9th Parliament · 2nd Session
Mr. Speaker (Rt. Hon. W. A. Watt) took the chair at 11 a.m., and read prayers.
page 1252
– I lay upon the table a copy of the draft conventions and recommendations adopted by the International Labour Conference at its third session, held in Geneva in October and November, 1921. Appropriate action has been taken thereon.
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– In view of the published statement of the Prime Minister of the Irish Free State that no decision arrived at by the Chief Justices of the Dominions sitting as a Royal Commission to determine the Irish boundaries will be observed by the Free State, will the Prime Minister consider the advisability of recalling the Chief Justice of the Commonwealth?
– I have not seen the statement to which the honorable member refers, hut I wish to make it abundantly clear that the Chief Justice of Australia, Sir Adrian Knox, has gone to Britain to sit, not upon the Irish Boundaries Commission, but on the Judicial Committee of the Privy Council, to determine certain legal points with regard to the powers of the proposed Boundaries Commission.
page 1252
– Is the Minister representing the Postmaster-General able to reply to the inquiry I made a couple of weeks ago regarding the destruction of portion of the post and telegraph office at Fitzroy Crossing?
– I shall endeavour to get the information during the day, and supply an answer to the honorable member.
page 1253
– Has the Treasurer received a report from the Repatriation Commissioners regarding the complaints about the conduct of the Bedford Park Sanatorium, in South Australia?
– The Commissioners placed the report before me yesterday, and the honorable member may peruse it at any time.
page 1253
– Does the Treasurer propose to collect the £1,330,000 owing to the Commonwealth by the big pastoralists of Australia?
– Increased staff has been made available to the Taxation Commissioner to enable him to expedite the work of his Department.
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– Has the Treasurer received a reply from the Governor of the Commonwealth Bank in regard to the suggested paymentof interest on current accounts in that institution?
– I have not received any reply to my last letter. warpensions.
Claim of Alexander Maxwell Moon - Parliamentary Committee.
– Alexander Maxwell Moon, a returned soldier, is to-day almost at death’s door in consequence of war service. In those circumstances, will the Treasurer regard his claim to a war pension as urgent?
– I shall look into the matter.
– Is the Committee of members of this House, which was appointed to investigate applications for war pensions functioning, and if so, has it completed much of its work ? One case in which I am interested has been hanging fire for a long time.
– The Committee did function for one afternoon, and dealt with a great many cases, but since then I have not been able to get the three members of the Committee together at the same time.
page 1253
– Will the honorable member representing the Ministerfor Trade and Customs say whether any arrangement has been completed between the Commonwealth and the Government of New South Wales in regard to the. distribution of wire netting in New South Wales?
– A communication was received by the Commonwealth Government from the New South Wales Minister for Lands, and a reply was forwarded. I understand that the matters in dispute have been settled. If further information on the subject is available I shall communicate it to the honorable member this afternoon.
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– Will the Prime Minister say whether, in connexion with the agreement between the Commonwealth Government and the Colonial Combing, Spinning, and Weaving Company, Mr. D. Mason Allard has been appointed to audit the company’s accounts? If so, will the auditor’s report be made available to honorable members?
– The accounts of the Colonial Combing, Spinning, and Weaving Company were audited by Mr. Allard, and his report is now in my Department. At the present moment, I see no objection to making it available, but I shall look into the matter, and let the honorable member have a definite answer later.
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– A few days ago I directed to the Prime Minister a question about the rumour that the contract for the construction of one of the lighthouse steamers at Cockatoo Island Dockyard had been cancelled. The right honorable gentleman promised to let me have a reply.
– I have not yet received from the Shipping Board the information the honorable member desires.
page 1253
Operations of the Expropriation Board.
– Will the Prime Minister inform the House when the report of Messrs. Yarwood and Co.. public account- ants, Sydney, dealing with the management by the Expropriation Board of the propertiesin the Mandated Territories, will be made available to honorable members?
– Without doubt during next week.
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– Is the Prime Minister yet in a position to inform the House what honorable member has been appointed to the vacant Trade and Customs portfolio?
– I am not yet able to make a statement on the subject, but as soon as an appointment is made it will be announced to the House.
page 1254
Payment for Holidays
– Has the Government given any further consideration to the ques’tion of paying the employees of Cockatoo Island Dockyard for their Christmas holidays and for the day when work was stopped on account of the visit of the Special Service Squadron?
– I have given considerablefurther consideration to that question. The honorable member will remember that difficulty arose because the Shipping Board could not be asked to finance payments for the holidays referred to, and the Government was asked to consider whether it could make this an exceptional case. A conclusion has not yet been reached.
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Withdrawal from Java-Singapore Trade.
Maps MAKIN. - Recently I addressed a question to the Prime Minister regarding the withdrawal of the Commonwealth Government Shipping Line from the JavaSingapore trade. When may I expect on answer to it?
– In the very near f uture.
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Alleged Intimidationof Employees
– Is the Treasurer aware that the employees of the Commonwealth Bank are being intimidated to prevent them from becoming members of the trade union in their particular calling? Will he inquire into the matter, and, if he discovers that the management of the Bank is intimidating its employees, willhe take steps to see that such intimidation ceases, and that the employees are allowed, if they wish to do so, to become members of trade unions?
– I am not aware that there has been any intimidation, but if the honorable member will put the question on the notice-paper, I shall have inquiries made.
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Cloncurry to Camooweal
asked the Minister for Defence, upon notice -
– The answers to the honorable member’s questions are as follow : -
page 1255
asked the Prime Minister, upon notice -
– The answers to the honorable member’s questions are as follow : -
page 1255
Preferential Tariff
asked the Acting Minister for Trade and Customs, upon notice -
– The answers to the honorable member’s questions are as follow: - 1. (a) Yes. (b) The matter has been under discussion ever since 1915.
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Australia’s Representation
asked the Prime Minister, upon notice -
– The answers to the honorable member’s questions are as follow : -
asked the Prime Minister, upon notice -
Is it the intention of the Government to ask the Leader of the Opposition to be one of the delegation to represent Australia at the, fifth assembly of the League of Nations?
– The question of the personnel of the delegation will be considered when the agenda paper is received.
page 1256
asked the Acting Minister for Trade and Customs, upon notice -
In order to give effect to the fundamental principle of British justice, that a man is entitled to trial by his peers, will he take action to have any necessary alteration made in regulations so as to ensure that Courts of Marine Inquiry, investigating accidents which have occurred in pilotage waters whilst the masters of the ships involved were acting as exempt masters (pilots), shall be composed of assessors holding exemption certificates for the waters concerned ?
– Courts of Marine Inquiry, under the Navigation Act, do not deal with questions concerning the acts or defaults of a master in his capacity as an exempt pilot. The only charges against masters which they can hear are those relating to his competency as a ship master, and as affecting his rights to continue to hold a Certificate of Competency as a master, and in this connexion the Navigation (Courts of Marine Inquiry) Regulations fully safeguard the rights of a master to be tried by his. peers. The practice of the Courts of Marine Inquiry under the Navigation Act is, in this particular, identical with that of Courts of Marine Inquiry under the Merchant Shipping Act in the United Kingdom.
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Can-making Plant.
asked the Prime Minister, upon notice -
– I amsupplied by the company with the following answers: -
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West Adelaide
asked the Minister representing the Postmaster-General, upon notice -
When is it expected that the question of the construction of the automatic telephone exchange for the West Adelaide suburban district will bo referred to the Standing Committee on Public Works?
– Inquiries are being made, and a reply will be furnished as soon as possible.
page 1256
Esperance-Grass Patch
asked the Minister representing the Postmaster-General, upon notice -
– Inquiries are being made and answers will be furnished to the honorable member as soon as possible.
page 1256
asked the Minister representing the Postmaster-General, upon notice -
Whether any tenders have been accepted for the advertising rights in telephone books and for the issue of the Classified Trades Telephone Lists?
– Tenders have been received for the advertising rights in telephone directories, and it is expected that a notification of acceptance will be issued in the course of a few days. A tender has been accepted for the publication and distribution of classified trades telephone directories in Sydney and in Melbourne.
page 1256
Concrete Bases
asked the Minister representing the Postmaster-General, upon notice -
– The answers to the honorable member’s questions are as follow: -
page 1257
Mr.R. GREEN asked the Prime Minister, upon notice -
Is there any record of an understanding between the honorable member for North Sydney (the Eight Honorable W. M. Hughes), when Prime Minister, and the Premier of New South Wales, for assistance by the Commonwealth Government towards the construction of the railway bridge over the Clarence River at Grafton ?
– There is no record of such an understanding having been arrived at.
page 1257
asked the Prime Minister, upon notice -
– The answers to the honorable member’s questions are as follow: -
page 1257
asked the Prime Minister, upon notice -
Will he make a statement in reference to the original indebtedness of £92,000,480 15s. 6d. to the Government of the United Kingdom; if so, when?
– I propose to make a statement to the House on this subject’ at the earliest possible date.
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Opening of Branch Banks
asked the Treasurer, upon notice -
– The answers to the honorable member’s questions are as follow : -
page 1257
asked the Treasurer, upon notice -
– The answers to the honorable member’s questions are as follow : -
page 1258
Export to China
asked the Acting Minister for Trade and Customs, upon notice -
– The answers to the honorable member’s questions are as follow: -
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Pensions for Deceased Soldiers’’ Parents - Children’s Education Scheme
asked the Prime Minister, upon notice -
– The answers to the honorable member’s questions are as follow: -
asked the Treasurer, upon notice -
– The answers to the honorable member’s questions are as follow : -
page 1258
Agreement with New Zealand.
asked the Treasurer, upon notice -
Whether anything has been done to bring about a reciprocal agreement with the New Zealand Government in regard to invalid and old-age pensions ?
– The negotiations begun some years ago fell through, and have not been revived.
page 1258
asked the Acting Minister for Trade and Customs, upon notice -
– The answers to the honorable member’s questions are as follow: -
page 1259
asked the Treasurer, upon notice -
– The answers to the honorable member’s questions are as follow : -
page 1259
asked the Treasurer, upon notice -
– This subject is one of policy concerning which the Government will make an announcement in due course.
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asked the Acting Minister for Health, upon notice -
Whether a cargo of apples from a country outside the Commonwealth is held in quarantine in Australian waters?
– No.
page 1259
asked the Prime Minister, upon notice -
What was the amount paid to the trusteesof the Melbourne Turn Verein for the compulsory purchase of all its buildings, new hall, &c., and the land upon which the Note Printing Office has been erected ?
– The answers to the honorable member’s questions are as follow: -
The sum of £9,51616s.5d. was paid to the trustees of the Turn Verein when the land and buildings were compulsorily acquired. Additions, alterations, repairs, &c., which were effected cost £5,773 6s. 3d., making the total cost to the Commonwealth Bank of the land and buildings amount to the sum of £15,290 2s. 8d.
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asked the Acting Minister for Trade and Customs, upon notice -
– The answers to the honorable member’s questions are as follow: -
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Appointment of Mr. R. J. Taylor
asked the Treasurer, upon notice -
In reference to the appointment of K. J. Taylor to the Treasury Department as junior valuer, Taxation Branch - 1. (a) Were any of the applicants for the position interviewed by some authoritative person; if so (b) What are the names of those interviewed and those who were not; (c)Why were some applicants interviewed and others not afforded such an opportunity?
Who interviewed the applicants?
Was he a qualified surveyor, civil engineer, architect, accountant, or senior valuer?
Is it a fact that men (in similar positions to that of the interviewing officer) in other States are University graduates?
Was the position a professional one in the Third Division?
In order to test the qualifications of an applicant for this position should not the person making the selection also have similar qualifications to those required for the position in order to form a better estimate of the qualifications of applicants?
Is it a fact that a Mr. Lambert made the selection ?
What degrees, diplomas, or certificates are held by him?
Will the Minister lay on the table of the House all applications for this position, together with all reports, recommendations, &c.?
– The answers to the honorable member’s questions are as follow : - 1. (a) Yes. (b) Applicants interviewed (all returned soldiers) - J. G. Begg,F. H. Bennett. A.O. Bramley, M. D. Corderoy, R. V. Chapman, L. E. Martell,R. Plant,R.G. Blackburn, A. O. King, C. A. Silver, H. F. Taylor; returned soldiers not interviewed - C. L. Tatham (previously interviewed in connexion with similar position in Western Australia), J. C. Nitson (resides in Bendigo, paper qualifications were unsuitable and did not justify bringing him to Melbourne for an interview) ; non-returned soldiers not interviewed - J.R. Shepherd, J. Murray, A. H. Beckwith, M. B. Hodgkinson, G. A. Hiscox, A. Wilson. J. Cope,R. S. Davey, C. R. F. Dye, J. D. Muir, P. J. O’Connor, G. Fox, J. M. Gillies, T. W. Gray, A. McMillan, E. A. Roberts, (c)Returned-soldier applicants only were interviewed, as it was apparent the qualifications necessary to the position were held by some of them in excellent degree; and because preference to qualified returned soldiers is the policy of the Government.
page 1260
asked the Acting Minister for Trade and Customs, upon notice -
What provision is made by the Government to educate the children of lighthouse-keepers and attendants?
– Lighthousekeepers and attendants stationed at lighthouses where educational facilities are not available, are granted an allowance at the rate of £30 per annum for each child between the ages of seven and fifteen years attending a State or other approved school where such attendance necessitates residence away from home, and where the prescribed minimum or maximum age is reached during the school term, the allowance is granted for the full term, provided the child is at school for the full time.
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Disabilities of Western Australia
asked the Prime Minister, upon notice -
– The answers to the honorable member’s questions are as follow : - 1.Iam aware that trouble exists in connexion with vessels engaged on the coast of Australia. 2,3, and 4. I will consult the Law Authorities of the Commonwealth in connexion with the matter. 5 and6. This information will be obtained if possible and the honorable member advised as early as possible.
page 1261
asked the Prime Minister, upon notice - 1.Has he received the report of the investigator into the affairs of the mandated territory of New Guinea?
– It is assumed that the honorable member refers to the investigations conducted by Messrs. Yarwood and Vane into the whole of the transactions in connexion with the expropriated properties. The answers to his questions are -
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asked the Acting Minister for Trade and Customs, upon notice -
– The information is being obtained.
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– On the 14th May, the honorablemember for Melbourne (Dr. Maloney) asked for details of the amount paid by the Commonwealth to shipowners for the use, of vessels for the month of August, 1914, to the end of the year 1919, showing the amount paid to each company for each vessel separately. The information is as follows: -
Note. - So far as transports are concerned, all vessels were taken over by the Imperial Government during1917, and subsequent to that date passage money only was paid by the Commonwealth to tbe Imperial Government. No vessels are included which were taken solely on Imperial Government Account, nor those vessels where hire was payable by the
Commonwealth for subsequent recovery from third parties.
The amounts shown are gross, and include periods during which the vessels were on Imperial Government Account, for which recovery was subsequently effected.
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– On the 28th May, in reply to a requestby the honorable member for Denison (Mr. O’Keefe) that the Government should try to arrange with the shipping companies trading between Melbourne and Tasmania to have the s.s. Nairana run a weekly service to and from Hobart, in an endeavour to overcome the inconvenience and expense caused to Hobart passengers by the delays in the Melbourne-Launceston service, due to the heavy fogs, I promised to ascertain the position, and whether there was any possibility of arrangements being made as suggested by the honorable member. I now desire to inform the honorable member that in response to inquiries from the shipping companies, I am advised that since the commencement of the winter running, at the beginning of April, there have been half a dozen occasions when fog has caused delay ; but only in two or three instances did passengers fail to connect with the Hobart express. In regard to the suggestion that there should be a passenger boat placed in the MelbourneHobart service, this proposal has been considered by the shipping company on many occasions, but it is stated that the estimated loss, amounting to about £2,500 per month, militated against the possibility of giving effect to such service. Moreover, the Nairana would notbe available all the winter months, as it is necessary to use a considerable portion of these months for the overhaul of the three boats which are under contract with the Government to maintain a mail service between Melbourne, Launceston, and Burnie.
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– On the 22nd May, the honorable member for Macquarie (Mr. Manning) asked the following question: -
What is the description of netting on which dumping duty has been collected?
I am now able to furnish the honorable member with the following information : -
Up to the 28th of May. 1924. the classes of wire netting on which dumping duty has-been imposed comprise rabbit netting and other kinds- of netting described in the manufacturers’ catalogues as “ Miscellaneous,”which includes sheep and dog netting. The quantities of the various descriptions on which dumping duty has been charged are as follows: -
– On the 8th May the honorable member for Swan (Mr. Gregory) asked the following questions: -
Tariff Board, before recommending a dumping duty on rabbit and dog proof wire netting imported into Australia, made inquiries from authentic sources of the quantities manufactured in Britain, and the percentage of same used for home consumption ?
I am now able to furnish the honorable member with the following information : -
British Government, from which the Tariff Board obtained its information, do not give detailed particulars of the percentages of the various sizes of mesh manufactured, exported, or used for home consumption.
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– The statement was made in the House last night by the honorable member for Gwydir (Mr. Cunningham), in the debate on the motion of censure, that rumours were current that a man holding a high official position had recently received a present from persons interested in the negotiations regarding the woolgrowers’ claims, and suggestions were made that the matter was one that called for investigation by the Crown Prosecutor. This is a matter which concerns the honour of the Public Service, and I take the first opportunity of informing the House of the facts. It is to be regretted that currency should begivento rumours which deal with matters as to which full information is published in the Commonwealth Gazette. At the inception of the wool scheme a very heavy burden of work in connexion with its constitution and its regulations was thrown on the senior officers of the AttorneyGeneral’s Department, for which the Central Wool Committee, which had received the benefit of the services, wished to make those officers some recompense.. Through the Government of the day these proposals were submitted for the approval of the Governor-General in Council, who authorized the payment of honoraria to certain officers. The notification of the Governor-General’s consent was published in the Commonwealth Gazette of the 19th February, 1920. As will be seen from the Gazette, the honoraria referred to were as follows: - Sir Robert Garran, Solicitor-General and Secretary, AttorneyGeneral’s Department, £400; G. S. Knowles, Esq., Chief Clerk, £250; W. H. Sharwood, Esq., Chief Clerk, Crown Solicitor’s Office, £350. It will be recognized, therefore, that these amounts were paid and received with the full sanction of the Executive Government; and there is not the slightest justification for any reflection on the officers concerned. As regards the introduction of the matter into the recent debate, it is worth while calling attention to the fact that the whole transaction was not only long prior to the matters in issue in that debate, but actually prior to the agreement of March, 1920, out of which those matters arose.
page 1264
Mr. GREGORY, as Chairman, brought up the report of the Public Works Committee on the construction of a telephone cable between Sydney and Newcastle and Newcastle and West Maitland.
