Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Thursday, 24 October 1912

Senator ST LEDGER (Queensland) . - I move -

That, in the opinion of the Senate, it is desirable that a Royal Commission be appointed to inquire into the best ways and means of consolidating and converting the State Debts.

In doing so, I wish to make a few introductory remarks. The consolidation of the State debts was pointed out to us as one of the chief and strong reasons why the people of Australia should enter into Federation. That was universally admitted by every Federalist who had considered the question; it has been admitted by every financier in the Federal Parliament. Every Government preceding the present Government have 'expressed themselves as keenly appreciative of the importance of this matter; every Government except the present Government - and this Government, too, I think - have contented themselves with that expression, and yet nothing has been done. In my remarks, I wish to make no invidious distinction between previous occupants of the Treasury bench and the present occupants, except in one respect. Previous occupants are, with the exception of one important matter which I shall point out, equally, if not more, blamable than the present occupants of the Treasury bench. This matter has occupied the attention, both before and since the institution of Federation, of every financial authority in the State Parliaments and outside Parliament. Papers, memoranda, and contributions without number have been submitted, difficulties have been pointed out and suggested. The more the difficulties are considered the more troublesome, from some points of view, the question is, and the more troublesome from other points of view it seems to be to determine how we should approach the matter. 1 do not flatter myself that 1 can throw very much light upon the solution ot this big question. All that I wish to do is to show its great importance to the Federal Parliament and the State Parliaments, and the necessity for its solution.

Senator de Largie - Your time will be better spent in showing us how we can make the States approach this question.

Senator ST LEDGER - My time will be spent exactly as I think it ought to be spent, and I shall await an answer to what I am going to say from that magnificent financial authority on the other side, the Whip. He should try to learn, and hear before he seeks to advise. I have spoken with some respect and some humility about the difficulties of this question, but in his characteristic manner the honorable senator, like a fool, rushes in where even a saint fears to tread.

Senator de Largie - There is a saint here now, and a fool at the same time.

Senator ST LEDGER - The honorable senator can take what he gets ; he often deserves it. but he does not get enough. If the '"gods" above us in the gallery will take notice of this one remark I am about to make, it will almost concentrate and give expression to all that I desire to say on this subject. It is relevant to a statement made quite recently by Mr. Watt, the Premier and Treasurer of Victoria. I read his Budget statement attentively, and I was struck by a statement which he made, and which, I think, ought to go over the whole of Australia, not only punctuated through, but made and delivered in, so to speak, capitals over the money markets of the world. The honorable gentleman said that, in one sense of the word, there was no public debt in Victoria,

Senator Findley - That is, . in a measure, correct, is it not?

Senator ST LEDGER - It is not, in a measure, correct; it is absolutely correct. It is my duty to say that that remark of Mr. Watt applies absolutely to the whole of what is called the public debt of Australia, and it is about time that the Federal Treasurer, as well as every State Treasurer in Australia, no matter whether the Governments be Labour or Liberal, should, in the delivery of a Budget statement, accentuate that fact, that in the ordinary sense of the word there is no such thing as a public debt in Australia. With the enunciation of these two or three propositions the importance and the advantage of addressing ourselves to this question will become more or less evident. I propose to quote seme figures as to our indebtedness. On the 30th June, 1911, the Australian debts amounted "to £271,750,000, ot which £191,208,000 is redeemable in London, and £80,542,000 in Australia. It will be necessary when we axe considering the total amount to consider the rates of interest and the dates of maturity. I shall deal first with the amounts as regards Australia and London. I have a table of debts which are payable at optional dates in Australia and London. I think that we can dismiss the amount of what is called interminable debts. I shall mention the amount of debts redeemable within certain limits at optional dates, because that is, to my mind, a most important factor with regard to any scheme for conversion and redemption. The debts redeemable at fixed dates are as follow: In London, £129,521,000; and in Australia. £52,717,000; making a total of £182,239,531. With regard to these debts we cannot fix our time for either redemption or conversion, because the date to which interest must be paid is fixed by each loan. The debts which are redeemable at optional dates are as follow: In London, £61,533,000; and in Australia, £26,870,000; making a. total of £88,403,000.

Senator Millen - Is it not safe to assume that the loans which are redeemable at optional dates will only be redeemed at the latest date?

