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Tuesday, 21 August 1906

Mr HENRY* WILLIS (ROBERTSON, NEW SOUTH WALES) - I should be satisfied to take the security of any qf the States.

Mr Bamford - The security is all right; but what about the interest?

Mr HENRY WILLIS - The investment would not be a good one if the interest were not certain to be paid; but it always has been paid, and always will be paid. Honorable members, of course, know that Commonwealth stock would be no safer than State stock, and the financiers of England who work our loans, getting per cent, for underwriting and selling our stock, and advising persons to invest in it, know as well as we do that the States' stock is as good as Common.wealth stock would be. But timid outsiders, wishing to invest as trustees, would prefer Commonwealth stock to States' stock, and would be glad to get 3 per cent, stock. Trustees are not like beneficiaries, in that they do not look round for the highest interest obtainable. What they consider chiefly is the security of their investments, and the Commonwealth stocks would be preferred to State debentures.

Mr Cameron - Has Australian stock ever been taken up at par?

Sir John Forrest - Yes. Western Australian stock has realized as much as L100 1 6s. per cent.

Mr HENRY WILLIS - Why was. that? Because there was a sinking fund. No scheme is worth considering unless provision is made for a sinking fund. Each of the States which, whilst they were languishing, issued loans at a high rate of interest should receive the full benefit derived from the conversion of their stock and the 'reduction of the rate of interest. It appears that the Treasurer has been advised that a favorable time for the conversion of the States loans into Commonwealth stock would be when a considerable amount of States stocks are within a reasonable period of maturity, and that the stocks, when converted should be called Australian consols. That is suggested by the brokers, who desire to have further opportunities of reaping a large reward. They say, " Don't convert the stocks until the loans are due." But that would not be financing. We should be merely playing into the hands of those who have the. money to lend, The bond-holders who had their money to re-invest would know that we were hobbled, and would tell us that our loans would have to be underwritten at a cost of lj per cent. They would inform us, further, that interest rates were not so low as: they formerly were, nor so low as they had expected, and would probably demand at least 4 per cent. The financiers in London take up exactly the same attitude as is adopted by bankers. If they know that you must have money they will make you pay a much higher rate of interest than if you show them that you are in an independent position. Then it is proposed that the consols should be issued at 3 per cent, for a period of thirty years. There is no necessity for fixing a minimum period. If they are to be permanent stocks, there is no need to limit the term within which they can be redeemed.

Sir John Forrest - That plan is followed in England.

Mr HENRY WILLIS - In England a minimum and a maximum were fixed within which the stocks could be redeemed. '

Sir John Forrest - The present Imperial bonds had a currency of thirty-five years.

Mr HENRY WILLIS - Yes, but those are bonds which have been converted in England.

Sir John Forrest - Mr. Coghlan is of the same opinion as I am with regard to fixing a period to begin with. .

Mr HENRY WILLIS - Yes. I think that he suggested a term of twenty years. He has taken his idea from the English system. I have a better plan to propose, and I say that it is not necessary to fix any term. It is further proposed that the States should pass Acts making a permanent appropriation for the payment of interest on the loans. That is a proper provision to make to safeguard the Commonwealth. It is desirable that an Appropriation Act should be passed for the payment of the balance of interest without any hypothecation, and without the Commonwealth having to act as a pawnbroker, as suggested by the honorable member for Koovong, or without resorting to the plan proposed by the honorable member for Mernda, namely, that loan proposals should be submitted to a board, and that any shortage in the interest payment should be made good by the appropriation of revenue derived from reproductive public works payable to a receiver. The methods indicated by those honorable members are not such as should be adopted in grappling with a great question of this kind. They have never been followed in England, and there is no necessity to resort to them in Australia. The people -of the States and of the Commonwealth are the same, and they will have to pay the interest upon the loans. No security beyond the good faith of the people and appropriations by Act of Parliament has hitherto been given, for the payment of the States debts. If there were any default on our part we should probably have a receiver placed in charge of our revenue-producing Departments - a plan which has been adopted in other countries which have failed' to meet their financial obligations. All the States debts should be taken over by the. Commonwealth as soon as possible. But the Treasurer proposes that the debts as existing at the time that Federation . was established should first be taken over, and that afterwards the balance should be dealt with.

