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Tuesday, 7 August 1906
Page: 2371

Mr HARPER (Mernda) .- By arrangement with the honorable member for-Parramatta, I have agreed to open the debate this afternoon. It is not my intention on this occasion to deal generally with the Budget, and I shall say little in regard to it beyond congratulating the Treasurer upon its delivery, and the people of the Commonwealth upon the great prosperity which it indicates. In my opinion, it must take second place when compared with the important issues raised by the right honorable gentleman at the conclusion of his speech, and by the publication of his memorandum on the financial problems of the Commonwealth, dealing with the assumption by the Commonwealth of the debts of the States. The questions which he has well entitled the financial problems of the Commonwealth are, to my mind, of surpassing importance, and I think that there is a general feeling amongst honorable members, and throughout Australia, that they should be faced and dealt with in the interest of the States and of the people. I have, since the passing of the Constitution Act, taken a considerable interest in these matters, and it has been one of my chief objects in remaining in politics to give my aid and help, if possible, in their settlement. The seriousness of the position, as affecting future loans, altogether apart from the difficulties arising between the States in connexion with financial adjustments, ought to be pressed upon the attention, not only of honorable members, but also of the public at large. During the fourteen years from 1907 to 1920 no less a sum than , £124,000,000, or an average of £9,000,000 per annum, will have to be provided for in connexion with loans falling due- in addition to any requirements for new works and obligations. Honorable members will thus see that it is important that this question should receive not only serious, but immediate, attention. We are approaching the time when the first of thegreat obligations contracted bythe various States during the years of socalled prosperity will have to be met. We have had the pleasure of spending the money, and we shall soon have to face the less attractive duty of meeting our obligations. The outlook for the immediate future is not a pleasant one, and I think that the Treasurers of the States, when they realize what is before them, must come to the conclusion that it is their duty to join with the Commonwealth Government in facing the situation. I observe that some of the States Treasurers are making arrangements on the assumption that they willnot meet with difficulties. But we have to remember the enormous sums that are about to fall due, that the lending classes, who have given us the use of their money, are well aware of the obligations that the States have to meet, and that during the next fourteen years there will be not one borrower, but in many cases five, in the London market. Therefore, the competition between the States in order to secure the renewals of their loans must of itself bring about the most serious and dangerous difficulty.

Mr Fisher - But there is no indication that the people who have lent their money in the past will not continue to do so.

Mr HARPER - I shall deal with that point later on. For the present I would merely tell the honorable member that it is impossible for us to say what the lending classes may think twelve or fourteen years hence. We know, however, that the money market is managed by a comparatively small circle in London, to whom our necessities are well known, and that if the States compete one with theother in endeavouring to obtain renewals of loans, the financiers will endeavour to make the best possible terms. They may be quite willing to lend their money, but may require high rates of interest. It has been said by representatives of the States, at the Premiers' Conferences and elsewhere, that the credit of the States is as good as that of the Commonwealth. I think, however, that ifthey rely upon that assumption they will find themselves most grievously mistaken. J am in entire accord with the Treasurer, who, as the result of inquiries made by him in London recently, has come to the conclusion that it is most dangerous to seek to obtain large renewals of loans in the London market, when there are a number of competitors, each endeavouring to do the best he can for his own State. In my opinion, if the States compete one with the other in obtaining renewals, they will probably not only be unable to do as well as in the past, but have to renew their loans at a rate of interest considerably higher than they are paying at present. Therefore, the question of placing the finances of the States on a satisfactory footing should be dealt with without delay. I believe that without some organization, and the assistance of the Commonwealth, the States will runvery seriousrisks of disaster. I have already referred to the statement of the Treasurer in this connexion, and I may further point out that my view is supported by Mr. Coghlan in the paper that he recently issued on the question of the States debts. He says -

This is a most seriousdanger - one which can only be adequately metby the Commonwealth intervening and taking up the renewal of these loans, and dealing with them in the future.

Itseems to me that the time has come when this Parliament ought to grapple with the question, and decide upon the best course to be adopted. The following table shows the amount of loans falling due each year,, from 1907 to 1920, and the number of competitors in each case : -


Mr Fisher - Has. the honorable member prepared figures for later years?

Mr HARPER - I have not dealt with the loans falling due 'beyond 1920, because the Treasurer spoke only of the first twenty years from the establishment of the Commonwealth. The loans falling due between 1920 and1930 run into enormous figures.

Sir John Forrest - In 1924. £31,000,000 will fall due.

Mr HARPER - Exactly. Therefore, for some considerable time, we cannot look for any relief. I do not wish to overstate, but rather to understate, the case. What I have said should be sufficient to indicate the importance of this question, and the necessity of dealing with it forthwith. I think we are indebted to the Treasurer for having brought the matter forward upon the present occasion. In delivering his last Budget, it was scarcely to be expected that he would be in a position to deal with it, inasmuch as he had only assumed office a few days previously. However, be has since been giving it his consideration, and the result of that consideration is before honorable members in the memorandum which he has included in the Budget papers. I have to thank the right honorable gentleman for his attitude towards me in connexion with the discussion of the question. As he informed the Committee the other evening, he consulted me in reference to it, and he found that his views and my own were not in accord, but he magnanimously - and with great public spirit, I think - declined to dismiss the proposals which, at his request, I had formulated. On the contrary, he has afforded every facility for their consideration by having them printed, and laid before honorable members.

Mr Fisher - He was quite fair.

Mr HARPER - He was exceedingly fair, and his magnanimity indicates that he realizes - as indeed we all do - the vast importance of this question. He is anxious to hear all that can be said upon it, quite regardless of the particular side of the Committee from which criticism may come. I say that this question is pre-eminently a non-party one. It is a question in which every honorable member is interested, and we should be failing in our duty if we did not face it fairly, and - after having given it full consideration - decide what is the best course to adopt. The difference between the Treasurer and myself is not as to whether one scheme is better than the other. From the first, our difference was that the right honorable gentleman - owing to circumstances to which I shall presently allude - viewed this matter from a different stand-point from that at which I looked at it. Therefore, it was impossible for us to' amalgamate our proposals, to blend them one with the other. The right honorable gentleman said -

My reason for not making any proposal of a permanent character is that I do not believe it possible at the present time to formulate a plan that would be acceptable for all time, to both the Commonwealth and the States. The difficulties in the way at present are too great, and we are only beginning to think federally.

