12th Parliament · 1st Session
Mr. Speaker (Hon.Norman Makin) took the chair at 3 p.m., and offered prayers.
– The Melbourne Age of the 25th June publisheda cabled summary of an editorial in the National Review. The summary states -
The article cites the opinions of Mr. Reginald McKenna, Mr. J. F. Darling, Lord d’Abernon, Sir Felix Cassel, and Sir Henry Deterding againstthe gold system, which was responsible for the prices catastrophe.It appeals to Canada, Australia, New Zealand, and South Africa to bring pressure to bear on Britain to reconsiderher monetary policy, the artificial manipulation of which caused in the dominions a veritable Slough of Despond, and robbed primary producers of 40 to 50 per cent of their property. Retrenchment sacrifices were of no avail against the folly of burying the world’s gold in the United States and France.
Does the Treasurer agree with the conclusions of the writer,and, if so, will the Government consider the advisability of urging the United Kingdom to alter its monetary policy?
– On more than one occasion I have reiterated the opinion that the return to the gold standard by Great Britain in 1925, and subsequently by Australia and other countries was a mistake. The too-sudden attempt to return to pre-war prices and standards caused excessive deflation, and economic chaos, necessitating wage reduction. We are still experiencing the evil consequences of that mistaken policy. I do not know that representations by the Commonwealth Government to the British Government would avail, for it must be acknowledged that the British Government docs not determine international monetary policy; in that regard, it finds itself, I am afraid, almost as helpless as the Commonwealth Government is in the determination of monetary policy.
– I ask the Prime Minister if the travelling allowances payable to Ministers when absent from Canberra on official business are paid for whole days or parts of days; if for parts of days, does a Minister leaving Canberra on Friday at 4.30 p.m. for Sydney or S.30 p.m. for Melboume receive the full allowance of two guineas for that day?
– A Minister or public servant travelling on official business receives a daily allowance, but Ministers travelling from Canberra to Melbourne or Sydney at the week-end for private purposes do not claim such allowance, nor would it be paid if claimed. As I said on a previous occasion, not one-third of the amount which Ministers are entitled to receive has been claimed by them.
– I ask the Prime Minister whether, if a member has ceased to belong to the party which he was elected to support, he receives the same parliamentary allowance as do those who remain true to their pledges and principles?
Question not answered.
Mr.CROUCH.- Has the Prime Minister read the newspaper reportthat the Dominion Government of Canada has conferred with the provincial Governments regarding the proposed Statute of Westminster? Having regard to the importance of the proposed statute in relation to our national position and status, does not the right honorable gentleman consider that the promised legislation for its adoption should be introduced in this Parliament at an early date?
Mr.SCULLIN. - I agree with the honorable member. I was prepared to submit a report on the Imperial Conference a few weeks ago, and immediately afterwards the Attorney-General would have made a motion to approve of the Statute of Westminster. The Melbourne conference intervened, however, and kept me and other Ministers busy for three weeks; since it concluded we have been closely engaged on the special legislation arising out of the decisions of the conference. As soon as this Parliament has disposed of the emergency financial measures, I propose to submit a brief report on the Imperial Conference, and the Attorney-General will then move a resolution to approve of the Statute of Westminster.
– Before taking action in this Parliament to approve of the Statute of Westminster, will the Commonwealth Government confer with the State Governments?
– I do not think that there is the same need for conference between the Commonwealth and State Governments as there was for conference between the Dominion and Provincial Governments of Canada, hut I shall let the State Governments have early advice of the action which the Commonwealth Government proposes to take.
– I ask the AftorneyGencral if the appointment of Captain N. C. Roskruge, Deputy Director of Navigation and Lighthouses in Queensland, as licensing officer for the Port of Brisbane, under the Transport Workers
Act has been cancelled. If so, will the Minister state the reasons for the cancellation of the appointment?
– The appointments of the licensing officer at Brisbane and of other licensing officers have been cancelled.
– In connexion with the re-issue of new licences in conformity with the regulations special work is involved, and officers have been appointed to devote their whole time to it.
– Have these officers any functions to perform other than the issue of licences under the Transport Workers Act and the regulations framed under it, and if so, will the performance of this dutyoccupy more than four or five days work in each year?
– In some cases the licensing officers may have no other duties to perform. The Government has chosen the most competent men available. Hitherto most of the licensing officers have held important positions in the Public Service, performing functions apart altogether from the issuing of licences under the act passed by the Government of which the Deputy Leader of the Opposition was a member. The licensing officers may, in addition to the issue of licences, have other duties to perform ; but at the moment their duties are special and urgent, because licences have to be renewed, or fresh licences issued, before the end of this month. This work has to be placed in the hands of competent officers to facilitate its expeditious and efficient discharge. The extent to which these special licensing officers will be required, and the attitude of the Government in regard to them, will be governed by circumstances as they arise.
– Will the Treasurer inform the House of the date upon which the amendments of the Sales Tax Acts will be introduced and the date from which the amending legislation will operate?
– The various financial measures arising out of the rehabilitation policy agreed upon at the Melbourne conference will be indicated in the budget speech, which I hope will be delivered within two or three weeks, and will be introduced shortly afterwards. They will commence to operate immediately after the delivery of the budget.
– In view of the desirability of keeping the prices of essential foods as low as possible, will the Prime Minister consider the advisability of adding oatmeal, barley, rice and split peas to the exemptions from sales tax ?
– All representations in regard to exemptions will have due consideration when the amending legislation is being prepared and discussed.
– In view of the detrimental effect of the sales tax upon those engaged in the firewood industry, will the Government take into consideration the exempting of firewood from the sales tax, or include other fuels such as coal, briquettes, and gas?
– The question is not in order, because a similar question appears on the noticepaper.
Disconnexion of Telephones
– As a number of telephone subscribers in wheat-growing districts have had their telephones disconnected owing to their inability to pay rent to the department when it falls due, will the Government seriously consider the desirability of showing leniency towards subscribers in remote parts, where a telephone is actually a necessity ?
– In some instances In the metropolitan and country districts, where subscribers unable to pay the rental, are not prepared to guarantee payment for the current calls, or to enter into some business arrangement with the department, it has been found necessary to discontinue the service and remove the instruments. The conduct of the department is similar to that of any trader who refuses to supply a customer with goods which cannot be paid for. But any case ofextreme hardship will be sympathetically considered. That has been shown inscores of cases up to the present.
– I ask the Assistant Minister (Mr. Cunningham) if, when his ministerial duties will permit, he will inspect the road between Canberra and Yass. If such an inspection were made, he would realize the need for placing the road in a better state of repair, thus enabling the Melbourne newspapers to reach Canberra at the customary time.I trust that the Assistant Minister will use his influence in the Cabinet to see that Canberra is made more easily accessible from Yass than it is at present.
Question not answered.
– To-day the Prime Minister andthe
Treasurer were asked to answer questions seeking the expression of personal opinion. As it is contrary to the Standing Orders to address such questions to Ministers, I ask honorable members to abstain from doing so in future.
– I desire to announce that Senator John Joseph Daly and Mr. Lucien Lawrence Cunningham have been appointed Assistant Ministers in the place of Mr. Charles Ernest Culley and Mr. Edward James Holloway.
– I lay upon the table the following interim report of the special committee appointed to consider questions relating to the necessary reduction in war pensions -
Nothing in this report is to be construed to the effect that the committee is in favourof a, reduction in war pensions.
The time available before the 2nd July is not sufficient to enable the committee to make the complete review ofpensions which is necessary to determine how hardship can best be avoided, if the expenditure on pensions has to be reduced.
The committee therefore recommends: -
That, if any reduction in war pension expenditure is decided on by Parliament -
It should be spread temporarily over all pensions, existing and future, by a uniform percentage cut.
This committee should be given an extension of time to enable it to make a complete review of war pension expenditure and to advise the Government how the amount of savings determined on by Parliament could be made with the least hardship,
Parliament shouldbe afforded the opportunity to take into consideration the final report of the committee as soon as possible after it has been presented. (It is estimated that about three months maybe required for the committee to make its final report.)
The proposals of the Government for reduction of pensions provide special concessions which admit the principle of fixing pensions according to the pensioner’s income, and not solely on war disabilities. This principle has never been accepted hitherto by Parliament or by the representatives of the returned soldiers, and is so serious in its implications that this committee earnestly hopes that the Government will not admit this principle in legislation, until the committee has had the opportunity of exploring fully the results of its adoption, and considering alternative proposals.
F. Giblin (Chairman),
Assent to the following bills reported : -
Northern Territory (Administration) Bill (No. 2).
Supply Bill (No. 1) 1931-32.
Bill returned from the Senate without amendment.
The following paper was presented: -
Public Service Act - Regulations amended - Statutory Rules 1931, No. 76.
asked the Treasurer, upon notice -
– The answers to the honorable member’s questions are as follow : -
asked the Treasurer, upon notice -
– The information is being obtained from the Commonwealth Bank, and will be furnished as soon as possible.
Exemption of Firewood
asked the Treasurer, upon notice -
Whether he will exempt firewood from the impost of the sales tax when such tax is being revised ?
– The matter will be considered.
asked the Minister for Trade and Customs, upon notice - 1.Whether he has seen the Australian Brewing and WineJournal of the 20th May last, where the following extract relating to the duty on concentrated mustappears on page 447: - “ The excise on concentrated must will not’ prevent its use in the production of Australian wines made to compete in exportwith wines of Spain or Portugal, as the excise will not come into consideration, the wines being made under bond and shipped under bond “ ?
– The . answers to the honorable member’s questions are as follow : -
– On the 25th June, the honorable member for Henty (Mr. Gullett) asked the following questions, upon notice: -
Will he furnish a return showing -
Will he state the particular conditions which enable some firms to obtain this remission ?
I am now able to furnish the honorable member with the following information : - 1. (a) All union yarns, by whomsover imported, which were ordered prior to the 22nd November, 1929, and were entered for home consumption before the 28th February, 1931, were admitted by standing by-law under item 404 - free under the British preferential tariff or 10 per cent. under the general tariff. The names of the importers in such cases are unknown to the Minister. Three shipments which arrived a few days after the expiration of the by-law were also admitted under item 404. These were for Australian Knitting Mills, Climes Knitting Mills, and Myers Woollen Mills.
Bradford Cotton Mills, Paton and Baldwins (Australia) Limited, on behalf of Chines Knitting Mills, Robert Bryce & Company, on behalf of Ayredale Weaving Mills, Foster Knittin? Machine Company, William Hollins and Company Limited. Mendel Slonim, Paton and Baldwins (Australia) Limited. MacRae Knittins Mills, Lincoln Knitting Mills.
– On the 26th June, the honorable member for Moreton (Mr, Francis) referred to previous representations made by him on the subject of the repatriation of excess miners in Queensland. I am advised that the Queensland committee anticipates that it will be in a position to commence making grants from the fund in about a fortnight. Arrangements have been made for Mr. Gunn, Director of Development, to proceed to Brisbane next week to consult with the committee. Expenses charged to the fund to date amount to £2 15s. 4d., representing a refund to the Repatriation Department for postages, telegrams, telephones, and proportion of typists’ salaries. In accordance with the request of the honorable member, the papers relating to the matter are being placed on the table of the library.
Motion (by Mr. Scullin) proposed -
That Order of the Day No. 1 be postponed until after the consideration of Order of the Day No. 2.
– Some time ago, when the Prime Minister took steps to alter the order of business as set out on the business-paper without having giyen honorable members ample notice of his intention, protests were made by my group, and on a number of occasions the division of the House was called for to ascertain whether there was general agreement with the course proposed. Since then the Prime Minister and other Ministers have notified honorable members who sit in this corner of any intention of the Government to alter the order of business as set down. I should like to know why that procedure was departed from on this occasion. I do not know, of course, whether honorable members who sit opposite were informed that the Government intended to alter the order of business. It is the usual custom - and it, should be followed for reasons of courtesy, if for no other reasons - to notify the different parties in the House of any intention to make a change in the order of business. After all, if the different subjects which appear on the businesspaper are tobe discussed intelligently, honorable members must be given an adequate opportunity to prepare themselves to discuss them. It is not fair that the order of business should be changed at the mere whim of the Government and without any notification to honorable members generally. If that course is persisted in, and no adequate reasons are given to show that there is a clear necessity for the alteration, I shall continue to call for the division of the House on the question whenever the occasion arises.
– The decision to postpone the consideration of Order of the Day No. 1 was only made this morning. The Government expected to have returned to it certain agreements signed by representatives of the State Governments, which would have made possible the completion of this item of business. A few technicalities have arisen in connexion with the schedule to the bill, which has rendered it impracticable to proceed at once with the measure. Honorable members will realize that it is difficult for the Government to keep to a programme when it has to consult other Governments in different parts of the Commonwealth. It was only known this morning after the mail was delivered that certain signed copies of the necessary agreement had not come to hand. The only notification that the Government intended to alter the order of business was given to the Leader of the Opposition. (Mr. Lyons). It was due to him that he should know, for the postponement made it necessary for him to be ready to proceed at once with the discussion of Order of the Day No. 2. I do not think that the absence of any such notification to other honorable members could cause them any serious inconvenience for they must have expected Order of the Day No. 2 to be called on early.
– We only received copies of the Treasurer’s speech on the Commonwealth Debt Conversion Bill after we arrived in Canberra this morning.
– That was unfortunate; but proof copies could have been obtained a good deal earlier. Hansard is always anxious to oblige honorable members in these matters, and the Treasurer intimated onFriday that he was quite willing that honorable members generally should he furnished with copies of the report of his speech. Had the honorable member for West Sydney (Mr. Beasley) asked for one to be posted to his Sydney address it should have been delivered to him yesterday. The Government has no desire to be discourteous, but it cannot be expected that it shall notify every honorable member of comparatively minor changes in the businesspaper.
Question resolved in the affirmative.
Debate resumed from the 26th of June, (vide page 3138), on motion by Mr.
That the bill be now read a second time.
.- Honorable members of the Opposition are in agreement with the general principles of this bill. For some time past I have advocated the taking of the course laid down in the bill. The main difference between the members of the Premiers Conference and the Federal Opposition leaders who attended the conference was on the question whether the proposed conversion should be compulsory or voluntary. The main object of the Opposition leaders in attending the conference was to induce it to accept the voluntary principle, and as this was accepted there is no reason why the members of the Opposition should not give general support to this measure.
I have contended for a long time past that if Australia was to get out of her financial difficulties, sacrifices would have to he made by all sections of the community. At no time have I even suggested that any section should he freed from the duty of contributing towards the making up of the loss in national income. I do not think that any one has suggested that those who receive interest payments from the Commonwealth and the States should be exempt from this responsibility. We have entered into definite contracts with those who have made their money available to the Commonwealth and the States for the carrying out of public works or the financing of public undertakings, and under normal conditions I do not think the members of any Parliament in the Commonwealth would suggest that there should be any departure from the conditions of those contracts; but to-day Australia is in such an unfortunate financial position that Governments are obliged to call upon every section of the community to make some sacrifice in order to enable us to overcome our difficulties. Consequently I appeal to the bondholders of Australia to make their contribution to the general sacrifice.
Many months ago, when I asked the representatives of the Commonwealth Public Service to accept a reduction in their rates of pay, I made my appeal solely on the ground of the necessity of the case. I pointed out that extremely critical financial conditions were inevitable in the Commonwealth unless prompt steps were taken to avoid them. Those conditions are still inevitable, unless this, and the other measures involved in the agreement reached at the Premiers Conference, are speedily passed. It was only on the ground of the urgent necessity of the case that the then Acting-Prime Minister (Mr. Fenton) and I appealed to the Public Service to agree to a sacrifice.
It is on the same ground that our pensioners are to be asked to accept the sacrifice which they will be called upon to make. It is objectionable to all of us to have to take steps to reduce pensions; but we realize that the alternative is a complete failure to pay any pensions at all. It is only by calling upon all sections of the community to make sacrifices that we can get back to sound conditions.
It is in order that we may get back to sound conditions that we are appealing to the bondholders throughout Australia voluntarily to convert their holdings, and so accept a share of the financial burden which is to-day resting so heavily upon Australia. I am prepared to ask them to make this sacrifice because I believe that if a substantial contribution is not made by all sections of the community now, very much greater sacrifices will be demanded of them at a later stage. This has been proved by experience. If the proposals agreed upon at the conference in Melbourne in August of last year had been given effect, the burden laid upon the individual to right the finances of the Commonwealth would have been infinitely lighter than the sacrifice which will now be required of every person in the Commonwealth. While I am supporting the appeal to bondholders to bear their fair share of the burden now, I regret very much that in certain quarters a most unfair attack is being made upon them. I remind the House that, on every occasion when we approached the loan market, the Government laid down the conditions upon which the money should be made available by the people. The success of previous loan operations benefited Commonwealth financiers directly, and also was of temporary benefit to wage-earners as. the result of the employment created by the carrying out of public works. I also remind those who criticize adversely the bondholders tha’t, during the period of rising prices which Australia enjoyed for several years, no representations were made that bondholders should participate in the prosperity of the country by being paid a higher interest return upon their investment. It follows, therefore, that since their interest return was fixed, while other sections of the community enjoyed the benefits due to a succession of prosperous years, they were making a definite sacrifice. To-day, when the position is reversed, and when the general price level for all commodities is declining, the first demand made in some quarters is that bondholders should be called upon to make another contribution.
– And for a period of 40 years.
– Under this measure they will be expected to accept a lower rate of interest for a period of upwards of 30 years. And, after all, who are the bondholders ?
– We are.
– The honorable member is right. Figures quoted last week by the honorable member for Maribyrnong (Mr. Fenton), and the statement made by the Treasurer (Mr. Theodore) when introducing this bill proved conclusively that the bondholders represent the people of this country, and a3 I have shown, they have already made a substantial sacrifice which was not demanded of other sections of the community in recent years. The bondholders are either business men, primary producers, or salary or wageearners. As citizens of the Commonwealth they have already suffered, in common with other sections of the community, because of the existing depression. Now they are to be asked to make a further sacrifice. While I am prepared to appeal to them to do this, it is as well that theY should know how far they are to be asked to go. In the first place they will be required to accept a lower rate of interest on their investments, and in lieu of existing securities, some of which mature at relatively early dates, will be asked to accept new securities for substantially longer periods. This arrangement indicates that the bondholders will certainly be bearing their fair share of the burden which Australia has to carry.