Sir John Forrest - I would take over the whole of the States debts in one operation, but I could not do that unless the Constitution were amended.

Mr HENRY WILLIS - The Treasurer suggests -

That the State debts, " as existing at the establishment of the Commonwealth," amounting to about 202 millions (as provided 'by Section 105 of the Constitution), be taken over as soon as possible.

That the balance of the total existing State debts., amounting to about 35 millions, be '* taken over," so soon as an. amendment of Section ros of the Constitution, enabling it to be done, is obtained (vide par. 8).

Sir John Forrest - But if the honorable member will look at paragraph 8 of mv proposal relating to the taking over of'the States debts, he will see that I propose that legislative provision should be made for the taking over by the Commonwealth of the whole of the existing States debts.

Mr HENRY WILLIS - Yes; but my complaint is that the Treasurer is going to make two steps instead of one.

Sir John Forrest - That is because I want to get along a:» quickly as possible, and not wait for the necessary change of the Constitution.

Mr HENRY WILLIS - How will the Treasurer get on if he does not secure the necessary authority from the States to take over the balance of their debts? My contention is that he should not begin until after he has obtained such authority.

Sir John Forrest - The State loansare continually falling due.

Mr HENRY WILLIS - Yes," arid for that very reason the States will probably: be willing to give the necessary authority at this stage. If the States can get om without us they will do so. The jealousy of the Commonwealth that exists in the States . is appalling. It has reached such a stage in New South Wales that the presence of a member of this Parliament, who, as a citizen, joined in a deputation to a State Minister was recently objected to. I am ashamed to. say this, but nevertheless what I state is a fact, related to me by the honorable member himself. The States will never come to the Commonwealth with a view to obtaining its assistance in regard to their loans if they feel that they can get along without doing; so. If, on the other hand, they do . not enlist our aid, the consequences will be calamitous. A Londonfinancial clique might meet upon an hour's notice and decide to demand a higher rate of interest, and the States would have no alternative but to pay it, in order to obtain, a renewal of their loans. If, however, the Treasurer is granted the authority which he proposes to seek, the results will be beneficial to all the States. Then the Treasurer says that the States must pay the interest on their debts until they are converted, and1 that afterwards the Commonwealth shall be solely liable. This is half-hearted, it would be statesmanlike to complete the business at once. When the debts are assumed by the Commonwealth, the Treasurer will deduct each year from the sum payable to the States an amount sufficient to meet the interest on their debts. That is a perfectly sound proposition; but it provides only for the debts existing when the Constitution Act was passed. The Treasurer further proposes that section 87 of the Constitution - the Braddon section - should not be continued beyond the 31st December, 1910. I think that the operation of the Braddon section should terminate at once.

Sir John Forrest - It would be necessary to amend the Constitution.

Mr HENRY WILLIS - I am perfectly aware of that. We are dealing with over £200,000,000 of loans. This is the people's business, and if we tell' them what an amendment of the Constitution will mean, they will readily acquiesce in the proposal. The Constitution is theirs, and it is their business that we are managing, and, as the majority of the electors are sensible men, they will probably see the necessity of agreeing to the proposal.

Mr Poynton - What would the honorable member substitute for the Braddon section ?

Mr HENRY WILLIS - In the first place, I should ask the electors to consent to the immediate transfer of the States debts to the Commonwealth, and also to the immediate termination of the operation of the Braddon section. Then I should propose to make to the States a -per capita allowance from Commonwealth revenue at a uniform rate, and upon a liberal scale, so that none of them, with the exception of Western Australia, should receive less than they are now being paid. Western Australia is a comparatively young State - her present Constitution has not been in existence for more than fourteen1 years. She has a population largely composed of adult males who have gone over from Victoria, New South Wales, and other States, and have left their wives and children behind them. These adult males consume a much larger proportion of highly dutiable goods than do their wives and children and other relatives, who are in the eastern States.

An Honorable Member. - The excess of adult males over the other elements in the community is gradually being diminished in Western Australia.