Ordered be printed.
page 1264
– I lay on the table of the House a copy of the recommendations adopted at the International Labour Conference, fifth session, held at Geneva, in October, 1923. The matters mentioned therein are being referred to the States, in accordance with the provisions of the Convention.
page 1264
The following papers were presented : -
Lands Acquisition Act- Land acquired at - Derrinallum, Victoria - For Postal purposes.
Enfield, New South Wales- For Postal purposes.
Lower Sandy Bay, Tasmania -For Postal purposes.
Maroubra Junction, New South Wales - For Postal purposes.
Seat of Government Acceptance Act and Seat pf Government (Administration) Act - Ordinance of 1924 - No. 6 - City Leases.
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In Committee (Consideration of the Governor-General’s Deputy’s message) :
Motion (by Dr. Earle Page) agreed to-
That it is expedient that an appropriation of moneys he made for the purposes of a Bill for an Act to amend the Commonwealth Bank Aat 1911-20 and for other purposes.
Resolution reported.
Standing Orders suspended.
Resolution adopted.
Ordered -
That Dr. Earle Page and Mr. Bruce do prepare and bring in a Bill to carry out the foregoiug resolution.
Bill presented by Dr. Earle Page, and read a first time.
– I move -
That the Bill be now read a second time.
Last night the honorable member for Melbourne (Dr. Maloney) complained that the services of Mr. King O’Malley in connexion with the establishment of the Commonwealth Bank had never been properly recogn ized or recorded . I should like to endorse that, for, ever since the inception of Federation, the honorable gentleman named has urged the establishment . of a national bank. When the question of a Commonwealth Bank was first mooted, it was generally expected that a truly national bank would be established - a bank of deposit, issue, discount, exchange and reserve. When the Bill was introduced, however, expectations were not realized, and when the bank began to function, it became perfectly clear that a national bank had notbeen established, but merely a Governmental institution in competition with the private banks. The Bill the Government now brings forward is designed to carry out the original expectation. As has been generally anticipated, the Government proposes to substitute the management of a Board for one-man control, but the Bill will do much more than that. It will place the note issue under the control of the General Board of the Bank, and aims at making the Commonwealth Bank the keystone of the financial arch of Australia..
The need for a central hank was sufficiently clear before the war, and its necessity has been emphasized by Avar experience. The disorganization of the world’s finances brought about by the war should warn us of the .grave dangers resulting from faulty management.
The automatic check of gold payments which was the prop to the pre-war financial systems having been removed, the way was clear for all kinds of interference with sound practice. The world was now subject to conditions of which the .existing generation had no experience, and even the teachings of the past were found difficult of application, because there never had been an upheaval of such magnitude and complication before. The finances of every country in the world have been disarranged, some of them hopelessly so, and though Australia has been spared the extreme difficulties of many other countries, we, too, have experienced periods of monetary stress.
In 1920, money within Australia was not tight, but Australians had large commitments to meet in Britain. They found, not merely that an excessive rate had to be paid to remit money to that country, but also that, in many cases, it was impossible to effect any remittance at all. That was serious, because there were a very great number of old commitments which simply could not be met, and doubts arose in Britain, as to the financial position of many well-established and prosperous Australian businesses.
In 1922, the exchange position entirely reversed, and foi- many months past it has been impossible to transfer to Australia either all the moneys realized by the sale of Australian products overseas, or the moneys which are being raised abroad for Australian development.
Not only has the exchange difficulty become acute, but money is so tight that it is hard to get advances from the banks for most desirable purposes. Even moneys in the hands of private persons are not available for ordinary investments to the same extent as usual, because the State Governments have been forced to borrow on the Australian market for necessary developmental purposes, instead of going on the London market, as they would have done- under normal conditions. Incidentally there has been a great increase in the rate of interest payable for Government loans.
In troubles such ‘ as these, one would naturally look to banking authorities to find a way out or at least to advise as to the remedies to be applied. But in fact there is no banking body which can be considered representative. Instead, we have a number of banks which, though loosely associated for some purposes, scarcely can express a corporate opinion. Chiefly mindful of their own interests, which is but natural, they can have no such regard for the public welfare as is undoubtedly required. It must not bc understood that I think Australian banks inefficient. On the contrary, as individual banks, acting without the guidance and assistance of a central bank, they have done well. During the war, both individually and collectively, they greatly assisted public finance. It ought to be put on record, too, that in the crisis of 1920, when credit facilities in Britain were very difficult to obtain, and remittances were nearly impossible, the restrictive action taken by the banks to prevent the placing of additional orders for goods overseas served a most useful purpose. The conditions under which they work, however, are not suitable for full control. Their individual outlook and interests render them unsuitable for the exercise of that prevision which is absolutely necessary for the construction of a sound public policy and its wise application during a long period. Banking policy, aimed at the maintenance of the interests of the community often requires sacrifice df, or abstention from profit, and -without any reflection upon individual banks, I submit it is too much to ask that the ordinary banker shall exercise the self-denial which is involved.
The important functions of banking can properly be performed only with the guidance and control of a central bank. Decision and settled policy are essential. Divided counsel and clashing interests of individual bankers must in the end be fatal to good credit management, and banking oan be raised to its greatest perfection only by the action of a central bank working always for the good of all. This is obvious. So much so, that central banking is recognised as a necessity by the leading nations.
The excellent banking material which we have already should be strengthened and co-ordinated in order that Australia shall have a symmetrical and wellbalanced system of central hanking. To this end, the Government proposes that the Commonwealth Bank of Australia shall become the pivot of Australian banking - a bank of issue, deposit, discount, exchange, andreserve.
In view of the importance of the issues involved, and the relevance of our past actions to our present difficulties, it will be convenient to honorable members if I give some details regarding banking practice in Australia, including a brief history of the Commonwealth Bank, and show what has been done with our paper currency. Then I will deal with proposals made for overcoming our currency and exchange difficulties. Also I shall set out some particulars of central banking in other countries, and, finally, from the general survey made, shall demonstrate thu advisability of the proposals which the Government now submits to the House.
Australian business is carried on by fourteen principal banks, which have a paid-up capital of £29,000,000. In addition, they have reserved profits of £26,000,000, or a total of £55,000,000. Nine of the banks are registered under the State laws relating to limited liability companies, three have been incorporated by special Acts of the State Legislatures, one has been incorporated by Royal Charter, and one (the Commonwealth Bank of Australia) is the creation of an Act of this Parliament.
The keeping of an adequate reserve of legal tender against liabilities is of the greatest importance, and it is interesting to note the experience of Australian banks in this regard. For the purpose I shall use figures relating to the June quarter of years which may be regarded as typical. My starting point will bc 1886; then 1888, which was the year of culmination of the land boom; then 1892, the year before the banking crisis; 1894, the year after that crisis; 1901,when the Commonwealth was established; 1913 and 1914, before the war had disarranged our banking business ; 1915, the first full year of war; and the years subsequent to the Armistice.
The figures relate to assets and liabilities in Australia, excluding particulars of the business of the banks outside Australia. The term liabilities is to be understood as meaning all the Australian liabilities, as included in the sworn quarterly averages, after deducting the sums due by the banks to each other. The legal tender holdings of the banks amounted to the following percentages of their liabilities : -
A comparison of legal tender with total liabilities, however, is not altogether satisfactory, because the nature of the liabilities is an important consideration. The published figures do not divide legal tender holdings into so much for current accounts and so much for fixed deposits. We may, however, compare the total holdings of legal tender with liabilities not bearing interest. We find the percentages of total legal tender as compared with liabilities not bearing interest have been: -
A notable feature of the foregoing tables is that, since the first year of war, there has been a steady, decrease in the percentage of legal tender held against liabilities. Though the percentages of. cash resources really have been reduced, the diminution is not so great as would appear from the published figures, which I have just quoted. The explanation is that the Government adopted the practice, in connexion with war finance, of giving to the banks lights to demand notes, in consideration of facilities granted by the banks. These rights were equivalent to reserves of notes actually held and have been used by the banks as such for the purpose of building credit. The amount of currency thus at the command of the banks is not disclosed in the published statements. I have not any figures representing these rights of the banks for the years 1915 to 1922, but I shall show later that, on the 30th June, 1923, the legal tender holdings and the value of the rights amounted, together, to 21.4 per cent. of the total liabilities.
These rights it is now necessary tq explain, and, as the subject is interwoven’ with that of the increase in the paper money of the Commonwealth, the explanation must include a short history of the issue of Australian notes.
A tax of 10 per cent. per annum was imposed in 1910, upon all bank notes in circulation. The tax has always been prohibitory, as was intended. In the same year, the banks were forbidden by law to circulate any paper currency issued by a State, and thus the issue of Treasury notes in Queensland also came to an end. In place of the bank notes and the State paper, the Commonwealth issued Australian notes, and ever since that was done there has. been no other paper currency in Australia.
To get the new notes which were needed for banking business, the banks necessarily had to presant sovereigns at the Treasury, and, in that way, a gold reserve was established. The law required that the gold coin should amount to not less than a fourth of the issue, and there was added a provision, since repealed, that gold coin, pound for pound, had to be held in respect of notes issued in excess of £7,000,000. The circulation almost immediately sprang to more than seven millions, and the Government was in a position to invest a sum of money equal to three-fourths of seven millions. It at once proceeded to make some investments. Newly-printed notes were paid into the banks. Out of the current accounts established by that means, the cost of Commonwealth public works was met, and moneys were lent to the State Governments also for works.
In respect of the moneys used for public works, formal public debt securities were issued by the Commonwealth and the States, and placed among the assets of the Notes Fund. On the 30th June, 1914, the accounts stood as follows: -
These moneys had been disposed of m the following way: -
The pre-war issue of £9,600,000 seems almost insignificant, when compared with the present circulation of about £57,000,000. It must be remembered, however, that in 1914 the people carried gold as well as paper in their pockets, that large sums formerly held by. the banks in gold are now heldin notes, and that there is now no gold outside of the banks. A reliable estimate of the amount of gold coin in use before the war has not been made.
Immediately upon the outbreak of war, the banks brought large sums of gold to the Treasury to be exchanged for equivalent sums in notes. Their action was quite voluntary, and the result of a natural desire to stock their numerous branches with the more convenient paper money. Thus began a strengthening of the gold reserves of the Treasury.
Not only was moneyurgently needed for expenses of war, but also funds had now to be found to continue public works in progress. Borrowing in Australia to any considerable extent seemed impracticable. Therefore, plans were formed for meeting the expenses of war, at least for a time, by increasing the issue of paper money, and for meeting the cost of public works by borrowing in London. Later it was found, however, that money could not be obtained in England for any purpose other than the prosecution of the war. Plans were then changed, and the expenses of the war during a considerable period were paid out of loans granted to the Commonwealth by Great Britain, while the note issue was increased by the amountof £18,000,000, which was lent to the States for public works. This great addition to the note issuecould not have been faced without a breach of the Australian Notes Act, which requires a gold backing of at least 25 per cent., had arrangements not been made to place more gold in the Treasury strong-room. The necessary addition to the metallic reserve was obtained by inducing the banks to send 10,000,000 sovereigns to the Treasury and to take, in exchange, paper money of equivalent amount. Thus a total of £28,000,000 was paid in notes into the Banks, and out of the banks came £10,000,000 in gold coin. These arrangements would have been futile to maintain the legal reserve of gold if restrictions had not been placed upon the use of gold. Therefore, export of gold was forbidden, except by consent . of the Treasurer,and the banks promised they would not, during the war, present notes at the Treasury for the purpose of getting gold. In these circumstances, the banks ceased to cash cheques in gold. They used paper money instead, and gold no longer was carried by the general public. Thus large numbers of the additional notes paid into the banks, for the purposes already explained, found their way into the pockets of the people, and did not remain in the cash reserves of the banks. At various later dates, further notes moneys werelent to the States for works, and the amount now due by the States on that account is £22,138,000.
For a short period, the States were given the right to get advances of notes on depositing 25 sovereigns in respect of every £100 of notes. On three-fourths of the amount of notes, the States were charged interest at 4 per cent. The right was exercised to a comparatively small extent, the amount on which the States paid interest not exceeding £486,750 at any time, and the whole of the amount was repaid in 1915.
At this early stage of war finance, a step was taken which never has been explained fully. I refer to the fact that the Government gave to the banks the right to get three pounds in notes for every sovereign presented by the banks at the Treasury. Two out of every three pounds of notes so issued were treated as a loan to the banks, which were required to pay interest at the rate of 4 per cent. per annum, and to repay the principal not later than twelve months after the end of the war. The reasons for granting these rights to the banks are not recorded, and no good purpose’ would now be served by surmising what the reasons were. Without being unduly critical of action taken during a period of great anxiety, however, I am permitted to say that this three to one arrangement was more doubtful in character than any other act of war finance. The grant by banks of accommodation by way. of overdraft or otherwise makes money available for credit to current accounts and fixed deposits in banks. That is to say, increase of advances entails increase of liabilities. Banks usually keep on lending money until their liabilities are four or five times as much as their cash reserves, but here we see that the banks were given the power, first to multiply their gold reserves by three, and then to keep on lending until the multiplied reserves formed thebase of liabilities equal to twelve or fifteen times as much as the original holdings of gold.
To the lasting credit of the banks, I am glad to add, however, that they used their power sparingly - so much so, that the loans made to them in accordance with this arrangement never reached as much as £2,000,000. _
Very early in the war period, also, tha practice of issuing sovereigns from the Mints to the persons who had deposited the raw gold was discontinued. Thereafter, the Mints paid for raw gold out of credits established by the issue of notes, and the sovereigns, as soon as coined, were transferred to the Australian Notes Reserve.
By the several processes indicated, large stocks of gold were accumulated by the Commonwealth Treasury, but these were not considered sufficient for making gold payments rendered necessary try the war. The banks were, therefore, induced to part with a further 5,000,000 sovereigns for the purpose of export. In exchange, they were given notes of equal amount, and, in addition, were conceded the right to get loans in notes, up to the amount of gold parted with, provided they deposited war bonds as security. The interest payable by thebanks for these loans was at the rate of 4½ per cent. per annum.
The time soon came when the primary products of Australia could not be disposed of readily, and it was necessary to make advances to the producers in anticipation of realization. The banks undertook to make the advances, and were given rights to get paper money by way of loans from the Treasury, up to the amounts of the advances, at the rate of 4 per cent. Similarly, at later dates, arrangements were made separately for advances in relation to wool and wheat, and the interest payable by the banks on the loans of notes varied from 4 to 5-1 per cent, per’ annum. .
The assistance of the banks, according to a new plan, was invoked in connexion with the Sixth War Loan. The banks, to enable their customers to subscribe to the war loan, agreed to offer overdrafts up to 90 per cent, of the subscriptions, the rate of interest on the overdrafts to be 4 per cent, per annum. As the war loan carried interest at 4X or 5 per cent., the acceptance of the overdraft proposal was attractive, and the war loan proved most successful. On its part the Treasury undertook to make to any bank a loan of notes, if needed; up to the-.amount of overdrafts granted to customers and still outstanding. The interest to be paid by the bank for these loans was fixed at 3 per cent. Any bank making a direct investment in the war loan also acquired the right to notes up to the amount of its subscription, the rate of interest to be paid for this accommodation being the same as that payable on the war loan.
Similar arrangements, but with different rates of interest, applied to the four subsequent War and Peace Loans raised in Australia. This system of assisted subscriptions was last operated in September, 1920, and the Commonwealth Conversion Loans of 1923 and 1924 -were placed without giving to the banks any rights to get advances.
As is within the recollection, of all, the Commonwealth Parliament in 1920 granted war gratuities. The huge sum required was not immediately available. Bonds were issued in the majority of cases, payable in the present year, but cash was needed for. immediate payment to widows and to other classes of grantees. The banks agreed to lend £6,000,000 for the purpose, at 5£ per <tent. per annum, and they were given the right to get notes on demand, at 5- par cent., up to the full amount lent.
The peak issue of £59,676,000 was. reached on 30th October, 1918. At the present time the total issue is £56,900,000. Here it may be noted that the Bank of England notes and the English Treasury notes amounted to £512,000,000 in December, 1920, and to £437,000,000 in April, 1924.
The flotation of big war loans in Australia, as in other countries, was rendered possible by the continual inflation of our Note Issue from £9,600,000 to £59,000,000. With inflation, price levels rose, as was to be expected, from 100, in 1913, to 247, in 1920. Inflation was spasmodic without any definite plan, simply being prompted by the exigencies of the moment. The question facing Australia to-day is how to rehabilitate the national finances with the least dislocation of trade and employment. A central system of banking which insures the continuous association of currency control with the banking position must undoubtedly prove of great assistance to that end.
In December, 1920, a first step towards a central banking system for Australia was made by handing over the control od’ the issue of Australian Notes to a new Department of the Commonwealth Bank, for which a separate Board of Directors was provided. These Directors are usually known as the Notes Board. They were appointed for terms of years and arequite independent of Government control. A new provision was now enacted giving power to invest note moneys in trade bills with a currency of not more than 120 days. This provision contains the germ of a rediscounting authority, which is the essential function of a central bank. The failure to associate the Notes Board with the direct- management of the Bank, however, has hitherto prevented the exercise of the function.
The Government proposes to correct this weakness by placing the control of the Note Issue in the hands of the general Board of the Bank, thus directly associating currency and banking.
Since the Notes Board has been in charge of the issue, many of the rights of the banks to get advances of notes have expired, because the circumstances in which they were entitled to .the advances have ceased to exist. The Notes Board, however, has not only shown itself opposed to the grant of new rights, but has withdrawn privileges under the three to one arrangement, which some of the banks still contend they are entitled to. Quite recently the Board terminated the rights under the war gratuity arrangements, by actually issuing the notes which the banks could demand. The Board was convinced that “the banks had built credits on their rights to get notes, just as freely as they would have done if the notes actually had been in their own possession, and that the issue in these circumstances did not constitute an act of inflation.Unpublished reserves of the nature indicated are certainly notin the best interests of the community. From a return recently supplied by the banks, it appears that the rights to get additional notes are now limited to a total of £3,119,000, being the amount thev arc entitled to in respect of war bonds acquired by direct investment.
