Senate
8 March 1932

13th Parliament · 1st Session

  1. Senate
  2. 13th Parliament
  3. 1932

The President (Senator the Hon. W. Kingsmill) tookthe chair at 3 p.m., and read prayers.

page 684

QUESTION

FEDERAL CAPITAL

ExpenditureandRevenue.

  1. Whathas been the cost of administering the . Federal Capital Territory (including repairs, alterations and additions, &c, to Canberra public buildings), during eachof the three years ended on the30th June,1931?
  2. Whathasbeen the amount of revenue received from the Federal Capital Territory daring the same period?

I now desire to advise him as follows : -

page 684

QUESTION

LABOUR CONDITIONS

Basic Wage and Weekly Working Hours.

What are the various standards of the basic wage in the States of Queensland, New South Wales, Victoria, South Australia, Western Australia and Tasmania?

What States in the Commonwealthof Australia are workingunder the 48 hours agreement, and what States are working under the 44 hours agreement?

I am now in a position to inform him as follows : -

  1. HOURS OF WORK PER WEEK.

New South Wales - The act in force provides for a working week of 44 hours. In some industries longer hours are liebig worked. Average per week, 30th September, 1931, 44.07 hours.

Victor in. - Number of hours per week determined by wages boards, generally 48, except in certain skilled trades, including building. Average per week, 30th September, 1931, 4.6.83 hours.

Queensland. - The Industrial Court determines the standard hours. In most skilled trades the hours per week arc 44, but in government activities the hours arc 48 per week. Average per week, 30th September, 1931, 44.95 hours.

South Australia. - The Industrial Court and industrial boards determine the number of working hours per week, generally 48, except in certain skilled trades, including building. Average pur week, 30th September, 1931, 46.83 hours.

Western Australia. - The Industrial Court determines the number of hours per week, generally 44, with a few industries working longer hours. Average per week, 30th September, 1931, 45.55 hours.

Tasmania. - Number of hours per week determined by wages boards, generally 48, except in certain skilled trades, including building. Average per week. 30th September, 1931, 47.06 hours.

page 685

QUESTION

FOOD RELIEF AT CANBERRA

Senator DUNN:
through Senator Rae

asked the Minister representing the Prime Minister, upon notice -

  1. Is it a fact that the Canberra unemployed at No. 4 camp have been refused rations by the Commonwealth Government?
  2. If so, is it a fact that tho Government of New South Wales has given orders to the police at Queanbeyan to feed the Canberra unemployed who were refused rations by the Commonwealth Government through the Home Affairs Department?
Senator Sir GEORGE PEARCE:

– The answers to the honorable senator’s’ questions are as follow : -

  1. The men at No. 4 camp are not permanent residents of Canberra. They are travelling unemployed who arrived in Canberra from other States. The Government’s policy in regard to such men is to provide them witha “walk-in” ration and a “walk-out” ration and, in no case have such rations been refused. The honorable senator’s attention is invited to the statements made by the Minister for Home Affairs in another place on19th February (Hansard, pages 143 and 155), 25th February (Hansard, page 275), and 2nd March (Hansard, page 494). Persons who are permanent residents of Canberra participate in employment afforded by relief works and also receive rations where necessary.
  2. See answer to No.1.

page 686

QUESTION

TOBACCO DUTIES

Senator DUNN:
through Senator Rae

asked the Minister representing the Minister for Trade and Customs, upon notice -

Has the Government done anything to curtail the tobacco items as introduced into Parliament by the Minister for Trade and Customs (Mr. Gullett); if not, why not?

Senator GREENE:
NEW SOUTH WALES · NAT

– The matter is receiving the careful consideration of the Government.

page 686

PUBLIC SERVICE

Further Suggested Economies

Senator DUNN (through Senator

Rae) asked the Leader of the Government in the Senate, upon notice -

  1. Has the attention of the Leader of the Government in the Senate been drawn to the news item published in the Canberra Times of the 4th March in relation to the policy of the Government as to further cuts in wages and conditions of the Federal Public Service?
  2. Will the Leader of the Government in this chamber take senators into his confidence as to what the Government” intends to do about the Federal Public Service; if not, why not?
  1. I have seen the press report referred to.
  2. I am unable to add to the reply which I gave to the honorable senator on Friday last when he addressed a similar question to me without notice.

page 686

NEW SENATOR

Representation of Tasmania

The PRESIDENT (Senator the Hon W Kingsmill:
WESTERN AUSTRALIA

– I have to report to the Senate that, pursuant to the provisionsof the Constitution, I notified the Lieuten ant-Governor of the State of Tasmania of the vacancy caused in the representation of that State by the death of Senator J. E. Ogden, and that I have received through His Excellency the GovernorGeneral a certificate of the choice of Mr. Charles William Grant to fill such vacancy.

Certificate laid on the table and read by the Clerk.

