14th Parliament · 1st Session
Mr. Speaker (Hon. G. J. Bell) took the chair at 3 p.m., and read prayers.
Assent to the following bills re ported : -
Meat Export Control Bill 1935.
Meat Export Charges Bill 1935.
War ServiceHomes Bill 1935.
Wheatgrowers Relief Bill (No. 2)1935.
Canned Fruits Export Charges Bill 1935.
Financial Relief Bill (No. 2) 1935.
Australian Soldiers’ Repatriation Bill 1935.
Sugar Agreement Bill 1935.
Sales Tax Exemptions Bill 1935.
Bales Tax (Securities and Exemptions) Bill 1935.
Whaling Bill 1935.
New Guinea Bill 1935.
Parliamentary Papers Bill 1935.
Wheat and Wheat Products Bill 1935.
Flour Tax Assessment Bill 1935.
Flour Tax Bill (No. 1) 1935.
Flour Tax Bill (No. 3) 1935.
Primary Produce Export Charges Bill 1935.
Dairy Produce Export Control Bill 1935.
Primary Produce Export Organization Bill
Port Augusta, to PortPirie Railway Bill 1935.
Tasmania Grant (Flour Tax) Bill 1935.
– by leave - As honorable members are aware, Lord Forster, who was Governor-General of the Commonwealth from 1920 to 1925, died in London on the 15th January last. The many and widespread expressions of regret which were evoked when the sad news was received in Australia were indicative of the very high esteem in which he was held in this country - an esteem which was thoroughly deserved by reason of the ability, dignity and charm with which he carried out the duties of his high office.
The late Lord Forster devoted many years of his life tothe cause of public service. He entered the BritishHouse of Commons at the age of 26, and was a member of that House for approximately 27 years. For a period of four years, from 1915, he was Financial Secretary of the War Office.
His sympathetic interest in the welfare of wounded and returned soldiers, and his support, in association with Lady Forster, of charitable and philanthropic movements in Australia, should be specially referred to in a review of the years which he spent among us. His courtesy and kindly bearing left a lasting impression on those who were privileged to come in contact with him. A keen interest in many forms of sport was another important feature of the late Lord Forster’s life, and his generous support of many sporting activities in this country will be remembered with gratitude.
When the news of his death was received in Australia, the following mes sage was sent to Lady Forster by His Excellency the Governor-General : -
It is with the most profound regret that the people of Australia have received the news of the death of Lord Forster. Australians recall with gratitude the outstanding ability of your late husband during- hie term of office as Governor-General. The wide measure of popularity and esteem in which he was held followed naturally from the kindliness and courtesy which were characteristic of him. On behalf of the Government and people of the Commonwealth of Australia, my wife and myself, I offer to you and your family our heartfelt sympathy.
Lady Forster and two daughters are left to mourn hisloss, two sons having made the supremesacrifice during the war.
I invite honorable members to join in an expression of sympathy with Lady Forster and her daughters. I move -
That this House records its profound regret at the death of the Right Honorable Lord Forster, P.O., G.C.M.G., a former GovernorGeneral of the Commonwealth of Australia, and expresses its deep sympathy with Lady Forster and family in their bereavement.
Mr.CURTIN (Fremantle) [3.6] . - I beg to second the motion. I am sure that every Australian who had knowledge of Lord and Lady Forster during the period that Lord Forster was Governor-General of Australia, will feel the deepest sympathy with Lady Forster and her daughters in the death of a gentleman who endeared himself to the people of Australia, made himself acquainted with their pursuits, and was in every way an ideal occupant of the high office of Governor-General.
Question resolved in the affirmative, honorable members standing in their places.
Motion (by Mr. Lyons) - agreed to -
That Mr. Speaker be requested to transmit to Lady Forster the foregoing resolution together witha copy of the speeches delivered thereon.
– In connexion with the loss of Air-Commodore Sir Charles Kingsford Smith and Mr. J. T. Pethybridge, I have to inform the House that I have received letters from Lady Kingsford Smith, Mrs. Kingsford Smith, and Mrs. M. Pethybridge, thanking the House for its resolution of sympathy.
I have also received letters acknowledging the receipt of copies of the resolution of the House passed on the 6th December last from the managing director, Qantas Empire Airways Limited, the manager, Straits Steamship Company Limited, His Majesty’s British Minister at Bangkok, and Air-Commodore Sydney W. Smith, Royal Air Force, Singapore.
In connexion with the letter from AirCommodore Sydney W. Smith, I desire to read the following extracts: -
I would also request you to state that I am greatly impressed by the marks of appreciation shown by both Houses of the Commonwealth Parliament for the efforts of the personnel undermy command in their attempts to locate the missing airmen. I can but assure you that our endeavours were inspired by awhole-hearted spirit of admiration for the achievements of Sir Charles Kingsford Smith as an airman, anda realization of the value of his services in the development of aviation throughout the world.
In accordance with the desire expressed in your letter I have conveyed the thanks of your Parliament to all those of my officers and airmen who assisted in the search operations.
– I have also to inform the House that I have received letters from the family of the late Mr. W.N. Hedges and from Mr. J. Storrer, nephew of the late Mr. D. Storrer, thanking the House for its resolutions of sympathy.
.- by leave - During the recess the circumstances which caused the formation in this Parliament of the New South Wales Labour party, with myself as its recognized loader, were removed.
Opposition Members. - Hear, tear!
– I am pleased to advise that the members of that party have now joined forces with the official Opposition as a united party under the leadership of the honorable member for Fremantle (Mr. Curtin).
Opposition Members. - Hear, hear!
The following papers were pre sented : -
Air Force Act - Regulations Amended - Statutory Rules 1936, No. 17.
Australian Soldiers’ Repatriation Act - Regulations Amended - Statutory Rules 1935, No. 136.
Bankruptcy Act - Rules Amended - Statutory Rules 1935, No. 122.
Census and Statistics Act - Regulations Amended - Statutory Rules 1935, No. 126.
Commerce (Trade Descriptions) Act and Customs Act - Regulations Amended - Statutory Rules 1935, Nos. 131, 132.
Commonwealth Bank Act - Balance-sheets of Commonwealth Bank and Commonwealth Savings Bank and Statement of the Liabilities and Assets of the Note Issue Department, as at 31st December, 1935: together with Auditor-General’s Reports thereon.
Commonwealth Bank Act - Regulations Amended- Statutory Rules 1936, No. 25.
Conciliation and Arbitration Act - Rules of Court Amended - Dated 20th December, 1935- Statutory Rules 1936, No. 4.
Customs Act- -Regulations Amended - Statutory Rules 1936, No. 18.
Defence Act - Regulations Amended - Statutory Rules 1935, No. 123. Statutory Rules 1936, Nos. 1, 15, 16,21.
Flour Tax Assessment Act - Regulations Amended - Statutory Rules 1936, No. 10.
Inscribed Stock Act - Regulations Amended -Statutory Rules 1935, No.128.
Land Tax Assessment Act - Regulations Amended - Statutory Rules 1935, No. 127.
Lands Acquisition Act - Land acquired at - Darwin, Northern Territory - For Defence purposes.
Hillston, New South Wales - For Postal purposes.
Mascot, New South Wales - For Defence purposes.
Queenscliff, Victoria - For Defence purposes.
Meat Export Control Act - Regulations Amended, &c. - Statutory Rules 1936, Nos. 7, 11, 12.
Nationality Act - Return for 1935.
Naval Defence Act - Regulations Amended, etc. -
Statutory Rules 1935, Nos. 133, 135.
Statutory Rules 1936, Nos. 2, 9.
Navigation Act - Report of cases in which the Governor-General, during 1935, granted dispensations under Section 422a.
Norfolk Island Act -
Ordinances of 1936 -
No. 1 - Sanctions (Exports and Imports ) .
No. 2 - Bean Seed Export Control. Timber Licences Ordinance - Regulations.
Northern Territory Acceptance Act and Northern Territory (Administration) Act-
Ordinances of 1935 -
No. 21 - Crown Lands (No. 3).
No. 22 - Instruments.
No. 23 - Registration.
Business Names Ordinance - Regulations Amended.
Papua Act -
Ordinances of 1935 -
No. 2 - Quarantine.
No. 3 - Marriage.
No. 4 - Criminal Code Amendment.
No. 5 - Rubber Growers Assistance.
No. 6 - Native Emigration Restriction.
No. 7 - Gold Buyers.
No. 8 - Supplementary Appropriation (No. 2) 1934-35.
No. 9 - Printers and Newspapers.
No. 10 - Transactions with Natives.
No. 11 - Liquor.
No. 12- Appropriation 1935-30.
No. 13 - Immigration Restriction.
No. 14 - Land.
No. 15 - Arms, Liquor and Opium Prohibition.
No. 16 - Real Property.
No. 17 - Superannuation.
No. 18 - Mining.
Ordinances of 1936 -
No. 1 - Mineral Oil and Coal.
No. 2- Mining (No. 2) 1935.
Primary Produce Export Charges Act -
Regulations - Statutory Rules 1935, No. 129.
Primary Produce Export Organization Act - Regulations - Statutory Rules 1935, No. 130.
Primary Producers Relief Act - Regulations -Statutory Rules 1936, No. 8.
Public Service Act -
Regulations Amended - Statutory Rules 1930, Nos. 5,6.
Raw Cotton Bounty Act - Regulations - Statutory Rules 1936, No. 22.
Sales Tax Assessment Acts (Nos. 1 to 9) - Regulations Amended - Statutory Rules 1935, No. 124.
Science and Industry Research Act - Regulations Amended - Statutory Rules 1936, No. 13.
Seat of Government Acceptance Act and Seat of Government (Administration) Act-
Ordinances of 1935 -
No. 19 - Racecourses.
No. 20 - Dentists Registration.
No. 21 - Advisory Council (No. 2).
No. 22- Motor Traffic. Ordinances of 1936 -
No. 1 - Instruments.
No. 2 - Trustee.
No. 3 - Leases (Special Purposes).
No. 4- Stock.
No. 5 - Nurses Registration.
No. 6 - Juvenile Offenders (Detention) Agreemen t.
No. 7 - Noxious Weeds.
Building and Services Ordinance (Can berra Electric Supply) - Regulations Amended.
Shipping Act - Commonwealth Shipping Board - Cockatoo Island Dockyard - Balance-sheet and Liquidation Account as at 28th February, 1935, with AuditorGeneral’s Certificates.
Transport Workers Act - Regulations - Statutory Rules 1935, No. 125.
War Service Homes Act - Regulations Amended - Statutory Rules 1935, No. 134.
Bank - Issue op Treasury-Bills - Interest Rate: - Overseas Trade Balance.
Motion (by Mr. Lyons) agreed to by an absolute majority of the members of the House -
That the Standing Orders be suspended to enable the Leader of the Opposition to move a motion without notice, and that such motion take precedence of all other business until disposed of.
.- I move -
That the Government is deserving of censure for -
Failing to take action to safeguard Australia’s oversea funds by checking the increasing flow of unnecessary imports, thus leaving it to the Commonwealth Bank Board exclusively to direct national monetary policy in a manner gravely affecting the economic conditions of Australia.
Disclaiming all responsibility for the course now taken which prejudices the employment of the people and increases the difficulties of trade and commerce generally.
Section 51 of the Constitution places on this Parliament sole responsibility for matters involving borrowing, public credit, currency and banking. This obligation covers, I believe, the whole field of monetary policy and includes the maintenance of national solvency. It would be absurd for the Government not to have regard for the economic life of the nation in the exercise of the functions which devolve upon it. I point out that the Commonwealth Bank Act now operating specifically provides that the Secretary to the Treasury shall be a member of the Commonwealth Bank Board. The reasons why the Secretary to the Treasury should be included in the membership of the Bank Board were made plain in this Parliament by a member of the present Administration. The purpose of it is obvious. The Treasury and the Commonwealth Bank Board are to be linked in some form of association.
In every country major measures of national policy involve concert of principle on the part of a central bank and a national government. A central banking system would be unworkable unless it were in collaboration in proper form with the National Government. In every country which has a central banking system, so the commentators inform us, there is more or less direct association between the bank and the Government. Having regard to the importance of the banking structure to Australia, I submit that ignorance by the Commonwealth Bank Board of government policy and of government intention, might lead very easily to disaster. On the other hand, ignorance by the Government of the bank board’s view, or intention respecting major measures of monetary policy, would be equally productive of mischief. I say this, because in connexion with the recent announcement of policy on the part of the Commonwealth Bank Board, the Prime Minister (Mr. Lyons) has denied all knowledge of the bank’s policy or the reasons., whatever they may be, for the policy which the board has adopted. “We are, therefore, as members of this Parliament, driven to make our own survey of the situation. “We notice that the Commonwealth Bank Board has, from the point of view of the community, suddenly instituted a line of action which for years has not featured as part of its relationship with the public. Treasury-bills for the first time are to be made available to the public not by the Government on the open market, but by the Bank Board, and not in respect of a fresh issue of treasury-bills but in respect of £1,000,000 of such securities which the central bank now holds itself and which it contemplates issuing to the public. We are, therefore, driven to some inquiry in the absence - and I say this most definitely - of all explanation either by the Bank Board or by the Government of the reason for the institution of this new phase of monetary policy in Australia. We must make our own survey of the facts of the situation, inso far as we believe them to be the facts, in order to endeavour to find out the precise reason for this action. We ask “ Why is this thing being done? “ We ask this more particularly because we know that the immediate effect of this action is to harden interest rates, increase, inevitably, the burden upon government budgets, prejudice the trade and commerce of the nation, add to the overhead costs of production and generally slow down the momentum of recovery to which it was so difficult to give the initial impulse. This action might very easily increase the difficulties of business to such an effect as to reverse that momentum of recovery and bring us back to a condition from which we had hoped we had emerged, or were emerging. The facts are available, at least in a great measure, to enable honorable members to make a survey of tho situation. A combination of low export prices in 1934-35 and the withdrawal of overseas funds produced an unfavorable balance of payments last year. The evidence of that can be obtained from official publications. I interpose some figures to show precisely what has happened in this regard during a period of years, and to draw attention to the extraordinary turn for the worse that has occurred in the situation from the vear 1934-35. Without wearying honorable members, I point out that, having regard to export of merchandise and silver, and current gold production, and regarding these as credits, the total credits from them in 1931-32 was £79,422,000. The debits of imports of merchandise and silver amounted to £44,059,000, while payments of interest on central and local debits amounted to £27,033,000. The total debits were £71,092,000, giving a surplus of approximately £8,330,000. In 1932-33, having regard to the same form of calculation, exports rose. The current gold production and total credits jumped from £79.422,000 to £83,154,000. Tie debits of imports of merchandise and silver rose from £44,059,000 to £56,872,000 and interest on central and local debits fell from £27,033,000 to £25,995,000. But the aggregate result was that in 1932-33 the surplus available after all obligations had been met, instead of being £8,333,000, had fallen to £287,000. In 1933-34, the exports of merchandise and silver rose again above the figures of the previous two years to £91,154,000, while current gold production amounted to £5,743,000. The total credits from all those items amounted to £96,897,000. But debits, consisting of imports of merchandise and silver, also continued to rise, and reached the figure of £59,502,000, while interest on central and local government debts totalled £24,977,000. Thus the total debits for the year amounted to £84,479,000, while the total credits were £96,897,000, leaving a surplus of £12,418,000. In 1934-35, the year in which low export prices produced an adverse effect, we reached the stage when there was an actual deficit in our overseas account for the year, and we had to draw on the accumulations of previous years. The total value of exports declined in that year, although in the two previous years it had steadily increased. Exports for 1934-35 of merchandise and silver amounted to £82,284,000, while gold production remained about the same as in the previous year, standing at £5,868,000, so that the total credits for the year amounted to £8S,152,000. On the debit side imports of merchandise and silver amounted to £72,437,000 which represents a staggering increase in the value of imports over that of the previaous year. Interest on central and local government debits amounted to £23,595,000, making a total debit for the year of £96,032,000, so that there was a deficit for the year of £7,880,000. That deficit was met in two ways, by drawing on the accumulations of previous surpluses, and also, I venture to say, by the capital investments which were being attracted to the Australian mining industry from abroad.
For the six months from July to December of 1935, the favorable commodity balance was £10,224,000, from which had to be met the half year’s external interest payment, which, at one half the previous year’s amount, would approximate a little under £12,000,000. Thus the occurrences of the last eighteen months are such as to give rise to grave disquietude, because the trend in these matters can be regarded as significant. We have to consider the effect of this trend on banking policy, having regard to the fact that no action was taken by the Government to correct the position. It is incontestable that the trade position during 1934-35, as compared with previous years, was due, not only to low export prices, but also, and to a greater extent, to the increased importation into Australia of excessive quantities of luxury goods, or, alternatively, goods which this country could manufacture for itself, or which, in the present state of Australian finances, this country cannot afford to pay for if they are produced outside Australia. The effect of this trend was that our total reserves of international currency fell from an estimated amount of £69,000,000 in July of 1934, to somewhere between £45,000,000 and £48,000,000 on 1st July, 1935. I did not get those figures from any Commonwealth authority, but arrived at them after a survey of such estimates as have been published in the newspapers, including those made by Professor Copland.
During 1934-35, it is undeniable that interest rates in Australia tended to harden. Simultaneously with the growing up of an unfavorable financial position overseas, the position in Australia also grew worse, and statistics do not reveal the whole picture. We must have regard to the previous momentum of downward interest rates, the period of stability when rates were at their lowest point, and then the change in direction and the gradual upward trend. At the very first indication that the era of low interest rates had ended it was the duty of the Government to take serious stock of the situation, in the interest not only of the employment of the people, but also of public finance. The budgets of all the States have not yet been balanced, despite the talk of the Commonwealth Government about the financial recovery that has been achieved. During 1934-35, the ratio of bank advances to deposits rose, and the proportion of bani cash to deposits fell. The movement can be stated as follows: Increased imports, having regard to the amount required to meet overseas obligations and other payments, unaccompanied by either increased export values, or a greater volume of exports, imperil the internal stability of Australia, as well as threatening the credit of the nation abroad.
In December last Professor Copland made a general survey of the position for the current year and estimated, on tho basis of three months’ operations, that the export of merchandise and silver for the year could be set down at approximately £96,700,000, while imports would be £79,000,000, leaving a favorable trade balance of £17,700,000. Adding the net export of gold amounting to £7,300,000, there would be a total favorable balance of £25,000,000. He assumed that the interest on the public debt payable abroad would be £23,000,000.
– Does that include sinking fund?
