12th Parliament · 1st Session
Mr. Speaker (Hon.Norman Makin) took the chair at- 2.30 p.m., and offered prayers.
– Has the Prime Minister read a report in the press of an assault upon the Italian Consul in Queensland? If so, is he prepared to make any statement on the matter?
– I have read the reports, and I have asked my department to telegraph to Brisbane to ascertain the facts. If they are as reported, the incident is very regrettable, and the Commonwealth will, in co-operation with the State, take all possible steps to bring the offenders to justice.
– I am very pleased to be able to announce, as the result of the inquiries of which I have spoken, that the Italian Consul was not assaulted. It is a matter of regret that any individual should have suffered an assault; but it would have been particularly regretted had a representative of a friendly nation suffered such an indignity.
– Hasthe Prime Minister received a report from the Council for Scientific and Industrial Research on the intensification of production in the dairying industry?
– I have not yet received the report; but I shall inquire regarding it, and let the honorable member know the result.
– Having regard to the number of bush saw-mills that have been closed down, and the consequent acute unemployment amongst timber-workers, I ask the Acting Minister for Trade and Customs whether he. has received the Tariff Board’s report on the conference of timber interests that was held in Melbourne recently, and, if so, when may the House expect an announcement of the action to be taken by the Government to assist the industry?
– Immediately after Easter a conference of all the timber interests in Australia was convened in Melbourne by the Tariff Board. The conference sat for a fortnight, and the Tariff Board spent a further three weeks in considering its recommendations. The board’s report was received by me yesterday, and will be considered by the Government at an early date.
– Will the Treasurer inform the House whether the reports published in this morning’s newspapers regarding the intended issue by the Commonwealth of a loan of £10,000,000 are authoritative?
– The Loan Council has decided to issue a loan of £10,000,000 at par, bearing interest at 6 per cent., and having a currency of eight years. The prospectus is now being prepared.
– Will the loan be underwritten by the banks?
– No. The Commonwealth Bank will act as agent in connexion with the issue of the loan, and we shall depend entirely on appeals to the public for subscriptions.
– I ask the Prime Minister whether the Development and Migration Commission is inquiring into the productive capacity of the river Murray valley, in connexion with the Hume weir project; if so, how far has the investigation proceeded, and will it he continued after the Development and Migration Commission has been disbanded ?
– The inquiry is not yet completed, and will be continued.
Mr. A. GREEN (Kalgoorlie- Minister for Defence [2.36] - by leave. - In February last the Government directed that consideration be given to a scheme for the amalgamation of the naval and military colleges, by transferring the latter to Jervis Bay, in order to reduce the present annual maintenance cost of £117,530 to approximately £60,000. In view of the large capital outlay involved in providing for the military college at Jervis Bay, it was decided to leave the colleges in their present locations, and to reduce their separate costs: the Naval College was to be limited to £30,000 per annum as. against the present cost of £64,752. The Naval Board has since strongly urged the Government to transfer the Naval College to Flinders Naval Depot. It is confident that by economies in overhead expenses and the wider spread of joint costs the expenditure on annual maintenance will not exceed £15,000, and, as accommodation is available at Flinders through the reduction of other personnel, no capital outlay will be involved. The Government, while greatly regretting the severance of the college’s association with Jervis Bay, has approved of the Naval Board’s recommendation. In view of the financial stringency, this step is considered to be in the best interests of the efficiency of. the services.
– Will both the Duntroon Military College and the Naval College at Jervis Bay be closed?
– The Military College at Duntroon will be continued for the time being, but the Naval College will be transferred to Flinders.
– Under the last Government the training of each cadet at Duntroon cost the Commonwealth £900 a year. Has the Minister for Defence arranged to reduce the annual cost for each student.?
– The number of students going through the Naval and Military Colleges will not be so great as formerly, consequently, reductions have been effected in the instructional staff. The Government is making every effort to cut down expenditure, and, as I have stated, in connexion with the Royal Naval College alone will save at least £50,000 per annum.
– Will the Minister for Defence make available to honorable members the report of the Naval Board upon which the Government has acted in relation to the Royal Naval College at Jervis Bay?
– The following minute was received from the First Naval Member on the subject, dated 5th June, 1930: -
In past year there have been continuous adverse comments on the per capita cost of preparing cadet midshipmen for the service. The board are confident that the transfer to Flinders Naval Depot will put an end to this criticism by providing the most economical means of training. They urge that approval for the transfer be given now, and that the change be made as soon as it can conveniently be done. If a decision to shift to Flinders is given by the middle of June, it is considered possible to make the transfer during the winter vacation this year.
Termination of Contract
– Will the Minister for Defence state whether it is not a fact that certain naval officers are bound by contract to serve the Commonwealth Government until they have reached the age of 30, and that some of those officers are being dismissed before having attained that age, without compensation ?
– Yesterday the honorable member for Cook (Mr. C. Riley) asked a question relating to this matter, and I promised that the whole subject of naval reductions would be dealt with in a comprehensive answer to-day. I suggest that that answer will cover the question asked by the Leader of the Opposition.
– Has the Minister for Defence considered the advisability of amalgamating the administrative control of our naval, military and air forces, with a view to effecting a saving of money ?
– The intention of the Government in respect to that and other defence matters will be made plain in the statement that I shall make presently.
– Will the statement make quite clear the intention of the Government concerning the Royal Military College at Duntroon, which the honorable member says will continue as at present for the time being?
– I suggest that the honorable member should stay his curiosity for a few minutes until he has heard the statement.
asked the Minister for Defence, upon notice - 1.Is there in operation in each military district a District ContractsBoard, through which the Defence Department lets all its contracts ?
– The answers to the honorable member’s questions are as follow : -
District Contract Boards may accept tenders and arrange contracts for supplies or services as follow, without reference to the Central Contract Board:-
Australia and Tasmania. - Definite quantities to the value of £100 in any one case, or period contracts to the estimated value of £250 in any one case.
New South Wales. - The District Contract Board haspower to enter into contracts for definite quantities to the value of £250, or period contracts to the value of £500 in any one case. In addition, certain items which are purchased in comparatively large quantities for the Naval Service, e.g., flour, sugar, &c., are obtained locally without reference to the Central Contract Board, even though the amount involved may exceed £250 or £500. In all the States mentioned above contracts for foodstuffs and services for military camps irrespective of the amounts involved, are arranged by district boards without reference to the Central Contract Board. With the foregoing exceptions, reference to the Central Contract Board is necessary before contracts are made.
asked the Minister for Defence, upon notice -
– The answers to the honorable member’s questions are as follow : -
asked the Minister for Defence, upon notice -
– The answers to the honorable member’s questions are as follow : -
asked the Minister for Works and Railways, upon notice -
– The answers to the honorable member’s questions are as follow: -
asked the Treasurer, upon notice -
– The answers to the honorable member’s questions are as follow : -
asked the Minister for Markets and Transport, upon notice -
– The answers to the honorable member’s questions are as follow: - 1, 2, and 3. There are a number of officers of the War Service Homes Commission in excess of requirements, which makes certain retrenchment necessary. I am looking into all the circumstances in order to ensure that the number affected will be reduced to the lowest possible. I shall supply the honorable member with a detailed reply to his question at the earliest opportunity.
asked the Treasurer, upon notice -
– The information is being obtained.
Advances to Associated Banks
– On the 23rd May and the 6th June the honorable member for Werriwa asked the following questions, upon notice -
The Commonwealth Bank has now furnished the following replies: - 1, 2 and 3. Up to the present advances hare been made available to agricultural and rural banks to the extent (aggregate) £1,650,000. This availability has not yet been fully exercised, but it is expected as the season advances that it will be; the rate for which has been fixed at6 per cent. for the present. It may also be stated that the bank has agreed to make available considerable funds for the purpose of assisting concerns supplying materials essential to the production and cultivation of primary products, so as to enable them to provide credit pending payment therefor after harvesting has been effected.
As regards the associated banks, transactions directly connected with advances for the purpose referred to cannot be dissociated from the general transactions operating between the CommonwealthBank and the associated banks; the policy of this bank being to make available to trading banks credit to meet the exigencies of banking operations as they may arise.
In this connexion, attention might be directed to the published return generally of the banks of Australia, which disclose a considerable general expansion of credit in the form of advances as against the ratio of current deposits.
– by leave - The acute position in Australia in relation to unemployment has caused general concern, and for some time the Commonwealth Government has been considering the best way in which to meet the position. Although the problem is primarily one for the State governments, the Commonwealth Government has endeavoured to render them assistance by affording effective tariff protection to Australian industries. It has done so in the full knowledge that this will mean a reduction of customs revenue, and thus impose a severe strain on the financial resources of the Commonwealth. While that action has afforded a measure of relief, its results will not be felt immediately; nor has it furnished a complete solution of the problem.
– That is not the view expressed by the Acting Minister for Trade and Customs (Mr.Forde).
– The honorable gentleman, who has himself filled the office of Minister for Trade and Customs, would hardly expect that results would follow immediately on the increasing of the duties. Nevertheless, most encourag ing reports are coming to hand from day to day as to the increase in the number of men and women who are being employed in the various factories, and also as to the extension of existing factories and the establishment of new ones. Moreover, large numbers of workers who otherwise would have received notices of dismissal, have been kept in employment. But, unfortunately, there has at the same time been a great increase in unemployment in other directions, particularly in relation to public works; a position due entirely to the prevailing depression.
– And to the diminution of the purchasing power of money.
– That is so. The Government has considered this position in consultation with the members of the Loan Council, a body consisting of the Commonwealth Treasurer and the Treasurers of the States, many of whom are also State Premiers. I attended a meeting of the Loan Council, over which the Commonwealth Treasurer (Mr. Theodore) presided, at which a full discussion of Australia’s economic and financial position, as well as of the unemployment problem, took place. It was felt that while the relief of unemployment was primarily a State obligation, the Commonwealth might augment what the States are doing. Each State is tackling the problem in its own way; but, as a result of the conference, it was agreed that the Commonwealth Government should place £1,000,000 on its Estimates for the coming financial year to add to the funds the States are raising for the relief of unemployment.
– Will the money come from revenue or from loan ?
– It will be paid from revenue.
– Will the Commonwealth have any voice in its expenditure ?
– The details of the expenditure will be worked out between the Commonwealth and the States. The Commonwealth Government does not propose to interfere with the States in the matter; it will allow them to exercise their own judgment as to the best means of expending the money. The States already have in existence organizations for the control of money expended in the relief of unemployment, and it is not proposed that the Commonwealth should set up a special organization to duplicate the work of the States.
– Will the States be required to subsidize the Commonwealth contribution ?
– The States are already making provision for the relief of unemployment. The £1,000,000 proposed to be distributed among them by the Commonwealth will augment their funds. The distribution will he on a population basis, except that South Australia, whose position is worse than that of the other States, will receive special consideration. Some of the States agreed to forgo a measure of the assistance to which they would be entitled on a population basis in order to enable a slightly larger grant to be made to South Australia. The £1,000,000 will be distributed among the States in the following proportions: - New South Wales, £365,000; Victoria, £257,000; Queensland, £130,000; South Australia, £150,000; Western Australia, £65,000; and Tasmania, £33,000. While it is not suggested that the provision of this sum will solve the problem of unemployment it will, I think, be realized that it is a practical attempt to assist the States in facing a serious and abnormal position.
Estimates - Retrenchment
– On the 6th June the honorable member for Cook (Mr. C. Riley) asked a question regarding the effect of reductions in the Estimates of the Defence Department. I am now in a position to supply the information. It is as follows: -
The period of this enforced leave has not yet been definitely determined as it is dependent upon varying factors, but it will not in any case exceed the following for all ranks: -
The following general conditions will also govern enforced leave: -
For the quarter ending 30th September, 1930, all members will be given fourteen days’ leave without pay excepting those shown in paragraph iv. as liable to only one week for the whole year. These latter will also be given their week’s leave in the quarter ending 30th September, 1930.”
Reduction of Personnel of the Royal Australian Navy.
As a result of the reduction in the Estimates, it has become necessary to reduce considerably the number of officers and men serving in the fleet. The personnel required for 1930-31 is approximately 700 less than the personnel serving in the Fleet as on the 1st April, 1930.
These include senior officers holding im portant positions for which Australiantrained officers are not yet qualified, and positions in complements of H.M.A. ships - specialist warrant officers, and ratings holding higher gunnery, and torpedo rating - for which qualified Royal Australian Naval ratings are not yet available. Needless to say, as soon as officers and men locally trained obtain the necessary experience and qualifications, the remainder of the officers and men on loan will be dispensed with, and the number of officers and men of the Royal Navy serving in the Commonwealth naval forces will be strictly limited to exchange personnel.
It is regarded as of vital importance that the system of exchange should be maintained, under which a limited number of officers of the Royal Navy are employed in the Royal Australian Navy in exchange for Australian naval officers of equivalent ranks who are employed in the Royal Navy.
Economies have also been effected in the following directions: -
The naval reductions amount to £326,368.
Although the Royal Australian Air Force was allotted its pro rata share of the reduced allotment of funds for 1930-31 on the same basis as the Navy and the Army, Air Force personnel will not be seriously affected as a result.
Existing permanent Air Force units and establishments will be maintained, and, as no difficulty has been experienced in keeping the two Citizen Air Force units at full strength under the voluntary training system, no reduction in Air Force activities has taken place.
It is proposed that the savings necessary be effected mainly on the stores and equipment votes, and this is possible for the following reasons : -
Certain small changes in organization are being effected, and it has been possible to reduce the number provided on this year’s Estimates by three officers and thirty-four men. This, however, will not involve the dismissal of personnel now employed, for the Air Force has been working throughout the greater portion of this year considerably below its authorized establishments. New aircraft and the consequent reduction in maintenance work and workshop overhauls have made this possible.
The Air Force is in the process of changing over from aircraft of wooden construction to new types manufactured principally of metal. Certain adjustments in numbers of personnel as between the different trades involved will therefore be necessary in the near future. Personnel will be given the opportunity of re-mustering where their trade experience allows, but a certain number of discharges will inevitably follow.
The curtailment of funds will not involve any dismissals from the Air Force, and it will be possible to maintain the existing activities of all Air Force units and establishments, both permanent and citizen forces, with their present standard of efficiency.
In the Munitions Supply Branch the reduction of the defence estimates has been offset by an extension of the policy of acceptance of orders from commercial firms and by provision of money out of trust funds with which “ill be purchased arms and munition required for the services.
As compared with the beginning of 1930, the reductions of staff and employees in the factories will amount to about 100 persons out of 1,100. A substantial proportion of the discharges during the past six months is due to completion of the developmental programme and should not be attributed to retrenchment. As fur as can he estimated, for the next six months the retrenchment of wages staff paid from the maintenance votes will be almost negligible, probably not more than ten or twelve. By contraction of activities in various directions, the salaried staff will be reduced by about 30 employees.
It should be made clear that the majority of the employees of the Munitions Supply Branch depend upon outside orders for employment, and their numbers fluctuate correspondingly. If the orders fall off there is no alternative but discharge.
In referring to the civilian staffs in the Defence Department, it must be remembered that the service boards are entirely responsible for the administration of matters within their respective spheres. The service boards, in effect, control their own staffs, including Public Service and civilian staffs subject to the Public Service Act and the Defence Act.
In determining the natureof the retrenchment for their respective services, therefore, the boards have decided that a certain number of civilian personnel is necessary during the next financial year. All in excess of that number, not being required by the hoards, have either to be placed in some other department or be retrenched from the service. Since the commencement of this financial year, the possibility of a serious curtailment of defence votes has been evident, and up to the present, it has been possible to gradually reduce the civilian staff without imposing any great hardship on individuals. An important factor in this respect is that, since the retrenchment in 1922, the permanent civilian staffs have not been recruited to full establishment, and a very conservative policy has been followed in regard to new appointments. Consequently, the establishments have been built up, to a great extent, with temporary hands, with a nucleus of permanent civilian officers. In the case of the permanent officers many of these belong to the Commonwealth Public Service, and consequently are eligible for transfer to other departments. Advantage has been taken of this during the year, and several transfers have been effected and will continue to be effected during the next financial year.
It is found, in effect, that the staff has been reduced by over 15 per cent. since the beginning of this financial year, and the Public Service Board is continuing to absorb officers from the list of those declared excess in the Defence Department. It is not anticipated that there will be any serious difficulty in absorbing in the Public Service the whole of the permanent civilian personnel declared excess by the service boards. Some of these may have to accept positions of lower classification, but this will be avoided as much as possible.
The staff allocutions having been adjusted to the requirements of the service boards, and the surplus civilian personnel absorbed, no question of rationing arises in respect of the civilian staffs.
On 6th June, the honorable member for
Balaclava (Mr. White) asked the following question, upon notice -
What is the respective number of (a) officers, (b) warrant and non-commissioned officers, and (c) men, giving rank and branch of service, who have been rationed in the Defence retrenchment scheme?
I am now in a position to inform the honorable member that it is anticipated that the rationing scheme, which it is proposed to enforce during the next financial year, will affect the following: -
The period necessary has not yet been finally fixed,but will not under any circumstances exceed eight weeks, and may probably be considerably less.
Rationing of Stores: Retrenchment: Pensions
– On 10th June the honorable member for Martin (Mr. Eldridge) asked the following questions, upon notice -
I am now in a position to inform the honorable member as follows : -
The general routine followed in the case of receipt, examination and testing of stores held at Royal Edward Victualling Yard is as laid down in Admiralty “ Instructions for the Guidance of Officers of His Majesty’s Victualling Yards.” To ensure that the quality of stocks issued to ships is satisfactory in all respects, also to satisfy himself that bulk deliveries from contractors comply with the specifications or sealed samples, it is essential that the victualling store officer should carry out frequent tests of a practical nature. This often involves the cooking of prepared dishes as provided for in victualling yard instruction 149, which reads - “ 149. - Mode of Examination. - Besides an examination of the apparent condition and quality, the technical examining officers and the victualling officers abroad are to taste wine, spirits, tea, sugar, raisins, cocoa, and any other article in regard to which tests may be necessary, such articles being cooked if required, and make such practical tests as may be considered necessary in the various articles of clothing.”
