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Tuesday, 25 September 1906

Senator STEWART (Queensland) . - This is probably one of the most important, and one ofl the most difficult, questions which the Senate could be called on to consider. I confess that I approach the discussion of it with fear and trembling, knowing the very important issues that hang upon our decision. Here I desire to make a complaint, in which I. think I shall be supported by every member of the Senate. In my opinion,' it is something - to put it rather strongly - shameful that a proposal of this character should be introduced here at this particular period of the session. This is a question in which the States are very much involved. It is a question more particularly for discussion by the Senate, which is the States House; and, that being so, I should have thought that during the earlier portion of the session, when we were simply twiddling our thumbs, the Government, if they had made up their minds to do anything, would have submitted their proposals to us in order to insure the necessary free and full discussion. I .may sm at once that I intend to vote against the proposal of the Government, and more particularly for the reason I have just given. I desire more time to consider this matter. I wish to know what the policy of the Government is, or whether it be the fact that the Government have no policy. ' We are asked to submit to the people a proposal for the alteration of the Constitution; and when I go before my constituents during the coming recess, I desire to know exactly what I am doing - to know what the Government's whole policy is. I do not wish to know one particular section of the policv, but to be fully informed whether the Government have any policy in regard to the States debts, and, if so, what that policy is. The Government may have a policy, but if so, they have been at no pains to disclose it. i find that Sir John Forrest in his memorandum makes some propositions with regard to the taking over of the States debts ; but none of these propositions appear to have been adopted by the Government, or, at any rate, we have no evidence of the fact.

Senator Playford - Oh. ves.

Senator STEWART - Until, the Government take Parliament into their confidence, and disclose their policv, I submit that the Senate, being more peculiarly the States House, ought to reject this Bill. The whole question of taking over the States debts appears to have been approached by members of the various Conventions, and by the several Commonwealth Governments, purely from one stand-point. They said, ' We are handing over the control of the Customs and Excise revenue to the Commonwealth Government, and, therefore, so as to prevent that Government and the Commonwealth Parliament from indulging in extravagant expenditure, we shall saddle them with the responsibility of paying the interest on the loans that have been contracted by the various States." That appears to me to have been the principal idea in the minds of all the gentlemen who considered this question - the passing on to the Commonwealth of the responsibility for the interest on the public debt, seeing that the public revenue had been placed solely in its control. Another reason was given, and it was that, by the Commonwealth taking over the indebtedness of the States, and converting or consolidating the debts, a large annual saving in interest would be effected. It has been found that anything in the shape of a large consolidation or conversion is absolutely impossible, and that the hope held out by the advocates of Federation of a large annual saving has vanished into thin air. There really was nothing in that contention. The whole question now narrows itself down to this : Whether the Commonwealth having control of the Customs revenue should also' be saddled with the payment of the interest on the public debt? I am aware that the old school of financiers maintained that the interest on the public debt formed a legitimate charge upon the Customs revenue. But, just as we have protectionists of the old school, and also new protectionists, so we have financiers of the old school, and men who do not believe in the principles enunciated by them. For my part, I do not believe now, and -never have believed, that the Customs owes any responsibility whatever in the matter of paying, interest on the public debt. I would ask honorable senators to look at the whole question dispassionately. In Australia we are situated differently from the people of any other country. We have, as we are continually being told, a huge national debt amounting to something like £240,000.000. But I remind honorable senators that this debt is essentially different from the public debt of any community under Heaven. It has been borrowed, not for the purpose of war, to be expended in ammunition and smoke, or to be squandered by kings or their favorites, but for the purpose of developing the resources of Australia. That is the reason why our public debt is in existence, and, that being so, I say that the expenditure of this £240,000,000 in developing the resources of the Continent has increased the land values of the Continent, and the interest on it ought not to be chargeable to the Customs, but ought to be chargeable to the revenues derived from the developments which the expenditure has brought about. If we take, for instance, an ordinary mining company, floated with a capital of, say, £100,000. It spends a very large sum in developmental work. Ultimately dividends are being paid ; but those dividends, instead of being distributed equitably amongst the shareholders of the company, are paid to one particular set of "shareholders, whilst the ordinary expenses of carrying on the mine, instead of being charged to the revenue derived from the mine, are paid out of calls upon the general body of shareholders. We know that the shareholders of a private company would not stand an arrangement of that kind for twenty-four hours. Yet that is exactly the arrangement that exists with regard to 'the payment of interest on the public debts of the States at the present moment. Whilst we permit the profits which have accrued from this huge expenditure to pass into the pockets of private individuals, we are taxing the community as a whole to pay the interest on our public debt. I claim that this system of financing is utterly unbusinesslike and fallacious, and the sooner we alter it the better our position will become. I maintain that, instead of taxing the people to the tune of £7,000,000, £8,000,000, or £9,000.000 per annum to meet the interest on the public debt, our bounden duty is to go, as I have already pointed out, to the revenue which has been, or is being, derived from the expenditure of the money borrowed by the various States. I will begin with my own State. Queensland has borrowed about £40,000,000, and of. that sum she expended about £25,000,000 in building railways, £3,000,000 on immigration, and several other millions on schools, postoffices, roads., and bridges, and so forth. In all, I should say that Queensland has spent some £35,000,000 iin developmental work pure and simple.. The railways which have been built, the schools and post-offices erected, roads and bridges constructed, and all the numerous conveniences of civilization afforded have tended to increase the value of land throughout the entire State. I am well within the mark when I say that the expenditure of this £35,000,000 has increased land values in Queensland by an equivalent sum, that is to say, by £35,000,000. If we take the interest on that sum at 5 per cent., we have an amount considerably over £1,500,000, which ought to be going into the public Treasury, but which is now diverted into the pockets of private individuals. As a matter of fact we should conduct our business just as any ordinary company would conduct theirs. Instead of allowing this money to go into the pockets of private individuals we should strain every nerve to divert it to the public Treasury. I admit that it would be a most difficult task to at once divert the whole of it into the public Treasury. But I think we should make a beginning. We should start now.