- No. In no case is sinking fund included on debts domiciled abroad. If that were done, it would involve the setting aside of about £4,000,000 a year. Although there is no statutory obligation on the Government to provide this sinking fund, there is a moral obligation on the country ultimately to redeem its external debts. Without considering the £4,000,000 in the foregoing calculations, the amount available for other purposes would thus be £2,000,000. The estimated net debit on all other items, he estimated at a minimum of £7,000,000, leaving an unfavorable balance of payments of £5,000,000. I have taken the liberty of using more recent figures, and seeing how far that estimate can be regarded as a reasonable prediction of the position in July nextUsing the seven months’ figures to the end of January, which are the latest available to me, in respect of exports and imports of merchandise, I have made some sort of correction of Professor Copland’s estimate. I find that insofar as exports are concerned the actual exports of merchandise for the seven months ended the 31st January, amounted to £55,300,000, which would give approximately the £96,700,000 which Professor Copland’s three months’ figures enabled him to estimate for the year. I understand, and of course I know, that during the month of February, wool exports probably increased at a higher ratio than was expected, and as there has also been an improvement in respect of wool prices, it is possible that the Prime Minister in his reply may inform mo that the export figures for February show a decided improvement over those of the previous seven months. The figures for eight months are, however, not available to me. I doubt if they were available to the Commonwealth Bank Board at the time this policy was instituted. In any case, the improvement in February, if there be any, may not cancel out the whole of the unevennesses in this calculation; because, although Professor Copland arrived at a net surplus of £2,000,000 available to cover other items amounting to £7,000,000, giving us a loss this year of £5,000,000, he estimated that the imports for the year would be £79,000,000, whereas the figures for seven months show that the actual value of merchandise imported has been £50,800,000 for that portion of the year. If we take that as a better criterion we are warranted in estimating that the imports of merchandise this year will approximate £85,000,000, and if we put the other stresses down on the basis of Professor Copland’s estimate and allow for the difference between his estimate of imports and what is now the more probable figure, namely, £6,000,000 over his estimate, we reach the position that, instead of having a surplus of £2,000,000 on this year’s transactions available for other purposes, we shall have a deficit of £3,700,000, without including the invisible elements. I put my calculation this way: I estimate that for this financial year exports of merchandise will approximate £96,800,000, that imports will approximate in sterling £85,000,000, and that the favorable trade balance will be approximately £1.1,800,000. To that must be added the value of the net export of gold, £7,300,000, giving a favorable balance of £19,100,000, from which there must be deducted interest on the public debt amounting to £23,000,000, leaving us actually short on that account by £3,700,000, to which must be added the debit on all other items, which Professor Copland estimates at £7,000,000, leaving us down £10,700,000 in the balance of payments for this year. As the amount last year was £7,800,000, this year therefore threatens to be even worse. At any rate, it will take an extraordinary improvement in the export figures for February over the average of the previous seven months of this year for it to be able to eat substantially into what, on these estimates, threatens to be not only an increase of our deficiency overseas in respect of the balance of payments, but also one which is cumulative on a previous deficiency.
In this connexion it may he of some value to put all these calculations into one place, and direct attention to the fact that during the last 30 months the balance of payments, having regard to their relationship to merchandise and to the interest payments that we have to make, puts us into the extraordinary position of having imports for the last 30 months to December, 1935, of £173,900,000, and exports for the same period of £219,300,000. But if we add to the £173,900,000 the £60,500,000 which had to be found for interest payments we arrive at a value of imports plus the external interest payments of £234,400,000, against a value of exports of £219,300,000. Thus, whatever may have been the slight improvement in the position in February due to better wool prices - and I am anticipating the Prime Minister will rely on that point - for the previous 30 months in the trade relationships of this nation with other countries a situation was developing which inevitably must have occasioned some disquietude on the part of the Commonwealth Bank Board. From these figures it is clear that the heavy fall in London funds in the last financial year will be followed by a further though slighter fall this year. That trend can now be regarded as continuous-, and therefore, one of which Government policy should have taken full cognizance. As apposite to the seriousness of the position I quote the following passages from the DecemberJanuary number of the Midland Bank Review : -
As regards Australia, the Review points out that, while the weakening of. the cash resources of the banks due to the diminution of London funds, and the consequent reduction of their deposits proceeded in 1935, the increased trade activity of Australia demanded larger advances. Hence the proportion of advances rose above 90 per cent, of deposits. To meet these conditions, Australian banks were driven to sell securities, while interest rates, which, for some time previously, had been consistently low, turned upward. “Here, then,” the Review proceeds, “were the first stages of deflation arising directly from a decline in sterling reserves, traceable, in turn, to adverse conditions in export trade. It is important to notice, however, that in the conditions of world trade to-day deflation would not have brought about the sal« of any more of Australia’s wool in 1934-35, or at least would not have increased Australia’s income therefrom, since the nations needing wool were in need also of the money to buy it. Moreover, the banking results of the reduction in basic cash, as far as they may have placed a check on internal recovery, were positively harmful; on the other hand, some reduction may have been necessary to assist the rectification of the trade balance by inducing a minor restriction of imports.”
Such deflation as was required, the Midland Bank Review considers, should have taken effect in a curtailment of advances to importers, and general deflationary pressure could thus have been avoided.
That is the view taken by a financial journal which speaks for the directors of the Midland Bank, and may be regarded as a non-Australian view of the Australian position. I am convinced that the Commonwealth Bank Board must have taken cognizance of the significance to Australian policy arising from the general position which had its origin in the strain being progressively imposed on London reserves by the growing disproportion of imports plus other external obligations including interest payments to the total bulk of exports. The courses open to Australia - I am not at this stage indicating preference for any of them - I conceive to have included the following: -
The Government could have met the situation by subsidizing exports, enabling Australia to outsell its competitors in the world market.
By thus increasing the aggregate volume of goods that Australia sold overseas the Commonwealth Government could have built up its London funds.
By the imposition of prohibitive tariffs on certain classes of imports.
If it preferred not to subsidize exports in the manner which I have just outlined, which would have permitted us to outsell our rivals in wool, wheat, and other products, the Government could have corrected the position by recourse to increased duties and had this course been, followed, the stream of imports into this country could have been reduced. The Government did neither of these things; I am not suggesting that either course should have been taken in preference to alternative courses which were available. Thirdly it could have -
Raised an external loan.
Furthermore, it was competent not only for the Government to take action, but also for the Commonwealth Bank Board and the banks generally, if the Government would not take steps to do so, to meet or set out to meet the overseas position by -
A rationing of the exchange without varying the rates.
To do this is difficult. In fact, I do not believe that they could have been successful. Having regard to the diverse points of view between the central bank and some very influential banks in Australia, rationing of exchange - although conceivable - was not practicable. There could, however, have been -
A variation of the exchange rate.
That should not be done, I submit, without the consent of the Government. A third course open to be taken by banking policy would have involved -
That would have reflected itself in higher interest rates and contracted purchasing power.
Those are the alternatives, but I submit that it was the duty of the Government to survey them, and indicate to the Commonwealth Bank Board the course it was prepared to take, and, in collaboration with the Bank Board, to take full responsibility for the course determined upon. That is what should have been done, but according to the right honorable the Prime Minister he had no cognizance of what the bank has done, his Government had no indication of any sort or kind from the Bank Board in respect of this matter, and no intimation from the Secretary to the Treasury, who is a member of the Bank Board, as to whether or not the bank was contemplating action in this direction. Parliament, indeed, has due to it a frank statement by the Prime Minister as to how far effect has been given to the provisions of the Commonwealth Bank Act, which stipulate that the Secretary to the Treasury shall be a member of the Bank Board for purposes adumbrated by the right honorable member forCowper (Dr.
Earle Page), who is now Minister for Commerce, namely to ensure the closest liaison between the Treasury and the Bank Board.
We are told that the Prime Minister was not consulted by the Commonwealth Bank Board in the action which has been taken, action which on a superficial consideration may be stated as merely one enabling the public to take up one million pounds’ worth of already-issued treasurybills which the bank holds. That, it is said, is all that is involved in this reversal of the country’s policy. This is a complete begging of the situation. The public is asked not to take up a new issue of treasury-bills, but, in effect, to employ deposits now serving as the foundation of banking advances generally to enable the central bank to reduce its own holdings of treasury-bills by £1,000,000. The stern logic of the situation is to force the banks generally to compete for deposits against the Commonwealth Bank’s desire to unload on the community, in return for cash, a proportion of these shortterm securities. The banks accordingly will have to pay more for deposits and interest rates must inexorably increase. The era of cheap money is ended by this procedure. Not only shall we have a more difficult problem for private industry as an employing agent for the people, but also every difficulty which at present confronts the country will be intensified.
In the extraordinary absence of information, particularly from the Government, on this matter, I hazard two conjectures as to why the Commonwealth Bank has taken this action. The first is this: Disquieted and exasperated by the Government’s failure to slow down the drain which imports have made, and are increasingly making, on London funds, the Commonwealth Bank Board has been impelled to use monetary measures to correct the fiscal lack of balance, having regard to overseas obligations. Because of the Government’s inaction the bank has been impelled to act. As a responsible element in maintaining Australian solvency abroad it has seen the necessity for action.
– The honorable member supports the board’s action?
– The honorable member would do well to remember that in this Parliament he is not in court and is not privileged to cross-examine. I am endeavouring, in the absence of information which this Parliament should have, to arrive at an explanation for myself. If I am wrong, it is for the Prime Minister to make a complete statement about this matter. The explanation that the Commonwealth Bank Board was disquieted and exasperated in waiting for the Government to act is one that comes to my mind. Otherwise the Government must be accused of gross negligence in the discharge of responsibilities to the people. But should that conjecture not be justified, should it be proved to be not the substantial motive prompting the Bank Board, my second conjecture would take this form: - That without consultation with Ministers or with the cognizance of the Government, the Commonwealth Bank Board has itself determined, for reasons not stated, to impose a measure of deflation on the economic structure of the Commonwealth. Logic demands the acceptance of either the first or the second of these conjectures as the reason why the Commonwealth Bank Board has acted as it has done. If the first reason i3 justified, the Government stands convicted of absolute negligence. If the Government exonerates itself of the charge of having been negligent in its duty, the London position disappears as a factor in this matter, and we are faced with the usurpation by the Commonwealth Bank Board of the position of sole judge of whether the inflationary policy, initiated in Australia in 1931, should now be reversed. This latter explanation exposes the bank board, of which the Secretary to the Treasury is a member, to the accusation that the board and not the Government, is the body responsible for varying national monetary policy in a matter of the gravest moment.
While I agree, and the party which I lead in this chamber agrees, that there ought to be no political interference with the technique of banking - that is to say, the details in respect of the relationship between depositors and debtors - and that banking administration shall be a matter exclusively for those controlling banks, I submit that in pursuance of section 51 qf the Constitution it becomes a responsibility devolving upon this Parliament to see that the appointees of this Parliament shall not usurp the authority which the Constitution vests in the legislature itself. One of these two conjectures I have made must be correct. Either the Government has been negligent in allowing the London situation to develop to such an extent that, owing to the inaction of the Government, the Commonwealth Bank Board has been impelled to take this course as a corrective in a situation which is tending to become impossible, the Commonwealth Bank Board thus becoming the scapegoat for the Government’s lack of policy; or, alternatively, the Government has permitted the Bank Board to usurp what, in fact, amounts to the authority to determine the monetary policy in respect of the Australian nation and the Australian people. I have to remind the country that the initiative that led to a reduction of the oppressive and intolerable interest rates at the nadir of the depression, was due to Government policy and action. The momentum thus commenced contributed powerfully to the adjustments which had to be made in order that economic recovery could become possible. Interest rates in Australia were reduced not by the action of the banks, but by the banks acting in collaboration with governments, and as the outcome of the decision of governments. Political policy was entirely responsible for the reduction of interest rates, thus making it possible to obtain cheaper money, to reduce overhead costs, and to make more employment available. I agree that the momentum thus started would not have been possible without the collaboration of the banks. Government policy without the collaboration of the banks would have been difficult, but I also agree that bank policy alone would be insufficient without governmental cognizance. It will therefore be seen that if the explanation of the right honorable gentleman is to be accepted the purpose and spirit of the Commonwealth Bank Act has been made a dead letter.
Slowly, very slowly, did the effect of this foundational impulse of cheap money permeate industry and reanimate the debilitated occupational pursuits of the people. Even at this period large sections of our community have not yet found it possible to regain anything like their proper place in the economic structure. It is preposterous to assume that any government should wash its hands of the situation and allow an increased cost for money and capital, particularly when governments must realize that the responsibility devolves upon them to provide avenues of employment for the people. The right honorable gentleman may refer to improved factory statistics, but my answer is that the loan expenditure in Australia during the last four years has permitted factory employment to be increased, thus increasing the purchasing power of the Australian people. It may be said that the improved position is due to increased exports, but it is due to cheap money more than to any other factor. Cheaper money has made it possible for Australian governments to embark upon works programmes which, during the depression, they could not undertake. The extent to which men are employed on public works is an important factor in stimulating the purchasing power of the people, and has enabled such industrial recoveries as we have witnessed to become possible. I can only express amazement if it be a fact that the liaison which marked the initiative of the era of cheaper money in Australia no longer exists, and that there has been a reversal of policy without consultation with the Government. I shall also express dismay if the Prime Minister states that the Government takes no responsibility for what has been done and will not take steps to render the proposal unnecessary. It is perfectly obvious to the Parliament that the disproportion of exports to imports, plus our external obligations, has led to the policy which has been outlined. This policy means that owing to higher interest rates it has become increasingly difficult to raise money in Australia. I ask Parliament to have regard to the sinister aspect of this question. An increase of indirect taxation has made it possible for the Government to reduce the burden of taxation imposed upon higher incomes. For political purposes the Government has been grossly negligent of the true economic interests of the Australian people. We cannot ignore the fact that had the Government taken steps to reduce the volume of imports it would have made its tariff schedules appear ridiculous and absurd.
– What steps would the Leader of the Opposition suggest ?
– In order to correct the situation overseas under which London funds are being depleted, we must reduce our imports or increase our exports or get a higher value for them. For the last 30 months our experience in connexion with the merchandise of this country, having regard to imports and exports, discloses a situation which makes it imperative, if we are to maintain solvency, that this Parliament should reduce the influx of imports. We have been unable to increase greatly the value of Australian exports. In the present congested state of the world’s markets, it must be apparent that to look to our export trade in order to maintain our economic life, is to live in a fool’s paradise. However much we may dislike it, customs barriers are being raised against us, and economic nationalism, however much we deplore it, is becoming increasingly apparent. The struggle for overseas markets has become intensified. Each country finds it necessary to take protective measures to safeguard its industries, until Ave have reached the stage of economic anarchy. Economists throughout the world to-day no longer look to export markets to assist in recovering completely from the consequences of a world situation. Although treaties have been arranged by the Minister for Trade and Customs with Belgium and Canada, the Minister directing negotiations for trade treaties (Sir Henry Gullett), discovered, while on the continent, that Australia could not expect to sell more Australian products in Europe for two reasons. One was because continental suppliers to the Australian market were at a disadvantage as compared with suppliers in the United Kingdom, and the other was the depressed purchasing power of continental peoples. These world economic considerations impel us to realize that when London funds become depleted, action must be taken by restricting imports.
– Through the tariff?
– Yes. I venture to suggest that the embargoes and prohibitions imposed by the Scullin Government between 1929 and 1931 were imposed not only with the knowledge of the Commonwealth Bank Board, but also with the board’s approval. I shall be astonished if the Prime Minister says that at no time within the last three months has the Commonwealth Bank Board invited him to take the cognizance of the London situation. I suspect the Government of having been too eager to avoid any reference to its tariff policy as a means of dealing with the London situation, first, because had its tariff policy been reviewed in this connexion then many of the accusations made against the Scullin Government would have been proved to be unjustified and much of the criticism which that Government had to experience, would now be exposed as the stark injustice it was. Secondly, I believe that this Government desired to receive as much revenue as possible from customs duties in order to splash it about to satisfy the political interests for which it stands. And thirdly, it desired to have the loss of revenue incidental to the relinquishing of direct taxation, compensated for by swelling revenue from the customs, as the result of the influx of goods which its lower rates of duty permitted. I leave the matters raised in my motion to Parliament and await such explanation as the right honorable the Prime Minister can tender.
– Before I deal generally with the motion moved by the honorable the Leader of the Opposition (Mr. Curtin) I shall refer immediately to one of his final claims, because it pays a very high compliment to this Government and the effect of its policy upon industry, employment and the country generally. The Leader of the Opposition said that I would probably produce - as I shall certainly do so later - figures revealing the increase of employment in the factories of Australia. He anticipated that by saying that the improvement in industry and employment is created largely by fh paper money, and by the fact that those engaged in industry can get their money at cheaper rates. That is true; such an influence plays a very important part in this connexion. But had this Government not existed, cheaper money would ti ot have been made available to industry. To emphasize this point I point out that if we take the 4 per cent. Commonwealth Government securities and examine the average effective rates of interest on them for the time when the Government which the honorable member supported was still in office, and through the years that followed, we shall find this story: On the 1st December, 1931, when the Government with which the honorable member was associated was still in office the effective interest rate on 4 per cent, securities was £5 0s. 3d. The Government which I have the honour to lead came into office at the beginning of January, 1932, and this is the story with respect to those securities from that time onwards: On the 1st December, 1932, the effective rate of interest on those securities had come down to £3 19s. 9d. and for subsequent years was as follows: - 1st December, 1933, £3 13s. 2d.; 1st December, 1934, £3 4s.; 1st December, 1935, £3 16s. Id. Compare these rates with the rate of £5 0s. 3d. which operated when the Government which the Leader of the Opposition supported was in office. If cheap money is a spur to industry in this country this Government and the parties represented on this side of the House are entitled to credit because of- the fact that we brought about the improvement so far as Government securities and financial and banking institutions are concerned.
In his motion the Leader of the Opposition takes to task both the Commonwealth Bank and the Commonwealth Government - the Government because it has not so directed the Commonwealth bank as to prevent it from * issuing this £1,000,000 worth of treasury-bills to the public, and the Commonwealth Bank because it has so issued these bills, and, according to the Leader of the Opposition, “ directed national monetary policy in a manner gravely affecting economic conditions in Australia “. The Government is taken to task also because it “ disclaims all responsibility for the course now taken, which prejudices the employment of the people and increases the difficulties of trade and commerce generally “.
All that is involved in the motion is guesswork as to what is likely to result following the action of the Commonwealth Bank in making available this £1,000,000 worth of treasury-bills to the public instead of, as it has done in the past, retaining the amount for itself or making it available to the trading banks. I shall review the policy of the Commonwealth Bank and the attitude of the Government towards it, the Govern- merit’s tariff policy, and the matter of industry and employment generally, because all these matters are involved iti the motion of censure.
I take the minds of honorable members back to the time when this country was experiencing very grave financial and economic difficulties, when the governments of the States were unable to raise money on the open market and when, in order to meet the urgent necessities of governments, whether for the purposes of creating employment or for meeting their deficits, recourse had to be made to this system of treasury-bill finance. Through this system, operated by the Commonwealth Bank, the total amount of treasury-bills issued grew in two years to about £50,000,000. Shortly after that period the open market was available to the governments for raising their loans ; but while we have been able to raise a certain amount of loan moneys, we have neither increased the amount involved in these treasury-bills nor been able to reduce the total of £50,000,000. Those £50,000,000 worth of treasury-bills were handled by the Commonwealth Bank. It was all part of the bank’s duty. It retained for itself roughly half of the amount and made available roughly half of the total to the trading banks. It acted in this matter entirely free from interference by any government. From time to time it altered the proportion it gave to the trading banks and the proportion it retained for itself, but in any case it was entirely free to do what it liked in respect of these treasury-bills. To-day the Commonwealth Bank is being criticized for the action it has taken in this matter, and the Government is being criticized because it has permitted the bank to deal with this £1,000,000 worth of treasurybills in a way in which it has not previously dealt with treasury-bills.
To-day the Commonwealth Bank holds approximately one-half of the total issue of treasury-bills. This £1,000,000 is not, as the Leader of the Opposition has said, a new issue, but forms portion of what the Commonwealth Bank holds to-day. It has merely been made available to the public instead of to the trading banks. Yet, on that peg hangs all the criticism and the censure of this Government. “Within recent years - the Leader of the Opposition emphasized this - there has been an increase of prosperity, of the development of industry, of the national income, and of employment, so great that the nur chasing power of the people has become considerably enlarged. That, as the honorable member said, has happened during the regime of this Government. He spoke of an effort to stop the momentum of progress. I claim that the Government is entitled to accept his remarks as complimentary of the conditions that exist under its administration.