– Of the total amount of our internal debt, securities amounting to £170,000,000 are held by the banks.
– But the banks represent their depositors. The same may be said of insurance companies, which have invested a large portion of their funds in Commonwealth securities. While the figures quoted by the honorable member for Maribyrnong (Mr. Fenton) show how existing securities are held, they do not indicate the full extent of the spread of investments in Commonwealth loans.
– Insurance companies have invested £35,000,000.
– The investments, I suggest, are much more widespread than is indicated in the statement made by the honorable member for Maribyrnong. A very substantial proportion of the Commonwealth debt securities is held by small investors. In view of these facts the Australian bondholders, as such, should not be the subject of condemnation by certain honorable members of this House. We should also bear in mind that, after this conversion operation has been carried out, we shall be obliged to make further appeals to investors, to finance the Commonwealth. If we pass legislation which is unpalatable to those who, ordinarily, subscribe to Commonwealth loans, and if, further, there is adverse criticism of investors as a class, future appeals for financial aid to carry on Commonwealth activities may not be entirely satisfactory. We should keep these matters in mind. In contrast to the sacrifices required of public servants and pensioners in the carrying out of this plan to rehabilitate the Commonwealth, bondholders will be making a real and a permanent sacrifice. I hope that we are all looking forward to the time - if we adopt the right course now we may, I believe, expect our realizations to materialize - when the finances of the Commonwealth will be substantially improved. There will then be a demand for relief from taxation and the other sacrifices that have been made, but there will be no relief whatever for bondholders whose interest return on investments will be definitely reduced for the currency of the new loan. Take, for example, the 5J per cent, stocks maturing in 1934. The investor in those stocks looked forward to a permanent return of £5 53. for each £100 invested, but under this scheme his return will be £4 ls. 4d. per cent., and that reduced rate will be payable’ for a period of 30 years.
– What guarantee is there that it will be a permanent reduction ?
– This bill gives that guarantee, because it fixes the rate for a period of 30 years.
– The last loan fixed a certain rate of interest for a period of years.
– I shall deal with that loan in a moment. There is no escaping the fact that the reduced rate will be definitely fixed. ‘ I hope that, as near as may be practicable, it will be made impossible for any further reduction to be made; that the sacrifice having been made, no additional contribution shall be asked of the investor.
It is my desire that the measure as it passes Parliament shall be acceptable to the investor, so that we may approach a? near as possible to a 100 per cent, voluntary conversion. The attempt should, therefore, be made to popularize it. I suggest that if the maturity dates were altered so that there would be ten year periods, and if a concession were given to investors in the form of some addition to the actual capital for the 10, 20 or 30-year period, the effect would be to enhance the value of the holding for the time being in the market, and thus make the proposal more acceptable and popular among bondholders.
– Stimulate their patriotism ?
– We are asking a very great deal of them.
– What are you asking of the workers?
– The workers also are being asked to contribute substantially. I am hopeful, however, that we shall be able in the near future to restore to the worker a proportion of what he is now being asked to forgo; while under this proposal we may lay it down definitely that nothing shall be returned to the bondholder. I am merely advancing what I regard as a reasonable proposition ; ‘ that is, that some slight restitution be made to the bondholder to lessen the severity of the sacrifice that he will have to make not for only one or two years, but for 10, 20, 30 or 40 years. If something of thatkind were clone, I am sure that it would help to make the conversion a success. I want to see it a success, and I feel sure that the Treasurer is like-minded. I am also anxious that we shall not do anything that may have a tendency to destroy the possibility of our obtaining new capital in future years.
The provisions of the bill are largely technical, and it is not necessary for me to discuss the details that have been so exhaustively explained by the Treasurer. But I suggest - and again my object is to make the conversion a success - that the period in which a bondholder may declare that he proposes to dissent from converting be extended from a fortnight to at least one month.
– What about the interest that will fall due in the meantime; does the honorable gentleman propose that that shall be paid at the old rates.
– What difference will that make ? The existing rates of interest are to be paid until the bill becomes law.
– It will be law by that time.
– There is a particular date on which the conversion will take effect. Surely sufficient time should be allowed within which investors may make up their minds to convert voluntarily! I wish to make it certain that, when the operation is completed, we shall beable to point to voluntary action on the part df the people. I do not wish it tobe assumed that a very large proportion of bondholders have assented because they have not dissented. I prefer to give to bondholders the fullest opportunity to make their assent known to the Commonwealth. The Treasurer has pointed out that in a majority of cases, when conversions have been undertaken in England, a fortnight, and occasionally less,, has been allowed. I remind the House that that has not always been the case. The honorable gentleman himself mentioned the conversion of £154,000,000 in 1830, on which occasion one month was allowed to bondholders to notify dissent. If that period could be allowed in England, I see no reason for its disallowance here. Whatever argument there might be in favour of shortening the period in Great Britain, there is no argument in favour of shortening, it in Australia at the present time. We want the bondholders, by converting voluntarily, to show that they have confidence in their country, and are prepared to accept their share of the load that has to be borne. It is advisable to make that demonstration, for the benefit of our creditors overseas. By inducing voluntary conversion we shall improve our credit both in Australia and overseas. I hope, therefore, that the Treasurer will accept my suggestion, and that we shall make a special combined effort to induce investors to acknowledge the slight concession thus made to them by converting voluntarily in the largest possible number.
There are one or two sections affected by the bill who will receive special consideration. First of all there are the savings banks, in regard to which either the dates of maturity will remain unaltered or be fixed by agreement with the Treasurer. I endorse that proposal, but point out that it applies only to State and Commonwealth, savings banks. In Tasmania there are two savings banks outside those of the State and the Commonwealth. They are truly savings banks. Their operations are carried on in exactly the same way as are those of the State and the Commonwealth savings hanks; their management is similar; they are trustee banks, and no fees are paid to their directors. As an ex-Treasurer of Tasmania, I know the assistance that these banks have given to the Government of that State in past years. I believe that to-day they have something like £900,000 invested in Commonwealth stock, which will come under the provisions of this loan conversion. If they are not to receive similar treatment to that granted to other savings banks their operations will be considerably hampered. I hope that the Government will be able to extend those concessions to them.
Certain overseas trading funds were invested in the 1930 conversion loan specifically because it was a short-term one.
– The honorable gentleman surely does not ask that special consideration should be extended to those who were really escaping current obligations by taking that course?
– They are already provided for in the bill, and I take no exception to consideration being given to them. [ think that a strong case can be made for exemption from the provision of this bill being granted to the full £28,000,000 loan.
– On those premises I should say yes, but I think that the premises should be rejected.
– The investors of Australia came to the assistance of the Commonwealth when they were appealed to, at a time when it was possible for them to invest under better conditions than those offered by the £2S,000,000 conversion.
– That applies to all the loans.
– But particularly to the £28,000,000 loan. It is such a short time since we gave those people guarantees as to rates of interest and the redemption of the loan, that some special provision should be made in this bill with regard to them. I raised the subject at the Premiers Conference, but the Treasurer (Mr. Theodore) thought that it would introduce too many difficulties. I now submit it to the Government.
Concessions are being granted to those who invested overseas trading funds in the £28,000,000 conversion, because it is a short-term loan. I contend that similar consideration should be extended to others who invested in the same loan, believing that their investment would be redeemed in a couple of years.
– What is the first maturity date of that loan?
– The two-year loan will mature on the 15th December, 1932.
– Did not some of the banks force clients to invest in that loan, even when they did not want to do so ?
– If the banks took that action to help the Government they cannot be as black as some honorable members opposite paint them. If people were forced into the loan, that is all the more reason why their case should receive special consideration. I know instances in which workers who had saved a few hundred pounds took that money from the savings banks and invested it in the £28,000,000 loan purely out of patriotism. Many of those persons are now out of employment, and when this conversion is effected they will not receive their money as they anticipated, next year.
– Some firms forced their employees to contribute to the loan, taking the amount off their weekly wages.
– In response to tho country’s call hundreds of thousands of persons with small means invested in the loan. It is different in the case of the ten, fifteen and twenty year loans, into which investors went with their eyes open, knowing that their capital would be locked up for those periods. I think that we could safely exclude from the provisions of this bill the whole of the £28,000,000 loan. Those who could afford to do so would reinvest in the new conversion, while cases of hardship would be met automatically. Actuarial calculations indicate that special consideration is not being given to the holders of stock in that loan. Actually the premium on a 6 per cent. £100 bond amounts to 18s. Sd.
– And it is about £3 10s. per £100 on the other two sections of the loan.
– I am dealing with the two year short-term loans at 6 per cent. On the 1988 6 per cent, loan the premium amounts to over £4. Those investing in the short termed loan maturing in 1932 were counting on their investment being redeemed at the full £100, and if they are compelled to forgo that advantage some compensating consideration should be given to them.
– There are other loans falling due on the 30th December next.
– They are in a different category. Instead of any advantage being given to those who invested in the section of the £28,000,000 conversion loan which matures in 1932, they will suffer in contrast with those who invested in the loan which falls due in 1938. We shall not be playing the game if we do not provide for such people; but will do something that will make unpopular any future appeal for a conversion or for new money.
– The bondholders can dissent.
– That is so; but I want to ensure that they will have no excuse for dissenting. I want to help the Government to make a success of this conversion loan, and for that reason I want it to be in reality a voluntary conversion.
– The- honorable member prefers that the terms of the loan shall be made attractive rather than that there should be penalties for non-conversion ?
– Yes. I hope that we shall be able to go out to the people without holding out any threats to those that do not convert, and offering them terms which will make threats unnecessary. The conditions of the conversion loan should be made as fair as possible, so that we may confidently appeal to their patriotism, and remove any grounds for suspicion of coercion. Honorable members in the ministerial corner may smile when I speak of the patriotism of bondholders. I remind them that the bondholders who will be asked to convert their stock- are ordinary Australian citizens, who in the past have proved their patriotism.
– This conversion loan will put their patriotism to the test. Why, therefore, exempt them from any sacrifice?
– Had the honorable member listened attentively to my remarks, he would know that I have not suggested that the bondholders should be exempted from any sacrifice. I am onewith the Government in asking them tomake a sacrifice; but I ask, in addition, that the conditions of the loan shall be such that we may be able to appeal to their patriotism. If we do that, I am confident that the appeal will not be in vain. I agree with the Treasurer (Mr. Theodore) that the success of this conversion loan would have a wonderfuleffect upon Australia’s credit, both at home and abroad, and that is what we need. The Treasurer said that while he hoped that the action proposed to be taken would ensure a lower rate of interest for Government stocks prevailing for some definite period, and that in consequence interest rates generally would fall, he could give no guarantee that that would be the case. Obviously the Treasurer cannot give us such a guarantee. Only by restoring confidence can we offer any prospect of interest rates being permanently lowered. When an investor has confidence in that in which he invests, he is prepared to take a lower rate of interest than when he is investing in something which carries a risk with it. If we are to ensure that lower rates of interest will prevail permanently, we must do those things which are necessary to restore confidence, and to set in motion the wheels of industry.
– As the bill stands, does it not provide that a bondholder must convert his holdings, whether he likes it or not?
– The bill provides that conversion will be made if the bondholder does not dissent; should he dissent, the conversion will not be made in his’ case.
– He would have the right of appeal to the Treasurer.
– I hope that the suggestions which I have made will be seriously considered by the Government. I want to be able to appeal confidently to the bondholders to convert their holdings in order to help the country. The successful conversion of our internal indebtedness would be a wonderful advertisement for Australia.
– This measure is a part of a plan which, like the circumstances to which it is to be applied, is without precedent in the history of this country. I accept the plan as a whole and this measure with the greatest reluctance, and only because I realize that there is no practicable alternative. We must choose between default, immediate and shameful, and a plan which, however imperfect, will at least enable our obligations to be met in part, in an orderly manner, and, perhaps, may help to rehabilitate industrial and financial conditions.
The measure provides for the conversion of the whole of the internal debt of Australia. As the Treasurer has pointed out, the magnitude of the proposal is almost without parallel in the history of the world. Surely no Parliament ever faced such a gigantic scheme in circumstances such as those which confront Australia to-day?
The Leader of the Opposition (Mr. Lyons) dwelt with emphasis on the voluntary character of the proposed conversions, and made a strong plea for exceptional treatment of the subscribers to the December loan. It was my fortune to be responsible in some measure for the earlier appeals to the patriotism of our people, when they were asked to contribute money to meet the needs of the country during the hour of its greatest trial. I do not agree with the honorable gentleman that the subscribers to the £28,000,000 loan in December last are entitled to special consideration. I do not admit that they showed greater patriotism than did those who, during the years that I have in mind, contributed towards Australia’s needs. All have lent their money to the State, and all should be treated alike now. And, with all respect, I suggest that the honorable gentleman was juggling with words when he spoke of the conversion as voluntary, for the examination of the provisions of the bill shows that the conversion will not be a voluntary one. The honorable member for Fawkner (Mr. Maxwell) put the position aptly just now when he said that we cannot, and must not, allow the scheme to fail. I speak as one having some interest in this matter other than that of an ordinary citizen or a member of Parliament, and I ask the Leader of the Opposition and others who have spoken of the voluntary nature of this scheme, what alternative to conversion is placed before the bondholders. It is true that the bondholders need not convert-; but if they do not convert they will be penalized by extra taxation, so that as far as their interest is concerned, they will be in the same position whether they convert or not. And in respect of their capital their position is no better. This talk of voluntary conversion is calculated to mislead bondholders. They must rid their minds of illusion, and face the facts. They must be told plainly that the reason for this measure is that stern necessity compels Parliament to enact it. On its face this proposal bears the proof that it is an indubitable breach of contract, the repudiation of obligations going to the very root of the contract.
– In what respect does this proposal differ from the British conversion of 1888 ?
– I have nothing to do with that. The Treasurer may go back into history ; but is not what I am saying a fact?
– Everybody is under compulsion at the present time.
– It would be a simple matter for me to quote from the Treasurer’s speeches at the recent conference in Melbourne in support of my argument, but that is just what I am endeavouring to make clear. On the face of the bond there is a promise to pay a certain rate of interest for the use of the money advanced, and to repay on the due date the amount borrowed. Those terms, which are of the essence of the contract, are now to be thrust aside. If times were normal, this, as the Leader of the Opposition (Mr. Lyons) has said, would be an insuperable bar to the acceptance of the proposal ; but the times are not normal, and the bondholder, who may properly complain of the position in which he finds himself, has to. choose between a breach of contract by default, and a breach of contract as provided for by this measure. The State cannot fulfill its obligations: it cannot pay the interest agreed upon, and it cannot redeem on the due dates. It is proposed that the State shall, so far as it is capable of doing it, honour the contract. The bill is an honest endeavour to meet the situation. I strongly advise the bondholder to accept promptly the offer of the State. In the uncertainty and chaos that would arise from default, who shall say what the position of the bondholder would bc? The State cannot pay the interest agreed upon; it cannot redeem bonds maturing this year or for seven years to come. There is no alternative for the bondholder ; he must convert. The bondholder must be given to understand that it is necessary, for the good of the State, that he should convert. I say that the more emphatically because the Leader of the Opposition, in his laudable desire to help those who subscribed to the £28,000,000 loan, might mislead the bondholder into believing that there was an alternative to conversion. But there is none. What is the position? We accept this bill because we have been told by the Prime Minister and the Treasurer that the Government has no money to carry on the services of this country, and that but for this scheme, and all that appertains to it, there. must be default. The Prime Minister has said that the Commonwealth, if the plan is not put into operation, will be unable to pay more than 12s., or, under some conditions, 9s. in the £1 during next month. Certain bonds mature on the 15th December; I do not know whether any mature on the 15 th August.
– State bonds do; not Commonwealth.
– Some Commonwealth bonds mature on the 15th December, and it is particularly to the holders of bonds that mature at an early date that I address my remarks. It is most necessary, in their own interests, that the position should be stripped of all illusion. There is no money with which their bonds can be redeemed ; if there is, we have been deceived. -It will be of no use for them to hold back, believing that they will thus be able to get the face value of their bonds. That being so, why not tell them the facts? Why talk about voluntary conversion? They must convert. This conversion must succeed, and it must succeed to the extent of 100 per cent. A few thousands of pounds are neither here nor there’; but where one goes, many will follow. Millions of pounds are involved in loans maturing in the remaining months of this year. To the holders of all these bonds I say, “ There is no money to redeem your bonds, and you must convert.” I ask the Government to look at the matter fairly; not to be captives to the chariot of mere words. The Government is compelled to commit a breach of contract; but the wellbeing of the State is the supreme law. Unless this conversion is a success, th; whole plan will break down. We must, if necessary, introduce the outward and visible signs of compulsion to remove from the minds of the hesitating bondholder the least doubt as to what is, and ought to be, his course of action. We cannot afford to palter with the matter. We must make it perfectly clear that the State is unable to pay. Whether we call this a voluntary conversion or not, it depends for its success upon the element of compulsion; without compulsion the scheme must fail.
Hard as is the case of the bondholder - and we sympathize strongly with the subscribers to the last loan, to whom the Leader of the Opposition referred - there are other parties to this plan. Running through it is the principle of equality of sacrifice. The wage-earner and the pensioner are required to make their contributions. They are not asked whether they will or not; they are simply told that for the good of the State they must make a sacrifice. How, then, can the bondholder complain if he is put in the same position? Conversion is inevitable; it arises from the circumstances in which the country is placed. We all regret this, but there is no alternative. Bondholders must convert; the exigencies of the State demand it: and demand it from all bondholders without exception. I do not agree that the subscribers to the £28,000,000 loan are entitled to different treatment from that of subscribers to any of the other loans. But in any case it is obvious that there is no means by which differential treatment can be given to those bondholders. First, the plan has been agreed upon, and cannot be re-opened. To re-open it n this matter would be to throw the whole of the plan again into the melting pot. That would be disastrous because time is the essence of the matter; delay would inevitably mean default.