At 30th June last, the banks had the right to get notes from the Note Issue Department up to about £8,000,000. If we add that sum to the actual holdings of legal tender, we find that the cash resources were 21.4 per cent. of the total liabilities, instead of 18. 5 per cent., as indicated by the published figures. The 1923 figure of 21.4 per cent., as corrected, may be compared with the legal tender of 25.5 per cent. held in 1914.
Thechanging attitude of the banks with regard to the percentages of cash which they consider desirable in relation to their liabilities is evidenced by their holding 22.4 per cent. of cash in 1921, 20.5 per cent. in 1922, and only 18.5 per cent. in 1923. These percentages represent the actual holdings and have not been corrected so as to include the rights to get notes from the Note Issue Department. As those rights did not increase in that period, but somewhat diminished, the uncorrected figures may without unfairness be compared with each other.
A study of the figures shows that the views of the various banks differ widely as to the percentages thought safe. No doubt reasons can be given for their differing views, also for the reduction of the aggregate percentages, and it should be pointed out that Australian banking practice during the last 30 years has leaned towards caution, but the marked changeswhich have occurred suggest that, there is need for a settled policy in re- . gard to holdings of cash. A very great power is exercised by banks in the creation of credit, in their control over busi ness, and in the effect of their policy upon wages, as well as upon other conditions. Changes in banking policy disturb the whole community and, under the divided control of banking which exists now, changes may be made which are not in the best interests of the community. The remedy is to be found in the coordination of banking effort by means of a central bank.
We may now turn to questions as to the amount of currency which is necessary for Australian trade and development.
Some persons hold that currency should be supplied in unlimited quantities as long as it is desired for the “ legitimate requirements of trade.” These overlook the fact that one essential of a currency system is limitation of quantity. An increase of currency not redeemable in gold permits an increase of bank credits up to, say, four or five times the amount of the additional currency; and, unless production has meantime increased to a corresponding extent, the result is an increase of prices in terms of that currency. The result of such increase in prices is that more currency is required to carry on the same business, and there is at once, a call for further issues of currency still honestly stated to be for “ legitimate requirements.” Further issues lead to higher prices and further demands. It soon appears that the “ requirements of trade “ are infinite, and to regard this factor as the sole index in regulating currency means entering into, a “ vicious circle.” All countries have at some period in their history had experience pf this sort; the assignats of France and the greenbacks of America have been the classic examples, and recently we have had the example of Russia and Germany. In all these cases the experience was that, even after over-issue had reduced the currency unit to a minute fraction of its original value, the call was for more currency for the requirements of trade.
So far the inflation disease has infected us in Australia but slightly. The value of our pound in gold is ascertainable by reference to the amounts received by the Australian Gold Producers Association on the sale of sovereigns which they export from time to time. Recent sales show that a sovereign in the world’s markets is worth roughly one-ninth more than our paper, pound. Compared with the depreciation in most European countries, the depreciation of our paper currency is slight. Still, *it is unsatisfactory that any depreciation at all should exist; and the danger of further depreciation not only exists, but is not so slight as some think.
As many have expressed the view that notes should he issued in connexion with the present position of oversea exchange, and, as I propose to demonstrate the importance of the Government’s present proposal with regard both to the value of our pound, as. compared with the English pound, and to the difference between the buying and selling rates of exchange, it will be worth while to deal with the question of exchange in general.
Exchange phenomena follow the operation of the universal laws of supply and demand. “No miracles can bc expected from Government intervention, either by the issue of notes or in any other way, and stabilization of exchanges generally may not occur until the restoration of the gold standard has been brought about, but a central bank in Australia will help to provide the machinery for an exchange which will modify the two difficulties to which I have just referred.
When both the buyer and the seller of goods or services are in one country, no difficulty usually arises in providing for payment, because every modern community has some form of legal-tender money. Where the buyer is in one country, however, and the seller is in another, payment must be made by a process which, stripped of detail, means simply that goods or services supplied by a seller in one country to a buyer in another are paid for by other goods or services passing between the countries in the reverse direction. Thus, in the long run, the imports and the exports of a country must be of equal value. Wit of man has never yet devised any other method for the settlement of moneys owing to, and moneys owing by, the people of any country.
To have a proper understanding of exchange, we must know what imports and exports consist of. They are of two classes - visible and invisible. I shall not dwell upon the nature of visible imports and exports, because the words are self-explanatory, covering all kinds of things which have physical existence, invisible exports include loans raised abroad by the Government or the private people of the country. Such loans are deemed to be “ exports,” because, like visible exports from the borrowing country, they, make moneys available, in the lending country, to the exchange dealers. What is an invisible export in one country is, of course, an invisible import in the other. Some other invisible exports and imports are earnings of ships, premiums on marine insurance, interest on loans, bankers’ commissions, and expenditure of tourists. Some countries, such as’ Italy, greatly gain by the expenditure of visitors, but a very large amount of money is spent by Australians abroad, and the cost of very long sea passages represents an immense sum, which, though often paid here, is ultimately transferred to other countries.
Sir Charles Addis, at the Imperial Economic Conference, said that differences made by the banks between the buying and selling rates of exchange had been considered by the Committee of which he was chairman, and the Committee had taken an opportunity of discussing the matter with the managers of the banks concerned, who explained that the charges included various services. There was, for example, the action taken by the banks to prevent undue fluctuations in exchange caused by differences in seasonal demands: the expense incurred by the accumulation of bank balances, alternately at Home and alternately in the Dominions, arising out of these seasonal demands; and the advantages given to the merchant in enabling him, through the relative stability of exchange, to enter more fully than he otherwise could have done, into contracts for forward delivery.
An alteration, in cost of exchange, in favour of the importer may be prevented, in whole or in part, by a reduction in the amount of Government borrowing abroad, if such borrowing has been going on ; also, that alteration may bc prevented if a loan is raised in the country and used for redeeming Government debt abroad. Action by the Government in one or both of these directions, however, may not be practicable.
Because Australian experts, visible and invisible, have been in excess, the Australian’ banks .have accumulated in London much more money than they -need there,, and, consequently, exchange rates are favorable to the importer and unfavorable to the exporter. Money in London can be transferred to Australia only at considerable cost, and that has induced Governments and others locally to borrow moneys which might have been obtained in London. Both because so much of the assets of the banks are in London and because Governments are forced to borrow in Australia, money here is very tight.
We may now turn to the remedies which hive been proposed. First, it has been suggested that there should be a cessation of loans abroad, except for renewal and conversion purposes; also, that there should be an adjustment of credits due to Australia in London by the liquidation of Government securities there, in lieu of importing goods. I do not think the time has arrived when this young country can depend on local loans for its development. We are only a handful of people, and we have a continent to develop. Our savings are small in comparison with the great work to be done, and development would be carried on at a painful pace if it depended only on our own additions to wealth. As to the suggestion that existing Loudon credits should be adjusted by the liquidation of Government debts there, it is necessary to point out that the money at credit in London is private money, and its owners are not willing to hand it over to flic Government as an investment. Indeed, in view of the peremptory demands of current business, they cannot afford to do so. The only alternative would lie in the raising of a loan in Australia, giving the proceeds to the banks here in exchange for their London money, and then redeeming Australian Government securities by purchase in the London market. This alternative, too, is impracticable, because already public borrowing in Australia has proceeded rather too far, and great difficulty is being experienced in finding money here even for necessary development.
Any attempt to carry out these suggestions would raise interest in Australia to a prohibitive rate, stagnation would be apparent ‘ everywhere, and the remedy would he worse than the disease.
The Government recognizes, however, that both internal and external borrowing should be arranged as judiciously as possible, keeping in view the interests of out export business and the need for develop- ment of our industries. The establishment of a central bank on the lines proposed will place independent expert advice at the disposal of .the various Governments, and will assist in harmonizing, and, if necessary, in curtailing their loan operations. The Board, owing to its intimate knowledge of exchange and of local conditions, will be in the best possible position to advise as to rates of interest, amounts to be raised, place of raising, and other terms of loans. Thus diversion of an undue amount of local money from industrial enterprises to Government loans may be avoided, and economic borrowing for public purposes satisfactorily arranged.
It has been proposed that the difficulties bo met by issuing notes for the purchase of the current production of our gold mines. Those who have put forward this proposal seem to think that it does not matter how much in notes is issued, so long as gold is held. The reply is that, while gold is out of action, as it is at present, it can have no effect whatever in restraining any increase of price-levels which would result from watered currency or over-issue. Of course, if additional notes were issued in exchange for gold, and the amount happened to coincide with that which was required to meet natural increase of production, there would be no inflation.
The next proposal to be noticed is that notes should be issued to the banks in Australia, by the “Notes Board, and that the Board should take from the banks, in exchange, an equivalent amount of credit in London. Now, this proposal is usually put forward in Australia in a somewhat loose manner. For example, we are not told how long the Notes Board is to hold its credit, and whether or not the Notes Board is to take the initiative in the disposal of its London money. No one has said, even, how much is to bc dealt with in this way.
I shall assume, however, that the suggestions made in Australia are identical with the resolutions passed by the Imperial Economic Conference, which decided that the difficulties of exchange could be ameliorated if the note-issuing authorities were to accumulate sterling assets and to undertake to exchange their local currency for sterling, and vice versa-. This measure, it was added, mightbe furtherdeveloped and assisted by the creation of a central bank.
The Government concurs in that finding of the Imperial Economic Conference. There is no reason why the resources of the new Commonwealth Bank should not be distributed between London and Australia, and be put to active service to assist the general financial position, instead of lying dead, which is the present condition of a large portion of the resources of the Notes Board. Thus, the Commonwealth Bank would be in a position to conform fully to the resolution of the Conference.
The Government thinks, however, that the position as put before the Conference in a memorandum prepared by the English Treasury requires some modification. The following are extracts from that memorandum : - “ The banks carrying on business in the Dominions had ultimately to rely on the Bank of England for their reserve of cash, and accordingly they used to maintain reserves in the form of sterling bills on London, or sterling credits in London, and it was especially to the state of those reserves that they had regard in regulating the accommodation they gave to trade in the Dominions. … If the banks found their sterling resources falling too low, they proceeded to restrict credit till the balance was redressed. The gold currency in circulation was at best there in the background, ready to move if the regulation of credit failed to work.
Since the war, the same system has been in operation, but with two important modifications. In the first place, the gold currency has dropped out. and there is no longer an automatic remedy if credit regulation does not keep the currencies at par. Secondly, the purchasing power of the pound sterling has fluctuated more violently than ever before, and has subjected the exchanges to a proportionate strain. . . . The prices of commodities in Great Britain rose by one-third in a year, and then fell in one year more by one-half. To keep their currencies at par, the Dominions would have had to bring about equally violent changes in their own price levels. They were not prepared to do so, iand that is why the prewar system, by which the British and Dominion currencies were linked together, broke down. . . Under the present conditions, when the sterling resources of the Australasian banks are inconveniently enlarged or diminished, they need not restore them (as they had to do with agold standard) by expanding or contracting credit; they have the alternative of quoting sterling at a discount or at a premium. The problem is simply to avoid resorting to this alternative. The best method is to rely on a central bank of issue. A central bank of issue caneffect the exchange in cither or both of two ways. It may undertake to issue its notes against sterling and convert them back into sterling at a fixed rate, and/or it may itself take measures for expandingand contracting credit as the state of the exchanges may require. The former method, which is that of the exchange standard, is the more directly effective. So long as it is operative the sterling resources of the banks and their cash resources in the Dominions, being convertible into one another, form a single whole. A shortage of sterling and a shortage of cash are, from their point of view, the same thing, and equally compel a contraction of credit. But if the central bank, besides buying and sellingsterling for notes, makes a practice of rediscounting for other banks, theselatter can replenish their cash by this means. If they are enabled to do so on easy terms the contraction of credit will be avoided. The ultimate effect of excessive rediscounts will be to deplete the central bank’s own sterling reserves. Therefore, if there is a rediscounting central bank, both methods of regulating the exchanges must be followed.”
From that memorandum it is clear that the English Treasury advocates the keeping of the exchanges between Britain and Australia at par. There are, of course, obvious advantages to be derived from the maintenance of a par rate of exchange. Yet, notwithstanding the views expressed in that memorandum, circumstances may arise under which some considerable deviation from par may become necessary. In the first place, it would not be proper to tack the Australian pound to the English pound if the latter were depreciated by a policy of inflation. This was made clear on behalf of South Africa by Mr. Burton,, FinanceMinister of the Union, who said -
We purpose to stick to sterling so long as the British policy is a gradual . approximation towards the restoration of the gold standard, but we certainly should not stick to sterling if there were a change of policy in this respect.
Secondly, care must be taken to protect Australian industry from the excess of imports which might be induced by manufacture of credit. Suppose that the method outlined were in operation now, English and Australian money being exchangeable for each other a.t par, without limitation as to amount, and the banks demanded notes from the Central Bank in exchange for £10,000,000 of London credit. In such a case, it can scarcely be doubted that the banks would build credit on those notes. The result would be, not merely that £10.000.000 had been added to the local currency, but cheque money manufactured by the banks, would further add to the means of payment in Australia. Certainly some of the banks, at least, would be restrained by the knowledge that there would be a reaction. Nevertheless, we shall be taking only a moderate view of the possibilities if we suppose that the means of payment in Australia were added to bv £20,000,000 or £25,000,000. Undoubtedly an increase to that extent would have an appreciable effect upon prices, including the cost of labour. Then our secondary industries would receive a set-back, because it would be cheaper to import than to produce locally. In this illustration I have supposed that the London credit transferred would amount to £10,000,000, but in reality no one could safely forecast what would be the amount. Even if it were less, the tendency towards increase of imports would be just what I have described. Eventually, the exchange would turn the other way round, owing to increased imports, but, in the meantime, damage would have been done to our industries, with consequential unemployment. Consideration of these possibilities will show that the Central Bank must not be directed to provide exchange at any particular rate or to issue notes for English money, and vice versa, up to any amount which the banks or the public may apply for. Unfettered discretion must be given to the Central Bank, in order that disturbances shall be avoided as far as possible.
Here I may notice the suggestion that Bank of England notes be imported and used as currency in Australia. This could be done only if those notes were made legal tender in Australia, because otherwise the banks would not dare to hold them as part of their cash reserves. To make Bank of England notes legal tender here would have the same effect upon conditions in Australia as would an issue ofAustralian notes against London credits, according to the plan indicated in the English Treasury Memorandum. As I have already dealt with the proposals made for such an issue of Australian notes, and for their conversion back into sterling at a fixed rate, no further comment is necessary on the question of using English notes.
The Notes Board could in the past have dealt satisfactorily in exchange only if it had been given control of credit and had possessed full liberty to buy and sell London money in accordance with the ordinary course of exchange. Fully equipped as a central bank, having adequate reserves inLondon and in Australia, it could have undertaken exchange business with the banks, or with the public, or with both. Thus it would have been able to modify fluctuations in exchange. In this connexion, it is interesting to note that at the Imperial Economic Conference, Colonel Guinness, Financial Secretary of the English Treasury, said that “ control of currency cannot operate satisfactorily unless, at the sametime, you have control of credit.”
The Government is of opinion that the difficulties of exchange and the alleged shortage of paper money cannot directly be remedied by an Act of this Parliament. The real cure, both of exchange troubles and of currency shortage, if it exists, lies in a. return to the gold standard. That most desirable end, however, is not yet in sight, and the best that can be done in the meantime with the exchange matter is to place it in the hands of a central bank, which will have ample resources, including control of currency, and which will work for the good of the whole community. I do not overlook the remedial influenceof reduced borrowing, and I commend this to all Australian authorities as the one direct effort which may at present be made towards relief. Apart from that, the situation tends to correct itself, but a central bank can do much to ease the strain while the natural process of adjustment is in operation. As to the alleged shortage of currency, I should say the Government believes that, until definite steps can safely be taken towards resumption of gold payments, the proper policy is to aim at issuing just enough paper to maintain stability of the. general price-level. As this is an extremely difficult and delicate matter, and moreover is one of great public importance, the Government proposes to entrust the whole subject to the remodelled Commonwealth Bank. The Board of Directors of the Central Bank in controlling the note issue will decide how far they shall safely go in the issue of notes for additional growth of trade requirements.
Before leaving this subject, and in justice to the present Notes Board, which has had a most difficult task and a great. responsibility, I should like to correct the impression that exists in some quarters that the Board will not under any circumstances permit an increase in the circulation. The Notes Board, of course, was made by this Parliament quite independent of the Government, and, therefore, I am not called upon to justify its actions, but I think it is only fair that the point of view of the Notes Board and the facts associated with the issue of notes should be known. The Board showed its willingness to increase the amount of circulation by giving to the banks the right to get temporary advances of additional notes up to £3,000,000 to assist in handling the exports of the 1922-1923 season. It is true that the Board declined to issue more notes for the 1923-1924 season. The Commonwealth Bank, however, gave assistance to the other banks in respect of seasonal demands by making advances out of existing credits. This was made possible through the co-ordination of the resources of the Treasury with those of the Bank. Indeed, all the money offered was not accepted by the banks. Our experience on this occasion shows how important it is that the Treasury, which controls huge financial operations, shall work in full co-operation and in perfect harmony with the Commonwealth Bank, and you will note later in this connection that the Secretary to the Treasury is being placed on the Board. I have had in the happenings of the last few months avery practical illustration of the manner in which a Central Bank is necessary to assist all the banking and commercial interests of the country. This has strengthened my conviction that the Commonwealth Bank should be put, in the position of being a Central Bank as early as possible, as the Government is doing in this Bill.
