17th Parliament · 3rd Session
The PRESIDENT (Senator the Hon. Gordon Brown) took the chair at 3 p.m., and read prayers.
– Is it a fact, aa reported in Saturday’s Sydney Morning Herald, that the Commonwealth Government, has big stocks of sulphamerazine on hand, and is determined that they shall be used before any more sulphadiazine is imported? If so, in view of the fact that sulphamerazine is said to be less safe than sulphadiazine, and as the latter is regarded as especially useful to counteract the present epidemic of sore throats and scarlet fever, and is effective in some cases for which penicillin would not be suitable, will the Minister have inquiries made concerning the report, and take the necessary action to ensure that adequate supplies of sulphadiazine are available in Australia?
– I shall have inquiries made with a view to taking action.
– Will the Minister for Trade and Customs inform the Senate what steps are being taken to supply refrigerators to “Western Australia? “Will he see that in the allotment of refrigerators priority is given to distant areas where climatic conditions and the shortage of food render their use imperative?
– This is a matter which has had my close attention, and I am able to inform the honorable senator that arrangements will be made at an early date to manufacture 30,000 refrigerators. There is a demand for at least 60,000 refrigerators in Australia, but, because of shortages of man-power and materials there has been a hold-up in their manufacture. As refrigerators for use in outback areas of “Western Australia, Queensland and South Australia are operated by kerosene, a special type of machine has to be made. Priority will be given to such localities in the supply of these household appliances.
– by leave - Last night Senator Foll asked a question relating to the production of penicillin. I am informed that, whilst anxious for the earliest resumption of ampoule production, the Commonwealth Serum Laboratories, following recent experiments, are meeting all demands for penicillin by using glass containers other than ampoules. The services have issued instructions for rationing in the use of penicillin, and strict supervision over civilian releases is maintained under a penicillin order. There is actually no hold-up of supplies; the Commonwealth Serum Laboratories are maintaining full production. I take it that the order was to conserve supplies, and that it will be repealed.
asked the Minister for Trade and Customs, upon notice -
– The Minister for Commerce and Agriculture has supplied the following answers: -
SenatorCOOPER asked the Minister representing the Minister for Commerce and Agriculture, upon notice -
Has the Minister’s attention been drawn to reports in the Queensland Times of the 22nd June, to the effect that the Queensland division of the Australian Institute of Dairy Factory Managers and Secretaries deplored the refusal of the Liquid Fuel Control Board to send an officer to address the annual conference of that body?
Has the Minister yet receiveda protest from the organization concerned?
Is it a fact that at the conference of the Sydney division of the institute, representative of the Liquid Fuel Control Board and other authorities administering war-time controls, addressed the delegates?
If so, will the Minister confer with the appropriate Minister regarding the possibility of making an officer of the Liquid Fuel Control Board available to confer with the Executive of the Queensland division of the institute for the purpose of discussing their problems?
– The Minister for Commerce and Agriculture has supplied the following answers: -
Senator ASHLEY (New South Wales-
Minister for Supply and Shipping) [3.12].- I move-
That the bill be now read a second time.
The Superannuation Act was last substantially amended in 1942. Experience in the interim has revealed anomalies which this short measure is designed to correct. Rights to contribute for superannuation were extended to temporary employees in 1942. One present provision is that the permanent head of the department shallbeable to certify that the employment is likely to continue for an indefinite period. It has been found impracticable to obtain uniformity of interpretation of the words “ an indefinite period “ ; hence it is proposed in clause 3 to substitute the words “ a period of at least ten years “. The requirements will thus be clarified, while retaining a degree of permanency to qualify for superannuation benefits. No employee is eligibleunder the present act to contri bute for pension benefits unless, prior to his appointment, he has been certified physically and mentally sound. The provision for medical examination before appointment acts harshly in some cases, particularly those appointed or gazetted as employees while they are away with the forces. It is proposed to give to the Superannuation Board authority to accept medical evidence within a reasonable time after a person ‘becomes an employee. It is proposed to preclude married women from becoming contributors, and to provide that, on marriage, female employees shall cease to contribute. A contributor who is debarred from contributing for additional pension units on account of physical or mental defects will be permitted so to contribute if such defects are the result of war service. Where a pensioner deserts his wife or children, a court of competent jurisdiction may, under the present act, order the Superannuation Board to pay pension to the wife or children, but not to the pensioner. It is now proposed that, after payment of pension to the wife and children, the balance of pension, if any, should be paid to the pensioner. A difficulty in regard to the term “ Court of competent jurisdiction “ is being clarified. An amendment of section 50 of the act will permit an invalidity pensioner restored to health to be offered a permanent position with duties which the board considers suitable, having regard to his former duties. Pension rights under the Superannuation Act granted many years ago in exchange for transferred State rights do not now represent a fair equivalent of those rights. It is therefore proposed to provide a more equitable basis of valuation. Where pensions in respect of transferred rights are now being paid, any increase will take effect from the date the legislation becomes law. Provision has been made in the bill that from the date on which the act was amended in November, 1942, commissioned warrant officers, in common with other permanent air force officers, may receive either deferred pay or pension, but not both.
I commend the bill to the sympathetic consideration of honorable senators.
Debate (on motion by Senator Leckie) adiourned.
.- I move -
That the bill be now read a second time.
The purpose of this bill is to regulate banking and to make provision for the protection of the currency and the public credit of the Commonwealth. The regulation of the banking system is an essential accompaniment to the revision of the powers of the Commonwealth Bank. For many years there has been a conviction that some supervision of the activities of the trading banks is necessary and the appropriate measures to achieve that supervision have frequently been canvassed. Indeed, the reform of the trading bank system was one of the main themes of the report of the Royal Commission on Monetary , and Banking Systems and the principal subject of its various recommendations. Those recommendations cover some very important aspects of hanking control. They embrace a statutory provision for the banks to carry on business under licence from the Treasurer of the Commonwealth, the requirement of minimum deposits from the trading banks, guidance to the trading banks on advance policy, a revised exchange mobilization agreement to provide access to London funds, and a recommendation that the Commonwealth Bank should take control of the affairs of any bank unable to meet its immediate obligations. Other recommendations relate to accounts and balance-sheets and the investigation of the affairs of any bank by the AuditorGeneral at the direction of the Treasurer. War broke out before any of the recommendations were acted upon and some reconsideration of the report of the commission has become necessary in consequence of the changes which have occurred in the banking system during the war. Various National Security Regulations which were promulgated by the present Government were designed to prevent inflation and to ensure that the activities of the private banks coincided with the requirements of the war effort. Some of the important features of the regulations were the provision for control over credit resources by means of special deposits with the Commonwealth Bank; control over the investments and the advance policy of the banks; control of interest rates; and provision for investigations of the trading banks by the Auditor-General. In addition, arrangements were made to control the purchase and sale of foreign exchange and to acquire holdings of foreign exchange. These controls have operated satisfactorily. The relative regulations will in course of time cease to operate, but many of the problems which they were designed to meet will continue into the post-war period. It is the Government’s belief that theseproblems can he overcome very largely along the lines recommended by the Royal Commission on Monetary and Banking Systems, but additional measures will be required to meet the abnormal conditions of the post-war yearst and to obtain the benefit of the experience gained in administering the war-time controls.
After taking these considerations into account, the Government has framed a bill designed to secure the following objects : -
The general lines of the recommendations of the royal commission have been followed in drafting the provisions concerning the authority to carry on banking business. The main provision is that, six months after the date of the proclamation of the act, the general business of hanking may not be carried on without authority from the Governor-General. A schedule of institutions at present carrying on general banking business is attached to the bill, and it is provided that an authority shall be issued to these bodies on application.
One of the recommendations of the royal commission is contained in paragraph 617, which reads -
In the public interest, the Commonwealth Bank should take control of the affairs of any Bank which is unable to meet its immediate obligations, and should be given any additional powers which it may require for this purpose.
In the bill the duty is now specifically laid on the Commonwealth Bank to exercise its powers and functions for the protection of the depositors of the banks. Where a bank considers that it is likely to become unable to meet its obligations or is about to suspend payment, it is required forthwith to inform the Commonwealth Bank. The Commonwealth Bank may then conduct an investigation of the affairs of the bank concerned and assume control of and carry on its business, whereupon, it must remain in control of the bank and carry on its business until such time as the deposits of the bank have been repaid, or suitable provision has been made for their repayment. Similar- provisions will apply if, in the opinion of th, Commonwealth Bank, a bank is likely to become unable to meet its obligations or is about to suspend payment.
Each bank is also required, except with the authority of the Commonwealth Bank, to hold assets, other than goodwill, in Australia of a value not less than the total amount of its deposit liabilities in Australia, and these assets are to be available to meet deposit liabilities in priority to all other liabilities of the bank. In view of the Commonwealth Bank’s responsibilities in this connexion, the Governor of the Commonwealth Bank is empowered to require any bank to supply information relating to the financial stability of that bank. These provisions embody an important protection to depositors with banks operating in Australia. The Government’s desire in framing these measures has been both to serve the best interests of Australia generally, and to protect the depositors of the banks. I believe that these objects will be achieved, and I am convinced that the provisions in this bill will contribute to the general economic interests of the country.
The Commonwealth Government, in order to obtain man-power and materials required for the effective prosecution of the war, had to obtain finance, in addition to the revenue derived from greatly increased rates of taxation, by borrowing from the public and the Commonwealth Bank. The result has been a considerable increase in the amount of purchasing power in the hands of the public, comprising notes, savings bank deposits, and deposits with the trading banks. The illcrease in the deposit liabilities of the trading banks was balanced roughly by an increase in the deposits they lodged with the Commonwealth Bank. The base of liquid reserves, on which trading banks normally build a superstructure of secondary credit, was therefore enlarged. In order to prevent secondary inflation, it was necessary to immobilize some part of the banks’ deposits with the Commonwealth Bank in special accounts, from which the banks were not allowed to withdraw any amounts, except with the consent of the Commonwealth Bank. In the aggregate these special deposits at present amount to about £242,000,000.
If, after the war, the trading banks’ holdings of liquid reserves with the Commonwealth Bank were placed freely at their disposal, they would be able, by increasing their advances and purchases of securities, to build up a secondary credit expansion of formidable dimensions. Added to the spending power already available to the public, this might easily produce a dangerous inflationary situation. It would he disastrous, from the point of view of the people of Australia and the prospects of . post-war stability, if the withdrawal of the wartime control over the banking system led to an inflation, with all the loss and disorder which inflation entails. The Commonwealth Bank must be given authority to immobilize the liquid reserves of the trading banks to whatever extent may be desirable, having regard to the total quantity of credit which the community requires.
The continuation of the special account procedure would give the Commonwealth Bank control, not only over the war-time increases in liquid reserves, but also over any future increases. This control could, perhaps, be secured in other ways, as, for example, by giving the Commonwealth Bank the similar but potentially wider powers recommended by the royal commission, under which the Commonwealth Bank could have required every trading bank, subject to the consent of the Treasurer, to keep deposits with the Commonwealth Batik up to any percentage of its Australian deposit liabilities. After full consideration, the Government prefers the special account procedure which is already in operation under the War-time Banking Control Regulations and which has been proved to be a simple, elastic and effective instrument of credit control. The bill, therefore, requires each bank to establish with the Commonwealth Bank a “special account”, as from a date to be fixed by the Treasurer. The amount standing to the credit of each bank’s war-time special account will automatically be transferred -to the special account established under this legislation.
Thereafter the Commonwealth Bank may require each bank to lodge in its special account each month such amount as is specified by notice in writing. The amount which any bank is required to lodge in any month, however, must not be such that the balance in its special account would then exceed the original transfer from the war-time special account plus any increase in that bank’s assets since the commencement of these provisions. Withdrawals from the special accounts may not be made except with the consent of the Commonwealth Bank. The banks would, however, be able to approach the Commonwealth Bank for withdrawals of funds, and the Commonwealth Bank would allow withdrawals for approved purposes. Interest is to be paid on these accounts at a rate not exceeding 17s. 6d. per cent, per annum, determined from time to time by the Commonwealth Bank with the approval of the Treasurer.
The assumption, which is so frequently made, that the trading banks should be entitled to handle the excess investible funds arising from war-time finance in whatever way they think best, has no logica] justification. The increase in credit resulting from war expenditure must always retain a special character and be subject to special treatment, depending on current requirements, and the existing credit situation. Procedure with the same objectives has been adopted in other countries. In the United Kingdom, arrangements were made for the banks to purchase treasury deposit receipts, which served fundamentally the same purpose as the special accounts held with the Commonwealth Bank. In other dominions various types of control have been applied in order to prevent secondary inflation.
