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Tuesday, 2 October 1906


The PRESIDENT - Does the honorable senator think that has anything to do with the Bill?


Senator WALKER - Yes, I do. I think it is a very important matter. I am perfectly justified in mentioning the advantages that would be likely to be secured under the measure. In days gone by, I quoted a very interesting letter from' Mr. David George, the present manager of the Bank of New South, Wales in London, who has been connected with that institution since the year 1862. He has risen from a junior position in the bank to that of manager in London, and, during his forty-four years of service, has probably been connected with more Australian loans than any other banking official in London. Mr. George wrote this letter after consulting with various members of the Stock Exchange, and it expresses their opinions as well as his: -

We think the idea is a very good one, and if it could be carried out, we believe the result would be a considerable saving. But it is difficult to see how the debts of the various Colonies could be consolidated until Federation, on satisfactory lines, has been accomplished. It seems to us that until the Colonies' have obtained Federation, and the Federal Government has full power over the railways and Customs to enable it to provide for the service of the debt, it will not be possible to secure consolidation.

There, of course, we cannot altogether agree with him -

But if you are successful in federating the Colonies, we think consolidation of the debts will follow as a necessary corollary. Federation will bc incomplete without consolidation of the debts.


Senator Millen - He was assuming' that the interest-earning works would also be federalized.


Senator WALKER - But we know that the States object to even a portion of the railway income being hypothecated.


Senator Millen - Does not the argument, therefore, fall to the ground?


Senator WALKER - Not necessarily. The quotation proceeds -

Thirdly, as to bringing about a consolidation into Australasian consols at once of all the various debts of the Colonies. This we believe to be the best plan ; but in order to carry it out a large Conversion Scheme would have to be introduced. The whole question depends upon terms, that is to say, the Quid fro quo that would be offered to the holders of the different stocks to induce them to exchange their present securities into stock of the consolidated funds. This, of course, will be a difficult and delicate matter to arrange, and it will require to be placed in the hands of actuarial experts of great experience and skill to ascertain the relative values of the different loans of the separate Colonies to a single interminable consolidated inscribed stock, and the most influential medium will have to be employed to launch the scheme, and to find an opportune time for that purpose.


Senator Drake - He contemplated conversion before maturity, which everybody knows to be extremely difficult.


Senator Fraser - And expensive.


Senator WALKER - The letter proceeds -

The varying dates of maturity, and rates of interest, and the feeling existing here as to the position which the different Colonies afford as security for their loans, would all have to be taken into account. Present holders cannot be compelled to- exchange their securities, and, therefore, sufficiently liberal terms will have to be offered to induce the great bulk of them to fall in with a conversion scheme. The different merits and values of the loans of the various Colonies will make it difficult to ascertain .an all round satisfactory basis of exchange. Holders, for instance, of New South Wales securities, owing to their superior credit, will require a greater inducement to exchange their present holdings, while it may suit holders of Victorian, South Australian, and ' Tasmanian stocks to accept a security of a federated Australia much more readily.

I shall show, in a moment, that that is Mr. Coghlan's idea.


Senator Sir William Zeal - How is it proposed to accomplish all this?


Senator WALKER - It is not proposed to accomplish it at the present time, but merely to give the Government power to take advantage of the market.

Fourthly, as to the rate of interest upon which such a conversion should be based. We certainly think that the best rate would be 3 per cent. This, we believe, would be the most practical basis upon which the debt could be consolidated. A lower rate, we fear, would simply cause any scheme to result in failure, therefore we would certainly recommend a 3 per cent, inscribed stock, and we believe that in course of time it would go to a premium. If the whole of the debts were consolidated into one stock, it would make a very bis» market on our Stock Exchange, and would cause larger dealings, and attract more public attention, and become a more favorite investment.

The writer goes on to express his preference for inscribed stock over debentures. It may be asked how it is that so far Australian stock has not been a success at Home with trustees. The reason, apparently, is that many of the Australian stocks of 3I and 4 per cent, are, or have been, at a pre- mium, and trustees, as a rule, do not like to buy stock at a premium, because, frequently, if a premium be given, it cannot be charged to the life tenants, and the corpus may ultimately be reduced. It is desirable that stock for trustees' purposes should rather be at a small discount.

SenatorFraser. - But there is no loss unless they sell at a loss.


Senator WALKER - I draw the attention of Senator Fraser to the fact that someyears ago,. 3 per cent. Consols went as high as £115, and trustees were authorized to invest in them, and, although the interest was reduced from 3 per cent. to 2½ per cent., the fall was much greater in proportion. I propose to quote from Mr. Coghlan, and from the Insurance and Banking Record to show that there is a great deal to be said in favour of increasing the power of the Commonwealth Government in this connexion.


The PRESIDENT - Is the honorable senator not making a speech showing the advisability of a conversion of the loans?


Senator WALKER - I am speaking in favour of increasing the powers of the Government.


The PRESIDENT - I do not wish to stop the honorable senator, but his remarks do not appear to have much to do with the Bill.


Senator WALKER - I shall not detain honorable senators much longer. Mr. Coghlan remarks -

The conditions surrounding the redemption of Australian loans are chaotic..... It has obviously been the policy of those responsible for fixing these dates to let the future take care of itself.