He afterwards stated that he disagreed with me because he did not think that the scheme which I proposed - and which is designed to secure finality as far as that is possible, because there can be no absolute finality in a matter in which Parliament is concerned - was practicable. He added that there was plenty of room for criticism and for differences of opinion in respect to this matter, and declared that he merely desired that those who did not agree with him should suggest some better scheme. Evidently he has an open mind upon the subject, and if he were satisfied that a scheme which would secure finality as nearly as it is possible to obtain it were practicable, he would be prepared to consider it. That being, so, I am relieved of all hesitancy in dealing with this question. The right honorable gentleman having indicated his views in this reasonable and friendly manner, I can assure both himself and the Committee that the criticisms to which I shall in a few moments subject his proposals, are only such as I deem to be necessary in order to show why I differed from him ab initio. The Treasurer's proposals seem to me to be dominated by the opinion expressed in the remarks which I have just quoted - that no scheme of finality would at the present time meet with success, and that to secure some settlement of the question it was better to allow things to continue as nearly as possible under present conditions until public opinion was better prepared to deal with a final solution of it, and until we had begun to think federally. I admit that there is a good deal of force in his contention. I acknowledge . that in many respects we have not yet acquired the habit of thinking federally. But it seems to me that the best way to encourage, not only the people, but the Governments of the States, to think federally is to propound schemes which are Federal in their principles, and which will, by their beneficent effects, induce them to conclude that, after all, Federation is the right thing. Then they will begin to think federally. The way in which we deal with the task which we have to face in dealing with this question will, I trust, have the effect of inducing a more favorable view to be taken of the aims and objects of our Federal Government. Having taken up the position which I have indicated, the ideas to which I have referred evidently dominated the Treasurer's mind. In drawing up his scheme, so far as I can judge, the right honorable gentleman had constantly pressing upon him the obligation to meet the objections which have, from time to time, been urged against any action in the direction o.f altering the existing state of affairs, which is dominated by what is known as the " Braddon clause." If I may be permitted to say so without giving offence, and without any sinister meaning being attached to my statement, I would say that, in dealing with this matter, the Treasurer, owing to the pressure of these ideas upon him, has followed what I might call the provincial lines, whereas I think - and here is where the difference between us comes in- this question should, and can, be approached from the Federal standpoint. I propose to deal first with the financial relations of the Commonwealth to the States, because it seems to me that the sections of our Constitution which relate to this matter dominate the position. The Treasurer's proposals cover a period of ten years, namely, from 19 10 to 1920. Dealing with the question of the financial arrangements

Mr JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) - If we could settle the other question, that to which the honorable member refers would regulate itself, I think.

Mr HARPER - I will deal with the other question at a later stage. I am quite willing to deal with it first, but perhaps it will be better if I am permitted to work the matter out in my own way. The Treasurer's proposal is to pay annually to each State from the end of 1910 to 1920 a fixed sum equal to the average annual amount of three-fourths of the net revenue from Customs and Excise which that State has contributed during the five years preceding 31st December, 1910. In addition to this, he also proposes that if the three-fourths of the total net revenue collected by the Commonwealth exceeds the aggregate amount of the fixed sum so payable to the States, it shall be distributed among them.

Sir Philip Fysh - On a per capita basis.

Mr HARPER - That is so; but that fact makes verv little alteration in the position. It might affect individual States, but my opinion is that it would not do so.

Mr Knox - It is an unnecessary complication.

Mr HARPER - I recognise that from the stand-point of the Treasurer, it is necessary to do something in that direction, but it is an exceedingly embarrassing; proposal. While it would do away with the Braddon section, it would re-create it i,:i a more objectionable, form. That can bc easily demonstrated. The Treasurer's proposal is, I think, inequitable to the Commonwealth, and I propose to give an illustration in support of that view. Let us assume, for the sake of simplicity of calculation, that the fixed sum is based on a revenue' pf' £8.000,000 per annum. Three-fourths of that amount is £6,000,000. That amount, according te the right honorable gentleman's scheme, would be the fixed sum payable to the States for ten years plus any increase beyond the total revenue of ,£8,000,000 per annum. It might well be that for some years the revenue would reach £9,000,000. In that case the States would receive not only the £6,000,000, but £75°>000; representing three-fourths of the additional amount of £1,000,000, or a total of £6,750,000. On the other hand, the Commonwealth would receive £2,250,000 instead of the £2,000,000, which it would retain if the revenue were only £8,000,000. We have to consider, however, what would be the position if in any one year the revenue fell, away to £7,000,000. It is not unreasonable to assume that such a decrease, which represents only 12J percent., may take place. I have known the revenue of this State to fall away for a number of years to the extent of something like £2,000,000 per annum. What would be the result if, under the Treasurer's scheme, the Commonwealth had a similar experience? The position would be that we should have a net revenue of £7,000,000; that the fixed proportion going to the Slates would be £6,000.000, and that the balance of £1,000,000 would be retained by the Commonwealth. In other words, the whole of the shrinkage would come out of the proportion retained bv the Commonwealth, with the result that this Parliament might suddenly find itself in a position of verv grave difficulty. In such circumstances, the only way under the Treasurer's scheme, so far as I can see, to overcome the difficulty, would be to impose a special tax, which would be ear-marked to make good the deficiency.

Sir John Forrest - The Treasurer of the Commonwealth would have to do what every Treasurer has to do when faced with a deficit.

Mr HARPER - Under any scheme there might be a deficiency in the revenue, but the gravamen of my objection is that under the right honorable gentleman's scheme the whole of the deficit would be home bv the Commonwealth. The Commonwealth Parliament would thus have to adopt one of two courses. Since it could not, under the Treasurer's scheme, impose a general increase of duties to raise the sum necessary to make good the deficiency, it would have to promulgate a new tax on some specific article or articles and ear-mark the revenue so obtained to make good the deficiency or impose a direct tax tor the purpose.

Sir John Forrest - Or curtail expenditure.

Mr JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) - But there would be no inducement to the States to curtail expenditure.

Mr HARPER - I should like the right honorable gentleman to enlighten the Committee as to the course he would pursue in the contingency I have named. How could he so curtail expenditure-

Mr Higgins - How could the Treasurer curtail his expenditure from £2,000,000 to £1,000,000?

Mr HARPER - Exactly. The risk is enormous, and is one that ought not to be run. It is all-important that the Commonwealth - if it is to take over the liabilities of the States, as we know it ought to do - should show the outside world that it can meet its obligations, and that it is not subject to the danger of deficits which may disorganize its finances and upset its general business arrangements. When the right honorable gentleman considers this phase of the question - as he will do if he has not done so already - he will see that this is a position that would be absolutely subversive of the best interests of the Commonwealth. As the honorable member for Parramatta has said, the Treasurer's scheme would impose on the States no obligation to economise.

Sir John Forrest - As the population increases, our Customs revenue must increase.

Mr HARPER - I have great sympathy with my right honorable friend. He has spent the greater part of his life in a State which began to ascend rapidly only during his career as its leader and guide. For many years Victoria and other States also experienced a constant accession of prosperity ; but the day came when there was a great reverse, and all who had any responsibility, however sanguine they may have been before, had then a lesson which they will never forget. Whether it be in regard to the affairs of an individual or a State, we can never reckon upon continual prosperity. We may rest assured that the greater the prosperity the nearer we are to a. reaction. That is the experience of Australia, and in view of that fact it behoves us to be careful that in arranging the finances of the Commonwealth, in its infancy we shall proceed on lines that will be suited not only to fair weather conditions, but will also enable us to withstand the blasts of adversity.

Mr Higgins - There has been a drop in Victoria from £9,000,000 to £6,000.000 odd.

Sir John Forrest - How did they manage in Victoria?

Mr HARPER - Very badly, I think.

Sir John Forrest - I suppose that other people would not manage too well, under such conditions.