The bill provides that, where the Commonwealth Bank is satisfied that it is necessary or expedient to do so in the public interest, it may determine the general advance policy to be followed by the banks. The object of any advance policy laid down, by the Commonwealth Bank would be to ensure that advances were made by the trading banks for purposes consistent with current economic and financial needs. Any such policy would be revised from time to time and would operate only for such periods as might be appropriate to existing conditions.
The bank will not have power to direct that a bank shall or shall not make an advance to a particular person. In laying down its policy, it will deal purely with principles and classes of advances. In addition, it has been decided to continue the provision of the Banking Control regulations which requires the consent of the Commonwealth Bank to the purchase by any bank of government or local government securities or securities listed on an Australian Stock Exchange.
Another division in the bill provides for the mobilization of foreign currency. This will give the Commonwealth Bank power to purchase from the trading banks whatever amount of the foreign currency acquired by the banks from their Australian business may be necessary for financing Australia’s overseas obligations for imports and interest. The Commonwealth Bank is also given discretionary power to sell foreign currency to any bank. There is no intention of restricting the banks in their exchange business, and the proposed provisions will not prevent them from retaining sufficient working balances to conduct their normal operations in foreign exchange.
In an emergency, however, it may be necessary to exercise additional control over our resources of foreign currency and gold. Our overseas reserves may not always be sufficient to meet our normal requirements, and it may at times be necessary to control movements of capital. It is proposed, therefore, to take power to control foreign exchange and gold whenever the Governor-General is satisfied that it is expedient to do so for the protection of the currency, or for the public credit of the Commonwealth, or in order to conserve in the national interest the foreign exchange resources of the Commonwealth. Regulations made under this power will apply not only to banks hut to all other persons. Control over foreign exchange and gold is at present imposed by the National Security regulations, and it will therefore be possible, if necessary, to reimpose regulations under this legislation when the National Security powers lapse.
Under Part “V. of the bill the Commonwealth Bank is given power to make, with the approval of the Treasurer, regulations controlling rates of interest in respect of advances made by the banks, deposits made with hanks, or rates of discount chargeable by banks, or any other person, in the course of banking business. The rate of interest is one of the strategic points of economic activity. A low interest rate is conducive to the maintenance of high industrial activity, and it is, therefore, imperative, if employment and income are to be adequately sustained, that the rate of interest should be supervised and kept at a level which accords with the requirements of economic policy. Control over interest rates is all the more important, because experience shows that increases in interest rates have always been associated with increases in unemployment. It is, therefore, proposed to continue the control over interest rates which ha.s been very successfully exercised by the Commonwealth Bank under the war-time regulations.
The Government feels it is reasonable to expert that governments and public bodies which are responsible for public moneys should conduct their banking business with a publicly-owned and controlled hank. Provision has, therefore, been made’ in the bill that the banking business of such institutions and bodies should not be conducted with a private trading bank unless the Treasurer agrees. It is intended that adequate time shall be allowed to enable the necessary transfers to -be effected.
In conformity with the requirements of the Commonwealth Constitution, certain parts of the bill do not apply to State banking. The provisions regarding exchange control, gold and certain miscellaneous matters are, however, applicable to State banking without infringement of the Constitution. Pastoral companies, building societies, and other institutions or persons who do not desire to carry on the general business of banking, but wish to undertake some banking business, are covered by the bill. They will be required to obtain from the Treasurer an exemption from the provisions prohibiting any person from conducting banking business unless in possession of an authority from the Governor-General. An exemption granted by the Treasurer may be subject to such conditions as the Treasurer thinks fit to impose. The provisions in the bill for the control of interest rates also apply to any banking business carried on by persons other than banks.
In Part VI. of the bill provision is made for the supply of balance-sheets, and various statistical statements by each bank to the Commonwealth Statistician and the Commonwealth Bank. In addition, the banks are required to furnish the Commonwealth Bank with such information about their business as the Commonwealth Bank directs. The AuditorGeneral is alco to investigate periodically the transactions of each bank, and at the direction of the Treasurer, furnish reports to him and the Commonwealth Bank. These provisions are along the lines recommended by the commission and in the main are already in operation under the war-time regulations.
It is also proposed that, in the event of any bank being, convicted of an offence against the proposed act, the full High Court mav, upon the application of the Attorn ey-General, direct the bank to comply within a specified period with the provisions of the act. In default of compliance bythe bank the court may authorize the Commonwealth Bank to assume control of, and to carry on, the business of that bank. The Government also considers that any future banking amalgamations or reconstructions should require the prior consent of the Treasurer and provision has been made accordingly.
This brief summary covers the general description of the bill. Some of its technical details are necessarily complicated; but the main purpose of the provisions is clear - they are intended to equip the Commonwealth Bank with adequate powers to supervise the banking system. The increase of the powers of the Commonwealth Bank, which was considered necessary even before the war, has been rendered inevitable by the events of the war. No responsible government could afford to move forward into the post-war period without adequate means at its disposal to cope with inflationary and deflationary movements in the monetary and banking system. Eight years ago, the Royal Commission on Monetary and Banking Systems made several recommendations for banking legislation which were not acted upon because of the war. The war itself has demonstrated the need for further changes and the post-war problems which we must face have accentuated this need. We have experienced important changes in our economic system and the requirements of monetary policy are becoming more exacting. The banking bills which havebeen brought down are designed to adapt the banking system to the changing conditions and to provide the Commonwealth Bank, as leader of the banking system, with adequate powers to serve the national interest.
Debate (on motion by Senator Leckie) adjourned.
Debate resumed from the 3rd July, (vide page3948), on motion by Senator Keane -
That the hill be now read a second time.
Senator COLLETT (Western Australia) upon certain more or less definable lines, and whilst I do not propose to follow these very closely, I do wish to touch here and there upon some of the salient features that have emerged from the debate. I wish first of all to paint in the background to our present proceedings. Previous speakers have drawn attention to some of the elements of the picture, but to repeat the general outline would not do any harm, because people are increasingly desirous of discovering the motives of the Government in submitting this legislation. It will be recalled by most honorable senators that at the 1934 elections control of banking was one of the issues placed before the people of this country, and that the proposal was rejected. After nine months in office, and with the burden of war heavy upon his shoulders, the Prime Minister (Mr. Curtin), in June. 1942, said -
The platform of the Labour party provides for the nationalization of banking. We do not regard the nationalization of banking as a measure which should be introduced during the period of the war having regard to our war commitments and to the state of political parties. This Government came into office during a time of great national emergency. It has not abandoned its social programme, and it does not regard the postponing of the programme until after the war as an illogical procedure.
Then, with an election in the offing, on the 19th April, 1943, the Prime Minister took the people further into his confidence and said -
We have not attempted to use the powers vested in us as Ministers to bring in any change of organization in Australia merely because we have been the advocates of this principle or that. We have not socialized Australia and we do not intend to do it just because we are at war.
Approximately two and a half months later, the policy speech of the Prime Minister did not contain any proposal for radical banking legislation. This was noted at the time by the electors, who were further reassured by the right honorable gentleman in a broadcast on the 25th July, 1944, when he proclaimed -
No question of socialization or any other fundamental alteration of the economic system arises.
That was quite clear and very satisfactory; but. within six months, the Government proceeded in cold blood to doublecross the electors. In defence of the banking proposals, the Prime Minister, wrote -
Labour was elected on the policy of the party and included in its platform a monetary reform which waa clearly advocated on many occasions. As the consequence, the Government feels it has every justification in bringing down legislation as it proposes. “ Swindles perpetrated on the public “ was an expression used, I think, by Senator Aylett, whilst Senator O’Flaherty, to whom I can always listen attentively, although usually I do not agree with what he says, has been credited with unusual frankness in his speech on this measure. With one voice, he pleaded for the retention of full powers by this Parliament as th« .body representing the people, and with another he pleaded as an excuse for the extraneous control of the Government that new times demanded new measures and new measures demanded new men. It is difficult to reconcile the two views.
Parliament has been asked to consider the Government’s proposed banking legislation in two phases, both of which are before us at present. The first was presented to this chamber a few days ago, and is limited to the constitution, structure, and functions, of the Commonwealth Bank. Many of the clauses refer to what may be described as technical matters. Upon those I hesitate to express an opinion, and I am sure that my handicap is that of many other honorable senators. The Treasurer (Mr. Chifley) has said that the Government must accept responsibility for the economic conditions of the nation. That statement of course is quite redundant, because any Government naturally assumes th at responsibility; but with that declaration, the Treasurer has brought down legislation of a sweeping character, upsetting well-established conceptions of public and private finance, and creating doubt - I say this with all seriousness - as to the probity of public administration. Clause 9 of this measure is the seed of that concern. The Treasurer has also said that changes in the banking system should be the result of “ conscious decisions “ of policy. Whose decisions are we now being asked to implement? Although it may not be admitted, I am sure that the majority of members of the Government have no conscious knowledge of the true or major functions of banking, and that condition applies of course to a large proportion of members of this Parliament. In fact, most of us know only how the banking institutions work insofar as our own business is concerned, and as a consequence, we have a feeling that we have been treated with consideration, and that on the whole, the public has been very well served. We may well ask what has occurred in recent years to shake our confidence in the Commonwealth Bank, or, on the other hand, what has transpired which would suggest any weakness in its organization, or lack of power to perform its functions as a central bank? ‘Really, this* so-called “conscious decision “ is just the expression of a socialist dream of power to be acquired in relation to material things. It would seem that the socialist has allied himself - I say this with all respect - with that pedlar of theories the economist, who upon request, has produced the basis of the series of bills that we have, or will have, before us. A notable instance of the work of the economist is that .anachronism which is now entitled the Beestablishment and Employment Act 1945. In effect, the socialist has said to the economist, “ We have control of the public revenues of this country, and we want you to write out a formula offering to us private control over the business and private moneys of the people “. The Acting Leader of the Opposition (Senator Leckie) reminded the Senate that the Leader of the Senate (Senator Keane) said in introducing this measure that one of its objects was “ to ensure that the financial policy of the Commonwealth Bank will be in harmony with the main decisions of government policy, and in the interests of the people of Australia “. That postulates a claim for political domination in the affairs of the Commonwealth Bank; yet a Labour, conference which met in Brisbane in 1908, declared that the then projected Commonwealth Bank should be absolutely free from political control. A few years ago, the State Parliament “of Western Australia, in which a Labour government held office, brought down legislation to remove from political influence the Agricultural Bank of Western Australia, which is a bank making rural advances, and to place it under the authority of an independent commission.
Under this legislation, the Commonwealth Bank Board, which is composed of men of experience and a knowledge of business, and which hitherto has done well by the country, is to go. It is to be replaced in authority by a Governor, assisted by an Advisory Council composed of bank and public servants - all, no doubt, without protection from suggestions percolating from, above. I think it was the Treasurer, who, ignoring other factors, criticized the appointment on the Commonwealth Bank Board of a gentleman who was an accomplished polo player. That is a line of argument which is entirely fallacious. If we have an appreciation of the importance of good government, and apply a similar test to members of the Ministry the results would be curiously revealing. Yet we can have no doubt that the Prime Minister in arranging his Cabinet, was seeking men of common sense and sincerity of purpose. [ shall let the matter rest there, but with the lamentable knowledge that some of them do not play the game whether it is polo or anything else. With many other honorable senators, I am concerned at leaving our great financial institutions in the control of a body of men elected to power as the result, perhaps, of a catch-vote of the people, and who do not hold themselves directly responsible to Parliament. We have had evidence of that fact within the last three years. The risk to the proper and efficient development of this young country, and to the savings of the thrifty is too great. The inflation of the currency and the devaluation of the £1 spells calamity to those least able to withstand such a shock. If such things should come about, the depression of 1929-31 would, be a mere circumstance in comparison. I cannot understand Senator McKenna’s analogy between the depression and the war of 1914-18. Apparently, he forgets that Australia suffered casualties in that war extending to 60,000 dead and an equal number maimed, whist thousands of women and children were left widows and orphans. How the honorable senator can say that the depression was a greater disaster than the war of 1.914-18 is beyond my comprehension. The Royal Commission on Monetary and Banking Systems in ite report said -
The moat desirable system in the present circumstances of Australia is one which includes privately owned trading banks. The system contemplated is one in which first, a strong central bank regulates the volume of credit and pays some attention to its distribution; and secondly the distribution of credit is left to privately owned trading banks, working for profit, but regulated in the manner already indicated.