In considering whether additional notes should have been provided by the Note Issue Department, it has to be remembered that, without any assistance by way of additional currency, the banks were able, in 1923, to increase their advances and investments by £22,000,000, as compared with an increase in 1922 of only £9,000,000. In 1923, the advances andinvestments made by the banks increased from £206,000,000 to £228,000,000, or more than 10per cent. That does not look like stagnation. Insufficient currency might be expected’ to find expression in lowered prices, but the index-number of wholesale prices in December, 1922, was 1,832, compared with 1,000 in 1911 ; and in December, 1923, it was 1,982. It is true that, in the intervening months, prices rose until in July, 1923, the indexnumber reached 2,052, and that the number then began to fall, but the nunibers for October, November, and December were, respectively, 1,946, 1,969, and 1,982. Prices, therefore, up to that time, at least, did not disclose any stringency in respect of currency. In January, 1924, the number was 1,984, but it fell to 1,956 in February, to 1.899 in March, and to 1,893 in April. These figures still are higher than the index-number of December, 1922, which was 1,832. Whether the recent reduction indicates shortage of currency is a matter to be decided by experts. If it . does, the new general Board of the Bank will take due action. While I have an open mind on the subject, and while I certainly favour elasticity as one of the essential conditions of a note issue, I do not think that those who have advocated an increase of currency have shown that the refusal of the Notes Board to issue more notes was unjustifiable, and undoubtedly we should avoid an over-issue of notes as a devouring pestilence. Savings bank depositors, life assurance policy holders, pensioners and others entitled to payments in money would be helpless victims, and wage-earners would suffer acutely until adjustment of wages could be arranged. It is far better to ensure that the paper money shallbe handled by a Central Bank of issue and rediscount in order that currency resources may be elastic andused to the fullest possible extent, and increased only with the expansion of national production and wealth.
In concluding this review, it may be pointed out that the means which have been suggested for overcoming the present position - the use of the Notes Board’s resources for sterling backing in London- would be ineffective unless the resources of the Notes Board were operated by a Central Bank established as the Government is establishing this.
The Commonwealth Bank of Australia was established by an Act passed by the Commonwealth Parliament in 1911.
Generally speaking, the Bank was authorized -
A peculiar provision was included, making the Commonwealth responsible for the payment of all moneys due by the Bank, and another clause placed the management of the Bank in the hands of one man, who was to be appointed for a period, of seven years, and to be entirely beyond political control, except in some routine details of no real importance.
According to the original Act, the capital of the Bank was to be provided by the issue of debentures up to £1,000,000. By an Act passed in 1914, the amount was increased to £10,000,000, but the Bank has not yet issued any debentures.
The Act of 1914 authorized the Commonwealth Bank to purchase the business of any other Bank; also to take overany State Savings Bank. In both these matters the approval of the Commonwealth Treasurer had first to be obtained. No Bank has been purchased by the Commonwealth Bank. Two States have handed overtheir Savings Bank business to the Commonwealth Bank, namely, Queensland and Tasmania, the terms including in each case a provision that the State is to have the right to borrow from the Bank 70 per cent. of the increase of deposits.
Though the original Act provided that half the profits of the Bank might be used towards the redemption of Commonwealth or State public debts, no portion was devoted to that purpose, and the whole, amounting, at 30th June, 1923, to £4,403,987, has been used in the business of the Bank. Indeed, it cannot now be said that the Commonwealth Bankhas no capital, because the accumulation of profits has furnished it with a sum for that purpose.
Under the National Debt Sinking Fund Act passed last session, one-half of the profits must be paid into the Sinking Fund, and the first instalment of £61,672, representing half of the profits for the six months ended 31st December, 1923, has already been paid over by the Bank to the National Debt Commission.
At the time of the establishment of the Bank, the paper currency of Australia was under the management of the Treasury, but the experience of the war showed the desirability of placing the issue entirely beyond political control. An Act was therefore passed in 19 20 establishing a Note Issue Department of the Commonwealth Bank, and placing it in the hands of the Governor and three other Directors, the Governor being given a casting vote in case of equality of voting.
Although the management passed over to the Commonwealth Bank, the notes remained an obligation of the Treasurer, as before, and in case of emergency the issue may be brought back to the Treasury by the issue of a proclamation, for such period as may be specified. The profits of the note issue, under the new management, are payable into the Consolidated Revenue of the Commonwealth.
The making of a profit of over £4,500,000 by an institution which was established twelve years ago is a notable performance, particularly when it is remembered that the Bank has never had a capital, except that which was created out of its own earnings. It will be interesting, therefore, to look into the source of those profits.
The Commonwealth Bank’s deposits included, at 31st December, 1923, a total of £9,540,378 standing at the credit of private depositors, £5,882,S46 deposited by other Banks, and £14,044,349 at the credit of Commonwealth and State Governments. The Savings Bank deposits at the same date amounted to £40,330,455. These figures give a bird’s-eye view of the sources of the funds used by the Commonwealth Bank. It will be noticed that, at the date named, the Commonwealth Bank’s general deposits were derived chiefly from the Governments.
On the assets side of the account are to he found the following: - Coin, cash balances, and Australian notes, £11,352,193; money at short call inLondon, £6,805,000; Government securities. £39,632,198; deposited in. other banks, £954,000; bills receivable in. London and remittances in transit, £1,476,116; bills discounted, loans and advances to cus tomers, and other sums due to the Bank, £16,839,694; Bank premises, £S62,204Here it will he noticed what a very large proportion of the assets is held in the form of Government’ securities.
The profits of the Bank, amounting to over £4,500,000 - which does not include the earnings of the note issue - have clearly been earned very . largely out of funds deposited by Governments, and out of transactions undertaken by the Bank during the war. During the first two and a half years of the Bank’s working, up to 3.1st December, 1914, there was no profit. In. the next three years, up to December, 1917, the profits amounted to £758,952. In the. next three years, up to December, 1920, the profits were £2,2S9,372. Then further profits, up to 31st December, 1923, amounted to £l,479,00S. The average annual profits in these triennial periods were, respectively, £252,000, £763,000, and £493,000. The decline in the profits is more pronounced when we look at the business of the last half-year, which showed a profit at the annual rate of £246,000, or about 5$ per cent, per annum on accumulated capital. This reduction was. quite to be expected, because the abnormal conditions of the war have passed away. As showing the fine opportunity which the Bank had, the following examples of Commonwealth Treasury moneys standing at the credit of current account in the Bank may bc given: -
At times the balances were very much larger. On, one occasion the current account of the Treasury reached £40,000,000. The bank did not pay the Treasury any interest on these immense sums.
On the whole, it will be recognized that the Commonwealth Bank’ has not been a serious competitor of the other banks. Indeed, it is understood that the policy of the management up to the present has been not to enter into active rivalry with the trading banks. and in pursuance of this policy the interest payable on Commonwealth Savings Bank deposits is, and has always been, lower than the interest paid by the State institutions. It is fortunate the policy has been such- as has been described, because by reason of that policy the conversion of the Commonwealth Bank into a Central Bank has been rendered easier.
Before detailing the changes contemplated in the Commonweal t]] Bank, and to enable their significance to be appreciated, it will be found useful now to glance at the central banking systems of other countries. Usually they are private institutions, but whatever their nature, the association, of all of them with their Governments is of the closest possible kind, and the Governments appoint managing personnel in all cases except that of the Bank of England. An intimate relationship with the Government universally exists, because a central banking system exercises an important control over money and credit, thereby holding the power of depressing or invigorating the business of the merchant, the manufacturer, the agriculturist, and all others in the community.
The Bank of England is a private bank, altogether independent of the State. Its capital is £14,553,000, and it has a rest or reserve of more than £3,000,000. It is governed by a board of directors, composed of a governor, a deputygovernor,and 24 other directors. In addition to its head office in Threadneedle-street, it has two branches in London, and eight in the provinces. Its governor must hold a qualification of £4,000 in the stock of the bank. The deputy-governor’s qualification is £3,000 of that stock, and each, director must hold £2,000. Every stockholder above £500 has one vote only. In 1912-13 the bank paid a dividend at the rate of 9- per cent, on the capital of £14,553,000. In every year afterwards up to 1920-21 the dividend was 10 per cent. In 1921-22 it was 11* per cent., and 12 per cent, in 1922-23.
The Bank of England was the first joint-stock bank ever established, its first charter dating from 1694. The original subscription to the capital of the bank was £.1,200,000, which was raised for a. loan to the Government at8 per cent. This debt of the Government was subse quently increased by various amounts, and, since 1834, has stood at £11,015,100, on which the bank receives interest at the rate of 2½ per cent. per annum. The bank has almost a monopoly of the right of issuing bank notes, but since the outbreak of war, large numbers of Treasury notes have been in circulation in England. The authority under which some other banks still issue notes is unimportant, and is a relic of old privileges. The English Treasury keeps its funds with the Rank of England, which also transacts all the loan business of the Government. One curious fact is that the bank does not publish a balance-sheet or any other accounts, except the weekly statements of its position.
The Bank Act of 1844 directed that the notes business of the bank be separated, and kept wholly distinct from the general banking business. The Act further authorized notes to be issued against securities up to £14,000,000, whereof the Government securities, amounting to £11,015,100, were deemed to he a part. Permission was also given to increase the amount of those securities beyond the total sum of £14,000,000 in every case in which any banker ceased to issue his own bank notes. The increase of notes to be issued against securities was limited to two-thirds of the amount of bank notes which a banker had ceased to issue. The total amount of the securities against which notes are now issued is £19,750,000. Above the total of £19,750,000, the notes of the Bank of England are covered pound for pound in gold. On 1st March, 1924, the total of the notes outside of the note issue department was £146,022,000, of which an amount of £20,443,000 was held by the banking department.
The provision which requires gold to bc kept as a backing for all notes issued beyond a certain point has been much criticized, it being held that the element of elasticity, so much to be desired, was not arranged for. In other important note issues, the circulation is regulated by fixing a certain proportion - say one-third - between the amount of the metallic reserve and that of the notes in circulation. Here again, in a time of stress, the legal limitation may become a serious difficulty.
The system of bank credits operated on by cheque has developed to such an extent in England, however, that the want of elasticity in the note issue has not, during many years past, been so important as it formerly was.
The Act of 1844 provides that all persons shall be entitled to demand notes from the issue department in exchange for gold bullion, at the rate of £3 17s. 9d. per ounce of standard gold, but the bank is entitled to require the gold bullion to be melted and assayed at the expense of the persons tendering the bullion. This is part of the legal machinery which makes gold a standard of. value, but, during the suspension of gold payments, this particular provision is inoperative.
In 1914, two days after the outbreak of war, an Act was passed authorizing the Treasury of the United Kingdom to issue, currency notes for £1 and 10s., such notes to be legal tender for the payment of any amount. By the same Act, the Bank of England, the Scottish banks and the Irish banks were authorized to issue notes in excess of any limit previously fixed by law, provided that the issue did not exceed an amount which might temporarily be- authorized by the Treasury. Subject to a proclamation of the King, which might be revoked at any time, the bank notes issued by banks in Scotland and in Ireland were made legal tender, except at the head oflice of the bank, and the bank might pay its notes, if it thought fit, in the currency notes issued by the Treasury. The Treasury, notes issued under the new provisions of the law amounted, on the 9th January, 1924, to £286,353,319. The assets held against the total issue comprised : -
During the last century, the jointstock banks have greatly developed. So much so, that more than one hundred small banks have passed out of existence, and now the banking in England and Wales is conducted by the Bank of England, nine clearing banks and seven country banks. The Bank of England is the centre of the whole banking system, and is, in the proper sense of the term, a banker’s bank. Its decisions affect a very large portion of the banking transactions of the world and are not without their influence upon the other great banking systems, such as those of the United States of America, and of France.
Now it is a fact that in all banking business, the protection of the reserves of legal tender money is a matter of prime importance. For if , the reserves are allowed to run low, even a slight increase of demand for payment above that which is normal and expected may exhaust the reserves and leave the bank broken and helpless. The bank which is not able, instantly to satisfy demands legitimately made upon it for cash meets its doom. Therefore the rise or fall of the reserves is watched with the utmost care-, and subjected to the closest investigation. That being so in the case of an ordinary bank, which is concerned chiefly with its own affairs, it easily can be seen how grave is the responsibility of a central bank which holds the gold reserve of the nation. In the creation of a difficulty which threatens the gold reserve, the central bank may have had no part, and mere restriction or calling in of its own loans may be quite ineffective. The only action likely to succeed is one which will simultaneously affect all the banks and will induce them to work for the common good. -The necessary operation is one of extreme delicacy in the case of the Bank of England, because the other banks are not compelled by law to follow its direction. Yet the prestige of the bank” and the sagacity of its management have long been such that the fixing by the bank of its rate of interest has led finance in safety, and has maintained London as the greatest money market in the world.
The bank is willing, in its discretion to do business at a stated rate of interest, or, to speak technically and more correctly, it is prepared to discount bills at the stated rate. The rate chosen by the bank is to be regarded more as an expression of opinion as to the real value of money than as an attempt arbitrarily to fix a rate, because it is evident thateven the Bank of England cannot for long maintain a false or a purely artificial rate. Indeed, the bank has to face the competition of the other banks, which have control of immense funds. In the use of those funds, a* market rate is established, which is usually lower than the bank-rate. The market rate, however, is itself dependent on the rate of interest which those other banks allOW on short, deposits, and, as the banks fix the rate for short deposits in a more or less definite relationship to the bank rate, there is not much danger that the discount rates of the banks will stray very far from the bank rate of discount.
It may be that gold is leaving the country in consequence of an adverse balance of financial and commercial transactions. In that case, the bank increases its rate of discount, and all other financial institutions follow the lead. The effect is to retain money which otherwise would have been exported, because the interes’t now obtainable is more attractive than that which can be earned abroad : also, for the sake of the higher interest, money is attracted from abroad. At the same time the internal business of the country is affected. As the higher interest makes it less profitable to hold stocks which are being carried on borrowed money, and as an increase in the bank rate brings forth doubts as to the future, sales are accelerated, general prices fall, and business or enterprise which was in contemplation is abandoned, at least temporarily. Manufacture also may be affected, employment diminished, and consumption of goods reduced. These conditions culminate in an increase of the bank holdings of currency, exports are encouraged, 1 imports are checked, and the necessary gold reserve of the nation is maintained, or perhaps increased. Even when there is no immediate’ danger of an export of gold, the internal business of the country may show signs of a dangerous expansion *of credit, and, similarly, normal conditions are restored by raising the bank rate. If, however, the condition and prospects of the gold reserve are satisfactory, but business is dull and employment droops, the circumstances are suitable for a- lowering of the rate. In such a case, credit is likely to expand, prices to rise, profits to increase, and employment to extend.
It should be explained that in bringing about the results which have been described, reliance is not reposed only in the fixing of the bank rate. For example, securities may be sold in the market in order to get control of legal tender money, and the attitude of the banks generally in encouraging or discouraging loans is an important factor.
Such was the position before the pressing necessities of the war brought restrictions upon the use of gold. That commodity can now be exported only with the consent of the Government, and the contrivances by which the money of the country was automatically brought into proper relation to the general price levels of the world have for the time being been put out of action.
The removal of the automatic check enabled huge credits to be built upon the war currency and the short-dated securities issued by the Government. Then was seen abnormal increase in available purchasing units, without an increase in available commodities. Prices rose, and, though wages were frequently raised, the pay of the workmen usually lagged behind the cost of living. During this period of inflation, trade was wonderfully active because merchants and dealers continually acquired large stocks in the ‘ fond belief that, in consequence of a world shortage of goods, prices would go higher still. In the wild scramble dealers bought from each other and ever prices rose. This speculative business could not go on indefinitely, however, and at length reaction set in. This approximately synchronised with an alteration of the bank rate, which, having been 6 per cent, since 6th November, 1919, was raised to 7 per .cent, on 15th April, 1920.
It is often held that prices would have fallen without the added effect of the higher bank rate, and without the pres- sure which bankers generally then began to exercise with a view to the retraction of credit. However that may be, thefact is that the index-number of wholesale prices fell from 352 in April, 1920. to 155 in July, 1923.
This huge slump in prices was quite without precedent, and brought great suffering upon millions of workers, who lost their employment. This is an example of the frightful oscillations which may be brought about while gold payments are suspended.
Though the need to maintain gold reserves is for the time dormant, a great responsibility, greater even than that which formerly existed, has now to be carried by the Bank of England, because, without the mechanical indication of danger as formerly betokened by movements of gold, the bank must now carry on a control similar to that which it exercised before the war. The new state of affairs is of a most complex nature, and great problems more or less new to the world have to be faced. Difficulties of exchange, of price levels, of production, and of employment have to be solved by the nation, and in these regards the decisions of the bank are of the first importance. Its great work is carried on in daily touch with the Treasury, which, too, is closely concerned in the control of credit, because of its own. issues of paper money, and because of its immense loan operations.
The American banking and currency system is of an exceedingly complicated nature, and is governed both by Federal and by State laws. Generally speaking, the banks are not permitted to have branches. The result is a surprising number of separate banks, of which altogether there are more than 27,000. It is not our purpose to follow all the intricacies of the system, but it is desirable briefly to set out the chief features of the Federal Reserve Banking, by which the credit arrangements of the “United States are controlled and directed.
On the 23rd December, 1913’, just a few months before the outbreak of the war, the Federal Reserve Act of the United States of America was approved. The Act was designed to provide for the establishment of Federal Reserve Banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking, and for other purposes.
Provision was made for designating not less than eight nor more than twelve cities, to be known as federal reserve cities, and to divide the continental United States into districts, each district to. contain one of such cities.
Every bank established under what is known as the National Bank Act was required, and certain other banks and trust companies were authorized, to become members of the reserve system. Banks established under the National ‘Bank Act are purely private institutions, subject, however, to close supervision by the Treasury. Every national bank was directed to subscribe, within 30 days after notice to be given by an organization committee, to the capital stock of the Federal Reserve Bank ‘of the district in which it was’ located, a sum equal to 6 per cent, of the paid-up capital and surplus of the bank.
Should any national bank, within one year after the passage of the Act, fail to become a member bank, all of the rights, privleges, and franchises granted to it under the National Bank Act were to be forfeited.
If the subscriptions of banks to the stock of any Federal Reserve Bank were insufficient, in the judgment of the committee referred to, to provide necessary capital, then the committee might offer stock in the said bank to the public -for subscription at par ; but no individual, copartnership, or corporation, other than a member bank of its district, was permitted . to subscribe for or to hold at any one time more than §25,000 par value of stock in the Reserve Bank. Should the total subscriptions by banks and the public be insufficient to provide the capital necessary, then the United States Government was directed to subscribe an amount out of the funds of the Treasury. Stock not held by member banks was not to be entitled to- voting power.