Mr HARPER - The right honorable gentleman misses the point, which is that the necessity for retrenchment would fall on the Commonwealth, which, from its circumstances, could not retrench. Here I call the right honorable gentleman's attention to the fact that the Commonwealth is steadily, year by year, taking over from the States nearly all the non-remunerative and expensive Departments, and leaving the States with but a comparatively few of the Departments which involve very heavy expenditure. I suppose that the Education Departments chiefly cause the large expenditure in most of the States. If we take over these obligations, and carry on the work for the benefit of the whole, of the States, they must be paid for, and, by the operation of this provision in the right honorable gentleman's scheme, he would, in a time of adversity, throw the whole of the strain on the Commonwealth Parliament and Government, and leave absolutely untouched the States, which would have greater ability than we shouldhave to retrench in other directions.

Sir John Forrest - The States have great obligations placed upon them.

Mr HARPER - That is so; and I shall refer later on to what the States have to do. In the meantime. I am not under-rating the functions of the States, but calling attention to the functions and obligations thatwe are assuming. Under the circumstances, it would be dangerous for us to deal in the way proposed with the finances of the States. It would be preferable to leave the Braddon section as it stands.

Mr Watson - The States share the loss under the Braddon section.

Mr HARPER - Let me use the same illustration I have already presented to honorable members to illustrate the working of the Braddon section. If we take the basis of £8,000,000 - that is, £6,000,000, and £2,000,000. or three-fourths and onefourth - and there were a fall of revenue to £7,000,000, the States, under the Braddon section, would get only £5,250,000 - they would suffer three-fourths of the loss - while the Commonwealth would get £1,750,000. In other words, though the amount of our one-fourth would be decreased, the States' receipts would also decrease - in other words, there would be a partnershipin losses as well as in profit. Under the scheme of the right honorable gentleman, however, a certain revenue, whether the receipts were large or small, would go to the States, and the Commonwealth would be leftto do as it best could.

Sir John Forrest - We have the right to raise revenue for specific purposes.

Mr HARPER - But my right honorable friend has not provided for that, and that is what I find fault with. In addition to giving the States a fixed sum, and making no provision for a deficiency, the Treasurer would tie the hands of this Parliament, because then, either a direct tax) would have to be imposed, or certain sources of revenue would have to be earmarked to meet the deficiency. But it might well happen that if the scheme of the right honorable gentleman were carried out, and the practice of ear-marking were introduced into the finances - a practice which I do not think we ought to introduce - the Treasurer for the time being, whoever he might be, who was short in revenue, might find that all available sources had been ear-marked prior to his necessity arising.

Sir John Forrest - Does the honorable member mean to infer that the scheme is too liberal to the States?

Mr HARPER - I am criticising the scheme as a financial proposal, and trying to bring the probable effects of it before honorable members. I am not dealing with the question of liberality orparismony, but with the question whether or not this is a sound business, financial proposition.

Sir John Forrest - Does the honorable member say that the scheme is too libera! to the States?

Mr Watson - The honorable member says that the scheme is unsound.

Mr HARPER - I have never used the words "too liberal."

Sir John Forrest - But the honorable membersays that we have done more than we ought to have done - that we guarantee more than we should guarantee.

Mr Fisher - It is quite evident that the Treasurer is getting near to an election !

Sir John Forrest - Why doss the honorable member for Wide Bay say that ?

Mr HARPER - I hope this is not regarded as an election question, because it relates to a very serious business. I hope that we shall not be diverted by any consideration of that sort to the right or the left in our decision regarding whatis, or should be, a business proposition.


Mr HARPER - In the case I have supposed, there would be a community or partnership in losses, as well as in profits. It would be far better, so far as the point under consideration is concerned, to permit the Braddon clause to continue, than to adopt the proposal of the right honorable member.

Sir John Forrest - The States would have no security.

Mr HARPER - With regard to the question of security-

Sir John Forrest - That is the object.

Mr HARPER - Then the object is not attained, as I shall show in a few words.

Sir John Forrest - That is the object.

Mr HARPER - That may be, but we very often have objects, and do not take the right way to attain them. I shall show that the scheme does not give the certainty that the right honorable gentleman thinks it gives. For the sake of argument, let us take another illustration. I trust that honorable members will forgive me "for using illustrations, but, in dealing with this matter, they bring more clearly before us the working out of any particular proposition. Let us suppose that we have a series of prosperous years after this scheme is adopted, and that the revenue, instead of being £8,000,000, remains steadily at £9.000,000 for a number of years. Let us further suppose that in each of the years, the States are receiving, not only their guaranteed amount, which is a certain and fixed sum, but £750,000 a year in addition. Under such circumstances, if there were a sudden change, and the States began to receive only £6,000,000, their finances would be more or less deranged. Does the right honorable gentleman think for one moment that the States would then be satisfied? As a matter of fact, they would be crying out. as they are now, that their finances were deranged, and that we ought to have done something different. The right honorable gentleman has only diminished the margin of variation ; he has not removed it. In our everry-day life, a man who is receiving £400 a year may grumble, but if his salary is raised to £500, and after remaining a few years at that figure, is reduced by £25, he feels more aggrieved than if his position had never been improved. And so it would be with the States. We must look at this matter from a reasonable ' and sound business standpoint, and I contend that the scheme is inequitable to the Commonwealth, and does not give stability to the finances of the States, except to a limited extent.

Sir John Forrest - The honorable member must remember that the amount returned would not be influenced by our expenditure, but only by our receipts ; the position would not be as it is now, when, if we spend the money, the States do not get it.