The Treasurer, who was a member of that commission, dissented from that finding, and in stating his reasons for so doing he said -
In my opinion the best service to the community can be given only by a banking system from which the profit motive is absent, and. thus, in practice, only by a system under national control. ls it proposed to remove the profit motive entirely from the Commonwealth Bank’s operation?- I do not think so. In fact, if some of the transactions between the bank and the Treasury were closely examined it would be found that the Treasury was not the gainer. Banking is a public utility. It was practised in the days of Babylon, in the days of Grecian and Roman might, and, later, by those kindly folk who inhabited the monasteries of Europe and lent out money received as offerings and rent. Senator Grant has given us his view of the origin of the cheque system, and Senator McKenna referred to one aspect of the origin of the Bank of England. I have not extended my researches sufficiently to comprehend fully the various methods adopted in ancient times to finance the needs of governments, or of States, in time of war; but coming to modem times in England, the goldsmiths enjoyed the business, and their drafts and orders were the forerunners of the present British cheque and note system. The goldsmiths prospered and became financially strong; in fact, so strong that strange to say - yet there is nothing new under the sun - -.the Treasury began to take an interest in their affairs; and this was said of them -
There ensued a period of business connexions between the London goldsmiths and the Treasury which ended .in 1072 with the suspension of payments by the government and with the bankruptcy of the goldsmiths. The credit of the government was destroyed for a long time and the confidence in the goldsmiths which was the foundation of their banking business was likewise shattered.
Those are pregnant phrases,, and force one to contemplate the possible result of a second governmental intrusion into, and assumption of political control of, a system that has withstood the test of centuries and vastly improved during that period. The failure I mention brought to a head the desire of English business circles for a credit institution independent of the state, and one that would also support the credit needs of the nation. It was at this stage that the race about which we have heard so much in the press lately appeared upon the scene, when a Scotsman devised the financial edifice that is now the Bank of England. That .bank made its first loan, amounting to £1,200,000, to the government on the security of the beer and ship taxes. Ever since that time the Hank of England has been the main prop of British finance. Continental nations tried to copy it, but, ‘in many cases, government interference arrested satisfactory development. In England, however, other institutions were founded and conducted operations on a restricted basis; but all of them tended to assist business and encourage thrift. In the second half of the nineteenth-century bank deposits became of more importance than bank notes. This, of course, postulated greater security. All this development led to increased confidence on the part of the public, and, in the course of time, banks became the normal media for the conduct of all business transactions, including investments, &c. It is true, of course, that the extension of credit did on occasions go too far. This was exemplified in Australia in the panic of 1893 which led to a tightening up of the system. Banks are now adequately controlled by law, and in the interests of their customers. Their reserves are liquid; and since 1928 have been placed with, the Commonwealth Bank. Is there any real mistrust of the trading banks, or of the way in which they conduct their business? Let me illustrate the facts. In 1912, the year that the Commonwealth Bank was opened, the average deposits of the trading banks for the final quarter of that year totalled £145,762,256, and in June, 1944, the nine trading banks in this country held deposits amounting to £538,268,700, of which only £11,354,249 was government money. On the same date in 1944, deposits held by the Commonwealth Bank, including government money, totalled £143,078,439. In 1912, the total liabilities of the trading banks amounted io £150,000,000, whilst their assets totalled £173,000,000, their reserve funds £10,250,000, and their paid-up capital £18,500,000, whereas on the 30th June, 1944, the relative figures were - total liabilities £546,500,000, assets £608,000,000, reserve funds £31,000,000 and paid-up capital £37,000,000. I have failed to discover the vast reserves about which Senator Armstrong had so much to say. The figures I have given speak for themselves. In business, the trading banks, by their long-established system and methods are able to evaluate and give due consideration to the personal equation to a degree that the Commonwealth Bank, governed strictly by regulations, will never be able to achieve. One could give innumerable instances showing how the private banks have helped honest and struggling men to succeed. Let me give two instances of that kind which have come to my notice. A man was advanced £10,000 by a private bank. Later he received another £5,000 from the samc bank; and, later still, because this bank knew him and saw the possibilities of his enterprise, it advanced him an additional £10,000, giving him a total assistance of £25,000, all of which credit was made available solely on the personal equation of the applicant. That is a quantum which the Commonwealth Bank, under a system of governmentcontrol, can never contemplate. The second case I have in mind is that of an institution in Western Australia of a semi-public character which about twelve years ago approached the Commonwealth Bank for an advance, but was unceremoniously turned down. Later a trading bank which knew the personnel of the committee controlling the enterprise, advanced £15,000 to the institution, and to-day the institution’s property, which is completely free of debt, is valued at £30,000. The trading banks have been operating in Australia for over 100 years. Let us consider their contributions to the development of the wheat and WOOl industries which now bring into this country over £100,000,000 annually. Neither should we forget the operations of the pastoral companies whose capital and reserves amount to over £36,000,000. Those companies are part of our financial system. From a report published in the Age of the 30th Tune last we learn that a large part of the overdrafts held by private banks are granted to pastoralists in uncertain rainfall areas, and it is extremely unlikely that that gap could be filled if such transactions were interfered with. The financing of such propositions is a special business, and only those with expert knowledge of the country and the conditions are qualified to identify themselves with the hazards -involved. No sensible person oppose? progress. All of us admit that there is room for improvement in our financial system, but the bill will not bring about improvement. Because of the origin and conception of the measure, and also because it is untimely, I oppose it.
. I have listened with great interest to the debate in which a tremendous area has been covered. I agree that the hill is one of the most important that has been introduced in this Parliament. The title of the bill might well be amended so that it would read “ Commonwealth Bank (Caucus Control) Bill 1945 “. That would be a more correct designation; or we could substitute for “ Caucus Control “ the words Australasian Council of Trade Unions Control “. After consideration of the measure that impression is immediately formed. The naive statement of the PostmasterGeneral (Senator Cameron) is rather laughable. He said that the name “ Bank of England “ was intended to mislead the public. I have never heard a more nonsensical statement than that. The Minister should have studied the history of the Bank of England. He might have made a similar criticism of the title of the oldest bank of Australia, the Bank of Now South Wales, which was -founded in 1817.
In the course of his thoughtful speech, Senator Nicholls said that the war-time banking control regulations had prevented the trading banks from increasing their profits during the war, but those regulations have done nothing of the kind. The profits of the trading banks, expressed as percentages of shareholders’ funds, have declined steadily during the war years. The statistical returns of the Commonwealth Bank show those percentages to have been as follows: -
Actually, the trading banks’ profit has not exceeded 4.2 per cent, since the depression. Their rate of profit over the years has been consistently below that of other types of business, as the Commonwealth Bank’s statistical bulletins clearly show. The low rates of profit since the depression dispose of the myth that the banks gained as the result of the depression. They always knew that depression could cause only great losses to them. Therefore, it is ridiculous to say that they deliberately brought about the last depression. It is interesting to recall that the Commonwealth Government, through the Taxation Department, imposes a penalty charge of 10 per cent, in respect of late payments of income tax, and imposes it on the whole amount of tax due, notwithstanding the fact that a portion of the tax may have been paid.
Senator Grant remarked that the removal of control of the financial structure from international bankers would do much to prevent future wars. That sort of argument may be accepted readily in the Sydney Domain or on the Yarra bank, but nobody who gives a second thought to the matter would fail to detect the absurdity of it. If bankers were ever under the illusion that wars would enrich them, they were surely disillusioned after the last war, when war debts were repudiated almost everywhere, and great banking houses in America and Europe were brought to ruin. International trade, which is the ultimate source to which the so-called international bankers look for profits, was so detrimentally affected that it has never recovered its strength. Pew international loans have been advanced during the present war. The lend-lease system has taken the place of those loans. Whether the loans made under that system will be repaid, and how they will be repaid are both problematical. The risks are great, and the interest rates all round have been low. I should say that the so-called international bankers, above all people, desire to avoid wars, despite what Senator Grant and others have said about wars having been caused by them.
I listened with interest to my learned and honorable friend, Senator McKenna, who made a painstaking speech on the bill. The inference to be drawn from his remarks is that the report of the Royal Commission on Monetary and Banking Systems is really a report on which this measure is based. My study of the findings of the commission has led me to the opposite conclusion. Many of the provisions of the bill are quite contrary, in many respects, to the spirit of the commission’s report, lt is evident to me that the Government intends to capitalize to the utmost the natural fear of the people of another post-war depression. It is equally clear that the economic policy contemplated by the Government is most likely to provoke a depression in Australia. One of the certain effects of the controls which the Government has in’ mind will be the application of a rigidity to the economic system that will inhibit the speedy adaptations which will be necessary soon after the termination of the present war. The controls will also import a rigidity that will prevent the quick reactions which will be necessary in order to turn the edge of any set-back or slump which may threaten this country. On- this aspect of the matter, and particularly in relation, to the banking structure, the royal commission was most specific. In Chapter VI. of its report, it discusses “the desirable objectives, structure and functions of a monetary and hanking system “. It states in paragraph 515 -
As we see it, the Australian economy is subject to external influences, such as movements in world prices for foodstuffs and raw materials, which form our chief exports, and to internal influences in the form of seasonal fluctuations, which affect the volume of primary production.
Then this very significant and definite opinion follows: -
It is therefore essential that the monetary and banking system which has to serve an economy of this kind should be kept as flexible as possible to allow the necessary response to changes in these conditions.
That was the unanimous opinion of the commission. Not even the Treasurer (Mr. Chifley), who was a member of it, dissented from that declaration. How is this essential flexibility most likely to be achieved? The commission was equally definite and unanimous about that, for in paragraph 5S8 it states -
We are of opinion that the regulation of credit by the Commonwealth Bank will, in general, be best achieved through the exercise of existing powers and the development of the practice of co-o.pera.tion between the Com mon wealth Bank and the trading banks.
Eighteen months later, Professor Mills, who was a member of the commission, in an address to a body of accountants in Sydney, specifically selected that opinion, and described it as “ the whole spirit of the report “ - that there should be the closest co-operation between the Commonwealth Bank and the trading banks. What was the whole spirit of the report? It was that the existing powers should be exercised and that the practice of cooperation should be developed. The provisions of the bill before us and tha* spirit are as wide apart, as the poles.
The powers of the Commonwealth Bank over the whole of the banking system are far greater than those possessed by any other central bank in the world. I leave out of consideration the Russian banking system, because that is a totalitarian one, designed to serve the needs of a totalitarian economy. With these powers in the hands of a central bank there is no room for “ the development of the practice of cooperation “ which the royal commission advises. It is absurd to talk about cooperation between two bodies, one of which has legal power to coerce the other. A recommendation was made in paragraph 589 of the commission’s report that legislation should be enacted providing that every trading bank should be required, if called upon, to deposit “ a percentage of the liability of that bank to its depositors “ with the Commonwealth Bank. We should note that this was to be “a percentage”. That, of course, is the system which prevails in the United States of America. The commission suggested that this should be done only when “ requisitioned “. In the address of Professor Mills, to which I’ have already referred, he said that the intention was that this should be an emergency provision only. It was » power, he said, which would need to be used only if, for instance, “one of the trading banks became recalcitrant”. That is to say, it was to be a reserve power to be used, say, if one bank, or a few banks refused to adopt “the practice of co-operation.” There is no reference in paragraph 589 of the commission’s report to the requisitioning of the funds of the trading banks which is contemplated under this measure. The Government proposes, not that a percentage of those funds shall be deposited with the Commonwealth Bank, but that practically the whole of the funds of the trading banks above the 1939 level shall he so deposited, The intention underlying this measure is not to make the trading hanks play the game, but to prevent them from expanding their business beyond the levels reached in 1939.
