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Wednesday, 13 May 1931

Debate resumed from the 1st May (vide page 1541), on motion by Senator Barnes -

That the bill be now read a second time.

Senator Sir GEORGEPEARCE (Western Australia) [3.10]. - At present the total unfunded debt in London of all the Australian Governments is £38,075,000. Of this £5,000,000 is in respect of bills due on the 30th June next, a further £5,000,000 is due to the Westminster Bank, £2,950,000 to Australian banks, and £25,125,000 to the Commonwealth Bank. It will, therefore, be seen that the sum of about £28,000,000 has been found by the Commonwealth and other Australian banks to assist the Government's finances in London, apart altogether from the huge sum that is owing in Australia. Yet we find the Government denouncing the banks for issuing a warning that the present system cannot continue, the allegation being that they are attempting to dictate the policy of the Government. The total amount of gold held in reserve in Australia against the note issue is £15,150,000. We are asked in this bill to give the Government authority to ship 'all that gold out of Australia, to take away from the Commonwealth Bank Board the control of the gold reserve, and practically to place the issue of notes in the hands of the Treasurer. The Minister (Senator Barnes) said that it is proposed in the first place to send only £5,000,000 worth of gold to London, thus leaving only £10,150,000 worth in Australia. But we know that a further £5,000,000 will shortly become due to the Westminster Bank, and that the process will continue until the whole of our gold has been shipped away. When the whole of our gold reserve has been disposed of, our note issue will become a fiduciary issue. The Senate has already registered its objection to a fiduciary note issue, and I submit that in this bill the Senate is asked to stultify its previous decision. But would that process provide any real cure for the malady from which Australia is at present suffering? Is it not a mere palliative and a very ineffective one at that? Does it not mean that default is inevitable if this spendthrift course is continued? I invite the Senate to consider this question. The Government say that there is no alternative, and that if £5,000,000 worth of gold is not shipped. Australia must default. When the Chairman of the Commonwealth Bank Board (Sir Robert Gibson) was before the Senate last week, he said in answer to a question that there was another alternative, but it was not within his province to say what that alternative was since it involved a political question.

Senator Barnes - Will the right honorable senator say what it is?

Senator Sir GEORGE PEARCE - There is another alternative and we have pointed it out on many occasions. The position, as I see it, is this : The Government's case for the shipment of gold, briefly put, is that the Senate must agree to the gold being sent overseas, or take the responsibility for default in London. That sums up what the Minister (Senator Barnes) said in his second-reading speech. In the absence of evidence that default is the only alternative, this can only be regarded by the Senate as begging the question. Assuming that no gold is shipped default can only occur if - (1) The money or credit being available in Australia, the Australian banks from cash or credit resources at their command in. London, either cannot or will not provide the requisite exchange facilities : or (2) - The money or credit not being available in Australia, or the Australian banks being unable to provide exchange facilities, the credit of Australia is such that no financial assistance of any kind or for any period is available from any source in London, notwithstanding that its refusal means default by the Commonwealth.

Unless tie Government oan assert both 1 and 2 and prove its assertions, the challenge to the Senate fails. If the Government asserts both 1 and 2 it is pertinent to ask why they obtain, and whether they would obtain, if the Government abandoned its other financial proposals including the Fiduciary Note Issue, special taxation '.of interest, &c, which with the gold shipping proposals form parts of its complete scheme. It is safe to say that the Senate cannot be blamed in any effective way for default if it takes place. The real cause of default, if it should occur, will be the entire failure of Australian credit in London and the blame for this must fall on the shoulders of the present Government.

Senator Daly - That is nonsense.

Senator Sir GEORGE PEARCE - If the gold had to be pledged to the Bank of England or any other overseas lender as a security for accommodation, it would not only mean that Australia's credit had entirely gone, but it would have precisely the same effect in every way as the actual shipment. The Senate must regard the proposal entirely from the standpoint of its attitude to the Government. The Government wants to ship the gold in order to evade the other issues between it and the Senate for a further period. These are the plain facts of the case. Government control of gold, the fiduciary note proposals, and the " Lang " plan of forced loans from insurance, companies, are all variations of a single theme. The control of gold will help to give the Government a further lease of its spendthrift life.

The ultimate objective in ' any plan for the rehabilitation of Australian finance will be the restoration of the gold standard - -unless some other standard be adopted internationally - so that Australia can resume an honored place among the financially respectable nations of the world. This task will be very difficult in. any event, but will be made tremendously more so by depleting our present gold reserve, so that by allowing it the Senate would be aggravating the evil effects of the present Government's continuance in office which it will be the next Government's problem to counteract and repair. To allow the gold to be shipped would indeed be helping the enemy at the expense of the friend. It will not strengthen the credit of Australia to ship gold under the present conditions ; on the contrary, it will weaken it. Abundant evidence of this has appeared in the cables from London, where the exact nature and intention of the proposal is not at all misunderstood, and where its relationship to inflation is fully recognized. The London problem is entirely a matter of credit. "With one exception - the state of our credit - everything in London at the present time is favorable to the solution of our immediate financial difficulties. Money is plentiful and cheap. The next Government, if elected by a solid majority of the people to put sound measures into effect, will have no real difficulty in funding the floating debt, including outstanding treasury-bills and July interest, and the difficulty will not be increased, but rather to the contrary, if the gold is kept in Australia. Shipping of gold will mean that we have frankly given up the idea of maintaining a properly regulated note issue, and it will further mean that we have lost hope of restoring the value of the, Australian £1 in terms of the British £1.