No’ Federal Reserve Bank was allowed to commence business with a capital of less than $4,000,000.
Authority was given to the Federal Reserve Board, the constitution of which will be described presently, to permit any Federal Reserve Bank to establish branch banks, and the branches were to be operated under the supervision of a board of directors of not more than seven nor less than three, of whom a majority of one was to be appointed by the Federal Reserve Bank, and the remaining directors by the Federal Reserve Board.
Stock-holders of Federal Reserve Banks are entitled to receive an annual cumulative dividend of 6 per cent. After dividend claims have been met, all the net earnings are payable into the United States Treasury, except that one-half of such net earnings are to be paid into a surplus fund until it shall amount to 40 per cent, of the paid-up capital of the bank. The net earnings derived by the United States from Federal Reserve Banks are to be used to supplement the gold reserve held against outstanding Government currency notes, or are to be applied to the reduction of the national debt of the United States.
Federal Reserve Banks are exempt from Federal, State and local taxation, except taxes upon real estate.
Every Federal Reserve Bank was placed under the control of a board of directors. The directors were required to extend to every member bank such discounts, advances and accommodation as might be safely and reasonably made, with due regard to the claims and demands of other member banks.
The board of directors for each Federal Reserve Bank consists of nine members, ‘ divided into three classes - A, B and C.
Glass A consists of three members chosen by, and representative of, the stock-holding banks.
Class B consists of three members also elected by the stock-holding banks. At the time of their election they must bc actively engaged in their district in commerce, agriculture or some other industrial pursuit.
Class C must be composed of three members designated by the Federal Reserve Board. The directors of this class must have been, for at least two years, residents of the districts for which they are appointed. The Federal Reserve Board designates one of them as Chairman. He must be a person of tested banking experience.
No Senator or ‘ Representative in Congress is allowed to be a member of a Federal Reserve Board, or an officer or a director of a Federal Reserve Bank. No director of Class B or Class C can be an officer, director,- or employee, or stockholder of any other bank; but this provision, under certain conditions, does not apply to any Class A director.
Of the directors first appointed to each of the Classes A, B and C, one was to be retired at the end of one year, one at the end of two years, and ohe at the end of three years. Thereafter, every director was to hold office for three years, any vacancy occurring before the end of the time to be filled by an appointment for the unexpired term of the predecessor.
Subject to some special conditions, banks operated under State laws - these also are private institutions - are permitted to become stock-holding members of the Federal Reserve Banks.
The. Act created a Federal Reserve Board of seven members, including the Secretary of the Treasury and the Comptroller of the Currency, who are ex officio members, and five members appointed by the President of the United States. In selecting the five appointive members, not more than one of whom can be selected from any one Federal Reserve District, the President was directed to have due regard to a fair representation of the different commercial, industrial, and geographical divisions of the country. The five members appointed by the President devote their entire time to the business of the Board. The members of the Board, the Secretary of the Treasury, the Assistant Secretaries of the Treasury, and the Comptroller of the Currency, are ineligible during the time they are in office, and for two years afterwards, to hold any position in any member bank. Of the five members thus appointed by the President, at least two must be persons experienced in banking or finance. In making the first appointments of members, one of them was to be designated by the President to serve for two, one for four, one for six, one for eight, and one for ten years. Thereafter each member so appointed is to serve for a term of ten years, unless sooner removed for cause by the President. When an appointment is made to a vacancy caused other than by effluxion of time, the new member is appointed for the unexpired period of his predecessor.
Some of the powers of the Federal Reserve Board are as follow: -
There is also a Federal Advisory Council, the members of which are appointed by the Federal Reserve Banks, one member for each bank. The Council meets at least four times in each year. The Council has power to confer directly with the Federal Reserve Board on general business conditions ; to make oral or written representations concerning matters coming within the jurisdiction of the Board; and to call for information and to make recommendations in regard to discount rates, re-discount rates, the purchase find sale of gold or securities by Reserve Banks, market operations by the said banks, and the general affairs of the reserve banking system.
The Act provides that Federal Reserve notes may be issued at the discretion of the Federal Reserve Board for the purpose of making advances to Federal Reserve Banks and for any other purposes. The notes are obligations of the United States, and are redeemable in gold on demand at the Treasury in Washington, or in gold or lawful money at any Federal Reserve Bank.
Any Federal Reserve Bank desiring to receive Federal Reserve notes must tender with its application au amount of collateral equal to the sum of the Federal Reserve notes applied for: The collateral must be notes, drafts, bills of exchange, or acceptances, or may be gold or gold certificates.
Every Federal Reserve Bank shall maintain reserves in gold or lawful money of not less than 35 per cent. against its deposits, and reserves in gold of not less than 40 per cent. against its Federal Reserve notes in actual circulation. The notes so paid out must bear upon their faces the descriptive letter and serial number, which are assigned by the Federal Reserve Board to each Federal Reserve Bank.
Each Federal Reserve Bank had conferred on it the right, on depositing Government Bonds with the Treasury, to receive from that Department currency notes equal to the par value of the bonds. This privilege is similar to that granted to National Banks underthe previously existing law. Indeed, the Federal Reserve Banks were placed in exactly the same position in this regard as the National Banks, except that the issue of notes was not to be limited to the capital of the Federal Reserve Banks.
Every bank, if not in a reserve or Central Reserve city, must maintain with the Federal Reserve Bank of its district an annual net balance equal to not less than 7 per cent. of the amount of its demand deposits and 3 per cent. of its time deposits. If in a Reserve city it shall maintain with the Federal Reserve Bank of its district at least 10 per cent. of its demand deposits and3 per cent. of its time deposits. If in a CentralReserve city it shall so maintain 13 per cent. of its demand deposits and 3 per cent. of its time deposits.
The required balance carried by a member bank with the Federal Reserve Bank may, under regulations prescribed by the Federal Reserve Board, be checked against and withdrawn by the member bank for the purpose of meeting existing liabilities ; but no bank is permitted at any time to make new loans or pay any dividends until ‘ the total balance required by law is fully restored.
The Comptroller of the currency, with the approval of the Secretary of the Treasury, must appoint examiners to examine every member bank at least twice in each calendar year. In addition, every Federal Reserve Bank may, with the approval of the Federal Reserve Board, provide for special examination of member banks within its district.
The Federal Reserve Act was designed chiefly to facilitate the process of rediscount. It provides for the discount of notes, drafts, and bills of exchange, growing out of commercial, industrial, or agricultural transactions, and also bankers’ acceptances. Bankers’ acceptances which can be discounted are limited to those based upon the importation or exportation of goods.
The Statute contains most elaborate provisions denning the classes of paper which can be handled, and generally the aim has been to confine the transactions of thebanks to the use of paper which has only a short time to run. The principle has been recognized that bank assets should not be tied up for long periods, and should be employed in commercial processes which will more or less automatically secure the return of the money within a short period.
A practically continuous increase in tin-, number of the banks which have become members of -the Federal Reserve has taken place since the organization of the system. In June, 1923, approximately 33 per cent, of all the banks, representing over 70 ner cent, of the total banking resources of the Hu i tod States of America were members. These member banks number 9,856 in all, and their resources amount to 33,796,000,000 dollars.
The banking of France is conducted by the Bank of France, six other great banks, and a large number of credit institutions of various kinds.
The Bank of France is an entirely private concern, and although, in the way of advice and in practical assistance at low rates of interest, or even no interest at all, it has always been most intimately concerned with national finance, it has maintained complete independence so far as political bias or control is concerned. Nevertheless, the Government of France has wide powers in relation to the bank for it appoints the Governor and two subGovernors, and has power to> remove them. It has never exercised that power. In case of dispute regarding internal administration or regarding the application of Statutes, the Council of State has power of decision. Here it may be noted, too, that in 1857, when the Government determined to double the capital of the bank, raising it to 182,500,000 francs, at which it now stands, this increase of capital was used as an opportunity of placing a Government loan, to which the market happened to be unfavorable. The bank, upon raising its 91,250,000 francs .of fresh capital, was required to invest 100.000,000 francs in new Government 3 per cents., issued for the reduction of the floating debt, which had risen to an awkward amount.
The capital is divided .among upwards of 33.000 shareholders. Each share is of the nominal value of 1,000 francs, but, in 1921, the market value was about 5,500 francs, or a little more than £100 in our money. At that time there were 12,000 shareholders, each holding only one share, and altogether there were about 27,000 persons who held only five shares or less. The average is about five and a half shares for each shareholder.
The profits go to the shareholders, as in every other company.
The Governor and each sub-Governor must hold respectively 100 shares and 50 shares. They are appointed for in- definite periods. They are assisted by fifteen Regents and three Censors, elected by the General Assembly of the bank, which is composed of 200 of the largest stockholders. Five of the Regents must be chosen from among manufacturers or merchants who are shareholders, and three must be officials of the Government Treasury Department. Regents must own at least 30 shares, and their duties do not differ much from those of a director of any ordinary corporation. The special mission of the Censors is to ‘supervise all the bank’s transactions, and they are entitled to examine all the records. Censors have not the right to vote, but no action in regard to the issue of bank notes can be taken without their unanimous approval. The Censors attend meetings of the Board, and there are permitted to discuss any business of the bank.
The Board, composed of Governor, subGovernors, and Regents, decides all questions relating to the general management and to the discount rate.
It will be noticed that the government . of thy bank consists of two distinct elements - one portion chosen by the State ; the other by the 200 largest -shareholders. It would seem that the Governmental appointees have a peculiar responsibility to see that the business of the bank is carried on in the interests of trade, commerce, and public requirements generally. It is said that, in practical working, the . members of the Board, who are elected by the shareholders and who therefore may be regarded as interested parties, are not permitted to dominate the affairs of the bank. .Decisions of the Board are subject to veto by the Governor. He cannot by himself make decisions, bub can unmake them.
The Board is divided into five committees, namely, discount, bank notes, funds, securities-porti folios, and public treasury.
The French banks derive their profits chiefly from short-term discount operations, and a very important part of the business of the. Bank of France comes from re-discounts from the other banks. Though the Bank of France discounts for any corporation, firm, or individual, and thus engages in the general business of banking, the other banks have an excellent opportunity for doing business, because the Bank of France maintains a low rate of discount, and requires three signatures on bills presented for discount. The other banks, therefore, get most of the discount business, and by .adding their own signature to make the third, .have means at hand for re-discounting the paper at the Bank of France. The smallest sums are obtainable by way of loan from the banks, and. it is said that even the trifling sum of five francs may be borrowed.
The bulk of the French banking deposits bake the form of current accounts, and fixed deposits are comparatively of small volume. The cheque system is not well developed, and this accounts for the large issue of the notes of the Bank of France.
In view of the facilities for- re-discount at the Bank of France, which is a central bank in the true sense of the term, the other banks, with their numerous branches and tremendous volume of business, are able to carry on with small cash reserves. It is because of this large business of rediscount that the Bank of France, by giving or withholding credit, as well as by fixing the rate of discount, can control banking affairs. The rate of discount ai, the Bank of France has been remarkably uniform, and usually lower than that of other central banks. This has proved a great boon to< French business. The Bank of France makes no charge for transferring money for customers from one branch to another in any part of France, and the other banks bake advantage of these arrangements. It may here be stated that, when the Australian nob© issue was under the control of the Treasury, free exchange was given to the banks, which were permitted to lodge notes at any State capital and to withdraw a corresponding amount of notes at any other State capital without charge. This gratuitous facility has been continued by the Note Issue Department of the Commonwealth Bank.
The Bank of France has no immunity /from- taxation. lb has the exclusive privilege of issuing the fiduciary currency of the nation, and holds the national specie reserve. There is no fixed amount at which the ‘reserve is to be. maintained, that being left bo the discretion of the management. The specie is both of gold and silver, in either of which the bank has the right bo redeem itS notes. Tho right to pay in silver would be exercised, however, only to prevent the large out flow of gold which might be threatened in abnormal circumstances.
The joint-stock banks of France are incorporated under the general laws relating to companies. The banks are not ‘ examined by public officials, and, because there is no machinery for consolidating statistics of banking business under uniform heads, it is nob possible readily to compile statements showing the banking position as a whole.
The outstanding features of French’ banking are the liquid condition in which the great banks keep their business, and the facilities granted to the banks for the re-discount of their paper at the Bank of France. It may be said that the real reserve of French banking is the authority given bo the Bank of F’rance to issue notes, and itS willingness to discount paper for the other banks.
The following are some details of. the German banking system as it existed before the war. The great disturbance, of the last few years have caused modifications necessitated by abnormal conditions, and it is thought that, for our pre.sent purposes, the pre-war system is that to which we should look.
Though a considerable number of joint stock banks, which were originally established chiefly bo facilitate the organization and development of large corporate enterprises and the sale of their shares to the public, have developed the business of banking upon a great scale, the cheque system lias not extended so widely as in England, and therefore n ‘tes are used to a greater extent. These banks occupy to the Reichsbank - the central bank - a relationship in some respects analogous to that, of the English banks in relation bo the Bank of England. Ib is true the German deposit banks do nob maintain large reserve balances with the central bank, bub they resorb to ib for. rediscounts. The Reichsbank holds tho only available store of specie in the country, from which any extraordinary demand of banking can be met. The policy of that Bank is therefore primarily determined by the necessity of guarding itS reserve, nob so much because ib issues notes, as because the credit system of the country isi built upon the foundation of the specie in itS vaults.
Like other central banks, the Reichsbank resorts to the variable rate of discount to protect its’ reserve, raising its rate in times of clanger in order to restrain the expansion of credit and check the outflow of specie.
The Reichsbank is not a joint stock bank, but has been founded in accordance with special Imperial laws. Its capital has been ‘privately, subscribed. The Government, though having neither supplied capital nor assumed any financial liability for the Bank, is, nevertheless, entitled to a considerable share in the profits, and to the full control of the administration and management. A committee of fifteen, elected annually at the general meeting of the shareholders, has power only to examine the Bank’s operations, and to offer advice to the authorities. The governing body for the supervision of the Bank consists of the Imperial Chancellor as President, and four members, of whom one is ippointed by the Emperor and three by the Federal Council. The last-named body meets once a quarter in order to receive a full report. The active management of the Bank is in the hands of a Directorate, consisting of the President and a number of members who, on the recommendation of the Council, are appointed for life by the Emperor. The rights of the shareholders are extremely limited. At the annual meeting accounts are submitted and members of a committee are elected.
The shareholders are entitled to a first dividend of 3
The Reichsbank is privileged to issue notes, and its notes, but not the notes of other banks, are legal tender.
As cover for the notes in circulation, the Reichsbank must hold at least onethird in gold and notes issued by the Government. The remaining two-thirds are to be held in discounted bills or cheques .of a specific description.
In Germany there are, besides the Reichsbank, four other Banks of Issue. These four German Banks have no fixed maximum issues, but their issue of notes is regulated as is that of the Reichsbank.
Germany imposes on the Reichsbank no absolute maximum, but provides a taxfree “Kontigent.” This “Kontingent,” before the war, . stood at 550,000,000 marks. The sum of the tax-free “ Kon.tingent “ and the actual cash in reserves are deducted from the total outstanding circulation, and the balance is subject to a tax of 5 per cent, per annum.
The combined “Kontingent” of theother four Banks of Issue amounted at the outbreak of the Great War to only 68,771,000 marks - about one-tenth of the circulation of the Reichsbank.
The banking business of Germany is carried on by the four Banks referred to and many other banks, which do not issue notes.
The officials of the Reichsbank are provided for, both as to number and salaries, in the Imperial Budget, and they arc subject to the same obligations and enjoy the same privileges as other employees of the Empire.
The German Government before the war had a note issue, but its volume was comparatively small.
The South African Currency and Banking Act of 1920 has provided the most recent example of central banking.
The Act establishes at Pretoria a corporate body called “ The South African Reserve Bank.”
The Bank is managed by a Board of eleven Directors, as follows: -
Six Directors, who- are described as commercial and industrial representatives, and who must be or have been actively engaged, three in commerce or finance, one in agriculture, and two in other industrial pursuits, are elected by the stockholders;
Three Directors, who are described as the Government representatives, are .appointed by the Governor-General ; and
Two Directors (styled the Governor and the Deputy Governor) are also appointed by the GovernorGeneral.
The Governor and Deputy Governor hold office for five years, and devote their whole time to the Bank.
The first appointments of Directors, other -than the Governor and Deputy Governor, were to be made for differing periods. After the expiry of the period of office of any first Director, other than the Governor or Deputy Governor, his successor is to be appointed for a period of three years.
No person can be a Director, if he is a director, officer, or employee of another bank, or if he is a member of either House of Parliament or of a Provincial Council.
The original capital of the Bank was £1,000,000, of which not more than 50 per cent, was to be subscribed at par by the six banks specified in the schedule to the Act, in proportion to their paid-up capital and reserve funds. The amount; remaining after that allotment to the banks was to be offered to the public at par. In the event of the full amount offered to the public not being fully subscribed, the Treasury was required to take up the remainder at par.
No stockholder, other than a subscribing bank and the Treasury, may hold more than £10,000 of capital stock.
A cumulative dividend at the rate of 6 per cent. per annum is payable on the paid-up capital, and any additional profits are allocated to the reserve fund, until such fund is equal to 25 per cent. of the paid-up capital. Thereafter, until the reserve fund is equal to the paid-up capital, one-half of the surplus is allocated to reserve fund, one quarter to the Government, and the remaining quarter, not exceeding 4 per cent. of the paid-up capital, to stock-holders. If that remaining quarter exceeds 4 per cent. of the paid-up capital, the excess is payable to the Government.
When the reserve fund is equal to the paid-up capital of the Bank, the net profits, after payment of a dividend of 10 per cent. to stock-holders, are payable to the Government.
Provided that, while there are restrictions on the export of gold or on the convertibility of gold certificates, a dividend in excess of 6 per cent. in all shall not be paid, and any profits after paying a dividend of 6 per cent are to be placed to a special fund for strengthening the gold reserveof the Bank.
The Bank must fix and publish from time to time the rates at which it will discount the various classes of bills.
The Bank may engage in -
Making loans or advance on current account against security of-
The Bank is forbidden to -
The Bank has the sole right to issue notes in the Union.