Mr HARPER - That does not meet the point I am discussing. My point is that the scheme does not give fixity to the amount received by the States. I am not going into the causes. That is a different matter altogether. I come now to the proposal relative to ear-marking special items of revenue to provide for certain specific objects. I submit that it is one that ought not to be adopted. It is a clumsy and unsatisfactory way of attaining the object in view. The case of old-age pensions was mentioned by the right honorable gentleman. Suppose that under his scheme certain duties were imposed, and were ear-marked for the purpose of paying old-age pensions. What would be the effect? Parliament would impose certain taxation which it would be assumed would meet the object in view. If it should happen that the amount estimated was not obtained - that the amount required for the object in view was larger than the amount of theduty realized - then either the payments would have to be limited to that extent or theduty would have to be increased, or some other duty would have to be imposed. The result would be to disturb all commercial transactions, so far as concerned the article or articles affected by the duties. If, for instance,a duty were placed on tea for the purpose of providing old-age pensions, and 3d. per lb. were the amount of the tax which was estimated to be sufficient, and if it were found not to be sufficient, would not every tea merchant in the country say - " Parliament will now be imposing a. duty of 6d. per lb?" Uncertaintywould be introduced into trade, because people who observe these things - even the man in the street reading the indications - would know that something else would have to be done. Another objection is this : Suppose the amount of the duty imposed for the purpose of old-age pensions proved to be more than sufficient for the purpose. Then it is likely that the whole amount would be absorbed, perhaps by extravagant administration or in some other manner. I cannot conceive a more mischievous way of endeavoring, to give reasonable facilities to the Commonwealth than this, because it would, in my humble opinion, be always a disturbing element in business operations. The proper and systematic way to attain the object is that the Commonwealth Parliament should provide enough out of its general revenue - out of the whole proceeds of its taxation - to meet the object in view. I think that these questions are deserving of the very careful attention of Parliament. I am sorry that I have not had an earlier opportunity to put my views before honorable members, but I express them now with confidence that the considerations I put forward will receive attention. As to the inconvenience of the present position, I am in thorough agreement with the right honorable gentleman that the Braddon and bookkeeping sections have caused, and are likely to cause in the future, considerable embarrassment to this Parliament in carrying out its legitimate duties. The reason for that is that we in this Parliament cannot do anything as a matter of policy with the freedom we ought0 to have as men responsible to our constituents, and to them alone. In seeking for an illustration of this inconvenience, it struck me that I might take the right honorable gentleman's proposal to institute penny postage. I am in thorough agreement with it, because I think that it is in accordance with the spirit of Federation that the same rate of postage should prevail in all parts of the Commonwealth. It does seem to be absurd that in Adelaide one should have to pay 2d. to send a letter from one street to another, whilst in Victoria a letter is carried to any part of the State from any other part for id. There are similar inequalities in other directions. When I make the remarks to which I am about to give utterance it will be understood, therefore, that I am not hostile to the proposal to reduce the postage rale. But I wish to use the proposal as an illustration of the embarrassment which will be caused ; and my re- -marks' are applicable not only to this, but to any other proposal which this Parliament, as a matter of policy, may favour under existing circumstances. I find on looking into this question of the postage, and reading the paper circulated by the Postmaster-General .after the Treasurer's Budget speech, that he says that it is estimated by the officers of his Department that-

If penny postage were established, the immediate reduction in revenue would be £265,000 a year if limited to the Commonwealth, or about .£300,000 per annum if extended to all places within the .Empire and to other parts of the world.

The proposal of the Government is to adopt the higher scale, giving penny postage, notonly within the Commonwealth but outside of it, involving a loss at first of £300,000 en year. I find, on looking through the paper circulated by the PostmasterGeneral, that a curious mistake has been made. I discovered it only this morning. It does not alter my position, nor does it affect the desirableness of carrying out the proposal ; but it is just as well to point out the error. Three instances are quoted as precedents for the proposed action in reducing the postage rate. The first is Canada, the second New Zealand, and the third Victoria. In each case statistics are given, but the curious thing is that in each instance the average increase stated is wrong. In Canada the returns are set out, and are said to show an average increase of 51.18 per cent, per annum. The average should be 15.18 per cent. In New Zealand, the average increase is stated to be 54.04 per cent., whereas it is 13 per cent, per annum. . In Victoria, the increase is said to be 35.25 per cent, but it is 9.87 per cent.

Sir John Forrest - Perhaps it is the total increase from the beginning which is meant?

Mr HARPER - It places the PostmasterGeneral in the unfortunate position of saying, " In view of the experience in other countries, which has just been quoted, I venture to think that the increase of 40 per cent, in correspondence in the first year may be safely anticipated, which would reduce the amount for that year to £150,000."

Mr Austin Chapman - It will be found that the percentages are correct.

Mr Watson - Is it the increase per annum or for the total number of years?

Mr HARPER - It is the increase for the total number of years. An increase from 150,000,000 to 285,000,000 letters is not an increase of 51.18 per cent.

Mr Watson - Over how many years?

Mr HARPER - That increase is spread over six years.

Sir John Forrest - I expect that it is the total increase from the beginning to the present time.

Mr HARPER - I admit that I read the figures very hurriedly, but it does not alter my position. I merely call attention to the fact that there must be some mistake.

Mr Austin Chapman - I have checked the figures very carefully, and I think the honorable member will find that they are absolutely correct.

Mr Watson - They do not prove much, even if they are correct.

Mr Austin Chapman - That is a matter of opinion.

Mr HARPER - I do not wish to dwell upon the matter. The Treasurer is, I believe, entitled to assume that in the first year there will be an increase of 15 per cent., although he estimates that it will be from 30 to 40 per cent., but that, in my opinion, does not affect the question very much. I consider that the reduction is justifiable, even if the increase should be only at the rate of 15 per cent, per annum, because I believe that in five or six years the deficiency would be 'wiped out.

Mr Austin Chapman - If the honorable member's figures were correct, how could the new revenue of Canada increase in a period of four years to very much mere than the old revenue?

Mr HARPER - The increase referred to in the number of letters - of course, I do not know how the calculation was arrived at - is from 150,000,000 to 285,000,000, but that would not work out at 51 per cent, per annum.

Mr Austin Chapman - I am very glad to hear that the honorable member supports the proposal even with a smaller percentage of increase.

Mr HARPER - I thought that there was a mistake, but it does not affect the position. The point to be considered is how would the proposal affect the States. To show .how inconvenient it is to continue the Braddon section or any arrangement similar to that, let me point out the way in which this one proposition, which the Committee in its wisdom might adopt, as a mat ter of public policy, in the interest of the Commonwealth, would affect, to a certain extent, the revenue of all the States, and would necessarily have a bearing, on their view of the matter. Take, for instance, Queensland, which, according to the Treasurer's statement, has already a deficit of £81,934. By adding its proportion of the loss on penny postage, the deficit would be increased to about £113,000. It is facts such as these which cause anti-federal feeling. Every Federal proposal which affects a State Treasurer's financial statement, especially in those States which have been hardly hit by the arrangements necessary under the Commonwealth, causes the State to feel aggrieved, and to think that it is suffering unjustly at our hands.

Mr Higgins - The State Treasurer says, in effect, " You are spending our money."

Mr HARPER - That is the position. The question is, how is it best to deal with the subject, so as to get rid of, as far as we can, the feeling of irritation and the disturbance which arises in connexion with the present financial arrangements. I shall come presently to the suggestions which seem to me to be desirable for the accomplishment of that purpose. Before doing so, however, I would mention briefly the arrangements proposed for taking over the States debts. The Treasurer wants power to take over the whole of the States debts, but he does not propose - in fact, that would be impossible - to take them over al once. He proposes to take them over as they may fall due, or as he can convert them. That process, of course, would take a long time. In the meanwhile, the States would pay their own interest, and the Commonwealth, as it assumed the obligations, would pay its own interest, receiving that interest back with one-half per cent, sinking, fund to meet the obligation. The sinking funds to be provided' under this scheme would be vested in trustees, with power to invest the money and ear-mark each fund for the purpose of liquidating its own particular debt. By this means, unfortunately, the separate treatment of the different States would be continued. That is a defect in the proposal which, if possible, should be surmounted. With regard to future loans, all that is proposed is that the Commonwealth shall be empowered to float loans for the States on terms to be agreed upon, that the States shall not borrow in London until 1920, and that the States borrowing within the Commonwealth shall be liable for their own, debts. The scheme in this respect seems to me one to gradually take over the debts as they fall due, and nothing else. But the debts, as they were assumed, should be practically unified. In that case, as they fall due they would become Commonwealth debts. It seems to me to be very much more desirable to manage the debts as one common fund, than to deal with, each one ear-marked for a particular State, and so make special arrangements for the liquidation of the debts separately. The right honorable gentleman proposes to meet these obligations by the establishment of consols at 3 per cent., interminable, except at the wish of the Commonwealth, or, upon six months' notice, in thirty years. In regard to that proposition, I find myself entirely at one with him. I believe that it would be wise to have only one denomination. It is true that the consols mightnot at first reach par, because, being a new stock, they might not attain their proper value. But it is better to fix a stock at a rate of interest like 3 per cent., which, as things go, is a fairly low rate, and then the prices given for the stock from time to time would indicate its value in the market. Although it might not fetch par at the commencement, still I believe that with proper management and the fact being made absolutely evident to the investing public that it was a first class security, the time would not be far off when 3 per cents, would be floatable at very close to, if not at, par. I therefore thoroughly agree with the proposition. The information which the Treasurer obtained in London is valuable, because he has ascertained beyond question that any movement in the direction of the unification of the debts or the taking over of them by the Commonwealth would be received with the greatest favour in London financial circles. He has also arrived at the conclusion, after inquiry, that 3 per cent, stock is the one which would be the best for the purpose which we have in view. With regard to the proposals embodied in my paper, which has been circulated to-day, and which a few honorable members have had the opportunity of looking through since we last met by getting early copies, I may say briefly that the objectives I had in view in dealing with thisproblem were first of all to take over all the existing debts, and practically unify them.