Senator Grant made and subscribed the oath of allegiance.

page 686

FINANCIAL AGREEMENTS ( COMMONWEALTH LI ABILITY) BILL

Second Reading

Debate resumed from the 4th March (vide page 647), on motion by Senator Sir George Pearce -

That the bill be now read a second time.

Senator BARNES:
Victoria

.- As honorable senators are aware, the subjectmatter of this bill was originally part of another measure, and although itwill be difficult to discuss this without encroaching to some extent upon the provisions of the other, I shall endeavour to confine myself, as closely as possible, to the bill now before the Senate. Its earlier provisions are framed to resolve any doubts that might have arisen as to the direct liability of the Commonwealth under what is known as the Financial Agreement. But if ever there was a doubt as to the necessity for any legislative proposal, I think it exists with regard to this bill. I, in common with many other honorable senators, was clearly under the impression that the Financial Agreement invested the Commonwealth Government with full power to compel State Governments to honour their obligations under it. The watchword of the party to which I belong is “No repudiation”. We believe that the people of Australia have grit enough to stand up to all their commitments. At a recent federal convention of the Australian Labour Party, a resolution was carried to this effect, and the terms of it guide every unit in the movement. We not only preach the doctrine, but, when we were in office, we practised it. Honorable senators will recall that, when the Government of a certain State failed to honour its obligations, the Scullin Government acknowledged its responsibilities under this Financial Agreement, and immediately paid the interest due to oversea investors on behalf of the State in question. Then it set in motion the necessary legal machinery to enforce payment from the defaulting State. Apparently, the State Government realized that the Commonwealth was acting well within its powers, and before the High Court action came to trial it made arrangements with the Commonwealth Government to meet its obligations. A similar situation arose a few months ago, but this Government, instead of following the course adopted by the previous Administration, allowed default to take place. Three weeks later it made arrangements to pay the overseas bondholders the interest due by the defaulting State. That delay of three weeks, not only disturbed the minds of the investing public, but it also gave rise to grave doubts as to the financial stability of individual States, as .well as the Commonwealth itself. In circumstances like that, time makes no difference. Because of the serious embarrassment which it causes to investors in Commonwealth or State bonds, a delay of three weeks in the payment of interest due is really as serious as a delay of three months. “We may reasonably assume that, in not a few instances, holders of Commonwealth bonds, believing that perhaps they could obtain a better return from some other form of investments, had made forward arrangements to invest in other securities in the confident belief that, on the due date, the Commonwealth would honour its obligations, so any delay in making payment may have had serious consequences to many security-holders and certainly it must have damaged the credit of the Commonwealth. This measure will in all probability give the investing public the impression that there has been some uncertainty as to the extent of the Commonwealth’s responsibility for debts incurred by a State. I do not think there should have been any doubt on the subject. When circumstances similar to those to which I have just referred occurred a year or so ago, the machinery at the disposal _of the Government was put in operation and worked so effectively that within a few months the whole matter was straightened out. There has never been in the mind of investors in Australian stock or of the public generally a suspicion that any Australian Government would dream of repudiating a contract. This measure, however, is likely to give rise to some degree pf alarm in the minds of those people; and if that alarm should prove to be substantial, we might reasonably be expected to pass this legislation with as little delay as possible, even if the only effect is to make assurance doubly sure.

I understand that the legal opinions which guided the last Government are on the files, and are thus available to the present occupants of the treasury bench. We have been informed’ that eminent counsel in two of the largest cities in Australia have given opinions, and that it is on those opinions that the Government has acted. On more than one occasion the Government has been asked to make them available to honorable senators, so that they might inform and possibly stabilize their minds on this subject.

Senator Sir GEORGE Pearce:

– The last Government did not do that.

Senator BARNES:

– I do not know that Ave were ever asked to do it. In my opinion, there was no need for either the last Government or this Government to seek legal advice outside this Parliament, because the soundest opinion could have been obtained within it. Possibly one reason was that the legal advisers of the Cabinet did not wish to deprive a brother member of the profession of the opportunity to earn a fee. Apparently this Government has had the opinions obtained by the last Government buttressed by those that it has since secured. That must make some honorable senatorscurious as to the reason which actuated the Government in introducing this measure. It appears that, having made a blunder, it is now looking for a scapegoat. During the election campaign, United Australia party candidates used their best endeavours to place on the shoulders of a State government the whole of the odium entailed in action of this kind. In the press and from the public platform throughout Australia one State was held up to derision and scorn, on the ground that it had not stood up to its responsibilities. So effective were these tactics that the present Government obtained control of the treasury bench; and now, in order to square the ledger with the people of this country, it has brought forward this measure with a view to making it appear that its members are staunchly opposed to repudiation and desire to supplement the already ample powers which the Commonwealth possesses with other power, visionary though that may be, thus establishing in the minds of those who invest in Australian stocks a feeling of absolute security. There is absolutely no necessity for it. These investors, in the majority of cases, are keen business men, and are well aware that the powers conferred on the Commonwealth by the Constitution and the Financial Agreement are ample to safeguard their interests. It is a fact that one State failed to meet its interests payments. Subsequently, however, the present Commonwealth Government itself fell into a similar error. Consequently, if any blame is attachable to the State Government, it is equally attachable to the Commonwealth Government. In the first instance the Comon wealth Government of the day - the Scullin Administration - obviated repudiation ; but on the last occasion the reply of the present Commonwealth Government to the action of the State- Government was merely in the nature of a “Hear, hear.” The bondholders expected the Commonwealth to hit the financial nail squarely on the head on the due date, but it failed to live up to its responsibilities. Now it has brought down this bill to smother up its shortcomings in that direction, if that be possible. Paragraph1 of part III. of the Financial Agreement, which provides that the Commonwealth shall take over the public debts of the States, is quite clear. It reads -

