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Friday, 17 August 1906

Mr HARPER (Mernda) .- I ask the indulgence of the Committee for again intervening in the debate. I do so because, although I have already spoken at considerable length, I found it impossible on that occasion to deal with two or three matters to which I had intended to address myself. 1 wish now to supplement my previous address in order that my proposals may be before' honorable members in a complete form. Before doing so, I wish to say that honorable members must agree that t,he representatives of Tasmania who have addressed the Committee this morning have put a case before us which emphasizes very strongly the necessity for immediate action in the direction of taking over the States debts, the adjustment of our finances, and the termination of the account-keeping period. There can be no doubt that these are the questions of the hour, not only from the point of view taken by the honorable member for Franklin, but also in view of the absolute danger, looking a few years ahead, to which the financial credit of the Commonwealth and of the States is exposed, if the loans shortly falling due in the different States are allowed to mature without adequate provision being made to meet those obligations. There is another matter to which I wish, to' refer before I deal with the questions -upon which I rose to address the Committee. I informed the honorable member for Koovong before the luncheon adjournment that it was mv intention to allude to what I cannot but think an unfortunate remark which he made when addressing the Committee yesterday- It has been noticed in the press, and was to the effect that I had, rather ungraciously, he seemed to indicate, ignored his proposals.

Mr Skene - The honorable member stole his thunder.

Mr HARPER - Yes, that is the inference. I certainly did not steal his thunder, and he should not have made such a remark. As I endeavoured to remind nim at the time he made the statement, his suggestions, whatever their value- upon that point I give no opinion - are based on lines totally different from mine. He proposed to continue practically the present conditions by providing a body, elected partly by the States and partly by the Commonwealth, for that purpose. My object is the very reverse. I wish to do away with, the present divided management - to unify, not the States, as tha honorable member said, but their debts; and, by placing them in the hands of the Commonwealth, to avoid financial difficulties, and enable us to meet our creditors, so that we may bargain with them on equal terms, by preventing competition between the States in the money market. If I allude to two or three of the proposals of the honorable member for Kooyong, it will be seen how radically different they are from mine. For instance, he provides for an extension of the Braddon section, and thinks that the body which he would like to see created should have placed in its hands all surpluses of Customs and Excise revenue for the payment of interest, and should receive the railway revenues of the States, less actual working expenses; whereas I wish to free the States from interference by the Commonwealth, or any other authority than the States, with the management of revenues of their railways. He suggests the hypothecation of the railways of the States, or the placing, of a floating charge over them as security for loans, " to prevent misunderstanding with present or future bond-holders." In short, his proposal is for the creation of a body for the protection of bond-holders, whereas my object is to do away with the need for the Braddon section, and to adjust the finances of the States and the Commonwealth so that neither will have to make any material sacrifice. He proposes to hypothecate their properties, or to deal with them in some other way not explained. I wish to free them from interference. When I went into this question, I regarded it as deserving of the greatest consideration but the honorable gentleman's proposals were not in my mind. It is only since he called1 attention' to them in the Committee, in what

I think a somewhat ridiculous way, that I have looked into them, and I believe that if he himself had made a similar comparison he would not have uttered the remarks to which I am replying. There were three points dealt with in my memorandum to which I did not allude in my previous speech. The first was that, assuming that the line of action which I propose as a soluticn of all the financial difficulties were adopted, part of the settlement should be that the transferred properties should be assigned at once to the Commonwealth without payment. Some honorable members may regard that as a somewhat startling proposition, but when it is remembered that a considerable portion of the value of those properties is represented by the loans which under my proposal would be taken over, it will be seen that it would be absurd for the Commonwealth to take over the debt and to pay for the properties as well. It would, in fact, be paying twice. With regard to that portion of the value, which is not represented by loans, it is represented mainly by freeholds which for many years have been occupied by the authorities of the States for the purposes for which they are now used by the Commonwealth. Is it not equitable and reasonable if the Commonwealth takes over the whole of the debts of the States - making itself responsible, for example, for . the £80,000,000 borrowed iby New South Wales, and the £56,000,000 borrowed by Victoria - that the oroperties transferred by those States should be part of the consideration? These properties are not to be removed from the States, and are to continue to be occupied precisely for the purposes for which they were used under States control. The only difference is that there is a change of tenancy.