Mr Higgins - Does the honorable member mean to include those debts which have been incurred since Federation?

Mr HARPER - Yes. The Treasurer proposes to do the same thing, but only after an alteration of the Constitution. I, though not a lawyer, have ventured in my proposal to suggest that it may be unnecessary to alter the Constitution for that purpose, because in section 96 it is specially enacted that the States may receive financial assistance fromthe.Commonwealth on such terms and' conditions as the Parliament thinks fit, and it seems to me that there is nothing to prevent the Commonwealth from lending money on terms to the States in lieu of the obligations which mayhave been taken up on their behalf.

Mr JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) - The Commonwealth, could be said to be lending money to the States only if, and so long as, it gave them a better credit. If something occurred to lower the credit of the Commonwealth, so that it became unable to give the States a better credit than they have now, it could not be said to be giving them financial assistance, and might, in having taken over the debts, have acted to their financial disadvantage.

Mr HARPER - I had not conceived that the Commonwealth might ever be in circurnstances, or might ever do anything, which would make its credit lower than that of any State. The honorable member has suggested to my mind a possibility which I had not calculated upon.

Mr JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) - We are told that the Commonwealth credit would not be better than that of a State.

Mr HARPER - We have not yet been able to test the matter. It is because I consider it of paramount importance that the Commonwealth credit should be well and soundly established that I am anxious that we shall follow lines which will impress the public mind of Australia and other countries with the thoroughness of our financial position. My desire is that the existing debts of the States shall be taken over and practically unified in time as a Commonwealth debt, represented by 3 per cent. bonds, terminable after, say, twenty years - the Treasurer would prefer thirty years - and not earlier except at the option of the Commonwealth.

Mr Higgins - What mode of financial assistance does the honorable member pro- pose in regard to States debts which did nob exist when Federation was inaugurated? Would the honorable gentleman lend the States money?

Mr HARPER - I propose to lend them money.

Mr JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) - To take the place of the States with a better credit.

Mr HARPER - Yes . If the honorable member reads my memorandum, he will see that those debts are covered. As a matter of fact, the Commonwealth will in time become the creditor of the States, because the existing debts will be paid off, Commonwealth bonds taking their place, and the interest will be met out of the revenue of the Commonwealth. That is a position which must ultimately be reached in regard to both the debts which can be taken over by the Commonwealth and those which, according to one reading of the Constitution, cannot be taken over. The average rate of interest payable on the debts of the States at the present time is about £3.6 per cent.

Mr Bamford - It is very difficult to arrive at the average rate.

Mr HARPER - The calculation is a simple one. So many millions of money have been borrowed, and so much is annually being paid as interest on the sum, the average rate being. £3.6 per cent. If Commonwealth bonds can be floated at par, bearing interest at 3 per cent., the saving which will result will provide for the interest and the extinction of the present debts of the States in sixty years, without any sinking fund. We have to face the contingency that the Commonwealth may have 10 pay more than 3 per cent., or the equivalent of a higher rate, but in that case all that would happen would be that the States debts would not be extinguished within the period I have named, andthe annual sinking fund payment, amounting to £8,500,000, would have to be continued for a somewhat longer period. This, however, would not derange our finances in any way. Commonwealth consols, for the first few years, may have to be sold under par, which may add a. few thousands of pounds to the debt ; but as they reach par the difference will become inconsiderable, and will not derange the general plan. My idea is to take over the debts of the States as they stand, making them a Commonwealth obligation, and freeing the States thenceforward from all obligations connected with them. Instead of returning money to the States, as we do now, we shall pay the interest on their debts as it falls due. 'We should determine the amount coming to the States under the Braddon provision, upon the basis of the . payments of the last four years. The States, instead of paying to their creditors the difference between the amount I have mentioned, and the total amount of the interest on their debts, would pay it to the Commonwealth, which, by adding it to the amount payable to the States under the Braddon section, would be able to meet the interest on the debts.

Mr JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) - Would it be more satisfactory for the States to pay us the money, than for the Commonwealth to pay the States?

Mr HARPER - I think it would be much more satisfactory, because it would place the States and the Commonwealth in their proper positions. If we assumed the States debts, and removed from their balance-sheets the big debits for interest, that now appear annually, it would be only right for the States to pay to us the difference between the amount to which they are entitled under the Braddon section, and the sum that would be dueby them to their loan creditors. Under this plan, instead of having an uncertain sum to provide for, as would be the case under the proposal of the Treasurer, we should, year by year, give to the States a cumulative rebate which would ultimately reach the sum of £1, 860, 000. To this extent we should relieve them of their financial strain. Each year, as the States went on making their payments to the Commonwealth, the liability would be reduced by 5 per cent., and ultimately the whole obligation of the States with regard to interest payments would be wiped out.

Sir John Forrest - When the debts were paid off by means of the sinking fund, what would become of the Customs and Excise revenue?

Mr HARPER - That could be remitted to the people of Australia.

SirJohn Forrest. - Would any part of it go to the States?

Mr HARPER - No.My assumption is that the sinking fund would be created by the use of the credit of the Commonwealth. At present the States pay interest on their debts at an average rate of £3.6 per cent. If we could borrow money at 3 per cent. and credit the sinking fund with 0.6 per cent. we should create the fund by the use of our credit.

Sir John Forrest - Would not the honorable member give back to the States any part of the Customs and Excise revenue, after the debts have been paid off?

Mr HARPER - At the end of the twenty-year period, I would allow the Parliament to determine what should be done. If, after having been relieved of its obligations, Parliament had a large sum of money in hand, it might determine to make a grantper capitato the States. But we cannot look into the future, at any' rate, so far as that.