Mr HENRY WILLIS - And, consequently, the rate of revenue per head will decrease, and gradually come down to the level of that derived in the other States. In mv opinion, the time has arrived when the bookkeeping provisions and the Braddon section of our Constitution should be terminated, so that every State may be benefited by improved conditions of trade. It has been said that New South Wales and Victoria benefit the most from Federation, because goods which are consumed in other States of the union are required to pass through them. Why is that so? Do not the people of the other States obtain their goods cheaper in that way ? If those goods reached them direct, as thev did formerly, they would be called upon to pay more for them. My proposal is that the Commonwealth should take over the whole of the States debts, and convert them into 3 per cents. The Commonwealth stocks, being of that denomination, public opinion in the States would furnish a guar- antee against outside borrowing on their part at higher rates of interest. I hold that any State which required to raise money should come to the Commonwealth for it. It would be to its advantage to do so, because it would thereby obtain it al 3 per cent. Of course, a sinking fund would be established, and that provision would make the security of the Commonwealth more acceptable to the investors in England. I think that the Commonwealth should take "over not only the States debts which ' were contracted prior to Federation, but those which have since been incurred, and I am of opinion that all future loans required by the States should be raised by the Commonwealth.

Mr Cameron - The States would have to ask the Commonwealth to raise loans for them ?

Mr HENRY WILLIS - Yes. But no embargo should be placed upon them in that connexion. It is idle to urge that the States would be able to extravagantly float loans, seeing that t{he interests of the same people would be concerned, and that they would be closely safeguarded by the same press, which would act as a watch dog. They would not be permitted to ask for money recklessly. Public opinion would prevent that.

Mr Poynton - Does the honorable member call the press a watch dog?

Mr HENRY WILLIS - I do. The press is a most valuable institution. If it were not for it, the people would be absolutely ignorant of the. events daily transpiring throughout the world. They get their news served up to them at breakfast time in the most condensed and attractive form, and, upon the whole, the newspapers are well advised. Thev could not live if the people were not behind them, trusting them.

Mr Cameron - How many lines will they devote to the honorable member's speech to-morrow ?

Mr HENRY WILLIS - They have given up taking notice of me. However, I am not fishing for any notice in the columns of the newspapers. The press in my own electorate report my speeches in full, and that is all I care about. I suggest that a sinking fund should be established in connexion with every existing debt,' and with every debt which may be contracted in future by the States. Such a proposal is not a new one. The British Government today are advancing £100,000,000 to the Irish people, and are offering a 12 per cent. inducement to the .large land-owners to sell their estates. There is an impression abroad that this money is in the nature of a free gift to the Irish people. It is nothing of the kind. The scheme is that the Irish tenants- shall repay the amount advanced with interest added, and a small percentage to a sinking fund. The Local Government Board in England perform the very same functions as would be discharged by the body the creation of which has been suggested by the honorable member for Mernda. At the present time, any municipality throughout England or Scotland which desires to raise money - and many of these bodies have raised as much as £10,000,000 - are required to make application to the Local Government Board. The purpose for which the money is wanted is investigated, and, if approved, the money may be borrowed ; but a sinking fund has to be opened to provide for the liquidation of the debt. The system has been in existence in the old country} since the eighties. Under the scheme of the honorable member for Mernda, a sovereign State of the Commonwealth would occupy a position similar to that occupied by a municipality in Great Britain. He proposes that a State desiring to float a loan should* make application to Public Debts Commissioners. If there were many applications received about the same period, it would indicate that the time was not opportune for floating a loan, or that the works scheme was not approved of, and the power to borrow refused. Such a proposal the States could not entertain. Under an acceptable scheme the Commissioners would say to the State. " You shall have the money," and the Slate would then b'e responsible to the Commonwealth just as it was to the money lender direct.

Mr Poynton - But who would be di- recti v responsible?

Mr HENRY WILLIS - The Commonwealth. T would make the States a liberal allowance -per capita. At present the amount averages about £2 4s. We could fix it at £2 6s. if we thought 'it necessary to do so.

Mr Cameron - How would the honorable member raise any further sum that might be required after the Customs revenue had been exhausted?

Mr HENRY WILLIS - I cannot conceive of the Customs revenue being exhausted if we have an increase of population.

Mr Cameron - The honorable member would not ask for any security from the States ?

Mr HENRY WILLIS - Certainly not ; no more than is now given to bond-holders in England. With the abolition of the Braddon section of the Constitution, the States would have no claim whatever to the Customs and Excise revenue. It would then be within the discretion of the Commonwealth to allow the States £2 6s. per head of population.

Mr Cameron - What about future loans ?