I am concerned, as I am sure are the Treasurer and all others, with what the effect of this plan may be upon the future - this plan which, in spite of its imperfections, its audacity, is the only remedy available for the acute stage of the evils from which we suffer. But its reactions will almost certainly bo far-reaching. It seems to me that the adoption of the plan will close the door for internal loans for many years. Whether interest rates will rise or fall as the years go on no man can say. Professor Giblin holds that there is a tendency towards lower rates of interest, and that, consequently, these converted bonds will gradually rise to par, or even be quoted at a premium. It may bc that this is a possibility which the future holds for the bondholders, though it seems a somewhat remote one. The immediate effect of this conversion must be the very opposite. During the last conversion loan the Government made an appeal to the patriotism of the bondholders and the public, who were told that patriotism, in the circumstances, meant lending their money to the State. For many years the impression will remain that such patriotism has been but ill-requited. In the dim and distant future another generation may arise from whose minds the bitter memory of what is being done now will have faded, but for a long time to come people will be most reluctant to lend money to the State. Therefore, as I have said, the door against internal borrowing is closed. Nor does the overseas market seem precisely inviting. Though much is expected of this plan, even more must come of it if it is to effect the rehabilitation of Australia. Otherwise our position will be hard, indeed, seeing that there is a possibility of both internal and external borrowing being cut off.
– That may be a good thing for us. Governments will then have to attend to their own affairs.
– Every one, of course, is in favour of a non-borrowing policy when it applies to other people, but if the honorable member wanted money himself, he would see great merits in a loan.
I can see no possibility of Australia being completely rehabilitated without the aid of a substantial loan. How such a loan is to be obtained I do not know, but there is very little prospect of obtaining an internal loan.
I read with much interest, but with little satisfaction, the lengthy debate at the Premiers Conference on the subject of the conversion of tax-free securities. I gathered that those who were demanding differential treatment for tax-free bondholders were moved by the fact that it would be a breach of contract, unless immunity from taxation was preserved. This seems to be a very lopsided sort of logic. The whole plan rests on a breach of contract. There is a refusal to pay the rates of interest agreed upon, and to repay the principal on the due dates. These things go to the very root of the agreement; they are of the essence of the contract. There is a third term to some of the contracts; that the interest shall be free from taxation. It is’ contended that this immunity shall be preserved. But why ? The Commonwealth loans are free from State taxation, and if we are to be told that one term is so sacred that it may not be varied, while others - those fixing the rate of interest and determining the date of repayment of the principal - are not sacred, we have a new theory of contract, a revised version of sanctity of contract to which hitherto we have been strangers. In my opinion, both classes of bondholders should be treated in exactly the same way. I protest against the preferential treatment of persons who, apparently, bought the securities in order to avoid paying any taxation whatever. They have been contributing nothing whatever to the cost of government of the State in which they live. What greater wrong could a citizen of any State commit than accept all the benefits of government, and contribute nothing to its cost?
– They were freely granted immunity from taxation, and will enjoy it only until the date on which the bonds would have matured.
– Yes ; otherwise, of course, the wrong would have gone on for ever. Not for a day, but for all time, the State, which is groaning under the burden of its commitments, would have been denied help by these bondholders, while those who held the remaining £500,000,000 worth of bonds would have been required to make all the sacrifices.
– Surely the right honorable member does not misunderstand the position. The interest on the tax-free bonds will be reduced by 22% per cent.
– They will be reduced by a greater amount than will the taxable bonds, which are already subject to a tax of 1 per cent. This will be merged in the new reduction of 22 per cent., leaving an effective reduction under the plan of 15 per cent.
– Does the- honorable member pretend that the holders of taxfree securities will not, under the plan, be in a more favorable position than the others ?
– Their position will not be more favorable.
– Of course it will. The conference spent days on that point before the present compromise was arrived at. The bondholders who lent money to the States and to the Commonwealth did so on the condition that on the date of maturity of the loan the principal would be paid back. “What I wish to know from the Treasurer is what is meant exactly by the term “ free from income tax “ ? What is income tax? Is it a tax so-called, or is it, in effect, a tax upon income? It is evident that if the bondholder, with his reduced interest, is to be exposed to the taxation assaults of those who seem to put no limit on their demands, then, indeed, his lot will be a hard one. Are we to assume that any tax upon incomes, whether it be so designated or not, is to be regarded as income tax, and so will not apply to the earnings of the converted bonds ?
– Whether so designated or not, such taxes will not apply to the converted bonds within the limits of this plan.
– I desire to make completely sure on that point, in order that when we come to discuss the bill in committee, we may know where we stand - so that he who runs may read.
– This provision has been put in because it was thought impossible that any more income tax could be imposed.
– I should not like to say that. The honorable member perhaps under-estimates the powers of the Government in this respect.
There is one other point. The bondholder has been promised that on the due date his capital will be returned to him in full. The bondholders whose loans are maturing this year and next year - including bondholders in the £28,000,000 loan - will have to pay much heavier taxation than they did when they lent their money. The value of ‘the bond will be reduced. A bond with a face value of £100 will be saleable on the market at £70 or £80. Justice, and due regard for the interests of the bondholder, as well as of the State, demand that for purposes of taxation the bond shall be taken at its face value. That surely is not too much to ask. If the bonds are not taken at their face value, what becomes of this contract ?
– Is the right honorable gentleman referring to the payment of ordinary taxes?
– Yes, ordinary taxes.
– Any kind of tax? Bonds are accepted now by the Government for probate purposes.
– Commonwealth bonds should be accepted at their face value for income tax purposes.
– That would cause great inconvenience to the Commonwealth Treasury.
– Perhaps so, but what about the unfortunate bondholders? All these things could be endured better if the Government would rid itself of this wretched pretence that this is a voluntary conversion loan, and not declare that there is no breach of contract; and if a bond for which the Commonwealth has pledged itself to pay 20s. in the £1 on the due date was accepted in payment of income taxation.
– To make these bonds legal tender for the payment of taxes would create a new kind of currency, and that might become awkward.
– There is much logic in what the Treasurer says; bonds tendered in payment of taxes would be a new kind of currency, However, I shall not discuss that subject further at this stage. I am content to point out that from the answer of the Treasurer it is perfectly clear that when the bondholder, who is entitled under his contract to be paid £100 on the 15th day of December of this year, offers it on that date as payment for taxes he will be credited only with what that bond will fetch in the open market- about £70 or £80. That will be very inconvenient to the bondholders.
As I have said, I accept this scheme because, so we have been told, it is the only alternative to default. I accept the whole plan with great reluctance, and in respect of some aspects of its incidence I accept it with reservations which I shall indicate at the proper time. I shall support this measure because it is vital to the success of the plan; but I ask the Treasurer to make it abundantly clear to the bondholders of Australia that there is no alternative, that they must convert their bonds, because there is not at the command of the Government enough money for their redemption, nor for the payment of interest at present rates.
Mr.CROUCH (Corangamite) [4.36].- I do not agree with the proposal of the right honorable member for North Sydney (Mr. Hughes) that the new bonds should be used for the payment of income taxation. If that proposal were adopted, and bonds were legal tender for income tax purposes, it Would be logical that bonds should be accepted for payment of customs duties and every other form of government taxation. It would mean that we could tender in payment of government debts, bonds bearing interest instead of, as hitherto, the ordinary Australian notes, and make them currency bearing interest. This legislation when passed will entail a great sacrifice on the part of some people, but no sacrifice at all on the part of others. There is not the slightest question that it will bring about innumerable anomalies.. I have with me a statement supplied by Mr. E. Dyason, the president of the Economic Council of Australia, which shows that the return to the bondholder after his bonds have been converted will be, in many cases, over 8 per cent. This statement assumes that the conversion is to be effected as at the 15th June, 1931. Any person who on that day buys converted bonds will obtain a return of at least 7 per cent. and in some instances over 8 per cent. For example, bonds converted for seven years and bought on the 15th Juno, 1931, will show a return of £7 7s. 5d. The return diminishes as the period of the conversion increases, and on loans converted for 30 years the return will be £5 4s.1d. A person who, on the 15th June, 1931, buys a £100 5½ per cent. bond converted for seven years, at £82 5s. will receive a return of £7 7s. 5d. A5¼ per cent. bond purchased on 15th June, 1931, at the current rate of £80 will show a return of £8 6s.11d., and a 5¾ per cent. bond purchased on the 15th June, 1931, at the current rate of £80 12s. 6d., will show a return of £8 6s. 9d. ; while if 1931 bonds are bought now at their current price of £77 10s. they will return for seven years a still larger amount of interest. The position of those who buy bonds at the present time is totally different from that of those who, last December, invested in the £28,000,000 loan. The small bondholders in that loan were forced to pay £100 for a £100 bond and will receive a return of slightly over 4 per cent. I would point out that the current price of a £100 bond in the 5½ per cent. loan maturing in 1931 is £77 10s., which represents a further fall of £5 For every £1 decrease in the price of the bond there is an additional interest return of 4s. 5d. or a total of £1 2s.1d., on the fall in value of £5. Therefore, the net return to the purchaser of such a bond will be increased from £7 7s. 5d. to £8 9s. 6d. That does serious injustice to the man who bought last December.
I regard as an anomaly clause 13 which provides that-
Where the holder of existing securities bearing interest at the rate of 3¾ per cent. per annum or less satisfies the Treasurer that he acquired the securities before the fourth day of August, 1914, the rate of interest on conversion of such securities into new securities shall not be reduced below the rate of 3 per cent. per annum.
Those who bought 3¾ per cent. stock below par after the 4th August, 1914, will not get the advantage of this provision. Their stock will be reduced on an actuarial calculation to £2 6s. 6d. per cent If the market price is to be taken into consideration in the case of 3 per cent or 3¾ per cent. stock, why should it not also be considered in the case of those who buy to-day at £77 10s., and get a net result of £8 9s. 6d. on their bond? [Quorum formed.]
I call attention also to’ clause 17, under which bills discounted by banks are to bear a discount at 4 per cent, only, whereas private holders are to suffer a reduction of 22^ per cent. I do not like the discrimination. The ordinary borrower is doing as much as the banks to help the country at this time, and where there is a general sacrifice to be made, I think, the banks should also bear the 22^ per cent, reduction.
The honorable member for Wilmot (Mr. Lyons) referred to clause 16. Undoubtedly the conversion loan raised by the honorable member when he was Acting Treasurer was in the nature of a forced loan. People were forced by their banks and their employers to subscribe. So were a number of loans raised by the Hughes-Cook Government, Sir Joseph Cook, as Treasurer, having intimated that unless people subscribed to the war loans they would be forced to pay double the amount of income tax. The result was that many unwilling investors took up bonds. Clause 16 provides -
Where the holder of existing securities satisfies the Treasurer that, owing to exchange difficulties, the securities were purchased by him with overseas trade money as a short term investment, new securities in exchange for the existing securities may be issued to him redeemable on such date or dates as the Treasurer approves, but otherwise conforming with the provisions of this act.
I do not like this special provision to enable holders of securities to have their bonds redeemed at 6 per cent, for two years, on such dates as the Treasurer approves. These holders put their money into the last conversion loan, not because of their patriotism, but because they wished to avoid paying 30 per cent, exchange. That is specifically admitted in the clause. They were hopeful that before the two years expired the exchange rate might decrease.
– They were oil companies.
– As the honorable member has indicated, the persons interested are mostly American oil and film corporations.
– Why should special consideration be extended to them?
– I do not think that it should be. The greater part of the £28,000,000 loan was subscribed at 6 per cent, with a view to withdrawing it in 1932. These bondholders will not come under the dissent clause and run the -risk of taxation up to 22% per cent. I cannot see why the Treasurer should try to help these overseas interests who gambled on the exchange rate coming down before 1932 when their 6 per cent, bonds would be redeemable. It is natural that they will not be anxious between now and 1932 to pay taxation up to 22-^ per cent, on their interest earnings, but I see no reason why under clause 13 special consideration should be extended to them compared with other members of the community who invested, or were forced to invest, in the £2S,000,000 loan.
Clause 24 provides -
New securities bearing interest at the rate of 4 per cent, or 3f per cent, per annum, and having fixed dates of maturity, shall be accepted by the Commonwealth at par in payment of Commonwealth estate duty.
I do not know why this concession should be confined to 4 per cent, and 3$ per cent, stock. Why should not 3 per cent, tax free securities also be accepted in payment of estate duty? They were purchased on the understanding that there would be no taxation upon them, and the holders of the 3 per cent, stocks are now to be forced to convert them into bonds that will give a return of not more than £2 6s. 6d. per centum. Yet’ the stock will not be accepted in payment of probate duties. I trust that in committee the Treasurer will have this anomaly putright. Except for the general principle of compulsion with which I agree - and I am sorry that the bondholder is given power to dissent - the measure is one entirely for consideration in committee. I am of opinion that we are making a great mistake in converting at 4 per cent., because this re-adjustment of the internal debt and all the economies that are proposed, are only the first steps of a series that will be necessary. Having studied the financial obligations very closely during the last fortnight, I do not think that we can afford to pay 4 per cent., if we are to meet our interest obligations overseas, as, indeed, we must. The overseas debt is not on the same basis as the domestic debt. The whole of the money we borrowed has been expended for the benefit of the Australian people, including the internal bondholders; loans from overseas aided our development and augmented our prosperity. Having enjoyed the bounteous years, we must now face the lean ones, and, as a man practises the severest economies in his own household in order to meet his outside debts, so must Australia, if necessary, practise even greater economies than are proposed by the Government, in order to keep faith with the bondholders overseas. I say, deliberately, that even this reduction of interest, and all the economies and cuts that are proposed, will not be sufficient to get us out of our difficulties. Perhaps, however, it is wise to reduce the interest to .only 4 per cent, for the time being. We shall then be able to observe the effect of this plan of economies upon our general prosperity. If it should prove effective, nobody will be more glad than I. If it should fail to do all that is expected of it, the people must be prepared for even greater sacrifices. As a race, we are innately honest, and I believe that, if further self-denial be required to maintain the reputation of our country in the eyes of the world, the great majority of our people will courageously face the inevitable.
– I support this bill for the conversion of the Commonwealth and State internal debts amounting to £556,000,000, because I believe that no other course is open to any honorable member who desires to help to extricate his country from its difficulties. This bill is necessary in the interests of the bondholders, as well as of the general public. That that is so, the figures presented in the report of the experts who advised the recent Melbourne conference clearly prove. I commend to. the attention of honorable members the following table: -
Honorable members will see that the total Government expenditure, excluding loan, has been rising almost a3 steadily as the national income has been declining, whilst the expenditure upon interest, sinking fund, exchange and unemployment has been increasing at a tremendous rate yearly. Next year, unless corrective measures are taken, the total governmental expenditure of the Commonwealth and the States will amount to £198,000,000, or 44 per cent, of the total national income of £450,000,000. That expenditure includes the appalling sum of £S5,000,000 for interest, sinking fund, exchange and unemployment. It will be seen, therefore, that it is necessary, even in the interests of the bondholders, to reduce the Government interest bill; unless that be done and other economies be effected, there will be no alternative to default. What default would mean is well summed up in the following paragraph from the report of the under-treasurers to the Loan Council in February last: -
The evils which would follow such default would be immeasurably greater than any hardships which the nation would be asked to face in order to restore Australia to a sound position. Panic conditions would be produced in financial spheres - involving banks and savings banks. Business would be paralysed. Insolvency would be the order of the day. Unemployment would be general. Recovery would be indefinitely protracted.
The economists and under-treasurers, dealing particularly with the position of the bondholders, said -
The holders of fixed money claims have already borne taxation as part of a special Commonwealth tax on properties of ls. (id. in the fi (7i per cent.) and may have suffered reduction of such income as they derive from other sources. But their incomes from fixed money claims have not been reduced to the same degree as other income elements. Outstanding amongst them, from the point of view of the public finance, are the holders of Government securities, for whom the danger inherent in unbalanced budgets carries its gravest threat.
This threat affects most directly the internal bondholder. Measures that will obviate it must therefore include him, hut they must leave untouched tl,e external creditor. The external creditor has not the responsibility for the financial position which every Australian citizen must share. Moreover, default or attempts to vary the contracts with external creditors would rob us of assistance that is necessary, both in preventing collapse and in opening the road to recovery.
That is: a succinct statement’ of what would be the result to’ Australia if it went over the” precipice of default. The experts recommended a reduction of 15’ per cent, in’ the net return on fixed money claims. I assume that the Melbourne conference considers that it has not exceeded that recommendation inasmuch as it intended a 15 per cent, reduction from the net returns after the 7 per cent, special tax recently imposed by this Parliament had been deducted. As the Government intends to relieve the bondholders of that 7£ per cent, tax the gross reduction of 22^ per cent, conforms to the recommend’ation of the experts. The whole of the proposed economies, including the reduction of interest, will meet only one-third of the estimated deficit for the next year. That should impress upon the minds of all of us the very difficult position of Australia and the absolute necessity for the steps which are being taken to promote its financial recovery. The success of the huge conversion loan, whether on a Wave of patriotism’ or because of A popular sense of the urgent necessity for a reduction of interest to a 4 per cent, basis, would be very much less harmful to future conversions than penal taxation which discriminated against bondholders. Such taxation would have a very bad effect indeed, and would make future conversions possible only at rates of interest sufficiently high to cover the extra taxation and the risk of more. The bond.holder would practically have to insure against the possibility of additional penal taxation, and would determine not to invest his money in government stock unless he received a rate of interest that would warrant the risk. If this conversion succeeds, as I believe it will, we
Snail have until 1938 before the shortest term bonds included in the consolidated stock will mature. We all hope that by then we shall be able to look back on the depression as an unpleasant memory; but even if we have completely regained prosperity by 1938 and confidence has been restored, that will not necessarily mean that the consolidated stock will be back to a par basis. The Treasurer recognized that, and stated it very frankly towards the end of his speech on Friday last. We cannot overtook the fact that in attempting to get down to a 4 per cent, basis we are aiming at haM per cent, below the” present world’s rate for countries who’s’e credit is high. The credit of Canada, for instance, stands very high; yet its recent: conversion loan was effected on a basis of 4£ per cent. In endeavouring to get the interest below the rate ruling in countries whose credit is high, there is’ always a danger’ of the stock being at a discount, but I recognize our desperate position and our incapacity to pay more than an average of 4 per cent, to our own bondholders, especially at the present time. Therefore, I certainly shall not criticize the extent of the reduction that is proposed. If the new consolidated stock is spread over the ten different maturing dates proposed in the bill, onetenth of the £556,000,000 will mature on dates ranging from the first in 1938 to the last in 1961, and bondholders a portion of whose bonds mature on the first date of maturity may have considerable holdings maturing later.. That would mean that a bondholder whose holdings were spread over the whole period would have only one-tenth of his holding in the short term securities maturing in 1938, and nine-tenths maturing later. It would be to the interest of the bondholders holding stocks at different dates of maturity to support a conversion loan in 1938, because if the conversion were not a success the value of the nine-tenths of his securities would depreciate. Having holdings spread over the ten different dates will, I contend, be a factor in supporting the market when any one of these currencies mature. When nine-tenths of a bondholder’s bonds are spread over the remaining currencies, it will be to his interest to help in making each conversion a success, and no danger of anything in the nature of a slump .should occur.