It is apparently the utilization of these prepared dishes in particular on which question No. 2 is based. I am advised that the average quarterly value of stores so expended for testing during the nine months ended 31st March, 1930, has been £ 12 3s. 2d. The value of the provision stores issued by the yard to all services during any one quarter is approximately £15,000, and is claimed that an expenditure of . 0008 of the stock in protecting the department’s and the fleet’s interests cannot be considered abnormal. I shall take an early opportunity of looking into the procedure personally.
On the 6th June the honorable member for Balaclava (Mr. White) asked the following questions, upon notice -
I am now in a position to inform the honorable member as follows: -
On 2nd May the honorable member for Cook (Mr. C. Riley) asked the following question, upon notice -
With reference to the question asked by the honorable member for Cook on the 10th ultimo, relating to the number of officers in the Royal Australian Navy who are entitled to draw pensions in respect of service in the Royal Navy, is the Minister yet in a position to furnish complete replies to the questions; if not, when is it anticipated that the desired information will be available?
I am now in a position to inform the honorable member as follows: -
The following arc the amounts of Royal Navy pensions paid to the undermentioned officers : -
The only officers drawing pensions who will remain in the Royal Australian Navy after 30th June, 1930, are -
It should be noted that no officers from the Royal Navy have been allowed to transfer to the Royal Australian Navy since ‘ 1010. In that year the policy was adopted definitely that no further transfers should be allowed. It was considered, prior to that date, that it would be to the advantage of the Australian Navy if some Royal Navy officers became attached to it permanently, and the officers above-mentioned (except McDonough) all transferred before 1919.
These officers gave up their prospects of securing valuable pensions in the Royal Navy (such as they would have been paid by continuing to serve therein until retired). The pensions they are now receiving are only a small proportion of what they would have’ become entitled to.
The delay in furnishing this information is due to the fact that the particulars were not available in the Defence Department. It was necessary to obtain the information from the Imperial Pensions Office and to communicate with two of the officers who are at present in England.
– On the 10th June the honorable member for Balaclava (Mr. White) asked the following question, without notice: -
Will the Minister for Defence offer an inducement to Australian National Airways or some other company to include Canberra in its itinerary, and so provide quicker transport to and from the Federal Capital, and relieve to some extent the isolation of its people? .
I am now in a position to inform the honorable member as follows: -
Civil aviation has already progressed to a stage which makes it no longer necessary to provide subsidies to enable properly-managed and capitalized organizations to operate aerial services successfully between large and important centres of population. This has already been demonstrated between Brisbane and Sydney, and is now in process of being so between Sydney and Melbourne.
In such circumstances it is not proposed to offer any special financial inducement in order to facilitate aerial communication between the Federal and State capitals.
It is, moreover, in the knowledge of the department that active steps are already being taken by the different companies to include Canberra in their aerial itinerary, thus bringing the Federal Capital within 75 minutes from Sydney and three hours only from Melbourne.
– by leave - The renewal of certain expiring air mail contracts held by West Australian Airways Limited and Queensland and Northern Territory Aerial Services Limited has been the subject of negotiation between my department and the companies concerned. After careful consideration of reports furnished by my department, the Government has approved of fresh contracts being entered into with the companies mentioned for a further period of three years at reduced rates of subsidy.
West Australian Airways Limited held a contract, which expired on the 9th June, 1930, for air services weekly in both directions on the Perth-Derby- Wyndham route.
The rate of subsidy payable between Perth and Derby was 2s.11d. per mile and 4s. per mile between Derby and Wyndham. Operations on the DerbyWyndham section did not, however, commence under this contract, the delay being due to the fact that the preparation of the route had not been completed. The new contract will provide for the continuance of the existing service between Perth and Derby and for a service, during eight months of the year, over the DerbyWyndham extension. It is considered inadvisable to attempt to provide, at present, a service over the route during the rainy season. The rates of subsidy per mile are as follow: -
Perth-Derby section -
First year - 2s. 7d. per mile flown.
Second year - 2s.6d. per mile flown.
Third year - 2s. 3d. per mile flown.
Derby-Wyndham - 3s. 3d. per mile flown.
Queensland and Northern Territory Aerial Services. - This company has two contracts: (a) CharlevilleCamoowealNormantonCloncurry,which expired on the 9th J une, 1930, at which date the race of subsidy was 3s. 2d. per mile flown; (b) Brisbane-Charleville, which does not expire until the 16th April, 1932. The rates of subsidy in this contract are -
First year - 3s. 3d. per mile flown.
Second year-3s.1d. per mile flown.
Third year - 2s.11d. per mile flown.
The contract is in its second year and the rate of subsidy is, therefore, 3s.1d. per mile. Although the Brisbane-Charleville contract does not expire until 16th April, 1932, it was considered desirable, when dealing with the renewal of the CharlevilleCamoowealNormantonCloncurry contract, to arrange, if possible, for one contract to cover the whole route. As a result of negotiations with the company one contract for a period of three years from the 10th June, 1930, has been arranged for BrisbaneCamoowealNormantonCloncurry at subsidy rates as follow: -
First year - 2s. 9d. per mile flown.
Second year - 2s. 8d. per mile flown.
Third year- 2s. 7d. per mile flown.
The rates now agreed upon for both companies for the next three years show appreciable reductions in comparison with the rates operating under the expiring contracts, and it is a matter of satisfac tion to both the Government and the companies that it was possible to effect such reductions, and at the same time ensure the continuance of efficient services.
In committee: (Consideration resumed from 11th June, (vide page 2659).
Clause 8 -
The reserve bank shall, in addition to any other powers conferred or limitations imposed by this act, have power -
h ) to make loans or advances against the security of stock or debentures of the Government of the Commonwealth or of a State, or any authority constituted under the law of the Commonwealth or of any State, or good trade bills, such bills having a currency of not more than six months to date of maturity;
to make advances to the Government of the Commonwealth or of a State, or to any authority constituted under the law of the Commonwealth or of any State;
to buy, sell and deal in specie, bullion and gold dust;
to buy and sell securities for customers ; and
to do anything incidental to any of its powers.
Upon which Dr. Earle Page had moved, by way of amendment -
That after the word “ State “ first occurring, paragraph i, the following words be inserted : - “ to an amount not exceeding at any time one-fifth of the amount received by the Government by taxation in the preceding financial year.”.
.- When the committee adjourned last night, an extraordinary position had been reached. The Treasurer (Mr. Theodore) protested that no limitation should be imposed. Dp to a certain stage, the committee accepted the bill at its face value; but as the debate proceeded, it became apparent that an entirely different purpose from that which was originally stated was intended. One after another, honorable members opposite said last night that if this bant was not to be empowered to make, from time to time, unlimited advances to a necessitous Government, for any purpose, but particularly for the relief of unemployment, it would have no value. The result is that, not only will the bill become suspect, but the prestige of the proposed bank will be permanently prejudiced. We are all acquainted with the operations of reserve banks wherever they have been established; but they are different from what is expected from this institution by honorable members opposite. The committee is entitled to receive from the Treasurer an assurance that he emphatically dissociates himself from the opinions that haVe been expressed by some of his supporters.
– I should be accused of tedious repetition if I were to do so.
– I do not know how many honorable members opposite entertain these views ; but a majority of those who have already spoken have expressed the opinion that the proposed bank should make available to the Government funds for the relief of unemployment in accordance with the instructions that have been issued by the conference of the Australian Labour party that was held recently in Canberra. The necessity for this proposed limitation of the amount that may be advanced by the proposed centra] reserve bank has been made more urgent as the debate has proceeded. If it is intended that this bank shall act only in support of the private banking institutions, the Treasurer should say so. If he were to give that assurance, the passage of the bill would be facilitated.
It is significant that quite a number of honorable members opposite who expressed very pronounced opinions on this clause last night are absent to-day. What has happened to prevent their attendance this’ afternoon? Has any pressure, been brought upon them by the Treasurer to prevent them from taking part in the work of the committee? The Treasurer, in one of his interventions last night, made what appeared to me a rather misleading statement in a parallel which ho endeavoured to draw between the Commonwealth Bank and the proposed central reserve bank, with respect to unsecured advances to the Government of the Commonwealth or of a State. He said that the Commonwealth Bank lias no limitation imposed upon it in connexion with the amount it is empowered to advance, and he endeavoured to show that as no limitation is imposed upon the Commonwealth Bank in this respect it was absurd for the right honorable member for Cowper (Dr. Earle Page) to endeavour to place any limitation upon the powers of the central reserve bank. The Treasurer avoided some very interesting facts in connexion with the operations of the Commonwealth Bank as a reserve bank. What is the position of the present Commonwealth Bank as a bank of reserve ? At present the Commonwealth Bank holds, on behalf of the associated banks, some £13,000,000 worth of gold or securities in some form, which can be withdrawn at any time. The associated banks could write cheques at any time for the amount so deposited, and the whole of that money could be withdrawn. That £13,000,000 cannot, therefore, be advanced to the Commonwealth Government, to a State Government, or to any other authority. Although it is deposited with the Commonwealth Bank, it is repayable on demand. The position of the proposed central reserve bank will be entirely different. Under this measure the central reserve bank is to receive from the trading banks approximately £22,000,000, and the obligation upon that institution is to hold approximately one-fourth of that amount in gold or in liquid securities, and the balance should be available at very short notice if required. What; would be the position of the reserve bank if it were required, under pressure, to make advances to the Commonwealth or State Governments in the manner indicated by some honorable members opposite? If the Commonwealth Bank makes a substantial advance to the reserve bank, what would be the position of the trading banks in the event of a crisis. It will be necessary for the trading banks to lodge £22,000,000 with the central reserve bank. This will mean the withdrawal of £13,000,000 from’ the Commonwealth Bank. An absolutely sound reserve position will be destroyed, and a. very dubious one substituted for it. I do not wish to labour this question, but the speeches of almost every honorable member opposite caused profound suspicion concerning the intention of the Government in introducing this measure. We are not opposed to the establishment of a. central reserve bank, but we wish that institution to be completely free from political control, so thatit may be able to function in the interests of the whole community. .
.- The Deputy Leader of the Opposition (Mr. Gullett), who is afraid that the
Government is anxious to exercise political control in connexion with, the appointment of the board and the ultimate control of the central reserve bank, should not overlook .the fact that during the past six years, the Commonwealth Bank nas, in effect, been under the control of the Government of the day. The honorable member suggests that honorable members on this side of the House are in favour of an advance of £20,000,000 being made available to relieve unemployment, but was it not the Deputy Leader of the Opposition who advised the BrucePage Government to “ spend £50,000,000 bravely”?
– That is not so.
– Did not the honorable member for Henty (Mr. Gullett), in a published statement, advise the Government of the day to “spend £50,000,000 bravely”? The. honorable member also referred to the ex-Treasurer (Dr. Earle Page) as “the most tragic Treasurer Australia has ever known “.
– It was the alliteration which appealed to the honorable member for Henty.
– It may have been. The suggestion to spend £50,000,000 may appeal to the honorable member for Adelaide (Mr. Yates) and the honorable member for East Sydney (Mr. West).
– Are those honorable members now attending a meeting of the “Big Four” in Commonwealth finance?
– The same thing may have been at the back of the mind of the honorable member for Henty (Mr. Gullett) as is at the back of the mind of the honorable member for East Sydney (Mr. West). The suggested expenditure may have been for the relief of the unemployed. What is wrong with the expenditure of £20,000,000 or £50,000,000 in relieving the distress among the people? The directors of the central reserve bank, who will be appointed by the Government, will decide what security is necessary against any advances that are made, and if the Government has sufficient security it should obtain the advance that it requires. What is the difference between the proposal of a Labour Government to spend £20,000,000 and the suggestion of the late Government, of which the honorable member for
Henty was a member, to spend £50,000,000?
– It was not suggested that £50,000,000 should be advanced by a central reserve bank.
– The honorable member cannot run away from the fact that he suggested the expenditure of £50,000,000, even if he now suggests that the “ big four “ have run away from their proposal to expend £20,000,000. Ii would really be tantamount to political interference with the board if we placed any restriction on its operations. The honorable member for Henty, although a good scrapper for his party, invariably tries to create the suspicion in the minds of the general public that all legislation introduced by this Government is wrong in principle. I do not think that there is any. more to fear from this legislation “without a limitation on the advance that may be made by the central reserve bank than there would be with a limitation. A limitation would certainly restrict the operations of the board. I rose to remind the’ honorable member for Henty of his suggestion to “ expend £50,000,000 bravely “ and to say that there may be just as much virtue in the proposal of the “ big four “ as there is in his proposal.
.- After the speeches of honorable members supporting the Government on the amendment moved by the right honorable member for Cowper” (Dr. Earle Page), it is increasingly apparent that some limitation to the powers of the board controlling the central reserve bank is necessary. If this bank is to function in the way that those honorable members anticipate, I can well understand the consternation, not only of the directors of the Commonwealth Bank, but also of its depositors. Nothing is more likely to hasten a crisis in this Commonwealth than the suggestion that this central reserve bank should have power to give unlimited credit and to make unlimited advances to both Commonwealth and State Governments. It has been said that this so-called central reserve bank should have the power to advance, say, £20,000,000. The honorable, member for Adelaide (Mr. Yates) wants that sum advanced for the purpose of relieving unemployment. The honorable member for Hunter (Mr. James) says that this bill will not receive his blessing unless the board has power to advance money for the purpose of providing water and sewerage schemes for Maitland and other places in his electorate. The honorable member for Werriwa (Mr. Lazzarini) says that the bill will he of no use whatever unless the board has the power to advance money freely to assist the Government in relieving unemployment. I suggest that if such advances were made, -the bank would he a reserve bank in name only, because no reserves would be left in it. Money is to be withdrawn from the trading banks and placed under the control of the board of the central reserve bank, which will have power to make unlimited advances to the Government. Practically every honorable member on that side is opposed to the amendment moved by the right honorable member for Cowper, and I can clearly see that the operation of the central reserve bank will increase rather than relieve unemployment. If its reserves are to be withdrawn for the purpose of making indiscriminate advances to public bodies, in order to relieve unemployment, it is certain that a panic will spread among those who control capital. They will know that the money would have been more wisely spent had it been advanced in the ordinary way by the private banks to those engaged in the trade and industry of this country. This so-called central reserve bank will not create any new money; the only money at its disposal will be that deposited with it by the trading banks, and even those banks are to-day at their wits’ end to find money against the security offered to them by those engaged in the trade and commerce and the industry of this country. The trading banks, after depositing a portion of their reserves with the central reserve bank, will have less money to advance to business people. That will have the immediate effect of increasing unemployment. The confidence of the Australian investors and the depositors of the banks will be shaken and the financial position will become worse. Nothing could be more likely to cause a run on the hanks. During the past few weeks I have been travelling through the country, and I know that the people are much concerned about the effect of this legislation. They fear that if this bill is passed in its present form the central reserve bank will be subject to political control. I was loth to answer their questions then because I did not wish to shake their confidence in the stability of the Commonwealth and of the financial institutions of this country.
The principle of a central reserve bank is a sound one; the only doubt in my mind is whether it is wise at the present moment to create a reserve bank which will withdraw capital from the trading banks when they need all the capital they have. I tried to relieve the disquiet in the minds of many people in my State, but when it becomes evident from the speeches made in the course of this debate that the majority of Government supporters want the new bank to make advances indiscriminately-
– What nonsense!
– I do not say that that is the intention of the Treasurer.
– Why did the honorable member say that it was the desire of the majority of Government supporters ?
– It is the- expressed desire of the majority of those who have spoken. Such speeches confirm in the minds of the people the suspicion that the bank might be used to make available easy money for the construction of sewerage schemes in some favoured town ; or for promoting works to relieve unemployment, when such works could be much better carried out by private enterprise. Some honorable members who have spoken in support of the bill have said that they favour it merely because it is a step in the direction of making it easy to obtain credits with which to provide work for the unemployed. In my opinion much more good could be done with money obtained from the private banks by persons capable of spending it wisely in the promotion of legitimate enterprise than could be done by a central reserve bank.
I regret, for the sake of the Government and the Treasurer, that those Government supporters who have spoken have been so indiscreet. I do not for a moment believe that the Treasurer ia such an idiot as to sponsor the bill with the idea of doing what some of his supporters would like to see him do - such supporters for instance, as the honorable member for Werriwa (Mr. Lazzarini), the honorable member for Adelaide (Mr. Yates), the honorable member for Martin (Mr. Eldridge), and the honorable member for East Sydney (Mr. West). We have all heard about the Canberra Labour Conference, which recommended that £20,000,000 should be made available for the relief of unemployment. Evidently it is desired that this money should be withdrawn from the private trading banks, and devoted to the promotion of wild cat schemes in the hope of giving employment to those now out of work. While it is true that a contributing factor to the present great volume of unemployment is the fall in price of our primary products, a still greater cause ls the lack of confidence which investors have in the present Government. They ure not prepared to invest, their money, and devote their brains and energy, in the promotion of enterprises, when they have no confidence in a Government which is controlled by reckless, outside organizations.
– -Order! The honorable member is straying too far from the question under discussion.
– J am trying to furnish reasons why the amendment of the right honorable member for Cowper (Dr. Earle Page) should be accepted, and why it is necessary to limit the power of the central reserve bank board to make advances to governments. Because of the forces behind the Government, it is very evident that some restriction is necessary. It would not embarrass either this or a succeeding Government if the amendment were accepted. No government should desire that a reserve bank, supposed to be a buttress to private banks, should be able to devote the moneys provided by the private banks towards carrying out such fantastic schemes as have been suggested by Government supporters during this debate. When governments find it easy to obtain money, they are tempted to spend lavishly and unwisely. That is a temptation to which we should not subject either this or any succeeding Government. The saner members supporting the Government should join with honorable members on this side of the House in supporting the amendment moved by the right honorable member for Cowper.
.- .1 cannot conceal my astonishment at the arguments adduced by honorable members in opposition to the clause as it stands, and in support of the amendment of the right honorable member for Cowper. The clause under consideration authorizes the board of the reserve bani; to make advances to the Government of the Commonwealth or of the States, or to any authority constituted under a law of the Commonwealth or of any of the States. It does not permit the board to make advances indiscriminately to any Tom, Dick, or Bill; it merely authorizes the bank to make available credits to established agencies of the governmental system of this nation. It is proposed in the amendment to restrict the discretion of the board in respect to the advances it may make to authorities established by statute.