– Certainly the right honorable member does not suffer from undue modesty.
– The honorable member who has interjected is modest of necessity, because he has nothing to boast about. Externally as well as internally, the purchasing power of the people of Australia has increased. Their prosperity - the Leader of the Opposition, I know, agrees with this - has brought about the increase of imports which has given rise to the complaint of the honorable member and his supporters in regard to the trade position.
– Does the right honorable member say that the Australian people are in a prosperous position to-day ?
– I say that they are enjoying an infinitely greater measure of prosperity than they enjoyed in the days when the government supported by the honorable member was in charge of the affairs of this country.
– The right honorable member was a member of that government; I was not.
– Let us review the trade position, not as it is supposed to bc according to alarmist suggestions, of which a number have been made in this House, not as it was last year, but as it is in the current financial year. On the 12th October, 1932, the then Leader of the Opposition, the right honorable member for Yarra (Mr. Scullin) sounded a warning of what was likely to happen. The right honorable member then said -
The alarming adverse trade balance to which I have referred set in almost immediately when this Government altered the policy instituted by my administration, and if it continues it will bo extremely dangerous. Will the Government pay heed to past experience or disregard those warnings, just as did the Government led by Mr. Bruce, as a result of which Australia drifted to the brink of bankruptcy, its financial solvency was endangered, its industries retarded, and unemployment increased by tens of thousands?
On the 13th March, 1935, the right honorable member told the same story in somewhat different words, although his prediction had not been fulfilled in the intervening period. On the 8th April, 1935, he sounded a similar warning and, as the Leader of- the Opposition did to-day, claimed that the situation which he had forecast had been averted only by an improvement in the price of wool. I am not concerned about that; his statement as to the cause of the improvement may have been entirely accurate. The fact that the predicted danger was averted is sufficient for me. On the 24th September, 1935, the Deputy Leader of the Opposition (Mr. Forde), in moving a motion of censure, raised the same issue. Now the Leader of the Opposition has chosen an unfortunate year to raise it again - unfortunate for him, because his warning is not justified by the actual facts of the situation. We are dealing not with last year, nor with what someone thought was likely to happen in 1932, but with this year. The Leader of the Opposition said that I should doubtless refer to a possible improvement that had been disclosed in the figures for February.
– They are not generally available.
– I agree that they are not. I am merely trying to make the position clear.
– I should not like to be accused of having failed to use them when they were available-
– However much we may disagree with the Leader of the Opposition, our experience of him is that he is fair in debate. For the eight months to the end of February we have accumulated a favorable balance of £15,900,000 sterling. Let us see how that compares with last year. For the same period in the previous vear the accumulation was £9,300,000 sterling In the whole of the trade year 1934-35, the balance was only £16,100,000 sterling.
Therefore, already that figure has very nearly been reached.
– That will not square the position.
– I shall show that there is every indication that there will be a squaring of the position, and that therefore the charge of the honorable gentleman falls to the ground. Examining the matter within the last few days, I wondered whether the position in March would be as favorable as it had been in February: The Leader of the Opposition said that the position in February would have to show a very substantial proportionate improvement if we were to get anywhere near to a balance at the end of the year. The position during that month did show a substantial improvement, because the margin was £5,300,000. I now have the figures for the first week of March, and they disclose a further improvement of £1,800,000. Consequently, the position at the moment is that, compared with the balance last year of £16,100,000, we have already a favorable balance of £17,700,000 with the remainder of the financial year still to run. I do not intend to adopt the role of a prophet, because some months have yet to run ; but, judging by our experience up to the present, there is every indication that at the end of the financial year, the balance will be such as at least to meet the commitments of the Government overseas. The position promises to be even better than that. I shall not commit myself to any particular figure for the year. It is evident, however, that at the present rate of improvement the worst that can be expected is the loss of London funds to a quite insignificant extent, and the best, that we may square the ledger for the year. The Government would like to see a reduction of imports in order that we might eventually revert to the normal position of having no doubt of our ability to meet all our commitments from year to year. Because of the increased prices received for our export commodities, the improvement in our internal activities, and the rapid diminution of unemployment, our export values will probably reach this year the highest figure since 1928-29. It is obvious, therefore, that the position does not call for any sudden or drastic action by either the Government or the Parliament ; for the time being, there is nothing that needs adjustment on a national basis. If any problem exists, it is merely of a hanking character. The Government will not be stampeded into any precipitate action which it does not regard as necessary. On more than one occasion in the past, the position in regard to London funds has been much worse than it is at present, and the circumstances in relation to the prices of export commodities have been very much more unhappy.
The present position - which, as I have shown, is satisfactory for the time being, calls for no immediate action, and is continually improving - is being used by the Leader of the Opposition and his supporters as a stalking horse behind which to attack the Government’s tariff policy. The rise in the volume of imports is really at the bottom of their solicitous concern about the balance of payments. I shall show that the tariff policy of this Government is not responsible. The Leader of the Opposition has already agreed that it is the prosperity of the people, or their greater purchasing power, which has resulted in the increase of imports. It is the restoration of a substantial portion of the prosperity which this country experienced in other days which has brought about this increased purchasing power. In order to indicate that it is not the tariff policy, but the prosperity of the people who buy the things that enter Australia, which is responsible, I would point out that, for the six months ended the 31st December, 1934, goods to the value of £5,500,000 were imported under the “ protective “ and “ competitive “ items of the tariff, whereas in the six months ended the 31st December, 1935, the figure was £6,000,000- an increase of 9.7 per cent. On the other hand, the increase under the noncompetitive items - those that are not competitive with Australian industries - was 13.1 per cent. That, I think, is a complete answer to the suggestion that the tariff had the effect alleged. The increases recently made have been largely in connexion with raw materials for the use of Australian industry, and machinery and equipment for the replacement of machinery and plant. May I say, also, that it is the prosperity of our Australian secondary industries which has made possible the importation of those things which are necessary for the extension of those undertakings. I take the year 1932-33 as a base year for the purpose of comparing the imports during the first seven months of 1935-36. After deducting the reserve gold exported in 1932-33, there was an excess of exports over imports of £27,400,000 sterling. Therefore, the trade position in that year could in those circumstances be claimed to be a sound one. It is on that account that I compare the first seven months of the present year with “the first seven months of that particular year. The value of the imports for the seven months ended the 31st January, 1936, was £16,000,000 sterling in excess of the value for the same period of 1932-33. Honorable members may contend that that bears out what the Leader of the Opposition has said.
– It seems to have something to do with it.
– Let us see how much it has to do with it. An analysis of the imports clearly indicates that they are employment-giving. They consist, in the main, of raw materials, capital goods and foodstuffs of a kind not produced in Australia, the principal items being -
These “groups total £14,000,000 out of increased importations amounting to £16,000,000 sterling. The increased value of the importations of galvanized iron was due to the fact that the Australian industry was not, at the time, in a position to supply the requirements of the building trade. The expansion in many of our main industries can be seen by an examination of the groups which I have cited. For instance, the motor car industry accounts for increased importations of chassis and parts amounting to almost £3,000,000, crude rubber £188,000, lamps £65,000, and plain steel sheets £256,000. The building industry is responsible for increased importations of undressed timber, galvanized iron, iron and steel, materials for paints and colours, linseed, gums and resins, pipes and tubes, plate glass and earthenware products and tools of trade. The additional importations of electric motive power machinery, metal working machines, ball bearings, power sewing machines, textile machinery, special steels, alloys, aluminium sheet, tin plate, and wireless valves, all indicate a great expansion of industry, and the increased value of dynamo electrical machines and cable imported furnish evidence of the extension of electric light and power schemes. Thus the charges made by the honorable member for Fremantle concerning the effect of this aspect of government policy have very little justification. It is perfectly clear that our tariff policy has not injured Australia’s secondary industries, and I venture the opinion that the honorable member himself does not think that it has.
An examination of statistical records will show that the Government’s tariff policy has very greatly encouraged industry in Australia. Stock Exchange quotations of investments in various commercial and industrial enterprises all indicate that very substantial progress has been made in industry during this Government’s term of office, with the result that there has been a gratifying increase of employment. The figures for 1927 relating to factory employment in Australia constituted a record to that time. In that year there were 452,000 operatives engaged in our various factories. During the depression the numbers declined to 337,000, but now, I am glad to state, they have risen to 4/59,000. This increase of factory employment is, I suggest, an important factor in the increased importations of the classes of goods to which I have referred and which are necessary for the continuance of employment in Australia. The figures which I have quoted are a direct refutation of the charge made by the Leader of the Opposition that the Government’s policy has done injury to industry in Australia. They show that ever since this Government has been in office there has been an improvement of the employment situation due to the confidence of the people in the Ministry. Our objective has been and still is the re-employment of people who are out of work, and any suggestion that we may approve a policy that will reduce employment is entirely without any foundation in experience. The Government would nevertheless he very glad to see a diminution of imports so long as it was not in raw materials or equipment necessary for Australian industry.
I turn now to the charge made by the Leader of the Opposition in connexion with the proposed public issue by the Commonwealth Bank Board of treasuryhills to the value of £1,000,000. Our attitude in regard to the Commonwealth Bank is well known. Early we indicated clearly to the people of Australia that the board, acting under the authority conferred upon it by the Commonwealth Bank Act, must be entirely free to decide its own policy. This decision to keep the bank free from political interference has been endorsed by the people of this country on two successive occasions, so the Government’s determination not to interfere with the policy of the Commonwealth Bank is really the policy of the people .of Australia. The record of the bank is such as fully to justify a continuance of our confidence in the board. Even if we disagree with some isolated act of its policy, are we going to declare that we no longer have confidence in the board, and that politicians and governments must step in, despite its wonderful record- a record of which honorable members opposite, I know, take some pride because in the earlier years of the federation, the establishment of the Commonwealth Bank was a plank of Labour’s platform. Because it has now done something with which some of us may not agree are we to withdraw confidence from the board?
– Does the right honorable member disagree with what has been done by the board recently?
– I disagree with some of the things that have been said by the Leader of the Opposition. The honorable member spoke as if the liaison which previously existed between the Commonwealth Bank and the Government had been terminated. That is not correct. As the honorable member knows, there has always been a close association between the Commonwealth Bank Board and the Government, but the board has always insisted on its right to determine its policy without political interference. This insistence was particularly noticeable during the chairmanship of the late Sir Robert Gibson.
It has been suggested that I said that I knew nothing of the recent decision by the board to make a public issue of treasurybills. I did know of the decision, but I knew nothing of the consultation that was taking place within the bank hoard, while it was considering its policy. The board, it should be noted, deals with treasury-bills issued by the Commonwealth on behalf of the States. In this way credit is made available to the States for their particular needs. “Whenever a decision is reached the chairman of the board informs the chairman of the Loan Council, who is the Commonwealth Treasurer, what the board proposes to do. This intimation is made after the board has decided upon its policy.
– The right honorable member said recently that he had no prior cognizance of the board’s intention to issue treasury-bills to the public.
– -I never said that. What happened was that the chairman of the board, on the eve of the issue, informed the chairman of the Loan Council of the board’s decision to issue treasury-bills. The chairman of the Loan Council then notified the representatives on the Loan Council of the various States, and at the same time informed me. I wish to make it quite clear that we took no part in the discussion as to the advisability or otherwise of the board’s action. Moreover, we had no right to take part in that discussion. If the board had asked for the advice of the Government, a course which is open to it, we would have been entitled to give advice, but we had no right to attempt to direct the policy of the bank board. The liaison between the board and the Government has always existed.
– The board gave the Government not an intimation but an ultimatum.
– The board simply intimated to the Government what it proposed to do.
I sincerely hope that what has happened will not be used for political purposes, because we all have the utmost confidence in the board. During the greatest depression in the history of this country the Commonwealth Bank played an important part in enabling governments and the people to get out of their difficulties. The bank has done many things to inspire us with confidence in the board’s administration, and there is no reason why this confidence should be withdrawn. It has been suggested that, by its recent decision, the bank has shown that it is indifferent to the public welfare. There is no foundation whatever for such a charge. As evidence of the bank’s assistance to the Government and its regard for the best interests of the people, I may mention that it has persistently led the way in all-round reductions of interest rates. It maintains an overdraft rate lower than that of the trading banks. It has reduced the discount rate on treasury-bills from 6 per cent, in 1931 to 1^ per cent, at the present time. In this matter it has acted quite independently of the trading banks. It has discounted and managed a treasury-bill issue of approximately £50,000,000 during and since the depression. It has provided £33,000,000 in London at 2^ per cent, to meet Australian obligations there. Since November, 1932, it has underwritten loans for new money in Australia, totalling £65,000,000. In the last three years it has lent to governments and to semigovernmental authorities, £22,000,000 in Australia, and over £4,000,000 in London. Its total investments in Australian governmental and semigovernmental securities amount to nearly £190,000,000, exclusive of treasury-bills. It has at various times bought Government securities in the Australian market and so given valuable support and help to steady the interest rate. It has protected the savings bank system in times of great difficulty. It has maintained stability in the exchange rate since December, 1931.
– It has only acted as bookkeeper for the Government.
– I am sorry to hear the honorable member for Melbourne Ports (Mr. Holloway) reflect in that way on the bank, for he has always previously said that he was very proud of it.
– I am still proud of it.
– I am perfectly sure that there has been no justification for any change in the honorable member’s view in that regard. The policy of the bank has invariably been framed to bring about and maintain stability in trade and commerce, in currency, in general economic conditions, and in the national credit, both overseas and in Australia. No member of the Bank Board has any interest in any profit that the bank may make. The board is concerned with the welfare of the people of Australia and the industries in which they are engaged, and it seeks to do its utmost to increase the amount of employment available. It has played its part in bringing interest rates down and in making credit available in order that industry may be encouraged to provide work for our people. The story of the growth, development and operation of this bank is wonderful, and we should be proud of it. I do not withdraw one iota of the confidence I have always had in the bank since the day it was established. It has been suggested that something has been done in connexion with the issue of these treasury-bills which deserves the closest investigation. I ask what grounds there are for making an investigation into this act of the hank while so many greater things that it does are not to be subject to investigation? Without any doubt the bank has been guided by its experience.
– But can the right honorable member give us the reasons why the bank acted in this way on this occasion ?
– I cannot, for I have not asked the board for its reasons. The bank, doubtless, could give very good reasons. I suggest, however, that our experience of it has been such as to inspire confidence in its operations. Why should we ask for the reasons which actuated it in dealing as it has done with these treasury-bills, seeing that probably every fortnight transactions of such magnitude occur in the bank as change the character or destination of at least £1,000,000? Such’ an amount may be in treasury-bills to-day and in cash tomorrow, or it may be represented by advances to other banks.
– It is the principle that we are concerned about.
– I remind honorable members again that the bank has complete control of the note issue, the funds of which it may invest as it pleases. We have never in the past asked the bank to give reasons why it has invested its funds in one way or another, though doubtless it could always give its reasons. The Commonwealth Bank Board has entire responsibility for £130,000,000 that has been deposited in the Commonwealth Savings Bank. It has absolute discretion in the control of the note issue, the fixing of rates of exchange, and the fixing of interest rates on deposits, advances and savings bank deposits. In addition to its control of more than £130,000,000 of savings bank deposits, it has sole discretion in the investment of note issue funds totalling £40,000,000 and of the general funds of the bank. It has power to buy and sell Government securities. In view of the enormous power which the bank has, who can say that the issue of treasury-hills to the value of £1,000,000 is of grave importance? Among the very many acts which the board performs, this is a minor act.
– A minor act?
– Yes. I shall explain, presently, why it.is a minor act. I cannot understand why the Government should be called upon to ‘explain why the Bank Board, which was deliberately made a free body and placed beyond political interference, should be called upon to explain this particular transaction, which I again call a minor act.
It has been alleged that this act of the board has led to an increase of interest rates, but how can any one acquainted with the financial operations of Australia even suggest that the issue of treasurybills to the value of £1,000,000 by the Commonwealth Bank Board is a justification for an increase of interest rates?
– Then the private banks-
– It is something new to hear the honorable member for West Sydney (Mr. Beasley) putting in a word for the private banks. What is the exact position to-day? The money paid to the Commonwealth Bank for these treasurybills will not be lost, nor will there even be that amount less available for use. The bills are being issued at the same rate as applied to treasury-bills issued prior to the taking of this action. The conditions as to rates have not been changed in any respect. There is therefore no justification for alleging that this action has increased interest rates. No action involving £1,000,000 could be said seriously to affect interest rates. Applications will doubtless be made by various financial bodies and commercial houses in Australia for this money, and the transactions associated with it cannot possibly upset present conditions. Do honorable members realize that nearly £30,000,000 is held at fixed deposit for three monthly periods - and three months is the life of a treasury-bill? Even the recital of this fact must indicate how little this isolated transaction of the Commonwealth Bank can affect interest rates. About £200,000,000 is held on fixed deposit for periods of from three to 24 months in Australia. In these circumstances could any honorable member hold the Commonwealth Bank responsible for a variation of interest rates on £200,000,000 of fixed deposits which may occur subsequent to the transaction which we are now considering?
– Then the action of the private banks stands condemned. That is what I wished to say a little earlier.
– I do not suggest that there is not some justification for the statement that interest rates have increased; but I deny that the particular transaction now under consideration had any effect in that connexion. Honorable members are well aware that interest rates have risen, following the issue of various loans recently, but this was before the Commonwalth Bank announced that it intended to issue treasury-bills to the value of £1,000,000. Prior to this action by the bank the general tendency in Australia was towards higher interest rates. The demand by industrial and commercial enterprises and governments for more money led, naturally, to a hardening of rates. In November, 1935, the Loan Council had to offer £3 15s. 5d. per cent, for a loan of £7,500,000, compared with £3 0s. od. per cent, which it offered for a loan of £15,000,000 twelve months, earlier. This represented a rise of three-quarters per cent, in the interest rate, but that increase cannot be ascribed to the action of the Commonwealth Bank Board of which the Leader of the Opposition has complained. It is common knowledge that the banks had, for some months, been contemplating increased rates of interest on fixed deposits. That was due to the circumstances of the market in Australia and to our general financial and economic situation, but not to the action of the Commonwealth Bank Board.
– Would it suggest collusion between the Commonwealth Bank and the private banks ?
– If the honorable member for West Sydney has read some of the statements made by the private banks about the Commonwealth Bank recently, he would not suggest that there was any collusion between them.
– We do not accept all that is said in that connexion.
– I have very little more to add, except to say that the case made out by the Leader of the Opposition cannot have been convincing even to himself. In view of all that this Government has done since it has been in office to improve our economic and financial situation it is not likely that any charge that honorable members opposite may make that it is now doing something against the best interests of the community will carry much weight. It has been suggested that the Government’s attitude towards the action of the Bank Board has been influenced by certain political consequences that may follow; but all that we have done in the interests of the people generally since we have been in office disproves any such suggestion.We have been told that something that is being done to-day by some other authority should be countermanded by the Government, because it will have the effect of reducing employment in Australia, but no justification has been advanced for such an assertion. The Government and the Commonwealth Bank Board have both played an important part in improving conditions in Australia, and in opening up new avenues of employment for our people. This is shown beyond all question by statistical information which is now available. The Government has been actuated in all its operations by the desire to advance the interests of the workers of this country. In order to ascertain how effective its steps in that direction have been, it is only necessary to compare the employment figures in the depth of the depression with those recently issued. In the depth of the depression unemployment reached 30 per cent., but according to figures issued by the Statistician of New SouthWales recently, only 8 per cent. of the people of that State are now unemployed.
– That is bunkum.