Mr HENRY WILLIS - Any future loans required by the States would be raised by the Commonwealth. There is no more likelihood of the former going back upon the latter than there is of their going back upon the bond-holders in England. If a State requires money for developmental purposes, it ought to be in a position to obtain it. We cannot expect the States to abandon a progressive policy of public works. They have the railways, and those railways must be pushed into the country, in order that it may be properly developed. But we must not encourage the States to go into the London market where we shall have a footing and pav more than they need to pay. If they could obtain locally what they wanted at 3 per cent., they would not think of going into the London market. An understanding should be arrived at that they should' take action through the Commonwealth.

Mr Cameron - The honorable member is taking it as an accepted fact that we should be able to obtain at 3 per cent, all the money we needed. As a matter of fact, we could not do so.

Mr HENRY WILLIS - It is all very well for some persons to make that statement. Those who are at present deriving considerable revenue from the managment of our public debts tell us that we could not hope, by any consolidation, to secure what we needed at 3 per cent. As interested parties, it is natural that they should make such statements, but we know what Canada has done in this direction. She issues s\ per cent, loans, and, although those loans are not floated at par, the price obtained closely approximates to it. If we at once took over all the debts of the States, and issued 3 per cents., it would lae necessary for us to offer an inducement to bond-holders, who think as1 we think, that a State security is as good as a Commonwealth one, or they would not convert their Stocks.

Sir John Forrest - If we are to offer them an inducement, how are we to effect a saving?

Mr HENRY WILLIS - I will explain that point. We must not lose sight of the fact that we have to deal with men who know that their present security is satisfactory. As Mr. Coghlan points out, when we ask these men to exchange their 4 pei cent, stocks for 3 per cent, stocks1, we must offer them some inducement.

Sir John Forrest - Then we shall not effect a saving. When the stocks are approaching maturity, we shall be in a better position.

Mr HENRY WILLIS - What is the inducement we must offer? If we asked the bond-holders to accept a 3 per cent, for a 4 per cent, stock, which had only a year to run. we should give them little more than £100 for their bonds.

Sir John Forrest - But, supposing that the stocks had still thirty years to run?

Mr HENRY WILLIS - In those circumstances, if we wished the bond-holder to take a 3 per cent, for a 4 per cent, stock, we should have to give '.. something which would in the aggregate raise the same amount as would be raised by the 4 per cent, stock, that is to say, we should offer the actuarial value of a 4 per cent., current for thirty years, in a 3 per cent., stock.

Mr Cameron - If we did that, we should increase our national debt.

Mr HENRY WILLIS - No, not in value, merely denomination. But does not Mr. Coghlan tell us that we must offer an inducement? The inscribed stock would' sell more readily in some quarters and the holders of such stock would benefit on 'Change. We could' not gain on their stocks nor could we lose by the conversion.

Sir John Forrest - He does not advise us to do so.

Mr HENRY WILLIS - Will the bondholders agree to exchange a 4 per cent, for a 3 per cent, without inducement if they think, as we do, that their existing security is sound?

Sir John Forrest - We do riot propose to convert any loan until it is nearing maturity, unless a satisfactory offer is made in any case.

Mr HENRY WILLIS - It is in that respect that the right honorable gentleman makes a mistake. If we ask the bondholders to accept 3 per cent, for 4 per cent, stocks, we must give them something that will be equivalent to the difference in the ' percentage.

Sir John Forrest - Then what advan-» take shall we derive?

Mr HENRY WILLIS - We should gain upon every loan maturing from 1907 till existing loans had run their fixed, period under the actuarial valuation,, as from that period the stocks converted would cost the Commonwealth nothing. In respect of every bond current, we should give an inducement on paper by inscribing our stock. We should in that way raise the value of that stock, whilst at the same time we should reduce the interest bill on loans maturing, providing for a sinking fund of \ per cent., which in sixty odd years would wipe out the face value of the accumulated debt. Under this system we should pay nothing more in respect of interest, although we should appear to pay a little more on paper. When our bonds fell due we should redeem them at their face value. This is not a new scheme of finance in, principle. Let me remind honorable members of the position in regard to banking institutions which are paying 10 per cent, on £25 shares. Prior to the financial crash, the shares of the Bank of New South Wales, , which were issued at £25 each, ran up to about -^"65, whilst those of the Commercial Banking Company sold as high as £110 each. I well remember having dealings in them at that price. The bank was paying 10 per cent, and 12 per cent, dividends, as well as bonuses, and the security was considered to be as good as was a 5 per cent, or 4 per cent, or 3 per cent. - stock. If the Treasurer followed the proposal T have outlined, his 3 per cents, would be floated at once, and the stock's would increase in value to the consequent advantage of holders. Financial people doing business in Australian stocks would find it to their advantage to favour this inscription and conversion. They would be able to reap a large profit, since the Commonwealth, stock would be held in high esteem by the general public