The notes issued by the Bank must be secured to an amount of not less than 40 per cent. in gold in the Bank’s custody, and as to the remainder in commercial paper or trade bills. The Bank may, with the consent of the Treasurer, hold gold balances outside the Union. In addition to the gold reserve against notes the Bank must hold in gold a reserve of at least 40 per cent. of its deposits and bills payable. Provided that until 30th June, 1928, the notes may be secured in Treasury Bills of the Union or the British Government of a currency not exceeding 90 days, up to an amount which shall not exceed -
The Treasury is empowered at any time to make an inspection of the books of the Bank.
The directors, officers, and employees are obliged to maintain secrecy, subject to penalty.
Every Bank in the Union is required to maintain balances in the South African Reserve Bank, equal to at least 10 per cent. of its demand liabilities in the Union and 3 per cent. of its time liabilities to the public in the Union.
Though Canada has not a central banking system, the provisions of its law relating to banking have been referred to in Australia of late, and therefore it is desirable to set out some details here.
The banking law of Canada is contained in an Act which was assented to on 30th June, 1923.
Every bank must hold in Dominion notes not less than 40 per cent. of the cash reserves which it has in Canada. The Minister must make arrangements for ensuring the delivery of Dominion notes to any bank in exchange for an equivalent amount of gold coin.
Every bank may issue and re-issue its notes payable to bearer on demand and intended for circulation. No such note shall be for a less sum than 5 dollars. Except as hereinafter provided, the total amount of the notes of a bank in circulation at any time shall not exceed the aggregate of -
During the usual season of moving the crops, tliat is to say, from 1st September in any year to the last day of February next ensuing, a bank may issue an additional amount of notes not exceeding 15 per cent. of the combined unimpaired paid-up capital and rest or reserve fund of the bank. On the amount of these additional notes, the bank must pay interest to the Treasury at such rate not exceeding 5 per cent. per annum as is fixed by the Governor in Council.
Every bank is responsible for keeping with the Treasury a deposit equal to 5 per cent. of its average circulation of notes, and is entitled to receive interest on that deposit at the rate of 3 per cent. per annum. The deposit is held by the Treasury for the sole purpose of payment of the notes in the event of the suspension of the bank.
When making any payment every bank must, on the request of the person to whom thepayment is to bemade, make the payment not exceeding 100 dollars in Dominion notes for 1, 2, or 5 dollars each.
The Minister of Finance may appoint any auditor whom he may select to examine and inquire specially into any of the affairs or business of the bank, and the auditor shall report fully to the Minister the result thereof.
Every bank may stipulate for, take, reserve, or exact any rate of interest or discount not exceeding 7 per cent. per annum, and no higher rate of interest shall be recoverable by the bank.
The banks shall not charge any discount or commission for the cashing of any official cheque of the Government of Canada or any Department thereof, whether drawn on the bank cashing the cheque or on any other bank nor upon any cheque drawn in favour of the Government.
The issue of Dominion notes in Canada is governed by an Act assented to on 22nd August, 1914. Dominion notes may be issued to any amount, and such notes have the quality of legal tender.
Dominion notes are, in normal times, redeemable in gold.
The Minister of Finance shall always hold, as security for the redemption of Dominion notes up to and including 50,000,000 dollars, an amount in gold equal to not less than 25 per centum of. the amount of such notes. As security for the redemption of Dominion notes issued in excess of 50,000,000 dollars, the Minister shall hold an amount in gold equal to such excess.
Sitting suspended from 1 to 2.15 p.m.
– With the examples of central banking in our minds that I have already given we may proceed to a consideration of the amendments which are proposed for improving the efficiency of the Commonwealth Bank, and making it a Central Bank. Five main amendments are proposed, namely : (1). The appointment of a Board of Directors to control not only the general business but also that of the note issue ; (2). The strengthening the Bank by provision of f urther capita] ; (3) . The giving of power to the Board to fix and publish its discount rate; (4). The provision that Banks shall settle their exchanges through the Commonwealth Bank; and (5). The preparation of statistics.
It is proposed that the Bank shall be managed by a Board of eight Directors, consisting of the Governor, Secretary to the Treasury and six others. There is now a consensus of opinion that one-man control is inadvisable for an institution whose policy may affect production, employment, and prices. The choice of the first Governor proved to be a happy one, and the late Sir Denison Miller will, be remembered not only as the first Governor of the Bank, but also as one who with great ability carried on its huge business with success1. Nevertheless, it is now widely recognized that the government of a central banking institution should include all that varied experience and mature judgment can supply. It is too much to expect that all the necessary qualifications can be found in one man.
It is proposed that there shall be two officials on the Board, viz., the Governor and the Secretary to the Treasury, the last named being included in order to ensure proper liaison between the Treasury and its Bank, so as to keep the
Board’ of Directors ato fait with the national financial position. The Secretary to the Treasury is already a Director of the Note Issue Department of the Bank. The Commonwealth Treasury handles a very large business, and there is a necessity for co-ordinating the work of the Treasury with that of the Bank. Already we have had experience showing how the resources of the Treasury can be made available for the support of banking operations generally, and there can be no doubt that the linking of the .operations of the Treasury with those of the Bank will strengthen the system of central banking. There is precedent for this proposal, because the Secretary to the Treasury in the “United States is the Chairman of the Federal Reserve Board, which governs the whole of the central banking system. The Comptroller of the Currency, a Treasury officer, is also a member of the Federal Reserve Board of the United States. “It may be stated, too, that of the fifteen regents or directors of the Bank of France, three must be officials of the Government Treasury Department. In considering the qualifications required in the six other Directors the Government has been impressed by the fact that in the two’ most recently created central banking systems, those of the United States of America and of South Africa, particular care was taken to have commerce, agriculture, and industry represented on the governing boards. It has been decided that four of the Directors of the Commonwealth Bank shall be persons who are or have been associated with manufacture, agriculture, pastoral pursuits, other primary industries, or commerce. The intention is that these four Directors will have special’ and intimate knowledge of these businesses or industries, as well as knowledge of finance.
In order that the requirements of every part of the Commonwealth shall be kept in view in the management of the Bank, a clause has been inserted in the Bill requiring that fair representation of the geographical divisions of the Commonwealth shall, “as far as possible, be arranged in the making of appointments to the Board of Directors. A similar” provision exists in the Federal Reserve banking law of the United States of America.
The remaining two Directors are to be appointed because of their knowledge of currency matters. This is necessary because the appointment of the present
Directors of the Note Issue Department of the Commonwealth Bank are terminated by the Bill, and the control of that department will pass to the General Board. The importance of determining the exact amount of paper currency is so very great, and the complexities are so formidable in relation to the effect upon the community, that the Government believes it absolutely necessary to place currency experience upon the General Board of the Bank.
For. the same reason the Board, although permitted to decide all other questions by a majority of votes, will not. be allowed to determine questions relating to the note issue unless the determining majority includes two of the following, namely - The Governor, the Secretary to the Treasury, and the. two Directors appointed because of their knowledge of currency.
Here again there is a valuable precedent, because the management of the Bank of France includes three censors, whose unanimous approval is required in connexion with any decision relating to the issue of the notes of the Bank.
The proposal of the Bill is that the Chairman of the new Board shall be elected by the Directors themselves. It is thought that the Governor should not be Chairman, because he will be the chief executive officer of the Board. In conferences which Ministers have had with the general managers of the private banks, there has been found an astonishing unanimity of opinion that the chief executive officer should not, be Chairman. The official view will at all times be thoroughly well expressed at Board meetings by reason of the fact that the Governor is to be a Director. However, the Government does not propose to make it impossible for the Governor to he the Chairman of Directors, but leaves it optional for the Board to choose its own chairman, who will occupy the position for one year, when another election shall occur. The fees to be paid to the directors will be at the rate of £600 per annum except in the case of the Governor, who will be paid his salary as Governor, and in the case of the Chairman, who will be paid at the rate of £1,000 per annum. It is necessary that the Chairman should be given higher remuneration than the ordinary directors, for the additional duties that will fall upon him will demand close attention.
Dr. Earle Page.
As already stated the geographical divisions of the Commonwealth will be kept in view in the making of appointments to the Board of Directors, but, in order to enable the Board to be supplied with full information of local character, the Government proposes that there shall be a Board of Advice in such principal cities of the Commonwealth as may be specified by the Governor-General by notice published in the Gazette. The number of members of any Board of Advice will not be morn than three, and, as far as practicable, Directors of the Bank will act also on Boards of Advice. Each Board of Advice will be required to submit to the Board of Directors, at least once a month, a report in writing concerning the affairs of the Bank in the district in which the Board of Advice exercises its powers. Provision is made for the payment of Boards of Advice at the rate of £200 per year.
The following persons are not eligible for appointment as Directors or members of Boards of Advice, namely : - A Director or officer of any corporation other than the Commonwealth Bank, carrying on business which is wholly or mainly that of banking. Provision is also made in the Bill that directors or officers of the Commonwealth Bank shall not be eligible to receive overdrafts or advances from it.
The Board may appoint from among its members an Executive Committee of not less than three Directors to carry on the business of the Bank between the meetings of the Board.
The merging of the management of the note issue with that of the general management should be of great advantage to the banks* and the business community, because there can be no doubt that the power of issuing notes is a most valuable banking reserve. The new Board will have the power, just as the present Notes Board has, of issuing notes, both in case of emergency and for ordinary business expansion.
Critics of the Note Issue Board have held that it did not function as it should. The Government has perfect confidence in the present personnel of that Board, but recognizes that its powers were scarcely wide enough to enable it properly to handle the banking and exchange difficulties which have arisen during the last few months. The transfer of the note issue to the control of the general management of the Bank should inspire con- fidence on the part of the other banks and the business community generally, and should place the whole matter of the currency upon a satisfactory footing. _The Government will still retain the existing power of bringing the note issue back to the Treasury in case of national emergency, and the profits of the note issue will still come into the general revenue.
The Government feels that further’ capital is necessary to enable the bank Lo function as it should, and to be in a dominating position in the banking life of Australia. The Bank which is to perform the functions of a central bank should have a substantial capital in order to give it due standing and power. The Commonwealth Bank started without any capital, and has accumulated profits amounting to about £4,500,000. It is proposed to capitalize £4,000,000 of these profits, to authorize the Treasurer to raise by way of loan sums aggregating £6,000,000, and to hand over the proceeds to the Commonwealth Bank as additional capital. When the whole sum. has been raised, the Commonwealth Bank will have a total capital of £10,000.000. The Government does not propose to interfere with the authority already included in the Commonwealth Bank Act, under which the Bank may issue debentures up to £10,000,000. It is not expected that the whole of the authorized funds will be raised in the near future, but the Government thinks that legal authority should be given for adding to the strength of this Bank as and when the management finds additional capital necessary. The Bank, of course, will pay the interest on any loan raised by the Treasurer for the purpose indicated.
The Bank of Australasia has total capital and reserves amounting to £7,746,000, and the Bank of New South Wales has similar resources amounting to £10,055,000.
No alteration is proposed as to the distribution of the profits of the Bank. As at present, one-half of the profits, not including the net earnings of the note issue which, as already stated, are payable into the revenue of the Commonwealth, will be placed to the credit of the Bank Reserve Fund, and the other half paid into the National Debt Sinking Fund. .
One of the most important functions of a Central Bank is that of re-discounting, by means of which, under all ordinary circumstances, every other bank is able to convert its bills of exchange into legal tender money. “ During discussions which I recently have had with bankers, they made it clear that the right to get cash in case of need is of the greatest value to banking. Though some of them urged that more legal tender notes be issued, they said over and over again that all they really wanted was the right to get notes in case of need. Their attitude is quite understandable, because unexpected demands may reduce the cash reserves of the most prudent banker to an uncomfortable level. Moreover, whenever a slight monetary stringency manifests itself, there is a tendency for bankers to make every effort towards increase of cash reserves. Thus the stringency is aggravated, unless there is a Central Bank, and the business world is placed under more restrictions than the case really warrants. There can be no doubt that a strong rediscounting Central Bank exerts a steadying influence in this direction, because confidence is inspired by a knowledge that help is at hand, if needed.
Of course the right to get cash from a Central Bank must be given with caution. Otherwise there might be undue expansion, followed by inevitable collapse. The safeguard lies in the power of the Central Bank -to increase its rate of discount and the responsibility of the Central Bank management in this regard is very great, because the whole of the business of the country is more or less under the influence of that rate.
The Government .believes that it is proposing all that can be done by legislation towards bringing about a tine system of central banking, but recognizes that the success of the Commonwealth Bank, acting as a Central Bank, will depend on the skill and foresight of the new Board of Directors. Our bankers are not used to central banking, and the bill system is not yet highly developed in Australia.
The whole matter must be left to thu new Board, which will be required to publish its discount rate only when it finds itself in a position to take up that usual function of a Central Bank. In the meantime, there will be nothing to prevent the making of advances to any bank on such terms and conditions as the Board thinks fit. The Government is satisfied, however, that from the outset the newlyconstituted Commonwealth Bank cannot fail both to support and to co-ordinate the banking of Australia.
Nothing in the Rill has direct reference to the handling of exchange difficulties. All that can be done in this direction is dependent upon the power of the central bank to give ‘assistance to the other banks, and to arrange, with proper safeguards, for the seasonal fluctuation of the amount of currency. These are matters, not for legislation, but for continuous management by an expert Board, which will from time to time take all necessary action after full consideration of all the circumstances, and which will be continuously studying the situation from the point of view of the public interest, rather than from the point of view of profit making. The Bill proposes that the Commonwealth Bank shall be placed in a position of such strength as will enable its Board of Directors appropriately to handle all banking and exchange questions as a Central Bank should.
A provision has been inserted in the Bill, requiring the Banks to settle balances as- between themselves by cheques drawn on the Commonwealth Bank. This will necessitate the keeping by each Bank of some funds with the Commonwealth Bank, and will tend to strengthen the central system. There is to be no compulsion as to the amount to be kept by any Bank at credit with the Commonwealth Bank, but it is hoped that confidence in the new management will bring about the voluntary placing of considerable credits with the Commonwealth Bank, just as is the case with the Bank of England, which holds practically all the cash reserves of tho ordinary banks, and which, in the true sense of the term, is a bankers’ bank.
It is desired that the Banks shall be required to furnish statistics to a Commonwealth authority. The proposal is that the details shall be arranged on a basis similar to that which has been used in the past for statistics furnished to State authorities.
I have now placed before honorable members the proposals of the Government for the complete transformation of tho Commonwealth Bank and the Notes Board into a Central Bank - a Bank of Banks - a Bank of issue, deposit, discount, exchange, and reserve. I trust that I have shown the wisdom and the necessity for the changes, in order to keep pace with the most modern systems of banking in other countries, and to enable our present difficulties of currency and of exchange to be overcome. I feel sure that this change is calculated to facilitate the national production and trade as far as that may be done by banking, and, though the proposed new Act will not work miracles, it will permit the ordinary laws of finance and economics to work as smoothly as possible, and without harshness, towards meeting the growing needs of this great Commonwealth. The changes have not been proposed because the Government has any feeling of dissatisfaction with or any lack of confidence in the present management. The Government believes that the interests of the community have, within the circumscribed powers granted, been well served by the management, both of the General Bank and of the Not© Issue Department. But the time has come to place the Commonwealth Bank in the commanding position which, in the interests of the whole community, a Central Bank should occupy, and I trust that honorable members will give the Bill a quick and easy passage through the House.
Debate (on motion by Mr. CHART,TON adjourned.
page 1292
Honorable Members. - Hear, hear !
page 1293
In Committee (Consideration resumed from 4th June, vide page 1096) :
The Schedule.
Clause 41 agreed to.
Clause 42 -
If a new pastoral lease of any lands is gazetted as open for application before the expiry of the existing lease of the said lands the Board shall, other things being equal, give preference in allotting the lease to the holder of the existing lease, whether that lease is under this Ordinance or under any Act or Ordinance previously in force in the Northern Territory, should he be an applicant for the new lease:
– The House is entitled to some information respecting this clause, which gives a prior claim to the holders of the land at the expiration of the leases in 1965. In another place, Senator PeaTce said -
Provision is made for the holder of an existing lease to have preference in respect of a new lease or portion of a lease where such new lease is made available before the expiry of an existing lease, and also in respect of any block for which he elects to be given preference if the existing lease is subdivided on expiry.
During my second-reading speech I stated that the Bill would effectively lock up the land in the Northern Territory for the next century. In view of the fact that clause 58 practically gives permission to the holders of the leases to nominate their successors in those portions of land which may be resumed in 1935 or 1945, coupled with the fact that by clause 42 they have a further period of claim after the term of the leases expires, I cannot see how it is possible that any of this land will be made available to the public. The Honorable the Treasurer, when discussing this question, stated definitely that it was known that the best of the land in the Northern Territory was locked up under the present leases. That being so, and in view of the fact that clause 58 gives a further extension, or right, for the lessees to nominate successors, and as clause 42 gives them a prior preference at the expiry of the leases in 1965, it is obvious that not only do the lessees get an extension after the year 1965, but that an extension is granted also to those persons who nominate successors to take over their leases should they be resumed in 1935 or 1945. I fail to see how the best results can be achieved from measures of this kind, and should like the Minister to explain this clause. The. remarks of Senator Pearce, when introducing this Bill in another place, made it perfectly clear that these people will have a prior claim at the expiration of the term of the leases. I view with alarm the fact that this clause, and clause 58, makes it impossible for any of this land to be made available to other people. I therefore move the following amendment : -
That the words “ other things being equal, give preference inallotting the lease to the holder of the existing lease, whether that lease is under this Ordinance or under any Act or Ordinance previously in force in the Northern Territory, should he be an applicant for the new lease “ be left out, with a view to insert in lieu thereof the words “ submit the land in question to a ballot of applicants.”