– There may be a recurring appeal ?
– Yes. I do not suggest that it would be possible in this or any other country for bonds to maintain a par level with a rate of interest lower than that prevailing in other countries ; but the circumstances I have mentioned would, I think, be a factor in success at periodical conversions.
It seems that a reduction in taxation upon governmental bonds at some future time, when conditions were sufficiently prosperous to enable that to be done, would also assist in strengthening the market, and be some recognition of the fine spirit which we expect to be shown by the bondholders in the proposed conversion. “While every section of the community hopes that prosperity will soon return, wages revert to their old level, and pensions be restored, bondholders are being asked to make sacrifices over a period ranging up to 30 years.
Clause 20 of the bill provides that -
The interest on new securities exchanged for existing securities (other than new securities which in accordance with the provisions of section fourteen of this Act are free from Commonwealth and State Income Tax) shall be free -
from the Commonwealth further tax of seven and one-half per centum imposed by the Income Tax Act (No. 2) 1030;
from any income tax, under the law of the Commonwealth, further or in a higher degree than the taxes (other than the further tax specified in the last preceding paragraph) levied on existing securities at the commencement of this Act; and
from all income tax under the law of a State.
I understand that that clause does not refer merely to immunity from special taxation of interest on government stocks such as the proposed tax of 3s. 6d. in the fi, provided in the bill introduced recently, but that during the currency of the present consolidated stock, no additional income tax of any kind is to be imposed. I should like to be clear as to whether the unemployment taxation, such as that now being levied in some States on the basis of income, and which for that reason can be regarded as a form of income taxation, is included in this promise of immunity from State income tax.
As this Parliament, like all other Parliaments, has no power to bind its successors, it seems necessary to add a clause to the existing financial agreement to insure bondholders from suffering any disability which may arise as the result of the action of future Parliaments in this respect. Such an amendment would require the unanimous consent of the Whole of the parties to the agreement before additional taxation could be imposed upon the bondholders. As this Parliament cannot bind future Parlia-ments, it is essential that some such provision should be made in the financial agreement to which the Commonwealth Government and State Governments are parties. If that were done the danger would be overcome, as it would then be necessary to secure the unanimous consent of all governments concerned before additional taxation could be imposed.
– Would that involve an amendment of the Constitution? “Mr. PATERSON.- No such amendment would be necessary. It would simply mean utilizing the new provision of the Constitution adopted at the last referendum in November, 192S. A clause safeguarding the bondholder from additional taxation, if added to the existing financial agreement between the Commonwealth and the States, could not be amended unless the seven governments concerned concur.
I now wish to say a word or two with respect to the proposal that the assent of those bondholders who do not dissent shall be taken for granted. I say, quite frankly, that in the circumstances I regard that as a justifiable form of pressure, and that without such a provision the success of the proposed conversion would be impossible. I should like to see the proposed loan regarded in other countries as a successful voluntary effort on the part of Australian bondholders to do their duty in saving their country from insolvency. The success of the conversion is bound up in the proposal for assuming the assent of those who do not actually dissent. I believe that if a bondholder were required to take active steps on his own initiative to reduce his interest returns a voluntary conversion would be successful only in Utopia. But in this instance inaction is to be regarded as equivalent to passive acquiescence. Inertia on the part of a bondholder will be a means of achieving complete success. If the bondholder does nothing, the loan should be an unqualified success in a very short time.
– Where is there room * for the exercise of any discretion on the part of the bondholder?
– There is room for a bondholder to help his country simply by abstaining from doing anything.
– What can he do that will be regarded as being opposed to conversion?
– Dissent in writing. The Treasurer (Mr. Theodore) quoted British precedence for the adoption of the principle that silence moms consent. He also quoted one instance in which that practice was departed from and failure resulted. I can imagine the effect upon British investors of a successful voluntary conversion loan in this country. British bondholders, reading a cablegram reporting that the Australian Conversion Loan had been an overwhelming success, that 95 per cent, of the bondholders had agreed to voluntarily sacrifice 22$ per cent, of their interest in order to ensure their country’s solvency, would ascribe the result to a great patriotic impulse throughout the Commonwealth. They would say that a country that could carry out such a huge conversion, and was anxious and determined to overcome its financial difficulty, was one in which they could invest their money with confidence. On the other hand had the Government decided to introduce a bill based upon a drastic compulsory reduction of interest the effect upon our overseas bondholders would be entirely different. If the Commonwealth was breaking its contract by arbitrarily reducing interest, it would soon be thought that the Government might treat its overseas bondholders in the same way. I believe that Parliament is adopting the right method in this connexion.
The right honorable member for North Sydney (Mr. Hughes) alluded to the desirability of taxpayers being permitted to use bonds for the payment of taxation. I can realize the reluctance of the Treasurer to adopt such a proposal, because, as the right honorable member pointed out, the Commonwealth bonds are now worth only from £78 to £80. One can easily visualize a taxpayer liable for a considerable amount in taxation spending £78 or £80 to purchase a £100 bond with which to liquidate a taxation liability of that amount. One indirect effect of such a scheme might be to increase the demand for bonds for that purpose, with the result that values would rise.
While. I understand the reluctance of any Treasurer making provision for even exceptional cases in a bill of this nature, there are certain classes of bondholders whose position deserves special consideration by Parliament. Of course, every law pinches somewhere; but if there is one class of people more than another which we should try to protect from injustice, it is those old people who have denied themselves little comforts and pleasures during their working lives in order to provide for their old use without relying upon the public purse to help them out.
– More sob-stuff!
– =It is not sobstuff. I shall quote some hard figures. I have a tremendous admiration for old people of the class to which I refer. Theirs is a spirit of rugged independence which, I fear, is dying out. The Treasurer said on Friday that the Government would make special provision to meet the case of small bondholders who had £1,000 or less invested, so that the maturity dates would not be spread over the whole period. But there are many old couples with more than £1,000 invested, whose income is less than that of old-age pensioners, who merit every consideration.. I have received a letter from one such person, from which I intend to quote. This person - I shall not mention hi? name, but he represents a distinct class of investors - holds at present £400 worth of 6 per cent, bonds maturing in 1932, £300 worth of 5i per cent, bonds maturing in 1939, and £600 of 5J per cent, maturing in 1933. In addition, he has £700 in the State Savings Bank, which is yielding him 4 per cent. The. interest from all these sources amounts to £98 per annum, and is his and his wife’s sole source of income. He writes as follows : -
Under present conditions this income is insufficient to meet my needs, and I have to live partially upon my capital which, of course, is steadily shrinking. My intention when taking up the bonds was that they would mature in time to meet my needs. But with the new conversion - I am now 75 years old, and not likely to live long enough to see them mature if converted - the interest would not be sufficient to keep me and my wife. I would not be able to carry on. The alternative, it appears, would be taxation heavy enough to reduce the already small income, making my position no better than tlie old-age pensioner. Surely special consideration should be given to cases like mine.
– That man lias an easy way out of his difficulties.
– If he were to sei”, his bonds, he would have to sacrifice very heavily, for the bonds are at present considerable below par on the market. The total income of this man and his wife from these sources is £98 per annum. Assuming that the reduction in interest from all his investments will bo ;.it the rate of 22$ per cent., his income will drop by £22 to £’76 per annum. I ask honorable members to contrast the position of this man with that of an old-aged pensioner and his wife who are in receipt of the full pension. Their present income is £104 per annum. A reduction of 12$ per cent., as proposed, will bring it down to £91 per annum. The old people to whom I first referred, doubtless, worked hard and saved all their lives in order to remain independent of the pension. It seems quite unfair, therefore, that under this economy scheme, they should lose more heavily than pensioners. I point out that an old-age pensioned couple may have an income of £169 per annum; each pensioner is entitled to earn 12s. 6d. per week. A male married pensioner may earn 25s. per week, because, for purposes of the act, half of his earnings ire reckoned as the earnings of his wife A pensioner and his wife, who, in those circumstances, are in receipt of £169 per annum, will have their income reduced by £13 to £156 per annum, whereas the old couple who did their best to make provision for their old age will be obliged to sacrifice £22, which would bring their income down to £76 per annum. I urge the Government to make provision to meet cases of that kind. Unless special arrangements are made for them, they will be treated much more harshly than old-age pensioners. There should be no serious difficulty in making arrangements for more equitable reductions in such cases. For the purposes of my argument it would be fairer to compare with the independent old couple the old-age pensioner couple, who live on the pension alone, and not an old-age pensioner couple who have income from earnings. A reduction of 12$ per cent, on an income of £104 of a pensioner couple would reduce their weekly income to 35s., whereas a reduction of 22$ per cent, on an income of £98 of the independent old couple would reduce their weekly income to only 29s.
– And the money would be taken from them to give to the others.
– That is very true. I admit that it would be unreasonable to ask the Treasurer to make available some special stock at a higher rate of interest in order to cover a comparatively small number of cases of the kind to which I have referred ; but the cases could be met without doing that. I suggest that a bondholder who proves to the satisfaction of the Treasurer, or his deputy, that his total income is not more than a certain amount - I hesitate to state a definite figure, but it should be such as would include all those bondholders whose total income does not exceed that of an oldage couple in receipt of the pension - should not be called upon to make a greater sacrifice than that made by the old-age pensioner, namely, 12$ per cent. The onus of proof would be on the bondholder. If the Treasurer were satisfied as to the bona fides of such persons, I suggest that he could, on their conversion of their present holdings, allocate sufficient extra stock to them to reduce their interest sacrifice to 12$ per cent. These old people, who have shown a priceless spirit of independence, deserve this consideration at the hands of this Parliament. They have claimed nothing from us in the way of pensions, and they should not be treated worse than old-age pensioners.
I wish also to direct the attention of the Treasurer to the position of certain charitable institutions which may be harshly treated unless their circumstances are met. I have in mind the case of a bush nursing centre committee, which, for a number of years, has been collecting money for the purpose of building a hospital. They have £1,500 in hand, and for convenience and ease of handling, they have invested the money in 6 per cent, stock maturing in 1932. They have already commenced to build their hospital. If they had to sell their bonds at present they would lose £270. If, on the other hand, they are forced to convert their holdings, the maturity date will be deferred until at least 1938. These people require their money. It is not fair to put them in the position of having to dissent, although it would, apparently, be of advantage to be a dissentient. We should, if we can, avoid forcing people into that position. It should be possible for them to say to the Treasurer: “We are willing to convert provided that the Government will, in our special circumstances, enable us to redeem our bonds in 1932.”
I wish to say a few words about the tables in the appendices to the bill. They are most useful for showing the extent of the premium or discount which various bondholders may hope, or fear, to get. The honorable member for Adelaide (Mr. Yates) said, with truth, the other day, that the majority of the people who invested in the 1930 loan took up 6 per cent, stock for two years in preference to 5f per cent, stock for ten years, or 5-J per cent, stock for twenty years. But it will be seen by reference to the tables to this bill that those who invested in the 6 per cent, stock will get a premium in the new stock of something less than 1 per cent., whereas those who invested their money for ten or twenty years will get a premium of £3 10s. The advantage is, therefore, not necessarily with those who invested their money for1 the shorter period.
In conclusion, I wish to refer briefly to the additional relief which we may expect in our interest payments if the negotiations at present proceeding in regard to oversea war debts are successful. We should be very grateful to the United States of America and to the Mother Country, from which we all sprang, for the additional help that may be given to us. I sincerely hope that it will be possible to give effect to President Hoover’s plan. The little country from which we, or our ancestors, came has stood up to her war obligations in a way which entitles her to the admiration of the world. Hitherto she has met her war obligations and paid her way despite default, or partial default, by some of her own debtors. Now she is prepared to shoulder an additional loss of £11,000,000 and to take her place in the very forefront of those who are showing a willingness to help the world to economic stability. It makes us proud of our connexion with the Mother Country. I hope that by means of this bill we shall be able to carry out the conversion operation successfully, thus extricating Australia from her difficulties and restoring the credit of this country in the eyes of the world. [Quorum formed.]
.- The right honorable member for North Sydney (Mr. Hughes), when speaking this afternoon, gave one the impression that he had not a very high regard for the patriotism of the money lenders. The statement was characteristic of the right honorable gentleman. I recall, in the early days of the war, a circular, issued under his authority as Prime Minister, to all adult male citizens of the Commonwealth, asking them to state their age, whether they had offered for active service, and, if not, to furnish the reasons. The executive of the New South Wales Labour Party suggested to the right honorable gentleman that he should issue another questionnaire asking people how much money they had offered voluntarily to the nation for the prosecution of the war, and if they had not already furnished funds in this way, were they prepared to do so. The Prime Minister took the first train from Melbourne to Sydney to consult with the executive. In a discussion that ensued upon its proposal, he pointed out that it was impossible to ask people to give money voluntarily for war purposes but, by a process of reasoning entirely his own, he indicated that it was not impossible to ask them to give their lives. “ These men,” he said, referring to money lenders, generally, “will not give their money, they would rather give their lives than their money. I would rather give my own life than my money.” And that has been the position all through the piece. We are in our present desperate situation as a nation because people with money to invest have never been willing to place it at the service of the country.
Since the commencement of this debate on the Government’s proposals, the House has been treated to a great deal of sob- stuff about the position of widows, workers, and orphans whose money, we are told, is invested in government loans. Honorable members opposite have taken advantage of every opportunity to dilate upon that aspect of our difficulties. They remind one of the walrus in Alien Through the Looking Glass, they think that “ the time has come to talk of many things.” In this debate honorable members have been talking of many things, and particularly of the position of the unfortunate workers, the widows, the orphans and others whose money, they say, has been invested in government loans. The fate of these small investors, they suggest, will be the same as that which in those verses is related of the oyster; they will be eaten up, economically. They ignore, or entirely overlook, the fact that, while a considerable portion of the workers’ savings might have been invested in government issues, practically all small investors have been forced, by economic pressure, to realize on their holdings, with the result that, for the most part, government loans are now in the hands of banking institutions, insurance companies, stock-jobbers and others. This being so, it is obvious that those honorable members who whole-heartedly support the Government’s proposals are talking with their tongues in their cheeks when they enlarge upon the sacrifices that are to be asked of these small investors. The generous response made by the workers when the appeal was made to their patriotism during the war, to invest in war loans, now enables men like the honorable member for Wilmot (Mr. Lyons), the right honorable member for North Sydney (Mr. Hughes), the honorable member for Gippsland (Mr. Paterson), the Treasurer (Mr. Theodore) and all other government supporters to indulge in sobstuff about the investments of the workers. I estimate the amount of bonds so held to be not more than approximately £2,000,000 out of a total of £550,000,000, representing the total internal indebtedness of the Commonwealth and States.
Much has been said about equality of sacrifice. Under this scheme bondholders will drop 1 per cent., and in some cases less than 1 per cent., in interest. The honorable member for Gippsland more than once mentioned the position of our old-age pensioners. Apparently the honorable gentleman begrudges the small amount which they receive from the Commonwealth. The sacrifices demanded of them is greater than that required of bondholders. A person holding 5 . per cent, securities to the value of £1,000 gets £50 per annum. A tax of 22$ per cent, represents about £11 on £50. But there is the other side to this picture. If this plan is adopted in its entirety, there must be a substantial deflation in the value of wages, with a consequent lowering of prices, because that was the declared intention of the Premiers in conference. This will mean that in twelve months or eighteen months, the value of the new security, judged by its purchasing power, may be anything from £1,100 to £1,300. In other words, a contribution of £11 by a bondholder with £1,000 worth of Government securities may mean an increase in the value of his principal by perhaps about £300. Under this scheme there will be no come-back like that for the worker whose wages will be reduced, or for the old-age pensioner. But there will be a comeback for Ministers in this Government. What they may lose in salary they will make up in allowances. In other words, what they lose on the merrygorounds they will pick up on the razzledazzle.
Supporters of the Government’s proposals declare that they must be accepted, otherwise the nation will default. I believe that the greatest service which the Government could do to bondholders would be not to pay them their money, because, under existing circumstances, they can find no useful investment for it. With bankruptcies being reported on every hand, and a condition of depression obtaining, not only in Australia, but throughout the ‘ world, would any sane investor put his money into industrial enterprises or into houses for the benefit of workless workers? If bondholders were suddenly repaid the loans due to them they would be hard put to it to find avenues for investment. They would consider themselves lucky if, outside of government securities, they could get a return of 2 per cent. They know only too well that if they invested in business enterprises, they would be exposed to the risk of losing, not only their interest, but also their capital. In the circumstances it is undeniable that under this scheme investors in government loans are to be presented with gilt-edged securities guaranteeing to them a fixed interest return year after year and, through the operation of the economic law, which will become inevitable in the working of this plan, the purchasing power of the interest return on their investment will be increased from year to year. This then, is the sacrifice which the bondholders are to he called upon to make ! They will be given an absolute guarantee that their principal will remain intact for a period of 40 years, during which time they will draw, at least, a reasonable return from the investment. If this avenue were closed to them they would be forced either to invest in commercial ventures or place the money on current account with one of the banks, because there is no investment in this or any other country - assuming that they could transfer their capital abroad - which would give them a better return with equal security. “We must expect Commonwealth revenue to shrink, because the plan, in operation, will accentuate the depression and, with a steadily decreasing revenue a return of 4 per cent, on government securities - the interest rate ought to be 2 per cent, if sacrifices by bondholders are to be comparable with sacrifices by wage-earners - will be quite satisfactory. As a matter of fact, twelve months hence, it will be more difficult to find 4 per cent, than it is to pay 5 per cent, or 6 per cent. now. I predict that, in the course of a few months, there will be a further conference and another agreement, to overcome the difficulties then confronting the Commonwealth.