– One basis of calculation gives 8 per cent., and another 10 per cent. If the people in half-time employment or in partial employment are regarded as unemployed, the present percentage is 10 per cent., otherwise it is 8 per cent. I believe that the figures for all the other States, with one possible exception, are better than those of New South Wales. Australia is rapidly returning to the normal position in regard to employment - that is, the position that existed before the depression. The Government may take credit, to a large extent, for the progress and improvement that has occurred during its period of office, and it is not now likely to do anything to retard recovery. The Leader of the Opposition said that he would leave his charges to the judgment of the Parliament. I am perfectly sure that if honorable members generally consider the situation without bias, they will agree that the Government has once again justified its existence.
.- The Parliament and the people generally will be very disappointed at the reply of the Prime Minister (Mr. Lyons) to the convincing case stated by the Leader of the Opposition (Mr. Curtin). The right honorable gentleman has given no reason why the Commonwealth Bank Board should issue treasury-bills to the public to the value of £1,000,000, nor has he indicated to us that the Government was even consulted on the matter. As a matter of fact, he inferred that some members of the Ministry might disagree with the action that the Bank Board has taken, but he was not specific. When the direct question was put to him, he hedged. I wish to know whether he agrees or disagrees with what the Commonwealth Bank Board has done, and whether his Government was consulted on the subject? He told us, in the course of his speech, that there was no need to worry, but within the last few weeks he has said that therewas grave need to worry, and that he himself was very concerned over the drift of our trade balance. The right honorable gentleman was tendered a luncheon by the National Club, and his speech on that occasion was reported in the Sydney Morning Herald - a journal which honorable members opposite regard as reputable - on the 6th March, 1936. On that occasion Mr. Lyons said -
He, like many people, and like the bank board itself, had been worried about the trend of Australia’s trade balance, which, after all, was the matter which gaverise to the action of the Commonwealth Bank.
– But he has denied all that.
Mr.FORDE. - Yes ; I presume that the brief intended for the Minister for Trade and Customs (Mr. White) was handed to the Prime Minister, for he to-day by mistake quoted figures relating to employment in the factories of Australia. He did not say whether he now disagrees with the remarks made by him at the luncheon of the National Club, when he also stated -
The Cabinet was not informed of the board’s intentions in this particular instance, and had not discussed the matter with the board.
Has any memorandum been received by the Government from the board on this tremendously important matter? We have been told on former occasions that it is necessary to have the Secretary of the Treasury on the board because of the urgency and importance of the problems which crop up, concerning which the Government has to be consulted. The Prime Minister, speaking as Commonwealth Treasurer on the 6th July, 1932, said -
While the Commonwealth Government realizes that in the exercise of its own responsibility it is desirable that there should be the closest consultation between the Commonwealth Government and the Commonwealth Bank as to the economic position of Australia both internally and externally . . ,
Yet the right honorable member now informs us that the Government does not wish to interfere in any way with the decisions of the board and that it has no consultations with that body. Evidently he fears that its latest action will not be popular with a large section of the people. He wishes to hide behind the board, and to say that as the Government was not consulted, it cannot accept any responsibility for the action taken. As a matter of fact, the policy of drift pursued by the Government evidently brought Australia’s trade balances to such a pass that the board, having failed to induce the Government to take notice of its warnings, had to take, of its own accord, the action that should have been taken by the Government through the tariff.
When the Bruce-Page Government was in office, the net adverse drift of the trade balances over the period from 1923-24 to 1929-30 amounted to £57,000,000 but, when the Scullin Government assumed control, a brief period only elapsed before it received a warning from the board to the effect that drastic steps must be taken to stem the tide of imports. After careful consideration of the matter, prohibitions were imposed against the importation of luxury lines and of a number of goods that could be manufactured in Australia, with the result that the trade balance was rectified. In one year a swing over occurred from £30,000,000 on the wrong side to £30,000,000 on the right side of the ledger. The right honorable member for Yarra (Mr. Scullin) very properly issued a number of warnings, during the last three or four years as to what would happen to the finances if the drift were not checked, and now we have every indication that the Commonwealth Bank Board tried to make the present Government face up to the position. But this Government, because of its liaison with the Country party which stands for low tariffs, and because of the influence of certain low tariffists on the Government benches, has failed to deal with the drift of the trade balance. The board, faced with a grave responsibility, has had to take the matter into its own hands in a way not calculated best to meet the position, but it had no alternative. I ask the Government whether the board’s action will not have a most profound influence on the economic life of this country.
– Most decidedly it will. The Prime Minister himself said it was necessary to have consultations between the board and the Government on matters which would affect the economic life of Australia. Can it be. said that normal economic conditions have been restored, and that the unemployment problem has been solved? Of course not. The leader of the Country party, the right honorable member for Cowper (Dr. Earle Page), when introducing the Commonwealth Bank Act Amendment Bill in 1924, said that it was established as desirable that “the association of the central bank with the Government should be of the closest possible kind.” Surely that means that consultation takes place between the Government and the board, particularly as the Secretary to the Treasury is a member of the board. Will the Prime Minister say that the Secretary to the Treasury has not consulted with the Treasurer in regard to every move that the board has made ? Yet the Prime Minister tells us that there was no consultation and no collaboration at all. It is not surprising that representatives of the Labour party in Australia fear the result of the board’s latest action, when a newspaper that usually supports the Government has remarked -
It is up to Mr. Lyons to explain why the Government has agreed to abandon its policy of cheap money, upon what evidence it assumes that recovery in Australia is proceeding too rapidly, and must now be retarded, while unemployment is still a major social problem.
I am not surprised that that statement appeared in the Melbourne Herald of the 9th inst.
In his speech to-day, the Prime Minister set out to prove that all was well. He said that it was unnecessary to worry about the trade balances, and added that we could trust the Commonwealth Bank Board, yet in Sydney he stated that the trade balance was the cause of the board’s action. He showed utter ignorance of the repercussion which will follow the board’s action with regard to treasurybills. In one breath the Prime Minister said, “ Cheap interest rates are due to the advent of the Lyons Government “, but in the next breath he remarked, “ The hardening of the interest rates is a proof of prosperity “. The Prime Minister was most unfair, and I think that he knew it, when he took all credit for a reduction of the interest rate that had already commenced before the Scullin Government weL: out of office. During the last four months of its period of office a substantial drop occurred in interest rates. The Prime Minister quoted £100 bonds, the price of which rose £20 during the last four months of the Scullin Government’s regime. This credit was established, therefore, by the Scullin Government, which laid the foundation for the recovery that has taken place. Nobody can point to any constructive act by the present Ministry that ha9 led to the recovery. The Lyons Government has been waiting for something to turn up. An increase occurred in the price of Australia’s exportable surplus on the world’s market, but can the present Government claim any credit for the fact that higher prices have been received for wool, wheat, meat and butter? Undoubtedly not. The Government will be forced eventually to adopt the only sound policy, that of safeguarding our London funds by means of the tariff. I quite understand the discomfort of the Minister for Trade and Customs in having to sit in a Cabinet with members of the Country party, who have said that all would he well if they could smash tariff barriers down to the 1928 level. If the Minister came forward with prohibitions, the rationing of imports and increased duties on unnecessary imports - goods which could be made in Australia - he would hear the jibe from his friends in the Country party that he had not stood to the compact made between the United
Australia party and the United Country party before the formation of the composite Ministry. Australia, therefore, must suffer for the sake of party political expediency. Another course open is to borrow overseas, but I hope that resort will not be had to that unwise expedient. Others, such as the payment of bounties on exportable products, are in most cases beyond the realm of practical politics at the present time.
It must be remembered that Australia has a stupendous interest burden to meet overseas, amounting to £23,500,000 per annum. In addition, £3,500,000 per annum has to be provided for sinking fund and other charges, and another £3,000,000 in connexion with tourist traffic, making a total drain of approximately £30,000,000 per annum on London funds. The Government should take discriminatory action to check imports of an unnecessary kind, and should not force the Commonwealth Bank Board, in the absence of government action, to take a step that means deflation and a slowing up of the development by which normal conditions are being restored in industry.
The great majority of the people of this country are greatly disturbed by the recent rise of bank rates, following the announcement by the Commonwealth Bank concerning the issue of treasurybills to the public at the rate of If per cent., which is higher than the fixed deposit rate of the private banks. Irrespective of party considerations, honorable members are, no doubt, of the opinion that nothing should be done at the present time to retard industrial progress. The action of the Commonwealth Bank Board will have the effect of delaying industrial recovery, hut it has been forced to take its present action because the Government has fallen down on its own job. No doubt the bank would have preferred government action for the restriction of imports. I do not believe that it can be seriously claimed that we have returned to normal conditions, and that the unemployment problem has been solved. According to the latest figures issued by the Commonwealth Statistician, the number of unemployed throughout Australia to-day is 251,630. The percentage of unemployed is three times as great as it was 25 years ago. There are nearly 1,000,000 people in want throughout Australia at the present time. Large numbers of primary producers are not obtaining a sufficient income to provide them with decent living conditions, and this directly affects the employment of people in the cities. In spite of all this however, the Government, by its inaction, forces the Commonwealth Bank Board to take action which will retard the return of normal conditions. This is most unfair to the 90,000 boys and girls who leave school every year and seek employment. According to the latest figures supplied by the Commonwealth Statistician, 35,000 boys and 10,000 girls are condemned, under present conditions, to look in vain for jobs. In the face of these figures it cannot be said that normal conditions have returned, or that the time has arrived when we should curtail the supply of money available to industry and thus put a brake on the wheels of progress. Cheap money has been one of the contributing factors in our economic recovery. Indeed, it is imperative that industry should have access to cheap money before we can return to normality. I have in mind a statement made by Professor Copland, and published in a Melbourne paper after his return from abroad. He said -
I believe that interest rates should come still lower. Before we get to normal times the rate of interest should be per cent.
Now this Government has made itself a party to the arresting of that downward tendency of interest rates. I wonder what the honorable member for Parramatta (Sir Frederick Stewart) thinks of this. He has just concluded a tour of the world, and has prepared a report for the Government, but that report has not seen the light of day.
There is a vital distinction between the methods so successfully pursued in London in relation to treasury-bills, and the innovation now being attempted in Australia. In London treasury-bills are open to public tender, and the competition thus encouraged has resulted in short-term borrowing at extraordinarily low interest rates. In Australia, on the other hand, a firm rate of If per cent, is to apply to the first issue of bills, at all events.
There is to be no tendering, and those who take up any part of the £1,000,000 now on offer will receive the discount rate fixed by the Commonwealth Bank. Any one with a knowledge of financial affairs overseas is aware that there would be a sensation in London if treasury-bills were offered there at If per cent. Many millions of pounds worth of these shortterm securities have been allotted on the London market at approximately onequarter of 1 per cent., and British treasury-bills are still being issued at less than 1 per cent.
The Government evidently believes that industry in Australia can bear a greater burden of interest than it is bearing at the present time. The part played by interest rates in the industrial life of the community is of tremendous importance, and it is of equal importance to primary and secondary producers, and to home builders. A few months ago a searching inquiry was held in South Australia into the effect of interest charges on wheat production costs. According to a report of the Auditor-General for that State, a return from 43 farms in one of the principal wheat-growing districts in South Australia showed that interest charges amounted to 16d. a bushel, or 44 per cent, of the total cost, while working expenses amounted to 13.7d. a bushel. Of course we hear a great deal more about working expenses than we do about the burden of interest. According to the report of the Commonwealth Royal Commission on the Wheat Industry, it was found from returns submitted by 452 farmers that 40 per cent, of them had to pay interest charges of lOd. a bushel and over; while 6^ per cent., or approximately 5,000 farmers, had to pay ls. lOd. a bushel and over.
The Government has conveniently overlooked these facts, and to-day is a party to procedure that is designed to end the era of cheap money, to retard recovery, and to accentuate unemployment. A tariff policy for restricting imports would have been more selective and productive of better effects. The Government boasts that it has reduced import duties on 900 items and sub-items of the tariff. Many of the duties have been reduced until they are no more than revenue imposts, with the result that customs revenue is soaring and the Government is able to make tax remissions to its wealthy supporters. Already customs revenue for the current financial year has exceeded the estimate by £2,666,000, and it is estimated that by the end of the year there will be a surplus of Commonwealth funds of about £3,000,000. This will be achieved very largely at the expense of the masses of the people. The Government will be able to make further remissions of taxes to its wealthy friends who, no doubt, through their various organizations, will pass resolutions of approval. The Prime Minister cannot escape responsibility for what has occurred, nor can the Government cast full blame on the Commonwealth Bank. It was Government action some years ago which brought about the reduction of interest on the public debt, resulting in a saving of £6,000,000, and a further saving of £6,500,000 on overdrafts, and mortgages. These savings, which were effected before the advent of the Lyons Government, thus amounted to more than £12,000,000. The private banks certainly did not reduce interest rates of their own volition. Their hearts did not bleed for the taxpayers, nor were they anxious to come to the aid of an impecunious Government. Drastic steps had to be taken by the Government, and it was only at the point of the pistol, so to speak, that some of the banks agreed to reduce interest rates. Yet now we are told that interest rates are not the concern of the Government, and that a deflationary policy does not affect the economic life of the country! The Government is trying to hide behind the Commonwealth Bank Board, which was forced by the Government policy of drift to take the action of which we are now complaining. State governments have done much recently to solve the unemployment problem, and have started public works in various parts of the Commonwealth, but they have been hampered by lack of funds. This policy of deflation will make it still more difficult for them to carry out their programmes, and the unemployment problem will be accentuated. It is no wonder that the financial editor of the Melbourne Herald, in the issue of the 3rd March, made this comment : -
Statements have come, unofficially, but from high quarters, indicating that the Commonwealth Bank aims to damp down all spending, local or otherwise, in order to restrict spending on imports. This seems like caning the whole class to make sure of caning the boy who broke the window.
With the maintenance of credit the normal process of recovery of demand for money would have brought about higher interest rates within a very short time. This would have been quite a healthy sign. But a rise in interest caused by a reduction in the supply of money hastens this movement.
Sane enterprise feels the stress first, and this is the sort of industry that leads to permanent employment. Unsound enterprises are prepared to pay a high rate of interest if they can get the money, and dearer money will not deter them.
Surely the Government cannot disregard the opinion of its friends. The Taxpayers Association of New South Wales recently adopted the following resolution: -
That this Council deplores the recent hardening tendency in interest rates which, at this juncture, is a three-fold evil -
It increases Government expenditure and thus prevents the reduction in taxation so urgently needed.
It places an additional direct burden on industry, as if this tendency is not checked, fixed deposit rates will rise, and the banks must therefore raise overdraft rates.
It depreciates capital values.
The Government has been recreant to the trust reposed in it. It has had a majority in both Houses of the Commonwealth Parliament, but it has failed to tackle the monetary and banking problem. It has failed to take the steps necessary to stop the drift of Australia’s overseas financial position and, by its lack of action, it has been responsible for forcing the Commonwealth Bank Board to take this step in regard to treasury-bills. I believe that honorable members on both sides of the House, if they will but view this matter impartially, will feel that the motion moved by the Leader of the Opposition should be supported.
– A motion of censure of the Government, or something of the same kind - a motion for the adjournment of the House - has become a regular feature of Opposition tactics at the beginning of each session. On every occasion we have been treated to dire forebodings by the Leader of the Opposition regarding what may happen, and invariably the procedure has been of some value because it has enabled the Leader of the Government, in reply, to demonstrate how unwarranted have been the charges, and how groundless the fears expressed. On this occasion the story is told in two parts, the motion of censure being drawn up in this form: -
That the Government is deserving of censure for -
Failing to take action to safeguard Australia’s oversea funds by checking the increasing flow of unnecessary imports, thus leaving it to the Commonwealth Bank Board exclusively to direct national monetary policy in a manner gravely affecting the economic conditions of Australia.
Disclaiming all responsibility for the course now taken which prejudices the employment of the people and increases the difficulties of trade and commerce generally.
I have no doubt that the first part of the motion is intended for the satisfaction of the financial wing of the Opposition, while the second part is for the more tariff-conscious section, who are just about to undertake the major part of the debate in opposition to the tariff schedule. I think the Prime Minister (Mr. Lyons) has effectively dissipated any fears which may have existed regarding the soundness of Australia’s financial position overseas, and he has conclusively demonstrated the complete lack of danger in the experiment of offering a limited value of treasury-bills on the open market.
The chief protest of the Leader of the Opposition (Mr. Curtin) was that no action had been taken by the Government to reduce the volume of imports. I asked him what action he contemplated, and he replied that action could have been taken through the tariff. The members of the Opposition, like those who support the Government, are drawn from various parts of Australia, and it comes strangely from the Leader of the Opposition that he should ask for an increase of Customs duties.
– On specific items only.
– The honorable member did not specify the items. Does the honorable member disagree with the waiving of a duty to the amount of £50,000 on mining machinery? Does he approve of that?
Does the Opposition cavil at the importation of motor chassis, which give employment to 12,000 people in motor body-building in South Australia? This debate would have been more useful had the Opposition enumerated the unnecessary imports about which it has generalized.
The agitation and the apprehension of the Opposition in regard to the trade balance is premature. Every year the Opposition has sounded a warning in this connexion.
– The Commonwealth Bank Board has issued a similar warning.
– The Opposition fears that Australia will not be able to meet its commitments. The Government frankly admits that the trade balance must be watched, because any excess or shortage overseas affects the exchange position. There is, however, an automatic righting factor about these things - a point which the Scullin Government did not adequately consider in 1930. That Government failed to realize that there is a lag between the high prices of Australian wheat and wool and the increased purchasing power which follows such prices. During recent months there has been greatly increased buying of luxury and semi-luxury items such as motor cars. A young country, particularly a country like Australia with its great potentialities, which needs both development and population, does not measure its progress by the result of one year of trading; its progress its measured in generations or centuries; and as yet Australia is not 150 years old. The Opposition loses sight of the great improvement, particularly in employment, that has taken place since a Labour government went out of office, and blames its successor for not altering the tariff in order to rectify the trade balance, which may possibly be adverse some months’ hence.
– What about the Commonwealth Bank Board?
– The Commonwealth Bank Board acts independently. The policy of the Government is : “ Hands off the banks.” The Opposition went to the electors professing that, if given the opportunity, it would conduct the banking business of the country better than it is conducted by the banks; but a wise democracy returned it to the Opposition benches. Although the trade balance needs to be watched, the prohibition of imports and the imposition of surcharges -
– The Government says that it will watch the trade balance, but it does nothing.
Mr.WHITE. - The Leader of the Opposition overlooks the fact that there is an automatic adjustment; he fails to take the exchange movement into account. He says now that he prefers that action should be taken by means of tariff adjustments, but I could quote from speeches of the honorable member in which he has advocated lower tariff duties.
– I am in favour of lower duties sometimes.
Mr.WHITE. - I say emphatically that, to restrict imports by imposing super primage, or raising duties, is to make a possible adverse trade balance of greater importance than the employment of the people. In other words, it means taking violent action to penalize the community by imposing upon it increased unemployment and unnecessary limitations of the amenities of life. That is what would happen if the policy of the Opposition were given effect. It amazes me that the Labour party - a name which suggests that it is interested in getting people into happy and profitable employment - prefers to take measures which would create unemployment rather than incur the risk of a possible adverse trade balance. One wonders whether the Opposition should be styled the “ Dole “ party instead of the Labour party for if in power its actions would return many men to sustenance. The Deputy Leader of the Opposition (Mr. Forde) referred to action taken by the Scullin Government which, he said, saved Australia. At that time Australia was suffering from a depression, and the Scullin Government took action to prohibit certain imports and place surcharges on others. On the 4th February, 1931, when the present Deputy Leader of the Opposition was Minister for Trade and Customs, 118,424 Australian unionists were unemployed. One feels disposed to draw a curtain over that unhappy period, when 27.6 per cent. of the unionists of this country were unemployed. On the date mentioned, there were 338,000 persons in factory employment in Australia. Unemployment steadily increased to 30 per cent. of the population, when the number of factory employees was 354,000. As the Prime Minister (Mr. Lyons) pointed out, unemployment, which in January, 1932, was 30 per cent. of the population, is now only 13.7 per cent., whilst the number of factory employees has increased to 458,600. If-
– The population has increased by 500,000 since 1932.
