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Tuesday, 2 October 1906

Senator DRAKE (Queensland) . - I have listened, as I always do, with the greatest respect to what Senator Walker has said, and also to the opinions of the experts to whom the honorable senator has referred. I must say, however, that many of his statements were quite beside the question, and do not constitute an argument in favour of the Bill. With respect to the opinion given by Mr. David George, who I understand is a great London expert, it clearly has no bearing whatever on the subject before us. Mr. George, writing before Federation, advocated that the Constitution should be so framed as to provide for a great conversion scheme by which l'oans might be converted before they matured. What is the use of telling us that now? When, on the second reading, I mentioned that if the debts were transferred the Commonwealth Government might take advantage of favorable conditions of the market to float some portions of loans that had not fallen due, the Minister in charge of the measure was scornful. He scouted the idea, and declared that sb far as the Government are concerned, they do not think of taking over any 'loans except as thev mature.

Senator Walker - What about underwriting and banking charges ?

Senator DRAKE - The honorable senator told us, as the Senate and the other House have been told before, that it would be a good thing to take power to convert all the debts up to date, but be fore I would take the advice given in the great financial publication to which he has referred, I should like to know whether the writer knew the position he was talking about. The chances are that he did not, and that it was simply put vaguely to him that it would be a good thing to include State debts contracted since Federation, and then to go in for a big scheme. Looking at the Constitution, and taking into account what is there provided, it would entail certain consequences which I think were not in the mind of the writer of the article referred to at the time he wrote it. I wish to s,tate what those consequences are. I hope that the best possible interpretation will be put upon anything I have to say, and that no one will carryaway the impression that I desire to speak disrespectfully of any State. I am sorry to say that, judging by a press report, the Premier of Victoria seemed to think that I had said something derogatory of this great State. I not only never intended anything of the kind, but I remember that I said that I expressly wished to pronounce no provincial views, and that I regretted having to name any particular State, and did so only because the first loans to mature are Victorian loans. Seeing that Senator Fraser followed me in the debate, I feel sure that I did not say anything very wrong about Victoria., or the honorable senator would have corrected me.

Senator Fraser - No, the honorable senator did not. He never intended to do so.

Senator DRAKE - I am sure that if the Premier of Victoria had read the whole of my remarks he would not have formed any such conclusion. If he had read the debate that followed he would have seen that supporters of the Bill" were advocating the omission of the provision requiring a proportionate part of the debts of each State to be taken over on the ground that if that provision were retained the Government would be embarrassed - " encumbered was the word used by one of the Victorian senators - because thev would not be able to convert the Victorian loans of £4,000,000 and ^2,000,000 shortly falling due without being encumbered with the obligation of having to deal at the same time with some of the debts of the other States. I may be pardoned for incidentally referring ' to two Victorian loans about to fall due which other honorable senators evidently had then in their minds as constituting the immediate reason for which the Bill had been introduced. That incident might be considered closed, but I think I may fairly make use of the argument that, if the Premier of Victoria says that Victoria will not require any help from the Commonwealth in meeting the loans of £4,000,000 and ,£2,000,000 which will fall due next year and the year afterwards, the proposed amendment of the Constitution is not necessary in the interests of the other States.

Senator Trenwith - Who cares whether he is independent or not; we have to consider what is for the good of the Commonwealth.

Senator DRAKE - - Quite so, and if Victoria does not require this amendment of the Constitution, what other State does?

Senator Staniforth Smith - We have nor to consider the opinion of Mr. Bent, bac what is best in the interests of the Commonwealth .

Senator DRAKE - We have here a proposed amendment of the Constitution, which, we are told, is urgent, in order that loans falling due may be dealt with at maturity. Now, it turns out that Victoria does not desire the proposed amendment. New South Wales has a small loan of ^2,750,000 falling due in 1908. Does that State require the proposed amendment ?

Senator Millen - Certainly not.

Senator DRAKE - South Australia does not require it, Queensland and Western Australia have no loans falling due in the near future. There is therefore really no urgency for the Bill, and it is not being asked for. What is, being asked for is this : Ministers and honorable senators sometimes will persist in confusing two things. What has given rise to all the talk about taking over the debts of the States is that the States Governments are particularly anxious to retain or to strengthen their grip upon the revenue from Customs and Excise, which thev feel slipping awa,v from them. Thev have been told that here is a means of doing that, and they say, "Take over the debts at once." They are asking that the debts shall be taken over in order that the Commonwealth may assume the liability for the heavy interest charge which is at present pressing upon them, and meet it out of the Customs and Excise revenue.

