-

The proposal in the Bill as it stands- is that the Federal Parliament may take over the whole or a rateable proportion of the debts of the States. That provision compels the Federal Parliament to treat all the States alike. The Federal 'Parliament will be able to say: "We will take over so much of the debts of all Ihe States," but it will not be able to say to one State : " We will take over a certain portion of your debts," and to another State: "'We will not take over any of your debts." I think, too, that it would be a grave mistake to insert the words " wilh the consent of the States."

Honorable senators will see that the point which is now sought to be not rectified, but put wrong, by this proposed amendment of the Constitution, was not overlooked at the Convention, but was fully debated, not only by Sir George Turner, but many other members ; and the conviction of the Convention was that what is now proposed would be altogether unjust and unfair. During the course of Senator Drake's speech references were made by way of interjection which showed, .if I may say so, that some honorable senators do not quite appreciate the position. The words of the Constitution, which are said by the commentators quoted by Senator Drake to be unnecessary - and I think so, too - are that the Commonwealth shall have power to "convert," "renew," or "consolidate." Singularly enough, this point also was under discussion in the Convention. I venture to say, with great respect, that the Government have overlooked the fact that the power of taking over the debts has absolutely nothing to do with redemption, but is, as Senator Drake says, an assumption of liability, which places the Commonwealth in the position of the States as to the debts which the States had at the particular time when they were, so to speak, deprived of the power to pay interest. Sir George Turner dealt with this matter, and honorable senators will see how plainly he placed it before the Convention. The question was as to what the taking over of the debts really meant. The motive might be that the Commonwealth would be able to make better terms with the country's creditors, but the object was that the Commonwealth should assume the liabilities which rested on the shoulders of the States, and, afterwards, of course, do as they thought best with something - if an obligation be something - which belonged to them. At page 1583 of the Convention reports, Volume 11, Sir George Turner, in moving the substitution of the word " shall " for " may " is thus reported -

By that amendment I mean that the Commonwealth has to take over the liability, has to pay our interest, has to appropriate our surplus for that purpose, and has to collect from the States whatever balance there may be due to the 'Commonwealth, or pay 'over to the States whatever surplus there is after paying the interest. It does not make it compulsory on the Commonwealth to convert the loans. It does not make it compulsory on the Commonwealth to consolidate the loans. The Treasurer will take his own good time to do that, and, no doubt, will take full advantage of the money market when he thinks that the advantage ought to be taken.

That is all. For the reasons I have endeavoured briefly to indicate, the Commonwealth was to assume the liabilities of the States, because the Commonwealth was to take over the revenues of the States.

Senator Playford - That was . the argument, but it was never done.

Senator Sir JOSIAH SYMON - And because it was never done, the Government propose to take power to do a lot more - to do something which rests on no principle whatever. The Government desire, without the consent of the States, to pick and choose amongst the debts andthe States and to take the debts over by the will of the Parliament of the Commonwealth, without terms or conditions on the part of the States, or without the latter having the power to make any stipulation. Having before us the basis and principle of the provision in the Constitution, we are now asked to repeal that provision, and to do so without any policy or proposal being placed before us. Parliament is not pledged to take over the debts incurred subsequent to Federation, and the Government have made no proposal, and have no policy on that subject. This is not a case of a policy being approved by Parliament, or being submitted by the Government and adopted by Parliament, and requiring an amendment of the Constitution to carry it into effect. It is not even an assumption, but a theory, suggested without practical shape of any description, and upon it we are asked to repeal a most salutary and essential provision of the Constitution. We are asked to enlarge the power of the Constitution without the consent of the States; and, as I have said, the States may have no opportunity to stipulate or make terms or conditions " of any sort. So far as concerns the debts existing at the time of the inauguration of the Commonwealth, we have a perfect right to take them over; in fact, that liability is really on us, although " may " is the word used in the Constitution. But subsequent debts are matters of bargain. What right have we to extend the Constitution so as to interfere with the States borrowings? When is it all to end? If this change in the Constitution be made, there will be no limit to the debts we shall have the power to take over. One condition always discussed in connexion with the taking over of the debts, is the restriction of future borrowings by the States. But. instead of restricting future borrowings, this proposed amendment of the Constitution will be an absolute encouragement. If, however, the power of the Constitution be limited to the debts existing at the time of the inauguration of the Commonwealth, the States will know full well that any further borrowings they may make will be on their individual credits, without any obligation on the part of the Commonwealth as to liability. But if the power sought by this Bill be conferred, we shall encourage the States to go on borrowing in the expectation that if the debts become too heavy to be managed - I do not say too heavy to be paid, because I do not think any State would refuse to pay its debts - they may bring pressure to tear on the Commonwealth to assume the liability. From every point of view the proposal is altogether indefensible, but it is particularly mischievous in that it repeals a basic provision - a basic principle - on which the Constitution, rests. It is substituting something which has no principle - something which is directed to getting machinery to carry out some definite proposal adopted by this Parliament - and it is placing in a state of confusion a matter which ought to be solved without difficulty and without further delay.

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