The debate on these government proposals, supported as they- are by honorable members opposite, suggests that this House has become a mutual admiration society. The Treasurer (Mr. Theodore) did not always hold the view which he enunciated in support of this, the ‘ Government’s latest scheme, to restore the finances of the Commonwealth. This is what the honorable gentleman said in
July, 1929, when speaking to miners in the Newcastle district -
Statistics showed that a very small percentage of these loans was subscribed out of the savings of the ordinary people, and the actual implication was they were being subscribed by the coal barons, ship-owners, and big business men from the profits of industry.
Then, stealing a phrase much used by Mr. King O’Malley, the Treasurer, who was then Deputy Leader of the Labour party, dealt scathingly with the “ gilded roosters “ who were securing such a good return from their investments in these loans. He went on to single out one big business man who, some years ago, he said, made a great demonstration of investing £1,000,000 in Commonwealth loans, and was now drawing a steady income of £55,000 a year without any of the risks attached to a similar investment in business enterprises. That was the view of the Treasurer when in Opposition, and hoping one day to become Treasurer of the Commonwealth. It is in striking contrast with opinions expressed by the honorable gentleman now that he is, as he believes, firmly entrenched on the treasury bench. His latest utterance appears in to-day’s Sydney Morning Herald. The honorable gentleman seems determined to outbid even the Minister for Trade and Customs (Mr. Forde) in the extravagance of his promises, and I should add that his public statements, like those of his colleague, usually have no foundation. This is what the Treasurer is reported in the Sydney Morning Herald to have said -
If the conversion loan succeeded quickly, and the Premiers’ plan was generally adopted, Australia would see the making of a new country in three months’ time.
I pledge my political life and reputation in the prophecy that the operation of the plan will not have that effect. I challenge the Treasurer to do likewise.
– There is a gang in Sydney, led by Mr. Lang, who are endeavouring to prevent the success of the plan.
– Now speaks another member of the Mutual Admiration Society! A week or two ago the honorable member for Wide “Bay (Mr. Corser) was one of the most bitter opponents of the Treasurer. To-day he is one of his chief apologists - ready almost to feed out of the Treasurer’s hand. All that has happened in this House during the last week or two proves conclusively the truth of our criticism that the finance and economic measures now being sponsored by this Government, are the proposals of the Nationalist, Country party, and other oppositionists in this chamber. This is an attempt, by a Government that is well acquainted with the fundamental principles of the Labour movement in regard to finance, to engraft the system of capitalist finance on the nation for the next 40 years. Should a genuine Labour government obtain possession of the treasury bench in the future, and endeavour to give effect to Labour’s policy, honorable members opposite will be enabled to accuse it of tearing up a scrap of paper and of violating sacred obligations covered by an enactment of Parliament. After its experience of the last twelve months, the Labour movement will endorse only those who will make some pretence, at any rate, at carrying out its policy. The right honorable member for North Sydney has said, “ “We have to tell the bondholders that we have not the money with which to pay them “. We have never had that money. When this £400,000,000 was floated, Australia did not possess £65,000,000 of legal money. It borrowed, not money, but bank credits. If every person in the community were stripped of all that he possessed in legal money, it would be found that there was not £60,000,000 of real money in Australia. There is no money except that which is created by a government, in the economic structure ofeither this or any other country. There is not £20,000,000 sterling in Australia to-day. What we call money is the banknote which is brought into existence by governments, and even that does not aggregate £65,000,000. The issue of notes has never exceeded £70,000,000 even when there was a large addition to the number printed.Last year the banks owed their depositors £308,000,000, and the amount in the Government Savings banks was £270,000,000. What are we trying to persuade ourselves that we can do? Whenever this matter is discussed, honorable members talk about inflation. Apparently they do not know that the currency consists of bank credits, which can be manipulated without any check. Those who are principally responsible for the closing of the Government Savings Bank of New South Wales are Mr. Buttenshaw and Mr. Bavin. They were guilty of a deliberate conspiracy. But that institution is sounder to-day with its doors closed than is any private banking institution with its doors open.
– I rise to a point of order. Is the honorable member in order in accusing two members of another Parliament of a deliberate conspiracy to close the Government Savings Bank of New South Wales?
– I am empowered to intervene only when an honorable member reflects upon members of this legislature or of the judiciary or the representative of the Crown.
– The honorable member knows that what I have said is correct; and he glories in it.
– I rise to a point of order. I take strong exception to the statement of the honorable member that I know that what he has said is correct, and that I glory in it.
– If the statement is personally offensive to the honorable member, I ask the honorable member for Werriwa to withdraw it.
– It is very offensive to me.
– I withdraw the statement. I repeat that this debt was piled up in Australia not by borrowing money, but simply- by obtaining bank credit - a currency forged by the hanks. I defy contradiction of the statement that if there were any inflation it occurred when these loans were floated for war purposes. Huge amounts were made available by means of bank credits for the purchase of war material and the payment of our soldiers. [Quorum formed.] Whatever be the form into which these loans are turned to-day - whether it be that of interest bearing bonds, non-interest hearing bonds, or non-interest bearing accounts in a national bank - the volume of inflation will not he added to one iota. What is referred to as the Gibbons plan, which the Treasurer has been accused of having originated, would at least have enabled a commencement to be made with the policy of the Labour party in regard to finance. It proposed that the Commonwealth Bank should function in such a way as to provide for the requirements of the nation in a loan and revenue sense for a period of twelve months. The loans as they were floated were .to be taken up by the Commonwealth Bank, and bank credits made available. The inflow and outflow of revenues were to be operated by the bank under an ordinary overdraft arrangement, the revenues being paid in and cheques drawn against them. If the Commonwealth Bank were made secure against a raid by the associated banks, every penny of this £550,000,000 could be given back to the bondholders in the form of bank credits, which was the form in which it was borrowed. It would be necessary to make a simple amendment to the Commonwealth Bank Act, so as to bring that institution into line with the Bank of England, and enable it to operate for the benefit of the nation as the Bank of England -has operated by law for the benefit of private bankers for a period of 50 or 60 years - a law passed in England at the request of bankers, for the purpose of stabilizing the banking system of Great Britain. We should so amend our act as to make it impossible for any banking or other financial institution to operate on the reserve of the Commonwealth Bank. The honorable member for Henty (Mr. Gullett) smiles. I am prepared to debate this matter with him in his electorate at any time that he chooses, and thus afford him an opportunity to prove that I am the economic ass which he endeavours to make this House believe that I am. He has not the courage to accept my challenge, because he knows that his arguments cannot prevail against mine in the minds of the people. Honorable members say that the issuing of bank credits is inflation. I repeat that the inflation took place when these loans were floated. These bonds are negotiable to-day on the Stock Exchange. They are being used in many cases for the purpose of making deposits on homes, and for the purchase of big city properties as well as in other business transactions. Some time before I entered this Parliament I sold a small business, and the man who purchased it from me asked whether I would accept a £500 bond as part payment. That is being done every day in the week. Not one penny of these credits would have any effect on price levels unless the owners of the credits released them by purchasing commodities. If a person has a bond for £100 or £1,000, and that is converted by this plan into another form of bond,’ is it likely that the owner will go about squandering it until nothing is left? The position will be as it was before. If this chamber were stacked with banknotes from floor to ceiling it would not affect the economic condition of the nation one iota unless the money were distributed among the people and used as a purchasing agent. It does not matter what economic authorities honorable members opposite quote, it is an indisputable fact there can be no inflation until the symbols of credit are utilized as purchasing agents.
Honorable members ask what security will be behind the new bonds. What is behind the thousand million pounds that Australia owes? Nothing but the good name of the nation, and the taxable capacity of its people. Our credit is sustained by the simple faith of our people and of overseas borrowers who invest their money here. Whether these securities are in the form of pieces of paper called bonds, or of a book entry in a ledger, the position is the same. The Treasurer (Mr. Theodore) has asked for an alternative policy to that propounded by him. I refer him to the economic policy of the Labour party, which, I admit, is sometimes departed from, but is, nevertheless, available to the Government.
In conclusion I emphasize the different points that I have enunciated. First, that inflation took place when our war loans were floated, and the purchasing power of the bonds was thrown into our economic arrangements by buying equipment for our soldiers, and so forth. Secondly, that the form in which inflation exists to-day is that of interest-bearing bonds, for which future generations willi be taxed for all time to pay the interest. Thirdly, the transferring of those credit symbols from interest-bearing bonds into figures in a ledger, with no interest-bear- ing capacity, can by no stretch of imagination be claimed to be additional inflation.
– What does the honorable member think of this bill?
– I believe that it merely perpetuates the capitalistic system of finance against which Labour has already stood. I have suggested a sound alternative. If it is not accepted this year or next year, the country may struggle on for a while longer, but eventually, and probably within our lifetime, the existing economic system will crash about our ears, and be replaced by the only sane alternative, that which I have enunciated.
Sitting suspended from 6.11 to 8 p.m.
.- The bill before us is one of a number designed to rehabilitate our national finances. As such I cordially support it, although naturally I deplore the circumstances which compel us as a nation to ask the bondholders for a variation of their contract in favour of the Government. As one of the borrowers - the term includes us all - I regard the proposal before us with a certain sense of shame; but that sense of shame is not nearly so acute in relation to the interest payable to bondholders as it is in regard to the proposal to reduce the pensions of returned soldiers. Nevertheless, a voluntary reduction of interest on loans, and of pensions, including those of returned soldiers, is necessary if this country is to emerge from its present state of chaos.
The proposals before us are not unprecedented, nor are they so extraordinary as their critics would have us believe. As I see it, the position is that bondholders who have invested in Australian internal loans have now discovered that their investment is not so completely sound as they previously believed it to be. It has been our proud boast that British bonds are as good as gold; but, unhappily, Australian bonds have now been discovered to be not quite so good as gold. It is unfortunate that Australia is the first British dominion to be compelled to take this action; but I think we should bear in mind that hitherto British bonds have not been tested as they were tested during the Great War, and its aftermath. I make no apology for saying that the interest paid on Australian bonds clearly indicated that a certain element of risk was associated with them. That risk was cheerfully and selectively faced when investors chose our bonds in preferenceto others. Stripped of all sentiment, the cold fact remains that there is a risk associated with all government ‘bonds. That risk has always been present; it will always remain.
– There is a risk associated with both government and private loans.
– It is generally accepted that there is a risk in investing in private loans; and despite the tradition to the contrary, there has always been, and there always will be, a risk in connexion with government loans, not excepting those of British governments.
– There would be no differentiation in the price of loans otherwise.
– That is so. It is’ not often that I find myself in agreement with the Treasurer (Mr. Theodore). When government loans bear interest at 6 per cent or 6£ per cent., it is obvious that a certain risk is associated with those so-called gilt-edge securities.
The present is not the first occasion on which Australia has approached her bondholders for relief. Not only this, but also the Bruce-Page Government approached the Government of Britain with a view to obtaining some relief from our war indebtedness.
– That was different.
– The honorable member may argue that that was an intergovernmental debt. We did not owe that money to the British Government as such ; we owed it to the people of Britain. Had we secured relief from that indebtedness, it would have been a case of default by agreement in the same way that the proposals now before us mean default by agreement.
– There was no definite agreement in the other case.
– A request for relief was made. The two cases are “ all square “. Recently, when Britain agreed to postpone certain interest payments due by Australia, and thereby’ penalized her own people, we applauded her action.
This measure proposes to do what was done then. The two cases are identical. There is no .more cause for shame in this proposal than there was in the other.
– This is not a proposal, but an intimation.
– I regret that the honorable member for Fawkner (Mr. Maxwell) reiterates that these proposals are in reality a compulsory reduction. His attitude and that of the right honorable member for North Sydney (Mr. Hughes) will not benefit this country or the Empire to which we belong. On the face of it, the bill provides for a voluntary conversion. If the honorable member for Fawkner desires to go behind the bill he may do so; but I shall not. I am sorry that he says that its provisions amount to compulsion; that bondholders have no alternative to coming under the scheme, that, in fact, the gun is loaded against them. If the bondholders accept the proposals - as I believe they will - and agree to a voluntary reduction of interest, Australia will have greater reason ‘to be proud of her citizens for their action than for anything they have done, apart from the war. If we appeal to the patriotism of our people, and urge them to convert their holdings for the good of the nation, I believe that the appeal will not be in vain.
As I have said, the proposal before us is not so unprecedented or so extraordinary as its critics would have us believe. “What is the Hoover proposal that we have so applauded, but an admission by the greatest creditor nation in the world, that it is not in the interest of civilization that the debtor nations should be called upon to pay the whole of their debts when they fall due ? If we acquiesce in the Hoover plan, we acquiesce in principles which are precisely the same as those underlying the proposals now before us. They are an admission that Australia, a debtor nation, cannot pay full interest upon her internal debts ; and that for the benefit of all concerned it ought not be called upon to pay it. Happily, the greatest creditor nation in the world, admits that, in the interests of civilization, debtor nations should be granted some relief. Although I regard this bill with a certain sense of shame, I believe that it is absolutely necessary for the salvation of our finances and the welfare of the people of Australia, and indeed, of the Empire as a whole. It is unfortunate that Australia should be the first unit in the Empire to be compelled to follow this thorny path. But how far ahead of the rest of the world are we in that respect?
– Six months.
– Does any honorable member believe that Great Britain can continue to carry her present internal indebtedness? Having lived for a number of years in Britain, I know its people and have a fair knowledge of its relative wealth as compared with our own, and I say that Britain cannot continue to carry her present burden. “When referring to our desperate financial plight I have always expressed the opinion that
Ave should hang on as long as possible, in the belief that sooner or later there would be a general easing of the position as between nation and nation and creditor and debtor.
In my opinion, the term “gilt-edged security “ is true only in a relative sense. There is no such thing as a 100 per cent, security in the case of any government. There never has been, and there never will be.
– The public thought that there was.
– Not those who stopped to think. Has the security of any continental nation, which participated in the Great “War, proved, since the war, to be gilt-edged ? I do not know of an instance. Did the Southern States of America meet their obligations completely after the Civil “War?
– The honorable member should confine himself to British countries.
– I am taking the world as a whole. Notwithstanding that I regard this measure with a sense of shame, I do not look upon it as the end of Australian morality. A reduction by 22$ per cent, of the interest on bonds is. not nearly so difficult to justify as is a reduction of soldiers’ pensions. In the past, the Australian bond has proved to be a gilt-edged security. Has any other security in Australia stood up nearly as well during this crisis? At its present market level, our bond has a higher purchasing capacity than when it stood at par, and that is the best test of its relative value as a gilt-edged security. One can buy more of almost anything I can think of with the bond at its present market rate than when it was at par.
I suggest that the bondholder may well accept this conversion scheme without groat sense of hardship. The important thing to do now in the interests of the bondholder is to keep his capital intact, and that is what is intended, not only under the present measure, but under all the rehabilitation proposals of the Government. The purpose of the bill is to save our credit, to keep our name high, and to ensure a tolerable money market in the years to come. -At its present price, say, £S5, an Australian bond will buy more of anything I know of in this country than £100 would purchase three years ago.
– What about those in the seventies?
– It is true even of the seventies. Take 20 or 30 stock exchange quotations, from pastoral propositions to real estate, and a reduction of less than 30 per cent, cannot be shown. Every bondholder becomes a partner in the finances of the nation. He is in precisely the same position as a debentureholder. Nobody would suggest that a debenture-holder takes no risk at all. A bondholder cannot escape full partnership, not only in the prosperity of the nation, but also in the vicissitudes of its fortunes.
– That is the weakest argument that the honorable member has ever advanced.
– I know that the honorable member disagrees with me, but I shall touch the deeper aspect of the matter in a few moments. I believe in facing the realities of the situation, and speaking frankly.
Australia is a democracy controlled by a Parliament elected on an adult franchise. Most of the reductions which are to be made under the Government’s proposals apply to what may be termed poor man’s money. There are to be reductions of pensions, of wages, and of salaries of public servants. In the main, the Public Service cuts will come out of the wages of those in the lower grades of the Service, down to the family man living on a few pounds a week. There is to be no exception, and I claim that all of these reductions are to be on a voluntary basis, including those of bondholders, because none of them will endure unless endorsed at the next general election. If there should be a mass adverse vote by all who are affected directly, and closely indirectly, by these cuts, there will be a restoration to the old level, though not to the old payments. Therefore, in a sense, these reductions are all to be submitted to the people, and endorsed by them, if they are to stand.
– There is no escaping that.
– That principle applies as much to the public servants and the pensioners as to the bondholders - a-ll the reductions are subject to endorsement by a popular vote. In a democracy we cannot make the necessary reduction of expenditure wholly out of poor man’s money, and win out with .it at the polls. I agree that the bulk of our bonds are held by persons of relatively small means, but there is a difference between any bondholder and a pensioner. The pensioners believe that a great many of the bondholders are persons of wealth, and if there is to be equality of sacrifice, the contract with the bondholders, greatly as I deplore it, must be waived and interest must come down.
– Yes. I am sorry to hear the honorable gentleman making this voluntary conversion as difficult as possible. Anybody could take up the perfectly obvious attitude of the honorable member.
– Does the honorable member say that he agrees with my view, but does not express it?