Mr Johnson - And of ownership, too.

Mr.HARPER. - We cannot dissociate ourselves! from ourselves. The Constitution Act establishes two sets of Governments. The States have federated for certain purposes, and remain independent for certain other purposes. This involves the transfer of certain buildings and properties from the States to the Commonwealth. The States having been relieved of the obligation of conducting the Departments of Government in connexion with which these properties are used, and the obligation having devolved upon the Commonwealth, no injury is done to the people of the

States by the transfer of the properties from State to Commonwealth control.

Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - The States claim that the value of the transferred properties per head of population differs considerably.

Mr HARPER - The -per capita consideration has no weight here. The properties which have been transferred have not been shifted, and are being used by those for whose convenience they ' were erected. New South Wales may have built more elaborate and costly court-houses and post-offices than are to be found in Victoria, or vice versa, but the fact that that State has a larger population than the other States is not a reason why it should be given a larger credit

Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - The fact that it has a larger population is not a reason, but the fact that it has more properties per head of population may be.

Mr HARPER - It does not seem to me that, because some States may have more properties! per head of population than are possessed by other States, the Commonwealth should be charged on that account now that they have federated. The people of the States are using these properties just as they did prior to Federation.

Mr Johnson - There is a distinction between State and Commonwealth ownership.

Mr HARPER - I decline to admit that there has been a change of ownership, except in one sense. The Commonwealth' is carrying on the business of certain Departments of Government, and it has therefore been necessary to transfer to it the properties and appurtenances which are requisite for the performance of these functions. These properties, however, remain where they were erected. They are not taken from one State and given to another.

Mr Johnson - The same principle would apply to the land of the State - the land would still be there, but the Commonwealth could control it.

Mr HARPER - That is altogether irrelevant, because we have nothing to do with the land of the States, My contention is that it would be reasonable to hand over to the Commonwealth properties the expenditure upon which has been met partly out of the loans for which it is to assume the responsibility. The other properties upon which no loan expenditure has taken place should be included as a part of the bargain, because they are used by the Commonwealth primarily for the benefit and convenience of the people of the different States. If this course were adopted, we should overcome all the troublesome business of settling values. The next matter I shall refer to is the proposed transfer of the Northern Territory to the Commonwealth. My contention is that if the proposed arrangement as to the transfer of the States debts to the Commonwealth is carried out, the Territory should be handed over to the Commonwealth as part of the arrangement, without any payment to the State chiefly concerned. Some representatives of South Australia seem to be rather astonished at my proposal, but I should like to direct attention to the position in which the Northern Territory stands. The correspondence which has passed between the Commonwealth and States Governments includes a paper signed by Sir Frederick Holder, dated 18th April, 1901 - Parliamentary paper 943 - from which it appears that the Northern Territory is charged with the cost of the overland telegraph line, and a railway from Port Darwin to Pine Creek, 150 miles in length. The cost of this railway is said, on page 3 of the paper, to be £452,713, and on page 4 to be £1,013,200. I cannot reconcile the two amounts. It is stated upon page 4 that the overland telegraph line cost £462,000. The bonded debt of the Territory was then £2,114,000, and the cash due to the South Australian Treasury on account of temporary advances £738. Since then the debit against the Territory is said to have been increased to £3)45°>298 by the addition to the debt of interest chiefly. The Territory has been in the hands of South Australia for about forty years, and during that period the revenue of the possession has never been sufficient to defray the working expenses. There has been an annual deficiency in working the Territory, apart from the interest payable upon loans and advances. The interest charge which has to be met by South Australia amounts to between £80,000 and £90,000 per annum. So far as I can ascertain the South Australian Government are allowing the deficiency to accumulate. They are debiting the interest in their books to the Northern Territory, and they are asking the Commonwealth to pay them something like £3,400,000. As a matter of fact, they acknowledge that the bonded debts amount to something over £2,000,000, and that the remainder of the debit is the balance due to the Treasury of South Australia, which has borrowed the money so that this Treasury debit against the Territory practically forms part of the debt which we are proposing to take over. In the event of the Commonwealth taking over all the debts of the State, including those of the Northern Territory, I should like to know upon what principle South Australia can ask us to pay the sum mentioned ?

Mr Glynn - They could not possibly debit the Commonwealth twice.