During the consideration of the bill, and particularly at the second-reading stage, Opposition members quoted extensively from a standard work on central banks, compiled by Kisch and Elkin! I assumed that they had read the whole of this work, and were in agreement with the principles laid down therein regarding the establishment of reserve banks.
– They quoted the book as an authority.
– That is so. This clause relates to the powers of the board. It has nothing to do with making available funds for the relief of unemployment. Some honorable members who have takes part in this discussion have put themselves in the place of members of the central reserve bank board, and have in effect said what they would do if they were the bank’s directors. I submit that that is wrong. It is the business of this Parliament to pass the legislation necessary to constitute the bank and to provide for the appointment of a board which will carry out the functions of reserve banking. The provisions in this clause are in conformity with the recognised practice of central banks wherever such institutions have been established.
– I take as my authority the opinion of the Governor of the Bank of England, given in evidence before the Royal Commission on Indian Currency and Finance, as recorded in Kisch and Elkin’s authoritative work on central banking, 1928 edition, at page 100 -
It should have the sole right of note issue; it should bc the channel, and the sole channel, for thu output and the intake of legal tender currency; it should be the holder of all the Government balances; the holder of all the reserves of the other banks and branches of banks in the country. It should be the agent, so to speak, through which the financial operations at home and abroad, of the Government, would bt: performed. It would further be the duty of a central bank to effect, as far as it could, suitable contraction and suitable expansion, in addition to aiming generally at stability, and to maintain that stability within as well as without.
He goes on to say -
When necessary it would be the ultimate source from which emergency credit might be obtained in the form of re-discounting of upproved bills or advances on approved short securities or Government paper.
– That is provided for in paragraph a.
– The testimony of the Governor of the Bank of England has a direct bearing on paragraph i, which states that the reserve bank shall have power - .
To make advances to the Government of the Commonwealth or of a State, or to any authority constituted under the law of the Commonwealth or of. any State.
Municipal bodies are an integral part of the machinery of government in Australia. They are an essential part of the mechanism with which governmental functions in the Commonwealth are performed. Constituted under State laws, their powers are specifically defined, and their borrowing authority is restricted. Honorable members opposite who are supporting the amendment submitted by the honorable member for Cowper (Dr. Earle Page) desire to place a limitation, not upon the authority of the municipalities or State or Commonwealth Governments to secure advances from the reserve bank, but upon the authority of the bank itself.
– On the amount which those authorities may secure from the bank.
– The right honorable gentleman’s amendment has not been cir culated, but, as I understand it, he wishes to restrict the discretion of the board of directors.
– As to the amount which they may lend. ;
– Who cun measure the necessities of a State or a municipality in an emergency?
– Or of a government?
– Certainly. If that discretion is to be measured at all, it should be measured by the directors of the bank with a full knowledge of the reserves which they are capable of liquifying. Honorable members opposite insist that there should not be political interference with the board. The amendment is itself an instalment of political interference.
– Its adoption would remove the temptation to interfere with the bank.
– Does the right honorable gentleman fear that the bank will be subject to continual temptation, and might desire to curry favour with a particular government of either the Commonwealth or a State?
– It may be subjected to sudden temptation in a crisis.
– Very good. What is the function of a reserve bank if it is not to be the ultimate source . from which emergency credits may be obtained ? “
– The board of directors may be glad to have this safeguard.
– The other provisions in the bill, together with the amendments that have been circulated, specifically define how the directors shall be appointed, and make it almost impossible for any government to dictate to the board. I see nothing in the bill that will make the reserve bank a perennial fountain for the supply of credit to relieve unemployment. There is nothing in the measure to warrant such an expectation.
– The honorable member’s second-reading speech was to that effect.
– In my second-reading speech I said that credit was a national necessity and its use should be subject to national control. But this bill does not contemplate that Parliament shall be master of the financial resources of the nation. ‘ If honorable members opposite imagine that it will transfer control of credit from the financial institutions of Australia to the triennial conference of the Labour party, they are mistaken. It has been argued that this bill is part of some serious plan to give to the Labour party command of the banking institutions in the Commonwealth, and that, in some mysterious fashion, it will place in the hands of trade union secretaries or other persons in the industrial movement with notions of their own concerning national finance, the means whereby they may give effect to their ideas. If the honorable member opposite considers that any provision in the bill lends colour to that suggestion I can only say that he sees in his imagination things that are not discoverable in reality.
– Much the same criticism was directed at the Commonwealth Bank at theoutset.
– I agree that the bill will enable the directors of the reserve bank to exercise an unfettered discretion in making advances to the Commonwealth, or State Governments, or to municipal bodies.
– Did I understand the honorable member to say that he would restrict advances to emergent circumstances ?
– The directors of the bank must determine whether or not an advance should be given. The clause does not compel them to make an advance, even in a . case of emergency, to a Government of the Commonwealth or of a State or any authority constituted under the law of the Commonwealth or of a State. It gives them absolute discretion as to the extent to which, if at all, they may make advances to those various bodies, and it is a reasonable and proper discretion for them to have. It would be quite improper for Parliament to dictate the scope of the authority of the directors in this matter.
.- Honorable members, I am sure, have listened with interest to the gallant attempt of the honorable member for Fremantle (Mr. Curtin) to support the clause against the criticism that has been directed against it from this side of the chamber. He made quite a good debating society speech. It reminded me of the days when, as members of a debating society, we used to pick a paper from a hat to determine on which side of a question we were to speak; whether for or against the proposition set down for discussion. On this occasion the honorable member found that he had to speak for the affirmative. He accordingly sought some authority which might help him, and discovered that he could make a quotation from a book with which he is entirely unfamiliar, using a passage he found in it as if it were relevant to the issue before the committee. The honorable member quoted some evidence given by the Governor of the Bank of England with respect to the functions of a central bank in making advances against government paper. The critical sentence, as the honorable member himself said, was -
When necessary it–
That is the central bank– would be the ultimate source from which emergency credit might be obtained in the form of re-discounting of approved bills–
That is provided for in paragraph h- or advances on approved short securities–
That is also provided for in paragraph h with the limitations of clause 9 or government paper.
That again is provided for in the same paragraph. Paragraph h provides that the central reserve bank shall have power to make loans or advances against the security of stock or debentures of the Government of the Commonwealth or of a State; which was the point to which the evidence of the Governor of the Bank of England was directed. If the honorable member had taken the trouble to read the book from which he quoted, he would have found that its authors regard the limitation of the functions of a reserve bank in that respect as very important indeed. Paragraph i of the clause now under consideration provides that the central reserve bank may make advances to the “Government of the Commonwealth or of a State, or to any authority constituted under the law of the Commonwealth or of any State.” All kinds of authorities are constituted under such laws, and I hope that we shall hear from the Treasurer something much more definite as to the significance which he considers these words to bear, though, for the moment, I pass that by. The issue now before the committee is the right to be conferred on the central reserve bank to make unsecured loans, without any limit to the amount, to the Government of the Commonwealth or of a State or to any authority constituted under the law of the Commonwealth or of any State. Inasmuch as the honorable member for. Fremantle has come to the assistance of the Treasurer in this matter, and regards Kisch and Elkin as an authority on the subject, I invite his attention to a passage on page 35 of the latest edition of their book.
– It was quoted half a dozen times last night.
– Kisch and Elkin say-
Temptation to the States to intervene in the affairs of the central bank is diminished if the accommodation which the bank may give to the State islimited.
The authors then set out the position in the legislation of Austria, Hungary, Germany, Holland, Esthonia, Czechoslovakia and some other countries.
– We had all that last night.
– The honorable member for South Sydney is not, I understand, a self-proclaimed financial authority on the subject of banking, and is accordingly willing to learn. It is, therefore, largely to him that I am addressing these short but pregnant observations. According to these authors it should be made as difficult as possible for governments to resort to the expedient of borrowing from a central bank. They describe it as a practice which if continued can only lead to a repetition of past disasters. The bill providesthat it shall be one of the functions of the central reserve bank which it sets up to make advances to governments, and that those advances may be unsecured. Surely that is apractice condemnedby every authority, as it will be condemned by the honorable member for Fremantle as soon as he has read a few more pages of the book he quoted.
In his second-reading speech the Treasurer told us that this bill was to be on absolutely orthodox lines, and it would ill becomehonorable members of the Opposition to suggest that that is not his intention. Thereare, however, behind him more daring spirits, whose wings soar in the empyrean of high finance ; but those who make such flights often fall with a dull thud in the bankruptcy court. The bill does more than give power to the central reserve bank to make these advances; it indicates the intention of this Parliament that such advances should be made. In effect, it gives a direction to the board of the bank as to the policy to be pursued.
– The honorable member has overlooked the fact that the only central reserve bank functioning in Australia to-day is the Commonwealth Bank, which freely makes these advances.
– We have been told before that the Commonwealth Bank makes more or less indefinite advances to governments:
– So do private banks.
– Trading banks consider the relevant circumstances before they consent to make an advance, and if a government desires to obtain advances beyond the limit proposed in the amendment it can approach the ‘‘Commonwealth Bank, which will deal with its application in accordance with ordinary banking practice. A bank operating with subscribed capital and the deposits of the public has to take into account the commercial aspects of an advance before agreeing to it. A reserve bank is not established to make general advances to governments or any other borrowers. Its purpose is to act as a governor on the banking and financial machine,’ and to invite it to make unsecured advances to the Government from funds compulsorily deposited with it by trading banks will be dangerous. The bank will start with a capital of £2,000,000 to , be provided by the Commonwealth Bank, and a further £20,000,000 to be deposited by the private banks. The Treasurer has told us that the deposits by the trading banks must be in notes or gold. There should be some proper method of using that money. It is very unwise to empower directors appointed by the Government to make unsecured advances to any government or governmental authority. As this Parliament has full power to legislate with regard to banking, . any national emergency can be effectively provided for by special legislation. This bill is not an emergency measure; it is to constitute an agency which will be part of the regular financial system of the country; therefore, both authority and expediency concur in the amendment proposed by the right honorable member for Cowper.
.- The honorable member for Fremantle (Mr. Curtin) spoke as if the amendment were intended to limit the borrowing operations of governments. The clause under discussion would enable the bank to make temporary advances to a government, and the right honorable member for Cowper (Dr. Earle Page) has proposed that a limit should apply to such advances which would not interfere with the ordinary loan operations of the Government. I think that a time limit for repayment, also, should be imposed. There will be occasions when both Commonwealth and State governments will need money to tide thom over emergencies; but surely they should not be able to obtain unlimited amounts from the central reserve bank, which is supposed to act as a bulwark for the other financial institutions. Sir Ernest Harvey, Comptroller of the Bank of England, when dealing wilh the question of providing a central bank for the Commonwealth in an address to the Economic Society in Melbourne, said -
The next outstanding event to concentrate attention on the subject was the complete collapse of many European currency and banking systems under the stress of the Great War. Many- of those systems were, indeed, systems of central banking so-called; but in every instance an examination of the events which led to their collapse reveals that their failure in time of crisis was largely due to the fact that political pressure was put upon the central banks to abandon the fundamental principles of sound central banking, and to subordinate financial prudence to political expediency.
– Hear, hear ! But that comment would be more applicable to another clause.
– I think that it applies to the clause under discussion. No one will suggest that the Treasurer is lacking in political prudence; but he shows a lack of candour when he refrains from telling the committee plainly how he thinks this clause should operate. Many amazing statements have been made by ministerial supporters to the effect that they expect the bank to advance unlimited amounts to any government for any purpose. The recent Labour conference in Canberra showed clearly that political pressure will be brought to bear on the present Commonwealth Government to provide large sums of money in order to give effect to various planks of the Labour party’s platform. The Treasurer has an excellent opportunity to dissociate himself from proposals which he knows would, if adopted, bring about a financial collapse. The honorable gentleman is probably more versed in finance than any other honorable member, and he realizes that some of the hare-brained schemes propounded by the honorable members for Werriwa (Mr. Lazzarini) and Adelaide (Mr. Yates) are not practicable, and, if attempted, would cause a great deal of suffering. I do not think the views of those honorable members are endorsed by the majority of Government supporters, and the Treasurer might reasonably be expected to expose their fallacy.
.- Honorable members opposite are construing this clause as if the adjective, “ unlimited,” were printed before “ advances.”
– It is implied.
– At any rate the adjective, “limited,” does not appear.
– The implied word is “ reasonable.” The Leader of the Opposition said that the clause is an instruction to the directors of the reserve bank to make unlimited advances to the Government of the Commonwealth, or of any State, or to any government authority. The clause authorizes the board “ to make advances.” It does not direct. It is merely enabling.
– We supply the missing adjective.
– Yes, and cause a great deal of unwarrantable consternation and scare. The implied word is “ reasonable.” I am loth to impute any improper motive to honorable members opposite, but some of their statements seem to have been made for party political purposes. It is not to be assumed that the members of the board wilt recklessly make absurd and unlimited advances to governments and government authorities. I assume that they will act reasonably and prudently, always remembering their obligations as directors of a reserve bank. A government can, if it wishes, do mad things at any time. The present Commonwealth Government could float loans at ridiculously high rates of interest in order to get money for unemployment relief, but it has a sense of its responsibilities. Honorable members opposite assume, however, that the Government will make unreasonable demands on the directors, and that the directors will comply with them. Let us consider the reasonable probabilities. The board will be immune from political control. The directors will be appointed for a fixed period, and. their authority will be quite independent of any government or even of this Parliament. They will discharge their responsibilities in accordance with the principles laid down in this bill.
– .What about their reappointment ?
– Do honorable members opposite suggest that an acting judge, when giving a decision, is in*fluenced by expectations of a continuance of office? Why assume that the directors of the reserve bank will lower themselves by obeying the dictates of any government, or pandering to Ministers in order to ensure their re-appointment? We cannot forget the criticism that was directed against the proposal to establish the Commonwealth Bank and the note issue. The scheme was condemned as a hare-brained instalment of socialism, and some members went so far as to say that “ Fisher’s flimsies “ would not be worth the paper on which they were printed, and that; to offer them in payment of wages would be to insult the workers. The same critics declared that the issuing authority would be under political control, and that the notes would be printed in millions for widespread distribution. Those foolish prognostications were made by prophets who have been proved to be false. Honorable members opposite are now making a similar attack on this clause. If one accepted their assumptions that the Government and the directors will bc untrustworthy, the conclusions flowing from their assumptions may bc correct. But 1 assume that the government of the day and the directors of the bank will act responsibly. In my opinion, the clause has not the mischievous meaning that is attributed to it by honorable members opposite. It is an enabling power authorizing the directors of the bank, not to make unlimited advances, but to receive and prudently consider requests for advances prudently presented.
– During the earlier stages of the debate I was under the impression that the directorate of the proposed central reserve bank acting under the powers conferred on them by the bill might well be trusted to safeguard the interests of the public. Throughout the debate the Treasurer has explained very suavely but plainly that t lie measure did not intend anything drastic or radical, and that the public may rest quietly assured that everything is all right; that the directorate may bc trusted, as men of character and discretion, to exercise their functions with a caution and a reserve that will evoke the admiration of the community. Since then speeches made by honorable members opposite, none of whom are now present with the exception of the honorable member for East Sydney (Mr. West) and the honorable member for Hunter (Mr. James), taken in conjunction with their previous views on the bill, have persuaded me that something more than the assurances given by the Treasurer are necessary to re-assure the general public in the matter. Let me recall the attitude previously adopted by honorable members opposite. In his second-reading speech the honorable member for Adelaide (Mr. Yates) said that the bill left him “ stone cold.”
– Order! I ask the honorable member to confine his remarks to the clause.
– I shall do so. When the honorable member addressed himself to this clause he adopted quite a different attitude, and said that it fills him with the wildest hope ; that it gives him the only satisfaction that he has found in the measure; that money will flow in a liquid stream available for anybody. In effect, the honorable member intimated that he visualize* a time when the central reserve bank will say : “ This is our giving-away day ; come along and dip in.” In his secondreading speech, the honorable member for Werriwa (Mr. Lazzarini) considered that the bill would be ineffective; in fact, useless. Yesterday, when discussing this clause, the honorable member said that he expected a very considerable amount of money to be made available for certain purposes dear to his heart. At first the honorable member for Martin (Mr. Eldridge) said that the bill was merely a gesture something to show the direction in which the Labour party was going. Then the honorable member for Hunter (Mr. James) was of the opinion that this clause will provide large funds for water and sewerage systems, which cannot at present be obtained. .
– I did not say that. I said that if the bill does not make that money available, it is no good.
– I accept the honorable member’s own words. He said that the bill is futile if it does not provide funds for sanitaryfacilities for Cessnock. It is for the Treasurer to say how far the measure will provide those facilities arid at whose expense they will be provided. Honorable members must remember that the money which will be made available will be the savings of the people, garnered at the expense of sweat and toil. It will be transferred in the form of reserves to this new bank, and will not merely be stowed away in its cellars. If money is to be used for the schemes suggested, let it be obtained from the private banks in the ordinary way and not by. a subterfuge, as is possible in this clause.When the Treasurer rises to reply he will no doubt repeat what he has already stated.
– I shall not. Tedious repetition is the prerogative of the Opposition.
– The only argument advanced by the honorable gentleman in defence of the proposal is that the Commonwealth Bank already has a similar provision in its constitution. He said that with the air of one making an important discovery. As a matter of fact, the trading banks do the same thing in the course of their general business.
But they have on their directorate men elected by the shareholders to look after the interests of shareholders and clients, men who can be trusted not to make advances that would be against the interests of those in regard to whose money they act in a fiduciary capacity. The honorable member for Parkes (Mr. McTiernan) read us a homily on scaremongering. I remind him that scaremongering is the peculiar privilege of honorable members opposite. It must be realized that a substantial volume of public opinion views the outcome of this measure with trepidation, and even alarm.
– How many public meetings have been held to protest against the measure?
– Apparently the honorable member’s idea of public opinion is governed by the expressions of public meetings such as those held in favour of wheat pools, and described recently by the honorable member for Wimmera (Mr. Stewart). Anybody who goes about the country with his eyes open and in a receptive frame of mind knows perfectly well that whatI say is true ; that there are people who have the whole of their life’s savings in banks who view with the utmost anxiety the outcome of this measure. After hearing the speeches of honorable members opposite on this clause I believe that their concern is justified. It is the duty of the Treasurer to give a definite assurance regarding the intended operation of the bank, in order to allay public anxiety in the matter. Unfortunately for the honorable gentleman his colleagues have unmasked the intention of the Government. This central reserve bank is not to buttressthe other banks–
– Hear, hear!