Senator Walker - That is a strong argument in favour of the Bill.

Senator DRAKE - I think I shall be able to show the honorable senator that it is not. The loans may be divided into two classes. I put in one class those which existed at the time the Commonwealth was established. They were loans contracted by the Colonies before Federation, in a great many cases upon the strength of the Customs and Excise revenue of the States. It was to that source of revenue that the States - Governments looked for the payment of the interest. When Federation took place the bond that was, agreed to was clearly shown by the sections of the Constitution if honorable senators will read them in their order. There is, first of all, the very important section 86, which provides that -

On the establishment of the Commonwealth the collection and control of duties of Customs and of Excise, and the control of the payment of bounties, shall pass to the Executive Government of the Commonwealth.

And the next section provides that, after paying the expenses of the Commonwealth - the balance shall, in accordance with this Constitution, be paid to the several States, or applied towards the payment of interest on debts of the several States taken over by the Commonwealth.

That refers to the class of debts that were contracted bv the Colonies before Federation, and which the Commonwealth agreed to take off the hands of the Colonies.

Senator Trenwith - They are in exactly the same class as the other debts, although they were, contracted at a different period.

Senator DRAKE - No, they are quite distinct. The second class of debts comprises those contracted by the States, as States of the Commonwealth. Lest I should be charged with any partiality, I have refrained from finding out the States which have contracted "these debts, or their amounts. I take into account only the fact that they reach a total of


Senator Millen - They are clearly outside the compact represented in the Constitution.

Senator DRAKE - They are not only outside that compact, but thev are debts of a different class. They are loans that were raised by the States as States of the Commonwealth, after thev had parted entirely with the power to raise revenue by Customs and Excise for the payment of interest. They went into the market and borrowed the money, knowing that their status had changed, and the money was lent to them with the knowledge that, as States of the Commonwealth, they had not the power to raise revenue from Customs and Excise for the payment of interest. Does not that constitute a difference in those two classes of debts ? In spite of the word " may " being in the section, the compact requires the Commonwealth to take over the pre-Federal debts. But there is no obligation upon the Commonwealth to take over subsequent debts, which, of course, the States have contracted with their eyes open.

Senator Keating - In the case of those debts they had a guarantee of a return of three-fourths of the net Customs and Excise revenue for a period of ten years.

Senator DRAKE - Yes. What has stood in the way of the Commonwealth taking over the States debts? The first Treasurer, Sir George Turner, was willing, as he stated at the Conference of Treasurers to. take over all the pre-Federal debts, but he thought that, in the circumstances, they should hypothecate a part of their revenue for the payment of the interest charge. They were not able to come to an arrangement for that purpose, and that is the reason why no transfer has been effected. By agreeing to the proposed amendment of the Constitution, we shall not only not assist in that direction, but we shall create an obstacle. Under section 105 the Commonwealth may take over all the preFederal debts, or it may take over a part of those debts ; but if it takes over a part only it must take over a proportional part from each State, and that has been found somewhat inconvenient. Under that section, therefore, the Government, if it is in earnest, could commence to take over States debts to the amount of ^202,000,000, and they need have no regard to the provision as to taking a proportional part from each State. But if the section were amended as proposed, they would be obliged to take over States debts to the amount of ^235,000,000, and would not be able to take over only ^202,000,000 worth. Is it easier, I ask honorable senators, for the Commonwealth to take over ^202,000,000 worth' of debts, to arrange for the payment of interest thereon, and to make the necessary adjustments with the States, or to take over ^235,000,000 worth?

Senator Walker - The larger the stock the more popular it would be with trustees at Home.

Senator DRAKE - No doubt trustees like a large operation. In the past the States have been too much under the advice of financial experts, who all want big conversion schemes. Did the Colonies ever get an advantage from taking the advice of financial experts in regard to the inscription of stocks? South Australia was, I think, the first State to inscribe its own stock. Did it take that step on the advice of financial experts?

Senator Playford - No; on the advice of myself and the manager of the Bank of Adelaide, and Mr. Millicent, the head of the syndicate in London which deals with loans, and others. But I had the opposition of the banks.

Senator DRAKE - That is what I have generally found, in connexion with loan operations. We are, to a certain extent, in the hands of .financial experts, but we shall make a great mistake if we surrender our own judgment. Let us get all the good advice we can from that source, and then judge the question for ourselves.