Subject to the provisions of this part of this agreement the Commonwealth will take over on the 1st July, 1929-

the balance then unpaid on the gross public debt of each State existing on the 30th June, 1927; and,

all other debts of each State existing on the 1st July, 1929, for moneys borrowed by that State, which, by this agreement, are deemed to be moneys borrowed by the Commonwealth for and on behalf of that State, and will in respect of the debts so taken over assume as between the Commonwealth and the States the liabilities of the States to bondholders.

One would think that there would be no room for legal quibbling over such a provision. Parliament consists principally of laymen - it is from the viewpoint of a layman that I am discussing this measure to-day - and, possibly, that is why governments seek the opinion of learned counsel in matters of this kind. Speaking as a citizen possessing ordinary common sense, I should like to know if it is not possible to avoid providing a financial feast for the lawyers of this country, who will have to interpret this measure and another which we are to discuss later. There is no doubt that the legal fraternity will take full advantage of the opportunity thus afforded by this beneficent Government.

In moving the second reading of this bill the Leader of the Government in the Senate (Senator Pearce) left on my mind the impression that the Financial Agreement Validation Act absolved the Government from the obligation to pay interest unless certain conditions were observed. Sub-clause a of paragraph 2 of part III. of the agreement, provides that -

  1. Subject to this clause the Common wealth will pay to bondholders from time to time interest payable on the public debts of the States taken over by the Commonwealth as aforesaid other than debts due by the States to the Commonwealth.

As that appeal’s to set out the position as clearly as it can be stated in the English language, I cannot see that there is any valid reason for this bill.

On Friday, Senator Pearce stressed the fact that the introductory words “ Subject to this clause “ relieved the Government of its legal obligation to pay interest, but I am loth to think that the Leader of the Government in the Senate would suggest for a moment that the Commonwealth should take advantage of technicalities in regard to its moral obligation to pay to bondholders the amounts legally due to them. However, I shall leave that phase of the matter to be dealt with by the legal gentlemen of this chamber. To me there appears only one side to the question. Our legal rights, whatever they may be, are completely overshadowed by our moral obligation as a nation to honour our responsibilities to the bondholders who lentils their money in good faith.

Prior to the last general election those supporting this Government stressed the desirableness of restoring confidence. This Government has now introduced a measure to assure the bondholders, so we are told, that in future there will be no doubt as to who is responsible for the payment of interest on bonds.

The Ministers responsible for this measure have introduced it with their tongues in their cheeks. Their object is to convince the people that there are grounds for believing that an Australian Government, either Federal or State, is capable of repudiating its financial obligations. Any lack of confidence in Australia on the part of investors is due, not to loss of faith in the country itself, but to the prodigal expenditure of the Bruce-Page Government during its term of office. So far back as 192S, English investors had lost confidence in Australia because of the actions of that government. It was then that the seeds of lack of confidence in Australia were sown in the minds of investors abroad.

Before making investments it is usual for investors to seek the best advice obtainable, and, generally, they are guided by that advice. Investors who inquired into Australian Government securities knew that the Commonwealth Government was responsible for all debts contracted by any of the Australian State Governments. They had no doubt nor had the Government itself, in view of the advice of the Crown Law authorities and of eminent counsel with whom the Government had been in consultation. Notwithstanding, however, that the official files contained the opinions of these eminent legal authorities as to the responsibility of the Commonwealth foi” debts contracted on behalf of the States, the present Government sought further advice, which resulted in delay in meeting certain interest commitments. It may be sheer obstinacy on the part of the Government which causes it to refuse honorable senators an opportunity of perusing the opinions obtained by the Scullin Government as to the financial responsibility of the Commonwealth in these matters. The present Government, having committed a grievous blunder which led to an act of repudiation, sought to throw the responsibility on a State Government. Probably in the hope that something would happen in this case as on other occasions when we were supposed to be guided by the Constitution, it rejected the advice tendered to the Scullin Government. It may be that it remembered that rulings given by the High Court on matters affecting the Constitution had been altered in the past because of a changed, personnel of the High Court. The late Sir Samuel Griffith said that it was the sacred right of a State to uphold its sovereign powers, and that neither the High Court nor’ the Commonwealth should interfere with those powers. But what has happened? What we thought to be the law, because of a ruling of the High Court, has subsequently been found to be otherwise, because of a later ruling of the High Court when differently constituted. The High Court once held thai the Commonwealth Arbitration laws did not apply to State instrumentalities. It held that the Arbitration Court, established by the Commonwealth, could not interfere with the rates of pay or the hours of labour of any employee of a State Government. But, as honorable senators know, the High Court is not bound by its own decisions. From time to time its personnel 1 is changed.