– I say that this is a voluntary measure. The bill, as it stands, carries no suggestion of a breach of contract. This voluntary proposal was substituted at the Melbourne conference for a compulsory proposal. Should we not accept it at its face value, and put the proposal to the people as expressed in the bill? Sub-clause 4 of clause 12 states -
Where dissent in accordance with this section is signified and the existing securities are securities other than Inscribed Stock, such securities shall accompany the notice of dissent and thereupon be exchanged for Commonwealth Government Inscribed Stock conforming with the conditions of the existing securities in respect of duration, redemption, rate of interest and in all other respects…..
We shall be doing no service to Australia by suggesting that behind this measure there is compulsion. The Prime Minister, the Treasurer and the State Premiers deliberately removed the element of compulsion from the. scheme.
– What will happen if nobody converts?
– It is easy to distrust our people in this matter. Speaking on the Debt Conversion Agreement Bill last week, I said that Australia had always treated its people with remarkable generosity. That is true, but I think that it is equally true that successive generations of Australians have served this country well, from the days of the earliest navigators and explorers and the pastoral pioneers down to the time of the late war. I believe completely that, in the present crisis, the spirit of service will prove to be high in the bondholders, and if honorable members on all sides unite wholeheartedly in an appeal to the public, we shall obtain very nearly a 100 per cent, assent to the voluntary conversion scheme.
Summing up my views, I first of all express my profound regret and disappointment, as an Australian, that a proposal of this kind should come before this National Assembly. I take second place to no honorable member in my regret that it is necessary to consider such a measure ; but, having said that, I submit that the bondholder does not find himself to-day in possession of a really discredited stock. The stock that he subscribed for has proved relatively giltedged, and quite the best investment in this country for the past two or three years. In other words, the Australian bond has survived the shock of the economic storm extraordinarily well. If we unite to bring about the success of this voluntary conversion, it is my firm belief that we shall maintain the confidence of the money market in the Australian bond, and in the Australian nation. That should be our great objective. Three or four alternative proposals have been mentioned. There was straight- out compulsion, and then there was a proposal to defer payment of part of the interest, and owe it to the bondholders. Under the plan which the present voluntary scheme superseded, it was suggested that we should advocate conversion on a voluntary basis, but with the express determination that, if the bond were not voluntarily converted, punitive taxation should be imposed. I dislike punitive or compulsory measures, because I am not one of those heroes in this House who declare that it would be a good thing if we never borrowed again in our time. I do not believe that it is possible for this young country to carry on development, and maintain public services, without a certain amount of loan money in the very near future, and even in years to come; but I would not like to return to borrowing on the old, disastrously high scale. If we compulsorily reduce interest on our loans, if we flagrantly and openly break our contract with the bondholder, we shall not be able to borrow a penny in this country during the next generation or two. That accounts for my dislike to anything in the nature of compulsion, apart altogether from the moral aspect of the matter. But if we are able to convince the bondholders that Australia has not really failed them badly, that the sacrifice which we are asking of them is relatively not nearly as heavy as we are demanding of other classes of the community, we may bring about this voluntary conversion, derive great benefit from the exercise of the national spirit behind it, and still carry our credit high. Therefore, I shall support this measure with much satisfaction through all its stages.
– If the forms of the House permitted, I should have much pleasure in moving that the apology of the honorable member for Henty (Mr. Gullett) be accepted. No doubt it is rather embarrassing for him, and others on his side of the House, to have to accept this measure, which, beyond doubt, is a repudiation of the contract with bondholders, when only a few months ago any suggestion for a reduction of interest or alteration of the contract would have been scorned as something unworthy of discussion, either in this Parliament, or among decent members of the community.
These is ho doubt that until recently that was their attitude, but mow it seems to have changed. I take this .opportunity, also, of reminding the honorable member for Maribyrnong ( Mr. Fenton) with whom I was associated for some time as a member of the .Government, that whenever the subject of interest reduction was discussed in government circles, the only answer we could get from the Acting Treasurer ,of that day (Mr. Lyons) w,as .that “Sir Robert -Gibson was (attending to this matter., and that it would soon be fixed up. The matter dragged on for many months, and I -am convinced that neither Sir Robert Gibson, Mr. Davidson, nor Mr. Tranter, on behalf of the private banks, had any intention of doing anything in regard to it until .they were actually forced to do it. Nothing would have been done yet had not the subject been brought forward by the New .South Wales Premier (Mr. Lang) at the Premiers Conference in February of this year.
So far most honorable members who have spoken on this proposal have approved of the voluntary nature of the conversion. I do not approve of allowing a voluntary conversion of bonds while the Government is arbitrarily imposing sacrifices upon sections of the community other than bondholders. In any case, I do not .agree that the reduction of interest proposed in the ;plan -will involve -any neal sacrifice on the part of the -bondholders. This is borne out,ewen by the statements issued .regularly by the Prime Minister’s Department. .Owing to the fall in prices within the last year or .two, the return from Government bonds, even -at 4 .per cent., will >be worth as much ito the bondholders as was the return previously obtained at 5£ per cent. A .statement to this effect was issued by the Government itself when it .planned to impose a super tax .of .3s. .6d. in .the £1 .on the income received from -bonds. At that time the Government put forward ;a programme for the economic rehabilitation of Australia, and declared its -intention ito ‘Stand or fall by its ^proposals. The programme included the fiduciary note issue, and certain proposals .regarding the -control of the -Commonwealth’ Bank. I-n -the course >of a month or 30, however, all that went by the board. As ‘I have pointed out before, the Government has now .abandoned the Labour policy which it claimed and advocated &t that time, an.d has accepted the policy of the United tor Nationalist party, holus-bolus. When the 3s. 6d. in the £1 super tax -was proposed by the Government, it issued the following statement : -
The Government securities to which this tax will apply were, -in -Mie main, subscribed for by the public between the years 1925 and 1929. The loans, totalling £453,000,000, to which this tax will apply, were subscribed for either as new .loans, or as conversions, after the beginning of 1’935. Between 1925 and 1929 .money had less -value than to-day. The loans were subscribed when money w.as less valuable than it is now.
Money to-day is much more valuable than it was in 1925. From the beginning to the end of 1930 money values appreciated by more than 30 per cent. If the general ‘level of commodity prices falls by 25’ per cent. - in other words, if the purchasing power of money .increases by 25 per cent. - ;a contract entered into before the fall in commodity prices will compel the debtor to give the creditor more goods, to the extent of 25 per cent, than the two parties had bargained for.
The statement then goes on to deal with the £2S,000,000 loan conversion -
Approximately £28,000,000 has to be distributed among the holders of Australian securities who are domiciled in this country, and ‘that -has a value equivalent to that of commodities, .25 per cent, .greater than three years ago.
That was the ‘Government’s own case in favour of the 3s. 6d. in the £1 super tax. We, therefore, Have -.the Government’s own statement in support of my contention .that, even under this conversion proposal, ‘the bondholders will not make any real sacrifice. It has yet to be seen whether the Government’s plan will be accepted, but it would appear that,, with the help of the .Opposition, the Government Will get its proposals through Parliament. If -that plan is adopted, the sacrifice, so-called, to be made by the ‘bondholders, will not at all compare with that, for instance, demanded .of incapacitated -soldiers, and old-age ;and invalid (pensioners. According to the pla;n, 2s. >6d. a week is to be deducted from the payments to old-age pensioners, but that does not represent the full extent of their loss. It -is obvious from w.hat the Treasurer has said that the conditions governing the granting -of pensions .will be altered .to such an extent that at least 25 per cent, or 30 per cent, of those now in receipt of pensions will cease to receive them. A heavy sacrifice will also be demanded of the returned soldiers. As the honorable member for Richmond (Mr. R. Green) pointed out, the greater the incapacity of a returned soldier the greater the sacrifice which will be demanded of him, because not only will he suffer a pension cut, but certain allowances are to be taken from him. There is not the slightest doubt that the pensioners will be compelled to make sacrifices under the plan, but the bondholders, I maintain, will not make any sacrifice at all.
Part of the Government economy plan deals with the reduction of salaries and wages throughout the Public Service. I listened attentively to the speech of the Leader of the Opposition (Mr. Lyons), which consisted mainly of a wail of sympathy with the unfortunate bondholders, but contained very few references to the losses which are to be suffered by the workers, although he still endeavours to maintain his sympathy for them. No one can deny that the workers as a body have, during the last few years, made big sacrifices all along the line. The Arbitration Court has, figuratively speaking, cut them to pieces, besides which large numbers of them have had to submit to rationing, while many more have lost their employment altogether. They have suffered in this way untold hardship, while all the time the bondholders have demanded, and received, their full pound of flesh. Up to now bondholders have drawn their full rate of interest, and it ill becomes honorable members opposite to raise a wail of pity on their behalf.
I am not here to defend the interests of the bondholders, because they are obtaining all the assistance they require from both sides of the House, but nobody seems to care much about the workers. If it is good enough for the Government, and those who support it, to cut arbitrarily the wages of the workers and alter their conditions, it is good enough to apply the same treatment to the bondholders. Not only is the Government cutting wages, but it is also taking Steps to alter the conditions of employment, a matter which comes under the heading of adjustable expenditure. Wage rates are governed, to a large extent, by the Statistician’s figures as revealed in the cost of living index, but conditions of employment have been won largely by the efforts of the workers through their organizations, and it is particularly reprehensible that those conditions should be tampered with by a Labour Government. Indeed, I have been informed that this interference has already been carried some distance by the Government. It has to be admitted that, under present economic conditions the strength of the workers’ organizations is not so great as it would be in normal times. They cannot be expected to fight as strenuously for their rights as at ordinary times, and this so-called Labour Government is taking advantage of the fact to reduce their wages, and arbitrarily vary the conditions of their employment.
Surely the workers have as much right to consideration as has any other class of the community. Is there any honorable member in this chamber who will argue that invalided soldiers are not entitled to as much consideration as the bondholders? After all, they took the risk of losing their lives, and very many of them have actually lost their health. What risk did the bondholders take who put their money into war loans and gilt-edged securities? They did not even take the same risk as did those who invested their money in ordinary industrial undertakings. So long as constitutional government obtains, their money is as safe as if they held it in gold, silver or notes. They took virtually no risk whatever, but the man or woman who invests money in private undertakings takes all the risk associated with the carrying on of industry. That is why I protest strongly against the action of the Government which, accepting the decisions of the Premiers Conference, proposes to differentiate between the ‘bondholders and other sections of the community. As I have said, if it is good enough to deal arbitrarily with wage-earners and pensioners, it is equally good enough to deal in the same fashion with the bondholders. That is my attitude.
Another peculiar aspect of this proposal is that bondholders are to be exempt from future taxation. Is not the interest of the country as much their concern as that of anybody else? Why should they be exempt from future taxation? The bondholders should not be a privileged class, receiving further special and preferential treatment.
– They will be subjectto the existing heavy property rates.
– But it is proposed under this bill that bondholders shall not be called upon to pay any future taxation.
– They will not be called upon to pay any increased taxation.
– Any increased taxation must be future taxation, and I strongly object to such concessions. Quite a lot has been said about appealing to the patriotic sense of the bondholders, but we must admit that very little patriotism was displayed by them in respect of the loan conversion of £28,000,000. That loan had to be made very attractive to them, by a process well known to honorable members, and it placed about £200,000 of additional burden upon the taxpayers of this country by increasing the interest rate from 4 per cent, to 6 per cent.
This is the first opportunity I have had of referring to an undesirable feature of that loan conversion. When it was under way a number of large manufacturers in the various States adopted measures which actually forced their employees to take up bonds. For instance, the BritishAustralasian Tobacco Company, of Sydney, applied what might be termed a process of economic pressure to its employees, because if they refused to carry out the instructions of the directors of the company to ‘ take up bonds they were likely to jeopardize their employment. That company, to make it possible for its employees to subscribe to the loan, arranged for weekly or fortnightly wage deductions over periods of from eighteen months to two years at a time when these workers could ill afford to have any deductions made from their wages. There was no need for the big manufacturers to go to those lengths to secure the success of the conversion loan, but their action was designed to spread as many bonds as possible over the workers so that it would assist them in the propaganda regarding the large number of small subscribers, and was in keeping with that of honorable members opposite, who, as the honorable member for Werriwa (Mr. Lazzarini) has said, used “ sob-stuff “ to try to gather in a number of small subscribers to the loan. They, of course, realize that a £10 bond represents to the small bondholder as much as a £1,000 bond does to a large bondholder. I know that that practice was resorted to by the big manufacturers, because at the time, the organization concerned brought the matter under my notice and asked my advice. It waspointed out to me that the employers had made it plain that if their employees did not take up bonds there was every likelihood of their next pay envelope containing a note to the effect that their services were no longer required.
When the Labour party decided to postpone for twelve months the proposals that were submitted by the present Leader of the Opposition (Mr. Lyons), that honorable member, calling the proposal repudiation, rushed out of caucus to receive the support of the Baillieu press. We are all agreed that the boost that he then received placed him in the position which he occupies to-day over the heads of many members of the Nationalist party who had hitherto borne the heat and burden of the day. They have had to take a back seat, but I think only for a short time. With respect to appeals for voluntary subscriptions, let me quote the experience of New South Wales recently when the combined churches endeavoured to raise funds to assist the sick and the needy. There was a great flourish of trumpets. The people were asked to subscribe voluntarily to assist the hospitals. A lot of money was spent in advertising and the appeal was given a hig kick off. We know what happened. The Associated Press through advertisement receipts, secured most of the benefit of that appeal. They obtained a very decent swag out of the funds. I hope later to be able to give the actual amount. No more humane appeal could be made to the people than one to assist the hospitals, and yet the wealthy people saw fit to remain aloof from it. I am satisfied “that they will adopt a similar attitude towards this proposal unless they are forced to convert.
– Recently an appeal was made for the blind of Victoria and in three months the sum of £41,000 was subscribed.
– I think that that appeal was made generally throughout Australia, because honorable members themselves received circulars, asking for subscriptions. I am indeed pleased to hear that the appeal was a success.
I wish now to refer to what has been described as a wonderful gesture by the President of the United States of America. We have had the same old stuff about generosity, &c, trotted out; we have been told how this offer should be received with open arms .and of the great good it will do. We have been told of the generosity which the United States of America, as a creditor nation, has extended to. the debtor nations. Is it not remarkable that when a foreign country finds itself unable to meet its debts, its creditors have no difficulty in providing the means to enable it to tide over its difficulties? In such cases we hear nothing about the need to restore confidence in these countries as we are hearing from the Government and the Nationalists of the great need to restore confidence in Australia before assistance can be given. There is no effort on the part of the creditor nations to ascertain what the debtor nation is doing to balance its budget. Honorable members must have noticed, within the last few days, press reports to the effect that there has been an amalgamated effort on the part of the Bank of England, the Bank of France, and the Central Bank of New York, to make available £20,000,000 to the Reichsbank of Berlin to enable Germany to pay its police and military forces. Only a week ago the Bank of England also made £4,000,000 available to Austria, an ex-enemy country, to tide that country over its difficulties. I do not know whether an expert inquiry was made into the financial position of Austria, or whether they were considering the -workers there, or if any steps were taken beforehand to restore confidence in that country.’ Nevertheless, whatever the circumstances may be, Great Britain does not hesitate to assist foreign nations whenever the call is made. The facts cannot be hidden any longer. The average person in this community is awake to the manipulation of international finance that takes place to-day, and to the fact that talk of the restoration of confidence and the need to balance the budget, is mere claptrap. When the investments of British capitalists in foreign countries are menaced, and there is the danger, as there is in Germany today, of the Government being overthrown, assistance is soon forthcoming. Honorable members opposite have referred to Sovietism, and my answer to them is that no doctrine that can be regarded as detrimental to the interests of the community will live in any country the Government of which is honouring its obligations to the people. When the people are living in reasonable comfort and under decent standards of living, there is no need or urge to agitate for a change. In Germany the government of the day has failed to honour its obligations to the people, and it has no longer the right to exist, but it is vitally necessary to outside capitalists to protect their interests there, and hence they rush to give financial aid.
Thousands of our unfortunate citizens are to-day unemployed, ‘and on the verge of starvation; but the Bank of England, which is closely associated with the Commonwealth Bank, refuses to make a shilling available to assist them. It is recognized in foreign lands that an unemployment percentage of between 20 per cent, and ‘25 per cent, marks the danger line, and once that stage is reached by any nation, its creditors rush to its assistance. Great Britain is now assisting a country against which it will be remembered, particularly by the returned soldiers, the doctrine of hatred was preached throughout the British Empire. I ask those who took part m the Great War, to throw their minds back to the time when they were associated with that struggle, and to compare the position then with the position of to-day. The Bank of England, together with the Bank of France and the Central Bank of New York, is making available £20,000,000 to Germany, but not one single shilling to Australia to help it in its time of stress. Our returned soldiers are to suffer reductions in their pensions, and the greater the degree of incapacitation on their part, the greater is to be the sacrifice.
This is the so-called democracy to which the honorable member for Henty (Mr. Gullett) referred. He said that we were living in a democracy; that we make our decisions per medium of the ballot box; and that every three years or less, according to the circumstances, honorable members were elected to this Parliament to give effect to the policy as enunciated by them on the hustings. What has this Government done to give effect to its policy as indicated per medium of the ballot box? The members of the Government must admit that they have not governed since they gained office, but that Sir Robert Gibson, along with the directors of the private banks, have been the real dictators as to what should be done in this time of crisis. They told the Government that unless it did certain things, it would obtain no accommodation from them. Is this a democracy? It certainly is not what is regarded as a democracy.
One thing which appeals to me more than anything at the present time is that the further we enter into the existing process of social evolution, the more we expose the sham and farce of our system of government. The other day, when speaking on the subject of the shipment of £5,000,000 of gold abroad, I said that I welcomed the opportunity to express the views of the party which I represent, and at the same time to expose our opponents who have prattled so much about the necessity for having a 25 per cent, backing to our note issue.
– Why did not the honorable member resign from the Government?