Mr HARPER - When it is understood that we are taking, over the whole of the States debts, including the debts of the Northern Territory, and the debts which the South Australian Government have contracted in order to meet the annual deficiency in the Northern Territory account, the State can have no claim to special payment for the Territory.

Mr Glynn - But the Northern Territory debt must not be debited to South Australia.

Mr HARPER - My point is that if we take over the States debts, which include that incurred in connexion with the Northern Territory, we should not be called upon to pay for the Territory over again.

Mr Glynn - It is a matter of bookkeeping.

Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - The question is as to how the interest would be debited afterwards.

Mr HARPER - That is another matter. If the Commonwealth were to assume the obligation to pay in future the interest upon that portion of the debt represented by actual outlay for works, such as the Railway, incurred in connexion with the Northern Territory, as well as undertake the management of the Territory in future, South Australia would be enormously relieved. The Commonwealth should not, however, be charged with interest lost by South Australia in the past. With regard to the Western Australian railway, there can be no doubt that that State has a right to special consideration. That has been admitted all round. Western Australia has raised a much larger revenue "per capita than any other State. Their contribution from the Commonwealth, claimable by the State under the Braddon section, leaves them a balance of something like £229,000 over and above the amount necessary to pay the interest on their debts.

That condition of affairs, which I admit will not always continue, gives Western Australia a claim to special consideration. If they want their railway - and I think they are entitled to it - they would, under my proposal, practically contribute towards the interest upon the cost of its construction something like £2,180,000. That is to say, they would be entitled to an annual payment by the Commonwealth ' amounting to £229,303, till 1910, which I propose to reduce thereupon, cumulatively, by 5 per cent, per annum. The total amount payable to them for the twenty-year period would be about the sum above named. My proposal is that the- Commonwealth should borrow the money for the construction! of the railway - assuming that it would cost not more than £5,000,000 - and instead of making the above payments to the State, pay the interest upon the debt, and the sinking fund in respect to it, for a period of, say, fifteen or twenty years. The Commonwealth contributions at 3J per cent, would equal £175,000 per annum. Thus, during twelve and a half years, the cost to the Commonwealth would amount to £2,187,500, or about the amount which Western Australia would be entitled to receive from the Commonwealth in twenty years. In fifteen years, the minimum period mentioned in my scheme, Western Australia would receive an additional amount of £437,000 ; or in twenty years, the maximum period, £1,312,500. This, as may be arranged, would give them a solatium in acknowledgment of their position as differing from that of the other States. If, under my scheme, we could settle not only the great financial questions to which I referred on a former occasion, but the. three thorny questions, to which I have referred to-day, would it not be a great achievement ? I am extremely gratified with the reception which has been accorded to my proposals. I have to thank the honorable member for North Sydney and others, not only for the sympathetic mariner in which they have dealt with them, but for the suggestions which they have made as to the way in which they might be improved. Unfortunately, I only obtained last night a copy of the speech which was delivered upon this question bv the honorable member for North Sydney, and I have not yet been able to master it. I intend to do so. It seems to me, however, that the difference between the honorable member and myself is a comparatively small one. It is not a difference of principle, but one of detail. The honorable member does not see his way clear to support the taking over of the whole of the States debts immediately.


Mr HARPER - The honorable member wishes to limit the proportion of the debtstaken over to an amount the interest upon which would absorb the amounts returned to the States under the Braddon section. I have not yet had time to examine his suggestion, but I shall give it every consideration, and I think I may be able to show him that, for other reasons, it is desirable for the Commonwealth to take over all the debts of the States, and to pay all the interest upon them. During the course of this debate, the honorable member for Bland, and the honorable and' learned member for Northern Melbourne, raised a point which, I think, has been amply answered by the honorable member for Franklin, and the honorable member for Denison. They objected to the Commonwealth announcing that it intended to take over the whole of the States debts, either under the Treasurer's scheme or under my own, or under that outlined by the honorable member for North Sydney, upon the ground that it would have the effect of enhancing the value of existing stocks. That argument mav have been sound enough at the period when it was believed that we could effect a great conversion - that, by means of the Commonwealth credit, we should be able to say to the holders of 4 per cent. State bonds, " We will give you 3 per cent. Commonwealth bonds in lieu of the stock you now hold for a very small consideration." Even when that suggestion was first made, financial men were agreed that it was impossible to effect any such saving, and the recent inquiries of Mr. Coghlan and others show that it is quite out of the question.