The PRESIDENT - I have not stopped the honorable senator up to now, but really I do not think that the question he is discussing is relevant to the subject-matter of this Bill.

Senator STEWART - I submit that it is impossible to consider 'the Bill apart from the general financial conditions of the Commonwealth.

The PRESIDENT - I have not stopped the honorable senator, but really I do not think that what he was saying is relevant.

Senator STEWART - If I am not permitted to discuss the whole financial situation in dealing with this measure, the only thing; I can do is to vote against it and say nothing. I find it impossible to consider the Bill apart from the whole financial problem. In considering this measure, I am compelled to direct my attention to the whole question of the financial relations between the States and the Commonwealth.

The PRESIDENT - No doubt ; but was the honorable senator doing that?

Senator STEWART - In any . case, I think the time has arrived when we should get rid of the idea that the interest on the public debt is a fair charge on the Customs. We should conduct our business affairs as any private company would do if it desired to keep out of the Bankruptcy Court. If by the expenditure of public money we have increased the value of our estate, it is our bounden duty to get that increased value before falling back upon the community for taxation through the Customs to pay the interest on the public debt. Coming to the Bill itself. As I have already pointed out, and as other speakers have mentioned, the measure discloses only one portion of the policy of the Government. We have a right to know what the Government policy is as a whole. Section 105 of the Constitution provides that -

The Parliament may take over from the States their public debts as existing at the establishment of the Commonwealth, or a proportion thereof according to the respective numbers of their people as shown by the latest statistics of the Commonwealth.

The amendment of the Constitution we are asked to sanction in this Bill proposes quite a different policy. It proposes a fundamental change in thepolicy with regard to the transfer of States debts. The Commonwealth, under the proposed amendment, might take over the whole of the debts or one of them, or only such debts year by year as they mature.

Senator Sir Josiah Symon - It might take over a bit from one State and a bit from another.

Senator STEWART - Exactly ; it might take over the bad loans and reject the good ones, or vice versa.

Senator Drake - One Government might take over all the debts, good and bad, but the next Government might refuse to take over any debts.