Senator ST LEDGER - That may be, but if the Federal Government are in a position to exercise the power of redemption or conversion at an optional date, then they will select the best opportunity for exercising the option. This is ' a most important point, as I shall show later. Let me now point out the amount which is received as a direct return from this indebtedness. In 1910-11 we received from works constructed with loans - and I am not including post-office works - a revenue of £8,481,000. The sinking fund up to that date amounted to £5,035,158. The revenue referred to was derived from the works upon which the debt was expended. The total interest upon the debt from which we received that revenue amounted to £9,652,543. That was the interest upon a public debt of £271,750,944. These figures show that when we were receiving a revenue of £8.481,013 on the debt, and provided a sinking fund of over £5,000,000, the margin between the revenue from reproductive works carried out by loan expenditure and the interest upon the loans was remarkably narrow. Consequently, I say that if there is a public debt in the world which, in the hands of competent financiers and a strong Government, can be redeemed and converted at a lower rate of interest than the rates upon which it was originally borrowed, it is the debt of Australia.

Senator Millen - The honorable senator is contending that it is a good investment.

Senator ST LEDGER - Exactly so.

Senator Millen - They why should the men who hold our bonds in London agree to convert the debt on less favorable terms than they are getting now?

Senator ST LEDGER - If they do not, they must take their chance of investment elsewhere. Apart from speculators, those who have money to invest will always look for the soundest security. When YOU are in a position to pay a man the debt you owe him, and tell him that you are no longer willing to pay the interest he has been asking, he must reconsider his position. He has to ask himself whether he will take his principal back, or leave it with you at a lower rate of interest, or whether he will take the risk of the open market and try to secure the rate of interest which you say you are no longer willing to pay him. I suggest in this way the financial game which the Commonwealth must begin to seek. If Australian Government stocks are not a more attractive form of investment than the stocks of other Governments, or of private companies, we shall not be able to convert our loans at a profit. But if we assume that the business of government in this young, rich, and progressive community is so carried on as to secure a return of interest on every penny we borrow, we are placed in a position of great advantage. Our country offers powerful attractions for the investment of money. We have paid from reproductive works carried out by loan expenditure every cent of interest on the debt we have incurred. It is this consideration which weighed with me before I entered the Senate, and which weighs so strongly with me now, that I express some astonishment that the various Governments of the Commonwealth have not, realizing this great fact, gone into the money markets of the world to make known the strength of our financial position. Senator Millen has referred to the rate of interest upon which we have borrowed money. We are bound to consider the rates we have had to pay upon our loans since the time the States began borrowing. I propose to give the figures. We have borrowed, at 3 per cent., a total of £46,909,879; at 3^ per cent., £74,718; at 3^ per cent., £129,201,224; at 3J per cent., £21,537,695; at 4 per cent., £7i,439>523; at 4J per cent., £49,700; at 5 per cent., £195,050; and at 6 per cent., £191,200.

Senator Rae - Up to what date do the honorable senator's figures go?

Senator ST LEDGER - Up to the 30th June, 1911.

Senator Lt Colonel Sir Albert Gould - The debts referred to are outstanding.

Senator ST LEDGER - Yes. I might have provided myself with the date of redemption of each particular loan, but that would not have elucidated the subject, and it would have taken some time. The figures I have given show that we have borrowed a total of £46,909,879 at 3 per cent., and a total of £129,201,224 at 3J per cent., making the total debt at 3 per cent, and 3J per cent. £176,110,103/ At rates above 3-4 per cent. - and I wish to accentuate the reference to rates above that figure - we have borrowed a total of -£95>645>845- I am going to ask a question now which I wish the Government to consider. Should there be any serious difficulty in converting that debt of £95,645,845 which we have borrowed at rates above 3^ per cent, at a rate of 3 per cent. ? I can anticipate that there might be some difficulty; but, to my mind, the most attractive portion of the problem is the conversion of the debt of £95,645,845 which is outstanding at rates above 3^ per cent. By reason of our past experience and our strong financial position, we should, I think, be able gradually to convert that debt at an interest of 3 per cent.. If we could reduce the interest now paid on that sum to 3 per cent., every pound we gained in that way would be a direct gain to the Commonwealth and to the States.

Senator Rae - The rate of interest has recently gone up to 4' per cent.

Senator ST LEDGER - I intend to deal with that.

Senator Lt Colonel Sir Albert Gould - It will never go back again to 3 per cent.