Senator Sampson:

– Sometimes it is packed.

Senator BARNES:

– I would not say that. The judiciary is supposed to be beyond reproach. It may be that, at times, our high regard for the judiciary suffers a setback because of some verdict which we do not like; but, generally, the English and Australian courts justify the confidence of the people in them.

Senator Reid:

– Were those high traditions upheld when the last two appointments to tlie High Court were made?

The PRESIDENT (Senator the Hon W Kingsmill:

– The honorable senator may not reflect on the High Court.

Senator BARNES:

– The Government responsible for those appointments was actuated only by a desire to do the best in the interests of a people whose welfare depends largely on the verdicts of the court. The decision of the High Court that the Common wealth . Arbitration Court could not interfere with a State instrumentality was over-ruled by a later ruling, given when the personnel of the court was different. It is plain, therefore, that this country is governed, not by its Constitution, but by the High Court. That the sovereign rights of the States cannot be interfered with is a fallacy, for we have learned that the powers which were proposed to be vested in the States have gradually been whittled away. Judging by what has happened since the establishment of the Commonwealth, the time is not far distant when all the powers the States ever had will be filched from them by decisions of the High Court, and then we shall no longer hear the cry of the “ sovereignty of the States “. I would ask honorable senators who are sent here to safeguard the interests of the States, to watch carefully the legislation now being introduced, particularly the measure which is to follow the one now under discussion, to see that it will not result in a still further curtailment of the sovereign powers of the States, particularly in matters of finance, which is the very life blood of the States. I have no opposition to offer to this measure in principle. To my mind it is quite unnecessary, but its passage may do something to allay the fears of certain people; it may tend to give the people a greater confidence in the Financial Agreement.

Senator Sir HAL COLEBATCH (Western Australia) (3.51]. - In view of the fact that this bill is likely to be generally accepted by the Senate, I should not have intruded in this debate were it not for the fact that I consider myself bound to dissociate myself completely from two of the remarks made by the right honorable the Leader of the Senate (Senator Pearce) in introducing the measure. Drawing attention to the words in mb-part 1 of Part III. of the Financial Agreement, “ Subject to the provisions of this part of the agreement “, he went on to say that, as the provisions of that part of the agreement had not been carried out by one of the States, the Commonwealth was absolved from its liability, and he added “Its liability is a contingent liability “. I question very much if that view is supported by the legal members of the Government. The bill does not suggest anything of the kind. It suggests that doubt has arisen. The very fact that doubt has arisen in regard to what is undoubtedly a most important part of the Financial Agreement, would suggest blame on those who framed the original agreement, were it not for the fact that, as we all know, there are very few acts of Parliament passed that do not lend themselves to more than one interpretation. I am sorry that there are not more legal members of the chamber here to-day, but I think that I am right in saying that the employment of the words “ Subject to the provisions of this part “, is generally regarded by the highest authorities as indicating very bad draftsmanship. It has certainly left the bill peculiarly open to misunderstanding and litigation. I remember an instance when two junior members of the bar had occasion to appear before a judge, one to make, and the other to resist, an application. One of them, in order to strengthen his case, told His Honour that he had fortified himself with the advice of a very eminent King’s Counsel, who, at the time, occupied a very high position. The other junior member of the bar said that he had also sought the advice of the same King’s Counsel. The first said, “I have mine in writing”. The other said “I have mine in writing also “. They each handed to the judge the written opinions of this eminent King’s Counsel. His Honour read the two opinions and found them entirely opposed to each other. He thereupon suggested that the case should be adjourned to give him an opportunity to consult the King’s Counsel. This he did. When the King’s Counsel had read the two opinions carefully he returned them to the judge with the remark, “ Tho only explanation I can offer is that when I gave the second opinion I had quite forgotten what I said in the first.” I am not sure that I should not be right in suggesting that there may be quite a close association between certain of the leading counsel, who twelve mouths ago, gave one sort of advice to the Government then in power, and certain leading counsel, who, a month or two ago, gave a different opinion