Sir John Forrest - We desire to secure some of that profit.

Mr HENRY WILLIS - We cannot possibly hope to benefit in that regard. If I hold a 4 per cent, bond issued by. the right honorable gentleman, I certainly should not exchange it for a 3 per cent, one, unless it were to be made of equal 1 monetary value.

Sir John Forrest - I should pay off » the honorable member when the bond matured.

Mr HENRY WILLIS - Yes, and probably then have to pay 4 per cent, for the money. Although Mr. Coghlan has not worked out his scheme on the lines that I have followed, the same principle will apply to both. Our bonds would be taken at par, or would practically be at a premium. As pointed out by Sir Edward Hamilton, the Commonwealth will reap the benefit of the conversions when our bonds become popular, and they certain:] y would become, popular if this scheme were carried out. The Treasurer has told us that a minimum period is fixed in respect of Imperial loans, and he proposes that the Commonwealth should fix a. minimum of thirty years.

Sir John Forrest - I think that the minimum in England at the last conversion was thirty-five years.

Mr HENRY WILLIS - Quite so. Mr. Coghlan suggests that we should fix a minimum of twenty years. In dealing with current bonds, we should stipulate that when converted they should have a * currency equal to the period for which they were issued, before the power to redeem could operate, . and at the end of that period we might give six months' notice of our intention to pay. In England a minimum and maximum period was fixed in respect of the issue of 3 per cents., and the stocks were taken up as trustees' investments. It would be unnecessary for us to fix a period in respect of new loans, because they would be dealt with in the same way as are those floated by the Imperial Government. The Treasurer has informed us that the interest on consols is paid > quarterly, while that on the Australian register is paid half-yearly. I think that in taking over the debts of the States, the Commonwealth should agree to pay the interest quarterly. When Mr. Goschen proposed his great conversion scheme some years ago, he intimated that he intended that the interest should be paid quarterly instead of half-yearly, and this led many persons to favour the conversion. A man having only a small income naturally desires to secure the prompt payment of interest on any security which he holds. I think that I have made my position clear. If we ask the holder of a bond worth £100 at 4 per cent, which has a year to run, to accept a 3 per cent, stock in exchange for it, we must offer him a little more than £100 for that bond. No doubt such a system would cost us a little more on paper j| not more, however, in payment; but the States would be required to establish a sinking fund of J per cent, from the period of renewal, and the result would be that, on the average, they would pay less than they are now doing. According to Mr. Coghlan, their present average rate of interest is 3.7 per cent. But what is the position of those States which have launched loans at 6 per cent? What a substantial benefit would accrue to them from the conversion of those loans by the Commonwealth. I hope that the Treasurer will continue to give this question his closest attention, and that the Government will seek the authority of the people for an amendment of the Constitution enabling the Commonwealth to take over all the debts, and abolishing the operation of the Braddon section.

Mr Poynton - How would the honorable member deal with the States in respect of the transferred properties?

Mr HENRY WILLIS - That is a question that I have considered, although I had no intention of referring to it at this stage.

Sitting suspended from 6.JO to 7.30 p.m.

Mr HENRY WILLIS - The honorable member for Grey has asked me for my views as to what. should be done in regard to the properties transferred from the States to the Commonwealth in connexion with the transfer of certain Departments of Government. I had not intended to deal with that matter at this juncture, but I have looked into it, and am of opinion that these properties should be legitimately valued, and 3 per cent, interest allowed to the States on that value, with a sinking fund of \ per cent., which, in a little over sixty years, would extinguish the original debt. It must be remembered that these properties were constructed largely out of borrowed money, on which the States are still paying interest. Some of the smaller States cannot afford to lose this interest, and, therefore, the Commonwealth should either pay rent for the properties, or interest in the way I have described.