Another major example of conflict between the findings of the royal commission and the bill is in respect of the control of the note issue. The commission did recommend, though not unanimously, that the present hacking of gold and/or sterling might be dispensed with, but it never said that the volume of notes to be issued should depend entirely upon the will of the bank or the Treasurer of the day. What it did say in paragraph 580 of its report was that, if the present arrangement providing for a reserve were done away with, the note issue should be limited by law to a fixed maximum, for example, £60,000,000- subject to the right of the 1 bank to exceed that maximum by a stated amount with the consent of the Treasurer. The amount of excess suggested in the report by way of example was £10,000,000. The figures given by the royal commission as examples might not suit present-day conditions, but I am concerned only with the principle, that if there is to be no control by reserve obligations the Parliament should fix a limit beyond which neither the bank nor tho Treasurer might go without the specific consent of the Parliament, by means of an amendment of the legislation. A careful reading of the commission’s report will show that that was its intention. This is a matter of great importance, because the power to issue notes - legal tender money - depends on the power to expand the volume of credit. The greater the volume of credit at issue at any time, the greater the value of the notes that there must be in circulation to support it. That is to say, unlimited power to issue notes, is also unlimited power to expand the volume of credit. If the Parliament transfers such power either to a bank, or to the Treasurer of the day, it hands over to another body one of its major responsibilities on behalf of the people. There should be some limit on such power; “it could vary according to circumstances. It might be argued that should the bank or the Treasurer abuse his power, the Parliament should step in and limit such power; but it is too late to close the door after the horse has escaped. The Parliament should always he in effective control. Once the bank or the Treasurer abuses the power the damage has been done.
Senator Arnold had a great deal to say about control by Parliament rather than by boards and commissions, and with much of what he said I agree. But where we disagree is that the honorable senator seems to think that control by the Treasurer, or the Government, is parliamentary control. It is not. It is the duty, as well as the right, of the Parliament to control governments as well as boards and commissions and highly placed government officials. The only effective control is for the Parliament to limit authority and power. Parliament does not control merely by saying, “ You can have unlimited power, but if you abuse it we shall limit your power “; I suggest that it is the responsibility of the Parliament to ensure that power is not abused in the first instance. In agreeing to the bill before us the Parliament is abandoning that responsibility. When the Commonwealth Bank was established Mr. Andrew Fisher and his advisors stressed that their one object was that the bank should be free from political control and pressure from sectional interests. Obviously, direct political control of the Commonwealth Bank i3 undesirable, because it means that the bank’s financial policy will be thrown open to the great evil of “ lobbying “, of which we in this chamber know something, and pressure from sectional interests. It could not be otherwise. If tho Commonwealth Bank is to be subject to direct political control, all sorts of pressure, strains, and stresses will be brought to bear. That would be a bad thing. Obviously, the government of the day is entitled to give a general direction as to financial policy to be followed, but if the Commonwealth Bank is to seek long-term economic stability it must be free from sectional pressure of any kind.
A lot of nonsense has been talked about the Commonwealth Bank being “ a people’s bank “. That is a term which has never been defined, hut whatever else a people’s bank may be, it must be an institution which provides an efficient service. It must not only be helpful to borrowers, but it must also safeguard the interests of its depositors. During the discussion of this bill not a great deal has been said about the rights of depositors, although the conservation of those rights is the first duty of a bank.
– A provision to that effect is embodied in the bill.
– Certain sections of the community seem to think that the first duty of a people’s bank is to issue free credit to all. I have never been able to understand what is meant by free credit or free loans, because the granting of credit creates a debt. That must be so. Many politicians use terms such as “ a people’s bank “ and “ national credit “ without knowing what they mean. If the Commonwealth Bank is under complete political control it will be, not a people’s bank but a political instrument for furthering all kinds of party political objectives. That remark relates not to any particular political party, but to whatever party may be in power. Political control of the Commonwealth Bank or of banks generally would be most dangerous. Yet the remarks of some honorable senators indicate that they believe that the political control of banking is desirable. Any control in the nature of regimentation, which would restrict enterprise, impair efficiency, or interfere with legitimate financial negotiations between individuals, must have distinctly unfavorable results on the community as a whole. In times of crisis a degree of control by a central bank becomes necessary. Let us see how the political control of banking would effect individuals and consider, first, its effect on borrowers. The object of this bill is so to cripple and hamstring the trading banks that they will eventually be forced out of business, so thai there will be only one financial authority operating in the Commonwealth. Such a monopoly would lead to bureaucratic control and delays. The effect on depositors would be to shake their confidence. Wo had evidence of the effects of a loss of confidence in a bank some years ago when some shocking things occurred. The political control of banks would go to the government of the day. That is the ultimate objective of ;he Government. Under such a system, the fate of applications for loans would ultimately be determined, not by the merits of the application8?, but possibly - I should say probably - by political wire-pulling. Permanent government control of borrowing would prove a serious handicap to all future development, because ii would stifle initiative. The Royal Commission on Monetary and Banking Systems recommended, unanimously, the retention of the present system under which a central bank regulates the volume of credit and leaves its distribution largely in the hands of the trading banks. Under that system the area of choice to borrowers would be greater than if all banks were nationalized and brought under one control.
In the main, bankers are as silent as the grave about the affairs of their customers. Under a competitive system of banking, any banker who talks too much about his bank’s business would soon lose customers. Political interference with banking would probably undermine that valuable asset of secrecy, because a government-controlled bank would be merely another government department. There would be no competitor to which a dissatisfied customer could go. The
Government has not received any mandate for the political control of the banks, which means the control of the money deposited with them by people who have had confidence in them. The banks should not be placed under political control except under express instructions from the people. “When the Scullin Government approached the electors in 1931 with a programme which included interference with the banking system, it was soundly defeated. The present Government was returned to office at the last general elections because the present Prime Minister (Mr. Curtin) gave a pledge that a Labour government would not put its policy of socialization into effect during the war. We have lived to see another promise broken. In proposing- to take advantage of its -majority in both Houses of the Parliament to pass legislation to bring the banks under party political control, the Government is moving in direct opposition to the wishes of the electors. T shall quote the following extract from a book entitled Central Banks, written by Kisch and Elkin : -
But clearly if the bank (i.e., the central bank) is under State control, continuity of policy cannot be guaranteed with changing governments nor can freedom from political Waa in its administration lie assured.
That is obvious. It is interesting to note what the royal commission said in paragraph 669 of its report on banking -systems. It stated -
The view of the commission … is that the most desirable banking system in 1 lie present circumstances of Australia is one which includes privately-owned trading banks. A strong central bank publicly owned, and not dominated by the desire to make profit, will exercise the necessary control over the activities of the trading banks and the organization of these banks on a profit-making basis will conduce to efficiency, while the area of choice afforded to borrowers will, be greater than if all banking were nationalized and brought under one control. We think that in this way the national interest will best be served.
I was a member of a select committee appointed in 1930 to inquire into the Central Reserve Bank Bill, which Mr. Theodore, the Treasurer of the day, had brought down. The committee received a tremendous volume of evidence and its conclusions were almost identical with the opinion expressed in the two extracts I have just quoted. A central bank free from political control and able to work in co-operation with the trading banks is most desirable. During the debate it has been most noticeable that many of the Government supporters have made no attempt to hide their hostility to trading hanks. They have hailed with great joy clauses in the bill which give to the Commonwealth Treasurer supreme control over the very existence1 of the banks. That is doubtless the aim of the Treasurer and the Government, and any expansion of business is to be a close preserve of the Commonwealth Bank. The funds of the private bank? are not to exceed the pre-war level without official permission from the Treasurer, despite depreciation in the value of money. In every walk of life, the fact is demonstrated daily that the purchasing power of the £1 to-day is much less than it. was in 1939. The various trading departments of the Commonwealth Bank, backed by the full resources of the central bank, will seek all possible business, the trading banks will be hamstrung, and fair competition will be strangled. The Commonwealth Bank will reign supreme as a banking monopoly. In a variety of ways it will be able, at the instruction of the Treasurer, to hamper trading banks in the conduct of their business. Tn fact, the Treasurer can keep a trading bank out of business if he chooses. Any merit there may be in some of the clauses is completely cancelled by the fact that the Commonwealth Bank will be subservient to the political party in power. That is both a dangerous and bad policy. It will be a poor outlook for the public if all competition is eliminated by nationalization or socialization of banking, and all finance for industry has to be obtained through a banking system dominated by politics. There may be shortcomings in the Australian hanking system, but a time when - on the Treasurer’s own admission - the country is faced with the greatest danger of inflation in its history is no time for the abandonment of proved methods in favour of an extremely dubious experiment such as this measure represents.
T previously referred to confidence, which is an extraordinary and delicate ‘ feature of banking business. All credit business is based on confidence and once that is shaken it begins to disappear with alarming rapidity. I have no desire to witness again scenes such as I saw in Sydney in April, 1931. I chanced to he in that city and saw for several days long queues of people comprised of people of all ages and conditions who plainly showed in their faces fear and anxiety because of the prospect of losing their deposits in the Government Savings Bank of New South Wales. They were waiting in Castlereagh-street for the doors of the bank to open, and that institution suspended payments to depositors on St. George’s Day, the 23rd April, 1931.
– Because of political monkeying with the bank.
– That is true - in this Parliament.
– Confidence was destroyed and the bank was ruined. Most people regard with suspicion any attempt to tamper with the existing banking system. 3Tor more than a century trading banks have acted with honesty towards their clients and have been the faithful custodians of the savings of the community. When one contemplates the bank failures of other countries and also the unfortunate crisis which caused the suspension of payments by the Government Savings Bank of New South Wales in 1931, it is not easy to view with equanimity the colossal ignorance of financial principles demonstrated in the provisions of this bill and the Government’s proposals to experiment with the people’s money. Confidence is the prime essential of a sound banking system, and any political action which is likely to destroy it must be combatted in the interests of the community. This bill threatens such confidence and, therefore, all sane and thoughtful Australians must oppose it with all the means at their disposal.
In conclusion, I wish to refer to a pamphlet issued by the Minister assisting the Treasurer of the Commonwealth. 1 recall the Scriptural incident of Job crying out to his comforters, “ 0, that mine adversary had written a book “. That cry has been answered by Mr. Lazzarini. To call it nonsense is to describe it mildly. The Treasurer (Mr. Chifley) in a debate last September, said -
My colleagues have made many appeals to the Government to increase the social service benefits. Social services must be .paid by somebody. They cannot be paid for out ot what is called national credit or bank credit. They must be paid for in hard cash, which must come out of somebody’s pocket. It if all very well to say that bank credit and national credit should be used to establish public works. It is useless for us to fool ourselves that we can give to the people of this country social services and social security and pay for such benefits with national credit. That is madness.
No .better commentary could be made on Mr. Lazzarini’s pamphlet - and ite author, forsooth, is the man who piloted this dreadful bill through the House of Representatives. I am utterly opposed to it; it is unnecessary and dangerous in the extreme.
– in reply - The length of this debate has been warranted by the fact that senators on both the Government and Opposition side agree that it is an important measure. Senator McKenna fairly stated that it marked a milestone in the banking history of Australia. By way of interjection 3 stated during the debate that the main motive behind the framing of this measure was the experiences of 1929-31. Apart from any criticism of the private banks, honorable senators know that the banking system generally was dominated by politicians in this chamber. They were prepared to allow 500,000 people literally to starve and the affairs of the man on the land to go awry. The proposal of the Labour Government at that time was to create a fiduciary issue of £18,000,000 and devote £1,000,000 a month to the relief of unemployment, and £500,000 a month to assisting the man on the land.
– On top of £90,000,000.
– The specific amount proposed was £18,000,000. At that time, Great Britain had a fiduciary issue of £390,000,000, but to-day that has been increased to nearly £1,000,000.000. Internal currency could have been used and would have obviated some of the horrors of that fearful degression. I am not commenting on the -actual causes of the catastrophe, because it was a general world-wide condition which affected Australia in common with other countries. It put fear in the hearts of the people, and they dread a recurrence. Banking reform has been the subject of a long-standing controversy between the Labour party and nonLabour organizations. Some people advocate stupid things, such as issuing unlimited credit for all sorts of purposes that will not yield any return. That is not the Labour party’s policy.
In the period from 1929-31, Australian loans could not be raised and governmental works were stopped, the English loan market was closed to us, and if bank credit had been released and money poured into the community the shocking calamity which befel this country would have been avoided. The effect of that depression on our generation is still felt. This legislation is based on broad and general lines and will not have the effect suggested by certain honorable senators. Senator Leckie said that the Treasurer will run the bank, and unless he is a superman he will not be able to resist political pressure brought to boar upon him. He also suggested that the Governor of the Commonwealth Bank will be told that he must lend money to this or that person regardless of the security offered. Senator Allan MacDonald said that the bank will become a political tool. Clause 9, which is the only clause relevant to those statements, does not empower the Government to interfere with the administration of the bank. It provides machinery for settling differences of opinion between the Government and the bank “ as to whether the monetary and banking policy of the bank is directed to the greatest advantage of the people of Australia “. Clause 9 is strictly in accord with the views of the commission as expressed in paragraph 530”. The only dissent was that of Mr. Pitt. The Chairman, Mr. Justice Napier, who made some reservation, nevertheless stated that “ the conclusion of the majority of the commission is therefore a sound working rule “. Undeniably, in the last resort, the will of the Government and of the Parlia ment must prevail in matters of policy. This is in line with recognized democratic practice both here and overseas. On the 2nd March of this year, the British Chancellor of the Exchequer, dealing with the relations between the Bank of England and the Government of the United Kingdom stated in the House of Commons -
No . doubt, in regard to issues of the very highest importance, as a last resort the will of the government of the day must, with the sanction of Parliament, be made to prevail.