Sir John Forrest - Would the whole of the States debts be pooled, or would each State pay off its own debts as. it went along - would Queensland pay off , £80 per head and Victoria £50 per head, or would both share alike?

Mr HARPER - If the right honorable gentleman refers to my statement, he will see that the whole position is made clear.

Mr JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) - The Commonwealth would merely act as a trustee for the States.

Mr HARPER - Yes, we should take over the whole ofthe debts. This question may seem somewhat subtle, but in reality it is very simple. The Commonwealth Government would take over the whole of the States debts as they stood.

Sir John Forrest - But, in some States, the debts have reached £80 per head, whilst in others they represent only £50 per head.

Mr HARPER - If the right honorable gentleman will follow my argument, he will see how the difficulty can be overcome. Assuming that I am correct in my view that we could borrow money at 3 per cent., we should save one-sixth per cent. interest on £233,000,000. My belief is that, if there is no organization on the part of the Commonwealth to take over the debts, the States, when they renew their loans, will have to pay quite as high, if not a higher rate, of interest, than at present. If, as 1 say, we can save 0.6 per cent. of the present interest charge, we shall in sixty years be able to pay off the whole of the debts of the States. I contend that we shall not be robbing any of the States, or doing them any harm if we devote the amount savedby the exercise of the Commonwealth credit to this purpose. We shall be doing it for the benefit of the whole of the people of the Commonwealth. With regard to the question that has been raisedby the Treasurer, I would point out that we ought to remember the position of some of the States. From the very outset I have felt the greatest sympathy with Queensland and Tasmania, because they have suffered most severely at every turn. I think that we should deal with this question in a generous spirit. We should not look into every detail with a microscopic eye, in order to see that this or that State does not gain a shilling at the expense of the others.

Sir John Forrest - That is not in accordance with section 105 of the Constitution.

Mr HARPER - With regard to that point, I would repeat what I have already stated. Assuming that we can borrow money at 3 per cent.-

Mr Wilks - Is there any reason for that assumption ?

Mr.HARPER.- Yes. In addition to the information obtained by the Treasurer, when in London, we have the experience of Mr. Coghlan, who thinks that ere long the Commonwealth will' be able to borrow money close up to par at 3 per cent. I believe that that is an accurate view of the situation, and I think that the forecast is more likely to be realized if this Parliament propounds a scheme of finance which will commend itself to the investors of the old world.

Mr Bamford - What . attitude would be taken by a State now paying31/2 per cent. interest on its loans as against, say. South Australia, which is paying 5 per cent. ?

Mr HARPER - South Australia is not paving 5 per cent, for her loan money.

Mr Bamford - She is paying that rate upon some of it.

Mr HARPER - We should take over the whole of the obligations of the States, and create a fund which would enable us without doing injustice to any State, to confer a benefit upon those States which at the present time have much the heaviest per capita burden of debt. Then we have to weigh another consideration. Queensland and Western Australia are per capita much more heavily indebted than some of theother States, but what will be the position twenty years hence? What are the probabilities? Is it not likely that in the great States I have mentioned, with theirlarge areas of land suitable for settlement, population will increase at a very much morerapid rate than in Victoria? Certainly it will. There is another point thatwe ought to remember, namely, that up to the present time;New South Wales and Victoriahave been the largest gainers by Federation. The complaint of Queensland was - and) there was some justification for it - that many manufacturing industries which were being established were retarded by the operation of Inter-State free-trade, under which Sydney and Melbourne obtained' the trade which otherwise she would have built up within her own borders. The same remark is applicable to the other States. We ought to recollect that. If there be a big population in Victoria and New South Wales, we should remember that a considerable portion of it is the direct result of those States manufacturing and selling goods which, but for Federation, would probably have been made in Queensland, and would have employed an increasing population there. In considering this matter, I desire to deal with the States in a large-hearted and generous manner, so that, after all, they may be led to believe that Federation, has not been a bad thing for them.

Mr Henry Willis - The duties are credited to the States in which the goods are consumed.

Mr HARPER - But the people are not employed there. I trust that I have made my meaning clear concerning, the existing debts of the States. I hold that the Commonwealth should take them over, and handle them in its own way. Bv the use of the Commonwealth credit, a profit would be derived which, in a certain number of years, would be sufficient to wipe off the total amount of the States indebtedness. The profit which is derived from the use of the Commonwealth credit should be appropriated to equalizing the conditions of the different States. Can anything fairer than that be proposed? In the Argus to-day I read a letter regarding my proposals from Senator Pulsford. I am afraid that he has rushed in before he knew what he was attacking. As a matter of fact, his communication shows that he has not yet begun to grasp the idea which underlies my scheme. My proposition seems to be a sound business one, and one the adoption of which will overcome the enormous difficulties which will "beset us, if each State acts separately and independently for itself. With regard to future borrowing. I have sought to give effect to the same idea - that is to say, that whilst the Commonwealth credit is being built up and put upon a sound basis, we cannot expect - as was proposed at the

Premiers' Conference at Hobart - the States to arrest the development of their territory by means of public works which for many years will require to be undertaken with money which has been borrowed either in the Commonwealth or outside of it. My proposal is that the Commonwealth shall borrow for the States upon the conditions which are set out in my paper, and which are similar to those with which the States comply when they issue a prospectus for a loan upon the London market - that is, they state the purposes for which the loan is required, how it expects to meet the interest, and what the revenues from the undertaking are likely to be.

Mr JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) - The honorable member suggests more than that in his paper.

Mr HARPER - Possibly. My proposals are before honorable members, and I shall be glad, at a subsequent stage, to explain any point upon which information is desired. I do not wish to enter into a discussion of all the details. The principle with which I am concerned is that the Commonwealth shall borrow the money, and that a sinking fund of \ per cent, shall be established. .

Mr Wilks - The honorable member would «ar-mark the sinking fund ?

Mr HARPER - No; there would be no ear-marking.

Mr Wilks - The honorable member says that when the money is borrowed for a specific purpose a sinking fund of \ per cent, should be provided.

Mr HARPER -The Commonwealth Debt Commissioners would deal with the matter. Let us suppose that an application were made for the loan of, say, £500,000, with which to build a railway. The Commonwealth would raise that amount by floating bonds. The Debt Commissioners would then .hand it over to th'e State which had made the application, and which, under my scheme, would merely be required to repay to the Commonwealth the exact cost that had been incurred in the flotation of the loan, plus J per cent, for a sinking fund, and any little .additional charges which may have been involved.

Mr Carpenter - Does the honorable member propose to restrict the States in borrowing locally?