Sir John Forrest - I stated the opposite. I said that we should be able to effect a saving on conversion, but that we should not put the Commonwealth brand upon any stocks until they were about to mature.

Mr HARPER - That is substantially the same thing.

Sir John Forrest - The honorable member urges that we should put the Commonwealth brand upon all stocks at once.

Mr HARPER - Under my proposals we practically say to the bond-holders, "We do not wish you to convert. When your bonds fall due you will only get their face value. We will wait until they mature." But, assuming that the Commonwealth becomes strong financially, that need not prevent it - in times of depression in Europe - from buying up some of the stocks of the States when they fall below par.

Mr Henry Willis - But they are chiefly in the hands of trustees.

Mr HARPER - If they are in the hands of trustees, they will be held until they fall due, when the trustees will receive 20s. in the £1 for them. But if, in the interim, anybody has stock to sell under par, the Commonwealth should purchase it. For instance, if a convulsion took place in Europe, and 4 per cents., which are worth £105 to-day, fell to £95, we should purchase them if we had the money to do so. That would be a proper thing to do, because we should save five points. The worst that could happen to us would be that, when the bonds fell due, we should have to pay 20s. in the £1 for them. That argument, however, ought not to weigh one iota with us now. We are prepared to pay 20s. in the £1 for our bonds when they mature, but if they can be purchased in the interim at a satisfactory rate, we hope to be in a position to purchase them.

Mr Henry Willis - Where would the honorable member get the money with which to convert ?

Mr HARPER - If the honorable member will read my scheme he will see. We shall have to borrow it. If we have loans to meet, we hope that we shall be able to borrow the money at 3 per cent., and to take them up when they fall due by paying the bond-holders 20s. in the £1, unless thev are willing to accept 3 per cent, bonds at a figure which is satisfactory to us.

Mr Henry Willis - But I am thinking of the monev that may be available before the bonds fall due.

Mr HARPER - The honorable member must see that immediately the scheme is launched we shall begin to make savings. Mr. Coghlan estimates that within five years we shall be savinsr £273,000 in interest uoon loans which will fall due at the end of that period. That in itself is a fund. He further savs that at no very distant period we shall have . £1,370,000 per annum coming in.

Mr.Henry Willis. - That is assuming that the Commonwealth holds the profit which is made upon those bonds.

Mr HARPER - 1 have been replying to questions put by the honorable member, and thus have been led away from my subject. It has been suggested in the newspapers - and the honorable member for Denison alluded to it to-day - that the Commonwealth may not be able to save the difference between 3 per cent, and 3.6 percent. The basis of my calculation is that by doing so the Commonwealth will acquire a fund which, in sixty years, will wipe out the whole of the States indebtedness. Now the question arises : " Will' the Commonwealth be able to borrow at 3 per cent. ?" ' In my paper, I point out that it is quite probable - and, in this particular, I am following the view which is entertained by Mr. Coghlan - that at first the Commonwealth may not be able to borrow at 3 per cent, at par. But in time it will be able to do so. The success of my scheme does not depend upon a saving of . 6 per cent. That is to say, the scheme, as a scheme of finance, does not necessarily mean that. If the Commonwealth does not make that margin, all that will happen is that we shall not pay the debts off so quickly. But whatever margin we make, . 6 or . 3 per cent., it is a saving which will sooner or later pay off the debts."

Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - Or we could do it by means of a sinking fund of ir per cent, as we reissued the substituted loans.