Senator STEWART - Yes ; it would be possible for anything to happen under the proposal. In these circumstances, I think that the safe thing for us to do is to vote against the Bill until we get more information. There is a number of matters which require to be very closely scrutinized. Suppose that the Bill should become law. In the event of the Commonwealth taking over the whole of the States debts, what is to be the policy of the Government, if any, in regard to future borrowing? Is Senator Playford authorized to make any statement as to its policy, because, if not, I shall be compelled to vote against the Bill. Under the proposed amendment, the Commonwealth Parliament would have power to take over the whole of the States debts. Suppose that it did, would the States be permitted to go on borrowing, as they have done hitherto? There ought to be a provision to prevent that. Otherwise the Commonwealth would be liable for the debts of the States at the time it took them over, while the States would have full control of the assets which represented the debts, namely, the railways, the lands, the mines, the timber, and all their natural resources. There would be nothing left, so far as the Commonwealth was concerned, but the power of taxation. I know that some honorable members maintain that that power would be ample. I do not know whether it would or not ; I am not very sure about that. My contention is, and always has been, that if the Commonwealth did take over the debts of the States, it must of necessity take over the assets. If I have become responsible for the interest on the debts of another party, surely I ought to have a supervising power over the conduct of his affairs ! If, after I have taken over the liability, he were allowed to pile up debt after debt, what would become of my security? Therefore, if it be decided to take over tihe debts, the Commonwealth must, in order to save itself, prohibit the States from borrowing, except through its agency, and with its consent.

Senator Mulcahy - The States will not consent to that.

Senator STEWART - Then there is an easy way out of the difficulty. Let the Commonwealth have nothing to do with the debts of the States; let the States keep their debts.

Senator Mulcahy - The Constitution places that honorable obligation upon the Commonwealth.

Senator STEWART - The Constitution only says that the Commonwealth may take over the States debts in a certain way, and up to a certain date. The interjection convinces me that the honorable senator is one of those who believe thatthe interest on the national debt is a fair charge on the Customs revenue.

Senator Mulcahy - Yes.

Senator STEWART - In this we have the dividing line between the new school of financiers and the old school. The honorable senator belongs to the old school, and I flatter myself that I belong to the new school. We may be in a minority at the present time.

Senator Mulcahy - The old school believes in paying twenty shillings in the pound.

Senator STEWART - I believe in paying twenty shillings in the pound, but I do not believe in robbing Peter and allowing Paul to rob me. That is exactly what is being done at the present moment. Suppose that I am the Government, that Senator Mulcahy belongs to the unwashed multitude, and that Senator O'Keefe is one of those fortunate land-owners. In my position, as the Government, I compel Senator Mulcahy to pay tribute to me so as to defray the interest on the national debt. Senator O'Keefe, as being one of the privileged few, robs the Government and the unwashed at one and the same time. Those of us who think that the interest on the national debt is not a fair charge on the Customs revenue are quite entitled to look at the question from that point of view. Senator Millen said that, to his mind, the principal thing to be striven after in connexion with Federal and States finance is their complete separation, and I agree with him. I think that every honorable senator must have come to the conclusion that the present arrangement is an exceedingly unfortunate one, not only with regard to the States Treasurers, but also with regard to the Federal authority. At the present moment the States Treasurers have no control over a very large portion of their revenue. Consequently a State Treasurer can never frame an approximately correct estimate of his income, and if he cannot tell what that is likely to be, how is he to arrange his expenditure? A sweeping change in the fiscal policy of the Commonwealth might either largely decrease or largely increase the revenue; in fact, we have seen both those results occur. In Queensland the Federal policy was responsible for a large decrease in the public revenue, while in New South Wales it resulted in a very large increase in the Customs revenue. If we adopted now a purely free-trade policy, probably it would involve a loss of between £4,000,000 and £5,000,000 a year to the revenue.

Senator Clemons - And if we adopted a prohibitive policy?