Mr HARPER - I do not. Referring to the mode of dealing with a loan to a State, an actuarial calculation would have to be made. The State would annually repay to the Commonwealth an amount representing 3| or £3.6 per cent, upon the loan. By doing that for sixty years they would extinguish the whole of the debt. In short, my proposal is to make use of the terminating annuity principle. I am assuming that if the Commonwealth credit were established upon a 3 per cent, basis, and the States paid back at the rate of 3J per cent. - they would not be able to borrow upon their own account for less than that - they would in the course of sixty years pay not only the interest, but the whole of the principal. It seems to me that we have a unique opportunity in public finance, one which has not been enjoyed bv any other country. We have to deal with £233,000,000, and we can provide for paying that sum out of our revenue by making a permanent annual appropriation of £8,500,000, the sum the States have heretofore paid for interest alone. We should gradually pay off the entire sum by means of the savings which we effected. In this connexion I may mention that Mr. Coghlan, in his paper, says that by-and-by we could effect a. saving of £1,300,000 per annum. That money would need to be re-invested. ' It could - under the scheme I have outlined - be reinvested either in our own obligations or in loans to the States, and the latter would simply be required to annually pay to the Commonwealth 3^ per cent, upon such loans, which rate, in sixty years, would not only cover the interest charges, but also wipe out the principal. The result would be that in forty or fifty years the original debt of £233,000,000 would be greatly diminished, and it is quite conceivable that sixty or seventy years hence we might have public works valued at £500,000,000, upon which there would be a debt of not more than £250,000,000. It seems to me that now is the time for us to face these ques-' tions in a broad patriotic spirit. We should deal with them as large questions which affect not only to-day, but the future. The works for which the Commonwealth would raise loans must be reproductive works, and I have defined that term in my paper. In regard to other works, or to temporary loans, the States should be at liberty to borrow within their own borders, as they would be responsible for them-

Mr Carpenter - What dees the honorable member call non-productive works?

Mr HARPER - I would call a lunatic asylum, or a school-house, or anything which did not return a> revenue, a nonproductive work. Honorable members will observe that, under my scheme, the fullest liberty would be given to the States. I do not think that we ought to hamper them, but, on the contrary,- we ought, by evenmeans in our power, to stimulate them to develop their own territory. For that reason I make no proposal to interfere with their railways. Under my scheme they would have all the railway revenues with which to do the best they could, and they would be able to obtain more money whenever they had a sound proposition for which they were prepared themselves to accept responsibility. They would merely be called upon to provide interest and sinking fund, which would enable both themselves and the Commonwealth to wipe out their obligations within sixty years. Sixty years is a long time in the life of an individual, but it is nothing in the life of a nation. If we lay down proper lines, and build upon a sound foundation, this country, .a couple of generations hence, will have great public works, and comparatively little public debt. Surely that is an object to be sought for, and, if possible] attained. To the uninitiated, itseems an uncanny statement that if they have a debt of £100, and pay it off at the rate of \ per cent, per annum, in sixty years they will wipe it out; but it is a mathematical fact. The point is, of course, that that result is achieved by means of compound interest. If we got in any money in respect of the States debts of £233,000,000, we should immediately invest it in the purchase of either State or Commonwealth loans, or by way of loans to the States. In this way we should derive 3 per cent, interest, so that the money would be fructifying from the first, and the result would be that sixty years after taking over these obligations, we should have our debt paid off. If we reinvested, the money, the resuit would be that in a comparatively short period we might have a very large amount of public works with a very small debt upon it, and that debt mainly owing to the Commonwealth. I trust that honorable members will not consider that I am too enthusiastic with regard to this proposal. It is a matter of calculation, and any one mav make the necessary calculations for himself. It seems to me that we have a unique opportunity to put our public finances on a foundation that may be exceedingly beneficial to us in the future.

Mr Henry Willis - Has the honorable member taken into consideration the question of brokerage?

Mr HARPER - I have. Suppose, for the sake of argument, that bonds are quoted at par, and that we have to pay 1 per cent, by way of brokerage, that 1 per cent, is added to the price of the loan.

Mr Henry Willis - In that case, the loan would cost £101.

Mr HARPER - I am not discussing details of that kind. It is, after all, a matter of calculation. The money, whatever it costs the Commonwealth, must be repaid, plus the £ per cent, which will go into a sinking fund. I think I have dealt sufficiently with the Question of what should be substituted for the Braddon section, and the steps wc should take with regard to the amounts at present paid to the several States. I may be accused' of being too liberal to .the States. Under my proposal, we should, after 1910, give back to them annually a very large sum. In the first year, we should give them back £90,339; in the second year. ^£180,678; in the third year, ,£271,017; in the fourth year, £361,356, and in the fifth year, ,£451, 695. Let us take, by way of illustration, the position of Queensland, and consider what effect my proposal would have upon it. She " would have to pay to the Commonwealth £736,000 to meet her debt obligations. At the end of 1911, under my scheme, she would have to pay to the Commonwealth £699,438; in the second year, ,£662,625 ; in the third year, £625,813; in the fourth vear, £589,000; and in the fifth year, £552,188, and so on.' It will thus be seen that there would be granted annually to the States relief aggregating a very large sum. The relief so received would be quite as much as could be fairly expected under the Braddon section, or any other scheme. It would be a fixed sum upon which the States could reckon, and the States Treasurers could make up their Budgets twelve months ahead if they chose to do so, since they would know exactly what they had to pay back to the Commonwealth in a particular year. They would -run risk. The Commonwealth would undertake any risk that might accrue ; but that risk would not be very great. The relief afforded to the States annually for twenty years would be provided for by ari annual increase of 41,000 to our population. The average of our Customs and Excise taxation per capita is £2 4s. per annum, so that anannual addition of 41,000 to our population would practically cover the amountwhich the States had to receive from theCommonwealth through the 5 per cent, rebate. From 1891 to 1901 we had a: gi eater average increase in population than 41,000.

Mr JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) - Meantime this increase of population; would mean, at the end of twenty years, greater cost of government.

Mr HARPER - To all parties, but mainly to the Commonwealth. If our population increases to the extent of 41,000 per annum, the amount which the States are to receive from the Commonwealth will be covered. On the other hand, we have to remember that, as local production is encouraged by protective duties, the quantity of dutiable goods coming from abroad will be decreased. Making a fair allowance for that fact, however, I think that the Commonwealth would be perfectly safe in undertaking to pay back to the States a large sum annually. My proposal really means that a large sum annually would be returned to the States. Although it would take the form of our remitting the charges which we. had upon them, still, when reduced to its simple elements, it would mean their receiving a large sum annually. I have provided in the simplest way for the machinery necessary to give effect to my scheme. In order to avoid expense, I have provided for the appointment of debt Commissioners, who would form practically a branch of the Treasury. The Treasurer himself would be a member of the Commission, and its executive officer would be the Under-Secretary to the Treasury. There would also be four other members, two of whom might not be Members of Parliament.

Sir John Forrest - They would be paid Commissioners?

Mr HARPER - I have not entered into that question, which is, after all, a matter for consideration. No doubt if we secured the right men they would be worth paying. It is desirable to have continuity of management in connexion with a scheme of this kind. It is desirable that it should have a tradition; it should have men who are accustomed to carryontheparticular work that is required - the floating of loans, the paying of interest, and the genera! management of loan transactions. In view of the facts that I have, put before the House, I think that honorable members will recognise that the Commissioners for someyears would not have a very easy task. Their duties would require the exertion of the very best ability to finance the enormous transactions, to meet the obligations as they fail due, and to make reasonable provision for any additional requirements. Therefore, we desire to have the best men ; and it ought to be a branch of the Treasurer's Department, and semiindependent - that is to say, free from political influence.