I do not pretend to discuss this matter from a legal aspect. I do not think that we should do so. We cannot afford to do so when we are considering the interests, of people outside Australia whose goodwill and confidence it is essential we should keep. What was the origin of the Financial Agreement? I think it may be traced to the publication in August, 1926, of what is known as the Davenport Pamphlet. The importance of that pamphlet, which certainly did constitute a very bitter, and, to some extent, wellfounded attack upon Australian credit, rested chiefly on two facts. One was that the firm of brokers from whose house it was issued was well known to be closely associated with the Bank of England and acted for it in many important foreign transactions. For that reason it was felt that the pamphlet could not have been idly issued or ill-considered. The other fact was that the whole of the responsible press of the United Kingdom gave great prominence to it. It is unnecessary for me to go into the details of that attack, but perhaps its most important feature was that Australia, with the exception of Western Australia, had no regular and substantial sinking fund invested in London. The Commonwealth had its sinking fund, but that was invested in Australia. There was no sinking fund invested in the market in which the loans had been raised.. It will be within the recollection of honorable senators that a banquet was given to the then Prime Minister (Mr. Bruce), who was in London attending the Imperial Conference in September, 1926, and it was largely in fulfilment of the promises given by Mr. Bruce at that banquet that this Financial Agreement was drafted. The concluding words of Mr. Bruce, in moving the second reading of the Financial Agreement Bill, a little more than a year after that incident took place, were as follow : -

With the Commonwealth assuming responsibility for both the past and future debts of the States, and with adequate sinking funds provided for the extinction of those debts, the investor abroad will’ be much more ready to buy our bonds than if he were- ottered bonds issued in the name of an individual State only.

Honorable senators will notice that there is no mention there of contingent liability or of any possibility of the Common wealth being absolved from its responsibility. It is a clear statement that the Commonwealth takes over the responsibility. On the 14th April of last year, Mr. Scullin, then Prime Minister, made the following statement: -

The Government obtained the opinion of leading counsel in Victoria and New South Wales to the effect that the Commonwealth was legally bound to pay the amount. This opinion was published, I think, immediately I received it.

Almost immediately following upon that statement came a short speech by the present Attorney-General (Mr. Latham) in which he promised that the then Opposition would stand behind the Scullin Government in the attitude it was taking up. He did not say that the Government was doing wrong or that the legal advice, which it was going to obey, was in any way faulty. When Senator Barnes was speaking, Senator Pearce interjected “ Why did not the late Government produce its advice?” The obvious reply is that as every one considered that the Government had acted rightly and soundly, no one was concerned as to the source of the advice it had received. But I say without the slightest fear of contradiction that had the late Government acted in a contrary way, or failed to meet the obligations when they became due, there would have been from the press and the then Opposition a demand that the advice on which the Government had acted should be laid on the table of Parliament.

The present Government, in similar circumstances, instead of following the course of its predecessors, made an extraordinary announcement to the effect that the Commonwealth was not liable, that it was not going to pay, that it was going to constitute itself - how I do not know - a trustee for the bondholders, that it would collect the money and that when it was collected it would hand it over to the bondholders. Fortunately for the good name of Australia that utterly untenable attitude was abandoned after the lapse of a few weeks, but unfortunately in those few weeks the ordinary public which holds Australian stocks was frightened into sacrificing then, at a good deal below their value. The more cunning crowd made money out of the turn of events. During the last three years things have been done which, ought not to have been done They have scared investors. The frightened investor has always been the small man. We have offended and wrecked the confidence of the public investor. But the man behind the scenes has said : “ Here is a bargain, I will take it up ‘”. He has made money out of the situation. There are quite a number of people, and those the least deserving among the investors in government stocks, who have made a great deal of money during the last three years out of the fluctuations in Australian stocks that should never have been allowed to take place.

This agreement was not at any time purely an agreement between the Commonwealth and the States. It was not an agreement that had nothing to do with the bondholder. The bondholder was consulted. Let me give an instance quite fresh in the memory of Senator Pearce as to the nature of the consultation with the bondholder which took place. I refer to the concession the bondholder was asked to make in consideration of the advantages he was getting out of the Financial Agreement. I do not think it is pretended to-day that this agreement is free from faults. Two of those faults it is necessary for me to indicate in support of my present argument. One is that- it places no restriction on the borrowing by subordinate authorities. Within the last few weeks a loan has been floated in Melbourne for a purpose that most of the States could provide for only by floating a government loan within the Financial Agreement. Western Australia could not carry out the work for which this money was raised except by a government loan under the Financial Agreement. But Victoria is not prohibited from raising money to carry out public works through a subsidiary authority. It was admitted by Mr. Bruce and other members of his Government that the agreement was weak in this respect. In New South Wales the Financial Agreement was pushed through the Legislative Assembly by the application of the gag after three speakers had spoken. A Nationalist Government was in power at the time. The very next day that same Government conferred new borrowing powers on a subsidiary authority, thereby taking it outside the scope of the Financial Agreement. If any authority in New South Wales could borrow money at the present time that particular authority has a legal right to do so, but other States, in which similar services are carried out by the respective governments, are unable to borrow for those purposes. That disadvantage is now suffered by Western Australia and certain other States.

Senator GREENE:
NEW SOUTH WALES · NAT

– They could have done what New South Wales did.