Senator STEWART - If we did, the result would be exactly the same. The point I wish to make is that the States Treasurers are entirely in. the hands of the Federal Parliament. They are mere waiters-on for the crumbs which fall from the Federal table. Thev have no means of telling their income with any approximate exactness, and therefore they cannot very well provide for their expenditure. If extravagant, they have the excuse that they thought that thev would get more from the Federation; but if parsimonious - a vice that is not very common in public affairs - they have exactly the same excuse. In any case their responsibility is completely destroyed, and the whole arrangement leads to an immoral condition of public affairs, so far as finance is concerned. Senator Millen claimed that by taking over the States debts as a whole, and becoming responsible for the interest, the Federal Treasurer and the State Treasurer would be each supreme in his sphere. I contend that even if the States debts weretaken over to-morrow holus-bolus, Federal finance and State finance, instead of being separate as we all desire them to be, would become more inextricably intertwined than ever. Take, for instance, Victoria and Queensland. If we took over the debts and became responsible for the interest thereon we should find at the end of every year that whereas a large surplus would be returnable to Victoria, Queensland had incurred a very serious deficit. By that arrangement the dutv of meeting the interest would be cast upon the Federal authority. How would it have to be met? If the revenue from the Customs were not sufficient, other sources of taxation would have to be resorted to. In such circumstances the Federal authority would be compelled to impose, for instance, a Federal land values tax, and that tax, of course, must be uniform throughout the Commonwealth.

Senator Clemons - That would be a tax to get revenue and not the other tax that we have heard about?

Senator STEWART - Exactly. The Commonwealth could not impose a tax of id. in the £1 in Victoria, and-2 d. in the £1 in Queensland. The tax must be uniform throughout the States. The Commonwealth, therefore, would have to raise a sufficient sum bv means of a land value tax to pay the deficiency of the poorest States.

Senator de Largie - Could not the poor States do that for themselves?

Senator STEWART - But the obligation to raise the money would be cast upon the Commonwealth.

Senator de Largie - Not necessarily.

Senator STEWART - Oh, yes. If the Commonwealth takes over the debts, it becomes responsible for the interest upon them. It assumes the whole responsibility.

Senator McGregor - And the States, have to indemnify the Commonwealth.

Senator STEWART - They have.

Senator Guthrie - If they can.

Senator STEWART - If they cannot, or will not, what is to be done? The Commonwealth can only raise sufficient revenue to defray the necessary expenditure by imposing additional taxation ; and I am assuming that that additional taxation would take the form of a land values tax. If the Queensland deficiency were £[400,000 or £[500,000, the Commonwealth, in order to obtain enough money to cover it, would be compelled to raise probably £[1,500,000 in Victoria more than was necessary for Victorian purposes. What would the Federal authorities do with that money, except return it to the Victorian Government? If that be admitted, honorable senators will at once see that, by the system referred to by Senator Millen, it will be altogether impossible to separate State and Federal finances. I agree with Senator Millen that their separation is one of the first things that the Federal authority should turn its attention to. The present situation is an extremely uncomfortable one for both parties. That being the case, I maintain that there is only one method of separating the two.

Senator Clemons - It could not be done by one operation.

Senator STEWART - We could hardly expect to go into the whole matter so hurriedly as we are now asked to do. But the only way, so far as I can see, by which Federal finance can be separated from State finance, is that the Commonwealth should raise just enough money for its own purposes, and that the States should raise enough for their purposes. That involves the States retaining their debts, as they propose to retain their assets.

Senator Mulcahy - Does the honorable senator think that any State or group of States can manage to pay their interest bill out of direct taxation?

Senator STEWART - I do. Let me point out the essential difference between the new and old ideas of taxation. Take the State of Queensland. The interest on its debt is, roughly, £[1,500,000. The amount of money going into the pockets of private land-holders which ought, I contend, to pass into the public Treasury. is £[1,750,000 a year. I know that to effect a change such as' I propose would be something akin to a revolution. But it must come if we are to place our finances upon a sound, business-like foundation.

Senator Clemons - In what way does the honorable senator mean that £[1,750,000 is going into the pockets of private people?

The PRESIDENT - The honorable senator has already explained his views on that point three or four times.

Senator STEWART - I have made the point as clear as I possibly could. Take the State of Victoria. The unimproved value of land in Victoria amounts to £[120,000,000. Those land values have been created in a very great measure by the expenditure of 'money which has been borrowed by the people of Victoria, and for which thev are responsible.

The PRESIDENT - Has not the honorable senator brought forward that argument four or five times.?