– On the 30th June, 1932, the population of Australia was 6,576,824; it is now 6,724,305- an increase of approximately 200,000 since 1932. On the assumption that one person in ten goes into factory employment, those figures mean that 20,000 additional workers should now be absorbed in factory employment. The fact is that 122,000 persons have been absorbed in factory employment since the present Government assumed office.
The Deputy Leader of the Opposition frequently asks what is to become of our boys and girls who leave school each year. I reply that they are being absorbed in industry, and also that in many trades it is impossible to secure skilled workers. The Prime Minister has given the facts regarding importations. He mentioned motor chassis, with increased imports valued at almost £3,000,000 in seven months, resulting in greater activity in the motor body-building industry. The fact that one large company of motor body ‘builders, which hitherto practically confined its operations to South Australia, has recently extended its works to Melbourne, indicates some of the activity in that industry. There have also been greatly increased importations of crude rubber owing to the greater sale of tyres, whilst the value of imports of machinery has risen by £2,400,000 per annum. I know that the Australian manufacturers appreciate those imports, because they can now get modern equipment which enables them to compete with overseas manufacturers as well as with their local rivals. An analysis of imports valued at £13,000,000 shows that, of that amount, £4,838,000 represents raw materials for manufacture ; capital goods, including motor cars, account for £2,915,000; tools of trade, £166,000; vehicles and parts, chiefly motor chassis, £2,232,000. Luxury and semi-luxury items represent £366,000, leaving only £2,483,000 for other classes of goods. Expressed in a different way, statistics indicate that only 14 per cent, of the importations into Australia are competitive with Australian industries. In the light of these facts, is it any wonder that employment is increasing, that skilled men are difficult to obtain, and that factory production rose from £111,000,000 in 1932 to £140,000,000 for the last financial year? The improved conditions are also reflected in the improved index of industrial shares. Figures supplied by the Sydney Stock Exchange comparing 23 manufacturing and distributing companies with other companies show that share quotations have risen from 77 per cent, of par value in July, 1931, to 183 per cent, of par value in December, 1935.
– How much have they dropped in the last week?
– There have been fluctuations, but prices have not fallen to the low level of the unhappy days of 1931 when the Scullin Government was in office. That Government based its tariff policy on the belief that by raising duties prosperity would be created. It would appear that the Opposition has learned nothing from the depression. Of the items covered by the prohibitions and surcharges imposed by the Scullin Government, £4,260,000 were imported in 1930-31, whereas now, despite the abolition of those measures, and with increased prosperity, only £5,060,000, or £800,000 more, of those lines were imported in 1934-35. Evidently the Opposition still believes that the raising of customs duties will automatically lead to prosperity. The present Government has shown that by the imposition of duties which prevent profiteering and give the lowest effective protective duty, the community is better served than by the imposition of inordinately high duties with consequent high prices for goods. The Deputy Leader of the Opposition has given us, to-day, an indication of the line of argument which he will pursue during the next few weeks when the tariff will be under discussion. Summed up, he has said, “ We have only to make the duties higher and higher and prosperity will follow “. Carried to its logical conclusion, his argument is that if we double the present duties, we shall double our prosperity. That is absurd!
– Does the Minister say that our prosperity would be doubled by removing the duties?
– I admit that a tariff can regulate trade so that it flows in one direction only, or in two ways, or is of great or small volume. The Labour party’s fiscal policy provides for one-way traffic. The Opposition thinks that by imposing high duties, somehow or other by a Swiss Family Robinson method under which every one makes everything he requires, prosperity will be achieved. This Government has shown, on the contrary, that prosperity followed the careful revision of the tariff on sane lines. The motion before the House is like a double-barrelled gun loaded with blanks. It is, however, serving a useful purpose in that it provides the Government with an opportunity to expose the weakness of the arguments of the Opposition. The following extracts from the last annual report of the Tariff Board are pertinent to this debate: -
The significance of increased importations is often exaggerated. Frequently the increase is merely in line with the general increase in trade consequent upon a partial return to prosperity. Sometimes, however, the Board has recommended a reduction of duty with the knowledge that importations m’ust increase if local prices are not reduced. Where local manufacturers delay the necessary price adjustments, imports have increased. It must be recognized that where local prices are unduly high, only the competition of lower priced goods can effectively establish a lower price level.
These lower price levels have enabled 122,000 persons to be taken off sustenance and placed in employment where they are in a position to buy the necessaries of life - some of those “unnecessary imports “ of which we have been told to-day. One of them, tea, the imports of which increased in value by about £14,000 in the last twelve months, is an item on which the Opposition raised the duty and imposed primage. This Government completely removed the primage and reduced the duty by 25 per cent. Tea is only one of a number of items necessary for our comfort; it is one of the amenities that should he enjoyed by the people. I am most grateful indeed to the Opposition for bringing forward this censure motion to-day, because it has given us an opportunity to dissect and analyze the tradebalance, and to show that so far from Australia’s industry being jeopardized, the employment of the people, being prejudiced and the difficulties of trade and commerce being increased as this motion alleges, is ridiculous. The facts are entirely the reverse.
.- The Prime Minister (Mr. Lyons) advanced arguments which, from a debating point of view might be considered good material, but we, on this side, propose to analyze the position brought about by the action of the Commonwealth Bank Board from the point of view of what is expected of this Parliament. First, the right honorable gentleman said that the issue to the public of £1,000,000 of treasury-bills was a minor matter. But the private banks and other interests did not regard it as a minor act. On the contrary, so seriously did they regard it that they immediately increased interest rates on deposits, and brought about a corresponding increase of interest rates in respect of all loans made by them. In consequence every worker in this country will be penalized. The cost of loan moneys raised by the governments of Australia will be increased. The Prime Minister himself admitted that interest rates had gradually increased from £3 0s. 5d. per cent, to £3 15s. per cent. If an increase of charges on money loaned to governments does not impose a penalty on the people, what does? Not only is an additional burden imposed in this way, but moneys raised for investment in industry must also bear the additional charge. One immediate effect of the increase of the interest rate has been the stoppage of building operations in New South Wales.
– Towards the end of last year, and up to the 16th January, carpenters and bricklayers were almost unobtainable; but now in New South Wales alone over 800 of them are unemployed. What is the reason for this?
Builders engaged in erecting residential flats in Double Bay, Rose Bay, and other suburbs of Sydney, were informed by the banks that in future no money would be lent to finance the erection of such buildings. The boom in the erection of flats collapsed overnight. Those who require advances for industrial purposes generally find that they have to pay a higher rate. Can the Commonwealth Bank Board’s action then be regarded as a “minor act?” The Herald, Truth, Age and Argus, have all commented on the “ minor act “, and taken the Government to task. The Prime Minister said that he had no prior knowledge that the Commonwealth Bank proposed to issue treasury-bills to the public although such action must have an adverse effect on employment.
– Employment is still rising.
– It is not. Since the 15th February there has been a decrease of employment in New South Wales. The Government cannot be absolved of blame for the Commonwealth Bank Board’s action. As a matter of fact, the Government itself first brought about an increase of the interest rate from £3 0s. 5d. per cent, to £3 15s. per cent., and therefore must accept full responsibility for paving the way for the banks to increase the rate still further, an action which will detrimentally affect every industry in this country. What is the Government’s policy? If it can be proved that this increase will have an adverse effect on industry and employment generally, and on the whole economic life of this country, will the Government take no action? Will it allow the Commonwealth Bank Board to continue its present policy regardless of the consequences? The Prime Minister has claimed credit for having lowered interest rates, but I remind him that had it not been for the agitation initiated by the Labour movement throughout the Commonwealth to bring about a reduction of interest rates they would have remained at their former high level. The Labour movement demanded that action should be taken to lower interest rates, and declared that unless that were done it would pay no more interest overseas. Honorable members now supporting the
Government, who were then sitting in Opposition, said that that could not, and would not, be done. They said that it was ridiculous to claim that the interest rate should be reduced to 3 per cent. The Minister directing negotiations for trade treaties (Sir Henry Gullett) said that interest rates could not be reduced below 5 per cent. “When the rate dropped to 3 per cent, the honorable member was staggered. The Prime Minister said that he and his Government were responsible for reducing the rate ; will the right honorable gentleman claim the credit and accept responsibility to-day for its increase? It is all very well for the right honorable gentleman to claim credit when the rate is falling, but he blames somebody else when it is rising. On numerous occasions when we on this side pleaded with him compulsorily to reduce interest rates, he opposed us and said that he would not stand for such a policy. Now he takes credit for the results of a policy which he opposed. In his claims in respect of interest reduction he tries to outdo “Bill Adams’ “ description of how he won the Battle of Waterloo.
– The honorable member’s party lost Mr. Lang as a result of its policy.
– We are gaining the confidence of the people of this country. Does the Government concur in the action of the Commonwealth Bank Board in issuing treasury-bills to the public at If per cent.? Will the Government accept responsibility for the action of the board? The Prime Minister has claimed that his Government had established a record in respect of employment. Let me analyse this record. In 1927, (he number of persons employed in factories was 452,000, the population at that time being 6,251,000; to-day the number employed in factories is 458,600, and the population at the end of last year was 6,711,000, an increase of 400,000. The Minister for Trade and Customs (Mr. White) said one person out of every ten of the population enters factory employment. If that ratio is correct the number of persons engaged in secondary industries should have increased by 40,000, instead of by only 6,000 persons. The number engaged in those industries to-day should be 492,000 instead of this alleged record of 458,000. Yet the Government boasts of its wonderful record ! According to trade union returns the percentage of unemployment is now 17.8.
– The published figures are 13.7.
– Since 1931 the ranks of the trades unions of Australia have not been increased by the admission of youths. If the numbers of the youths who to-day are unemployed were included, the figures of the Commonwealth Statistician would not bear the light of day.
– The results of the last census showed that the figures of tho Commonwealth Statistician were approximately correct. The census papers included a questionnaire in respect of unemployment.
– The figures of the Commonwealth Statistician are far less than those of the census - very nearly half. The Commonwealth Statistician’s figures are 17.8 per cent., whereas the actual figure of unemployment among trades unionists is 23 per cent. The Commonwealth Statistician’s figures are not correct and he concurs with my claim that a drastic change must be made in the system of collecting data.
– Since 1931 there must have been additions to the ranks of the unions.
– Yes, the normal additions one would expect, but actually since 19’28 membership of the unions has fallen by about 23,000. “
– Can the honorable member state a reason for that ?
– Young men are not joining unions because they are not engaged in industry.
It is not the million pounds involved in these treasury-bills on which I challenge the Prime Minister. That is only a flea-bite. It is the principle which is involved. Deflation, we are told, must be brought into operation. The Federal Treasurer (Mr. Casey) had the support of New South Wales and Queensland when he tried to bind the Loan Council to his policy. He and his allies in those two States declared the loan expenditure must be curtailed. But four States voted against them.
– When did this take place ? I do not recognize the description of the incident.
– When the honorable the Treasurer declared that there must be restriction of public expenditure.
– I have never said that. The honorable member is misinformed. If anyone knows what took place at the Loan Council meeting to which the honorable member is evidently referring, it should be I, as I happened to be in the chair.
– The honorable member may deny it if he likes, but that will not alter the fact that four States voted against him.
– What is the honorable member’s authority for saying that?
– Never mind my authority; deny it if you care.
– I am denying it: I was there and the honorable member was not.
– Failing to bring about deflation in a constitutional way at the Loan Council other steps were forced upon the Government. Two things have actuated the step taken by the Commonwealth Bank, either our overseas trade balance or a desire for inflation. The Prime Minister took credit for a favorable overseas trade balance of £15,000,000, but ho failed to appreciate the fact that last year there was a drop of £7,000,000 and that this year we are again faced with a similar situation. The operations for February, and a large part of March may improve the situation slightly, but in the next three and a half months a further slide is likely to occur. The contention of the Leader of the Opposition that the London situation is most serious will consequently be borne out. Meantime the Government not having the courage to increase tariffs for fear of breaking the Ottawa agreement, and in order not to embarrass the Minister in charge of negotiations for trade treaties (Sir Henry Gullett) in his dealings with foreign countries, has called the Commonwealth Bank to its assistance, and the institution has declared that the best way to remedy the situation is to increase the rate of interest. By interjection the Minister for Trade and Customs (Mr. White) has asked how will the flood of imports be stopped by the Commonwealth Bank’s policy of issuing treasury-bills. Imports will be retarded because of the higher rate of interest. The first step the Government should have taken was to hinder imports. Had it done so the London position would have been rectified. Instead, however, it has been decided to penalize industry and interfere with the internal economy of this country. This action will be resented by the farmers. They will certainly squeal about the higher rate of interest on their overdrafts. They will come to Parliament about it. The farmers are the loudest squealers in the country, they are ever ready to dip their hands into the “ kitty “ but always at the expense of other sections of the community.
The Prime Minister has said, that about £50,000,000 worth of treasury-bills are held by the Commonwealth Bank and the trading banks in the proportion of half and half, and has shown that they should be held by the Commonwealth Bank. That is what the Commonwealth Bank is there for. The Prime Minister has demonstrated that the Labour party’s policy that the credit resources of this country should be in the hands of the country through the medium of the Commonwealth Bank is correct. The Commonwealth Bank has been able to break down some of the restrictions imposed upon it by the Bruce-Page Government, but the people will not be able to take full advantage of this wonderful institution until full credit control is taken over by the bank and managed for the people. Why should the treasury-bills be in the hands of the private banks? The private banks wanted to keep this racket to themselves, manipulating the issue of treasurybills in any way they desired. It was not their wish to have for these bills the open market which for a long time the Labour party has been advocating. In effect, the banks said : “ This is a good thing and we must keep it under our control.”
The Commonwealth Bank would not have taken this step but for our overseas trade balance position, or for the fact that the political process of deflation evolved under the Premiers plan was too tedious. If, as the right honorable the Prime Minister has intimated, the Government has no co’ntrol over the mone- tary policy of the country, is it any wonder that the members of the Labour party, and those who support it, urge that the Commonwealth Bank should be controlled by the people in the interests of the nation? The supporters of the Douglas Credit and other similar financial theorists, who have for some time been agitating for monetary and banking reform, are justified in the demands they are making for an alteration of our present monetary system. The time has arrived when the Commonwealth Bank, which should function in the interests of the nation, should be under the control of the Australian people. The private banks increased their deposit rates by from £ per cent, to 1 per cent. It has been said that by the issue of treasury-bills the private banks will lose £1,000,000; but what is £1,000,000 when that amount is distributed between all of the banks in Australia? The action of the bankers is sabotage. The Loan Council could not be induced to reduce loan expenditure and so it was decided to bring about deflation by this issue of treasury-bills.
Honorable members may be interested to know that last week the British Government issued treasury-bills amounting to £77,315,000 at 11/2.33 per cent.
– That is a high rate for London.
– The rate was down to 4s. odd. In comparison our rate is high. In a sense it is exploitation. On the 27th July, 1933, the Governor of the Commonwealth Bank said -
In the monetary sphere the primary line of action towards a rise in prices is the creation and maintenance of such conditions as will assist in the revival of interprise and trade, including low rates of interest and an abundance of short-term money.
The position has now changed. The rate of interest has been increased. Even the Treasurer (Mr. Casey) who is the mouthpiece of the Government in financial matters, believes in increased rates of interest. The Treasurer was the first to advocate higher rates.
– When was that?
– When the interest rate on the last loan was fixed at £3 15s., compared with £3 0s. 5d., the Commonwealth Bank Board said at the time that it was a detrimental policy, but that board is now compelled to eat its own words.
– What of the action of the
Labour premiers who are members of the Loan Council?
– I am speaking of the action of the Treasurer who is the mouthpiece of the Commonwealth Government. Immediately after being appointed Treasurer, he advocated a higher rate of interest, and his action was applauded by certain sections of the community. There was an immediate response by investors when they realized that they would receive an additional 15s. for every £100 they invested. They then regarded him as a wonderful Treasurer; to-day, they are now feeling the effects. They then toasted the Minister with champagne, which evidently went to their heads; today they are feeling the sore head of the day after the night before; they have to pay higher interest rates on their overdrafts. Moreover, as a result of the increased interest rates, building activities, particularly in New South Wales, are being retarded seriously, and there is a possibility of collapse in the building trade. One building contractor, who is constructing a block of flats at Double Bay and another at Rose Bay, has been advised by his bankers that no further accommodation will be available for the construction of flats. In New South Wales the Rural Bank has taken action to retard the building of private houses by stipulating that no further applications for loans will be accepted. The State Government disclaims responsibility, while the manager of the Rural Bank in New South Wales has explained that it is solely owing to the accumulation of applications that no further applications from those desiring financial assistance from the Government, in the matter of home construction, can be entertained.
The Prime Minister and the Treasurer should realize that it is futile making statements which cannot be substantiated. They should face the facts. The Government is not game to face the issue. It realizes that the Commonwealth Bank has taken the control of the monetary policy of Australia out of its hands, and that it is a mere tool in the hands of th, bank board. The Prime Minister says that the Government “will not interfere, because he realizes that the day it does it will be goodbye to him as Prime Minister, and another Prime Minister will have to be found to do the bank’s job. The right honorable gentleman would rather retain the Prime Ministership than act in the interests of his country. No one can deny that our economic and financial position has improved since there has been a reduction of the rate of interest, or that an increase of the present rate will seriously affect the welfare of the Australian people. When a Minister in a Labour government, the right honorable gentleman said that a reduction of the interest rate could not be brought about.
– He was opposed to inflation.
– He was not against inflation. It was his desire solely to deflate the workers’ wages. He contended that the workers should work longer hours and for less money, but when it came to a matter of the interest rate, he said, “ My God, leave that alone “. He would have the workers and their children starve, so long as in the matter of interest, the capitalist would get his pound of flesh.
Sitting suspended from 6.16 to S p.m.
– I propose to devote my remarks to the points at issue that particularly concern myself as Treasurer, namely, the treasury-bill issue, the rise in interest rates and consequential matters. The other matters involved in the censure motion, such as employment and the results of the Government’s activities in respect of the tariff, have already been dealt with very effectively by the Prime Minister (Mr. Lyons) and the Minister for Trade and Customs (Mr. White).
In respect of the proposed issue of £1,000,000 worth of treasury-bills by the Commonwealth Bank direct to the public, I venture to believe that had it not been for the raising of interest rates by one of the trading banks, following the announcement by the Commonwealth Bank Board, this issue would not have excited any public attention. The issue had been announced for four or five days, and then came an announcement on the part of one of the trading banks of a rise of interest rates; it was not until that announcement took place that this issue of treasury-bills caused any public comment. I suggest to honorable members that the issue of £1,000,000 worth of treasury-bills has got to be kept in its proper perspective; I think the tendency now is to give it a degree of importance far above what is warranted. As the Prime Minister said, the treasury-bill issue in Australia is about £50,000,000 which is divided, roughly, equally between the trading banks and the Commonwealth Bank. Treasury-bills are negotiable instruments; they are issued as Commonwealth securities by the Commonwealth Treasury to the Commonwealth Bank. At the present time the issues are made entirely on behalf of the States; there are no treasury-bills in existence that have been issued for the benefit of the Commonwealth Government. The Commonwealth Bank manages these treasury-bills entirely for the Commonwealth Government; it has complete control of the issue, and discounts to the trading hanks so much of this £50,000,000 issue as it thinks fit. The proportion issued to the trading banks is subject to considerable variation from month to month. For instance, the Commonwealth Bank may issue, say, from £1,000,000 to £5,000,000 more of these treasury-bills to the trading banks or withdraw something like that amount from the trading banks as it thinks fit, and in accordance with the monetary situation as the Commonwealth Bank Board sees it at the moment.