I contend that in the disposal of these, vast areas which are becoming vacant, both at the expiration of the full term of the leases and also in the years 1935 and 1945, the people seeking land should at least be given the opportunity to participate in the land which will then revert to the Crown. My amendment merely provides that the whole of the land must be balloted for. Land in the Northern Territory must be treated differently from land in Victoria or elsewhere. In the thickly populated States large holdings are not to be found. There are in the Northern Territory blocks containing from 10,000 to 12,000 square miles of country of the very best type. It is, therefore, obvious that only inferior land can now be thrown open fox selection. The future residents in the Territory should be given at least a fighting chance to secure a portion of the good land that is contained in those 10,000-square-mile- blocks. The acceptance of my amend ment would not impose great hardship on the present holders. The Northern Territory is largely sheep country. Speaking on this Bill in another place, the Minister for Home and Territories (Senator Pearce) said -
If we can transform this from a cattleraising to a sheep-raising proposition, we shall immediately add tremendously to the population in the Territory, create a demand for labour. … It was an eye-opener to me to see the splendid towns - such as Winton and Longreach - in the west of Queensland Longreach has a prosperous, thriving population, living entirely on the sheep and cattle industries. There are no other industries, no other resources, no other cultivation within hundreds of miles of it. The same conditions apply to Winton.
If it is desired tosettle the Northern Territory with people of the Britishspeaking race, and make them contented, they should at least be given an opportunity to participate in the ballots. It is admittedly fine sheep country, capable of settling hundreds of families even if the size of the holdings were limited to 100 square miles. Honorable members must be seised of the possibilities. The amendment is quite reasonable, and if the Minister accepted it, it would go a long way towards solving the problem of settlement in the Northern Territory.
Progress reported.
page 1294
. (By leave.) - His Excellency the Governor-General has been pleased to appoint Mr. H. E. Pratten as Minister for Trade and Customs and Minister for Health, in succession to the Hon. Sir Austin Chapman, who recently resigned the portfolio on the ground of ill-health.
page 1294
In Committee :
Consideration resumed.
– This provision, to which the honorable member for the Northern Territory (Mr. Nelson) has taken exception, is to be found in all such Ordinances. It merely means that when a lease becomes due for resumption, the Board shall give a preferential claim to the existing lessee, other things being equal. The land is not tied up in any way, nor are other persons excluded from the opportunity of securing it. If the lessee is a good tenant, and is doing his duty, what harm can be done by allowing him to have the first refusal ? There can be no detriment to the Territory if such a course is adopted. I do not think the amendment is at all necessary, and I cannot accept it.
.- This provision has been in existence as long as there have been Crown leaseholds. All the States have enacted it. It does not debar the Board from securing a more desirable tenant. Other things being equal, surely the man who pioneered the country ought to be given some preference! It is a further inducement - and an essential one - to pioneering. I hope that the honorable member for the Northern Territory will realize that it does not act disadvantageously to a genuine new applicant.
.- Although I do not entirely agree with the amendment, I do not think it is fair to grant priority of claim to the holder of the lease.
– That course would be followed only if other things were equal.
– What is the meaning of the phrase “ other things being equal ?” If the intention were clearly setout, I could understand it. One cannot say what is meant.
– If the original lessee is an undesirable man, the Board need not grant him a renewal of the lease.
– That is quite right, but there is nothing in black and white to show it. What is a proper interpretation of the words “ other things being equal “ ?
– What would the honorable member suggest?
– There should be some discrimination between the man who holds one lease which is expiring, and the man who holds several large leases, one of which is expiring.
– In this case the principle of large areas is not involved.
– Yes it is. The lessee whose lease is expiring may hold half a dozen other leases covering a large area, yet under this clause he will have the right to a renewal of the expiring lease. The question is whether the best interests of the Territory will be served by allowing the holder of half a dozen leases to shut out a genuine applicant for a lease which may be expiring.
– Other things would not be equal in that case. The clause has been inserted to meet a case such as that which the honorable member has mentioned.
– My point is that it does not meet such a case.
– Would not the same difficulty arise if there were half a dozen applicants, five of whom were entirely new men ? The Board would be obliged to pick out the two they considered would be the most desirable, and one of those two might be the man actually in occupation. The clause provides that in such circumstances he shall be given priority. Surely that is fair?
– If a lessee has half a dozen leases, and one is falling due, and if for that lease there are half a dozen genuine applicants who are not holders of any land in the Territory, but are desirous of settling there, surely they should have the right to go to a ballot with the man who has held the lease for some time along with half a dozen other leases. I cannot see why, in such circumstances, the occupier should have a preference over those who have no land. The phrase “ other things being equal “ does not cover that aspect of the question.
– It has been inserted in the clause for the very purpose of covering what the honorable member wants it to cover.
– I do not doubt that, but sometimes the words we insert in a Bill do not cover what we have in mind, and I do not think these words cover what I have in mind. In the near future there may be hundreds of people anxious to settle in the Territory, and it would be unfair to them, and also against the best interests of tha Territory, if they were to find that the land was all held by certain individuals. If the holder of a lease who already has other leases can continue to hold on to it for a number of years, there will be no chance for other settlers to get land. In the States the unjustifiable preference which has been given to certain people has practically disqualified others from getting land.
– Would the honorable member make a person who already holds a lease ineligible to get another lease so long as there is another applicant for it who has no land already?
– I would make a man ineligible if he already holds sufficient land, and is not developing it in the best interests of the Territory.
– That is begging the question.
– It isnot. In many parts of Australia the lessees are not developing their land in the best interests of the country generally. That is very undesirable.
– Hear, hear !
– In such circumstances, there would be no equality between a new applicant and the present holder.
– I quite admit that. This phrase - “Other things being equal” - crops up in other legislation, and has not given satisfaction. No one can determine whether or not other things are equal.
– It is a lawyer’s phrase.
– Yes. It has been introduced into industrial arbitration law, but in practice it has been found impossible to carry it out. In the administration of the Repatriation Act, where it occurs it creates a great deal of difficulty. Realizing that it is not likely to give satisfaction in the Northern Territory, the honorable member for the Northern Territory is asking the Committeeto have its meaning made clear. If a man holds large areas of land it is questionable whether he should have preference over any other person, and there is no reason why he should not be compelled to go to a ballot with other applicants for his expiring lease. Let him take his chance with the others.
– The ballot system is the most vicious system conceivable. It should be the duty of the Lands Board to eliminate all undesirable applicants. It is created for that purpose.
– I hope that the honorable member realizes the difference between the amendment and what I am contending for. The amendment goes too far, to my mind, but at the same time I regard the words “other things being equal “ as unsatisfactory. Men who. hold large areas under lease should not have preference over genuine applicants for an expiring lease, but by means of a ballot should be put on the same level as these others. I would certainly give a man who holds one lease only; and has been doing good work on it, the preference for a renewal of his lease, but the case is entirely different when the holder of the expiring lease also holds five or six other leases.
– In such a case other things would not be equal.
– That is just the point. Every honorable member agrees with me that in such a case other things would not be equal, but the officials administering the Ordinance would take it that a preference to the existing lessee was implied by this phrase.
– That would be quite right if the lessee had looked after his land satisfactorily.
– But it would not be quite right if he was the holder of -five or six other areas, and if a renewal of the expiring lease would prevent some genuine settler from having a chance to settle in the Territory. The man who is a holder of several leases should not be given priority, or, at any rate, should ballot with others who are seeking the opportunity to take up land in the Territory. If the ballot system be not adopted in such cases, the Territory will be left in the hands of a few individuals. We are told that it contains a lot of land suitable for agriculture. If a few people can lease all that land, provision should be made to give others an opportunity to get in when the existing leases expire. We want thousands of settlers in the Territory.
– There is no scarcity of land there.
– The Territory contains certainly a large area of land, but the best of it has been taken up in large areas by certain people. If settlers are to be successful they must have a reasonable chance, and that can only be ensured to them if they are placedon suitable land. This clause would be an instruction to the administration that, in regard to a renewal, the holder of a lease that was expiring should have preference. I do not think that is right.
– How would you discriminate between one man who might be quite desirable and others?
– That is the difficulty. How will it be possible to discriminate with this provision as to “ other things being equal “ ?
– The Board will have that responsibility.
– The Board, interpreting the clause, will give the holder of an expiring lease the preference.
– And rightly so.
– If that man had only one lease, I would have nothing to say against preference being given to him. But I do object to preference to a man who may be holding five or six different leases to the disadvantage of genuine intending settlers. If a man takes up a lease and spends time and money on improving the land, and is the holder of only one lease, he certainly should have preference in a renewal of that lease, or else receive compensation.
– Does not the honorable member think that the Lands Board would do the right thing?
– I have my doubts, because the Lands Board must be guided by the language of -this clause.
– It would be guided not only by the legislation, but by the conditions obtaining at the time as to the number of people looking for land and the land available.
– I think the Board would so interpret this clause as to give preference to the man who held an expiring lease. I agree that the Lands Board should be guided by the conditions obtaining at the time, but in practice that is not always done. Wherever these words have appeared in our legislation they have been interpreted to mean preference for those holding existing rights. I want this matter to be put right so that the Board may be in a position to provide for new settlers in the Northern Territory. I believe it is possible, if we provide the necessary facilities, to settle as many people there as have been settled in the other States of the Commonwealth. It is all a question of expenditure. We shall have to spend the money either in the Northern Territory or in the other States. We cannot expect people to take up land unless we offer them reasonable inducements. I do not agree with the amendment as drafted. The duty of the Board in regard to expiring leases should be more definitely stated.
.- Two distinct conditions are involved in this clause. In the early days of Lands Board administration - I speak of the practice 40 years ago - there were, no doubt, many doubtful transactions in land, but for the past 20 or 30 years the position has been quite satisfactory. The first portion of the clause refers to a pastoral lease - one lease - that is open for application, and the provision that, “ other things being equal,” preference shall be given to the holder of the existing lease, is an essential safeguard.. If other applicants for the lease had no land, and if the holder of the expiring lease had other leases, the Lands Board would quite properly say that the conditions were not equal, and this safeguard in the clause would enable the Board to come to a just decision. All undesirable applicants will be eliminated, and it naturally follows that, if the original holder of a lease is not disqualified by holding enormous areas of other land, he should have the preference. The second portion of the clause deals’ with an existing lease which, in the public interest, is being subdivided into several blocks, so as to ensure a large number of desirable settlers. In that event, other things being equal, it is right, from every point of view, that the original holder of the lease should have first choice. I have never yet known a Lands Board to refuse the original holder of an estate that has been subdivided the right to one block:
– I am not complaining of that.
– That is what the clause provides. The provision, “other things being equal,” has been inserted as a result of experience of land settlement in all the States.
– I submitted my amendment with a view to obtaining some information as to the effect of clause 58, about which I am very much concerned, and which deals with matters similar to those dealt with in this clause. The only thing I am concerned about is the making of land available for settlement. I recognize, with the honorable member for Wakefield (Mr. Foster) that the man who pioneers a lease is entitled to preference on its renewal, but the matter is not quite so simple in the case of the subdivision of a lease. There are many cases in which mcn hold five, six, or seven leases, each of an area of from 500 to 1,000 square miles, and in the event of the subdivision of any of those leases, I contend that opportunity should be afforded for the taking up of land by new settlers. This clause, in conjunction with clause 58, has given me great concern. I feel that I can now withdraw my amendment, as it can be more appropriately submitted when we come to deal with clause 58. Some of the best land in the Northern Territory is now locked up, and will remain locked up until 1935 or 1945, and it is doubtful whether some of it will be available for settlement even then.
– I hope that many of the leases will be subdivided before then.
– The Minister must bear in mind that no improvement conditions are to be imposed in any of these leases. Sub-clause 1 of clause 58 provides that -
The Minister shall, on the request of a lessee made at least two years before any date of resumption, in lieu of resuming any land held under a lease, permit the lessees to subdivide for closer pastoral settlement purposes -
An area included in the lease approved by the Board as being equivalent to that which the Minister would be entitled to resume; and
Any further area.
The clause goes onto define what the Minister may do in such cases, but in view of the fact that no improvement conditions are imposed, it may be a very simple matter for a pastoralist to find a person whom he can nominate for the area resumed from his lease. That is the kind of case I want to deal with, and I desired to know whether the clause now under consideration, in conjunction with clause 58, would not have the effect of practically extending the tenure of existing lessees indefinitely. Now that the effect of this clause has been explained, I ask leave to withdraw my amendment with a view to submitting it when we come to consider clause 58.
Amendment, by leave, withdrawn.
Clause agreed to.
Clauses 43 to 49 agreed to.
Clause 50 (Surrender of existing leases in exchange for leases under Ordinance).
. -This is the first of a number of clauses which embody the new principles sought to be introduced by this Ordinance. Under this clause holders of existing leases have three yearsfrom the commencement of the Ordinance before being required to surrender their leases for new leases. This will give to Australian representatives of lessees like Vestey Brothers and
Others, who may have their head offices in some other country, an opportunity to consult with their principals to see if they wish to apply for new leases. In sub-clause 2 of the clause provision is made for consolidated leases.
Mr.Nelson. - Whether the lands covered by the lease are in actual contact or not.
– That is so. In sub-clause 3 there is a definite recognition that improvements on existing leases exchanged for leases under this Ordinance are the property of the lessee. I think (that the clause will offer great inducements to lessees to meet the desire of the Government to bring about some form of closer pastoral settlement, in order that lands in the Northern Territory may be put under sheep, and the productiveness and wealth of the Territory increased.
Clause agreed to.
Clause 51 agreed to.
Clause 52 (Rental of leases exchanged for lease existing at commencement of Ordinance).
– Under sub-clause 1 of this clause the rentals of all leases under the new Ordinance issued in exchange for existing leases under both the present Ordinance and the South Australian Acts are fixed for the first period of the lease ending on the 30th June, 1935, the date of the first re-appraisement. As an additional inducement to holders of existing leases to promptly surrender their leases and come under the new Ordinance, it is proposed that the rents now being paid under those leases shall continue unaltered until the 30th June, 1928. After that date the rents determined by paragraphs a andb of the sub-clause will operate. Paragraph adetermines the rentals for each district that shall apply during the period 1st July, 1928, to 30th June, 1935, to all pastoral leases issued under this Ordinance in exchange for leases granted under South Australian Acts. It should be noted that in respect to these leases only a flat-rate rental has been determined. The reasons for that are that the bulk of the leases give absolute tenures ranging from sixteen to twenty years still to run at low rentals, without any reappraisement during that period, easy stocking conditions, and lock up large areas of the best pastoral country for the periods mentioned. In order to induce the holders of these leases to come under the provisions of this Ordinance, which provides for the resumption of half the area now held at stated periods, and more frequent re-appraisement of rentals, it was considered necessary to prescribe a flat-rate rental for each district. The minimum rentals so fixed are greater in each district, with the exception of No. IV., the Alice Springs District, than the average annual rental now being received from these leases, as may he gauged from the following figures. In No. I. District the area at present occupied under South Australian leases is 11,325 square miles, which yields an average annual rental of 1s. 8d. per square mile. In District No. II. the area occupied is 40,102 square miles, and the average annual rental is 1s. 6d. per square mile. In District III. the area occupied is 28,446 square miles, and the average annual rental1s. 5½d. per square mile. In District IV., the area occupied is 16,373 square miles, and the average annual rental 2s. 6d. per square mile. The reason for the high average in District IV. is that most of the leases in this district, comprising thearea mentioned, were granted under the South Australian Act of 1899, which provided for reappraisement at the end of the first 21 years. The present rents are the result of the final re-appraisement which was effected about three years ago. This paragraph deals with leases granted under the existing Ordinances, and prescribes that the rentals of leases exchanged for leases under this Ordinance shall be fixed by the Board in accordance with the provisions of sub-clause 2, and within the limits determined in paragraph b of sub-clause 1. The principal reasons governing the determination of these minima and maxima are as follow : -
The present position regarding the lands held in each district under leases subject to the existing Ordinance is as follow: - In District I., the area occupied is 19,693 square miles, and yields an average annual rental of 2s. 4d. per square mile. In District II., the area occupied is 11,009 square miles, and the average annual rental is 2s. per square mile. In DistrictIII., the area occupied is 28,791 square miles, and the average annual rental is 2s.10d. per square mile. In District IV., the area occupied is 23,095 square miles, and the average rental is1s.11d. per square mile. It will be noted that these average rentals approximate generally the prescribed’ minima, but it is also pointed out that certain leases in each district are now yielding rentals approximating the prescribed maxima. This occurs notably in the Barkly Tableland District, and may be explained by the fact that these leases include improvements owned by the Government, necessitating increased rentals. A further concession to holders of leases under the existing Ordinance is contained in the proviso to paragraph 6, which empowers the Board to fix a minimum rental lower than that prescribed in this paragraph, where the quality of the land does not warrant the payment of the prescribed minima rates.
– Quite a lot of consideration has been given to the average rentals. It would be interesting to have a comparison of the average rentals under the Commonwealth Ordinances and the South Australian Acts.
– I think that information has already been supplied.
– I have not heard of it, and it certainly has not been given in this House. Under the Commonwealth Ordinances rentals of 5s. a square mile are paid, but under the South Australian Acts for similar or even better land, rentals from 8d. to 1s. 6d. per square mile are charged. I fail to see why this discrimination should be made. Notwithstanding that the Minister emphasized the point that the Government are trying to induce the land-holders to come under the new Ordinance by giving them very attractive terms, I contend that the extension of these leases - which are fast expiring - to the year 1965, gives ample consideration to the lessees. In any case, the consideration meted out to leaseholders under South Australian Acts should not be greater than that given to existing leaseholders under Commonwealth Ordinances, or to subsequent leaseholders. The clause provides that in the case of the lease granted in exchange for a. lease granted under an Act of the State of South Australia, the rental in the Darwin and Gulf district shall be 2s. per square mile, and in the case of a lease granted in exchange for a lease granted under the Crown Lands Ordinance 1912-18, the annual rental in the Darwin and Gulf district shall be not less than 2s., and not more than 6s. per square mile. The maximum of the former is the minimum of the latter.
– Does not the honorable member see that in the first instance the clause deals with the leaseholder who has, under the agreement, surrendered portion of his lease.
– Does the honorable member contend that the Government must offer attractive conditions to induce the leaseholders to surrender their leases? Mr. Foster. - Precisely.
– Those were the best terms that we could secure.
-The South Australian Acts are fast expiring.
– They are not.
– None of them have more than 21 years to run.
– Would you call those fast expiring leases.
– Certainly, especially when there is in existence an Act under which the leaseholders can be forced to improve their holdings.
– The honorable member wants to retard the development of the Territory and the increase of its population. It is a shocking stand to take up.