Senator ST LEDGER - Napoleon once said to one of his young generals, " The word 'never' should never be in any man's vocabulary." It should never be in any Government's vocabulary either. I should not have made the remark but for the fact that I know when Mr. Goschen started his great consolidation scheme he met with similar objections. It was pointed out to him that he could not convert the debt. He watched the position of the money market, and, by taking advantage of the market, was able to convert an immense amount of stock at less than 3 per cent.

Senator Lt Colonel Sir Albert Gould - What are those returning now ?

Senator ST LEDGER - I quite understand the honorable senator's difficulty. If he were to ask me now whether I could convert a debt of £275,000,000, 1 should say that I do not think that either the Senate, the House of Representatives, or myself could give a definite answer. The question is whether we should not seriously consider ways and means of doing so when the condition of the money market and our own financial position enables us to do so. A certain, or rather uncertain, newspaper in this State, in anticipation of this motion, has advised Parliament to disregard it. It has given reasons why the Government should turn it down, and should not consider it. My answer to that certain or uncertain newspaper is that we shall have to consider the question some day. Whether we have a unified Parliament or separate Parliaments for the States, it does not matter one straw. Consolidation and conversion of the State debts must come. We shall have to face the task, whatever form our Constitution may take. We must face and settle the question, and can only do so in one way - by converting our debts at a rate of interest more remunerative to ourselves and. to the States than the rates which have now to be paid upon them.

Senator Rae - What about new debts?

Senator ST LEDGER - Will .that trouble us? It might, but I do not think it will. My contention is that, even if our financial basis remains the same in years to come as it is to-day, the question of borrowing by the States will not, and cannot, affect the question of consolidation and conversion into one strong consolidated Commonwealth stock. When we look at the figures no one can doubt that the problem is urgent. In 1912, that is to say, this year, Australia will have to convert £12)539,631. The process of conversion must be going on now. As every honorable senator knows, or ought to know, the New South Wales Government have to redeem or convert £9,844,508. In 1913 - next year - we shall have to convert £21,553,599, and in 1920 we shall have to convert £118,378,528. By the way, let me say, in answer to Senator Rae's interjection about fresh borrowing, that it does not seem to be a matter troubling the Labour Government of New South Wales. Although the States have to convert £12,539,631 this year, the Labour Government of New South Wales axe going into the market this year for £5,000,000 of fresh loan moneys. I think they are quite right in doing so, if their financial position is sound. But I take the opportunity to point out to Labour Governments, and those who are always talking about profligate expenditure, and the danger arising from our indebtedness, that the Labour Government in one of the strongest States in Australia is flinging loan money about, and while we have this year to face the redemption of £12,539,000, they are going into the market for fresh loans. Senator Rae can take it either way. If it is wrong to attempt to redeem loans, it is surely a very much greater wrong, financially, to at the same time go into the market for fresh loans.

Senator McGregor - The honorable senator is strong on " profligacy."

Senator ST LEDGER - And the VicePresident of the Executive Council is very strong on very stale jokes. The honorable senator is, indeed, an ornament, from financial and other aspects, to the Treasury bench. When we are dealing with these matters, the honorable senator never has anything to' utter by way of reply, except it be a stale joke. What is born in him will come out, and there is nothing like position and responsibility to make that fact remarkably prominent.

I have indicated some of the difficulties which we must face in the conversion of our State debts. One of the great examples which we have before us is the conversion scheme which Mr. Goschen, the Chancellor of the Imperial Exchequer, originated and successfully carried out in 1888. Although he dealt with hundreds of millions of pounds, and though he had the Treasury of one of the wealthiest nations on earth behind him, it is nevertheless true that, from our point of view, we have relatively equal advantages, which warrant us in attempting to give effect to a similar scheme. Mr. Goschen was not deterred by the difficulties which confronted him. It is true that he had behind him one of the strongest Governments in finance that the United Kingdom had seen for half a century. But the factors in our favour are just as strong, provided that we have in office a Government with sound ideas on finance. If we have that, we can tackle this problem at any time, because, from the stand-point of the results of investment in our public debts, there is no nation in the world which offers such strong security as do the various Australian States.

Senator Rae - What about the German menace ?