– The twitterings ofthe honorable member for Corio (Mr. Lewis) are added to those of other honorable members opposite on this subject. It has been alleged that instead of being a reserve bank to assist to mobilize the credit of other banks in the interests of Australia, it is the intention of the Government to use the central reserve bank to supply large sums of money to carry out the schemes of Labour Governments, both Federal and State, as mentioned by the honorable member for Hunter and others. It has been made transparently clear how the money will be utilized. The honorable member for Fremantle (Mr. Curtin) said that it was an entirely new thing to limit advances by central reserve banks. Throughout the world the tendency in relation to central reserve banks is in the direction of a limitation of loans. There is hardly a reserve bank that is not so limited.
– The Bank of England is not limited.
– The Treasurer knows that the constitution of the Bank of England, like the British Constitution itself, is unwritten. The Bank of England is unique in that it is neither a trading bank nor a reserve bank in the sense in which those terms are generally used.
– It is a reserve bank.
– Several members have quoted Kisch and Elkin to the effect that-
The temptation to the State to intervene in the affairs of the ventral bank is diminished if the accommodation which the bank may give to the State is .limited.
– That is the seventh time that statement has been quoted during this debate.
– It would appear that it will be necessary to quote it many more times before the Treasurer and his followers will be convinced by it. Evidently, the Treasurer is so certain of his following that he feels that he can ignore the opinions of experts, however apposite to the question they may be. The honorable member for Lilley (Mr. Mackay) described the Treasurer as a master of finance. Having regard to his attitude towards this bill, I am inclined to think that he is rather a master of political finesse. I shall not quote further from the publication referred to, or from other authorities, for I realize that it would be useless to do so. I content myself with saying that the practice throughout the world is to limit central reserve banks in the way proposed in this amendment. Had the Treasurer been prepared to adopt a reasonable attitude, he would have accepted the generous amendment proposed by the right honorable member for Cowper (Dr. Earle Page), for it permits of a greater amount being advanced than is usual in such cases. Without that amendment the bill will not be acceptable to- the people of Australia.
– I agree with the remarks of the honorable member for Warringah (Mr. Parkhill) regarding the decidedly different tone of the speeches of ministerial supporters this afternoon from that of those delivered last night. I understand that there was a meeting of caucus this morning, at which some plain speaking was indulged in. In its original form the bill was moderate. We all agreed to it in principle. As it has progressed through committee it has been altered, but not improved. Last night the honorable member for Werriwa (Mr. Lazzarini), in a frank statement, suggested that money supplied by the bank would be distributed among the people; while the honorable member for Hunter (Mr. James) would have it handed to a number of local governing bodies to be spent on the coal-fields. The honorable member for Adelaide (Mr. Yates) also expressed some very definite views regarding note inflation. Indeed, several honorable members supporting the Government spoke with a frankness and honesty for which I give them credit. But their remarks must have been embarrassing to the Treasurer.’
Some of us who might have been prepared to agree to the clause as printed were it not for the expressions of opinion to which I have referred, ;are now more than ever convinced of the necessity for definite limitation in the matter of loans. The honorable member for South Sydney (Mr. E. Riley) argued that neither the trading banks nor the Commonwealth Bank was limited with respect to loans. I notice in this morning’s issue of . the Canberra Times that the honorable gentleman is likely to be appointed a director of the central bank. Whatever may be his claims to such ‘eminence, the honorable member surely knows that, if he goes to a trading bank for a loan, he will be asked definitely what his resources are, and that the amount of his overdraft will be in proportion to his worldly estate. The Commonwealth Bank will not make advances which are out of proportion to the resources of the borrower either, for in such matters it is in competition with the trading banks.
Throughout Australia there are over 1,000 local governing bodies, which spend over £38,000,000 per annum in addition to the £202,000,000 spent each year by the State and Federal Governments.
– Did not the honorable member have an opportunity to speak on the second reading?
– I have already spoken twice; but I feel it necessary to reply to the extreme statements made by some honorable members opposite. The speech of the Treasurer was sans reproche in the matter of moderation ; but a new light has been thrown on the subject by the wild utterances of honorable members sitting behind him.
Some of the local governing bodies mentioned probably hold very radical views. If this clause is not limited they will expect money to be poured out to them in a prodigal manner. An amendment to restrict the amount to be lent to them is, therefore, necessary. Unless the clause is amended, the trading banks will be affrighted; the public will become alarmed, and eventually the Commonwealth Rank will suffer. Do honorable members opposite know that the Commonwealth Bank holds £13,476,000 belonging to the trading banks?
– We have been told that about thirty times during this debate.
– The honorable member heard it largely in a wrong sense. The honorable member for Corangamite (Mr. Crouch) said that the only money belonging to the trading banks held by the Commonwealth Bank was the gold which they were forced to hand over. That is not so. The Commonwealth Bank has, as already stated, over £13,000,000 belonging to the eleven principal trading banks. That is because the Commonwealth Bank has been used as a bank of settlement. Under this bill the trading banks will be required to hand £22,000,000 to the central reserve bank. Individual banks will be required to hand over as much as £2,000,000 or £3,000,000. What will happen if this amendment is not carried? Those banks will write cheques on the Commonwealth Bank. That will he their contribution to the central reserve bank. The £2,000,000 from the Commonwealth Bank and the £22,000,000 from the trading banks will not be entirely forthcoming, but will be largely a matter of adjustment. The honorable member for Parkes (Mr. McTiernan) said that we should be fair to the directors, and leave the control of the bank in their hands. I suggest that they would be glad of a lead from the Government.
– I do not believe in political interference with them.
– The directors should be given a definite instruction as to the limit of the amount which may be lent to local governing bodies and governments. In view of the speeches by several honorable members opposite last night, and the attitude of the Government towards this amendment we on this side are justified in being suspicious regarding the intention behind this bill. That suspicion emphasizes the necessity for some limitation.
. -Last night the honorable member for
Adelaide (Mr. Yates) put into my mouth words that I did not use. Dealing with paragraph i, I referred to the fact that some years ago the Commonwealth Bank put into circulation additional notes on the security of the wheat crop and the wool clip of Australia. The honorable member for Adelaide made it appear that . I said that those additional notes were placed in circulation at the instigation of the Bruce-Page Government, and that thatwas an instance of political interference with the authorities of the Commonwealth Bank.
– The honorable member for Adelaide did not say that; what he said was that certain assets which had been frozen had become liquid.
– I understood the honorable member for Adelaide to say that the action of the Commonwealth Bank was dictated by the last Government. I wish it to be clear that I made no such statement. . My point was that this action was taken at the instance of the Board of Directors of the Commonwealth Bank; the Government of the day had nothing whatever to do with it.
– I wish to throw further light upon the explanation that has just been given by the honorable member for Gippsland (Mr. Paterson). Last night the honorable member for Adelaide (Mr. Yates) suggested that the Bruce-Page Government had either induced or compelled the Commonwealth Bank to make advances to the private banking institutions to the extent of £15,000,000. I interjected at the time that that statement was absolutely false. The Bruce-Page Government had nothing, whatever to do with that matter. The Board of Directors of the Commonwealth Bank was appointed in August, 1924.. At that time the market for wool had reached a very acute stage. An appeal was made by the private banking institutions to the Board of Directors of the Commonwealth Bank, which in the exercise of its central banking functions agreed to issue notes to the value of £15,000,000 against the securities of the trading banks, for a period of nine months, to enable wool sales to be held, thereby preventing an inflation of the note issue. The Government of the day made no representations to the Board of Directors of the Commonwealth Bank. The matter was one wholly of negotiation between the trading banks and the Commonwealth Bank. There was not at any time an attempt by the last Government to influence the policy of the Commonwealth Bank. It appointed mcn to the directorate of the bank, gave them a long tenure of office, and endeavoured by every means possible to make them independent of political control. Having done that, it left the policy of the bank entirely in their hands. The present Government has found the management of the bank ready and willing to co-operate with it.
– I suggest that the right honorable member is going beyond the bounds of a personal explanation.
– I am not making a personal explanation, but speaking to the amendment.
– The right honorable member is endeavouring to make his position clear.
– When one attempts to clear up a misunderstanding, honorable members opposite are not disposed to give a hearing. I wish to deal with the attitude of the Government and its supporters towards the amendment. It is quite evident, from the warmth of the discussion that has taken place upon it, and the number of honorable members who have engaged in it, that this clause is regarded as the crux of the bill. The attitude of those who oppose the amendment is extraordinary. Some honorable members opposite who at an earlier stage of the debate were prominent in their opposition to- the amendment, appear to have lost their enthusiasm; while others are now adopting an attitude different from that which they displayed yesterday. But that is noi the only extraordinary feature. In framing the constitution of this central reserve bank the Treasurer (Mr. Theodore) has radically departed from the system that has been followed in connexion with the constitution of the Bank of England. Although he claims to have adopted the principle underlying the creation of continental reserve banks, he declines to be bound by any precedent that has been established in those countries whose precedents he follows. When it is suggested that certain statutory limitations should be imposed upon the business that may be done by this new institution, he regards the proposal as an attempt at dictation by Parliament, ignoring the fact that it is proposed by this clause, to dictate to the board of the bank, and that in such a matter it is right that there should be dictation. Honorable members of the Opposition desire to impose limitations that are to be found in practically every similar bank constitution throughout the world; but the answer of the Treasurer is that the Bank of England is not so bound. The Bank of England is not permitted to make unsecured advances to th, Government of Great Britain; it must issue bills that ultimately will be negotiable if necessary.
– The Bank of England makes unsecured advances to the Government of Great Britain.
– Not unless there in some definite undertaking in return such as exchequer bills, treasury bonds, &c. The Government of Great Britain must act in accordance with the laws of. that country.
A further argument of the Treasurer is that this has been the practice in the past, that it was not altered when a previous government introduced an amending measure in 1924, and that consequently it should continue, even though it be reprehensible. I suggest that in the first place the existing circumstances differ in two or three respects from those that previously operated. In the first place, this is an attempt to establish a central bank pure and simple. The Commonwealth Bank of Australia was gradually evolving into a central bank, and in that particular was following the example of the Bank of England. The Treasurer proposes to bring into being a central bank in one operation, springing like Antaeus from the ground fully armed. The Bank of England did not come into existence in that way. But quite apart from that aspect of the matter, the present circumstances make it necessary to introduce certain safeguards so as to limit the amount that this institution may make available to any government. The like circumstances did not exist six years ago. If we do not make provision for such safeguards, those who are well informed in regard to banking business will gravely doubt whether the bill has a sound basis. In the first place, it is. proposed that the private banking institutions shall be compelled to lodge a portion of their cash balances with the central bank. That is a departure from previous practice. In the past it was at the discretion of the private institutions to do this. For the first two or three years following upon the establishment of the Commonwealth Bank, they were suspicious of it; but every year there has been an increase in the amount of their deposits in the Commonwealth Bank. At the present time the total of such deposits is over £13,000,000. If the amendment of the Treasurer is agreed to the total sum deposited in the central reserve bank by the associated banks will be from £15,000,000 to £20,000,000; and as there is to be compulsion, there should be some safeguard as to the manner in which the money shall be utilized. When, last December, an embargo was placed upon the export of gold, Australia was placed in the position of having an inconvertible, irredeemable currency; consequently, the currency can be inflated or deflated according to the policy adopted by the management of the bank. ‘That is a danger that has been recognized ever since the proposal has been advanced to establish a central bank. Without a currency that is freely convertible into gold, all sorts’ of abuses are possible. When the 1924 amendment was made Australia was on the eve of a reversion to the gold currency, from which it departed during the war period. It was intended originally that the gold reserve should have a value of one quarter of the note issue up to £7,000,000 and above that pound for pound in gold. Subsequently that gold reserve was reduced to 25 per cent, of the total notes issued. As I pointed out in my second-reading speech, the bill, as drafted, makes it immediately possible for that reserve to be reduced to a value equal to 17 per cent, or 18 per cent, of the note issue. Practically every government in Australia, both State and Federal, is facing a- deficit, if not this year certainly next year. The total deficits this year are estimated at £9,000,000. A similar position did not obtain six years ago. It has been the experience of other countries that the most potent cause of an inflation of the note issue and the degradation of currency, is the existence of a deficit. In these circumstances it would be a good gesture on the part of Parliament to provide that the central reserve bank shall not have authority to advance to the Government of the Commonwealth, or of a State, or to any authority constituted under the law of the Commonwealth or of any State, more than an amount equivalent to 20 per cent, of the revenue derived from taxation during the preceding financial year. My experience as a Treasurer leads me to believe that such an amount would be greater than any overdraft which the Commonwealth Government has had with the Commonwealth Bank. I am prepared to discuss the extent to which advances should be limited ; but I think an amendment on the lines I have submitted should be accepted as a gesture to other countries, some of which are viewing Australia’s financial position with some apprehension. At present the Commonwealth £100 bonds are selling in London at £83 or £84.
– Our 5 per cent, bonds are bringing £86.
– That is a very low figure, the bank rate being 2^ per cent, lower than it has been for many years. If the Government accepted an amendment. such as I have moved, the confidence of the people of Australia, and those in other countries with which we have financial relations, would be increased, and this would help to establish ‘ our’ financial integrity. I trust that’ the Government will accept the amendment,’ and thus impose some limitation on the board of the central reserve bank in the matter of advances to governmental bodies. ‘
.^-1 am at a loss to understand why the Treasurer (Mr. Theodore) will not accept the amendment moved by the right honorable member for Cowper (Dr. Earle Page), which to me appears sound and reasonable. Apparently, . we must look beyond the amendment itself to ascertain the Minister’s reason for refusing to .accept it. The honorable member for Fremantle (Mr. Curtin) said a few moments ago that the members of the Opposition seemed to see something sinister in the bill; but I would remind him that we on this side of the chamber have offered very little opposition to the measure. He should recollect- that we did not even call for a division on the motion for the second reading. We said that we were in agreement with the principle embodied in the bill, but would submit certain suggestions during the committee stage. This is one of those suggestions, and it is so reasonable and sound that the Treasurer should accept it. But I fear that he is not a free agent in this matter ; if he were he would, I am sure, accept the amendment. I think he is not opposed to it himself, but that honorable members behind him will not allow him to accept it. Why did -the Treasurer suggest last night that this clause might be thrown out iri another place?
– I did not say that.
– Did not the Minister make such an assertion when the honorable member for Swan (Mr. Gregory) was speaking? I am under the impres- sion that the honorable member for Swan said, “You have not got the bill yet; there is a great deal to be said,” and the Treasurer interjected - “Does that mean that the Senate will throw it out?”
– I said - “What does that threat imply “ ; and the honorable member for Swan said that the bill had to go to another place.
– The Treasurer may fear that the Senate will not throw out the bill. Although the honorable member for Fremantle (Mr. Curtin) suggested that honorable members on this side of the chamber see something sinister in the Government’s proposals, I am satisfied, as I stated when speaking on the second reading, that the Government is actuated by the desire to create a central reserve bank that will adequately protect the finances of Australia ; but, having listened to the speeches of honorable members opposite, I intend to redouble my efforts to provide some check upon the board in this respect. I have said that honorable members on this side of the chamber will co-operate with the Government in its efforts to establish a central reserve bank, and to tie the hands of those who, by some hare-brained scheme, would cripple and possibly wreck the financial institutions of Australia. If proof were wanted of the fact that there are amongst us some who would act in that way, I recall the speeches of the honorable member for Adelaide (Mr. Yates), the honorable member for Werriwa (Mr. Lazzarini), the honorable member for East Sydney (Mr. West), and the honorable member for Hunter (Mr. James). The pronouncement of those honorable members provides ground for suspicion. I am confident that so long as the present Government is constituted as it is, there would be no occasion to fear that the clause, in its present form, would be misused ; but a time may come when the hands of the Government may be weakened, and it may be forced by a power behind it to do what it may consider to be unsound. That is why I am supporting the amendment. I should like to know what are the real reasons why the Minister refuses to accept such a reasonable proposition. If he persists in declining to accept it, he and all those who are supporting him will be regarded as suspect by the people of this country.
Question - That the words proposed to be inserted be so inserted (Dr. Earle Page’s amendment) - put. The committee divided. (The Temporary Chairman - Mr. Mack ay.)
Majority . . . . 17
Question so resolved in the negative.
.- I move -
That the words “or to any authority constituted under the law of the Commonwealth or of any State “, paragraphi, be omitted.
Many arguments have been advanced in favour of giving the board of the central reserve bank power to make advances to the Government of the Commonwealth or of a State, but the Minister should explain why the board should have power to make advances to any authority constituted under the law of the Commonwealth or of any State. It will, I submit, be impracticable for the bank to keep its reserves as liquid as possible if it is empowered to make advances to any authority, as proposed in this paragraph. Then this other point arises: If this power to make advances to any authority constituted under the law of the Commonwealth or of any State is given to the bank, is it contemplated that there will be branches of it established throughout the Commonwealth to enable such business to be transacted? It is obvious that it is not of much use to make advances to some authority at a place in the middle of Queensland or Victoria, where no branch of the bank has been established. I should say, from my knowledge of local government, that all the accommodation that these various authorities need would be on very long terms. For instance, advances to the various municipalities for local works, such as water and sewerage supply, are usually made for terms of 20 years, 25 years, and 30 years. I take it that nothing of that nature is contemplated under this bill. I ask the Treasurer what this paragraph actually means, what limitation is to be made, what business is going to be done, and what branches are to be established?
.- If the amendment were accepted, the central reserve bank would really be precluded from acting as a banker for certain of the large authorities in connexion with which the central reserve institution should act in the same way as the Commonwealth Bank now acts for the Commonwealth or State Governments. I refer especially to those large authorities which are in the habit of making loan issues to the market. Let us take, as an example, the municipalities of Sydney, Melbourne, or Brisbane, or the Melbourne and Metropolitan Board of Works. At the present time those authorities make periodic issue of loans, and issue their own securities under a State Government guarantee, but in the meantime some of them obtain a temporary advance from the Commonwealth Bank, pending the issue of the loan. The bank lays down the conditions that it thinks necessary in regard to the temporary accommodation. It is not intended that the central reserve bank shall become the banker for, or should provide accommodation to, all kinds of local authorities throughout Australia. There is no machinery to permit of that being done, as the right honorable member for Cowper (Dr. Earle Page) has implied in asking whether there are to be branches of the central reserve bank established throughout the country. There will be a branch in each of the main cities of the Commonwealth where the central banking business is to be done, but these will not be branches in the same sense as there are branches of the trading banks. It is not at all likely that the central reserve bank will be doing business with the small local authorities.