Senator Sir HAL COLEBATCH.Quite so; and that is a defect in the Financial Agreement. The then Prime Minister and other members of his Cabinet recognized that each State could by a series of acts give borrowing powers to railway commissioners and other people, practically contracting themselves out of the agreement.

Another defect in the agreement which applies more particularly to Queensland and Western Australia, and would be felt, at the present time, if our finances were normal, is that for some’ extraordinary reason which no one has ever attempted to explain, the agreement provides that the annual distribution of money allotted to the States in exchange for the per capita payments must be based on the population as it was in 1927. Since this agreement was intended to last for more than half a century it must, I should think, have been evident to the meanest intellect that the distribution of population among the States in 1927 could not possibly be maintained, whereas an ordinary and simple provision, for which a precedent was to be found within the Constitution itself, would have been to say that the amount should be distributed on the basis on which revenue is collected ; that is to say, on the population of the States at the time the money is raised. Already there has been a considerable variation in the relative populations of the States, and if it were not for the fact that none- of these things matter very much at present, because the position is so abnormal, Western Australia and Queensland would have been seriously prejudiced because their populations have increased more rapidly than those of other States. For that reason it was recognized that some advantage had to be given to Western Australia to induce the Government and the Parliament of that State to accept the Financial Agreement. It is because of that that I direct attention to the, fact that this was never purely an agreement between the Commonwealth and the States, but an agreement into which the bondholders were brought. The State of Western Australia in 1926 had in London a sinking fund of something like £10,000,000. In 1926, or at the beginning of 1927, something over £2.000,000 of that amount was parted with in the redemption of a loan, and the payment of that loan in full, on due date, out of a sinking fund that had been accumulated in London for that purpose, undoubtedly did a great deal for the good of Australian credit. Western Australia was left with this sinking fund totalling £3,000,000, and the inducement offered to the State to accept the Financial Agreement was this: “If you come in, we will induce the bondholders to allow that £8,000,000 to bo treated as though it had actually been used in the repurchase of your stock. By that means you will be saved both interest and sinking fund payments on that £8,000,000 of money.” Western Australia’s sinking fund trustees in London, as well as the financial advisers who act largely for the bondholders, as well as for the State, were consulted, and they agreed to forgo the sinking fund payments by Western Australia to the amount of over £300,000 per annum. Why? Because the bondholders were anxious that the Financial Agreement, which gave them the credit of the- Commonwealth instead of the credit of the States, and provided also for a regular contribution to the sinking fund, should be accepted. For that reason the State of Western Australia was relieved of the payment of £300,000 per annum. There was no permanent advantage; but it was a tremendous temptation to a needy Treasurer, and, chiefly for that reason the State Government of the day withdrew its opposition to the bill, although other sections in the Parliament did not. The agreement was accepted only for the reason that Western Australia could not get more. Having been deprived of the per capita payments it had nothing to bargain with, and so had to accept it. I mention this to indicate that, irrespective of the conflicting views of lawyers, there is unquestionably a moral obligation on the part of tha Commonwealth towards bondholders. I dissociate myself completely from any suggestion that failure on the part of New South Wales, or any other State, to meet its obligation, will, or could, absolve the Commonwealth,, even in the absence of this bill, from its clear liability to the bondholders, who, accepting the word of the Government that passed the measure, have always regarded as the two important features of the Financial Agreement the fact, that under it they had the Commonwealth to look to for payment instead of the States, and that regular payments to the sinking fund would be maintained.

Senator O’HALLORAN:
South Australia

– As the right honorable the Leader of the Senate (Senator Pearce) observed list week when explaining this measure, it is designed to remove for all time any doubt that may have existed in the minds of bondholders domiciled outside Australia, as to the liability of the Commonwealth for the repayment of principal or interest on bonds issued by State Governments. It seems to mc that the first point to be determined by the Senate is whether there is reasonable ground for this doubt. Senator Pearce on Friday last advised honorable senators to consult, the Constitution, and to read carefully the terms of the Financial Agreement, so us to fortify themselves for the discussion on this measure, and, I presume, to be prepared to assimilate the views of the Government concerning it. The right honorable senator also referred to certain legal opinions obtained by the Government for its guidance; but subsequently, when the Acting AttorneyGeneral (Senator Mclachlan) was asked by Senator Daly if the Government would make these opinions available, he refused to do so. Consequently, we have to consider the facts as we find them.