– By what principles is the Commonwealth Bank guided in that respect ?
– The general monetary situation in Australia. From month to month the amount of treasury-bills in the hands of the trading banks varies according to the monetary situation in Australia and the Commonwealth Bank is the only body fully conversant with this situation. The Commonwealth Bank has complete control of that issue; it can do what it likes with it, and does vary the incidence of the issue as its judgment dictates. The Commonwealth Bank Board has now seen fit to make an experimental issue to the public, other than the trading banks, of £1,000,000 worth of the £25,000,000 worth of treasury-bills that it holds. It is general knowledge that for some considerable time the Commonwealth Bank has been in favour of an open bill market in Australia. An open bill market would affect the State governments on whose account the treasury-bills are issued in that no one knows in advance whether an open treasury-bill market would result in a lower or a higher discount rate. The circumstances in Australia in the last few years have not been entirely normal, and although the Loan Council from time to time has considered an open bill market it has, so far, not seen fit to sponsor such an innovation. An open market might mean the offer of from £1,000,000 to £10,000,000 worth of treasury-bills for subscription by the general public, and the Loan Council in its wisdom has decided, though not very emphatically, to side with those who oppose an open market for treasury-bills during this period when things are not entirely normal in Australia.
– So the Loan Council did not approve of an open bill market?
– An open market is a matter quite different from what we are considering at the moment. I think that the honorable member is very much in favour of an open market, somewhat along the lines of the British system.
– I understand that the Labour party is in favour of an open market and I notice that the Labor Daily has been sponsoring this policy for a considerable time. It has published, if I may say so, powerful leading articles opposing the present system under which treasury-bills, as it claims, are made the peculiar perquisite of the trading banks. This newspaper contends that the general public should have access to treasury-bills. Its arguments, which, I admit, have a good deal of weight in them, have been taken into consideration in conjunction with arguments to the contrary. The Loan Council, in its wisdom, has decided that for the present an open market for treasury -bills would not be wise. However,the issue of this £1,000,000 worth of treasury-bills does not, by any means, constitute the establishment of an open market.No one knows what the effect of an open market would be; no one knows what the demand is among the business community for short-term paper such as this. “We have the example of South Africa where for ten years an open market has operated, but it has not flourished, as there has not been a sufficient demand for treasury-bills in competition with the deposit and overdraft system of financing industry. Thus we do not know whether there would be any considerable demand for treasury-bills in this country. However, the Commonwealth Bank has seen fit to forecast that it will in the near future let out to the public this relatively small issue of £1,000,000 worth of its own bills in order to test whether there is any demand among the business community here for short-term paper of this sort.
– Does the honorable member say that this experiment is the sole purpose which the Commonwealth Bank has in mind in making its paper available to the public in this way ?
– All I can say is that the Commonwealth Bank has, for the last two years, been keen on testing the market for treasury-bills. Its efforts for the establishment of an open market have been nullified by the Loan Council, but this issue of £1,000,000 worth of bills, which is a relatively small matter, comes entirely within the “ say so “ of the Commonwealth Bank. It is wholly within the discretion of the bank to undertake this small experiment and to gauge from the enthusiasm with which the business community receives this issue whether the matter of establishing an open bill market should be pursued further with the Loan Council. This is the reason for the issue of this relatively small amount of bills.
– Is it necessary to find out whether the public prefers to receive on Government securities a higher rate of interest than is offered by trading banks for deposits?
– I cannot give any forecast as to whether these bills will be taken up even with a small interest advantage, and I venture to say that no one can answer the honorable member’s query. All I can do is to point out that in South Africa the business people, who from time to time have very much bigger floating balances than we have in Australia - due to South Africa’s huge gold output - have not responded to the open bill market. No one can forecast - although I am in a fair position to express an opinion on this matter - what the public response in Australia to a treasury-bill market would be, even allowing for onequarter per cent. advantage in respect of interest. The business community would weigh carefully the advantages of the deposit and overdraft system in comparison with treasury-bills, with the possibility of rediscounting at the option of the Commonwealth Bank and at a rate to be determined by it. We have no evidence as to whether a treasury-bill issue, even of this modest size, will be successful ; thus I cannot answer the question raised by the honorable member for Parramatta. Perhaps, with his greater business experience, the honorable member may be able to answer this question for me. I have sought to ascertain from numbers of business men in the various capital cities whether they would welcome an issue of this sort and they have been very lukewarm; they did not know.
– Why is the Commonwealth Bank forcing this issue on an apparently unwilling public?
– The public may be willing or unwilling, but the bank is trying on a modest scale to test the situation. That test will yield certain information, which will enable the bank board to decide whether there is any great demand for short-term paper such as this.
– Will the Treasurer, with his inside information as a member of the Government, say definitely that the only motive of the bank in making this issue was to try out an open bill market?
– The honorable member speaks of motives. All I know is that for two years the Commonwealth Bank has been anxious to establish an open bill market.
– That is the bank’s reason for this issue?
– I believe it desires to test the market.
– May this be taken as a warning from the bank to the Government that it is not going to carry too many treasury-bills?
– Not at all. My personal opinion is that eventually there will be an open market for treasurybills in this country. I do not say when that will be brought about. There may be an open market for commercial paper. Other countries have accompanied the development of their economy with the development of more complicated, more complete, financial machinery, and I believe that this country, following their example, will eventually fill the gap in its financial machinery by the establishment of a treasury-bill market and eventually a commercial-bill market.
– Could the experiment not have been made with less disturbance to interest rates by inviting the public to take up the next volume of treasury-bills issued to cover State deficits?
– I remind the Leader of the Opposition that for at least two years, and I believe three years, the treasurybill issue in this country has been steady - there has been no increase of it.
– Because some bills have been funded.
– For the last three years the State deficits have been dealt with by the Commonwealth Bank by means of short-term accommodation, pending the issue of long term loans within the year concerned. Whether or not the general public has taken up bills that have been issued temporarily to meet State deficits and have then been retired, is entirely inconsequential. What the bills are issued for is of no significance. We do not contemplate, and I hope and pray that we shall not see, an augmentation of the present large total of about £50,000,000 by the issue of new bills.
At the outset I suggested that this matter should be kept in proper proportion. It has been suggested that the Commonwealth Bank should have sought the approval of the Commonwealth Government with respect to this issue of treasury-bills. I ask the House to envisage for a moment the responsibilities that lie on the Commonwealth Bank, and the freedom it quite rightly possesses, in respect of the whole conduct of its affairs. As the Prime Minister mentioned this afternoon, the Commonwealth Bank has the investment of £190,000,000 worth of funds apart from this treasury-bill issue. Those funds are invested almost wholly in Government securities, and in the securities of semi-governmental bodies. The direction in which that £190,000,000 worth of funds is invested has an infinitely greater effect upon Australian economy than has this small issue of £1,000,000 worth of treasury-bills. By the sale of some of those securities, or the purchase of further securities, the Commonwealth Bank can, and frequently does, exert an influence upon the finances and the economy of this country, far greater than the possible effect of this prospective small issue of treasury-bills. Then again, the determination of the exchange rate, which is a matter entirely within the discretion of the Commonwealth Bank, affects economy and industry in this country to a degree far greater than will this relatively small issue.
– Does the Treasurer suggest that the Commonwealth Bank should vary the exchange rate without the cognizance of, or without consultation with, the Commonwealth Government?
– Not without the cognizance of, and possibly not without consultation with, the Government; but it has the final determination of when, in its judgment, the exchange rate should move either upward or downward. The Commonwealth Government of the day might, and probably would, express an opinion; but under the present act and the present Government, the final determination rests entirely with the Commonwealth Bank Board.
– Is the Treasury fully aware of what the board proposes to do at any given time?
-I fully believe that, before any action was taken, the matter would be discussed with the Government; and if the Government was able to advance arguments that would justify an alteration of the view of the board, I am certain that that view would be altered.
– Was the proposed issue discussed?
– I shall deal with my personal responsibility in that regard a little later. I was citing actions by the board which, in my opinion, are of far greater importance than this matter, and are properly determined without any consultation with the Commonwealth Government, and merely as a matter of day to day business. I believe the Prime Minister mentioned that, within the last three years, the Commonwealth Bank nas invested in Commonwealth loans and in loans to semi-governmental institutions no less than £22,000,000. The withholding from investment of even £1,000,000 of that sum would have had a much greater effect than this prospective relatively small issue. I am attempting to establish the point that the Commonwealth Bank has within its free discretion matters of far more importance than this, treasury-bill issue.
There is also the point, which I think the Prime Minister made this afternoon, that for the last fifteen or eighteen months the interest rate for three months deposits allowed by the Commonwealth Bank has been i per cent, below that of the trading banks. That is one instance, among many that could be cited, of the desire of the Commonwealth Bank for a low interest rate. What other motive could be suggested? That has resulted in an outflow of deposits from the Commonwealth Bank to the trading banks to an amount of something over £1,000,000 within the last year or so. It represented an injection of more than £1,000,000 worth of credit into the trading banks. Has there been any complaint from those institutions?
– Is not that explainable by the fact that the Commonwealth Bank has been functioning predominantly as a central and not as a trading bank?
– It is only within the last eighteen months that the three months rate of the Commonwealth Bank has been maintained at a figure different from that of the trading banks.
– Is not that the period during which it has been very markedly a central bank?
– Since 1924, when the amendment of the Commonwealth Bank Act was introduced by the right honorable member for Cowper (Dr. Earle Page), the Commonwealth Bank has been functioning in reasonable degree, and so far as it has been able to do so, as a central bank ; but it is only within the last eighteen months that its - rate has been below that of the trading banks.
– That might have been deliberately planned.
– There has been no alteration of the policy of the Commonwealth Bank in that respect within the last eighteen months. I am endeavouring to establish the point that this treasurybill issue, even if entirely successful, fades into complete insignificance compared with the other matters that are within the sole discretion of the Commonwealth Bank. As I said at the outset, I believe that had this small issue not been followed within a week by a raising of the interest rate on deposits by one of the trading banks, there would have been no public interest in it and no significance would have been attached to it.
– What were the reasons which actuated the trading bank referred to by the Treasurer?
– I shall deal with that point now. It has been publicly stated that the raising of the interest rate is directly and solely attributable to this threat of a treasury-bill issue of £1,000,000. That the interest rate is a matter of supply and demand, of credit plus confidence, is not debatable. Confidence very definitely comes into the picture. Some honorable members are smiling at my mention of confidence. Confidence cannot be laughed off. When honorable members opposite were in office, confidence was not all that it might have been, and the interest rate was very different from what it now is. Since the second Lyons Government came into office, and the present New South Wales Government managed to establish itself quite securely for the second time, confidence has risen very considerably, and the effect on industry and on the demand for credit for the expansion of industry, has been phenomenal.
– A confidence trick.
– The honorable gentleman tries to laugh it off. The phenomenal rise of the tide of confidence, particularly within the last eighteen months, has been accompanied by a tremendously increased demand for credit on the part of industry both primary and secondary, as well as by governments and semi-govern mental institutions, which have been able to borrow a formidable amount each year. It is reported in the press that in 1935 the new issues of capital on behalf of existing companies, apart altogether from the mining and other companies formed during that year, amounted to £4,500,000. Concurrently the demand by businesses for temporary accommodation rose tremendously. The competition for money has been phenomenal. That is reflected in the price which governments have had to pay for money within the last twelve months. As the Prime Minister has stated, in November, 1934, we floated a £15,000,000 loan at an interest rate of just over 3 per cent. Twelve months later a £7,500,000 loan cost over £3 15s. per cent. - a rise of three-quarters per cent, in the price of money to governments, which presumably are good borrowers. There is also the point that always in reasonably settled times, there is a fairly constant difference between the deposit rate for three months money and the rate which governments have to pay for loan money. In 1933 and 1934 that difference was about If per cent. During 1935, the difference became about 2^ per cent. In other words, there was an increase of the gap between those two rates. Evidence has been given before the royal commission on the banking and monetary systems, by a number of persons who are well qualified to speak on the subject, to the effect that rates of interest have been hardening during the last fifteen months. Indeed, no fewer than two of the general managers of important trading banks told me in private conversation at least a month before this contemplated treasury-bill issue, that in the very near future the banks would inevitably have to charge more for deposits and advances.
– This issue provided them with a way out.
– One bank has seen fit to attribute the rise of the interest rate entirely to this treasury-bill issue. I suggest to honorable members that there is no real connexion between that small issue and the rise of the interest rate, which would have been inevitable in any event. Those who say that the era of cheap money has passed, and that we are now in for an era of high interest rates, have to explain the fact that even with this advance from 1^ per cent, to 2 per cent, by one or two of the banks, the three months rate is still less than half what it was before the depression. In the face of this, how can it logically be argued that the era of cheap money has gone, and that we are at the beginning of an era of high interest rates? In saying this I am not attempting to justify or condemn any particular bank, because I do not wish to be drawn into a controversy in respect of any financial institution-
– “Would the Minister say that the bank has no grounds for its belief?
– What I am endeavouring to establish is that the increase of interest rates by i per cent, was inevitable in any event, and has no logical connexion whatever with this proposal to invite a public subscription for £1,000,000 worth of treasury-bills which have not been issued yet. I also direct attention to the fact that, with the exception of one relatively small institution, none of the other private banks has followed the lead of the trading bank in question.
As the Prime Minister told the House this afternoon, there is in Australia, on deposit at fixed interest, about £200,000,000, apart from the amounts on current account in the banks. Of that amount, roughly £30,000,000 is on deposit for three months. Is it logical, I ask, that this proposed issue of treasury-bills would influence the rate of interest on that £30,000,000, still less on the other £180,000,000 on fixed deposit? Therefore, I believe that one can disconnect entirely the issue of these treasury-bills from the slight increase of interest rates by one or two banks in the last few weeks. With every other honorable member, I deplore the increase, but I repeat that, in the circumstances, it is inevitable. Indeed, it may be regarded as evidence more of increasing prosperity than of continued depression.
– Would the Treasurer say that the general manager of the Bank of New South Wales made an untruthful statement ?
– I do not wish to bc drawn into a discussion in respect of any individual trading bank.
– Stand up to it!
– If one wished to be personal there are, no doubt, many things which one could say, but I suggest that, in this national parliament, discussions should be above the plane of personalities.
I should like to make my own position clear with respect to this treasury-bill issue. As I have said, the project is entirely within the discretion of the Commonwealth Bank, and I repeat that, since the proposed issue is a small one, it is of relatively minor importance. I was informed - I hesitate to say that I was “ consulted,” because of the varying interpretations of the word - of the action proposed to be taken. As Treasurer, I keep in close touch with the chairman of the Commonwealth Bank Board, and I am, therefore, by this direct means, as well as through the Secretary to the Treasury, who is a member of it, well informed of its activities.
– The Prime Minister said something different this afternoon.
– I feel sure that if there is any misunderstanding about the matter, it is due to a misinterpretation of what is meant by the word “ consultation.” I have been in the Treasury for two and a half years, and during the whole of that time I have been in close touch with the bank board. The liaison between the board and the Government is working quite efficiently. “ Consultation,” as I understand the word, implies that one public body consults with another, and is influenced by its opinion as to whether or not a certain course of action should be taken.
– Political opinion.
– In the case of the Commonwealth Bank, it would be influenced by my opinion or that of the Government. There has been no attempt on the part of the Treasury or the Prime Minister to hide the fact that there is close touch between the board and the Commonwealth Government. [Leave io continue given.~ The Government is in close touch with the board. That is to say, if there are matters in respect of which the Commonwealth Bank is in doubt and wishes to consult the Cabinet, it seeks the opinion of the Government, and this is freely given. But there is a long list of other matters in respect of which the Commonwealth Bank has complete discretion. The issue of treasury-bills is one of them. As chairman of the Loan Council, not as Treasurer, I was informed of the intention of the board to issue £1,000,000 worth of bills, and, as the Prime Minister told the House this afternoon, I informed him, as head of the Government, and, by telegram, informed the Premiers of the States as representatives on the Loan Council. I did this, not because I was obliged to do so, but as a matter of courtesy, and largely because these bills are issued by the Commonwealth Government on behalf of the State governments. There are no Commonwealth treasury-bills existing at the moment, although there are Commonwealth rights to bills.
I make no apology for what has been done. I am not a temperamental individual who wishes to take to himself responsibility he could well share with other people. If this had been a matter upon which the Commonwealth Government had to be consulted, there would have been consultation with the Board; but, as I have told the House, it i3 not in that category. I informed the Prime Minister and the Premiers of the States. I did not ask the opinion of the States as to the wisdom or otherwise of the decision of the bank board. I simply let the States know of the proposal and that is all.
I do not wish to speak at length with respect to the balance of trade, because that subject was, I think, dealt with effectively by the right honorable the Prime Minister this afternoon. The balance of trade and the balance of payments which, of course, is the more important, taking in, as it does, all the to and fro of finance between this country and the outside world, have their ups and downs. No one can forecast what the balance of payments will be from year to year, or even from quarter to quarter. It varies tremendously. As the Prime Minister told us this afternoon, the balance of trade in our favour that came about in the month of February was approximately £5,500,000, and I think it has improved to the extent of £1,500,000 for the first week of this month. Such a substantial improvement in such a short period, I may add, was not anticipated. In 1933-34, we had a big gain in our trading balance, but in 1934-35 our heavy accumulation of funds in London was considerably reduced ‘by reason of the special circumstances that existed in the last financial year. As honorable members are aware, there were relatively lower prices for our export products in the world’s markets, then there were the King’s Jubilee celebrations which caused a large outflow of tourists, who may have taken with them as much as between £3,000,000 and £5,000,000 more than would be exported in a normal year, and there was the further fact that large accumulations of overseas trade funds temporarily located in Australia were repatriated to Britain.
– Can the Treasurer say to what extent our London funds were reduced in the last financial year?
– I think, from memory, they were reduced by about £15,000,000. I have not the figures with me, so I am unable to say definitely. The circumstances which- 1 have mentioned are not likely to occur again. We are therefore in a better position i’n this financial year because there is now a relatively small amount of overseas money on temporary account in Australia, so we cannot again be subjected to any severe outflow of overseas money, as was the case during the last financial year. It is difficult to estimate what will be the state of the accounts at the end of this financial year. I fully understood the perplexities of the Leader of the Opposition, who, speaking this afternoon, without information that is available to the Government, attempted to estimate how we would finish this financial year. We have Treasury and Commonwealth Bank officials, who have access to all the relevant figures, who spend a large portion of their time in making calculations as to the balance of payments. As the Prime Minister said this afternoon, we are accumulating London funds now, and we are hoping that we shall finish the financial year in reasonably good shape. One cannot say more than that. We may not quite balance our accounts, but I feel sure that we shall not be very far out.