Senator STEWART - I have not previously referred to Victoria. I propose to show that Victoria could not only defray the interest on her public debts by means of direct taxation, but would have such a large surplus that it would not be necessary for a single farthing of revenue to be raised from the Customs. That is my answer to Senator Clemons ; and, if he will investigate the matter in connexion with each of the States in the spirit which ought to animate those who are desirous of acting fairly, justly, honorably, and honestly by every one, he must, I think, come to exactly the same conclusion as I have done. There appears to me to be only one way of separating States and Federal finance. Let each authority raise the money necessary for its own purposes. The Commonwealth within five years will have an opportunity to say whether the Braddon section shall expire or be continued. So far as I can gather at present, the general feeling of this Parliament at present is against continuing the Braddon section. Then will be the opportunity fori inaugurating a new state of affairs. The Commonwealth, for some time, at any rate, will be in a position to return, probably, not three-fourths of the Customs and Excise revenue, as at present, but probably one-half, or even a lesser amount. That being the case, during the next ten years, perhaps, the States will gradually come to the conclusion that thev are able to- raise for themselves sufficient revenue within their own territories for their own purposes, and the Commonwealth, by means of Tariff manipulation, will have so to reduce its present revenue as to make it just sufficient for its own purposes. That, it appears to me, would be an ideal position for both Commonwealth and States to be placed in, and that, 1 submit, is the position which every man who desires to see financial reform accomplished ought to try to reach. There is another reason why I shall vote against this Bill. It proposes to give the Federal authority power to take over all. the debts. I say frankly that I am opposed to the Federation having anything whatever to do with the debts of the States, for this reason, above every other - that, from the moment the Commonwealth takes control of the States debts, the process of unification begins, and we have the old evil of centralization, which was such a force in Australia at one time, in full blast again. I know that some honorable senators say that it is quite possible for the debts ofAustralia to be consolidated under the Federation, and yet for each State to maintain its sovereign power. I differ from that view. I say that, if the Commonwealth becomes responsible for the interest on the debts of the States, and for the debts themselves, it must have control over the assets. That follows, I consider, as an essential. It must have control of the railways; and, as the profitable working of the railways depends largely on the use to which the lands are put, the next step would be to take possession of the lands, the mines, and all the natural resources of the Commonwealth.

Senator de Largie - Do our present creditors control our assets ?

Senator STEWART - No; but they have no responsibility to find the interest on the debts. Their whole responsibility is to receive the interest. But the Commonwealth, under what is proposed, would be in a position to take responsibility for the debts ; and, if I am responsible for a man's debt, surely it is only a fair thing that I should have some control over his assets. Some honorable senators appear to think that, if we take over the debts, the States can go on just in the old way - that they can, being relieved of their liability in regard to interest and principal, run the railways in any fashion they please, either to pay or not to pay, just as public opinion demands; that they can lock up the lands as most of them do at present, or utilize them at their option. I do not hold that opinion. I contend that, if the Commonwealth takes over the debts, it must, and will inevitably, assume control over the assets ; and the ultimate of that means absolute unification. To the unification of Australia, as at present constituted, I am strongly and bitterly opposed.

Senator Findley - Cannot the honorable senator see another way - by means of Customs ?

The PRESIDENT - I ask Senator Findley not to interject, because we have had the argument about the Customs several times.

Senator STEWART - I do not think that Senator Findley was in the chamber when I brought forward that argument. If he has not grasped it, I think I ought to have an opportunity to make it clear to him.

The PRESIDENT - If the honorable senator repeats it, I shall have to warn him under standing order 407. I think the presentation of an argument five or six times is quite enough.

Senator STEWART - A number of honorable senators have not been in the chamber to listen to what I have said.

The PRESIDENT - They ought to have been here.

Senator STEWART - I think they have missed something.

The PRESIDENT - I really must draw the line somewhere, and I draw it at arguments being repeated five or six times.

Senator STEWART - A good argument cannot be repeated too often; and if honorable senators have not been present, and they by interjection--

The PRESIDENT - Honorable senators ought not to go away, and then come back and interject.

Senator STEWART - As I appear to have used all my arguments five or six times, I have no desire to use them again, and probably I had better conclude. There are a number of other matters in connexion with this question to which I should have liked to refer; but seeing that the discussion is rather restricted by the provision of the Bill, I shall leave them untouched. In any case,I think I have shown sufficient reason why I should vote against the second reading.

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