Senator ST LEDGER - If we consider our indebtedness together with our revenue and assets, there is no nation which can offer, such strong security to its creditors as can Australia. I will now outline the task which Mr. Goschen undertook. In the first place, he had to deal with the consolidated 3 per cent, annuities, which were called Consols. They were founded on an Act of 1752, which consolidated a number of small outstanding stocks totalling £323,000,000. I ask the VicePresident of the Executive Council, if he understands a syllable of what I am saying, to convey some echo of it to the Government. The total amount of these .consolidated 3 per cent, annuities was £323,000,000.

Senator Guthrie - The honorable senator does not call that an "echo."

Senator ST LEDGER - No, I am stating facts ; and if the Vice-President of the Executive Council will convey an echo of them to the Government, I shall be obliged to him. These consolidated stocks bore interest at 3 per cent. The second class of stock Avith which Mr. Goschen had to deal was reduced 3 per cent, annuities. They were consolidated in 1746, and were reduced in 1757 to 3 per cents. The total amount of this outstanding stock was £69,000,000. The third class of stock with which Mr. Goschen had to deal wai. the new 3 per cent, annuities. These were a group of stocks which was created by Mr. Goldburn, the Chancellor of the Exchequer in 1844. For a few years this stock bore interest at 3! per cent., and it was guaranteed to carry 3 per cent, for twenty years afterwards. It totalled £166,000,000. When Mr. Goschen set to work to compare what these stocks were earning with what they were costing, he found a remarkable fact which determined the whole operation of their conversion. He found that the 3 per cent. Consols, which amounted to £323,000,000, were being bought in the market for £10.1 9s. 9d. ; that the reduced 3 per cent, annuities, which represented only £69,000,000, were realizing £101 4s. id. ; and that the new 3 per cent, stock, which had been created by Mr. Goldburn, was realizing £101 4s. In other words, the £323,000,000 of 3 per cent, stocks stood £ per cent, higher in the market than did the two smaller classes of consolidated stocks. He argued, therefore, and his financial advisers agreed with him, that if the stocks were consolidated as a whole, the rate of interest upon them would probably be reduced to less than 3^ per cent., or even 3 per cent. Another favorable factor which he noticed was that the municipal 3 per cent, stocks of Birmingham and Nottingham stood at 96!, and ranged as low as 95$. The London Metropolitan municipal stock, which was not redeemable until 1941, and thus had a long run before it, stood at 1031. When Mr. Goschen examined other stocks, he discovered that certain of them, which in 1867 were returning £4 us. 4d., had fallen to an average of £3 8s. 3d. That is to say, the interest upon the municipal stocks had fallen, because they offered an attractive form of investment. They had fallen at the rate of about one-third in the interest cost, whereas the rate upon Consols had fallen only 5s. In other words, the strong security offered by the first consolidated stock did not offer the attraction which was offered by certain municipal stocks. He noted, also, that the rates on Australian stocks between 1867 and 1888 had steadily declined. When he moved his big consolidation scheme, he made use of these words -

The champion stock of the world is being passed in the race.

He determined, therefore, to consolidate these £550,000,000 worth of stock into a stock carrying even less than 3 per cent., and from top to bottom he was successful in that operation'. These are the facts of history. We may differ as to the means by which they were brought about, or as to the opportunities which are now available to bring them about. But the fact remains that Mr. Goschen succeeded in converting £550,000,000 worth of stock into a stock carrying a lower rate of interest. In the light of this object lesson, why cannot we go to the markets of the world with our £270,000,000 worth of indebtedness, and say, " We do not propose to pay such a high rate of interest in the future"?

Senator Rae - But all the Imperial stocks belonged to the one Government.

Senator ST LEDGER - Exactly. The consolidation of a stock means that ultimately it comes under the control of one Government. That is quite a different proposition from saying that all stock shall represent loans by the various States in the Commonwealth. The two propositions are entirely distinct. It may be that on an examination of the question we shall have to consider the two points of view. Let us, therefore, appoint a competent authority to investigate this matter. I will give some reasons to show that if we prematurely interfere with the loan operations of the States- without being ready to offer them more remunerative stocks, we shall not benefit ourselves, whilst, at the same time, we shall cripple the States. The proposition is self-evident. Before we can stop the loan operations of the States, before we can even tentatively interfere with their borrowing, and induce them to come in with a consolidated stock, it is nothing more than common sense to place ourselves in a position to offer them better terms.

Senator Rae - Is the honorable senator in a position to offer them anything ?