Mr Brown - Some of the States wish to be paid in full at once.

Mr HENRY WILLIS - That would not be a sound financial arrangement. The scheme I suggest would be similar - to that under which the Irish land purchases are being carried on, and the local governments of the United Kingdom are working, or practically the same as that adopted in New South Wales and other States in regard to the conditional purchase of land. With regard to the Northern Territory of South Australia, I think that it should be taken over by the Commonwealth, but that the Commonwealth should be responsible only for the loan money actually expended in its development, upon which, it should pay South Australia interest at the rate of 3 per cent., another £ per cent, going towards a sinking fund for the extinction of the debt in about sixty years. I have never declared myself in favour of the Western Australian railway, and shall not do so until I have consulted my constituents on the subject. In mv opinion, however, if the State of Western Australia is really anxious for the construction of that line, it should bear half of any loss arising from its construction, the other half being borne by the Commonwealth, which, as the railway would be of use for. strategical purposes, should also pay £ per cent, on the cost to establish a sinking fund for the liquidation of the debt.

Mr Carpenter - What about South Australia?1

Mr HENRY WILLIS - Assuming that the people of South Australia are opposed to the construction of the line, I do not know that they should be forced to bear any loss which may accrue therefrom, though, if there were a gain, the State should certainly share in it, as it runs through her territory.

Mr Brown - Would the honorable member apply the same principle to the main trunk lines of the other States?

Mr HENRY WILLIS - So far as the proposed railway from Oodnadatta to the South Australia border is concerned, that would be purely a State undertaking ; but if it became a white elephant through the taking over of the Northern Territory by the Commonwealth, it would be the duty of the Commonwealth to connect with the South Australian border the railway from Pine Creek, and the cost would, of course, be chargeable amongst the people of the various States, per head of population, as new expenditure. In conclusion, my proposal is that the Commonwealth shall take over all the debts of the States to date, converting them at 3 per cent, at par, or at any additional sum that may be required, J per cent, to be paid as a sinking fund for the liquidation of the debt within a certain period, which would be extended a little if the conversion were effected below par. I propose that the bookkeeping system should terminate within the next twelve months, as is provided for by the Constitution. When it terminates, we shall have Inter-State free-trade. It is unthinkable that there should be Federation . without Inter-State freetrade. There would have been no union in the United States, had it not been for the clamour of the public for that boon, and the late Sir Henry Parkes, when he stumped the country in favour of Federation, gave as one of the burning reasons for the movement the desirability of doing away with the barriers between the States. The bookkeeping keeps barriers in existence, every export and import being credited and debited like the transactions of a small retail establishment in a most vexatious and expensive manner. I would also wipe out the Braddon section, and give to the States a uniform allowance of 2s. 6d. per head of population. I would provide for the repealing of the Braddon section at the same time as the amendment of the Constitution, to give the Commonwealth power to take over the debts of the States practically to date. The debts having been converted, 'I propose that the States should borrow through the Commonwealth at 3 per cent., with a sinking fund of i per cent. There would, of course, be a certain amount of expenditure incurred in the raising of loans. Even Great Britain has to bear incidental expenses in this matter. This expenditure might slightly increase the period necessary for repayment, which would be a little over sixty years. There can be no question that money could be raised at 3 per cent., and that our stock would be popular in the market. That there should be a Commission to manage our financial operations goes without saying. A Commission of the kind is in existence for controlling the Irish land expenditure, in connexion with which £100,000,000 is involved, together with £12,000,000 for bonuses to landowners. The appointment of the. Commission must be part of any scheme. The

Commissioners would manage the loans, advise the Government, collect the Customs allowances for each State, and the balance due in interest upon loans debited to the States. Each State would pay interest on its own debt, and be responsible for its own liabilities only. The Commissioners would do the work which isi now being done by our financial agents in London. The present arrangements there, except in the case of South Australia, are very expensive. South Australia is doing her business in London more expeditiously and economically than any of the other States.

Mr Glynn - The Agent-General's report shows that.

Sir John Forrest - What evidence is there in regard to expedition?