– Is there to be no limitation at all?
– The central reserve bank will exercise its judgment as to the extent to which temporary assistance may be afforded to local authorities. The Commonwealth Bank has temporarily carried one or more local authorities to the extent of £1,000,000, pending the issue of a loan. Of course, the bank when it has carried a particular authority as far as it thinks fit, has the right to insist that that authority shall issue its loan. In a case of that kind, the bank’s instruction becomes imperative.
Clause agreed to.
The Reserve Bank maynot -
purchase municipal securities or debentures (other than those of any capital city in Australia) having a currency of more than two years to date of maturity;
accept money on deposit for a fixed term, or allow interest on current accounts except Commonwealth and State Government accounts:
except in so far as is necessary for the conduct of its own business, remain the owner of real property for any longer period than is required in order to realize to proper advantage such real property as may come into its possession in satisfaction of claims due to it; or
make unsecured loans or advances except to the Government of the Commonwealth or a State, or to any authority constituted under the law of the Commonwealth or of any State, or to any corporation carrying on the business of banking.
I move -
That the words “ (other than those of any capital city in Australia) “, paragraph d, be omitted.
If that amendment is carried, the paragraph will read - “ The reserve bank may not purchase municipal security or debentures having a currency of more than two years to date of maturity.” It seems to me that the argument which has been so frequently advanced, and which is so well maintained by the comparisons with other central banks, applies with regard to municipal securities or debentures, and surely also applies in this case. There is no question that large parcels of municipal securities of all kinds are, indeed, difficult to sell quickly without heavy loss. It seems to me that we are making it possible for the reserves of the bank to be tied up by making an exemption in the case of municipal securities or debentures of any capital city. It is agreed that the ordinary municipal securities or debentures having a currency of more than two years to date of maturity shall not be purchased by the central reserve bank, and the object of this amendment is to restrict as much as possible the purchase of any municipal securities or debentures that are not freely marketable.
– This paragraph has been inserted in the clause, not to instruct the central reserve bank that it shall purchase securities or debentures of capital cities even where the currency is of more than two years to date of maturity, but to give it freedom to operate without restriction in the money market. The central reserve bank may have to buy securities and debentures in the market in order to supply funds to the market, or conversely, it may require to sell securities that it holds to the market in order to withdraw funds from the market. One of the essential functions of a central reserve bank is the restricting or expanding of credit, and the municipal bonds referred to in this paragraph are bonds that feature on the stock exchange. They are readily marketable, at any rate, at certain periods. There is no reason why we should prohibit the central reserve bank from dealing in those bonds. It is not likely that the bank will buy that class of security unless it is readily negotiable. The bank is unlikely to tie up its funds in any non-liquid form of security, especially when carrying out its function under this clause. I submit that there is no necessity for the amendment, because this provision, if allowed to remain as it stands, will be of benefit to the bank.
.- I move -
That the words “except Commonwealth und State Government accounts “, paragraph e, be omitted.
If this amendment is accepted the paragraph will read, “ The reserve bank may not accept money on deposit for a fixed term, or allow interest on current accounts.” The object of this paragraph is, first, to prevent the assets of the central reserve bank from being tied up for any definite period, and, secondly, to prevent interest from being allowed on current accounts with the bank. If it were necessary for the bank to provide profits to enable it to pay interest on current accounts, then it might readily be induced to engage in business which might be highly profitable at the time, but have the effect of seriously jeopardizing its position in times of difficulty. There is no real advantage to the Commonwealth in this matter, because the profits of the central reserve bank are to be divided. One part of the profits is to be used for building up a reserve, and the other for increasing the amount paid into the sinking funds of the Commonwealth.
– It is really a bookkeeping item.
– The profit that comes back to the Commonwealth is not important. The paragraph, as it stands, violates one of the fundamental principles of central banking. Mr. Clegg, the Governor of the South African Central Reserve Bank, which has been frequently quoted by the Treasurer, pointed out in a recent article in the Economic Journal that there were three fundamental points that should never be violated by any central bank. First, it should not pay interest on any accounts ; secondly, it should not put out any of its money on fixed mortgage ; and, thirdly, it should not make unsecured loans or advances. Those three proposi tions form the fundamental fabric of the central banking system.. . Mr. Clegg.. was appointed by the Government of South Africa as. the Governor of the Central Reserve Bank of that country, and he has now .had some . eight . or nine years’ experience -of its activities. He is definitely, of the opinion that what is now contemplated by the Government under this paragraph is not in accordance with the principles of central banking. At the present time neither the Commonwealth Bank nor the other banks pay interest on accounts that lie at the credit of the Commonwealth Government. The Treasurer would be well advised to leave any profits that might come from these transactions, under the provision relating to the payment of profits into a sinking fund. Since the Loan Council has been constituted, there has been a much greater flexibility and mobility in respect of Government accounts, and it has been the practice of debtor governments to take advantage of the unused balances of the other governments. From the point of view of establishing this central reserve hank on the best possible lines, the Government would be well advised to accept the amendment.
– The reason for the provision that the reserve bank may not accept money on deposit or pay interest on current accounts is to prevent it from becoming a trade competitor with the private banks. That objection does not apply in the case of government accounts, because it is admitted that a central reserve bank is the proper institution to control government accounts. The payment of interest on such accounts by a central reserve bank would not attract any business to which private banks might be legitimately entitled. Contrary to what has been said by honorable members opposite, it has been the custom in the past for banks to pay interest on government accounts when they have been in credit.
– Many banks began by paying interest on the current accounts of private depositors, but they all abandoned it after a time.
– That is a different thing. When the current account of a government is buoyant, and accumulating, and the bank knows fairly well what the future demands on the account will be, it can well afford to pay interest on the funds it has at its disposal. Our experience in Queensland was that the Queensland National Bank, with which the State Government banked, always paid interest on credit accounts over a certain amount.
– What interest does the Treasurer suggest should be paid by the reserve bank? It should be something fairly low.
– That would be a matter for treaty between the Government and the bank.
– What is the practice followed by the Commonwealth Bank at the present time in regard to the payment of interest on government accounts?
– It pays interest on all credit balances..
– On current accounts?
– All government accounts are current accounts.
.- Honorable members will. admit that there is some weight in what the Treasurer has said. It seems to me, however, that the Treasurer has not met the objection that the payment of interest on government accounts will encourage the central bank to endeavour to make profits, and it is admitted that profit-making is not the function of such a bank. Having regard to the provision in the bill for the application of profits made by the bank, it appears to me that the Commonwealth Government, at least, has nothing to gain by allowing the bank to pay interest on its own current account.
– We should certainly endeavour to arrange that no interest was paid on the Commonwealth Government’s current account.
– There is a danger that the obligation to pay interest on current accounts might lead the bank into regarding the making of profits as an important object of its existence.
– The Deputy Governor of the Commonwealth Bank has informed me that it is usual for the Commonwealth Bank to pay a low rate of interest on credit balances standing in the name of State Governments, when they exceed a certain minimum figure, say, £100,000.. Unless provision were made for the central reserve bank to extend at least as favorable consideration to the State Governments, it would probably lose their accounts. That is why it is proposed to allow the reserve banks to pay interest on such deposits.
.- The reason given by the Treasurer is, I think, a very strong argument in favour of the course I have suggested. The chief purpose of the central reserve bank is to stand behind, and buttress the private trading banks. It is not primarily for the convenience of State Governments.
– It is admitted by everybody that it should do the banking for State Governments.
– It is admitted by every one, also, that it should not pay interest on government accounts, and if it is allowed to do this there will be a temptation to it to seek profits. In order that it may not be required to make profits, it is to be advanced £2,000,000 by the Commonwealth Bank.
– Yes; profit-making is only a secondary consideration.
– -In one part of the bill we are endeavouring to relieve the bank of the necessity of making profits, and in another we make it imperative for it to seek profits. If it is to pay interest on deposits it must make profits. It may not always be able to use government deposits profitably, and it will have to seek its profits from other sources. Perhaps the Treasurer would agree to defer consideration of this clause with a view to having it modified in some way.
– Unless the Treasurer assures us that it is necessary that the central reserve bank should handle these accounts, I do not see that there is any need for making provision that interest may be paid on them.
! - It is necessary that government accounts should be kept at the central bank. The New South Wales Government banks with the Bank of New South Wales and with the Commercial Bank of Sydney, and receives 2 per cent, on its account when it is in credit. Unless the central reserve bank pays at least as much the New South Wales Government will, not transfer its account.
– Will the Government reconsider the matter and see what arrangement can be come to?
.- I move -
That all the words after “advances,” paragraph g, be omitted.
As the clause now stands advances may be made without security to State Governments, and to authorities constituted by a law of the Commonwealth or of a State. My amendment would bring the clause into line with the provision in the constitution of practically every central reserve bank in existence. In those constitutions it is laid down quite definitely that no unsecured loans or advances shall be made.
– If we omitted those words we would change the policy of the bill as set out in clause S. The effect of the amendment would be to prohibit the central reserve bank from making unsecured loans or advances to the Commonwealth Government, or to any of the State Governments. Paragraph i of clause 8 enables the reserve bank to make advances to the Commonwealth or State Governments, and sub-clause g of clause 9, prohibits the bank from making any unsecured loans or advances to any ordinary borrower. Exception is made in favour of the Commonwealth or State Governments, or authorities constituted under a law of the Commonwealth or of any of the States. Security is- insisted upon in the case of ordinary borrowers in order to protect the hank, but the same consideration does not apply in the case of advances to governments.
– No security could be better than the credit of a government.
– It could not be any better, I suppose, than a guarantee given by a government. Are honorable members fearful that a State Government might default? The bank would not make any advance or loan to any authority unless that authority had parliamentary sanction to arrange the loan.
– Does that apply to the ordinary overdrafts of the Commonwealth Treasurer? This Parliament has no knowledge of the amount of the overdraft, and I do not think it should have knowledge.
– But the AuditorGeneral knows. The Commonwealth Treasurer can get no overdraft accommodation unless he has legal sanction.
– That is a general sanction given to the Treasurer.
– It is a statutory sanction. Before making any unsecured advance or loan to a recognized authority, the central bank would first be assured that the borrowing body had statutory authority to arrange a loan. The bank might also require some guarantee for its repayment on a certain date. These transactions are of frequent occurrence. The Commonwealth Bank, when it makes advances to a State Government, does so on a definite undertaking that the amount advanced is repaid within a certain time. The same conditions are laid down in respect of advances to authorities constituted under the laws of a State, such as the Metropolitan Water, Sewerage and Drainage Board of Sydney.
– Or a shire council?
– Not necessarily a shire council.
– Paragraph g will permit of advances to any authority constituted under the law of a State.
– I do not know if the honorable member was present earlier in the discussion on this clause. I then made it clear that the authorities covered by this provision would include such bodies as the Civic Commission of Sydney, the Brisbane City Council, the Melbourne and Metropolitan Board of Works) the Sydney Water, Sewerage and Drainage Board and a number of other major local governing authorities, about a dozen in all, which have statutory power to issue loans in their own name and under their own guarantees. Municipal or shire councils -will not be covered by this provision. It would be manifestly impossible for the central reserve bank to deal with these smaller local governing bodies, which will have to continue, as hitherto, dealing with their own trading banks. I do not know how we can better indicate the authorities to -which unsecured advances may be made. Whether the bank -will accept the securities offering is a matter which we must leave to the discretion of the board. It would be unwise to accept the amendment of the right honorable member for Cowper. If we did, every advance made to a government must be. covered by a security. I have already stated, this practice is not now followed. Advances aggregating millions of pounds are made in the name of many authorities constituted under the Commonwealth and State laws.
.- I am not satisfied with the explanation or the assurance of the Treasurer. We must take the clause as printed and interpret it accordingly. It appears to me that those who drafted the bill wished the central reserve bank to compete with the trading banks. Such bodies as the Sydney Harbour Trust and the Melbourne Harbour Trust, to mention only two that occur to my mind, should bc able to secure advances without the specific authority required under this proposal. The Treasurer has admitted that it will be possible for municipalities or shire councils to make application to the central bank for advances, but whether advances will be made will depend upon the view which the board takes of the securities offering. The central bank should not do that class of business. There is not the slightest doubt that the bank will be subject to a certain amount of political pressure. We have evidence of this in the United States of America. Members of the Federal Reserve Board are nominated by the president, but the persons named are not appointed unless the Senate approves the nomination. I certainly would not approve of the establishment of a central reserve bank if certain nominees of the Government to the board would have a prepondering influence in the direction of its policy. However, the committee has made its decision in the division on the amendment to paragraph * of clause 8, so I suppose it is of no use to persist with our objection to this clause. It certainly is not a credit to those who drafted it or to the Government.
.- The Treasurer, perhaps unintentionally, furnished us with an argument in favour of this amendment. Last night I contended that the proposed reserve bank would have authority to do certain things which it is not possible for the Bank of England to do. The Treasurer was good enough to see me afterwards, and referred me to certain views set out by Kisch and Elkin’s works on central banking, which has been quoted so much in the course of this debate. The particular passage to which the Treasurer directed my attention was this, referring to the practice of the Bank of England -
The bank may not advance to the Government without the express authority of Parliament. But nothing in the act was to prevent the hank from purchasing exchequer-bills or treasury-bills, or other government securities which, by law, it was authorized to purchase.
The first part of that statement indicates that the Bank of England may not make unsecured advances to the British Government except under a specific authority from Parliament. In other words, there must be specific legislation relating to the particular transaction.
– The Bank of England can make unsecured advances to a government.
– It may only make advances to the Government without specific legislative authority provided it is done per medium of exchequer-bills or treasury-bills.
– The Bank of England can make unsecured advances to a government. When I was Premier of Queensland I made an agreement between the Government of Queensland and the Bank of England, under which the Government was permitted to draw up to £1,000,000 without security.
– I am not satisfied that the Government’s proposal is as safe as the banking practice of the Bank of England. It means that the central reserve bank will have power to make advances without security, to government bodies, whereas in similar circumstances the Bank of England would require the security offered by exchequer-bills or treasury-bills. I therefore support the amendment.
.- Honorable members opposite have displayed considerable ingenuity in their criticism of the bill. Their object, of course, is to prevent the proposed new bank from functioning in the interests of the people. They have not displayed the characteristics of wise legislators in their opposition to this hill. It may be that they are preparing material for their fellows in another place or for use before the electors, but surely they realize the foolishness of the many amendments they have moved for the purpose of delaying the establishment of a central reserve bank. Why cannot they join in this attempt to remove some of the evils now existing in our economic system? What objection can there be to a proposal to allow funds held by public trustees - for example, those administered by the various Curators of Intestate Estates - to be deposited in a central reserve bank? Surely it will not be said that such an institution will not be sound or worthy of Australia. Honorable members opposite, by their attitude toward this bill, are making themselves look small in the eyes of the intelligent democracy of the country. I want to see the measure go through as speedily as possible so that we can get on with other legislation we have been sent here to enact or improve. I trust now that honorable members opposite will cease moving silly amendments and be guided by common sense.
.- I point out to the honorable member for East Sydney (Mr. West) that the Treasurer has brought down about 30 amendments to try to improve the bill, and I think an impartial student of the amendments submitted by the Opposition will recognize that they are wise and soundly-based and that, if accepted, they would enormously improve the measure. In fact, I think that subsequently the honorable member will find himself regretting that he did not support us in having them made part of the statute. I want to put on record one or two examples of the manner in which this particular class of business is dealt with in the constitution of other central reserve banks. One of the latest of these banks to be constituted is that of Greece. It was set up after consideration and consultation among various banking authorities, and special action in respect to it was taken by the League of Nations. Under its charter it cannot grant overdrafts or unsecured advances, or advances secured otherwise than laid down in subsection 10 of article 55.
– What kind of security does the honorable member contemplate that the bank should execute?
– Let me read what is set down in the charter of the Greek bank to show how, in a practical fashion, Greece has endeavoured to deal with the problem of how to remove the temptation to make use of the existence of a central reserve bank for government business, when it really ought to be standing behind the banking community. Subsection 10 of article 55 reads as follows : -
The Bank may . . .
Grant advances for fixed periods not exceeding six months against the following:
Gold coin or bullion.
Bonds of or guaranteed by the Government and other Greek bonds and shares quoted on the Stock Exchange of Athens; foreign Government bonds quoted on the Stock Exchange of any principal financial centre, the capital and interest of which are payable in the currency of a country stabilized on gold. Provided that no advance shall exceed 80 per cent. of the market value of such bonds and 70 per cent. of the shares, and that the eligible bonds and shares shall be chosen by a three-quarter majority of the Board of Directors.
Treasury bills of the Hellenic Government within the limitations specified in (6) of this Article.
Sub-section 6 says -
The Bank may . . .
Discount, purchase and sell Treasury bills, maturing within three months, which are endorsed by some bank, person or firm whose name has been approved by the Directors. The total amount so acquired or accepted as collateral(see 10 (c) below) may not altogether, at any time, exceed 400 million drachmas. The aggregate of such discounts, collateral security and advances to the State made under Article 55 (11) may not exceed one-tenth of the estimated receipts of the ordinary budget for the current financial year, as voted by the legislature.
Sub-section 10 continues -
The other two matters covered have nothing whatever to do with governments. Honorable members will see that in Greece provision is made that the central reserve bank may not grant overdrafts or unsecured advances, or advances secured otherwise than is laid down. That is to say there must always be some negotiable security in the bank against advances made by it.
– But a treasury bill is merely a promise on the part of the Government to pay.
– It is a negotiable security - something which can be bought or sold in the open market; and that is what I want our bank to have in its possession. The Treasurer has mentioned that it is necessary for the central reserve bank to have some power under which, by selling or buying securities, it can materially expand or contract credit. If we find that, instead of the bank’s portfolio being filled with such paper as that, which can be bought or sold in the open market, its resources are simply utilized for the purpose of granting unsecured overdrafts to governments, it will not be able to do anything in the direction of expanding or contracting credit. In order to secure control of financial operations in the market-place the bank must have something against which it can get money at any particular moment.