Senator ST LEDGER - I can offer the Government the results of some study of the question. It is a weak spot in the financial policy of the present Government that, whilst they and their kindred Governments in the States have been denouncing loan expenditure, and whilst the Federal party has espoused causes which would lead to unification, there is not a financier in the party who has addressed himself to the question of what we are to offer to the States, or to their creditors, when we consolidate the debts. They talk about unifying the finances, but they do not face the question : What are you going to do with the creditor?

Senator Rae - The honorable senator's party has never put forward a policy.

Senator ST LEDGER - I never said that it had, as far as this Parliament is concerned.

Senator Rae - Then why condemn us?

Senator ST LEDGER - Two blacks do not make a white. I have admitted that previous Governments, as far as the big financial question is concerned, did no more than the present Government has done.

Senator Rae - Yet the honorable senator has singled out what he calls a weak spot in our policy.

Senator ST LEDGER - I may point out that every contribution towards the solution of this question, both in State and Federal politics, has come from our side.

Senator McGregor - The honorable senator is very clever.

Senator ST LEDGER - I am possibly a little clever in stating an absolute fact ; but the fact cannot be denied.

Senator McGregor - The honorable senator's party had ten years, and never did anything.

Senator ST LEDGER - I will admit that right away, and the honorable senator can make what he likes of it. But it has to be remembered that we never before had a Government with such a majority as the present one has. We never before had a Government whose revenues were in such a flourishing condition, and whose financial position placed them at a sounder advantage. That advantage was really the creation of the Liberal party. There never was a Government in the Commonwealth that was in a more favorable position for addressing itself to this question than the present one. Yet they have allowed session after session to go by, and have done nothing except make an allusion to the subject in the Governor-General's Speech. The question of the State debts was naturally inextricably connected with section 87 of the Constitution. A new. financial scheme was proposed by the Liberal Government in anticipation of the lapsing of that section. Hitherto we were bound to return to the States our surplus revenue. It was the Liberal Government that made the suggestion for removing that fetter and wiping out section 87. It was the Liberal Government that proposed to pay to the States 25s. per capita. Our Government made such an arrangement with the States, and- sub mitted the proposition at a referendum to the people. We did not, as some of us wished, succeed in embodying a provision in the Constitution, but, nevertheless, we succeeded in removing the fetter imposed by section 87, and in bringing forward a new and workable financial scheme. Then the present Government came into power, in the enjoyment of a large and prosperous revenue. But they have failed to take advantage of their opportunities. They are practically to blame for not having addressed themselves to this very important question. It may be asked : How can we do what Mr. Goschen did ? We can at least begin the work of consolidation. If we can successfully consolidate some of the debts, we can, if the original principle prove sound, consolidate the remainder afterwards. Mr. Goschen took one precaution, which I think that any Government approaching this matter must take. He took care to guarantee the new stock against redemption for a certain period. He also took care, when reducing the rate of interest, to make the reduction gradual. He further took the precaution - seeing that, while some creditors might have him under the' whip for ten, twenty, or one hundred millions of stock - to frustrate them by making arrangements to pay off dissentients as Parliament might direct. That was a powerful lever. I do not see why, when we begin to consolidate, we should not do the same; nor do I see why the result should not be the same in our case. If there are some dissentients who will not touch our stock at the lower rate of interest, I do not see why we should not take time to pay them off.

Senator Millen - The honorable senator is assuming a conversion prior to the date of maturity.

Senator ST LEDGER - That is so; and that is one of the most difficult problems we have to face. We must consider the difficulties of conversion prior to maturity. If we are not ready at the time of maturity to deal with our creditors, we shall be at their mercy. We must prepare for that contingency. I have quoted figures to show the large amounts falling due. It is the bounden duty of the States and of the Commonwealth to prepare for their maturity, because, if we are not prepared, we must renew at the rate which creditor? choose to impose upon us. The financial position is a difficult one, of which every Australian Treasurer, State and Commonwealth, ought to be seized. If they are not, they will soon find themselves tied up in the money markets of the world. It is remarkable how very few of the Australian Treasurers, State or Federal, seem to have faced this problem. A few years ago the difficulty indicated appeared to be distant. But no years pass quicker than those which bring upon one the obligation to discharge a debt. No provision is being made to meet the difficult financial position which must arise. The reason for that is that, under the Constitution, the Commonwealth was charged with the consolidation of the State debts, and the State Treasurers have been relying upon this Parliament to devise means by which, when loans mature, we shall be able to meet the position.