The Leader of the Senate gave a brief resume of the history of the Financial Agreement and of the steps taken to implement that document, so as to ensure payments as between the States and the Commonwealth and the bondholder’s. Had the right honorable senator dealt a little more fully with the history of those events, doubts which some honorable senators have, at the moment, as to whether there is any real need’ for the passage of this measure, would have been strengthened. The Financial Agreement was not accepted by all the States with complete unanimity, as the Leader of the Senate suggested on Friday last. I was associated with the Parliament of South Australia at the time, and I know that the negotiations caused a great deal of concern in that State. It was accepted by the States because the per capita payments had been definitely withdrawn, and the Commonwealth had the big end of the stick, so to speak. If the agreement had not been accepted more unfavorable terms might have been imposed upon the States. At the Premiers Conference in 1927, the representatives of the Commonwealth submitted proposals which were ultimately embodied in the agreement and ratified by the various Parliaments and the Commonwealth Parliament. I find it somewhat difficult to reconcile the opinions expressed to-day, in which there is some doubt as to the liability of the Commonwealth, with the definite declarations made in 1927 in order to induce acceptance of the agreement. At that time, it was urged that the pooling of the credit resources of the Commonwealth would make for greater financial stability and ensure the flotation and conversion of loans at lower rates of interest. In 1928 the right honorable Senator Sir George Pearce, as the Leader of the Government in this chamber, piloted the Financial Agreement through the Senate. In the course of his speech he emphasized the benefits that would accrue from the passing of the bill. Referring to the provisions contained in part 3 of the agreement, the right honorable senator said - his remarks are to be found in Hansard, page 4027 -

The provisions of part 3 of the agreement will not come into force unless before the 1st July, 1929, the Constitution has been altered and the Commonwealth Parliament has passed a law validating the agreement. Subject to this procedure, the Commonwealth will take over the debts of the States as at the 1st July, 1929, and will assume the liability of the States to the bondholders.

In those remarks there is no suggestion of any doubt that if the bill became law the bondholders would not be able to claim, and would not be entitled to receive, payment in full of interest and principal on loans raised by the States and taken over by the Commonwealth. The next step was the taking of a referendum in October or November of 1928, when the people of Australia, by an overwhelming majority, accepted the constitutional alteration proposed by the then Government, and the Financial Agreement became part of the Constitution. A further step in the history of this proposal was taken in the Federal Parliament in 1929. Again we find the right honorable the Leader of the Senate occupying a prominent place in the picture. He had charge of a bill entitled the Financial Agreement Validating Bill, the purpose of which was to give legal sanction to the decision of the people at the referendum in the previous year. Once more the right honorable senator declared that there was no doubt as to the security which would be afforded to the bondholders if the bill in question became law. It seems strange that the right honorable senator should have used the following words : -

As both inside Parliament and outside that text has been the subject of discussion, I desire to make it clear that not only was it submitted to the Crown Law officers of the Commonwealth, but also that the advice of eminent counsel outside was obtained before the technical alteration was agreed upon.

The right honorable senator told us that, so as to be quite sure that the legislation then proposed would do what the Government of the day desired to do, and what it had set out to do, it had secured the advice, not only of its own officers, but also of eminent counsel outside.

During the course of the debate this afternoon, we have been told that the last Government obtained the advice of, eminent counsel outside, and that that advice was to the effect that certain rights existed which permitted of certain action being taken. The present Government now says that it also has secured the advice of eminent counsel outside, and that it is contrary to the advice tendered to the last Government. Yet, in 1929, the right honorable the Leader of the Senate (Senator Pearce) assured this chamber, before the bill which gave rise to the events that preceded the introduction of this measure, and which this measure is designed to make more effective, was passed by this chamber, that the Government had secured the advice of eminent counsel outside, and that it had been assured that everything which it sought to do was being done under that bill.

This brief history up to that point is calculated to engender very grave doubts regarding the sincerity of the Government in bringing forward this proposal. The Scullin Government was confronted with a circumstance similar to that which recently confronted this Government, the same State being responsible for it. During the regime of that Government, the State of New South Wales defaulted to the extent of £4,433,961. It, however, admitted no doubt as to the Commonwealth’s responsibility to the bondholders, but accepted that responsibility in full, and paid the amount that was due. Subsequently, arrangements were made with the New South Wales Government, under the terms of the Financial Agreement, for the recovery from that State of the amount which the Commonwealth had paid on its behalf.

During the last election campaign, as the Leader of the Opposition (Senator Barnes) has already stated this afternoon, a great deal of publicity was given to statements which implied that the Scullin Government could not be trusted to pay the debts that had been contracted by the different Australian Governments. It was argued that there was a very thin line of demarcation between the “Federal Labour party and the Labour Government of New South Wales. The people were urged by honorable senators who now sit behind the present Government, by the press which supports that Government, and by the various publicists who, on its behalf, appealed . for votes throughout Australia, that the national honour could be safeguarded and default prevented only by returning the Lyons party to power. Passing alongone of the streets of Adelaide during the campaign, I saw a slogan printed in letters three feet high, which stated, “Lyons will pay promptly, and pay in full “. The electors accepted the advice that was tendered to them ; they believed that the Government which Mr. Lyons would form, if returned to power, would pay promptly and in full, and that the national honour would be safer in the hands of a government that’ he led than in the hands of one led by Mr. Scullin, despite the fact that the Scullin Government had stood up to every obligation, and had made each payment owing by the Australian nation when it fell due.