Sitting suspended from 6.12 to 8 p.m. [ Quorum formed.]
– Article 12 of the charter of the Netherlands Bank provides that the bank shall not make unsecured advances; and Article 11 permits it to purchase at a sale under execution securities or goods pledged with the bank for subsequent realization. Article 16, as summarized by Kisch and Elkin, reads -
As an exception to Article 12 above, bank is bound when Finance Minister deems necessary, to advance moneys to Treasury on current account against Treasury notes, the issue or pledging of which is permitted by law. These advances shall not carry interest, but may not at any time exceed guilders fifteen million. This obligation will cease -
If State resolves to issue Government notes. By virtue of special arrangement between the bank and the State the currency notes issued by the State since August, 1914, are not considered “ notes “ in the sense of this clause;
As soon and as long as metallic surplus of banks falls below guilders ten million.
The Bank of Japan is authorized - to make advances on current account or loans, for fixed terms, upon the deposit of public loan bonds, bills or notes issued by the Government, and other securities guaranteed by the Government, provided that the amount of such advances and loans and the rates of interest thereon shall be determined on each occasion by a joint resolution of the Governor the ViceGovernor, the directors and the auditors, with the approval of the Minister of State for Finance therefor.
The charter of the National Bank of Hungary provides -
Neither State nor local bodies can avail themselves, either directly or indirectly, of the bank’s resources, except against value given in form of notes, gold or foreign credits.
State not to issue paper money, and in general to take no measures calculated to impede bank’s discharge of its primary obligations to maintain value of currency.
If either of above undertakings are infringed, bank may lodge complaint before Royal Hungarian Supreme Administrative Court. Bank may also demand that, pending decision, measure complained of should be suspended. President of court is to give decision within 24 hours regarding such application.
Bank may execute commission transactions for State, provided that such transactions do not result in debit balance for State.
All the countries I have mentioned have populations greater than that of Australia. Some of us may think that because we occupy a continent of 3,000,000 square miles, isolated from the rest of the world, our financial affairs can be governed differently; but if we make departures from approved practice we shall be quickly undeceived. What other countries with greater populations have had to do Australia will have to do.
– Their political standards and ethics are different from ours.
– That is a gratuitous insult to other countries. The political standards of the Netherlands have always been very high.
– High, but different.
– The experience of other countries has shown that when governments are feeling the financial pinch they will readily avail themselves of any means at their disposal to ease their troubles. We must ensure that the Commonwealth is safeguarded against an undue inflation of credit and an improper use of the reserve banking system, which is designed for reserve purposes and to fortify the financial institutions rather than to assist necessitous governments. We must make the banking machinery as effective as possible, and I hope that the Treasurer will agree to an amendment which will make it impossible for any government, without getting specific legislative authority from this Parliament, to take an improper advantage of the resources of the reserve bank.
Clause agreed to.
Clause 10 - ( 1. ) Each bank carrying on business in the Commonwealth shall establish and maintain with the reserve bank reserve balances of not less than ten per centum of its demand liabilities within the Commonwealth and five per centum of its time liabilities within the Commonwealth. (2.) When it appears from any return that any bank has failed to establish or maintain reserve balances in accordance with the ‘last preceding sub-section, the Auditor-General for the Commonwealth may, at the request of the Governor, call for such returns, . . . and the Bank shall be liable to a penalty, recoverable by action in any court of competent jurisdiction, at the rate of ten per centum per annum of the amount of the deficiency for each day on which it continued. (5.) This section shall not apply to the Savings Bank Department of the Commonwealth Bank or to a State Savings Bank.
.- The effect of sub-clause 1 is that immediately after the passing of the act the trading banks will have to establish reserve balances to the prescribed amounts. At the present time the Commonwealth Bank holds about £13,500,000 for the trading banks, and has about £6,000,000 of cash and readily realisable securities. If the trading banks are required immediately after the passing of this legislation to make a full deposit with the reserve bank, the Commonwealth Bank may be embarrassed by the withdrawal of these deposits. I suggest that the clause should be amended to enable the banks to make their deposits in monthly proportions, or within twelve months from the commencement of the act.
– Move that the words, “within the prescribed time,” be inserted.
Amendment (by Dr. Earle Page) agreed to -
That after the word “shall,” sub-clause 1, the words “ within the prescribed time “ be inserted.
.- I move -
That the word “establish,” sub-clause 1. be omitted with a view to insert in lieu thereof the word “deposit”.
Clause 48 provides that the reserve bank shall hold certain reserves against the liabilities to depositors, and I understand that the Government intends that a reserve shall be held against the amount deposited by the trading banks. If the word, “establish,” is used in clause 10 instead of the word, “ deposit,” it might be arguable that this measure draws a distinction between the depositors referred to in clause 8, paragraph g, and clause 9, paragraph e, and other persons or corporations which establish balances under clause 10. The amendment I have proposed would avoid any possible misconception.
– I accept that.
Amendment agreed to. .
– In consequence of the substitution of the word “deposit” for “establish,” I move -
That after the word “and”, first occurring, sub-clause 1, the word “thereafter” be inserted.
The sub-clause will then read-
Each bank carrying on business in the Commonwealthshall establish and thereafter maintain with the Reserve Bank reserve balances of not less than ten per centum of its demand liabilities within the Commonwealth and five per centum of’ its time liabilities within the Commonwealth.
Amendment agreed to.
.– I move -
That the word “ ten “, sub-clause 1, be omitted, with a view to insert in lieu thereof the word “ seven.”
Subsequently, I shall move for the substitution of the word “three” for that of “five,” in regard to time liabilities. I understand that the honorable the Treasurer (Mr. Theodore) has agreed to the latter amendment, so in the arguments that I shall adduce I will take it for granted that that is the manner in which the provision will operate. The
Record indicates that for the March quarter of this year the liabilities of the banks were £177,000,000 bearing. interest, and £96,000,000 not bearing interest. The former, of course, are the time liabilities, and the latter the demand liabilities, if the sub-clause remains as it now stands it will necessitate the banks lodging 10 per cent, of their demand liabilities with the Commonwealth. Ten per cent, on £96,900,000 is £9,690,000, or roughly £10,000,000, while 3 per cent.– on £177,000,000 amounts roughly to £5,300,000. Altogether the banks would at least have to deposit with the central reserve bank over £14,900,000. At present those banks have on deposit with the Commonwealth Bank something approaching £13,000,000. I gather that, in order to comply with this new law, it will be necessary for them to have in the hands of the bank £4,000,000 or £5,000,000 more than the fixed minimum, so that if £15,000,000 is provided by law it will be necessary for them to have £20,000,000 available for this purpose. If my amendment were accepted that sum would be reduced by about £3,000,000, making the fixed minimum roughly £12,000,000; but they would probably need always to have approximately £17,000,000 to provide for any contingency which might arise. The position in Australia in this respect is rather different from that which exists in smaller and more congested countries. Here many banks have hundreds of branches, and must make provision for till money, and so forth. In addition, we have most of our eggs in two or three baskets, which are considerably affected by seasonal fluctuations, so that our banking figures alter very much at different times of the year. A bank might be well within its compass at one time, while at another it might find itself outside the range of this sub-clause. I’ suggest that we should go further than the bill at present provides, and reduce the percentage of demand liabilities to 7 per cent. That would not make any real difference to the central reserve bank itself, but it might make a very great deal of difference to the conduct of the other .banks.
– If I thought that the percentage of demand liabilities specified in the clause was likely to cause any inconvenience to the private banks, I should not adhere to it, but after full consideration of the matter - representations have been made to me direct from the trading bank1 and I have discussed the subject with the representatives of the associated banks, and also with the Commonwealth authorities - I cannot agree that the slightest inconvenience or restriction would be placed upon the private trading banks- as the result of this, percentage being insisted upon. The figures on which we have been working - and with certain adjustments they correspond with those quoted by the right honorable member for Cowper (Dr. Earle Page) for the March quarter of the present year - bring the demand deposits up to £116,000,000 odd, including those of the Commonwealth Bank and all the banks ‘that would be subject to the operation of this bill, while the time deposits amount to some £188,000,000, or a total .of £305,000,000. Ten per cent, of the demand deposits, which do not bear, interest, would mean that the private banks would have to deposit £11,600,000 as a reserve with the central reserve bank, and 3 per cent, of the time deposits “ would yield £5,300,000, or a total of £17,300,000. If those percentages are taken into account, together with the aggregate amount of deposits in the two categories, it will be found that the average percentage of the cash reserves of the trading banks which will require to be deposited with the central reserve bank works out at about 5.668 per cent, of their entire liabilities. Taking the two classes together it averages a little over 5£ per cent, of the average liabilities. But the trading banks as a rule keep from 17 to 18 per cent, of their entire liabilities in cash reserves. The amount fluctuates, and might average a little less than that, but rarely, if ever, does it fall below 15 per cent, of the entire liabilities of the bank. Indeed, in Australian banking practice it is regarded as “quite necessary for the banks to maintain a margin of a little more than 15 per cent, of cash against their liabilities. If some of the banks’ have been trading on smaller margins that merely affords an argument in favour of the establishment of a central reserve bank to’ curb the tendency to reduce the cash margin. - I am not saying that banks have been trading on unsafe margins; I merely indicate that the margin rarely falls below 15 per cent., and frequently represents over .20 per cent, of their liabilities. Accepting the figures for the March quarter, and with the deposits provided for by this clause, the banks would still have left with them at least £27,000,000 as a cash reserve to meet all their day-to-day transactions: to provide till money, and everything needed to meet the immediate requirements of their business. Of the balance, the amount that is provided for here - 10 per cent, of the demand liabilities and 3 per cent, of the time liabilities represents so much cash which, in the normal course of business, would remain in the vaults of the banks unused for their daily transactions or as till money, and, so far as the trading banks were concerned, could conveniently be deposited with the reserve bank.
– Is that £27,000,000 apart from the capital of the banks ?
– That is simply the cash reserve held in gold coin or bullion, or Australian notes by the banks as the margin of cash against the liabilities that they may be called upon to meet from day to day, or as their time deposits expire.
– It might represent revenue receipts or capital moneys, but it is really the cash reserve of the banks.
– It might represent portion of the actual subscribed capital. It is all used in the business of the banks. The reason why our trading banks have made a practice of keeping somewhere about 20 per cent, of their liabilities as cash reserves is that many of their liabilities are demand deposits, and they have to be ready to meet the demands of their customers whatever they might be. Those banks might just as well deposit with the central reserve bank all cash reserves which are not used in day to day transactions. That is the theory of the reserve bank system. If they are so deposited with the central reserve bank it in no sense hampers the working of the trading banks. The very fact that the private trading banks of Australia have voluntarily deposited £13,000,000 or more with the Commonwealth Rank indicates that they see some advantage in keeping a portion of their reserves on deposit with that institution, and that the practice in no way hampers them in their trading activities. Under the compulsory requirements of this clause it would be necessary for those banks to deposit a little more with the central reserve bank, but the additional amount required is not expected to hamper or interfere with them in any sense whatever. If it could be demonstrated that it would hamper them in their daily transactions, or in respect of their desire to extend credit, or to ease the monetary position, there would be the strongest argument to alter the percentage. But I am quite convinced that there is no necessity to do so. I have listened to the contentions of the representatives of the associated banks with regard to time liabilities and have agreed in that case to reduce from 5 to 3 per cent, the amount required to be deposited. There is not so imperative a demand on the banks to have such a large reserve against that class of liability. They know when the individual liability matures, and can make provision for it. The position is .quite different in respect of demand liabilities, to cover which the banks must necessarily provide a larger proportion of reserve. I urge the committee to allow the clause to go through as it is framed, with regard to demand liabilities. I shall, myself, make an alteration changing the percentage to three instead of five in regard to time liabilities. I am quite sure this will be found to be a thoroughly practical ‘and convenient scheme.
.- I consider that the honorable the Treasurer (Mr. Theodore) has approached this matter in an entirely proper spirit, and that everything that he has said has been in accordance with sound principles. The only question that arises is as to the application of those principles to the facts of the present day. I am very glad indeed that the Treasurer has decided that the provision requiring that an amount equal to 5 per cent, of the fixed deposit shall be lodged by the trading banks with the central reserve bank, shall be amended by substituting 3 for ‘5- per cent. It is gratifying to know that that concession is to be made to the representatives of the banking community.
The result is that, instead of the trading banks having to lodge with the central reserve bank nearly £21,000,000, they will be required to lodge only £17,300,000. The alteration goes a long way to meet the consideration which I advanced during my second-reading speech as to the danger of subtracting an undue amount from the reserves of the banks at a time when it is important that no confusion shall be introduced into the financial sphere in Australia. The Treasurer says that he is convinced that the requirements of this clause, subject to the amendment which he has foreshadowed, will not impose an undue burden on the trading banks. On such a matter the committee must attach considerable weight to the assurances given by the Treasurer, especially having regard to the manner in which he has spoken in relation to this clause. I understand that one of the leading banks in Australia would certainly have found the requirements of the clause as originally drafted a severe drain on its resources, although the bank itself is entirely sound. I assume that the Treasurer, in arriving at the conclusion that 10 per cent. of demand liabilities is not excessive, has considered the circumstances of the several banks.
– Hear, hear!
.- I move-
That the word “ liabilities “, sub-clause 1; be omitted with a view to insert in lieu thereof the words “ deposits from the public.”
It is thought that the term “ demand liabilities “ might bear a connotation which would work adversely to the interests of the banks, in that it would include liabilities which are not intended to be covered, such as cheques in transit and so forth. It is desired to restrict the clause to certain classes of liability.
. I am glad that the Treasurer has taken this course. I had proposed to move an amendment to the same effect. The Treasurer’s amendment will improve materially the position in relation to the percentage of demand liabilities to be lodged with the reserve bank. The clause as it stood would have required a bigger sum to be lodged with the reserve bank than willnow be required.
.- The amendment proposes to substitute the words “ deposits from the public “ for the word “ liabilities.” I point out that some of the trading banks receive deposits from State Governments. As a general rule a distinction would be drawn between deposits from the public in general and deposits from a government. I assume that it is intended that the sum referred to in this clause shall be calculated with reference to all demand liabilities of the class referred to therein. I rise merely to say that it might be suggested that there is a distinction between deposits from the public and deposits from sources other than the public. The only other source of which I can think at the moment is that of a government. I take it that “ deposits from the public “ really means deposits from private persons. I rose merely to ask the Treasurer whether consideration had been given to the sufficiency of this term to carry out the intention of the Government.
.- I do not think that there will be any real difficulty in connexion with the point raised by the Leader of the Opposition (Mr. Latham). The term “ deposits from the public “ will cover the class of deposit referred to by him, namely, deposits made by the ordinary customers of the bank. I do not think that confusion is likely to arise in regard to whether or not the term should apply to government deposits with a trading bank because it is highly probable that all the government accounts will be held at the central reserve bank. The other point is not likely to arise, and in any case, I do not see how it could be amply safeguarded. There is no necessity to provide for contingencies that are not likely to arise.
Amendment agreed to.
Amendments (by Mr. Theodore) agreed to -
That the word “ five “, sub-clause 1, be omitted with a view to insert in lieu thereof the word “three”.
That after the word “ has “, first occurring, sub-clause 2, the word “ wilfully “ be inserted.
.- I move-
That the words “ at the rate of 10 per centum per annum of the amount of the deficiency for each day on which it continued “, sub-clause 2, be omitted.
The intention of the amendment is to alter the nature of the penalty from the fixed rate of 10 per cent. per annum of the amount of the deficiency to provide that the penalty shall be calculated at the rate of 2 per cent. above the discount rate.
Amendment agreed to.
Amendment (by Mr. Theodore) agreed to -
That the following new sub-clause be inserted : - “(2a.) The amount of the penalty payable by a bank in pursuance of the last preceding sub-section shall be at the rate of two per centum per annum in excess of the discount rate, fixed by the reserve bank in pursuance of section sixty-four of this act, and for the time being in force, and shall be calculated on the amount of the deficiency for each day on which it is continued.”
– I move-
That the words “or to, a State Savings Bank “, sub-clause 5, be omitted with a view to insert in lieu thereof “to a State Savings Bank or to the State Bank of South Australia “.
This alteration is necessary to specifically exempt the State Bank of South Australia.
Amendment agreed to.
Clause also consequentially amended, and, as amended, agreed to.
Clause 11 - (1.) Each bank carrying on business in the Commonwealth shall, as soon as practicable after the close of business on the first Monday in each week, furnish to the Governor a return, in accordance with the prescribed form, made up to the close of business on that day, exhibiting details of liabilities and assets. (2.) Each return made under this section by any bank shall be signed by the general manager and chief accountant of the bank. (3.) Each bank carrying on business both in the Commonwealth and in the United Kingdom shall also furnish to the Governor returns at such periods and containing such - particulars as are prescribed of the state of its business in the United Kingdom and elsewhere. (4.) Any bank which fails to furnish any return in accordance with this section shall incur a penalty, recoverable by the reserve bank by action of debt in any court of competent jurisdiction, of One hundred pounds for each day during which the default continues. (5.) This section shall not. apply to the Savings Bank Department of the Commonwealth Bank or to a State savings bank.
.- I suggest, that instead of requiring the banks to furnish weekly returns, they should be called upon to provide them monthly.
That the difficulty of providing weekly returns has been foreseen is evidenced by the words “ as soon as practicable “. All the business needs of the case would be met by monthly returns; and it would certainly entail less work on the banks.
– I am informed by the Deputy Governor of the Commonwealth Bank that the trading banks receive weekly returns from their branches, and that probably they would not experience great difficulty in making returns weekly; but for the purposes of the proposed central reserve bank, monthly returns will suffice. That being the case, I am prepared to adopt the suggestion of the honorable member for Henty (Mr. Gullett).
Amendment (by Mr. Gullett) agreed to -
That the word “ week, “ sub-clause 1, be omitted with a view to insert in lieu thereof the word “ month.”
Amendment (by Mr. Theodore) agreed to -
That after the word “assets,” sub-clause 1, the words “ in Australia “ be inserted.
– Sub-clause 2 provides that the returns shall be signed by the general manager and the chief accountant. It has been pointed out to me that those titles do not coincide in every case with the official designation of the officers who ought to sign those returns. I, therefore, move -
That the words “and Chief Accountant,” subclause 2, be omitted, with a view to insert in lieu thereof the words “the Manager or the Secretary.”