– I regarded the eve of the New South Wales election of October last as the psychological moment for me to make a declaration of my position, and. to show who was really governing in Australia. My efforts were fairly successful. Just, as it is open to any honorable member to choose the time which best suits him to remain in this House, or to determine the course which best suits his own interests or those of the people he represents, it was open to me to take the course which I took in regard to the affairs of the present Government. I refuse to be associated with a so-called Labour Government which has declared for a course so flagrantly at variance with the principles of Labour. The Government ‘s now taking steps which, as the honorable member for Werriwa (Mr. Lazzarini) has said on many occasions, are merely a temporary expedient to tide them over this financial crisis, instead of sticking to the policy of the Labour party. Possibly, within three months, or even a shorter period, we shall have another revision of policy, and be asked to sanction further cuts in wages and pensions. In conclusion, I say to those whose wages and pensions are to be attacked in an arbitrary fashion, and with an utter disregard for their circumstances, that they should rise and organize, and with all the force at their command, and in the four corners of this country, show the present Government up in its true light to the people.
– I view this matter in very much the same light as other honorable members who have preceded me. I am prepared to admit that in the proposals before us to-day there is technical repudiation.
– There is actual repudiation.
– There is some actual breaking of contracts, and my only reason for giving my support to the Government’s proposals is that the alternative proposals are calculated to inflict even greater hardship and privation, and to fall more heavily on the people than those which are before the country to-day. These are certainly bad enough, and I vote for them and speak in favour of them with the utmost reluctance, but if any one can put forward any scheme under which any section of the community can, in fairness, be absolved from any share in the sacrifice which it is proposed it should make, I am prepared to support it. To me the stern choice seems to lie between worse disabilities and those which will be imposed under the Government’s proposals.
I have already protested against the gibes that have been uttered from time to time in this chamber, and elsewhere, against the bondholders, those who have loaned money to the Governments of the Commonwealth and the States, as if they had done something for which they should be blamed. One would think to listen to some people that the bondholder was an opprobrious kind of person, indulging in some unfair operation at the expense of the public and his fellow citizens. The position is the very opposite. The Governments have asked the people of Australia- for their money, and have said that they will pay certain interest for the use of it. They have taken the money and used it on social services, public works, and so forth, possibly wasting a great deal of it, and, in some cases, they have refused to pay the interest which they have contracted to pay. Tin; bondholder is not the wealthy man several honorable members have said that he is. According to the honorable member for “Werriwa (Mr. Lazzarini), the bondholders to-day are the banks, the stockjobbers, and the wealthy people of this country.
– In the main, the honorable member is right.
– In the main, he does not know what he is talking about, nor does the honorable member for Adelaide (Mr. Yates), because about £26,000,000 represents all that the banks have in our internal indebtedness of £556,000,000.
– How does the honorable member know that?
– It was mentioned at the Premiers Conference in Melbourne.
– The joint stock banks hold stock valued at £20,000,000.
– Yet the honorable member for Adelaide still persists in his absurd suggestion that the banks of this country are its bondholders ; he persists in stating what is obviously not a fact. In the Senate recently, in answer to a question, it was pointed out that the total number of individual subscriptions of persons or bodies in respect of loans floated up to the present, is 1,441,448. Another question asked was the number of subscriptions by indi viduals whose amounts were £500 or less, and the total amount of such subscriptions. The reply given was that information was not available regarding conversion applications in respect of loans from February, 1918, to July, 1923, but that in respect of all other loans, 1,215,149 citizens of the Commonwealth had taken up bonds of £500 or less, amounting in the aggregate to £13S,9S2,151. Yet some honorable members say that the bondholders, who have been asked to make a sacrifice of 22^ per cent, of their capita], are the wealthy persons of this country.
– Treasury figures show that the public holds £329,000,000 of Australia’s internal debt.
– I am pointing out that of the people who are asked to make this reduction in their capital, there are at least 1,215,149 whose individual interest in the loan ranges from £10 up to £500, and that an attack upon the bondholder is really an attack upon the decent, thrifty, saving people of this country. I protest against it as strongly as I possibly can. After all, the bondholder of this country has put his money into a form of national saving, and has been asked to take his money out of the savings bank, and put it into Government bonds, because an investment in Government bonds is a form of national saving.
The best class of people in this country, and those who are playing the best part in building it up, are the thrifty, saving section who are represented in the bondholders of Australia, and particularly in that class I have referred to in the figures I have quoted. Yet men in this House say that they are not entitled to the interest which the Government has contracted to pay them, and belittle the sacrifice they are being asked to make. As a matter of fact, the sacrifice that many of those small bondholders are being asked to make is very considerable. I have received letters from people who have scraped up enough money to invest it in Government bonds with a view to getting a return of a couple of hundred pounds a year, not much more than could be got by an old-age pensioner. “With this income they are keeping themselves and unmarried daughters and others. They have written to me asking what they are going to do with the diminution in their income that these proposals entail. I am perfectly sure that the hardship that they are being called upon to face is as great as that which is being faced by any other section of the community.
– There will be cases of hardship like that.
– There is no doubt there will be. But they will require to be faced in the interests of the country, simply because Parliament and the Government cannot put forward any other proposals seemingly fairer than those which we are now considering.
– And really in their own interests as well.
– I was coming to that point. The one thing that reconciles me to these proposals, so far as these bondholders are concerned, is that they at least can keep their capital intact.
The honorable member for West Sydney (Mr. Beasley) said that the bondholder is to suffer no hardship, because the amount he will receive from a 4 per cent, loan will buy as much as he could buy with what he received formerly. If the honorable member argues that the bondholder is making no sacrifice because of the decreased cost of living, and because money will buy to-day as much as the higher amount would have bought some time ago, he can also argue that no sacrifice is being made by any section of the people with whom we are dealing at the present moment - including old-age pensioners and soldiers. Such argument is absurd. The honorable member for Henty (Mr. Gullett) also spoke similarly of the diminished income buying as much as the higher amounts.
The honorable member for West Sydney (Mr. Beasley) said that for years bondholders have been obtaining a higher income by investing, not in industrial stocks, but in what he described as gilt-edged securities backed by the Government, and by the resources of the nation, which in effect, he said, could not fail. I said to him by way of interjection to which he refused to listen that the same promises were made in regard to the Government Savings Bank of New South Wales. No greater promises could have been made by any government than were made to the workers and the people who put their savings into that bank. The workers were assured that their deposits were secure for all time, and in all circumstances, and they put their money into that institution under those conditions. Yet the honorable member chose to ignore my interjection and argued that people secured a better investment by purchasing Government bonds than by putting their money into industrial stock which returned a higher rate of interest.
The honorable member for Henty (Mr. Gullett), on the other hand, advanced the extraordinary view that, with government loans in every country an element of risk is associated. I have never previously heard that, when a government issues a loan prospectus, the people who invest their money in the loan are taking a risk. To-day people are paying an adverse exchange of 30 per cent, in order to transfer their money to Great Britain, because they believe, as I believe, that British consols and other securities issued by the Government are gilt-edged and free of risk. Australian stocks should be equally sound. The view is generally accepted that public men, instead of investing their money in risky business ventures which might prove embarrassing to them in their official relationships, should invest in government stock at a lower rate of interest; they would thus have security, together with immunity from possible embarrassment. There are others who, rather than take the risk of commercial investments, prefer to forgo the chance of high returns in order to enjoy that security which is supposed to attend investment in government stocks. I have always believed that, when a government undertook to pay a certain rate of interest, it would do so even if the Government had to resort to additional taxation for the purpose. The statement that there is an element of risk in these business relations between governments and citizens is a view which never previously, to my knowledge, had been uttered. The honorable member for Henty went «o far as to say that Great Britain would not be able to pay her way in future as she is doing to-day. Who constituted the honorable member an authority on the finances of the United Kingdom? His remarks have not shaken my faith in the security of British consols, or the ability of the United Kingdom to manage its affairs better than we manage ours, and to continue to pay its. way and honorably acquit itself of all its undertakings, as it has done in the past. The honorable member has no right to belittle the United Kingdom by making statements which he cannot substantiate. [Quorum formed.]
The honorable member for West Sydney (Mr. Beasley) has supported Mr. Lang in his refusal to pay interest on money lent by the people of the United Kingdom to the Government of New South Wales ; yet the honorable member has the audacity and effrontery to whine about the action of the Mother Country in advancing money to Germany, Austria and other countries which are honorably meeting their interest bills. Apparently he thinks that, although New South Wales has repudiated its contracts, Great Britain should still pour money into that State.
– He did not say that.
– In effect, he did. He complained that the United Kingdom had lent £4,000,000 to Austria, and in co-operation with the Central Bank of New York and the Bank ofFrance was maintaining the solvency of Germany in the present financial and economic crisis. How can. he expect Great Britain to lend money to New South Wales when the Premier of that State refuses to pay interest on borrowed money already expended, and the ‘benefits of which the citizens of the State are to-day enjoying? If a person to whom the honorable member had lent £10 refused to pay interest on the debt or repay the principal, would the honorable member volunteer another loan to him ? Certainly he would not; yet he expects such magnanimity of Great Britain.
– Was not the United Kingdom given a respite of three years with respect to its war debt to the United States of America?
– It is time that that canard was exploded. If the honorable member will take the trouble to acquaint himself with the facts he will find that, although the payment of interest was deferred for a period, that interest was added to the principal. The original debt was £800,000,000 odd, and to-day, Great Britain is paying interest on about £1,000,000,000. Great Britain is now, as always, following the honorable course. It has never repudiated a contract.
I have little fault to find with the provisions, of the hill, although with the Leader of the Opposition (Mr. Lyons), 1 should like some relief to be given to small bondholders - persons holding not more than £1,000 worth of Government stock. If possible, such holders should be repaid their principal if they cannot afford to lend it to the Government at the reduced rate of interest. I appeal to the Treasurer to consider what can be done for persons of that class.
– Where would the Trea surer get the money with which to redeem the bonds?
– The honorable member forFremantle has so often talked of extensions of credit that I thought he might help the Treasurer to obtain such an extension for the benefit of the small bondholders. I do not suggest, however, a resort to anything in the nature of inflation, because even a hint of inflation would at this stage have a most injurious effect; the bondholder faced with a loss of 22½ per cent. in respect of the interest payable to him, and fearing a further scaling down of his capital by inflation, would refuse to convert.
As to the voluntary nature of this proposal, the honorable member for Henty has appealed to us to be frank and honest. If we are, we must recognize that at one stage of the Melbourne conference there was a definite pronouncement in favour of compulsion. Now, however, the conversion is to be projected on a voluntary basis, and I shall say nothing more on that phase, beyond asking myself what will happen to the holder who does not respond to the Government’s invitation? I am prepared to join those who say that this is a voluntary loan, and to appeal to the general public to make the sacrifice that is being asked of them by investing their money in the new consolidated stock. I have already done that on various platforms since this scheme was mooted, and I am prepared to continue to urge the people to make the loan a success. The bill proposes that the bondholder shall have the right to intimate his unwillingness to convert, and that failing an intimation of dissent, his assent shall be assumed. That is a wise provision which has been included in other large conversions bills. There are many people who if asked to go to the bank and sign a form authorizing the conversion of their stock, or if asked even to communicate with the Government, will neglect to do so; they prefer their minds to be made up for them, and are content to know that if they do not signify dissent their securities will be automatically converted. That is a prudent and commonsense provision.
I do not intend to discuss the proposed reductions of old-age, invalid and war pensions. Repeatedly I have said that if any scheme can be evolved for the rehabilitation of the national finances without imposing the proposed sacrifices on all sections of the community, I shall be glad to support it. In the absence of the alternative, I shall vote for this scheme because, severe as it is, I fear that worse will befall us if we do not accept it. I believe it will be a means of re-establishing the credit of the country and rendering further sacrifice unnecessary. If bondholders, pensioners, public servants, business men and others will unite in a patriotic resolve to reestablish Australia on a sound economic and financial basis, and co-operate wholeheartedly and enthusiastically to that end, the country will be again facing the sun within a very short space of time, and entering upon a new era of prosperity.
– I do not feel disposed to express myself upon this measure other than to say that I disapprove of it, because it is nothing but repudiation naked and unashamed. It is our duty to honour our obligations, and had we adopted the proper means we should have been able to do so. It is my intention to move to the motion before the House an amendment which has been prompted by the precedents quoted by the Treasurer (Mr. Theodore) in moving the second reading of the bill. On that occasion he gave precedents which, in his opinion, justified the Government in submitting this proposal. He also stated that the proposed Commonwealth conversion loan is probably unprecedented in its magnitude. In looking up the particulars of the large conversions to which the Treasurer referred, I find that in 1822, Mr. Vansittart, the then Chancellor of the Exchequer of Great Britain, converted a 5 per cent, loan, amounting to £152,000,000. That was followed in 1824 by the raising of a loan by Mr. Robinson. I presume that the Treasurer is au fait with the statements made by Mr. Goschen in which he referred to the precedents that led up to the British Government taking the action it did on that occasion. The loan raised by Robinson, was followed by another raised by Goulburn in 1830, and following that a similar loan was raised in 1834 by Lord Althorp. Then followed the loan with which the late Right Honorable W. E. Gladstone was associated, and which, the Treasurer said, was not a success because it was not provided that failure to notify dissent would be taken as giving assent. The Treasurer, in giving reasons why the conversion loan put on the market by Gladstone was not a success, did not say, as the records disclose, that its failure was due to international complication which arose. Because the terms of the conversion loan at that time did not contain a provision similar to that contained in this bill the inference drawn was that it was unsuccessful on that account. Goschen paid tribute to the efforts of Gladstone and condoled with him in the circumstances in which he was confronted in carrying out a big conversion at that time.
– Gladstone in speaking of the 1888 conversion, congratulated Goschen on his proposal.
– I have read the report of the proceedings in the British Parliamentary Debates of the 9th March, 1888, on page 731, of which reference is made to Gladstone’s attempt to convert a large loan in that yea-r. The point [ desire to make is that no attempt was made by Goschen to hide the fact that the conversion was under compulsion. Mr. Goschen, when addressing the honorable member for Edinburgh (Mr. Childers), said, as reported on page 718 -
My right honorable friend did not say that compulsion should never be tried, but he said that he desired to make the first attempt one of agreement rather than of compulsion.
Most of his comments were to the effect that if the Government should fail to come to a decision Parliament should have the right to decide at what time dissentients should be paid. Under Mr. Vansittart’s proposal the Government had the right to convert £152,000,000 worth of bonds, which was a very large order, but only £3,000,000 worth had to be paid off. The compulsory part of the measure was that dissentients were at the tender mercy of the Government, which could decide whether they should be paid off immediately, within six or twelve months, or at the will of the Government. This clearly conveys, to my mind, that Great Britain was in difficulties during the time Gladstone floated the big conversion loan, because, if the position were favorable, the Government, which had the savings banks behind it, would have ‘been able to meet the claims of dissentients. Goschen said -
Consider for a moment the immense resources at the disposal of the Government. In 1844 there were under £30,000,000 in the hands Of the Savings Banks Commissioners; but I ask the committee, to remember that that fund, which is at the disposal of the Government for assisting them in transactions of this kind, at the present time, instead of being £30,000,000 is £00,000,000 immediately available to be utilized, if Parliament thinks fit, and safely utilized, in paying off dissentients.
At that time the British authorities were not in a position at all comparable with that of Australia. According . to the opening remarks of Mr. Goschen, British consols at that time had fallen far below those of the railway stock. They were beginning to decline, and the Government was not getting any advantage.
The point I wish to emphasize is that the records clearly show that the British Government did not hesitate to ask bondholders to do their duty to the nation. When one has entered into a definite undertaking, that undertaking
Ifr. Yates. must be honoured until circumstances arise when it is impossible to do so. I do not admit that Australia has reached that position. Had it not been for the mess made by preceding governments we should be able to meet our obligations, and would not be in the discreditable position of reducing invalid and old-age and warpensions, and whittling down the conditions of our people. It is because I am opposed to such a policy that I proposeto move an amendment, to which effect should be given. As a member of the British Commonwealth of Nations, Australia is entitled to ask British bondholders to accept conditions similar tothose which we are imposing upon our own bondholders. I move -
That all the words after “Bill” be omitted, with a view to insert in lieu thereof the words, “be withdrawn, with a view to incorporating provisions so that the act shall apply to overseas bondholders domiciled in Great Britain.”
– Where is our legislative authority to act in that direction?
– We can pass legislation under which we can refuse to pay British bondholders a higher rate of interest than we are paying bondholders in this country. If we can reduce the rate of interest paid to bondholders in Australia, we can with equal justification reduce the rate paid to overseas bondholders. If there is anything in the loyalty and fealty concerning which we hear so much, bondholders domiciled in Britain should not object to receive interest at the same rate as is proposed to be paid to bondholders in Australia. If there is anything wrong with Australia it is in respect of its management; it is that which has been responsible for our present financial drift. If the policy proposed is to be adopted, I challenge the Government and its supporters to carry it to it9 logical conclusion, and to reduce the rate of interest paid to holders of Australian stock domiciled in Great Britain. I do not suggest that bondholders resident in America be asked to make the same sacrifice, as that country is not in the same category-. We can at least ask our own kith and kin in Great Britain with whom we have traded so extensively for years, and who have found in Australia, with the exception of India, their best customer, to make some sacrifice. In the circumstances I feel justified in testing the statesmanship and sincerity of the present Government in insuring that there shall be equality of sacrifice.
– I second the amendment.
Question - That the words proposed to be omitted (Mr. Yates’s amendment) stand part of the question - put. The House divided. (Mr. Speaker - Hon. Norman Makin.)
Majority . . . . 31
Question so resolved in theaffirmative.
.- This bill provides for the conversion of the internal public debt of the Commonwealth, and I feel that I should make a few remarks upon it. I am most anxious to assist the Government in putting into effect the general plan adopted by the conference of Premiers. My only regret is that during the past twelve months the Government has not adopted methods which would have made unnecessary the drastic action that is now being taken. Many crocodile tears have been shed by honorable members because of interference with the solemn contracts made by the various governments with our bondholders. I was surprised to find such complete agreement between the Treasurer (Mr. Theodore) and the honorable member for Henty (Mr. Gullett) on this subject, and still more surprised to hear such extraordinary arguments adduced by the honorable member for Henty in support of this bill. The honorable gentleman referred particularly to the fact that certain non-British countries had seen fit to interfere with their solemn contracts. He instanced what had been done by South American republics.