On the 18th March, the London Sunday Times stated - to give the Commonwealth Treasurer power to over-ride the Governor is a frank recognition of the actualities of modern government.
On the 17th March, the London Stock
Exchange Gazette stated -
In fact, for the best part of a decade in this country the Bank of England has carried out the requirements of the Government in power.
There is a clear distinction between formulation of policy and its detailed administration. The inclusion of this provision in the bill is in accordance with the recommendation of the royal commission. It is a power which is conferred upon governments in other parts of the world, and has operated successfully. ] need not refer again to the controversy between this Parliament and the Commonwealth Bank when the Chairman of the Bank Board, Sir Robert Gibson, was asked to explain why he would not meet the wishes of the Government. Had the Government’s request been acceded to at that time much of the trouble subsequently encountered would not have occurred.
The Acting Leader of the Opposition said that when the Commonwealth Bank was constituted, the Governor was appointed for a specific period, and could not be removed from office during that period. Section 22 of the act provides that the Governor shall “ hold office only during good behaviour “. ‘Clause 22 of this measure merely continues that provision.
– What is meant by good behaviour?
– A similar provision exists in regard to the removal from office of High Court Judges. It is hard to define, as the honorable senator is well aware. The provision that the Governor .of the Common-wealth Bank may be dismissed only for improper behaviour is included in the present act and has been in that act since 1911.
The Acting Leader of the Opposition claimed that money without tangible assets to back it was worthless; Senator Allan MacDonald said that an adequate gold reserve was the sheet-anchor of a nation’s currency and asked where the sterling reserve for our currency was kept. A gold reserve wa3 necessary whilst Australian notes were convertible into gold, but those notes have not been legally convertible into gold since 1930, and in practice, “ they have not been convertible since 1914. A gold reserve, therefore, is not necessary. In fact, since the 1932 amendment of the Commonwealth Bank Act, the bulk of the note issue reserve has been held in the form of sterling, tha’t is, invested in British treasury-bills in London. That was done on the advice of the Commonwealth Bank Board which stated that the retention of the physical gold reserve was a luxury which Australia could not afford, whereas to hold the reserve in sterling would convert a frozen asset into a working asset, thereby increasing Australia’s national income.
I ask leave to continue my remarks at a later hour.
Leave granted; debate adjourned.
Sitting suspended from 4.50 to 8 p.m.
– When the sitting was suspended I was answering the contention of the Acting Leader of the Opposition and Senator Allan MacDonald that money without a gold backing is useless. I had said that our international reserves, however, are most important but their volume is not in any logical way related to the note issue.
A reserve is of no use unless it can be used in an ultimate emergency and, as the commission recognized, Australia’s international reserves should not bo immobilized by a legal relationship with the note issue. An alteration of the law in an ultimate emergency may, because of psychological factors, be difficult, and so the reserve tends to become frozen and not available at the very time it is required in the national interest. Under modern conditions the volume of the note issue is a reflection of the volume of bank credit. Referring to the proposal to. abolish the Australian note issue reserve the London Stock Exchange Gazette of the 17th March, 1945, said-
It should be remembered that Great Britain did much the same thing when the Exchange Account was set up in 1932. The backing of our own notes is now almost entirely our own Government securities.
The London Sunday Times of the 18th March, 1945, stated -
The operation of .the reserve requirements against the Note Issue is a reflection of the policy which in this country now expresses itself in a flexible fiduciary issue, changes hi which now excite no attention.
Honorable senators opposite recited what happened in 1931. In March of that year the then Treasurer, Mr. Theodore, introduced an amendment to the Commonwealth Bank Bill to enable the Government to ship, if necessary for the purpose of meeting indebtedness in London, the gold reserve held against the note issue. During the debate on that bill the Opposition expressed grave fears regarding inflation .and the lack of public confidence which would result. A typical example is the following statement by the right honorable member for Cowper (Sir Earle Page) : -
By this procedure, which is without precedent in the history of the world, as the Treasurer (Mr. Theodore) has admitted, no automatic corrective will bc left, and Australia will be divorced from the gold standard and the monetary system of other countries, and there will also be no governor on the engine. This is either the act’ of a madman or the last throw of a political gambler. Already, even the mere threat of repudiation, whether directly by default or indirectly by inflation, has caused a flight of capital from the Commonwealth . . .
A policy of inflation would destroy confidence in Australia, and tend to drive capital away. Every country that has passed through a period of inflation and the ruin and bankruptcy inevitably associated with it has ultimately been able to return to financial stability only by adopting in some measure a policy based upon a gold standard . . .
Wc should now be considering, not the sending overseas of the gold that we possess, hut a means whereby we can augment our present supply, so that our position may be made more stable. If that is not done, the position will inevitably become worse, and a recovery made more difficult. It is better to prevent inflation by the early use of gold than to cure inflation by the late use of gold from outside.
The members of the Opposition also adopted the attitude that it was technically unwise to ship the gold. During the debate Senator Sir George Pearce said -
This task will be very difficult in any event,. but will be made tremendously more so by depleting our present gold reserve, so that by allowing it the Senate would be aggravating the evil effects of the present government’s continuance in office which it will be the next government’s problem to counteract and repair. To allow the gold to be shipped would indeed be helping the enemy at the expense of the friend. It will not strengthen the credit of Australia to ship gold under the present conditions; on the contrary, it will weaken it. Abundant evidence of this has appeared in the cables from London, where the exact nature and intention of the proposal is not at all misunderstood, and where its relationship to inflation is fully recognized. The London problem is entirely a matter of credit. With one exception - the state ofourcredit - everything in London at the present time is favorable to the solution of our immediate financial difficulties. Money is plentiful and cheap. The next government, if elected by a solid majority of the people to put sound measures into effect, will have no real difficulty in funding the floating debt including outstanding treasury-bills and July interest and the difficulty will not he increased, but rather to the contrary, if the gold is kept in Australia. Shipping of gold will mean that we have frankly given up the idea of maintaining a properly regulated note issue, and it will further mean that we have lost hope of restoring the value of the Australian £1 in terms of the British £1.
The amendment proposed by Mr. Theodore, was defeated. But in June, 1981, another amendment proposed by Mr. Theodore became law. This provided for a reduction in the statutory limit in the gold reserve to 15 per cent., but making a provision for the restoration of the 25 per cent. reserve within four years. In November, 1931, the Scullin Government was defeated. The Lyons Government which was returned to power, passed in May, 1932, another amendment to the Commonwealth Bank Act, which authorized the bank to maintain the note issue reserve in gold or in English sterling, or a combination of both. The report of the Commonwealth Bank Board, dated the 5th August, 1932, indicated that’ this was done on the advice of the board for the following reasons : -
Actual shipments of gold are indicated by the following figures of holdings of gold by the Note Issue Department of the Commonwealth Bank: -
Nevertheless, honorable senators opposite still say that legislation is not necessary to. enable a government department to alter what is distinctly a blatant contradiction of the policy of the government of the day. The answer to that submission is the recommendation of the Commonwealth Bank Board, presided over by the late Sir Robert Gibson, to which I have just referred. The point I make here is that that was one of the main issues at the general elections held in 1931. Polling day was the 19th December ; and the ink was hardly dry on the late Mr. Lyons’s commission when his government did the very thing which Mr. Theodore had been trying to do for over a year previously. The fetish of a gold backing for the note issue was clearly exploded, not by the action of the Labour Government, but by the action of the Lyons Government.
The Acting Leader of the Opposition stated that the funds of the trading banks held by the Commonwealth Bank may he loaned to various sections of the Commonwealth Bank. This is not so. Clause 21 provides that the special deposits shall not be kept in the General Banking Division of the Commonwealth Bank. This ensures that they will be kept with the Commonwealth Bank in its capacity as a central bank. Parts VIII., IX. and X. of the bill specifically lay down the sources from which the Rural Credits, Mortgage Bank and Industrial Finance Department may draw their funds, and it is specifically provided that the funds of the Commonwealth Bank may not be used in these departments except in accordance with the limiting provisions of the act.
The Acting Leader of the Opposition said that this legislation will centralize banking control and administration at the head-quarters of the Commonwealth Bank, Sydney. It is the function of a central bank to determine the general policy to be followed by the banking system as a whole. Introducing the 1924 amendment to the Commonwealth Bank Bill, the right honorable member for Cowper stated -
The important functions of banking can properly be performed only with the guidance and control of a central bank. Decision and -settled policy are essential. Divided counsel ind clashing interests of individual bankers must in the end be fatal to good credit management, and banking can be raised to its greatest perfection only by the action of a central bank working always for the good of all.
The Commonwealth Bank will not interfere with the administration of other banks. Administration will not, therefore, be centralized.
Dealing with the establishment of the Industrial Finance Department, Senator Allan MacDonald said that an amendment of the Commonwealth Bank Act is not required to enable the bank to assist small industries. The proposed establishment of an Industrial Finance Department is in accord with the unanimous view of the commission that additional facilities were necessary to meet the needs of small concerns in secondary industries, and is in line with similar reconstruction measures taken in the United Kingdom and Canada.
The Acting Leader of the Opposition said that the bill will convert the bank into . another government department, and that promotions W1 not be made in accordance with the merit of officers. Clause 164 of the bill states that in the selection of an officer for promotion to a vacant position, consideration shall be givenfirst to the relative efficiency of the officers available for promotion, and in the. event of equality of efficiency of two or more officers, then to the relative seniority of those officers. The Acting Leader of the Opposition also said thai the Government should at least make reasonable provision for any officers of the private banks who may be displaced Reasonable provision has been made in the bill for officers of the trading banks who may be displaced as a result of thi* legislation.
Sub-clause 3 of clause 156 provider that the bank may appoint to itsservice, without examination, the officers of any banks of which the assets, liabilities, and business are taken over by the Commonwealth Bank, either wholly or in part. Whenever the Commonwealth Bank has absorbed another bank in the past it has taken over almost the entire staff of th’ bank absorbed. Apart from amalgamation, clause 161 of the bill provides that if it appears expedient or desirable in the interests of the bank to do so, the bank may appoint a person without examination. This provision will enable the bank to recruit experienced employees from the trading banks if it is necessary for it to do so in order to expand its own business. It is evident that the rate al which the bank can expand its business will depend, to a large extent, upon its ability to recruit suitable staff.
The Acting Leader of the Opposition said that in the oast, the risks taken by bank depositors have been distributed over various banking institutions, thus ensuring a certain, degree of safety, but now banking is to be centralized and its assets will not be liquid. The existence of various hanking institutions does not ensure the safety of depositors, a? American experience proves. Under the Banking Bill, shortly to be debated in the Senate, the Commonwealth Bank, the solvency of which is guaranteed by the Commonwealth Government, if obliged to take prompt measures to protect the depositors of the Australian banking system.
The Acting Leader of the Opposition also Bald that the Government could say to a bank, “ You must not make advances to that firm. We do not like it”; and the Commonwealth Bank, while refusing permission to a private bank to make an advance, could itself make that advance. There is nothing in the hill to justify that statement. Under the Banking Bill shortly to be debated in the Senate, the Commonwealth Bank is empowered to determine the policy in relation to advances to be followed by banks; but the bank is prohibited from making any determination or giving any direction with respect to an advance made, or proposed to be made to any particular person.
Senator Allan MacDonald made reference to certain objections to the bill, and stated that the Government had given the impression that the measure was largely based on the recommendations of the Royal Commission on Monetary and Banking Systems. It is true that it is proposed in the bill to implement certain recommendations by the commission, but the Government could not agree to the contention that it is bound to follow slavishly the recommendations of a commission which made its investigations eight years ago. A good deal has happened since that time, and the proposals of the Government are designed to meet the inevitable problems attendant upon the continuance of the war and the subsequent transition period.