I remind the House that the task of the Commonwealth Bank. functioning as a central bank, is to give stability and direction to, if not to control, the banking and financial system of this country. The duty of a central bank is to attempt to smooth out the trading booms and slumps that marked, in such a terrible fashion, the pre-war period for 100 years or so. I recall that the Leader of the Opposition has himself written on this important subject. I remember having read one of his publications in which he deplored the existence of these trading booms and depressions, and I remind him that the machinery of central banks was improvized to exert some degree of control over these alternating trade cycles. By the amendment of the Bank Act in 1924 the activities of the Commonwealth Bank were directed to this end. The task of the bank is not made the easier by the existence of £50,000,000 of treasury-bills in Australia, and £33,000,000 held in London. Apart from the increased credit base represented by the treasury-bill issue in Australia, there are other factors in the situation. There is, for example, the amount deposited with trading banks at call on current account. This amount is roughly the same now as it was in pre-depression years, but the total of deposits at fixed interest is considerably more than in the pre-depression era. The rate of circulation of money is lower than in the predepression period, although it is constantly increasing, as evidenced by the cheque clearings. There has been a constant turnover in the last two or three years from deposits at fixed interest to deposits at call, and the increasing cheque turnover indicates progressive expansion within the existing credit system. “Without attempting to pursue at great length the discussion of the existing financial system in Australia, I repeat that the task of the Commonwealth Bank, with the existence of £50,000,000 of treasury-bills in Australia and the inherent possibilities of further expansion that exist within the trading bank system, is far from being an easy one. After all, the standing or prestige that any honorable member of this House enjoys, has been won from his record in the past. That is also true of institutions. For that reason I suggest that the Commonwealth Bank has proved by its past record that it deserves well of Australia. If for no other reason than that, we should assume that it has the best interests of this country at heart. We should surely display at least that much faith in it, particularly in view of its splendid record through one of the most potentially catastrophic depressions in all history. Honorable members should have confidence in the bank. It would be wrong for us to assume anything else than that the Bank Board has the best interests of Australia at heart.
I do not wish to raise political issues or to discuss the political control of banking, except insofar as it has been referred to by honorable members opposite. I will say, however, that this Government is pledged to the policy that the banking system of Australia, which embraces the trading banks and the Commonwealth Bank, should function completely free from what the Prime Minister described on one occasion some years ago as the “effect and fear of political influence “.
– Yet the Government admits that it has been in consultation with the bank.
– Not at all. We do not attempt as a Government to influence the actions or conclusions of the Bank Board. We keep in close touch with the Bank Board, of course.
– The subject of an open bill market has been discussed by the Loan Council.
– Certain matters come largely under the control of the Loan Council, but on all matters in which the “ say so “ rests with the Commonwealth Bank, the Government proposes to allow the bank to have the final “ say so “. The Government may express opinions to the bank board, but it will not attempt to influence the decisions of that body. I believe that the people of Australia will sleep more happily in their beds when they realize that no political influence is to be exerted on the banks of this country, and that the Commonwealth Bank Board now, as heretofore, is to continue to give a general directing influence to the hanking and economic system of this country without the influence of politicians. I think that every one will agree that politicians, even allowing that some are better than others, are not the people to have control of our financial and banking systems.
.- The Prime “Minister (Mr. Lyons) delivered an impassioned speech in this chamber this afternoon in support of the governmental policy of doing nothing about anything. A masterly policy of inactivity has characterized this Government ever since it assumed office. The Prime Minister’s speech may be described in the words of England’s greatest man of letters as “full of sound and fury, signifying nothing “. The right honorable gentleman endeavoured to convince us that our trade balance and the state of our London funds consequent thereon were most satisfactory. The strongest and most crushing reply that can be given to that statement is that which the Prime Minister himself uttered on the 5th March in the course of a speech which he delivered to the members of the National Club in Sydney, which was reported in the Sydney Morning Herald of the following day. Speaking at the headquarters of his own political organization, he said that he - had been worried about the trend of Australia’s trade balance, which after all was the matter which gave rise to the action of the Commonwealth Bank.
No statement could be more deliberate than that. It would surely not be suggested that the Prime Minister would visit the headquarters of his own political organization and make inaccurate statements to leaders of his own political faith. On that occasion the right honorable gentleman made it very clear that he was worried about our unsatisfactory trade balance. To-day he tells us a directly contradictory story. I ask, in all fairness, what credence can he given to anything said by a gentleman who changes his ground so remarkably in such a short time? Leaders of governments and parties who are so ready to contradict themselves are not entitled to have serious weight given to anything they say. The falling off of our trade balance has occasioned considerable concern to many members of this Parlia ment, and particularly to members of the Opposition. The subject is not a nev one with us. The right honorable member for Yarra (Mr. Scullin), for example, directed attention to this important subject, even before his Government assumed office some veers ago. I refer to speeches that he made during the regime of the Bruce-Page Government, in the course of which he pointed out that unless the policy of the Government were altered, Australia would be called upon to meet a very severe financial crisis. It is a fact of history now, that such a crisis actually occurred. The surprising thing is that some honorable members opposite seem disposed to refer to statements made at that time in criticism of the policy of the Government of the day in such a way as to suggest that some credit is due to them for what happened. The fact is, of course, that events proved beyond all question, that the views advanced by the Leader of the Opposition at that time and by other honorable members who were supporting him, were sound.
An article which appeared in the Canberra Times on the 3rd March pointed out that there was an excess of £2,633,188 above the estimates in our customs and excise revenue for the first eight months of this financial year, and that this total was £2,509,077 higher than at the corresponding period of the last financial year. The same newspaper, in its issue of the 5th March, called attention to the fact that our favorable trade balance for the seven months of the financial year to the end of January last was £10,620,000, whereas it was necessary for an amount of approximately £30,000,000 Australian currency, to be obtained in order to meet our overseas commitments. The Leader of the Opposition endeavoured to obtain more up to date figures than those which stated the position at the end of January, but he Was unable to do so. Yet, apparently the Prime Minister and other honorable members opposite were able to obtain such information. The figures that I have sta ted show that we are about £20,000,000 to the bad in our trade balance. Our London funds, moreover, are nearly depleted. It is interesting to note also that the figures for January alone show a deficit of £277,000, whereas those for January in the preceding financial year showed a surplus of £700,000. It will be observed, therefore, that in that one month Australia went to the bad to the extent of about £1,000,000. The position twelve months ago was not considered to bo satisfactory, but it wm better than the position we now face. There is very little in the financial outlook to justify honorable members opposite complimenting the Government particularly when it is recognized that about £9,500,000 of our surplus of £10.500,000 is accounted for by a purely fortuitous rise in the price of wool. I do not suppose that even this Government would have the colossal temerity to claim credit for this, although it has claimed credit for many fortunate happenings for which it has been in no sense whatever responsible. I point out, also, that our receipts include £5,500,000 for the sale of gold bullion and specie, which have been exported. This alone represents an increase of over £1,000,000 over the figures of last year. The increase in the price of wool, and the increase in the value of gold bullion and specie exported more than cover the surplus upon which the Government has been congratulating itself, and these two items were in no sense whatever affected by Government policy. One result of the large increase of customs and excise revenue has been that the Government has obtained a considerable amount of money which has allowed it to make the taxation remissions which it has made. This customs and excise revenue is obtained from indirect taxation which falls on the shoulders of all our people, but unfortunately the remissions of taxation have benefited the wealthier classes of the community to the detriment of the poorer classes. In making remissions of taxation the Government has flagrantly disregarded the golden principle of taxation, which is that taxation should fall most heavily on the shoulders of those best able to bear it. Honorable members opposite who boast so much about the taxation remissions for which the Government has been responsible, should remember that this relief has been given at the expense of the mass of the people. One result of the indirect taxation which the Government has imposed is that our trade balance has almost disappeared, and we are now once more approaching a position comparable with that which faced the Scullin Government when it assumed office. At the same time our London funds are in a more precarious condition than at any time since this Government assumed office. It must be remembered also that the Government has been favoured during its period of office with a succession of good seasons.
– Did the honorable member say “ good seasons “ ?
– I do not know what will happen if bad seasons overtake us while this Government is in charge of the affairs of the country. The Treasurer (Mr. Casey) referred a little while ago to the fact that last year a reduction of approximately £5,000,000 had been effected in our overseas funds, because so many Australians had visited Great Britain to take part in the Jubilee Celebrations. I remind the Government that a similar state of affairs is likely to occur next financial year in consequence of the number of people who will go abroad for the coronation. The adverse effect to our financial position may be even greater on this occasion. The outlook will be deplorable indeed, therefore, if bad seasons overtake us. The members of the Government apparently are prepared to live from day to day in the Micawberlike hope that something will turn up. In the past the Government has been extremely fortunate, for entirely without its volition, circumstances have favoured it in one way and another, and the serious results that might reasonably be expected from the pursuit of a policy such as it has set, have not been so severe as they might have been.
The policy which the Commonwealth Bank Board has inaugurated, and which the Government seems to be quite unconcerned about, is definitely one of deflation. The Treasurer told us that he believed the board had taken the action of which we complain as an experiment to ascertain the possible effect of an open bill market in Australia. I challenge the honorable gentleman to stake his political reputation upon the soundness of that opinion.
Apart from the Treasurer’s opinion, the Prime Minister has made two different statements on this subject. He said, first of all at the National Club luncheon, that he was worried about our trade balance, and secondly to-day in the House, that there is no reason for alarm. I have far too much faith in the ability of the Treasurer - notwithstanding our differing political opinions, Ave do not underestimate the honorable gentleman’s capacity - to believe that he really holds the view that the action which the Commonwealth Bank Board has taken ia merely in the nature of an experiment. Such an opinion is too ridiculous and absurd for the honorable gentleman to expect us to accept it. It has been said that only £1,000,000 is involved in this action, but our enlightenment on financial matters in the last few years has been such that to-day even a school child knows that a reduction of £1,000,000 in the savings of the people means, in effect, far more than that. The Treasurer knows that if £1,000,000 is taken out of the banks by the public, the reduction of credit in the community will be approximately £10,000,000. The financial editor of the Sunday Sun and Guardian has a clearer idea on this matter than has the Treasurer, and is under no illusions regarding it. Treasury-bills have at all times been treated as cash in hand. In their latest book, Money, Professor Mills and Dr. Wilson point out that treasury-hills are practically an alternative for cash. A considerable school of thought contends that an expanded bank note issue would meet all needs, and that opinion was strongly held when treasury-bill finance was introduced in 1927. At that time the trading banks, to suit their own ends, pretended to be suspicious of these bills. Then the Commonwealth Bank guaranteed not only to meet the bills at maturity, but also to cash them at a moment’s notice at a particular rate of re-discount, which was fixed in advance. At that time treasury-bills were considered as good as banknotes, but the interest rate, which then commenced at 6 per cent., has now been reduced to If per cent. These bills are not so liquid nowadays, because the Commonwealth Bank does not guarantee to meet them at maturity, or to re-discount them at a par- ticular rate, although it still undertakes to re-discount them whenever required at a rate to be fixed by the hank itself. In an article by the financial editor of the Sunday Sun and Guardian, of the 8th March last, the following statement appeared: -
The ratio of cash to deposits for the December quarter was 11.0 per cent. Deposits totalled some £280.000,000. and cash holdings were round £33,000.000. If both deposits and cash are reduced by £1,000,000, then the fall in cash is proportionately much higher than the fall in deposits, and the necessary restriction of advances would be greater than the fall in cash.
That means that the amount of the deposits was approximately nine or ten times greater than the amount of available cash. The Government is resorting to camouflage in saying, as the Prime Minister definitely said, that it is a minor matter that £10,000,000 of credit will go out of circulation unless the private trading banks are prepared to accept a greater risk than they are taking at the present time by reducing the proportion of cash to deposits to a lower level than has yet been reached.
It is not certain that the issue of treasury-bills to the public will stop at £1,000,000. What is to prevent this omnipotent board, which treats governments and Prime Ministers with a contempt which they appear to enjoy, from issuing treasury-bills to the amount of £10,000,000 or more. The bills now held amount to £45,000,000, and most of them are in the .hands of the Commonwealth Bank. If the board desired to throw them on the open market to-morrow it could do so. According to the Sydney Morning Herald of the 4th March last, Mr. Davidson, the general manager of the Bank of New South Wales, remarked -
The Commonwealth Bank for some time has indicated by successive steps that it has the belief that recovery is proceeding at too fast a rate, and therefore ought to be slowed down.
That is practically what the Prime Minister admitted in his speech at the National Club. He declared that this action had to be taken for certain reasons. We have been told by the Treasurer that he, in his capacity as chairman of the Loan Council, had been informed regarding this issue of treasury-bills, and that he had informed the Prime Minister. Yet, when addressing the leaders of his own political organization on the 5th March, as reported in the Sydney Morning Herald) of the 6th March, the Prime Minister said -
The Cabinet was not informed of the bank board’s intentions in this particular instance, and had not discussed the matter.
Surely we are entitled to a correct and definite statement on a matter of such vital importance to the 7,000,000 people of Australia! Is the right honorable gentleman altogether irresponsible for his statements? We remember that he once admitted that he knew nothing about finance. That confession at least displayed the virtue of candor, and probably furnished the reason why he relinquished the office of Treasurer.
The speech of the right honorable gentleman, in reply to the Leader of the Opposition, bristled with inaccuracies and illogicalities. He said that he would welcome a reduction of imports; but, immediately afterwards, he said that imports were an indication of prosperity. Another example of the way in which attempts are made to mislead the House was afforded when the Prime Minister boasted of an improvement in the price of bonds during the regime of his Government, but omitted to mention that, during the last four months of the Scullin Government’s term of office, ?100 bonds rose by ?20. Recovery was already in rapid progress when the present Government was fortunate enough to be returned to power, thereby receiving the benefit resulting from the tariff policy of the Scullin Administration, and of the general improvement in industrial conditions consequent upon that policy. The whole speech of the Prime Minister furnished an excellent example of specious reasoning, reminding one of the old argument - post hoc propter hoc. This means that, because one event occurs after another, the second must necessarily be a result of the first. If that contention were sound, the Government could claim credit for the increase of the price of wool, because it occurred after the Government had come into power, . When the Government claims that low interest rates are a result of its accession to office, it must also take blame for the fact that increased rates of interest are in operation to-day.
The Commonwealth Bank Board is evidently deciding the financial policy of the country. In the 47th balance-sheet of the Commonwealth Bank, which was issued less than a week ago, for the six months ended the 31st December last, the directors’ report contains this statement -
The time has arrived when balanced budgets and decreased loan works should be the immediate policy of Australian governments.
This announcement follows on the policy of the last two years to fund treasury-bills and to contract credit. It proves conclusively that the board has seen fit to institute a definite deflationary policy. The Government cannot disclaim responsibility for it ; but must take full blame for any action of this character by the board, just as it is ready to claim full credit for anything done by the board that proves of advantage to the community.
I shall now consider the personnel of the board of this bank. When the board was first appointed in 1924, the present Minister for Commerce (Dr. Earle Page) was Deputy Prime Minister and Acting Treasurer, and the members were -
John J. Garvan - Managing director, Mutual Life and Citizens Assurance Company Limited, pastoralist, Rochdale Station, Queensland.
Sir Robert Gibson, K.B.E. Vice president, Associated Chambers of Manufactures; Victorian representative, Central Coal Board; director, Austral Manufacturing Company, the Lux Foundry, National Mutual Life Insurance Company, Union Trustee Company, Robert Harper and Company Limited (merchants and manufacturers), Chamber of Manufacturers Insurance Company.
Sir Samuel Hordern, Kt. Director, Anthony Hordern and Sons (universal providers), Australian Mutual Provident Society, Royal Insurance Company.
Robert Bond W. McComas - President of various woolbuyers associations; proprietor of Wm. Haughton and Company (woolbrokers).
John McKenzie Lees - Fellow Institute of Bankers, London (formerly chairman of Associated Banks of Queensland and general manager of Bank of Queensland and of Bank of North Queensland).
How can we expect impartiality from the ex-chairman of the Associated Banks of Queensland? No member of this House has such an infantile mentality as to believe that these gentlemen forfeit all interest in the institutions they have controlled as soon as they resign from the boards of directors. The last member was Mr. Drummond, who, apparently, had no such outside interests.
– Is it to be regarded as an objection that an appointee is an experienced business man?
– I should prefer that the board should consist of persons who have no outside business interests.
– In other words, that they should have become bankrupt through mismanaging their own affairs.
– The Chief Justice of the High Court, and the other judges of that court, are not allowed to have any outside business interests, and they have not become bankrupt through mismanaging their own affairs.
– They were successful lawyers before they were appointed to the Bench.
– I have always maintained that members of this Parliament as well as members of the Commonwealth Bank Board should not possess outside business interests which might conflict with their public duties. Of course, I do not suggest that, as the law stands, there is anything legally wrong in members having such interests, and the honorable member for Flinders (Mr. Fairbairn) and others are quite entitled to sit on boards of directors. However, the law should be altered in that regard. As things now are, it must necessarily happen at times that a member’s private interests will conflict with the public interest. When this point was under discussion some time ago the honorable member for Flinders denied that he was on the directorate of any company, but I notice that since then he has been appointed to the directorate of a banking company. This point has been noted in the Constitution, which lays down that members of Parliament may not become members of a company which has less than twenty members.
I have referred to the members of the Bank Board when it was first established, and I shall now indicate the present members of the board. The first is Mr. C. H. Reading, who was chairman of directors of the British- American Tobacco Company.
– Is there anything wrong with that?
– There is everything wrong with it, because the interests of that company are directly opposed to the interests of the Australian nation. Mr. Reading was also at one time a director of the Union Bank of Australia. The danger of these outside business associations was recognized when the Commonwealth Bank Act was framed, because it was then laid down that no member of the Commonwealth Bank Board should also be a director of a private banking institution. Of course, they get over that by resigning from the private bank board and being appointed to the Commonwealth Bank Board immediately following that resignation. The next member was Mr. R. B. W. McComas, a representative of the woolbrokers - the speculators in wool. I know that Mr. McComas is not now a member of the Commonwealth Bank Board, he having retired to make way for another appointee. He was not re-appointed because he was too old, not because of his outside interests. Another member is Mr. A. F. Bell, who was once a director of the National Bank of Australia.
– And a very able business man.