– I did not; I referred to the southern States of the American Union.
– I am. surprised that the honorable member should even suggest that those countries are a pattern for Australia. I could not follow the honorable gentleman when he said that the bondholders had made selective investments because they had been offered high rates of interest. I consider that the majority of the bondholders invested in government securities because they regarded them as being absolutely safe. We know perfectly well that those who are looking for high rates of interest on their capital must necessarily take risks in their investments. Investors who want security are prepared to accept a lower rate of interest, and hitherto they have invested their money in Government bonds because they have regarded the contract as inviolable.
Reference has been made during this debate to the £28,000,000 conversion loan floated last year. We know that, during the campaign in support of that loan, wireless broadcasting, the post office, the press, and every other means of propaganda were used. Many appeals were made to the people to invest their money in the loan, because it had the security of the Government behind it. The Prime Minister, in one appeal, said -
The outstanding feature of an investment in the Commonwealth Government loan is its unimpeachable security. The whole of the national resources of Australia are pledged to the prompt and regular payment of interest and to the redemption of the loans at maturity. There is an absence of worry, risk, or trouble in an investment in a government loan.
Those remarks are characteristic of appeals that have been, made by various Australian governments from time to time. The people of Australia had formed the habit of believing that Commonwealth bonds were an unimpeachable security. I do not think we should try to disguise facts or to deceive ourselves in approaching a subject like this. The Commonwealth is undoubtedly in a bad way financially, and the Government is being called upon, to face many serious problems. I am certain that every member of the House sympathizes with all sections of the people who are being called upon to make sacrifices at this time. I am satisfied that sacrifices are necessary, but I shall be disappointed if this Parliament is not prepared to do justice, so far as that is humanly possible, to every class in the community.
It is true that our annual interest bill of £55,000,000 is a staggering load to a population of 6,000,000; but I do not agree that our interest rates are unduly high. When money is scarce it is dear. If a risk is at all suspicious, a high rate of interest is always demanded. There has been competition for money for many years in Australia. The various governments have been almost entirely to blame for this. The savings banks have raised their rates of interest in order to compete with the private banks; and the private banks have thereupon offered still higher rates in order to attract business.
I agree that at a time like the present our bondholders should be asked to contribute something to enable us to meet our obligations. The question is what is the best way to ask them to contribute so that they will not feel that they have been deceived by the various govern* ments. I consider that it is absolutely unfair to ask the bondholders to convert their present holdings into long-term securities at a very much lower rate of interest than they are at present receiving. The proposed reduction of 22% per cent, in interest rates is reasonable in the circumstances, but the method by which it is to be applied is not reasonable. I strongly object to forcing bondholders whose contracts expire this year, next year, or a few years hence, to convert their holdings into securities maturing over a period of from 7 to 30 years.
The great majority of them will, of course, be lucky if they are able to get their money in less than thirty years from now. This will be a great injustice and a great inconvenience to tens of thousands of the best people in the community. By “ the best people “ I mean the people who have been thrifty, and who have saved money to make provision for the future. It has become a practice in Australia to cultivate extravagant habits. Most of our men and women have dressed well, and lived well, and have denied themselves nothing in the way of pleasure. Another section, instead of spending every penny they earn, put by a few pounds for their future requirements. By their thrift these people are responsible for the successful flotation of government loans from time to time, and they are deserving of every possible consideration that can be extended to them. It would be most unjust to compel them to convert into long-dated Commonwealth bond securities which are repayable within the next year or two. If it is at all practicable, an amount equivalent to a reduction of 22% per cent, in interest should be taken from them in the form of special taxation rather than by this gigantic conversion scheme.
I have discussed this proposal with members of my own party, and I have to admit that my views have not received sympathetic consideration, nor have I seen, in the leading columns of the press, comments in support of it. On the other hand, I have not heard any argument to convince me that it is inadvisable. Australia will not always be suffering from this depression. I have no doubt that, within a few years, we shall enjoy a return to prosperity. As a public man I know how easy it is to develop an agitation for the restoration of wages and pension payments, and I contend that bondholders should be put in exactly the same position as other sections of the community that are called upon to make sacrifices at this time. To many people these sacrifices will be merely temporary. They will be called upon to make their contribution by way of taxation, so that when prosperity returns this, or some future Government, could gradually ease the burden. I submit that the thrifty people among us who have supplied money to our governments for purposes of development should receive the same treatment.
I do not wish to say too much about the voluntary aspect of this conversion scheme, but I do not think we can go on deceiving any one outside when we speak of it as a voluntary scheme, lt is perfectly obvious, from the discussion which took place at the conference of Premiers, and from remarks made during the course of this debate, that bondholders who refuse to convert voluntarily will be penalized, in the first place, by having their interest withheld until they communicate with the Treasury and, later, by some method of compulsion, probably in the way of special taxation. The mask which has screened this proposal is gradually being torn away, and we see it in its true light. The honorable member for Corangamite (Mr. Crouch) this afternoon spoke of this scheme as being the first bite into the interest payments received by bondholders, and added that he had not the slightest doubt that in the very near future, further cuts would be necessary. Other honorable members have spoken in a similar strain.
We know perfectly well that, if confidence were restored in the governments of this country, the exchange position would become easier. At the present time the adverse exchange is costing the Commonwealth about £10,000,000 a year. A saving of this sum would represent three times the amount of revenue now asked for from the bondholders.
I hope that, when he rises to close the debate, the Treasurer will have something to say in answer to my suggestion, and tell me what is the objection to the special taxation of bondholders, instead of requiring them to accept this conversion scheme, which will tie up their investments for periods ranging from seven years to 30 years. I have already expressed my views with regard to the general plan. I have said that, in the committee stages of the bill, I shall endeavour to ensure that justice is done to all sections of the community, including bondholders. If I fail I feel th at I shall have done my duty, and I shall support the conversion scheme in the hope that the plan will be carried out faithfully by the Commonwealth and State Governments in the interests of our people.
.- During the discussion at the Premiers Conference we were led to believe that a reduction of interest would apply not only to government loans, but also to all private loans and mortgages. The interest burden presses heavily upon our primary industries. Our wool and wheat-growers, faced with falling incomes, are not able to employ the necessary labour. For the most part thi primary producer is over capitalised. During a period of prosperity, due to uniformly high price-levels for outexports, farmers acquired land at high values, and now that prices are low, they are unable to carry on. A woolgrower, in what might be regarded as a small way, on an area with a carrying capacity of from 6,000 to 7,000 sheep, finds it extremely difficult, with wool at its present prices, to make a living. In all. probability, he bought sheep at from 20s. to 25s. a head and has an overdraft with the bank of £10,000. Before he can take anything for himself he has to find £700 a year in payment of interest on his overdraft, and, at ruling prices, it is almost impossible to do that. The interest burden is responsible for much of our present unemployment. We are told that a reduction in bank rates is part of the rehabilitation plan agreed upon at the conference in Melbourne, but I fail to see how it will benefit substantially our primary producers and consumers. All governments borrowed heavily during prosperous years, and made what are regarded as sacred contracts with investors in government loans required for the development of this country. Included in those developmental works are concrete roads which are used by motor vehicles in competition with the railway systems of the different States. This expenditure was not productive. We are now experiencing one of the leanest periods in our history, for although we are producing abundantly of wool, wheat and other primary products, prices are so low that great numbers of our people are in a condition of poverty.
A good deal has been said regarding the sacrifices that are to be made by bondholders. I have no grievance against the bondholder. He was induced by specious arguments during the war to invest his money in loans ; and only six months ago, he was induced to believe that Commonwealth bonds were as good as gold. But let us consider the case of the soldier who went overseas. The capital that he possessed was his life, and he staked it all. That was his sacrifice at a time of national crisis. Many of the people who were willing at that time to conscript for war service those who would not enlist voluntarily, to-day do not believe in the conscription of a portion of their incomes or in the making of a sacrifice which cannot be regarded as in any way comparable with that made by a man who went overseas, leaving a wife or a mother entirely dependent upon him, and who, in many cases left the whole of his capital on the fields of Flanders. Then there is the oldage pensioner, who put his capita! into industry for the development of this country. It is not given to everybody to be a bondholder. Many of these men, after struggling for years in industry, find themselves discarded because of invalidity or retired because of old-age, and they are compelled to live on £1 a week. “We are not asking them to consent to a reduction of 12-J per cent., but are making that reduction autocratically. Of what benefit will these measures bc to anybody? “What work will this make possible? “We are told that the deficits of the Commonwealth and the States will be reduced.
Towards the end of last year an emergency session of this Parliament was held. It was then suggested that a loan be floated, covering a period of two years. The majority of the members of this party informed the then Treasurer, the honorable member for “Wilmot (Mr. Lyons), that Australia could not continue to carry the existing interest burden, and that the bondholder should be. asked to accept a lower rate of interest, the Commonwealth Bank being called upon to underwrite the amount held by those who would not convert voluntarily, under a scheme that would return them 3 per cent. “When that proposal was expounded it was termed repudiation, and it was pre- dieted that the result would be the destruction of the currency and a loss of confidence. Professor Copland, Professor Shann, and the gentleman who is now Acting Commonwealth Statistician, argued that the proposal represented inflation. Yet in a report which they, as experts, furnished to the Melbourne conference, they made the following statement : -
So that those not consenting might be repaid the conversion loan would need to be underwritten by the banks, insurance companies, &c. As private debts would not be included in the reductions of the rates of interest, the conversion operations should be accompanied by simultaneous reduction of bank interest rates and mortgage rates. Legislation would be needed to empower trustee companies and others to convert their holdings into the new loan.
Under their suggestion there could be a much greater degree of inflation than under any proposal suggested by a Labour member. If the 1,500,000 persons referred to by the, honorable member for “Warringah (Mr. Parkhill) as holding bonds of between £5 and £500 do not wish or are not in a position to convert, what would be wrong with the amount of their investment being underwritten and with their being paid off that to which they are entitled? “What would they do with the capital sum if it were returned to them? They would have to find some other investment for it. In many cases, it would bc put into industry; and that which did not find its way directly into industry would be deposited in a savings bank or placed at fixed deposit in a trading bank, and thereby would be made available for development.
– In New South “Wales, as the Government Savings Bank is closed, in some case, it would be placed for safe keeping in the chimney.
– The closing of the Government Savings Bank of New South “Wales is the fault, not of the people who are endeavouring to-day to create employment, but of the politicians who are responsible for the difficulties in which we now find ourselves. “What were the assets of that bank? Did it not have the backing of the people of New South “Wales? Had the commissioners carried out their contract, and seen that the money owing to the depositors was paid, the existing position would not have arisen. The hardship caused by the closing of this bank is in the case of many persons much greater than that which will be caused by a reduction of 22$ per cent, in the interest rates. The propaganda that is being carried on against New South Wales will go a long way towards creating a lack of confidence. The criticisms that have been offered of, and the propaganda against, this. Government since its return to power, have done quite a lot to destroy the confidence of the people in this country, and have undeceived those who believed that the electors had control of the Government of this country.
It is the banks, which have held up this Government at the point of the pistol during the last eighteen months, that govern this country. It is said that a change of government would lead to money being made available ; that means that credit is available for a Government willing to do the bank’s bidding. It has also been argued that a fiduciary note issue of £18,000,000 would be inflation. Tho experts who condemned the fiduciary note issue as inflation are the very individuals who recommend this plan which will, if agreed to, mean inflation to the extent of £560,000,000. So much for the opinion of the experts. And when the Government gets this money it will merely reduce the deficit and not be used for development. No good will come of the scheme unless it provides for the release of new currency. We are told that thi3 year the country will have to pay an additional £3,000,000 for unemployment relief. What a prospect!
The experts say that the result of this legislation will be the restoration of confidence. They even claim that additional employment will be provided. Let me examine the position. Queensland has done everything to obey the dictates of its political masters. The Moore Government has reduced the wages of public servants by over 20 per cent., dismissed between 3,000 and 4,000 railway men, and closed down public works all over the State. Last year Queensland had a deficit of £1,700,000, and it now has a greater unemployment record than has been the case for many years. For over twelve months South Australia has reduced the wages of its public servants. That State has been living on money that was left in the Loan Council by a Queensland Labour administration. It has not opened up new land or works, or made available new jobs. So that all these specious promises really have no basis of fact. They certainly do nothing to relieve our primary producers, who still have to pay their rates to the local authorities and full interest to the banks. Australia has between 300,000 and 400,000 out of work, but no serious attempt has been made to reduce administrative costs. The same number of heads are operating in every State and Commonwealth department.
A reduction of interest will not bring about the prosperity that is predicted. Legislation that was previously proposed by this Government would have reduced interest to the extent of 3s. 6d. in the £1. That was rejected as “ repudiation “. This plan is just as much repudiation as was anything ever introduced by this Government. The experts who condemned the policy and proposals of this party have made recommendations which are acceptable to the Nationalist party, because they force this Government to do something that it did not want to do - the dirty work of Nationalism; that is, reduce old-age and invalid pensions; and threaten, the recipients that if they do not accept a reduction of 2s. 6d. a week now the Government will have to default and pay only 12s. 6d. in the £1. What guarantee have we that there will be no default next year, with a resultant payment of 12s. 6d. in the £1? There is none. The threat that was made to pensioners must also apply to bondholders. The overseas prices of our exports have fallen. We have increased our production, and that, together with our high interest bill, and the great fall in the prices of our exportable commodities, will give the Government considerable concern next year. How can a reduction of interest on bonds to 4 per cent, effect a solution of the problem ? This plan contains nothing except an expression of hope that, as a result of its operating, something will be done to relieve matters.
I know hundreds of primary producers in Queensland and New South Wales, men who are in a small way, and who provide a good deal of employment, who will be drastically affected by this proposal on account of the reduced purchasing power of the people. . When a reduction of interest rates takes place the value of their land will fall, and they will be hunted off their holdings by the banks and financial institutions who have them in their grip. A new group of “ mugs “ will then be put in their place, and so the vicious circle will continue. The Government should realize that the unemployment problem can be solved, to a great extent, by making available to our workless the land on which it was proposed to put immigrants. Unless Australia does that, and increases its exports, there is no way out of the difficulty.
It is anticipated that the reduction in interest rates will give the Government £6,000,000 per annum which will go towards balancing the budget. What worries me is the case of our aged and infirm. The Government should make provision for a superannuation scheme, and compel everyone to make regular contributions to provide them with pensions in their old age, as is the case with our police force and Public Service. That would obviate the indignity of old folk being subjected to objectionable crossexamination as to their family history, and the production of birth certificates &c, when applying for pensions, and the delays, occasionally amounting to ten months, which sometimes occur before applications are granted.
I cannot see where the equality of sacrifice comes in. Compare the cost of living in cities like Melbourne, Sydney and Brisbane with centres such as Burketown, Normanton and Croydon and the whole of north and west Queensland. The disadvantages under which our pioneers in those parts are living are immediately obvious. What is £1 a week to an old-age pensioner in those outback places? Yet those are the people who, in the ‘eighties, opened up the mining fields of Charters Towers, Croydon, and other centres - prospectors and pioneers who really did their bit for the country. To-day they are to be robbed of 2s. 6d. a week, in order that the Government may balance its budget. Had an additional 1 per cent. been taken off interest rates, it would have been possible to save our old-age, invalid, and soldier pensioners the prevailing full rate of pension.
This bill offers nothing to the private mortgagor or to the man who has a big private debt, seeing that it applies only to government loans. It will not provide any additional currency, or put new money into circulation. In twelve months’ time, we shall be in the same position that we are in to-day because our greatest national asset - the land - is not under the control of the Federal’ Parliament, but is in the hands of the States. We are told that we must accept the plan in its entirety, if it is to accomplish what is desired.
One State passed, in a couple of days, the legislation necessary to give effect to the Premiers Conference agreement. I do not know what that legislation is, but following a telephone conversation which I had with some friends, I understand that, among other things, it does not provide for a reduction of the interest on private loans. I shall oppose this bill, unless it is amended to deal with not only government, but also private loans. The loans which are falling due should be underwritten by the banks. It is not in the interests of the banks to allow the existing monetary system to collapse, because they have more at stake than have the workers, the old-age pensioners, the returned soldiers, and others in the community. I was hopeful that the bill would embody provisions to grant relief in respect of private loans, but it applies only to government expenditure; and it is that expenditure which has got us into our present economic tangle.
Debate (on motion by Mr. Gibbons) adjourned.
.- In moving -
Thatthe House do now adjourn,
I ask honorable members to come prepared to consider to-morrow the Debt Conversion Agreement Bill, which has already passed its second reading. A number of amendments, mainly of a technical nature, have been found necessary in the schedule to that bill; but as the Government is still discussing some of. them with other governments, it will not be in a position to have those amendments made for probably a week. I suggest that the bill be passed in its present form so that it may be sent to another place for its general principles to be discussed there. By the time that the Senate has passed the second reading, the amendments should be ready, and they could be inserted there and the bill as amended then returned for consideration in this chamber. If that procedure is adopted, I assure honorable members that they will be given every opportunity’ to discuss any phase of the bill in the committee stage. I point out that practically everything contained in the Debt Conversion Agreement Bill is also contained in the Commonwealth Debt Conversion Bill which we have -been discussing to-day, the only exception being the schedule to the former measure which contains the agreement which requires amendment. I hope that honorable members will agree to my suggestion, as otherwise a delay of probably a week might occur., Assuming that there will be no objection, the first business tomorrow will be the consideration of the Debt Conversion Agreement Bill in order that it might he sent on to another place as expeditiously as possible.
Question resolved in the affirmative.
House adjourned at 10.30 p.m.
Cite as: Australia, House of Representatives, Debates, 30 June 1931, viewed 22 October 2017, <http://historichansard.net/hofreps/1931/19310630_reps_12_130/>.