Senator Daly - Why does not the right honorable senator tell us something about the underwriting of the last loan floated by the Government of which he was a member?

Senator Sir GEORGE PEARCE - It is not a sign that a country's credit has disappeared when the underwriters have to take up a portion of a loan. The mere fact that a Government is able to get a loan underwritten is clear proof that its credit is good. The present Government cannot get any one to underwrite a loan.

Senator Daly - This Government could raise a loan on the terms obtained by the previous Government.

Senator Sir GEORGE PEARCE - It could not. Why is Australia's credit bad in London? That is the crux of the whole situation. The four reasons which appeal to me are: 1 - Because the Commonwealth Government refuses to try to balance its budget within a reasonable period. 2 - Because repudiation of public debts is urged by one section of the Labour party, and inflation, which is a form of repudiation, by another. 3 - Because of the weakness and vacillation of the Government and its obedience to the behest of irresponsible bodies; and 4 - Because Mr. Theodore is the Treasurer. Having regard to these four reasons, is there any wonder that our credit is bad? Can we expect to maintain our credit in the face of these undoubted facts? Remove those, and our credit will be restored in London and in Australia. The shipment of £5,000,000 worth of gold will not remove them; they will still remain. If my assertion be correct, that those are the reasons for the impairment of our credit, what would be the use of shipping abroad £5,000,000, or even £15,000,000 worth of gold ? But if we were to remove them, our floating debt in London could be funded. How can we expect our credit to be restored when the Government is doing what it is ; when the Prime Minister persistently announces that he does not propose to drop the idea of a fiduciary note issue, and when Mr. Lang, leading another section of the Labour party, having perpetrated one tragedy upon his State and the Commonwealth by the repudiation of public obligations, is now proposing to make a raid upon the funds of insurance companies ? These facts cannot be hidden; they are known, not merely in Australia, but the world over. We should be blind did we not face the fact that they are continuing to discredit us in the eyes of the world. While the governments that do these things remain in office, how can we expect our credit to be restored in London?

Senator Daly - Does the right honorable senator say that this Government stands for repudiation?

Senator Sir GEORGEPEARCE.I say that inflation is a form of repudiation, and that another form of it is the special taxation of interest derived from bonds, which the Government proposes by a bill that is now before Parliament. Our credit, or lack of it, in London is a reflex of governmental actions in Australia. The actions of the two governments to which I have referred have brought the credit of Australia to such a state that it is lower than the credit of any country with the exception, perhaps, of Central American republics such as Costa Rica. It is a fact that, on the stock exchanges of the world, our credit to-day ranks about equal with that of Costa Rica

I ask the Senate to reject this bill, and to place upon the Government the responsibility either of adopting the obvious alternative or of defaulting. This is not the alternative to default, and it will not obviate default. There is only one alternative to default, and the Government knows what it is as well as we do.

Senator O'halloran - Borrow abroad.

Senator Sir GEORGEPEARCE.The Government cannot borrow abroad until it has taken the alternative course of proving that it is trying to live within its income.

I do not propose to go over the figures that I quoted the other day. They show that, of the sum of £24,000,000 which the associated banks have found to assist governments to carry on in Australia, £12,000,000 has been found for the Commonwealth Government and £8,000,000 for the Government of New South Wales, the other five States having borrowed in the aggregate only £4,000,000. How, then, can we expect our credit to be restored or even to remain stable? It is slipping downhill; and this Government is doing and will do nothing to check that slippery descent. Time after time we have appealed to the Government to apply what obviously is the only alternative to default. It will not do that, but, on the contrary, persists in announcing that it is proceeding with its financial policy. That policy is the fundamental cause of the loss of our credit. Therefore, I am forced to the conclusion that the only way in which Australia's credit can be restored is by this Government being torn from the treasury bench. It has ceased to govern. It exists to-day only with the support of members who despise it, and who pour contempt upon it. It has ceased to legislate. The legislation to which it has committed itself the people of this country have never had an opportunity to express an opinion upon.

If the Government really believes in a. fiduciary note issue, the shipment of gold abroad, and the taxation of interest, why does it not go to the country immediately upon that issue? Why wait until the country is further involved? If it made that the issue of an immediate election, and secured a mandate from the people of Australia to put it into effect, it would be entitled to demand the passage of its legislation no matter what the consequences might be to Australia.

I hope that the Senate will reject the bill, and thus indicate to the Government that, in the opinion of honorable senators, it is not a measure that will save Australia from default or improve our credit, but that on the contrary they regard it as a measure that will still further depreciate our credit. Its rejection will be some evidence of their desire to make the Government face up to its duty and to take measures that will not only rehabilitate the credit of Australia, but also enable us to live within our income.

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