– He was also managing director of Robert Harper and Company Limited, and Victorian director of the Australian Mutual Provident Society. Other members of the board are Messrs. B. Tait, R. S. Drummond, M. B. Duffy, H. J. Sheehan, and E. C. Riddle. [Leave to continue given.] That is the personnel of the Board which to-day controls the financial policy of Australia. The members of this party believe that the financial policy of the nation should be determined by the highest legislative authority in the country, namely, the Commonwealth Parliament. It should not be controlled by a group of persons appointed by the Government because of their political opinions. As a matter of fact, I do not believe that even Government supporters have any doubt that the Government would step in at once if by some strange chance the Commonwealth Bank Board to-morrow adopted a definite inflationary policy altogether at variance with the opinion of the Government. It is of no use for the Prime Minister to try to side-step the issue by talking about the wonderful things the Commonwealth Bank has done. It is as if a lawyer, defending a man charged with a grave crime, made no attempt to disprove the charge, but dwelt at length upon the man’s previous good character. What we have to decide is whether the action of the Commonwealth Bank in regard to the treasury-bills was right or wrong, and, even more important still, whether it is right or wrong that the Bank Board should be more powerful than the government of the country. The real issue is: Who shall decide the financial policy of this nation, affecting as it does 7,000,000 people? Is it to be the Government, elected by the people of Australia, or a group of persons appointed by the Government, whatever may be its political colour? The Prime Minister sought to evade the issue by stressing the fact that the Commonwealth Bank had done so much good in the past. If the matter had been left to the political party to which the Prime Minister now belongs, there would never have been any Commonwealth Bank. That party did everything in its power to oppose the establishment of the bank, and to prevent its successful development. Now, the members of that party have the temerity bo praise the bank for what it is doing, and for what it did during the war and since. The Prime Minister referred to the good work the bank had done, and argued that when we criticized the board,, we must of necessity be deliberately attacking the Commonwealth Bank. That argument will not convince the people of Australia, and it certainly will not convince the members of this Parliament. The members of my party believe that, in matters of general financial policy, the Commonwealth Parliament should be supreme, while details of administration should be left to the banking experts, with whom Parliament should not interfere. Great Britain’s greatest boast is its navy, which is really a national institution controlled directly by the Government. The same may be said of the army and the post office. It has never been suggested that the management of those institutions should be left exclusively to a board of political appointees The majority of the people of Australia could not support such a policy. The only possible way to bring the nation out. of the impasse into which the Bruce.Page Government led it is by a definite financial policy, controlled by the legislature, under which sufficient credits would be issued to place the people back in employment with a shorter working week. It would be much easier for the Commonwealth Parliament to establish a 40-hour working week than for any State Parliament to institute a working week of 44 hours. The establishment of a shorter working week would be the finest contribution that this Parliament could make towards a solution of the problem of unemployment. Such a policy ha3 the support of the more advanced thinkers among the Government’s supporters - men like the honorable member for Parramatta (Sir Frederick Stewart), who recently was practically forced to resign from the position of Parliamentary Under-secretary for Employment, because, when he brought forward something definite as a means of solving th, problem, instead of the usual evasive and indefinite proposals of the Government, his report was stifled. The Opposition is convinced that until action is taken to alter the present unsatisfactory state of affairs by the institution of a shorter working week, there cannot be any lasting improvement of the economic position of the nation.
.- The honorable member for Griffith (Mr. Baker) has spoken of the good seasons which Australia has enjoyed of recent years. It would be interesting to know what some of the people in the western, north-western and central districts of Queensland think of his remarks. As part of his argument that the Commonwealth Bank Board consists of men who represent interests which desire to embark upon a policy of deflation, the honorable member gave a list of some of the members of the board, but he failed to mention Mr. M. B. Duffy, a representative of Labour on the board, and Professor Giblin, who is one of the foremost advocates of a liberal banking policy. The gentlemen mentioned by the honorable member are experienced leaders among the commercial and manufacturing men of this country, and are well aware of the effect on their own businesses of any severe curtailment of the credit resources of the country.
– And of what suits their own businesses.
– The argument of the honorable member for Griffith was neither so convincing nor so fair as that of the Leader of the Opposition (Mr. Curtin), whose charge against the Government can be boiled down to two main indictments - first, that the Government had allowed the trade balance to drift to the point where the Commonwealth Bank Board was forced to retrieve the position by instituting a hard money policy, and, secondly, that the Government which, under the Constitution, has power to legislate in regard to currency, had delegated its authority to the Commonwealth Bank Board. The second charge has been fully answered by the Treasurer (Mr. Casey) to-night. I admit that I felt some anxiety when I first heard that the Treasury had not been in consultation with the Commonwealth Bank Board before that body departed from its previous monetary policy, but I know now that that anxiety was due to a misunderstanding of the meaning of the word “ consultation “. When both the Prime Minister (Mr. Lyons) and the Treasurer (Mr. Casey) said that there had been no consultation between the Government and the bank board on this subject, they did not mean that the Treasury was not in the closest possible touch with the board in regard to its intentions. They meant merely that they did not expect the Commonwealth Bank Board to seek the permission of the Government to depart from the policy it had pursued under the powers vested in it by this Parliament.
– That was not the impression created by the statement of the Prime Minister.
– That is so; but the point has been cleared up by the Treasurer’s speech to-night. The Treasurer made it clear that the Treasury is in constant and close touch with the Commonwealth Bank Board, but that it does not attempt to override the decisions of the board in matters which concern the management of the paper money of the Australian business community and the savings of the Australian people. In no country is the management of paper money thoroughly understood. The basis of credit is the basis of trade. It depends not so much on mathematics and quantities as on the confidence of the people that it is being properly directed and managed. Credit can do much more effective service if the people believe that it is in the hands of an experienced body with a sense of its responsibilities, and is not subject to the log-rolling inevitably associated with any institution directly controlled by Parliament. The Treasurer has told us that he is in constant touch with the chairman of the Commonwealth Bank Board. It is right that that should be so. The policy of any government in relation to tariffs, defence, employment, and other matters of great public importance, has some effect upon the .currency. It is important that the bank board should know the direction in which the Government is trying to lead the country. It is equally important that the Government should know what is in the minds of the Commonwealth Bank Board in the different steps which it thinks necessary in the control of the nation’s paper money as the savings of its people, undertakings for the purchase and sale of products, the payment of wages, and contracts for deferred payment, which are the basis of thriving trade under modern conditions, are all effected by that control. In my opinion that exchange of information is consultation, although it does not involve the asking of the permission of the other party to do something or other. It is remarkable that the Leader of the Opposition, who recently advocated an open market for treasury-bills, should to-day object to a move by the Commonwealth Bank Board, not to establish an open market or to proceed in the direction of an open market, but merely to place a small proportion of treasury-bills in the open money market. What has been done is a very small step towards the establishment of an open market for treasury-bills. I view with concern any action of a deflationary character at the present time - action which would tend to harden the money market, and make it more difficult for the tens of thousands of small producers in this country to get back to a state of solvency sufficient to enable them to make the necessary purchases to rehabilitate their holdings.
But I do not see any reason to fear that, if the Commonwealth Bank secures a greater grip of the paper money system of Australia - which it will obtain through an open market for treasurybills - it will fail to ensure that credit is not dried up or restricted as a result. In Australia the monetary system is not so highly organized as it is in London, Amsterdam and New York, or even in Sweden or Switzerland. Ours is a comparatively incomplete monetary system, because the Commonwealth Bank’s control of the currency is limited. The bank can exercise some control by raising or lowering the rate of exchange, but that might cause some disturbance of overseas trade. It is not, in all circumstances, an action which any bank would exercise lightly, and, therefore, in the use of this among the few instruments at the disposal of the Commonwealth Bank to ease monetary conditions in difficult times, in the certainty that it can control them again if inflation gets out of hand, the bank is definitely limited. The bank may also do something by buying and selling securities in the open market, and in that way pumping money into the general system. It can do something even less by manipulating the rate at which it will guarantee to discount treasury-bills.
– Some of us would be less concerned if we felt that the Commonwealth Bank was going to do that.
– It is time to exhibit opposition when it is proved that the Commonwealth Bank Board is not going to do that. On the face of it the board is saddled with tremendous responsibility ; it is the trustee of all the savings of the people and of the stability of trade and commerce. The honorable member for Parramatta (Sir Frederick Stewart) may think that in exercise of that tremendous responsibility it is too cautious. I also would be very reluctant to see it doing anything to check the trend towards recovery, which appears to be gaining momentum. There is not the slightest doubt, as far as I can see, that the trustees of our monetary system would feel much more confidence in allowing that momentum to gather further speed if they were in possession of machinery for control which would enable them to put on the brake more certainly when they felt it was getting out of hand. For that reason I welcome this step in the direction of the establishment of an open market for treasury-bills.
– With a competitive interest rate?
– Yes. When the Commonwealth Bank feels that it has better brakes on the machine, it can then allow possibly a more liberal policy in other directions. I have not the slightest doubt that it would be a retrograde step to limit the bank to the powers it has been able to exercise up to the present in its attempt to check anything unhealthy when boom conditions get out of hand. It was signally ill-equipped in 1925-1929, to check that boom, which led to private and governmental extravagance in overseas purchases. I hope that never will we go back to conditions of that sort, because not only the savings of the welltodo, but also the small savings of people deposited in savings banks and invested in insurance policies, depend upon the proper management of the monetary and currency system.
I was even more surprised to hear the Leader of the Opposition suggest that the Government has been reckless about the trade-balance, which, he said, had been allowed to drift into a position of acute danger, so that the Commonwealth Bank, as a sort of desperate remedy, was endeavouring to apply the screw in the hope that a general tying up of trade and commerce would incidentally lead to less expenditure on imports. The honorable member quoted figures which were the most uptodate he was able to obtain, but the Prime Minister and the Minister for Trade and Customs were able to show that since those figures had been compiled very great improvement had taken place. If the Leader of the Opposition had watched the course of the market for our export goods, our wheat, our wool, our meat, and even our fruit, he would have realized that conditions were definitely better than at the time the statistics he was able to obtain were compiled. There is a definite moral behind that. The honorable gentleman was quite right when he said that we cannot live on imported goods beyond what we can pay for, either by investments by overseas investors in this country, or by what we send overseas, or by gold produced in Australia and sent overseas. That sort of trade has to balance in the long run, not only for Australia, but for other countries as well. Certainly economic nationalism is making it more difficult for us to sell our goods which some other countries have formed the opinion should be produced in their own territories for purposes of defence. That, unhappily, applies very definitely to wheat and, to a smaller extent, to dairy products. Countries like Germany and Italy are determined that for these essential foodstuffs in the every day life of the people, they will not be jeopardized by sanctions, blockades or the actions of other countries. But that does not apply to comfort goods such as wool and fruit and, to a less extent, meat. Often, members of the Opposition have pointed out the paradox which exists in the world to-day of poverty amid plenty. They have suggested that it is due to monetary causes. It is, however, very much more due, in regard to goods of the type which Australia can supply, to the fact that other countries cannot send enough goods anywhere in the world in exchange. That applies definitely in regard to wool. Anybody who has been in the densely populated countries of the world recently, must have been struck by the poorness of the clothes that people wore and their genuine need of wool so that they might be more adequately clothed and their children might have a better chance of growing to maturity. It is a fact that owing to trade restrictions it becomes increasingly difficult for such countries to send goods either direct to Australia or to some other country which, in turn, could send value by a roundabout way to Australia. “We must remember that the huge balance built up fortuitously two seasons, ago owing to the big rise in the price of wool, cannot he repeated over and over again unless we are prepared to take goods from other countries in exchange for our wool. Action designed to shut our people off from overseas goods can have only one result, difficulty in placing our surplus products on the markets of the world, and a fall in the price of our primary products, in that way narrowing the market for our manufactured goods in Australia. We must use a little patience. I hope it will be possible to reach trade agreements by which we will be able to make more purchases from countries which desire our goods, but less imports from countries like the United States of America, which not only do not take our products, but are also very reluctant to purchase from any other country in the world. I am delighted to find that although the Government has been very sticky about coming to a conclusion regarding trade treaties, it did not go off in a panic at the time the Leader of the Opposition (Mr. Curtin) suddenly changed his views which, as a Western Australian, he had previously held in regard to the importance of overseas trade. The fact that the Government kept its nerve has contributed to the ability of people in Germany, Britain, Japan and other countries, to come in and compete for our products, and in that way improving prices and increasing the amount of money which is circulating in Australia. Further results are greater employment in Australia generally and the correction of the trade balance in the best possible way, that is, by the movement of goods in both directions, which, in turn, benefits the primary producers and the manufacturers. The resultant improvement in the Australian market helps to improve the living conditions of the people in other countries and to remove what to-day is the most serious cause of international disturbances.
.- The reply from the Government side to the charge of the Leader of the Opposition (Mr. Curtin) “ that the Government has been negligent in protecting the trade balance “, has been so adequate from the point of view of the logic of the arguments advanced and the facts quoted, as not to necessitate anything further from this side by way of defence. I rise, therefore, only to comment on another aspect of the issue raised - the charge “ that the Government has agreed to or was ignorant of the action which has led to the raising of the rate of interest “. I take the view that a higher rate of interest is inevitable some day. I dispute that that day has arrived when it is either inevitable or advisable that interest rates should be raised; but I take it that the increasing prosperity,which industry is enjoying, and the consequent demand for credit that comes from that increasing prosperity, must tend to have a hardening effect upon interest rates. Recently we have enjoyed exceptionally low interest rates, the bank rate for fixed deposits for three months being down to 11/2percent.,whichinmyexperience,is an unprecedently low rate. Unless we are prepared to take the view that that rate, having been achieved, is to remain for all time, then we can only contemplate a movement in one direction, an upward direction. When wheat is 1s.6d. a bushel, we expect that any movement of price will be in an upward direction. Similarly if the interest rate falls to11/2percent.,we must expect that any normal movement likewise will be in an upward direction. But whether to-day it is necessary or advisable that the interest rate should move in an upward direction, is a different aspect of the matter altogether. I do not agree that it is either necessary or advisable that it should move in any direction at this particular time. The question that really concerns us is whether the new monetary policy of selling treasury-bills to the public has precipitated or will inevitably lead to an upward move of interest rates. All the evidence we have before us drives us to the conclusion that this innovation must inevitably lead to a hardening of interest rates. A new competitive element which to-day is bidding higher than the trading banks for investments for three months, has entered the money market and the trading banks, to protect their deposits and retain ability to give advances, must reply in the same spirit of competition. This they have done. The Prime Minister (Mr. Lyons) stated to-day that the action of the Commonwealth Bank amounts only to drawing £1,000,000 from the public when to-day there is from £20,000,000 to £30,000,000 on three months’ deposit with the trading banks. Even if the full amount of £1,000,000 be diverted from its present repository, fixed deposits in the trading banks, this, according to the right honorable member, is an insignificant amount in comparison with the amounts now held on deposit, and need not have any hardening effect on interest rates. But I think certain circumstances have been overlooked. When the trading banks take out £1,000,000 from their cash reserves for treasury-bills, which may be rediscounted at any time, the withdrawal has no real effect on their cash reserves. In other words they do not limit their ability to give advances. On the other hand, when the Government, through the Commonwealth Bank, induces the public, as an alternative to depositing with the trading banks, to put £1,000,000 of its money into treasury-bills, it necessarily reduces the sum on fixed deposit with the banks by that amount and consequently reduces the banks capacity to make advances. It also necessitates that the banks shall protect their position by entering into competition with the Commonwealth Bank for that money.
– At higher rates !
– When they enter into competition they necessarily have to offer higher rates of interest. As the result of this action, there is a hardening of interest rates, and, in effect, a mildly deflationary step is taken. This brings us face to face with the fundamental aspect of the situation. I have noted to-day that no speaker has said that the action of selling or proposing to sell treasury-bills to the public is fundamentally wrong. There hasbeen a rather obvious lack of comment as to the merits or otherwise of that particular process, but if we acknowledge that the process, right or wrong, is mildly deflationary and must immediately bring about or must lead to a hardening of interest rates, we are brought face to face with an entire reversal of the policy pursued by all Governments, whatever their political associations, in recent years - a policy of interest reduction and mild inflation. I do not intend to discuss whether the time is opportune or the necessity real for a reversal of this policy. At some time such a reversal of the policy may become necessary. When it becomes evident that there should be a reversal of the policy of lower interest rates, initiated by compulsory reduction and subequently pursued with every effort that could be made, such a step should not be undertaken by any Government instrumentality without the very fullest consultation with the Government. Nor should any government enter into consultation with an instrumentality on this particular issue without openly acknowledging that it is in consultation and without taking full responsibility for whatever decision may be arrived at. This view, I think, is the most important we have to face to-day. It is futile for us to try to baulk the fact that there is very close inter-relation between government policy and monetary policy. It is useless to try to brush aside the fact that the policy of the Commonwealth Bank Board regarding the raising or lowering of interest rates, or the raising or lowering of the exchange rate, cannot be pursued without cutting directly across Government policy. This is something I referred to in the very first speech I made in this House, and I have returned to the subject on several occasions since. While I solidly support the Government in not handing control of banking over to politicians, I am not prepared to see the policy of the nation handed over to the banks, not even to the Commonwealth Bank Board. We lack a definite and authoritative assurance from the Government that the decision for the disposal to the public of treasury-bills, which cuts across Government policy, has not been taken by the Commonwealth Bank Board without consultation with the Government. We have had the example of the Commonwealth Bank Board being placed in control of the exchange rate. It influences it sometimes upwards and sometimes downwards, but its policy is to stabilize the rate. That is a function which we all regard as a proper one for the bank to discharge, but we cannot get away from the fact that any influence of the exchange rate does affect both the finances and the policy of the Government. We had legislation in the last session of the Parliament to give effect to a degree of rural rehabilitation. The necessity or urgency of the rehabilitation of our exporting industries is inextricably bound up with the exchange rate because the exchange rate to-day determines the profitableness or otherwise of those industries. That is one example of how the policy of the Commonwealth Bank Board will either be in agreement or in conflict with the policy of the Government regarding rural industries. There is also statutory provision that the degree of tariff protection that obtains shall abate as the exchange rate moves upward. When protective duties abate in consequence of a rising exchange rate, the revenues of the Commonwealth are affected. There again we have an instance in which there is a close interrelation of the monetary policy which the Commonwealth Bank Board pursues and the financial policy and revenues of the nation. In this matter of the issue of treasury-bills the Commonwealth Bank Board is taking a step indisputably calculated to result in raising interest rates. The substance of my argument is that, in view of all these circumstances, there should be a close and openly acknowledged collaboration between the Commonwealth Bank Board and the government of the day before the board decides upon any fundamental alteration of its monetary policy. That close degree of collaboration may exist to-day, but it has neither been acknowledged nor denied.
– The Commonwealth Bank is offering the same rate of interest on treasury-bills as is paid by other banks on advances.
– That has not any bearing on the point with which I am dealing at the moment. Close collaboration between the Commonwealth Bank Board and the Government has neither been acknowledged nor denied. If the people are permitted to retain the impression that no such collaboration exists, they will naturally assume that the Commonwealth Bank Board could act in a way diametrically opposed to the policy of the government which the people elect. I think that it is exceedingly unlikely that that will occur.
– An acknowledgment of close contact between the board and the Government has been made by the Treasurer (Mr. Casey).
– Not in very definite terms. The Treasurer stated that, in his capacity aa Chairman of the Australian Loan Council, he was informed that the board proposed to take this action, and that subsequently he informed the State representatives on the Connell.
– He said that he was’ always kept informed.
– He stated that he was in daily touch with the Commonwealth Bank Board, but at no stage did he say that he or the Government was in close collaboration with the board before this or similar decisions were made.
– The board is acting within its_ powers.
– Of course it is. I should be the last person to suggest that the board’s powers should be restricted, and that the Commonwealth Bank should in any sense come under political control. I am strongly opposed to political control of the Commonwealth Bank; but I wish to emphasize that, unless there is very close and openly-acknowledged collaboration between the board and the Government before decisions of this character are reached, a feeling will be created in the minds of the people that the board can make a decision which may nullify the policy of the Government. I have every confidence in the ability of the members of the board, and the high motives which actuate them in their work and decisions; but it does not necessarily follow that the Government will agree with all tho conclusions at which it arrives. I disagree with those who suggest that there has been an acknowledgment by the right honorable the Prime Minister (Mr. Lyons) or the Treasurer that close collaboration and consultation exists. That point should be made clear. The people of Australia will be absolutely intolerant of a state of affairs which would enable a government instrumentality to nullify or substantially modify the policy of a government which the people elect. I ask and urge that the Government should state if it is in close consultation with the hoard when important decisions on monetary policy are reached. That point should be made abundantly clear to the people.
Debate (on motion by Mr. Archie Cameron) adjourned.
House adjourned a.t 10.17 p.m.
Cite as: Australia, House of Representatives, Debates, 11 March 1936, viewed 22 October 2017, <http://historichansard.net/hofreps/1936/19360311_reps_14_149/>.