– I suggest that the Treasurer add the words “ or their deputies.”
– I agree to that suggestion.
Amendment agreed to.
Amendments (by Mr. Theodore) agreed to -
That after the word “Bank,” sub-clause2, the words “ or their deputies “ be inserted.
That after the word “which,” first occurring, sub-clause 4, the word “wilfully” be inserted.
That the words “or to a State Savings Bank,” sub-clause 5, be omitted with a view to insert in lieu thereof the words, “to a State Savings Bank or to the State Bank of South Australia.”
Clause, as amended, agreed to.
Clause 12- (1.) Every bank shall, on the last Monday of each quarter ending on the thirty-first day of March, the thirtieth day of June, the thirtieth day of September, and the thirty-first day of December in every year prepare a general abstract in writing, in accordance with the prescribed form, exhibiting details of liabilities and assets. (2.) Every such quarterly abstract shall be verified by the statutory declaration of the Managing Director, the Manager, the Chief Cashier or Clerk of the bank making the abstract, and shall, within one month after the close of the quarter, or so soon thereafter as is practicable, be delivered to the Treasurer and published in the Gazette. (3.) Any bank which fails to deliver to the Treasurer the quarterly abstract specified in sub-section (1.) of this section shall forfeit for every such offence the sum of Five hundred pounds. (4.) If any such quarterly abstract is wilfully false in any detail, the bank shall forfeit for every such offence the sum of Five hundred pounds, and, in addition to any other penalty, the Managing Director, Manager, Chief Cashier, or Clerk who has verified the abstract by statutory declaration, shall forfeit for every such offence the sum of One hundred pounds.
Amendments (by Mr. Theodore) agreed to -
That after the word “assets,” sub-clause 1, the words “ in Australia “ be inserted.
That the words “Managing Director, the Manager, the Chief Cashier or Clerk,” subclause 2, be omitted with a view to insert in lieu thereof the words “ General Manager, the Manager or the Secretary.”
That after the word “ which,” sub-clause 3, the word “ wilfully “ be inserted.
Clause, also consequentially amended and as amended, agreed to.
Clause 13 - (1.) The Reserve Bank shall be managed by a Board of Directors composed of the Governor and eight other Directors appointed in the manner set out in this Part. (2.) Subject to this act, the eight other Directors shall consist of -
Five other persons representing respectively the following interests: -
.- The majority of banking charters provide that the country of origin of the directors shall be the country in which the bank is established. I consider that the directors of an Australian bank should be British subjects. I would not agree to their being even naturalized British subjects. I therefore move -
That after the word “ directors “, second occurring, sub-clause 1, the words “ all of whom shall be British subjects” be inserted.
– Does the honorable member consider it likely that any government would appoint an unnaturalized person ?
– The appointment might be made of a naturalized British subject. The act should specify that the directors must be British subjects.
– I have no objection to the amendment being made.
Amendment agreed to.
.- I move -
That sub-clause 2 be omitted with a view to insert in lieu thereof the following subclause : - “ (2.) Subject to this act, the eight Directors shall consist of -
The Deputy Governor of the Reserve Bank;
The Secretary to the Treasury;
Five other persons appointed by the Governor-General who are or have been actively engaged in agriculture, commerce, finance, industry or labour;
A Chairman appointed by a majority of the other Directors:
Provided that if there is not a majority of the other Directors in favour of the appointment of any person as Chairman, the Chairman shall be appointed by a majority of a Committee consisting of the Treasurer of the Commonwealth, the Governor of the Reserve Bank, and a person appointed by a majority vote of those persons referred to in. paragraph (c) of this sub-section.”
This, if made, will be rather a substantial alteration. Briefly, the amendment provides that there shall he one deputy governor instead of two, and that five of the other directors shall be persons who are or have been actively engaged in agriculture, commerce, finance, industry or labour, without specifically representing those particular interests. I further propose that the chairman of the board shall he appointed by a majority of the official and non-official members of the board.
I cannot see that, at the outset of the bank’s operations there is a likelihood of there being sufficient work for a governor and two deputy governors. As it develops, the necessity may arise to have two deputy governors, but no’ information that has so far been disclosed to the committee justifies the appointment of such a top-heavy staff at the present time. The deputy governors will be highsalaried men. In the interests of economy, unless it can be clearly shown that there will be a great deal of executive work of first-class importance to be performed, it should not be necessary to have more than a governor and one deputy governor. Frequent references have been made to the alleged extravagance of the last Government in having established boards and made highsalaried appointments. I appeal to the Treasurer to launch this institution with only a governor and one deputy governor as its working executive. If, as time goes on, it is found that there is sufficient work for two deputy governors, an amending bill can be brought down making provision for a second appointment.
In regard to its non-official members, I submit that the board will function more effectively as a corporate body if those five members are not appointed, as the bill provides, to represent respectively, banking, commerce, labour, manufacturing, and primary production”. We do not want to have on the board five selfish representatives of particular interests or industries. Such a ‘board might easily work against its own interests. It is not difficult to visualize the manner in which members who were elected to represent particular industries would strive to advance those interests rather than those of the reserve bank and the finances of the Commonwealth as a whole. My amendment follows the lines laid down in the Commonwealth Bank Act in regard to the constitution of the directorate of that institution. It should be our aim to have a board that will serve the interests of Australia as a whole.
My next provision is in regard to the appointment of a chairman. I do not favour appointing as chairman of the board, the chief executive officer of the bank. There is a distinction between the duties of the general manager of a bank and its board of directors, just as there is between the general manager or the managing director of any company other than a bank, and its chairman of directors* The duty of the directorate is to dictate policy. I have no wish to raise the issue of undesirable political control, or anything of that kind; my aim is simply to improve the management of the bank. The chairman should not be the chief executive officer, who will be the governor of the bank.
– It should be the same as with the Commonwealth Bank.
– Yes. We should distinguish between the working executive and the control of policy, which should be in the hands of the board. The executive should be as my amendment provides, fully representative, and there should be at least one deputy governor upon the board. I am not aiming to take the appointment of the board, or, indeed, of the chairman, out of the hands of the Government. The Government, through the Governor-General, will appoint the directors, with the exception of the chairman, but he will be indirectly appointed by the Government, because he will be elected by the other directors who have been nominated by the Government. The amendment i3 a reasonable one, and I recommend it to the consideration of the Treasurer and the committee.
– I suggest that the honorable member for Henty (Mr. Gullett) separate his amendment so that it can be considered in sections. The Government may be able to act upon his suggestion in regard to the representative members of’ the board by providing that instead of these persons being appointed to represent sectional interests they shall be selected because of their special knowledge of banking, commerce, labour, manufacturing, and primary production as the case may be. I cannot, however, accept his proposal for eliminating one of the deputy governors. No great principle is involved.
– But this is the age of economy.
– Economy is an important necessity at present; but there can be such a thing as unwise economy even in stressful times. In . connexion with the operations of a central reserve bank, the services of specialists, such as will doubtless be appointed to these positions, will be necessary. The bank will carry on two main functions, one of which will be the control of the note issue department and currency generally, and the other the general banking side of the business in relation to advances to other banks, the management of loans, and the control of money to and from the market. The governor of the bank must act in a supervisory capacity in connexion with the whole of the bank’s transactions.
– Could not the governor control one section’ and a deputy governor the other?
– Possibly that could be arranged ; but I can envisage the full utilization of the services of two deputy governors, each of whom would control a specialized section.
– Four officials are included in the nine directors.
– The Secretary to the Treasury will not be an official of the bank ; hewill act as liaison officer between the Government and the bank; but he will not be an official of the bank. The Federal Reserve Bank of the United States of America has five deputy governors.
– And there are hundreds under them.
– A number of highly-placed officials will, of course, be employed by the central reserve bank to direct its many functions and to carry out its responsible duties and obligations. In addition to the deputy governors, there will be officers possessing high qualifications and with a specialized knowledge. Such men are at present carrying out similar functions in the Commonwealth Bank, and will, no doubt, be taken over to administer the affairs of the central reserve bank. It will mean promotion to some such officers who will be selected to carry out the specialized functions to which I have referred. There is, of course, a clear line of demarcation between the two main functions of the bank - the control of the note issue, and the loan and general banking side - and on these grounds I think we ought to provide for the appointment of two deputy governors.
– If the clause is passed with provision for the appointment of two deputy governors, will the Treasurer agree to the appointment of only one until it is ascertained whether the services of a second deputy governor are necessary?
– I am prepared to consider the honorable member’s suggestion, although it will mean altering the phraseology of the clause to provide for the optional appointment of one or two deputy governors. I do not mind if the clause is amended to make the appointment of one or two deputy governors optional. I suggest that the honorable member for Henty withdraw his amendment to enable me to submit an amendment to give effect to his proposal in this respect.
– I am prepared to do so.
Amendment - by leave - withdrawn.
Amendments (by Mr. Theodore) agreed to -
That after the word “ and “, sub-clause 1, the words “ not more than “ be inserted.
That the word “ eight “, sub-clause 2, be omitted.
That the word “ The “ first occurring, paragraph a, sub-clause 2, be omitted with a view to insert in lieu thereof the words “Not more than.”
Amendment (by Mr. Theodore) proposed
That paragraph c, sub-clause 2, be omitted with a view to insert in lieu thereof the following paragraph: -
.- I appreciate the action of the Treasurer (Mr. Theodore) in meeting the wishes of the Opposition in this regard. I should, however, like to point out that owing to some inexplicable mistake, a printed amendment has been circulated under my name providing for the deletion of the words “ primary production “ from paragraph c of sub-clause 2. I had no intention of moving such an amendment and I learn from the Clerk of the House that the error occurred in the printing of the list. I understand that it is now proposed to adopt the same phraseology as is used in the Commonwealth Bank Act, and that the Government intends to appoint to the board persons with an intimate knowledge of agriculture, commerce, finance, industry, or labour whose services have proved valuable to the Commonwealth and to the general public. There is a good deal to be said for the selection of. persons who have a special knowledge of these several subjects; but “who will not be appointed to specially represent such interests.
– I should like the Treasurer (Mr. Theodore) to explain what procedure is to be adopted in regard to the appointment of directors who are to represent agriculture, commerce, finance, industry, and labour. Is it proposed to ask for nominations from representatives of different organizations., or will they merely be appointed by the Government without any such recommendations having been made? Further, I should like to know if there is to be any restriction in the matter of appointments. For instance, would the Treasurer consider the appointment of the director of any bank or corporation in Australia desirable ? I understand that in the United States of America a director of, a stock holder in, any bank cannot be appointed to the board of the Federal Reserve Board. If a representative of a banking institution were appointed to the board he might endeavour to obtain preferential treatment for the institution with which he was associated. There should, I think, be some restriction in this regard. It should also be clearly understood that no member of the Commonwealth Parliament or of a State Parliament should be appointed to the board.
– Consideration has not been given to the method by which selections will be made, but I take it that it will be undesirable to call for nominations. I have not the slightest doubt that we shall receive a great number of applications in anticipation of the passage of the bill. In fact many such applications have already been submitted, some direct to the administration of the Commonwealth Bank, some to the Treasury and others to the Government. In this matter, we shall follow the practice adopted by the late Government by making appointments and generally taking the responsibility of carrying out our obligations under the statute. Appointments will be made to the board of persons who are or have been actively engaged in agriculture, commerce, finance, industry or labour, and on the basis of fitness to participate in the management of a central reserve bank. They would have to be men with a degree of knowledge, experience, and capacity that would enable them to carry out those very high duties.
– Section 15b of the Commonwealth Bank Act excludes from the management of the board a director of a bank.
– That section provides -
A person who is -
a director of any corporation (other than the Commonwealth Bank) the business of which is wholly or mainly that of banking; or
an officer of any corporation (other than the Commonwealth Bank) the business of which is wholly or mainly that of banking, shall not be capable of appointment or of continuing to act as a director or a member of the London Board.
– Will the Treasurer insert a similar provision in this bill?
– If the provision is not already in the bill, I have no objection to inserting it. Any person who occupies the position of director of a trading bank should be excluded from the board of the central reserve bank.
.- I am glad indeed to have that assurance from the Treasurer. I agree entirely with him that it would be a mistake for the Government to ask for nominations from any of the interests mentioned in this clause’. I hope that the Government will take the responsibility of making these appointments without hampering itself by asking for nominations from these special interests. I say that, not because I profess to have an unlimited degree . of confidence in the present Government, but because I consider that that is the proper position for any Commonwealth Government to adopt. The Government would run the risk of committing itself possibly to quite unsuitable appointments if the selection were to be made from nominations submitted by special interests. I am also glad that the Treasurer is prepared to insert in this bill a provision similar to section 15b of the Commonwealth Bank Act, which prohibits directors or officials of existing banks from acting as directors of the Commonwealth Bank. The Treasurer stated during the second-reading debate that he agreed that no member of Parliament should be appointed as a director of the central reserve bank.
– That is so.
– I am prepared to accept that assurance without specifically incorporating it in the bill. I do not see that there should be any need to advertise, what might be misunderstood outside, any idea that a member of Parliament is not fitted to hold the position of director of the central reserve bank. There is an inconsistency between the two positions, and it is for that reason only that I am glad that none of the distinguished gentlemen who constitute this Parliament will be appointed to the board.
– I understand that it is the intention of the Treasurer to retain in the bill the provision stipulating that some of the directors of the bank shall be representatives of the particular sections of the community that are specified therein.
– Some of the directors will consist of persons who are or who have been actively engaged in the various vocations specified.
– The clause means one thing or another. If the various sections are to be represented on the board it is a natural corollary that they should appoint their own representatives. I contend that that would be a mistake, and if the clause is not to be struck out, the directors should be selected from the whole of the community. The best men should be selected irrespective of their vocation. I presume that the object of the Government is to appoint to the directorate of the board the best men offering, but, under this clause, it would be possible to appoint, for instance, a representative of the primary producers who knows absolutely nothing about banking.
– Surely many primary producers know something about banking.
– I do not think I am doing an injustice to the primary producers in saying that few of them are banking experts. That, I admit, after all, is a matter , of opinion. . The same thing applies to the other sections specified in the clause. There are many men who know nothing outside of their own line of business. That has been my experience of many successful business men. The Treasurer has said that labour will be represented in its widest sense. I submit, with great respect, that a man with a knowledge of labour even in its widest sense would not be qualified, by reason of that knowledge alone, to be a director of the central reserve bank.
– That would not necessarily qualify him for that position.
Mr. ARCHDALE PARKHILL.The man who represents labour on the directorate should be the best man obtainable in the community. The same thing applies to the manufacturing and primary production sections.
– And all the other sections.
– I am making no distinction or reflection. The fact that a man has spent all his life in one occupation does not necessarily qualify him for a position on the directorate of the bank. The Treasurer should not confine himself to selecting a representative of each section. There is no reason why he should not appoint two men with a knowledge of labour in its widest sense, provided that they are competent to occupy the position because of their extensive training and experience.
– That may be done under the amendment.
– I understand that there must be one representative of each section.
– That is not so.
Mr. ARCHDALE PARKHILL.Then what is the amendment?
– Under the amendment the directorate will consist of five other persons who are or who have been actively engaged in agriculture, commerce, finance, industry or labour.
– Is the word”labour “ used in its political sense?
– No. It has a wider significance than that.
Mr. ARCHDALE PARKHILL.The amendment is as I anticipated, and does not alter the position to any extent. What I have said still applies.
Men who have been engaged in the spheres of activity mentioned in the amendment’ need not necessarily be the best fitted to occupy the position of director of the central reserve bank. In addition there would be a tendency on the’ part of any person appointed to represent one section to act in the interests of that section only.
– The amendment avoids that position.
Mr. ARCHDALE PARKHILL It does not. Why are these sections specifically mentioned in the clause if they do not mean something? The representatives of these sections will be appointed to the directorate because of their knowledge of the particular activity with which they are concerned. Kisch and Elkin point out that in some countries the directors of central reserve banks have been appointed under this sectional scheme, but that practice has been found not to have been successful. In some cases it has been departed from. For instance, the directorate of the Bank of England consists of the very best men that Great Britain could find for the position.
– In the legislation of the United States of America these various industries are referred to specifically.
Mr. ARCHDALE PARKHILL.That is so. Even the directors of the South African Central Reserve Bank are chosen from various industries. But I do not agree with that principle. I believe that the directors of the bank should be selected because of their fitness for the position irrespective of all other- considerations. Most of the directors of the Bank of England are drawn from the merchant bankers of Great Britain. That is one reason why that bank is unique in the success that it has achieved. I appeal to the Treasurer to delete from the clause the various activities that are specified in it, so that he may be free to select the directors from the most suitable men offering in Australia.
. It is evident that the honorable member for Warringah (Mr. Archdale Parkhill) has been rather misled by the fact that there are five special industries mentioned in the amendment, and five directors to be appointed. If he will examine the Com monwealth Bank Act of 1924, he will find in it similar wording to that in the amendment, although in the case of the Commonwealth Bank six directors were appointed and only four special vocations named.
– That board has not been a success.
– It has been responsible for satisfactory development, because every year the business of the bank has improved, and its relations with other banks also.
– Well, it does not take much to manage a bank, then.
– That is a matter of opinion. The point I wish to make is that six persons are to be appointed, though only four avocations have been stipulated. It is evident that there cannot be only one representative of each of the stipulated avocations. The essential thing is that those chosen should have the widest possible knowledge of industry, and of the commercial geography of Australia. In the American Federal Reserve Bank legislation it is laid down that the President shall pay due regard to securing on the directorate of the bank representation of the different commercial, industrial and geographical divisions of the country. In the constitution of the South African Reserve Bank it is provided that the directors shall be chosen from those engaged in commercial, financial and agricultural pursuits, even though those directors are elected by the stockholders. I suggest that not only should the Government endeavour to secure men with a wide knowledge of commercial activities, but that the directorate should be representative as far as possible of all the States of the Commonwealth. When the Commonwealth Bank Board’ was being selected, it was found difficult to obtain the services of men from Adelaide and Brisbane because those whom it was desired to appoint would not give up their time to the work. The appointees were, therefore, drawn mostly from Sydney or Melbourne, or from those with pastoral interests at places between those cities.