Mr Fisher - It is ability, as well as stability that we desire.

Mr HARPER - I agree with the honorable member that we shall require both. As a matter of fact, my proposal provides all the requisite machinery. It occurred to me that disputes might arise through different States desiring to raise money at a time when it might be inconvenient to float loans ; that is, one State might wish to get more than a fair proportion of loan money at a particular time. Under such circumstances, disputes might arise ; and I suggest the appointment of a board of arbitrators ; and in order to get the most detached and neutral body I could think of-

Mr Skene - A second board?

Mr HARPER - Not a board, but arbitrators to be called to act only when required ; and it is very likely they would be seldom required. As these would be appeals from sovereign States against the Commonwealth, or vice versa, I propose that, on being approachedby an appellant, the GovernorGeneral should appoint four arbitrators with himself, he being President. I do not know whether the Governor-General would be allowed to undertake such a duty under the Colonial Office regulations ; but, if he were allowed, there is no doubt that would be the right course to pursue. The ChiefJustice and another Justice of the High Court would be arbitrators, and then I suggest the appointment of two gentlemen, one of whom should be the manager of one of the leading banks. This would not be a continuingbody. but one called together by the Governor-General, or, if the

Governor-General could not act, by the Chief Justice,as occasion required.

Mr King O'Malley - As a rule, Judges are not good financiers.

Mr HARPER - The arbitrators would be called upon to settle, not questions of finance, but such questions as whether a State had a right to a loan while another State was, as it were, kept back. The questions to be settled would be questions of fact, calling for reasonable arbitration and the exercise of sound judgment.

Mr Henry Willis - Does the honorable member think, in such cases, there would be any difficulty in obtaining money sufficient for our requirements?

Mr HARPER - I cannot answer, that question.

Mr Henry Willis - I should think there would not be.

Mr HARPER - I should think that if the credit of the Government were good, and the demands were reasonable, there would, under such a scheme, be created a security second to none in the world. The States whichborrowed would be responsible to the Commonwealth for the interest ; and if the undertaking did not pay, the particular State, out of its funds, would have to find the interest. The Commonwealth would have themoney, and would be responsible; and its credit would also be behind the security. I cannot conceive of any higher security that could be given ; because a gilt-edged security of the first class would be created. Under such circumstances, the money could be got, I think, at 3 per cent., and the whole of our financial business would be brought to a focus, one section being the complement of the other. The Commonwealth would borrow on interminable securities, while the States would borrow from the Commonwealth on terminable annuities; and one would work into the other in such away as to reduce the debt continuously, and more or less rapidly.

Mr Skene - The Commonwealth would act as banker for the States ?

Mr HARPER - Not as banker; the Commonwealth would simply be the medium for the collection of interest, and itspayment.

Mr JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) - The Commonwealth would be the agent?

Mr HARPER - The Commonwealth would be the creditor of the States, and, as the honorable member for Parramatta points out, to some extent also, . the agent for the States. The Common- wealth's credit would enable the States to get such terms that they would probably pay no more than they would have to pay if they borrowed on their own account, and the debt would be cleared in sixty years. I am afraid I have trespassed too long on the time of the Committee; but I feel, as I said at the opening of my remarks, that it is the duty of a public man to give these questions the utmost consideration. I should have liked to promulgate these views earlier, because I quite admit the difficulty, in dealing with such a huge subject, of being able, in one speech, or even half-a-dozen speeches, to meet all the points that may arise. I trust, however, that honorable members will give me credit for not seeking, as a faddist, to bring forward a proposition simply because it is my own, or anything of that sort. I have thought this matter out as a businessman, and I desire to place my views before honorable members in a business aspect, with the desire that I shall be given the credit, at any rate, for having simply submitted these views as a matter of public duty - for no other reason, and with no other purpose. I am sure that the Treasurer will feel that the remarks I have made about his scheme are the result of conviction and of the necessities of the case. That scheme is, I think, intended to solve in a temporary way a question which, in my opinion, ought to be settled finally. The difficulties that have been created in the Treasurer's scheme are, I think, as I said at the beginning, the result of the difference between his position and my own. The position I take is that the question should be settled now, without the delay of an hour. In my paper I say that by the 30th June, 1907, the whole matter ought to be settled ; but, as a matter of fact, it ought to be settled at once, because £12,000,000 falls due next year, and then follow £8,000,000, £5,000,000, £10,000,000, and so on. Under the circumstances there will not be breathing time, and anything which may be done ought to be done at once, to be effective. Consider the result upon the minds of financial people of the promulgation by the Commonwealth of a clean-cut, clear, definite policy. They would see that we knew where we were going - that we were not intending to drift into London, like waifs on the financial sea, one AgentGeneral endeavouring to raise money as against another Agent-General. If we put before the world a sound business proposition, which commends itself to financial authorities, and show that we intend to create a security second to none, we shall succeed in placing the credit of this country on the soundest possible basis.

Mr King O'Malley - What would the honorable member propose if our 3 per cents. were refused?

Mr HARPER - The buyer of bonds is like the buyer of anything else - he desires to buy as cheaply as he can, and would not refuse Australian securities. But we can not blame lenders if we are sufficiently foolish and idiotic to delay our arrangements so that they, knowing that loans have to be met on certain days, and that we have not a sou to meet them - we could not blame them, Isay, if they then demanded 4 per cent. instead of31/2 per cent.

Mr Bamford - Does the honorable member not think that financiers might be afraid of labour legislation?

Mr HARPER - I think we can leave that question out of consideration.

Mr JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) - Mr. Coghlansays they are afraid.

Mr HARPER - They may be. I do not say whether they are or not. If we are under labour legislation, we shall have to do the best we can. I do not know what the effect may be. I express no opinion upon that point. But if we put ourselves in the best position as borrowers, show that we understand our business, that we mean to meet our obligations, and to pay our interest, and that the Commonwealth, backed up by the States, will be responsible for all these debts, I have no doubt that we shall succeed in placing ourselves in an exceedingly favorable position. There may be points that I have missed ; and if, in Committee, honorable members choose to ask me any questions that may occur to them, I shall be pleased to give them any further information that I can give.

Mr Fisher - Did the honorable member mean to convey that it is possible that the Commonwealth will have to pay more in consequence of labour legislation?

Mr HARPER - I do not know. I said in reply to an interjection that I expressed no opinion as to that.

Mr Fisher - The honorable member, I understand, had no intention to convey that the LabourParty would repudiate the responsibilities of the Commonwealth?

Mr HARPER - I certainly had no such intention. I am pleased that the honorable member has put that question. The interjection was whether labour legislation would make a difference, and it was said that Mr. Coghlan had stated that it would. I replied that if people believed it, they might make us pay more for tlie use of their money. But I express no opinion whatever upon the point. The fact is that people who wish to lend money generally look to the security, and if they think that the Labour Party' is likely to impair their security, they will form their own opinion, and act accordingly. If they do not think so, thev will take no notice of the legislation referred to. I express no opinion upon the point.

Mr JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) - It amounts to this : " If it does, it does."

Mr HARPER - If it does, it does, and if it does not, it does not ; and there is an end of the matter.

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