Senator Gibson and Senator Sampson claimed that the party which was in power in New South Wales under Mr. Lang, had been responsible for the closing of the Government Savings Bank of New South Wales. As a member of the House of Representatives at that time I was proba’bly as often in New South Wales as I was in Victoria, and I am able to speak from a close knowledge of the events at that period. The “ run “ on the Government Savings Bank of New South Wales was a direct political action traceable, not entirely to the Opposition parties, but also to a large degree to a section of the Labour party. The name of Lang was anathema to a large section of the movement. The bank was a suc cessful institution, but rumours were set afoot which created a scare among depositors and a “ run “ on the hank took place. This could not be prevented because almost daily both in this Parliament and in the press there were innuendoes that the bank would have to close its doors. Honorable senators know that if I went to Melbourne tomorrow and whispered to people whom I know that I intended to withdraw my deposits from a certain bank, a rumour would rapidly spread that the bank was about to close its doors ‘and very little time would elapse before the depositors would be eager to withdraw their savings from it. No bank carries sufficient cash to meet a sudden call of that nature, unless it is backed by the other hanks. When the Government ‘Savings Bank of New South Wales was closed, the Commonwealth Bank stepped in and prevented the depositors from losing their money. To suggest that the closing of the bank was due to the fact that a Labour government was in office is too stupid for words. It was one of the worst instances of the limits to which political animosities could drive certain people.
The Leader of the Opposition in the House of Representatives at that time was Sir John Latham, and he continually asked the Treasurer of the day what report he could give as to the position of the Government Savings Bank of New South Wales. How, in those circumstances could a “ run “ on the bank have been prevented? The use of an argument of the kind advanced by some honorable senators in the consideration of this bill was entirely unwarranted. 1 claim that this bill is sound. It will have had a year of operation before members of this Parliament go to the electors at the end of next year. I predict that after a year of trial of this legislation the electors will be forced to ‘believe that disgraceful canards have been put forward by certain interested people. ] have no doubt that the Commonwealth Bank, with its enlarged powers, will prove to be an efficient institution. There is no ground for suggesting that any private bank will be put out of business, but the Commonwealth Bank will be a real competitor of the trading banks. For years representatives of the Labour party have contended that the Commonwealth Bank should exercise its functions in such a way that it will become in reality a competitor in the banking business. Foolish stories have been circulated about the danger of unlimited credit being issued, but they are quite unwarranted. At the conclusion of the war the expenditure of tens, if not hundreds, of millions of pounds will be necessary on great public works such as water conservation; but there is no ground for the suggestion that public money will be expended unjustifiably on additional social services. ‘ That is not part of the platform of the Labour party. Those who frame the policy of the party with regard to banking are not entirely devoid of business capacity. Having been associated with the introduction of this measure I am particularly anxious that its operation shall prove successful.
Question put -
That the bill be now read a second time.
The Senate divided. (The President - Senator the Hon. Gordon Brown.)
Majority . . 9
Question so resolved in the affirmative
Bill read a second time.
Clauses 1 to 4 agreed to.
Clause 5 (Definitions).
– In a bill of this kind it is well to start off with clear definitions. This clause states that “ bank “ means “ a person carrying on the business of banking “. That seems a clear definition, but what does it mean? It is of no use to contend that it meanswhat it says. On referring to section 51 of the Constitution, which sets out the legislative powers of this Parliament, we find that in placitum xiii the Parliament is given power to make laws with respect to -
Banking, other than State banking; also State banking extending beyond the limitsof the State concerned, the incorporation of banks, and the issue of paper money;
What is the meaning of “ banking, other than State banking”? Does it refer to savings banks only, to any bank conducted by a State, or to any bank which operates entirely within a State If it merely means that a State Savings Bank does not fall within the scope of the powers of this Parliament, well and good, but there are many other institution? which in some respects might be regarded as carrying out banking functions. Members of this chamber wish to know which institutions are to be dealt with under this bill. Many pastoral firms do a considerable amount of banking business. I do not know whether they take deposits but they certainly make advances. Some of the big pastoral companies do business in all of the States, whilst the activities of others are confined to particular States. There are rural banks in some of the States and in Western Australia there is an Agricultural Bank. Will they be affected by this bill? The position should be clarified before we further discuss the measure. Many motor finance companies and similar organizations have been in business for a considerable number of years, and some of them have a great deal of capital.
.- In addition to the various people and bodies mentioned by the Acting Leader of the Opposition (Senator Leckie) thismeasure may apply to public curatorswhohandle trust funds and other persons who administer deceased estates. Many firms of legal practitioners have control of trust funds amounting to considerable sums from which they make advances. Can the Minister say whether they also are included?
– I am unable to give a definition of “bank”; I am afraid that that is a matter for a highly trained judicial authority. The banks referred to in this bill are the institutions, including the Commonwealth Bank, which are carrying on ordinary banking business.
– I think that all honorable senators understand that the bill refers to ordinary trading banks, such as the Bank of New South Wales, and the English Scottish and Australian Bank, but we wish to know whether other people and companies which make advances to pastor alists and others are regarded as carrying on banking business. Most stock agents in country districts make advances on stock. Are they to be regarded as carrying on banking ‘business, and, if so, have they to be registered before they can continue to carry on such business? The Government must have in mind the kind of business concerns to which this legislation will apply in addition to regular banks which carry out well-recognized banking business. Has it in mind, for instance, trustee companies and pastoral finance companies? If the Minister is not prepared to give a firm definition now, I suggest that he agree to the postponement of this clause. We should know definitely to whom the bill refers.
– I am willing that consideration of the clause shall be postponed.
Clauses 6 and 7 agreed to.
Clause8 (General functions of Commonwealth Bank).
– This clause sets out the objects of the hill. It provides that it shall be the duty of the Commonwealth Bank to pursue a monetary and banking policy which will best contribute to -
Can the Minister say what is meant by “full employment”? I have no desire to split straws, because I know that full employment in a strict sense is impossible of achievement because of seasonal work and “ unemployables “. I suppose that what is meant is reasonably full employment. In his second-reading speech the Minister for Trade and Custom? (Senator Keane) said that one object of this legislation was to prevent another depression. I agree that if we can have full employment we shall go a long way towards preventing another depression, but that does not define “ full employment”. Does the term mean that the Government will depend on the Commonwealth Bank for bank credit or overdrafts to enable it to undertake fantastic schemes of public works, thereby making thebulk of the people public servants? The Government must realize that before the war private enterprise provided about 80 per cent. of the employment in Australia, and will probably do so again when normal times return.
It is the Government’s duty to see that people are not out of work and the best way to provide full employment is to encourage private enterprise so that jobs will be available. Should there be a slump, the Government should fill the gap. In order to achieve reasonably full employment, would it not be better if the Government were to remove the harassing restrictions which prevent people from employing others, and also to lift some of the tremendous burden of taxation so that private enterprise could be conducted more profitably?I make no apology for talking of profits, although I know that some Government supporters do not like the word. Every person works in order to make profits, so why not make it easier for private enterprise to make profits by allowing business men to conduct the business affairs of the nation, and for the Government to take up any slack that may then exist ? If the Government were to curtail all unnecessary expenditure, it could avoid embarking on fantastic schemes of public works which necessitate overdrafts.
I have no faith in crazy schemes of costless credit and debtless loans. “We cannot provide full employment by a system of hank credits. I wish to know whether the Government intends to rely on bank credit, or whether it will encourage private enterprise to provide employment, and so ensure a happy and prosperous people.
.- I think that the honorable senator is aware that the Government is considering the lessening of controls. That may appear to be an easy way to side-step questions, but it is not so easy as it looks, because &t this stage not many controls can be lifted. Within the next week or two, Ministers must make up their minds what controls are no longer necessary and report to the Acting Prime Minister (Mr. Forde) on the subject. The Government has already announced that taxes will be reviewed as early as the finances of the country will permit. The use of the words “ full employment “ is in accordance with the general policy of Australia, with which all honorable senators agree: it does not presuppose that the Government will he the employer -of every person in the community, although I point out that when government works stopped during the depression private enterprise also stopped. The depression showed clearly that private enterprise is unable to absorb large numbers of unemployed. Instead of absorbing persons who had been in the employ of the governments, private enterprise dismissed many of its own employees during the depression. Obviously, therefore, private enterprise must be encouraged in every way to absorb any persons who may be unemployed. The Government hopes that in the future the number of unemployed will not be great. Already -a review of service departments is taking place; three committees, each with an independent chairman who has an assistant, are at work in the Departments of the Navy, the Army and the Air. Moreover, the civil -departments of the Commonwealth are being combed by the Public Service Board, assisted by Mr. Fitzgerald, an outside accountant. I suggest that the
Government could not have taken this action earlier because Ministers had been occupied almost entirely on work arising out of the war. Now that the war situation is easier, they can give attention to these matters, which I agree are of great importance. I wish to make it clear that the Government does nol object to profits; all that it objects to is excessive profits. I believe that the Prices Commissioner and his officers have done a good job in controlling prices, but I admit that men do not engage in business merely for the sake of their health. It is only natural that they should expect to make profits, but the outrageous looting of the people by charging excessive prices has continued far too long. That is why I want the States to transfer to the Commonwealth the power to control prices.
– This clause provides that the Commonwealth Bank shall exercise the powers conferred on it under this legislation, and also under the Banking Act 1945. I point out that there is as yet no Banking Act 1945, although this measure assumes that there will be such an act on the statutebook.
– There is no doubt about that.
– At the moment, 1 am not questioning the possibility that other legislation to control banking will be passed, but it is not usual to include in a bill references to legislation which has not yet been placed on the statutebook. I mention this matter now because in my second-reading speech I was told by the President that I could not refer to the Banking Bill.
– It is as good as passed.
– This is a new way of dealing with legislation. It is noi wife for a government to frame all itf measures on the assumption that other legislation not yet enacted will be passed. The second point is in relation to the provision that the bank .shall - exercise its powers under this Act and the Banking Act 1 045 in such a ‘ manner as, in the opinion of the Bank. . . .
In the next clause, it becomes evident that “ the opinion of the bank really means the opinion of the Treasurer of the day, because it provides that if there is a difference of opinion between the bank and the government of the day then the government’s will is to prevail. It would have been more definite if the words had been -
In such a milliner as, in the opinion of the Government of the day.
– Does the honorable senator desire the words “ of the day ‘* to be inserted after “ Government “ ?
– It would be more honest to say so, because that is what is intended. Similar banks in other countries have not reached the stage proposed by this clause - for example, the Bank of Canada has suggested that it will mitigate fluctuations in general levels of production, trade prices and implements. This clause holds out to the people a definite promise by the Government that it will be able to provide full employment in Australia.
– As far as possible.
– It does not say as far as possible “. That is very definite.
– The Government is very definite on it, too.
– I am aware of that; that is the promise the Government is making.
– Is the honorable senator opposed to full employment?
– No, I believe in it; it is the honorable senator who does not believe in it, and his acts and speeches produce the opposite effect. He is scaring people with his schemes for capital levies, and so on. If that does not lead to unemployment, I shall be surprised. Nothing would scare the investing public more.
– “Why did not the honorable senator’s government give effect to a policy of full employment?
– -My party believes in full employment and will probably be able to provide it. Senator Cameron’s party cries aloud for full employment, but will never be able to implement that policy.
Clause agreed to.
Clause 9 - (3.) If the Treasurer and the Bank are unable to reach agreement, the Treasurer may inform the Bank that the Government accept; responsibility for the adoption by tile Bank of a policy in accordance with the opinion of the Government and will take such action (it any) within its powers as the Government considers ‘to be necessary by reason of the adoption of that policy. (4.) The Bank shall then give effect to that, policy.
Senator LECKIE . (Victoria- Acting Leader of the Opposition). - I move -
That, in sub-clause (3.), the words, “willtake such action (if any) within its powers as the Government considers to be necessary by reason of the adoption of that policy “ be left out with a view to insert in lieu thereof the following words: - “that it is in the position to take, and will take, any action necessary to implement it”.
The Government has followed the recommendations of the royal commission in. framing some of the provisions of thisbill, and in paragraph 530 the words which I am seeking to have inserted in the clause were used. It is no use theGovernment saying that it. will take certain action within its powers that it considers to be necessary unless it can assure the Governor of the bank that it hasthose powers and will exercise them. If the Government cannot do what the bill provides it is deceiving the bank. TheGovernment may not have a majority in one chamber and therefore, be powerless ‘to fulfil its promise or its avowed intention. The amendment makes theposition of the Government more honest.