Mr HARPER - We could do that. I agree with the honorable member that if we received J per cent, sinking fund from the States on each of their loans as they mature, we could effect our object. But my object is, so far as the existing debts are concerned, to remove the whole responsibility for them from the States, and that the Commonwealth should take the whole of that responsibility by taking from the revenue not more than the amount the States are paying to their creditors for interest. Whatever saving the Commonwealth could make, it would apply, not to its own expenditure, but to wiping out the debts. It may be that, owing to a high money market, or some other cause, the Commonwealth might not ibe able to . make so large a saving as . 6 per cent. In that case it might take eighty years instead of sixty to liquidate our indebtedness. But that does not alter the scheme. It simply means that we should be longer in paying off the debts. My object is that the debts of the States shall not in any way involve them in any further difficulties whatever, and to attain that end without interfering with the current revenue of the States. That is to say, the administration will cost no more than it is costing the States now - it will, in fact, probably be a great deal less than the States collectively may be compelled to pay. I notice that Mr. Bent yesterday secured the passage of a Bill to float his loan at up to 4 per cent. I feel assured that unless something is done by the Commonwealth Government to take over the debts, it is probable that instead of the States having, as at present, to pay on the average 3.6 per cent, they will have to pay 4, possibly 4^, per cent, for their renewed loans. The danger of the position is most serious. Our creditors know our necessities. They know as well as we do when our loans are falling due. They know that each of the States will have to come .and ask them for money to renew. The management of financial affairs in London, as my honorable friend the Treasurer is well aware, is confined to a comparatively small circle. You cannot get outside of it; and if our creditors know that we have to renew loans for, say, £15,000,000 in one year - the States collectively will have to renew £31,000,000 in 1 92 1 - can any one say that under the ordinary rules of the market, if there is a large demand for money, the lenders will not make the most of their opportunity? It therefore behoves us to take this question seriously. It should be taken up by the Commonwealth Parliament without delay, before the big loans mature. We have, as I have shown, large renewals to make, and the Commonwealth ought to be well in front of the danger, and be prepared to pay the lenders their money, or to renew on favorable terms. Whenever lenders know that a borrower is in a strong position, so that they cannot corner him, they will be much more likely to come to terms which will be satisfactory. If they will not come to terms with us we ought to be in the position to pay them.

Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - Does the Minister intend to deal with the matter this session ?

Mr HARPER - I have not asked him. It is due to the Treasurer that I should acknowledge tha- he has been very fair in this matter. He had made up his own mind on a certain line of action, and at a later stage another view was put before him. He has considered it. I have not pressed him as to what he intends to do. Probably the matter has been made a little clearer than it was before. At all events, my right honorable friend has had the advantage of hearing the opinions of honorable members, and will therefore be in a better position to deal with the question. It is not a matter entirely for the Treasurer. It is very much a matter for the members of this House. If honorable members are in earnest about it, they will make their weight felt by the Government. And there is a very much more important consideration, namely, to get these proposals understood to be equitable and fair to the States - to get the States Parliaments and Governments to understand them, and be prepared to accept them. It is because I believe that a complete system on these lines would end the entanglements between the States and the Commonwealth Government ; that it would place the States Governments in a position of absolute freedom to deal with their public works as they chose; that it would free them from any apprehensions about their debts ; that it would enable them to deal - under the conditions imposed in my scheme, or similar conditions - with the question of incurring fresh liabilities for new works, the Commonwealth Government being the only borrower in the London market; that it would enable the States to get money for such purposes at the lowest rate of interest current from time to time - because of all these advantages, I urge that the matter should be considered without delay. Mv honorable friend the Treasurer, at the opening of his Budget speech, said that we had not yet learned to think Federally. I agree that we have not. But this is the kind of thing to make us think Federally. If we can show by our administration that the Commonwealth can, without trenching upon the resources of the tax-payers of the country more heavily than is done at the present time - or without substantially imposing fresh liabilities upon them - so finance for them that it can release them from their liability for their debts, and can also provide enough money to meet the debts when they are due, I think most people in Australia will' say that Federation was a good thing after all. If it did nothing beyond this, they would realize that the union had been justified. My scheme would, at the same time, enable the Commonwealth Parliament to pursue its own policy free from the perplexing considerations which hinder it at present. When, for instance, such a proposal as penny postage is brought forward, we are told that it would so completely punish the Treasuries of some of the States that the people of those States would immediately say, " It is all very well for the Commonwealth to do this; we should like it very much ; but we cannot afford it." I want to get into such a position that the Commonwealth will be able to institute penny postage or any other policy that it thinks desirable, without any . State feeling that it is being impoverished. The States would, of course, know that they were paying for it, but, the burden being divided over all of them, it would not be felt in the keen way in which it is now. By that means we shall knit together the citizens of the Commonwealth, and make them feel that, after all, the boundaries of the States are practically imaginary lines, and that we are all one people. It is only by the prevalence of this spirit that we can hope to build up a great and enduring Federation, which will attach to itself a feeling of affection and patriotism, and lift us above the small petty States' rights idea, which I am sorry to say exists to such a large extent to-day.

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