Mr HENRY WILLIS - The work is done in the office of the State, and, although I have not the actual figures with me, I know that the expense is proportionately less than that incurred by the other States, who employ the governors of the Bank of England, the managers of the Westminster Bank, and a firm of financiers who divide the commissions between them. Twelve years ago, when I was in London, South Australia was just having its offices moved from Westminster to the East End, so that its representatives might be in the city proper, and manage the business of the State economically. They now do their work better than the work of the other States is done.

Sir John Forrest - I do not in the least degree admit that thev do it better.

Mr HENRY WILLIS - They do it at a less) cost. Of course, in any case, there must be a broker to go on the Exchange, and a banker to take charge of deposits, and to do the ordinary banking business. But, although South Australia has managed her business well, the States would do even better under the system which I propose. The financiers df England regard an Appropriation Act as affording ample security. If that is sufficient now, it will also suffice when the Commonwealth takes over the States debts. Therefore, -why should the revenue from railways or other public works be hypothecated, as suggested by the honorable members for Mernda and Kooyong? No such unsound proposals have ever been made by the financiers of England. The holders of the States stocks would be benefited by the proposed conversion, and our stocks would be boomed. We should give them something more in the form of inscribed capital, but pay them . less by way of interest. We should merely capitalize i per cent, of the present interest payment, and- give them the cash value in stock. The present bond-holders would be benefited, but not at our expense. They would make their gain out of those who wished to invest in 3 per cent. Commonwealth stock. Until recently, many persons have not been permitted to invest in States stocks, but they would be in a position to accept Commonwealth stocks as security. All they want is a sound' investment, and this would be provided by a Commonwealth stock. Our inscribed stock would be worth more during the first year than during the last year of its currency, because at the end of that term we should pay over merely ^100 for every £100 that we had borrowed That is all that the holders of the stock would get. If we contributed £ per cent, per annum to a sinking fund, we should be able to meet the loans as they fell due. The period would be variable, and that is why I do not fix any exact date. The Treasurer claims that great benefit would accrue to the States if their stocks were converted as they fell due. But we should not gain anything in the meantime. Why should' we object to the bond-holders making, something out of the stocks they hold, if we can also effect a saving ? If they could be induced to boom the stocks, we should every year derive more benefit, because we should obtain our money at 3 per cent, permanently. I think that I have submitted a thoroughly sound scheme.

Mr Wilkinson - Whose scheme is it ?

Mr HENRY WILLIS - It is a scheme similar to that which has been adopted in Great Britain, Canada, and the United States. It is a thoroughly sound financial scheme, which I have worked out to suit the requirements of the Commonwealth. If our 3 per cent, stocks were boomed they would become popular, and we should not object to some one else obtaining a benefit, not at our cost, but at the cost of the British public.

Mr Page - Was it not with the object of arranging for an advantageous conversion of the States debts that the Treasurer went to England ?

Mr HENRY WILLIS - Yes; and I have given the Treasurer every credit for the excellent work he has done. The underwriters complain that they have still in their safes some of our stocks, which they have been unable to unload, and they urge that we should not place any fresh' stocks upon the market just now, because if we do so they will not be able to underwrite them for us. If our stocks were boomed, however, the whole of the stock now lying in the safes of the underwriters would be placed on the market. Mr. Coghlan points out that loans amounting to several millions will fall due every year for forty-five years, and that if the States debts are consolidated at 3 per cent, at par there will be a saving to the Commonwealth when the loans expire of £1,375,000 - that is, if we allow the bond-holders an opportunity to make some profit in the meantime. During the five years, from 1907 to 191 1, the loans falling due, if redeemed at 3 per cent., would represent a saving of £273,000 per annum. During the period, from 1912 to 1916, we should effect a further saving of' £390,000 per annum. So the saving would be increased every year. If we do not adopt the plan suggested, the States will probably have to raise money at 4 per cent. Although I do not think that his proposal is the best, I shall give every assistance to the Treasurer to make the scheme perfect, provided that he goes forward with it. I understand that he intends to cover the whole ground if he can secure an amendment of the Constitution. He will not, however, wait until that change has been brought about. He will deal with the loans as they fall due, and afterwards seek permission to take over the balance of the States debts. Personally, I should prefer to ask the people to adopt a scheme such as I have outlined. I think that they would approve of it, because they would see that it would be to their advantage, and that it would achieve one of the purposes which were held most clearly in view when they were induced to vote for Federation..

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