.- The words proposed by Senator Leckie to he substituted are taken from paragraph 530- of the royal commission’s report. Thereason why the Government has adopteda slightly different wording of the clauseis that the Commonwealth legal officersadvise that the exact wording of the commission’s recommendation does not conform with the constitutional and legal position. No government could* give a categorical assurance that it is in a position to take and’ would take any action necessary to implement a certain decision, because if might not be in a position, either politically, or legally, to do so. It can, however., give an assurance that it will take such action within its powers as it considers necessary. The legal officers advise that clause 9 conforms as nearly with the legal position as is possible in adopting the royal commission’s recommendation. The amendment therefore is not acceptable.
.- I cannot accept the view expressed by the Minister or the Attorney-General’s Department. There is no legal issue involved. If the Government gives an assurance to the bank it should be in a position to carry out its assurance. Does the Government want to deceive the Governor of the bank?
– Would the honorable senator accept the advice of the Attorney-General’s Department if he were a member of the Government?
– Not in this case, because the matter is so clear. The Attorney-General’s Department, of course, is subject to the Government, and the Government can obtain any opinion it likes from that department if it goes to the right quarter.
– That is a rather serious statement to make.
– I repeat that, whatever government is in power it can obtain an opinion in a certain way if it desires it.
– It j- wrong to say that; that is a reflection on the officers of the Attorney-General’s Department.
– The honorable senator knows that if he were a party to a law suit his counsel would furnish an opinion in support of his case. My remarks are no reflection on the department or its officers. They are employed to state the Government’s case. I reiterate that this is not a question of law, but one of common ethics. The Government cannot honestly give an assurance to the Governor of the bank that it will take certain action unless it is in a position to carry out its action.
– It is not a government unless it has- power.
– I am aware of that. In the dying hours of a parliament one can imagine a government giving certain assurances, in spite of the fact that it has no power to carry them out. I thought that’ the Government would jump at an amendment of this kind so that its assurances would be worth whileOtherwise they are not worth the paper on which they are printed.
.- In reply to Senator Leckie, the Minister (Senator Keane) referred not only to legal but also political power. In connexion with legal power, advice is often given to the Government by the AttorneyGeneral’s Department, and regulations are framed similar to those relating to transport which, when recently challenged in the High Court were declared to be invalid. A similar situation has arisen on numerous occasions in connexion with National Security Regulations. No one could say that the advice tendered by the Attorney-General’s Department t-j any government, is infallible, otherwise there could be no successful challenge of a regulation before the High Court, lt is obvious that constitutional and legal validity of a regulation cannot be determined until it has been tested in the High Court.
– The High Court isnot always right.
– But the High Court of Australia, under the Constitution, is vested with power to interpret the law? of this land. I should prefer to take the High Court’3 opinion to that of the Minister on some matters, even though the honorable gentleman has the advantage of advice from the AttorneyGeneral’s Department. I am not saying that offensively. The Minister for Trade and Customs said that the Government might ask the bank to do certain things in. an emergency, even though it may not ‘be sure of political support to carry out its purpose. Surely any government - particularly a regimented administration such as the one now in office- will know whether or not it has power to secure the passage through Parliament of certain proposals. Any government which went to the Commonwealth Bank and instructed it to do certain things, without first ensuring that it had sufficient support in Parliament for its proposals, which might vitally affect the finances of this country, would be in a serious position, and the consequences to this country might be very grave indeed. A government always relies upon the legal advice given, to it by its advisers, but there should be a safeguard in this bill providing that a government should first ascertain whether or not its proposals will be supported. Otherwise, upon an approach being made to the bank, the bank authorities might ask if the Government had the support of the Parliament for the action it proposed. The Government might reply, “ We do not know. We have not tested Parliament, but under the party system, a government always knows beforehand what the reception of its legislation will he “.
– We know that now.
– But the Minister himself said that a government might not be able to give an assurance that a majority of members of the Parliament would support its action. It would be serious for a government to go to an organization such as the Commonwealth Bank which, handles many millions of pounds of the people’s savings, and demand that it do certain things, and then find out afterwards that the proposals, were against the will of the majority in the Parliament.
– It is rather strange that the Acting Leader of the Opposition (‘Senator Leckie) and Senator Foll should now be arguing that the Government should assume political control of the bank. Throughout the second-reading speeches of honorable senators opposite, they complained that this measure would introduce too much political control into the affairs of the bank. The bill sets up the machinery of hanking in this country, and provides ‘for its operation. The effect of the amendment would be that a government, after giving an assurance to the Commonwealth Bank authorities that it had parliamentary support for its special proposals, would then implement those proposals. Sub-clause 4 of clause 9 states -
The bank shall then give effect to that policy.
In the event of a disagreement between the Commonwealth Bank Board and the Government, the Government will state its policy. The Opposition is arguing that the Government would then proceed to implement its policy. Obviously, the Government could not implement its policy unless it used the banking machinery, otherwise the whole effect of the clause would be nullified. The bank, and not the Government, should implement the policy.
– Subclause 3 is the source of the Government’s power over the Commonwealth Bank, and over the banking system. That is our main objection to the bill. I take the minds of honorable senators back to the time when a Government of which I was a member was in office, and was dependent, upon the support of two independent members of the House of Representatives. If that Government had been asked to give an assurance to the Commonwealth Bank that it had certain power, what would have been the result? Obviously, such an assurance could not have been given without first consulting the honorable member for Henty (Mr. Coles) and the honorable member for Wimmera (Mr. Wilson). This system may work quite satisfactorily when a government has a substantial majority in both chambers as is the case at present, but such majorities do not always exist. In fact, this Government’s majority may not last very long. In a parliament in which government and opposition numbers are fairly even, a government might easily find itself unable honestly to assure the Commonwealth Bank that it had support for its financial proposals. If it gave such an assurance, it would be deceiving the bank into carrying out its policy. Obviously Senator O’Flaherty misunderstands the purport of this clause, which as I have said, gives to the Government complete power over the banking and financial policy.
– It also states how that policy shall be implemented.
– But before the bank can carry out that policy, the Government is required to give certain assurances. I have cited a case in which such assurances could not be given. This Government might easily find itself in the same position. The intention of this amendment is to ensure that the Government of the day shall be honest with the
Commonwealth Bank, and that when it requires the bank to carry out a certain policy, it .shall first satisfy itself that it has parliamentary support for that policy. Whilst I disagree strongly with the proposal to place in the hands of the Government control of the policy of the Commonwealth Bank and of finance generally, I press for the inclusion in the bill of this safeguard.
– The Acting Leader of the Opposition (Senator Leckie) is merely playing with words. A government is either in office or it is not. If a government gives to the bank an assurance that it has support for its policy, the Parliament may, if it so desires, test the Government on that matter. Obviously, a government cannot govern unless it has power.
– The Minister himself has said, that the Scullin Government was in office but m)t in power, because it had a hostile Senate.
– If a government is in power, it has the numbers necessary to ensure its authority. If a government makes a decision which in the opinion of the Parliament is not in the best interests of the country or of the people, it is within the province of the Parliament to challenge that government. That seems to me to be an adequate safeguard against any possible abuse of power by a government.
.- When the Postmaster-General (Senator Cameron) was speaking, the Acting Leader of the Opposition, by interjection, referred to the position which, existed in this Parliament during the regime of the Scullin Government. Had this clause been in force at that time, the Prime Minister and Treasurer could have gone to the bank and given all kinds of guarantees, and made all manner of demands, which the bank would have had to carry out. The decision of the Government might then have been challenged by Parliament and countermanded by the Senate. What then would become of the guarantees given to the bank? They would be worthless. I remind honorable senators of the present constitution of this chamber. All honorable senators due to retire prior to the next elections, are on. this side of the chamber; the Labour party may still have a majority in the Senate. Should the Liberal party secure a substantial majority in the House of Representatives, and thus become the Government, what undertakings could it give to the Commonwealth Bank? Seeing that the bank may have to expend millions on the Government’s guarantee, which the Parliament may have to ratify, surely the bank is entitled to ask for such guarantee as will be ratified by the Parliament as soon as the Parliament has an opportunity to deal with it. The next clause provides that the bank is to bc held responsible for any action which it takes under this clause. In those circumstances, the bank should be given an assurance by the government of the day that any guarantee given by il will be backed up by a ma jority in both Houses.
– The Government is either the Government or it is not. The board is a subordinate body responsible to the Government, and the board should take its directions from the Government. It is not within the province of the board to ask the Government for any assurance at all, because it is a subordinate body; it is not a body elected by the people. In. the event of a. position arising similar to that to which Senator Foll has referred, the requisite test can be made. If the test cannot be made to the satisfaction of the people by a vote in Parliament, it can. be made by reference to the people themselves. But at all times all bodies to which powers are delegated, are subordinate bodies. They have no right to ask for any assurance at all if the Government is supported by a majority of the Parliament. It is the duty of a subordinate body to accept the direction of the Governmeent through either an instruction issued by the Government or by an act passed by Parliament. To suggest that a subordinate body should act in the capacity of a superior body ia to suggest that Parliament is inferior to a subordinate body. That is perfectly ridiculous, and quite contrary to established practice, and would not be maintained for one moment by any person capable of understanding the position.
– It is rather unique to see a responsible Minister torpedoing the Government’s own proposal. This provision was drawn by the Government, but the PostmasterGeneral (Senator Cameron) says that he does not agree with it.
– I do not agree with the amendment.
– The PostmasterGeneral said that he did. not agree with the giving of guarantees, but the clause provides that the Government will give a guarantee.
– What is wrong with that?
– The PostmasterGeneral says that it is all wrong.
– The PostmasterGeneral said that the government of the day should dictate these things, and should not be obliged to give any guarantee to any one.
– I did not use the word “ guarantee “.
– The PostmasterGeneral said that the Government should not have to give guarantees to any one; but the clause provides* - (3.) If the Treasurer and thu Bank are unable to reach agreement, the Treasurer may inform the Bank that the Government accepts responsibility for the adoption by the Bank of a policy in accordance with the opinion of .the Government and will take such action (if any) within its powers as the Government considers to he necessary by reason of the adoption of that policy.
The Postmaster-General is torpedoing this provision. That is the effect of the whole of his speech. The Government, wisely, in my opinion, says, ‘in effect, that it has some responsibility in this matter, and will in some way reassure the bank; but we say that the provision does not go far enough in that direction. The Government should be able to tell the bank that it has the power to take such action as is necessary under the bill. I have cited several instances in which no honest government could assure the bank that it was in full possession of the powers necessary to implement certain assurances. All I wish to do is to ensure that the Government of the day, regardless of its party-political affiliations, shall not be able to deceive the bank as to what policy it is capable of carrying out.
– The amendment strengthens the Government’s hand in this matter. The clause as drafted will enable the Government of the day by a backdoor method to implement very important decisions which should be the subject of consideration by the Parliament. It has been pointed, out that a government of a political colour different from that of the present Government may be in office at an early- date, ‘but with a hostile majority in the Senate. It seems clear that this provision has been inserted in order to avoid any possibility of the Government having to run the gauntlet of a hostile Senate. In matters of this kind, the decisions of any government, regardless of its party political affiliations, should be considered by the Senate. This provision deliberately denies to the Senate any opportunity to say whether a decision of the Government is in the public interest, whereas the amendment will ensure that opportunity being given to the Senate.
– The remarks of the PostmasterGeneral (Senator Cameron) were most illuminating. They added force to the amendment. He cited an instance where the Government of the day may not have a majority in both Houses, and, therefore, would have some doubt as to its ability to sway the Parliament to its way of thinking. He said that the only way of testing the matter would be in respect of a measure introduced for that purpose. The point, however, is that such a test should be taken before the Government of the day instructs the bank to carry out its decision. That is the crux of the matter. A government following that course would he certain that it had power to honour its guarantee, and thus protect both the bank and the Government; but the method mentioned by the PostmasterGeneral is analogous to closing the stable door after the horse has bolted.
. - It is evident that either wilfully, or otherwise, a wrong construction has been placed on what I have said. The clause provides -
If the Treasurer and the Bank are unable to reach agreement the Treasurer may inform the Bank that the Government accepts responsibility for the adoption by the Bank of a policy in accordance with the opinion of the Government and will take such action, (if any) within its powers as the Government considers to be necessary by reason of the adoption of that policy.