Then Mr. Coghlan gives a table which he thus summarizes -

A glance at the foregoing table shows how the absence of combined action amongst the States has greatly complicated a situation which, in any circumstances, would have been difficult. Each Government has acted according to its immediate exigencies, regardless of the financial needs of its neighbours; but in fixing the date for repayment of their loans Australian Treasurers may plead that they were guided by the opinions of the banks in London, to whom their State's business was intrusted, and the banks on their part have considered chiefly the needs of the Stock Exchange, which prefers to deal with as few denominations of stock as possible.....

Most Treasurers find the care of the present taxes their resources to the full, and they do not, therefore, look beyond to the day of reckoning when the task of redemption has to be faced.

These objections to the want of method hitherto prevailing in fixing dates for redemption, are, of course, so many arguments in favour of uniformity, and amply demonstrate the need of Federal action, by which alone they can be entirely avoided.

The placing of a loan in London by any one State of the Australian group, especially if it be of a large amount, usually results in an allround weakness in the price of Australian securities, and subsequent issues of other States are placed at a disadvantage if the market is approached before it has recovered its tone. The States have in this respect all the evils of disunion and all the liabilities of Federation, with out one of the advantages which Federation would give.

I shall now quote from The Insurance and Banking Record of the 20th September, this year. When I once before quoted from this publication, I was paid the compliment of being asked whether I was the author of the article, but neither of that nor the present article can I claim to be the author.

At present it(i.e., the Commonwealth) possesses the power to take over only the debts which existed at its establishment on 1st January, 1901. The proposal is a very proper one, for without the additional power sought, no satisfactory arrangement for the transference of the State debts to the Commonwealth, with the ultimate view of consolidating them, is possible. The amendment is one that should not meet with any opposition.

Returning to Mr. Coghlan's paper, I quote the following: -

The last proposal (to utilize the savings as a redemption fund) is perhaps the one that has most to commend it, but it is hardly one that is likely to be popular in many quarters, as it does not admit of the States interest bill being immediately reduced, although it provides for an ultimate reduction of a most substantial character by paying off, absolutely, all their existing loan obligations. Assuming, for the sake of illustration, that the Commonwealth could float 3 per cent. stock at par, then as during the next five years debentures to the value of£22,423,588, and Treasury bills of £11,707,410, bearing interest at an average rate of over 4 per cent., fall for redemption, the Commonwealth being in a position to take up these loans on a 3 per cent. basis, there would be a saving of £273,000ayear, no part of which sum would be passed on to the States, the whole being used as a sinking fund to pay of] the new stock, which it would do in forty-six years, to the great advantage of the States which would then be relieved of their debtsto the extent above-named, viz.,£34,140,998.

In connexion with this question of the sensi tiveness of Australian stocks to comparatively small sales, it is disappointing to find that the advantage which it was thought would arise when Australian and other colonial stocks were brought under the operation of the Acts govern- ing investments by trustees, has not been realized. It was confidently expected that Australian stocks would be in a much better relative position than they were formerly, and that they would approach in value to the very best class of investment stocks. It must be confessed, however, that their relative position compared with Consols has not improved, but, as three buyers out of four are trustees, this fact alone must influence price, and competent judges place the advantage of being a trustee stock at 2 per cent., or even higher; however that may be, it is very evident that, having acquired the position of trustee stock, if Australia should now lose that privilege, it would be most prejudicial to its interests.

In any circumstance an amendment of the Constitution of some kind is advisable, as it would be unwise for the Commonwealth to approach the question of the transfer to it of State loan obligations, unless it were free to deal with all those obligations as occasion arises, and were also in the position of monopolizing the London market for its own loans, which is not the case as the law now stands.

The success or otherwise of the initial essay of the Commonwealth in the field of high finance will undoubtedly have far-reaching effects, and even influence the price of future issues.

At one time I w,as under the impression that, when necessary, the States would hypothecate a portion of their railway income to supplement the amount raised by the Customs duties ; but it seems extremely doubtful whether this is practicable at present. According to section 105 of the Constitution, the States have to give an indemnity for any deficiency ; and Senator Drake asks what means there is of enforcing that provision. There is the power of direct taxation, and I think the States would rather give an. indemnity than allow that power to be exercised.


Senator Drake - I said that was thi difficulty that stood in the way of the first Treasurer.


Senator WALKER - I submit that it would be an admirable consummation of our efforts if the Commonwealth were to take over the States debts some day not far distant. I think, with such guarantees from the States as I hope will be given to the Federal Government, the scheme now .suggested would result in very great advantage to the Commonwealth. A similar view was expressed in days gone by in a number of very able financial articles which appeared in the Sydney Daily Telegraph.Sir John Forrest believes that any saving in interest ought to be given to the respective States on whose loans the saving is made. No doubt nothing will be attempted in that' matter without the introduction of a

Bill providing what shall be done with any savings made. Mr. Coghlan seems, to favour the idea that any savings made should be used to form a sinking fund to retire the loans. The Treasurer, however, holds this, view7 -

That all net profits arising from any conversion or redemption of existing loans should be credited by the Commonwealth to the State concerned, and the annual payment by that State reduced accordingly from time to time.

I am afraid that I have detained the Senate for some time, but I did not care to give a silent vote on a question in which I have taken a great interest for many years. I believe that if we do not pass this Bill now it will not be many years before a similar measure will be passed, because the Stages will go on issuing new loans. Some loans already floated will not mature until 1952. The sooner we deal with the question the better it will be for the future of- the Commonwealth. I shall have much pleasure on this occasion in voting with the Government. I do not look upon this as a party Bill, and I hope honorable senators generally agree with me in that respect.







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