– I trust that the Treasurer (Mr. Theodore) will not depart from the attitude he has taken up on this point. It is essential that some members of the directorate influencing the operations of the bank should have a practical knowledge of the actual conditions obtaining in industry. If ‘more of such knowledge had been at the disposal of the banking institutions of this country during recent times, we should not, I believe, be suffering from such serious economic depression as that which prevails at the present time. It is necessary that the directorate of this bank should include men with a practical knowledge of industrial and pastoral pursuits, as well as those with a professional knowledge of business.
.- The Treasurer (Mr. Theodore) said that the members of the board would be chosen from “five other persons” to be representative of banking, commerce, labour, manufacturing and the primary industries and this is definitely stated in the bill. Some honorable members on this side are opposed to these appointments being made from persons nominated by organizations of the industries or activities mentioned. Personally, I believe that, as there are associated with most of those activities representative federal organizations, the Government would be much more likely to be able to secure the services of good directors if it made its selection from persons nominated by the organizations concerned.
I am convinced that if the person representing Labour is not appointed from nominees of the federal Labour organizations, there will be much heart-burning among aspirants for the position. So far as the manufacturing interests are concerned conditions vary greatly in the several States. New South Wales and Victoria are the most important manufacturing States, and have probably greater claims to representation than other States. And as a good deal of jealousy exists between the various States, a more satisfactory choice could be made, I think, by taking heed of the nominations of federal organizations in each instance.
.- Opinion is becoming holeplessly divided as to the method the Government should take in selecting members of the board. I believe that the Treasurer has adopted the right course. It is not right that there should be sectional representation. Opinion on’ this side of the House, I think, is against sectional appointments, and yet some honorable members have advocated that the members of the board should be appointed from the nominees of sectional organizations. The surest way of destroying confidence in an institution of this kind would be to make its directorate representative of special interests. If the proposed central bank is to prove useful to the people its management must command the confidence of the trading banks who are asked to place their money in its control. If, as the honorable member for Balaclava (Mr. White) suggests, the trade unions were to have the right of nominating a representative on the board, the Government would be besieged with claims for representation from all sorts of sections, including the Country party, the Nationalist party, the manufacturers, primary producers, and I do not know how many more; It would lead to abso-lute confusion. I hope that the Treasurer will not yield to this request. The amendment of the Treasurer meets with my approval. ‘
– It is generally conceded that it ds the province of the Government to select the members of the board as it thinks fit. It is the Government’s responsibility. Therefore, I see no reason why any special provision should be made for the directorate to be representative of labour, manufacturing, or primary producing” interests, nor do I believe that the Treasurer or the Government really see the value of such a command. I suggest that paragraph c of sub-clause 2 should read “ persons representing banking interests “, and that a new sub-paragraph d should be inserted to provide for the appointment of four other persons who are, or have been, actively associated in the course of their banking experience with the industries mentioned.
– That is the effect of the amendment that the Treasurer suggested.
– No. The paragraph as it reads now stipulates that the directors shall be persons who are or have been actively engaged in the pursuits mentioned. I do not think that persons actively engaged in those industries or pursuits would necessarily make the best directorate, but a bank manager who has been associated with those activities may be a very suitable person.
– Does the honorable member realize that the directors of the private trading banks are in nearly all cases persons engaged in industry or commerce? They are not usually men who have had previous banking experience in a professional capacity, but those who have had actual experience in trade and industry. We propose to follow the same principle, and I think it is a sound one.
– I think that the Treasurer’s point would be met if ‘the clause provided that the directors should be persons who are, or have been, actively associated with those pursuits, and have had banking experience. Banking knowledge, I think, is essential on a bank directorate where the functions are as great as those entrusted to a great central bank, which are greater than those of any trading bank in existence.
– I hope that the Treasurer will give consideration to the claims of the remote States when appointments are being made to the directorate of the bank. I do not ask that men from the remote States shall be appointed simply because they live in those States, but, other things being equal, some men representative of those States should be appointed to the board. Such States as Western. Australia and Queensland have peculiar claims for consideration. I hope that the board will not be representative of only Sydney and Melbourne interests.
– I hope the Treasurer will preserve some balance in the multitude of counsel which he has received. I dissent altogether from the view that any geographical lines of division should be observed in appointments to the board. The curse of this country to-date has been the deference paid to geographical considerations instead of to merit and ability. It is immaterial from which State a’ man comes so long as he has the ability to perform the duties expected of him.
The honorable member for Moreton (Mr. Francis) has urged that, in appointments to the board, special consideration should be given to remote States of the Commonwealth. It appears to me that the sole concern of the Treasurer should be to secure men with the highest qualifications for the positions, irrespective of the business in which they were previously engaged and irrespective of the State from which they come.
– I hope that in making the appointments the Government will not follow the course adopted by the Nationalist Administration in appointments to the directorate of the Commonwealth Bank. One of the directors was, I understand, actively associated with a wool firm. One may assume that his personal interests would be served best by preventing the bank from giving much-needed financial aid to that industry. It was stated not so long ago that wool-buyers in Australia, were limiting their purchases, and that their action was detrimental to the interest of our wool-growers. To meet the situation a proposal was made that the Commonwealth Bank should give financial backing to a scheme on the lines of “Bawra,” but nothing came of it. It is natural to assume that if one of the directors was interested in the purchase of wool he would not regard with favour a proposal to make available the resources of the bank in the interests of the growers. I hope the Government will not pay regard to the previous experience of applicants. If that course were followed in the political world how would we get our statesmen? Gladstone, for example, was not elected to the House of Commons because he had previous experience in political life, but because the people believed he had ability, and was to be trusted. Similarly with Mr. MacDonald, the present Prime Minister. He secured election to the House of Commons, not because he had had previous experience in politics, but because the people were firmly convinced that he would make a statesman.
– What about the honorable member for Eden-Monaro?
– He was not elected on previous performances, but because the people regarded him as a budding statesman! Previous experience or knowledge of a particular business is not necessarily the best qualification for a director of the proposed new bank. If a person wishes to back the winner in a horse race he does not turn to a bookmaker for information. That course, as we all know, would be exceedingly foolish. For the same reason I would not regard a wealthy man, or one who had made a success in a certain occupation, as preeminently the best man to appoint to the board of the reserve bank, because most likely he would try to direct its policy along lines to suit his own interests. The Government, in making the appointments, will, I hope, select men of integrity and proved ability.
.- I wish to remove any misapprehension that exists in the mind of the honorable member for Warringah, by stating definitely that I have no desire to see persons appointed to the board simply because they come from remote States. All I ask of the Treasurer is that in making the appointments, other things being equal, he will pay due regard to the interests of the remote States.
.- I am not at all interested in the suggestion that geographical considerations should be observed in appointments to the board. The Government has accepted the principle that the banking interests should be represented on the board. Since the associated banks will be expected to find £22,000,000 for the reserve bank they should have adequate representation on the board. Persons outside a particular business interest may know more than those in it of the relations that should exist between a central bank and commercial, manufacturing, or other interests; but in the majority of cases they will not. The possibility exists that obscure persons who may loom large in the eyes of the Government may not be really representative, which would not be the case if the federal bodies in each case were consulted, as at least it would be known that the nominees were well known and of good repute. I hope, therefore, that in making the selection of the directorate, the Government will take this matter into consideration.
Amendment agreed t .
Amendment (by Mr. Gullett) proposed -
That the following new paragraph be added to sub-clause 2 - “(d) A chairman appointed by a majority of the other directors:
Provided that if there is not a majority of the other directors in favour of the appointment of any person as chairman, the chairman shall be appointed by a majority of a committee consisting ofthe Treasurer of the Commonwealth, the Governor of the Reserve Bank, and a person appointed by a majority vote of those persons referred to in paragraph c of this subsection.”
.- I am not wedded to the method suggested for the appointment of the chairman, but I should like to see the board appoint its own chairman. The chief executive officer of the reserve bank should not necessarily be the chairman of the board. This practice is followed in other financial institutions and large business concerns. The person who controls the staff and is responsible for the internal administration is the chief executive officer; but as a rule he is not the chairman of directors. Usually the board of directors consists of a body of men outside the actual management of the bank or firm. The chairman is chosen from among their number, and they determine policy. The Commonwealth Bank is conducted on these lines and the system has worked satisfactorily.
– I have tried to provide for what I consider to be the most satisfactory method for the executive control of the reserve bank. Before the final draft was settled a great deal of consideration was given to the point raised by the Deputy Leader of the Opposition (Mr. Gullett) and the right honorable member for Cowper (Dr. Earle Page). It seems to me that the central reserve bank must be largely guided and managed by a dominant personality, who should be the chairman of the board.
– There might be no need for directors then.
Mr.THEODORE. - No, but if in addi-. tion to a dominant personality as chairman of the board, you have a chief executive officer or governor of the bank, also a dominant personality, there might be a clash of authority, or abrogation of duties. The Bank of England is largely controlled by the governor of the bank, who is the chief executive officer. He presides, I think, not only at the meetings of the court of directors, but also over the inner court, which is actively concerned in the management, and administers the affairs of the bank. It is the governor of the bank who really has the chief executive control of the Bank of England.
– He should have it.
– I think he should. Under the United States law relating to the Federal Reserve Bank, one of the six members to be designated by the President has to be the governor of the bank, and he is the active administrator of it. No one is set in authority over him. Of course, if one is asked how the present system in the Commonwealth Bank works, where we have a chairman of directors as well as a governor, it would perhaps be a little indelicate to examine the position too carefully. I should be the last to deny the great ability of Sir Robert Gibson, the chairman of directors. He is a man of dominating personality with a very wide knowledge and experience, and no doubt because, of that wide knowledge and experience and his force of character, he really is the principal governing entity of the Commonwealth Bank to-day, and possibly wields an authority that would not normally be displayed by a chairman of directors. The position in the Commonwealth Bank to-day is perhaps exceptional on that account. Personally, I think that the provision made in the bill to have the governor as the principal executive officer is the most satisfactory arrangement to make. In that way we secure the services of a man quite untrammelled by business alliances or allegiances outside the bank, one who can devote the whole of his time and energy to the executive management of the institution, and who, perhaps because of his longer period of service in the position, may be able to carry out a more continuous policy in connexion with the government of the bank than would otherwise be possible. I suggest that the bill should be allowed to remain as it is, providing, as it does, for the governor of the bank to be its principal executive officer.
.- It appears to me that if the governor of the bank, as suggested by the Treasurer (Mr. Theodore), is to be the dominating personality of the board of directors, and also chairman of the board, the necessity for having a board very largely disappears.
– I did not intend to convey the idea that he should be a dominating personality over the board. What I meant was that he should be the dominating personality of the institution.
– But if the governor is to have a dominating personality obviously he will dominate the board of directors of which he is to be chairman, and the necessity for having a board very largely disappears. I was surprised to hear the Treasurer say that the Governor of the Bank of England is its chief executive officer. I was under the impression that the comptroller of the bank occupied that position.
– No, the comptroller is a subordinate.
– I regret that the Treasurer cannot agree to amend the clause as suggested, because there is always the possibility that a mistake may be made in the appointment of governors. Mistakes are made in such appointments and as a result we may have a weak governor who is also chairman of the board of directors. If however, the Treasurer is resolute on the matter I do not intend to waste my time or that of the committee in proceeding further with my suggestion.
.- I should like the Treasurer to give some indication of the probable cost of staffing the reserve bank. I was rather disquieted by his statement that in addition to the governor and two deputy governors there would be a considerable staff of highlysalaried officers.
– I apprehend that the cost of the administration of the central reserve bank will be very little higher than the cost of administering the reserve bank functions of the present Commonwealth Bank. There will be a governor and two deputy governors, who will he paid on the same scale probably as the present governor and deputy governor of the Commonwealth Bank. In addition, we shall have highly specialized officers controlling the note issue, loan matters, and the bond department. We shall also have an actuary and so on. But these officers will be taken from the staff of the existing Commonwealth Bank. It will not mean new appointments of highsalaried officers.
– Will they not need to be replaced in the existing bank?
– No; we shall take over practically the whole of the staff required in the head office of the central reserve bank without having to replace them in the bank from which they come.
Clause, as amended, agreed to.
Clauses 14 and 15 agreed to.
Clause 16 (Offices to be held subject to good behaviour).
.- In my opinion all the directors should not be appointed for the same period. If three directors go out at the same time there is likely to be a break in the continuity of policy of the bank.
– That will be taken into account in making the appointments. Although it is provided that certain directors shall be appointed for a period not exceeding seven years, one may be appointed for seven years, and one for six. That arrangement should meet the honorable member’s objection.
– Is it the intention of the Treasurer to arrange the appointments so that there will be continuity of policy ?
Clause agreed to.
Clause 17 (Absence of governor or deputy governors).
.- The clause provides that in the absence of. the governor the senior deputy governor shall act as the governor, and so on. Absence should be more clearly defined, otherwise friction in administration may arise.
Clause agreed to.
Clause 18 -
The Governor and each Deputy Governor shall severally devote the whole of their time to the duties of their offices.
Amendment (by Mr. Theodore) agreed to -
That before the words “ The Governor “ the following words be inserted: - “ (1.) The Governor shall be the chief executive officer of the bank.
Clause, as amended, agreed to.
The Governor and each Deputy Governor shall receive such remuneration by way of salary as is fixed by the Governor-General.
– What salary does the Government intend to pay to these officers ?
– The salaries have not been fixed, but the Government does not intend that they shall be on a princely scale. I have no doubt that it will be guided by the salaries now paid to officers performing similar duties in the Commonwealth Bank.
Clause agreed to.
Clause 20- (1.) The Governor shall be the Chairman of the Board of Directors specified in section thirteen of this act. (2.) Each of the Directors specified in paragraph (c) of sub-section (2.) of that section shall be appointed by the Governor-General for a term not exceeding three years, and any person so appointed shall, on the expiration of the term for which he was appointed, be eligible for re-appointment. (3.) In the event of the office of one of the Directors specified in paragraph (c) of subsection (2.) of that section becoming vacant otherwise than by effluxion of time, the Governor-General may appoint a Director to that office for the remainder of the term for which his predecessor in that office was appointed.
Amendment (by Mr. Theodore) proposed -
That the words “ for a term not exceeding three years, and any person so appointed shall, on the expiration of the term for which he was appointed, be eligible for re-appointment,” sub-clause 2, be omitted with a view to insert in lieu thereof the following: - “ (2a.) Of the five Directors first appointed in pursuance of that paragraph, one shall be appointed for a term of five years, one for a term of four years, one for a term of three years, one for a term of two years, and one for a term of one year. (2b.) Thereafter each Director shall be appointed for a term of five years. (2c. ) Any person appointed a Director in pursuance of’ that paragraph shall, on the expiration of the term for which he was appointed, be eligible for reappointment.”
– I am glad that the Treasurer has moved the amendment which will bring the bill into line with the Commonwealth Bank Act and the practice in connexion with all central reserve banks which are controlled by government appointees. It will ensure continuity of policy and reduce the possibilities of political control.
Amendment agreed to.
Clause also verbally amended.
– Has consideration been given to the remuneration of the directors ?
– No ; but I assume that it will be similar to the remuneration paid to the directors of the Commonwealth Bank.
Clause, as amended, agreed to.
The Governor, a Deputy Governor or a Director shall be deemed to have vacated his office if -
Amendment (by Mr. Theodore) agreed to -
That the words “ or State act “, paragraph a, be omitted.
Clause, as amended, agreed to.
Clause 22. (5.) The board may appoint from amongst its members an executive committee of not less than three members to hold meetings and carry on the business of the reserve bank between meetings of the board.
– The Treasurer has air ready intimated that the governor of the bank will be the dominating personality of the board. For that reason I have not pressed my views with respect to the directorate. I realize that there must be- a leader in this as in everything else. For the same reason I am not very much enamoured of the proposal of the Deputy Leader of the Opposition (Mr. Gullett). In addition to this important personage, the governor, there will be a deputy governor and the Secretary to the Treasury, who will act as liaison officer and a member of the board. It would be quite competent under this clause to constitute those three officers as an executive to carry on the business of the bank, and to relegate the remaining directors to the position of mere cyphers. Again, supposing that the Government, in its wisdom, selected directors from remote parts of the Commonwealth, from Broome, Cooktown or Darwin ; those individuals would be travelling to and from Sydney the whole of their time in order to attend board meetings. No doubt the undoubted acumen of the Treasurer and his Government will enable them to obtain the services of some exceedingly capable men. It is quite conceivable, for instance, that they may be able to obtain the services of a gentleman who represents the general views of Labour. That person might insist upon making his voice heard at board meetings, and decline to be treated as a cypher. In order to render his opposition futile am executive would be formed from which he would be excluded, and he would find himself on the outer, with no knowledge of what was going on. The whole of the transactions of the bank might conceivably be conducted by this dominating personality, the governor, the deputy governor, and a third person. That would not be a reasonable way to conduct the business of a central, reserve bank. The. German arbitration law provides for the appointment from workmen’s councils of a representative of unions on the boards of directors of the industries concerned. The authorities ignore the opinions of that man by appointing an executive from which he is excluded. He is merely called upon to attend meetings from time to time in order to make up a quorum, to make matters legal.
I suggest to the Treasurer that the pro-‘ vision for the appointment of an executive committee should be deleted from the measure, and that there should be more frequent meetings of the board. Pre’sumably the governor and his deputy will be paid ari adequate salary, and they’ should give all of their time to the work.
– It would be quite convenient to arrange more frequent meetings if all the members belonged to the’ same metropolis, but it would be quite in-‘ convenient if some had to come from Melbourne, or more distant State capitals.
– The whole business of the country cannot be tied up to suit the geographical location of individual members of the board.
– That is why a small executive is to be appointed.
– If this small executive is to be appointed merely to enable “passengers” to be carried on the board let us he frank about the position. I have already expressed my opinion on the subject of appointing members of a directorate because of geographical considerations. Continually we have that bad habit brought under our notice. It even applied to the selection of the Australian cricket team now in England. The same custom prevails in regard to every interestate conference. Presumably these men will be paid a salary of £1,500 a year, which approximates that paid to the directors of the Commonwealth Bank.
– They receive £600 a year.
– I am afraid only a very poor selection could be obtained for the new bank at that remuneration.
House adjourned at10.31 p.m.
Cite as: Australia, House of Representatives, Debates, 12 June 1930, viewed 22 October 2017, <http://historichansard.net/hofreps/1930/19300612_reps_12_124/>.