I say now as plainly as I possibly can that that is as it should be. The Government, as the supreme body, should, in the event of its not being able to reach agreement with the Bank, or to accept the advice of any subordinate body, accept the responsibility to give effect to its policy. That is all that the clause provides; but honorable senators opposite would like a provision that would give to the bank the opportunity, if it thought fit. to over-ride a decision of the Government. That is exactly the purpose of the amendment.
– Obviously, that is the purpose of the amendment. I repeat that the Government is either the supreme governing body, or it is not. Therefore, the object of the amendment is to allow a subordinate, if the opportunity offers, to override a decision of the Government, or the policy of the Government as laid down through the medium of an instruction, or an act of the Parliament.
.- The remarks of the Postmaster General (Senator Cameron) are illuminating. He says that the Government should govern.
– What does the honorable senator say?
– We say also that the Government should govern - if it has the power to govern. The amendment does not enable the bank to side-step the policy of the Government. Full power will still remain in the hands of the Government if it has the power to implement certain promises which it may give.
– The amendment does not say that.
– It does; it says that the Government shall be in a position to govern; that is, it will really be in power and, therefore, in a position to give assurances. The PostmasterGeneral does not seem to comprehend that point. However I do not think that I can make it clearer.
Question put -
That the words proposed to be leftout (Senator Leckie’s amendment) be left out.
The committee divided. (The Chairman - Senator B. Courtice.)
Majority.. . . 9
Question so resolved in the negative.
.- I move-
That the following words be added to subclause (4.): - “if approved by Parliament”.
This clause takes responsibility from the bank and places it in the hands of the Government. I suppose that one of the first duties of the Government when the bill has been passed will be to appoint a Governor of the bank. I am willing to assume that he will be a highly-trained and efficient banker, who has probably spent the whole of his working life in the banking profession. He will be assisted by an Advisory Council consisting of the
Deputy Governor, who will also, no doubt, be a trained banker. Other members of the council will be two officers of the bank and doubtless they will be leading officers. There will also be two officers of the Treasury who will be well equipped with a knowledge of finance. This clause provides that if a difference of opinionarises between the Treasurer of the day and the bank, the Treasurer’s opinion shall prevail. We cannot expect the Treasurer and the other members of the Treasury staff to be highly-trained bankers; therefore, the difference of opinion anticipated in this clause will be between men who have spent most of their lives in banking and men who are not trained financiers. .Nine times out of ten, any difficulty that arises will relate to proposals for which the Government desires money to be advanced and in respect of which the bank considers that the security is insufficient. The bank may state that it regards the proposals as unsound and the Government will reply that it is willing to accept all responsibility in the matter. I am well aware that the Government will exorcise the power by this clause, and will, if it so desires, override the wishes of the bank, but before that is done I submit that the matter should be referred to this Parliament. We are elected by our constituents to look after their interests, and before the Government exercises the power which the clause gives it should agree to the submission of matters in dispute to the Parliament for its consideration and approval. One might imagine, from the speeches delivered on the second reading of the bill, that one of the chief functions of a bank is to grant overdraffts, but one of its main purposes is to take caro of the money of its depositors. As the money in the banks belongs, to the people who put it there, the duty of the Parliament is to help to safeguard it. The best way to do that is to see that it is placed in the hands of people who are specially trained for that work; but under this bill the Government says, ;< Do not leave it in the hands of trained bankers ;. we want it “.
– This is one of the most important clauses in the hill, and it would operate only in special circumstances. I ask honorable senators to recall the difficulty that arose when the Scullin Government was in power and the depression was particularly severe. It was necessary, in order to keep the finances of the country on an even keel, to implement what was known as the “ Premiers plan “.
– That was plain stupidity.
– That is idle talk, because the circumstances at the time made that plan necessary. The government of the day declared that, if certain funds were to be made available to it, it’ would give effect to certain reductions of the salaries of members of the Commonwealth Public Service and certain reductions of pensions and other services. Distasteful as that plan was, the fact that the people made the necessary sacrifice enabled Australia eventually to emerge from the depression more quickly, and with less disastrous results, than in any other country. The Scullin Government had an overwhelming majority in the House of Representatives, but a large majority against it in the Senate. In order that it might give the necessary guarantees that would assist in the financial recovery of Australia, the Government called into consultation the leaders of the opposition parties. It was necessary to ensure that the legislation associated with the “ Premiers plan “ would be implemented. The necessary assurances having been given, effect was given to the proposals. Despite what the Postmaster-General (Senator Cameron) has said about the Government being supreme, I contend that the Parliament is the supreme governing body which in the final analysis decides what shall be done. Action such as is contemplated under this clause is likely to be taken only in an emergency. It would be possible for the government of the day to call its political supporters together and receive a guarantee that any action proposed to be taken would have the endorsement of the majority in both .branches of the legislature.
.- For plain stupidity the remarks of Senator Foll would take a lot of beating. During the depression the Commonwealth .Bank Board adopted a policy which was contrary to the policy of the then government. At that time, there was political control of the banks in reverse. Those who represented capitalist interests on the Commonwealth Bank Board, put into operation a policy exactly the opposite of what should have been applied to the needs of that time. Senator J. B. Hayes said that private enterprise should ,be given the job of keeping the wheels of industry moving, but that in a depression the Government should provide credit for public works and should fill in gaps in employment.
– I also said that governments should save money when the opportunity existed.
– I agree that in good times surplus capital should be built up and made available for use in a depression. The policy advocated by Senator Foll is the opposite to what should be done. The honorable senator’s remarks show that he does not know what brought about the depression of 1931-33. His only solution is for capitalist interests to dominate the Commonwealth Bank and dictate the policy of the country. This bill provides that when the policy of the country is different from that of the Commonwealth Bank, the policy of the Government shall prevail. We go further and say that the bank should be given a written undertaking that the Government will be responsible for the policy to be followed.
– 1 am amazed at the statement of Senator Lamp that the Government should give a written guarantee to the bank. I cannot see anything to that effect in the bill, but. the honorable senator must have seen it somewhere or he would not have spoken as he did. The giving of a written guarantee is absolutely contrary to what is contained in the bill. It is true that when the measure was before the House of Representatives an amendment to make it compulsory for the Government to put its views in writing was moved, but was rejected. Now Senator Lamp tells us that the Government must give a written guarantee to the banks. The difference between the Government and the Opposition is that the former says that the Government, which in practice means the
Treasurer of the day, should be supreme, whereas the Opposition says that the Parliament should be supreme. I emphasize that this clause is designed to meet a major difference of opinion between the government of the day and the Commonwealth Bank.
– That will not happen often.
– It may never happen in our lifetime. We say that, in such a case, the Government should consult the Parliament before deciding that its policy should be given effect. That is all that the amendment asks. The amendment will relieve the Treasurer of the responsibility and will place it where it rightly belongs, namely, on the shoulders of the representatives of the people in the Parliament. It will be seen therefore that in its own interests the Government should accept the amendment.
– Senator J. B. Hayes has raised a point that is worth considering. He has said, in effect, that in the event of a difference of opinion between a highly trained banker and an elected representative of the people the opinion of the former should prevail. I, therefore, submit for his consideration the views expressed by Lord Keynes, one of the leading economists of Great Britain, who at various times has acted as adviser to the British Government. In 1940 he said -
If the war continues for two years or longer, the national debt will reach an unmanageable figure, which will hamper national finance for years to come.
In such circumstances a capita] . levy will be advisable just as (in my opinion) it wat at the end of the last war, if it could have been carried out before the post-war slump.
– I rise to a point of order. The clause before the committee has nothing to do with a capital levy.
– I was waiting for the Minister to connect his remarks to the clause.
– The statement continues -
A capital levy (or tax) after the war, embodies an advance towards economic equality greater than any which we have made in recent times.
The man who expressed that opinion enjoys an empire-wide reputation. Would Senator J. B. Hayes say that the opinion of that highly-trained man in favour of a capital levy should prevail as against the opinion of mental pygmies who do_ not know any better than to oppose iti
– I support the amendment. The bill provides that Treasury officials and bank officers shall be available to give advice to the Governor of the bank and I presume that the Governor will pass that advice onto the Treasurer of the day. The bill provides that in the event of any difference of opinion between the bank and the Government, the opinion of the latter shall prevail, but wo on this side ask that both opinions shall be placed before the representatives of the people in the Parliament for decision. If the Government had a majority in both Houses of the Parliament, the opinion of the Treasurer would ultimately prevail; but the electors would have had the advantage of hearing both views because the whole matter would have ‘been brought into the open. A difference of opinion could arise regarding the use of the funds deposited with the Commonwealth Bank by the trading banks, and a decision in regard to that matter might have far-reaching results on the commerce and industry of the country. A matter of such importance should be discussed freely and openly in the Parliament, and should not be decided by hole-and-corner methods. We ask only that the Parliament shall be given an opportunity to discuss differences of opinion on major matters between the bank and the Government.
.- The effect of the amendment proposed by Senator J, B. Hayes would be to require the Government to obtain prior parliamentary approval for any direction on policy given to the bank as a result of a difference of opinion between the Government and the bank. That would be most undesirable. The requirement would result in undue publicity being /riven to the difference of opinion, and thus would exaggerate the importance of the difference of opinion. That, in turn, might well result in an unnecessary shock to public confidence in the stability of tha country’s finances. The amendment would also prevent the Government from taking speedy action in a crisis. In matters of foreign exchange, for instance, the speed and smoothness with which things are done are of vital importance. The amendment is not acceptable to the Government.
.- I move-
That the following new sub-clause be adder : - “ (5.) A report of any action taken by the Treasurer under sub-section (3.) of this section shall be laid before each House of the Parliament within seven sitting days of that House after such action has been taken.”
Many people say that the Parliament should be supreme; I am merely asking that after the Government has made a certain decision it will inform Parliament of that decision within seven sitting days after such action has been taken. Even at that stage the Minister could move that a paper be printed and honorable senators would then have an opportunity to debate the Government’s action. There. could not be any objection to that course, and I cannot see how the Government could refuse such an amendment.
.- This amendment was to have been moved by Senator Herbert Hays, but it has been moved by Senator J. B. Hayes. The only difference between the amendment proposed by Senator Herbert Hays and that now before the committee is that the former would not permit speedy action in the event of a crisis. The amendment moved by Senator J. B. Hayes, however, would still result in undue publicity, and the exaggeration of the difference of opinion between the Government and the bank, with consequent effects on public confidence. The amendment is unacceptable.
– I cannot follow the reasoning of the Government on this clause. I suppose the Government has a policy ; surely it is not ashamed of it, and will insist on its being carried out. As’ the Government derives its power from the Parliament it should, in turn, report to the Parliament when it has taken certain action. That is what the amendment means. The situation will not often arise when the Government lays down a certain policy arising out of a difference of opinion between the Government and the bank concerning financial policy, but it will be a matter of vital public importance. I cannot see why any Government should be ashamed or afraid to report its decision on such a matter to. the Parliament within seven sitting days. Are the negotiations between the Government and the bank to he in the nature of a secret junta? Arc these matters to be determined behind closed doors? Will the Government be ashamed of its financial policy? Are pot the people of Australia entitled to be taken into ite confidence? Is not the jury, consisting of the elected representatives of the people sitting in Parliament, and on whom the Government depends for its tenure of office, entitled to be informed of what has happened between the Government and the bank in the same way that Ministers inform honorable, senators at question time of certain departmental happenings when information is sought? Surely the Government will not be ashamed to do so.
Motion (by Senator Keane) proposed -
That the Senate du now adjourn.
– Last night Senator Aylett mad reference to the shortage of galvanized barbed wire. He stated that the black wire available was of such poor quality that it was hardly worth while farmers using it. The honorable senator asked that steps be taken by the Government to make supplies of galvanized barbed wire available. Unfortunately, the man-power position has made it necessary to discontinue the manufacture of galvanized barber] wire. Because of the difficulty in securing suitable operatives, the output of products such as plain fencing wire and wire netting, is insufficient to meet all demands, and from the primary producer’s point of view, it. is considered preferable, as black barbed wire is available, that their requirements for the other commodities should be met to the fullest extent possible. To this end, the manufacturers are concentrating on the production of wire and wire netting, and for the time being, are excluding galvanized barbed wire. It is hoped, however, that as additional man-power becomes available, it will be possible to increase production of wire and wire products, and ultimately to recommence the manufacture of galvanized barbed wire.
Question resolved in the affirmative.
Senate adjourned at 10.8 p.m.
Cite as: Australia, Senate, Debates, 4 July 1945, viewed 22 October 2017, <http://historichansard.net/senate/1945/19450704_senate_17_183/>.