Senator Playford - My fellow AgentsGeneral - from Sir Saul Samuel downwards - recommended me not to touch the inscription of stock.

Senator DRAKE - Those gentlemen had been in London for some years, and absorbed that idea from what they call the big financiers. There is an idea abroad that high finance is a subject which ordinary mortals cannot touch.

Senator Trenwith - In 1893 that idea was exploded very largely.

Senator DRAKE - I am very glad that it was. My opinion is that a man who earns 10s. a day and has to keep a wife and six children would, if placed in a position of responsibility, soon know as much about finance as some of the great financiers who always want to plunge us into big schemes. I believe that at the bottom of this proposal to take over the additional debts, and so increase the sum total, is advice which has been given bv persons who want to do a "big thing."

Senator Playford - Why did not Sir George Turner take over the pre-Federal debts amounting to ^202,000,000?

Senator DRAKE - I have already told the Senate.

Senator Playford - He said, " I want to take over the whole of the debts, and not a part of them."

Senator DRAKE - I beg the Minister's pardon, because Sir George Turner took the subject in hand immediately after the Commonwealth was established, and, of course, the additional debts had not then been contracted.

Senator Playford - It was the whole of the debts that Sir George Turner wanted to take over.

Senator DRAKE - No. Sir George Turner said that if the Commonwealth took over all the States debts, without regard to the provision as to taking over a proportional part from each State, some States would be so heavily indebted to the Commonwealth that it would be a question of how they could arrange to meet their obligations.

Senator Playford - It would have been very trifling as regards the debts of £-02, 000,000. It was because Sir George Turner wanted to take over other debts that the difference, with the States arose.

Senator DRAKE - I beg the senator's pardon.

Senator Playford - I was present at the Treasurers' Conference.

Senator Millen - A reference to the report of its proceedings will show that Sir George Turner said that if he had the power he was not prepared to act immediately. It was all subject to an arrangement with the States, which, however, has never been effected.

Senator Playford - The argument is that it could be done without any arrangement with the States.

Senator DRAKE - In Queensland, which I take as an example, the interest bill is so vast that the Customs and Excise revenue does not represent one-half of it, and that sum, together with the net railway revenue, is not equal to the whole. What do the Government intend to do if the proposed alteration of the Constitution be adopted ? Would it not so considerably increase the difficulty as regards the payment of interest that they would be compelled to take over debts to the amount of ^"235,000,000 ?

Senator Playford - No, we are not bound to take over even £202,000,000 worth. We only want power to do it.

Senator DRAKE - There is nothing in the Constitution now to prevent the Parliament, if it chooses, taking over States debts to the amount of ,£202,000,000 - that would give all the relief which the States are asking for - and if, at the same time, it were provided that, up to a certain point, the interest shall be defrayed out of Customs and Excise revenue, I feel sure that the States would be quite satisfied. By making the proposed alteration, we should not only not help forward the transfer of the States debts one iota, but would place an additional obstacle in the way of its accomplishment, because in future, if we wanted to go in for a large operation with the view to the conversion of the debts we should not be able to take over £202,000,000 as we can now. We should have to take over either a proportional part from each State or £235,000,000 worth. I, as a representative of a State which is most heavily indebted in proportion to its population, would strongly object to a piece-meal taking over of the debts ; that is, to not taking over any of the debts until an individual loan matured. I do not object, however, to the Commonwealth taking over a considerable proportion of the debt of each State, so that it could convert each loan as it fell in. Under the Constitution, as it stands, it could transfer every loan as it became due. The proper course for the Commonwealth Government to adopt, in the first instance, was to have assumed the liability of all the States debts, and if the Customs and Excise revenue was not sufficient to meet the interest in any case, the deficiency would have been a charge on the State, and every State, I feel sure, would have honoured its obligation. There would have been nothing then to prevent the Commonwealth Government from converting each loan as it matured, or, by floating a small loan for its own purposes, taking advantage of favorable terms on the London market to gradually convert the transferred debts, which, of course, it would have had the power to deal with by way of renewal, conversion, or consolidation. From the first year of the Commonwealth's existence a satisfactory scheme might have been brought into gradual operation, and the States would have been satisfied, because they would have recognised that the Commonwealth had assumed the responsibility in connexion with the debts, and to that extent the States Treasurers would have been relieved.

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