– I stand second to none in the desire to participate in the formation of a constructive policy for the Northern Territory, but I refuse to subscribe to a stranglehold policy which will lock up the land indefinitely.
– The honorable member is simply doing that, and does not know it.
– That is not so. There is a decided, preference shown in this clause. Notwithstanding that these leases comprise the best holdings in the Northern Territory, and that by surrendering them and coming under the new. Ordinance, the lessees can gain an extension to the year 1965, they are also to receive consideration in regard to rentals. In No. 1 District, for the areas held under the South Australian Acts, the maximum rental is to be 2s. per square mile, but in respect of land held under the Commonwealth Ordinance 1912-18 the maximum rental is to be 6s. per square mile. It is not fair to discri minate in that way. Then, in the Victoria River District, the rental in the case of a lease granted in exchange for a lease held under the South Australian Acts is 2s. 6d. per square mile, but in the case of land held under the. Commonwealth Ordinance it is not less than 2s., a.nd not more than 6s. per square mile. There again is a distinction, which becomes greater in the Barkly Tableland District. There, for leases granted in exchange for those held under the South Australian Acts, the maximum rental is 2s. per square mile, but in respect of land held under the Commonwealth Ordinance, it is not less than 2s., and not more than 8s. per square mile. There is no reason why one of two areas side by side should be rated at 8s. per square mile, and the other at a maximum of 3s. per square mile. The consideration which the lessees have been already given in the form of an extension of the leases should be sufficient compensation for consenting to come within the scope of this Bill. I move -
That paragraph (a) of sub-clause (1) be omitted with a view to inserting in paragraph (b) after the figures “1912-18” the following words : - “ or leases granted in exchange for a lease granted under an Act of the State of South Australia.”
My object is to place the whole of the lands in the Northern Territory on the same rental basis. If settlement is to be encouraged all land-holders must receive equal treatment. I have not much hope that the amendment will be agreed to because the big interests behind this Bill are too strong, and they will see that the party whip is cracked in order to defeat my proposal. There can be no reasonable objection to an amendment which aims at placing the lessees under the South Australian Act and the Commonwealth Ordinance upon the same footing.
– The honorable member for the Northern Territory is objecting to what he regards as preferential treatment of the lessees under the South Australian Act. If the Commonwealth had full control over all the lands every leaseholder would be placed on the same footing, and the rental would be fixed according to the grading of the land. But, unfortunately, that is not the position. The South Australian lessees hold large areas of the best land, and their leases have still many years to run.
– Some of them will expire in eight years.
– And other leases covering some of the best land have a currency of a further twenty-one years. We have made as good a bargain as was possible with the South Australian lessees, and if they have fared better than the lessees under Commonwealth Ordinances it is because they were in a position to drive a harder bargain. If the amendment were agreed to, and the lessees under the South Australian Act were obliged to pay higher rentals, they would probably decide that it was better for them to remain under the State laws, and, in that event, they could not be brought under this proposed Ordinance until their leases expired. Is it desirable that by such a policy the land they hold should be locked up for another twenty years, when we have some assurance that if the Ordinance in its present form is enacted they will transfer, and subdivision and settlement will proceed?
– If those lessees refuse to come under the Commonwealth Ordinance the Government can enforce the improvement conditions.
– Yes, but those conditions are not as stringent under the South Australian Act as under the Commonwealth Ordinance, otherwise the lessees would have been prepared to make an easier bargain withus. The Government will be very glad to hear any suggestions as to how a better arrangement could have been made for those lessees to come under the Commonwealth Ordinance, and have their land subdivided.
.- I resent the insulting reference by the honorable member for the Northern Territory (Mr. Nelson) to big interests and whip, cracking. The honorable member would better serve the Northern Territory if he had a proper appreciation of the existing conditions, and did not seek to impose new conditions that would absolutely block development. There has been no whip cracking, and no external influence has been exerted upon honorable members in connexion with this Bill. What the people of the Commonwealth most desire is the development and utilization of the Northern Territory. I am satisfied that the residents of the Territory will resent keenly the attitude of their representative when this Parliament is seeking by every means possible to promote settlement and development. In connexion with the
South Australian leases, the rental fixed is part of the condition of surrender, and if that is not a sound principle, what is? If we interfere with that basic condition, which is to lead to the surrender of leases and increase the number of settlers, we might as well tear up the Bill. The honorable member for the Northern Territory is wrong in saying that the South Australian leases are fast expiring. The South Australian Department of Lands, the Surveyor-General of which was formerly Surveyor-General of the Northern Territory, approves of this Ordinance, and the officials are surprised that the conditions offered by the Commonwealth have been accepted by the lessees.
– It has been repeatedly stated during the debate that those holding the best land in the Northern Territory are making a sacrifice. The honorable member for Wakefield (Mr. Foster) knows that that is not the case.
– That is the interpretation placed upon it by the honorable member.
– The fact that the Minister in charge of the Bill (Mr. Atkinson) has said that something has to be done to make the lessees surrender supports my contention. The bulk of the leases are fast expiring, but under this measure the lessees can continue in possession until 1965. The Minister suggested that the lessees would not come under this Bill unless some inducement were offered, but the Commonwealth should be in): a position to force them to act in a manner beneficial to the Northern Territory. Ths Minister is aware that those holding leaser under the South Australian Acts can be compelled to fence their holdings and comply with other conditions.
– There are no improvement conditions.
– I say emphatically that there are. The Minister is confusing this question with that of resumptions under South Australian Acts.
– Improvement conditions are not imposed.
– I am not satisfied with the Minister’s statement. Under the South Australian Act there are conditions, quite apart from those in relation to stocking, because the Minister stated thaiit was impossible for some of the holders to comply with the conditions imposed. Under the Commonwealth Ordinances the Government have the right to resume and to impose stocking conditions. The holders of the areas mentioned in the Bill will receive a big concession if their leases are extended to 1965. The honorable member for Wakefield said that I did not appreciate the position in the Northern Territory, but I have a fuller appreciation of the situation than has the honorable member. I am not representing the interests of those in the Northern Territory whose cause the honorable member for Wakefield is advocating. I was sent here by the small pastoralists in the Northern Territory, and not by the Kidman interests. This clause in its present form will act very harshly upon those who have to carry on under arrangements subsequently made, or who have taken up land under Commonwealth Ordinances. In some cases there is a discrimination representing a difference of 300 per cent, in the rentals to bc paid for areas in the Barkly Tableland. The rental under the South Australian Acts is 3s. per square mile, and under the Commonwealth Ordinance it is to be not less than 3s. and not more than 8s. per square mile. There is, of course, a proviso, which reads -
Provided that where it appears to the Board that the average quality and capabilities oF any land in any district, do not warrant the payment of a rental as great as the minimum rental prescribed for that district by this paragraph, the Board may fix a rental for that land lower than the minimum so prescribed.
That provision refers only to the minimum, and has- no bearing on the maximum rental which may be charged. In ten or twenty years the value of the land may have altered considerably. The Minister has stated that if the minimum is reduced the maximum is of no consequence; but such is not the case. The maximum under the South Australian Acts is 3s., and under the Commonwealth Ordinance up io 8s. per square mile, The latter rate could subsequently be enforced if the Board thought fit. The rentals should’ be uniform, particularly when the land is situated in the, same district, and is of similar productivity. The measure has been framed in the interests of those who are holding the best of the land in the Northern Territory.
.- I am inclined’ to support the amendment moved by the honorable member for the Northern Territory (Mr. Nelson), unless the Minister in charge of the Bill (Mr. Atkinson) ‘can give a valid reason for opposing it. It is provided that in the case of leases granted in exchange under Crown Land Ordinance 1912-1918 the rentals shall range from 2s. to 6s. per square- mile. I should like to know why land in the same locality is not to be leased at a similar rental. I am rather in favour of the higher amount, because I think it is necessary that when the leases expire a higher rental should be fixed, and it is necessary to have a wider range. In sub-paragraph i of paragraph a of sub-clause 1 the rental in the Darwin and Gulf district is fixed at 2s. per square mile, whereas it is provided .in subparagraph i of paragraph b of the same clause that the rental in the Darwin and Gulf district is to be not less than 2s. and not more than 6s. per square mile. In each instance the land is situated in the Gulf and Darwin district, and it may have the same potential value. Some valid reason ought to be given by the Minister for refusing to accept the amendment. A larger opportunity ought to be retained by the Commonwealth to charge, if necessary, the maximum for rental. In the first portion of the clause, as the honorable member for the Northern Territory (Mr. Nelson) has pointed out, the rentals will be fixed on a minimum basis. Why should any distinction be made between similar areas? Why should we specify the Darwin and Gulf District, the Victoria River District, the Barkly Tableland District and the Alice Springs District in one clause in a way that is different from that in which the same areas are dealt with in another clause? An opportunity is now provided to appraise the land at its worth. I do not accept the view of the honorable member for Wakefield (Mr. Foster) that the proposed rentals will be on a bed-rock basis for all such leases.
– They will be the bedrock of a bargain that is made for surrender.
– We are proposing to make a new bargain for surrender.
– And a good one, if the Committee will accept the clause as it stands.
– I cannot see why there should be any objection to the amendment. I am inclined to think that the 2s. basis is too low. It will give to prior leaseholders, who have had the country for many years, land at the old fate, while new leaseholders will have .to pay up to 8s. per square mile for it.
– The discussion on this clause reminds me of the time when the Mallee district of Victoria was leased for 2s.6d. a square mile. I endeavoured to secure a provision so that a family could get one square mile at the same rental, but the Conservatives of that day would not hear of it. The Lascelles group did good work in the Mallee, I admit, but they ought not to have been allowed to hold land at 2s. 6d. a square mile when the head of a family could not get it at the same price. The democrats of the time fought hard on the question, and the Age tried to prevent the unjust aggregation of large areas in the hands of a few people. The clause reads -
Here is where the danger comes in, for the clause proceeds to set out conditions applicable “ in the case of a lease granted in exchange for a lease granted under an Act of the State of South Australia,” and in the Darwin and Gulf Districtthe rental is fixed at 2s. per square mile. I maintain that all leases should come under the same rule for reappraisement, and therefore I support the amendment. Every honorable member will admit that the Commonwealth leases are more just to the men who have smaller opportunities than to those who hold 15,000 square miles. It is outrageous that when human beings are overrunning the countries of the earth, combines should he able to obtain, at a small nominal rental, 15,000 square miles of country.
Progress reported.
page 1303
Message recommending appropriation reported.
page 1303
Honorariums to Civil Servants - Seaworthiness of s.s. “Port Lyttleton “ - Arbitration Court : Plaint of Iron Trade Workers.
Motion (by Dr. Earle Page) proposed -
That the House do now adjourn.
.- I wish to direct attention to the question referred to by the Prime Minister to-day. of honorariums paid to certain officers of the Wool Committee. Members of the party sitting on this side of the House hope that the payment of these amounts will not be regarded as a precedent. It is a dangerous thing for officers who axe paid to do the work of the Government, and are supposed to be adequately paid, to accept from the Wool Committee, or from any other body, a sum: of money for services rendered. I have nothing to say against the officers in question; they are very good officers, but their services should be rendered to the Government alone, not to some body outside the Government, and particularly not to a body like the Wool Pool, which made a clear profit of £30,000,000 over and above the flat rate of 15½d. per lb., which was considered to be a fair price for the wool. It is regrettable that the Government should have countenanced such a payment. That it did so is shown by the Commonwealth Gazette of the 19th February, 1920. which reads -
Permission has been given for the undermentioned officers to accept and retain the amounts specified which have been granted by the Central Wool Committee in recognition of services rendered by them in connexion with the Commonwealth wool scheme.
The details of the payments are then given. It is not in the best interests of good government that officers of our public Departments should do any work for outside bodies, and I think that the Government of the day acted wrongly in permitting those officers to accept these sums. The transaction occurred during the regime of the Hughes Government. The gentleman who obtained the largest amount of money had subsequently to decide what amount the Wool Committee should receive from the Government in settlement of a certain claim it made. He was put in a very wrong position.
– A most unfortunate position.
– That is so. I cannot allow this matter to pass without registering my protest, so that the people of Australia may know that we at least are not parties to it. The Labour party does not agree with it, and I hope the like of it will never occur again in the administration of this or any other Government.
– I wish to refer to the question of the unseaworthiness of a vessel known as the Port Lyttleton, one of the Commonwealth and Dominion liners. It struck a reef near Tasmania, and put into Beauty Point in a very leaky condition. It was, however, allowed to proceed on its journey. The leak developed subsequently to such an extent that the boat was making 100 tons of water per day in spite of the fact that the pumps were worked continuously for twelve hours daily.. The vessel made for Flinders Island as fast as possible, and after some temporary repairs had been effected she limped on to Sydney. At Sydney the seamen demanded that she should be properly repaired, but for weeks and weeks the Navigation Department humbugged about the matter, putting pressure on the crew, and eventually a number of the men were put in gaol. Now we find that on account of the attitude taken by the Seamen’s Union in Sydney, the Navigation Department has refused to issue a certificate of seaworthiness in respect to the boat. This is a matter of great importance, for it involves the lives of seamen. What we wish to know is what explanation the Department has to offer in respect of the certificate of seaworthiness issued to the captain of the boat prior to her leaving Beauty Point. She was then in a worse condition, if anything, than at. present; yet the Navigation Department,; through one of its officers, issued a certificate which permitted her to leave Beauty Point. . The., vessel would probably, have been allowed, to go to sea from Sydney, also, had it not been for the vigorous and determined pr.ov test made by the members qf the Seamen’s Union. I hope that the, Prime Minister will see that a thorough investigation is made. into this matter, and. that the officer, who issued .the certificate at Beauty Point will be obliged to give some explanation of why he. did. so. If a satisfactory explanation is not forthcoming he should bo punished in a suitable manner.
– This matter has already received careful attention from the. Navigation Department. Some aspects of it have not been referred to by. the honorable member for Dalley.
– I am aware of that. I did not refer to the case fully, because there was not time to do so.
– I prefer at- present to leave the matter where it is, with a view to making a full statement next week.
.- I wish to direct the attention of the Attorney-,General to the fact that serious concern is being caused among members of the Amalgamated Engineering Union, the Australasian Society of Engineers, the Blacksmiths Union, the Boilermakers Union, and the Federated Moulders Union in consequence of the. delay that has occurred in hearing their plaint in the Federal Arbitration Court. The case was submitted to the Court on the 14th December last year, and the delay that has occurred is likely to precipitate an unfortunate crisis in the iron trade. No finality has yet been reached in the matter, although the award terminated on the 31st December last.
– I think I stated last week, in answer to the honorable member for Reid (Mr. Coleman), that a date had been fixed for hearing that case.
– The trouble is that the date fixed is the 23rd June, and the Court goes into vacation on the 28th June,, so that it will be impossible to conclude the hearing before the vacation. I ask, the Attorney-General to see whether the ^matter can . be hurried up so that the., case may . be. finalized before the vacation.
– If the statement made by the honorable member for Dalley . (Mr. Mahony) respecting the unseaworthiness of the Port
– I much regret the remarks that have been made by the Leader of the Opposition (Mr. Charlton) in connexion with the honoraria given to certain officers of the Crown Law Department. He referred to payments which were madeby the Central Wool Committee to three officers of the Commonwealth who rendered very special service during a period of great difficulty. A tremendous amount of work fell upon the shoulders of’ those officers. I should not have offered any protest had the honorable member taken his objection at the time the payments weremade.
Mr.Cunningham. - We do not always know the full significance of payments like these at the time they are made.
– It was done in the dark.
– The payments were made with the sanction of the Government of the day. The proposal to make them was submitted to and approved by the Governor-General in Council, and the details were then published in the Commonwealth Gazette. There has been no secrecy over the matter, for it is generallyknown that these payments were made. Last night, the honorable member for Gwydir (Mr. Cunningham), in discussing a question concerning the action of the Central Wool Committee., said that there was a sinister aspect to it, or he certainly implied that, by saying that it was known that large payments had been made to highly-placed officers. He did not substantiate the’ statement by giving the facts, but he conveyedthe idea that something very improper had been done.
– So it was.
– He put the matter in such a way as to link it up with the transaction that we wore then considering. The honorable member was grossly unfair to responsible public servants, and his statement did not do him credit. What I am particularly concerned about is that tho suggestion should to a great extent have been supported by the Leader of the Opposition (Mr. Charlton).
-I was replying to your statement. I heard of this payment for thefirst time to-day, and I wished to place on record my. objection to it.
– The remarks of the honorable memberappear to put an even more sinister aspect on the whole transaction. If the Leader of the Opposition did not know of the payments he should have known of them He knows what one of his followers said last night. The honorable member for Gwydir imputed improper conduct on the part of somebody, and the Leader of the Opposition.seizes upon this moment to utter his protest against the payments. The obvious desire is to give the public the impression that something quite improper has been done. That is grossly unfair, and is not, from what one knows of tho Leader of the Opposition, the conduct one would expect of him. I can only reiterate that a very unfair reflection has been cast upon responsible officers of the Commonwealth Service who have done invaluable work for the community.
Mr.Charlton. - I reflected on the Government, not on tho officers. I saidI hoped that this payment would not. be accepted as a precedent. It is a very wrong procedure.
– The honorable member may have desired to reflect on the Government, but the effect of his action is to support the grossly unfair charges made last night by the honorable member for Gwydir. Let me remind honorable members opposite that it is unreasonable for them to take the stand they are now trying to adopt, because not one of them has suggested that the Solicitor-General’s’ attitute towards the contract we have been discussing might hare been influenced by the payment.
– He should not be put in such a position that there could beany doubt about hisattitude. Such a thing would not be allowed by any other. Government.
-For some years I have had opportunities to- observe the work done by the responsible senior members of the Commonwealth Service, and I greatly resent imputations of the character made last evening, which imputations are now, whether intentionally or otherwise, having’ weight given to them by the Leader of the Opposition. I am not much concerned about the opinion of the honorable member for Gwydir, but I do deeplyregret the stand taken by the Leader of the Opposition.
Question resolved in the affirmative.
House adjourned at 4.20 p.m.
Cite as: Australia, House of Representatives, Debates, 13 June 1924, viewed 22 October 2017, <http://historichansard.net/hofreps/1924/19240613_reps_9_106/>.