Senator Rae - Interest is going up now all over the world. There is no hope of conversion at present.

Senator ST LEDGER - This is the very time when we ought to prepare. Senator .Rae's interjection emphasizes the importance of the position. If the rate of interest is going up all over the world, Australia will certainly be in a difficult financial position a few years hence if she does not make preparations to meet it. If the money market were falling we could afford to view this position with a certain degree of equanimity. But the money market, as the honorable senator has interjected, is becoming tighter, and with every loan it is becoming more difficult to approach lenders. It is because of that great difficulty that we ought to begin to face the problem right away, and if by any financial means, by a proper and judicious use of our own resources and those of the States, when this tightness of the money market is coming upon us we can lessen it, it is our duty to do so. The difficulty is facing us, but this Government, with their strong financial position and strong following, have contented themselves with doing absolutely nothing. At the various debates in the Convention the great financial advantage of approaching the question of consolidating the State debts was discussed by various speakers. I shall mention those who pointed out how we might successfully solve the problem, and ultimately held out its successful solution as one of the great reasons why we should enter into Federation. Mr. Isaacs, now Mr. Justice Isaacs, devoted considerable research and attention to the subject, and so did Mr. Kingston, Sir George Turner, and others, but it has all ended in nothing. It is about time that the movement should begin, at any rate, with something definite, no matter where it may end. The question is often conflicted and confused with the question of State co-operation or State separation. I am one of those who believe that in the beginning, anyhow, and for some years to come, it will be a disaster to us if there is any hostility of any kind between the Commonwealth and the States.' In approaching this problem we must seek earnestly and loyally the co-operation of the States. I should almost like to amend the motion which I have put before the Senate for consideration, by asking for that co-operation, but my intention will be sufficiently evident from the motion and this portion of my speech. At the Hobart Conference, in 1905, Sir George Turner made these remarks -

Unless the States and the Commonwealth are prepared to work harmoniously in this matter I will never counsel Parliament to take the debts over in spite of the States. We have the right under the Constitution, but in a matter of such importance I think every effort should be made to come to a proper arrangement with the States before anything is done.

In my opinion Sir George Turner was absolutely right for many reasons, which it is needless to mention now. To my mind, if we are going to deal with this problem, we must approach the States, not as competitors or enemies, but as co-partners, with possibly greater risk than we would run. The present Treasurer and Prime Minister of the Commonwealth has advanced a contradictory proposition. I have not noted the date on which he spoke, but when I quote the remark honorable senators will be quite sufficiently familiar with it to be certain of its accuracy. I think it was when the first Fisher Government were in power for a short period. He said at Gympie, " I view with abhorrence the advent of a seventh borrower." In other words he would not go into the market for money, and before he would go there the inevitable inference from his remark was that the others - that is, the States - should stop borrowing.

Senator Rae - Did he not say that the consolidation of the State debts should precede borrowing by the Commonwealth ?

Senator ST LEDGER - If you are going to wait for that to take place, in my humble opinion you will have Australia worse than insolvent within twelve months. Mr. Fisher's phrase stuck. I am glad to hear from the other side an expression of approval of that mere catchpenny phrase.

Senator Rae - The phrase showed that he was declining the catch-pennies.

Senator ST LEDGER - I think it was a mere catch-penny phrase, and, unfortunately, many persons are caught by phrases. I shall now try to show where, as I think, catch-penny finance lies in this matter.. The money market of the world, in its relation to Australia, at any rate, is not much affected by the fact that there is a seventh or seventeenth borrower. What affects the money market of the world materially and quickly is the security of the borrower, the history of his financial transactions. He has to answer this question, " What have you done with the money which you have borrowed ? " The main factors in the money market of the world are embodied in the questions : " What have your past securities returned to you ? What are you going to do with the money now required? How have you dealt with the matter of the payment of your principal ? How have' you prepared for the payment of interest?" It is these factors which make me say that Mr. Fisher's phrase at Gympie- was a mere catch-penny phrase. Financially, I believe that the Treasurer is for unification, which politically we may have to discuss by-and-by. From the point of view of financial unification or consolidation on certain lines his phrase was a remarkably attractive one. What it practically amounted to was, " Why should we help the States in the matter of the consolidation of the State debts if we allow them to go into the money market? Let there be but one borrower ip the market, and let that borrower be only I." That is what it means, I think. I consider that it was both a dangerous and an unsound doctrine. Suppose that the present or a future Treasurer of the Commonwealth were the one borrower for the £271,000,000 of State debts, who would indorse the bill? It would not be the Federal Treasurer. We would not permit him to make a financial arrangement with the States unless with regard to the £271,000,000 of past borrowings. The States would have to indorse the Bill. Any Treasurer in the future would either have to foot the bill, and make the States the indorsers, or the States would have to foot the bill to that extent, and the Commonwealth Treasurer would have to be the indorser. Therefore, for. £271,000,000 of the States debts we cannot talk about one borrower. We cannot talk about separate borrowing from the States in this matter. We must force the State Treasurers to be the indorsers of the bill. We are bound all the time to take into consideration the States unless we are prepared to say, " Here is your money back again; we will take hold of your borrowers." Such a position no Commonwealth Treasurer is likely to be in for years to come. I shall quote a very important authority to show 'how advantageous co-operation with the States will be. Mr. Coghlan, Agent-General for New South Wales, and to a certain extent financial adviser of the State Government, said -

My opinion, which is confirmed by leading financiers here, is that if the power to borrow in London be surrendered by the States to the Commonwealth, the latter will find itself in difficulties in providing for renewals, and it would not be able to obtain any money for new undertakings. We must remember that the Commonwealth will inevitably be a borrower sooner or later; no reliance can be placed on a policy of abstention. My advice is : the question of the transfer of the debts be kept distinct from the settlement of the Commonwealth surplus distribution, and that in the interests of the Commonwealth and the States, the power to borrow be not surrendered.

Mr. Coghlanhas pointed out the difference between the financial position as regards the surplus revenue which we were bound to return to the States until the alteration of section 87 of the Constitution and the position we are in now.

Senator Rae - We had to return threefourths of the net Customs and Excise revenue.

Senator ST LEDGER - Yes. He remembered that, but pointed out, notwithstanding, that the question of the debts should be kept apart from the question of the surplus revenue. Under section 87 of the Constitution, the question of the surplus revenue was bound to be settled sooner or later ; and, as we know, it has been settled in a certain way. Our hands are now freer, as Mr. Coghlan anticipated, to deal more successfully with the consolidation of the State debts ; but it will be of no benefit to the Commonwealth or the States that we should go into the market as one borrower, which would mean the suppression, to a certain extent, of the borrowing powers of the States.

Senator Rae - How long will it be before we shall require a fresh policy of consolidation ?

Senator ST LEDGER - We should not require more than one policy of consolidation. From the time Mr. Goschen started his big financial proposition until the present day his scheme and his principles have remained the same. Once we devise a sound scheme, and originate a sound system of finance to carryit out, its great advantage will be that it will carry out itself. But if we make initial blunders we shall seriously delay the accomplishment of the end we all desire. Let us look at the question from another point of view. The Commonwealth must be a borrower, and must borrow shortly, if the schemes of the present Government for the construction of the two great railways and the establishment of the Federal Capital are not utter nonsense intended to delude the public. One cannot analyze our financial tables and financial statement's without being seized with the most obvious fact that the Commonwealth Government must immediately go into the money market to carry out their schemes.

Senator McGregor - The honorable senator is pushing them into the market.

Senator ST LEDGER - Why not? The Vice-President of the Executive Council, with that awful Scotch pauky humour of his, may consider his interjection as a joke which should disconcert me; but my trouble in the matter is that the Commonwealth Government will not define their position. They will not say straight out that they have big financial commitments which are so vast that they must borrow.

Senator McGregor - Surely the honorable senator does not wish us to borrow before we need the money ?

Senator ST LEDGER - The Government should make some preparation for the future. Of what use is it for the VicePresident of the Executive Council to pose as the financial genius of the Government, and at the same time make a silly old State remark of that kind? It is the duty of the Administration, especially in matters of finance, not to carry on the Government from day to day, and the devil take the next day. It is the duty of a strong Government to make provision for many days ahead. Those who are accustomed to look days, and, possibly, years, ahead, have felt bound to address themselves to this question, and they see that it is inevitable that the Government cannot remain in power without borrowing. I have said that there is an alternative. The Government need not borrow, perhaps, for some years to come if they give effect to the financial policy outlined by Senator Stewart. They may delay the time when it may be necessary for them to borrow if they adopt Senator Stewart's proposal to levy further taxation, or what he calls the community increment of value.

Suggest corrections