I come now to the second portion of the history of this proposal, that which occurred subsequent to the election, and the return of the present Government on the promise that it would pay promptly and in full. The references that I am about to make are instigated by the fact that last Friday, the Leader of the Government attempted to excuse it on the ground that the Premier of New South Wales had not allowed it sufficient time in which to make arrangements for the payment of the amount owing.

Senator Sir George Pearce:

– I simply stated what was a fact; that Mr. Lang gave us only one day’s notice of his intention not to make the payment. But I did not put that forward as an excuse.

Senator O’HALLORAN:

– The right honorable gentleman said that Mr. Lang had given the Commonwealth 24 hours’ notice, and that that was a considerably shorter period than the Scullin Government had had in which to meet the commitments for which the Commonwealth became liable upon New South Wales defaulting.

Senator Sir George Pearce:

– I did not advance that as an excuse for anything, but simply stated it as a fact.

Senator O’HALLORAN:

– The right honorable gentleman did not state a fact when he made that statement. I may have been misled by my reading of press reports of the proceedings of the Loan Council and the Premiers Conference; but I have had to bc guided by what appeared in the public press. Those reports have been given wide publicity, and have never been either corrected or contradicted by any member of the Government. Some of them were official statements by the Prime Minister in relation to the proceedings of the conference.

The conference first assembled in Melbourne on Thursday, the 29th January last. At that meeting, a statement wa3 made by the Prime Minister in relation to the general financial position of Australia, and something in the nature of a general discussion took place. In tho Adelaide Advertiser, of Saturday, the 30th January, we find the first indication of the difficulties that were being experienced by the Commonwealth in its dealings with Mr. Lang. The following report, which is headed, “Melbourne, 29th January “, relates to the proceedings at that day’s session of the conference: -

Having been apprised of Mr. Lang’s request for £.100.000, tlie Federal Cabinet held a hurried meeting at si. 30 a.m., and Mr. Lyons was able to tell the Premiers what had happened.

I understand that originally the request was that the Loan Council should permit the issue of treasury-bills to the value of £500,000, so that New South Wales could meet its interest commitments that were falling due. Later in this report, under the sub-heading, “ Official statement from the Prime Minister “, the following appears: -

Mr. Lang informed the Loan Council that he was unable to meet in full overseas interest obligations of New South Wales falling clue in London and New York between 1st February and 4th February, amounting to £058,703. He stated that his Government was in a position to find £458,7(i3, and that this amount was being paid into the Commonwealth Bank. Ho asked the Loan Council to approve of application being made to the Commonwealth Bank to advance to New South Wales the balance of £i>00,000 to enable thu obligation to be mct.

The Loan Council was not prepared to consent to’ the obligation being met.

Senator Sir George Pearce:

– As Sunday intervened, it is true to say that only 24 hours’ notice was given.

Senator O’HALLORAN:

– I am prepared to admit that Sunday intervened. But when the Commonwealth Government decided- as it obviously did - at the Cabinet meeting that was held at 9.30 a.m. on the Friday, not to permit Mr. Lang to obtain the assistance he was .seeking, it knew that either the Commonwealth would have to meet the interest when it became due in London and New York on the following Monday, or the Australian nation would be branded as a defaulter. It had practically the whole of Friday and Saturday to make the necessary arrangements.

Senator Sir George Pearce:

– The honorable senator need not labour thai point. We do not need to put forward any excuse for what we did.

Senator O’HALLORAN:

– That may be all right. But there has been some very remarkable shifting of ground by the present Government during the discussions that have taken place on this matter, and its change of face has not redounded to the credit of Australia in the money markets of the world. The point that I particularly wish to make, however, is that the Government had nearly two days, and not one day, as the right honorable gentleman stated, in which to make the necessary arrangements to meet the payments that were falling due. The main point, so far as I can see, is that the Commonwealth Government made no effort to meet this commitment. Although I have read the reports of the proceedings of the Loan’ Council and of the Premiers Conference. I cannot find any suggestion of the Government having made any effort whatever to meet the amounts falling due in London and New York on 1st February, and subsequent dates, and for which the Commonwealth, under the Financial Agreement was responsible. The first indication of the Government’s intention was published in the Adelaide Advertiser of Monday, 1st February. It was not an official statement, but that newspaper’s interpretation of what was transpiring. The notification was headed with black type, and was given great prominence, and, as it has never been contradicted, one is justified in assuming that it was accurate. It read -

The Prime Minister (Mr. Lyons) after hi* momentous statement to the Loan Council yesterday giving the reasons for Mr. Lang’s financial outlawry, said that, in the event of default by New South Wales, no payment to cover the liability would be made on Monday by the Commonwealth Government, and that bondholders would have to wait until legal action was taken against New South Wales, or money became available.

That clear declaration by the Prime Minister that, no payment would be made by the Commonwealth Government on behalf of New South Wales is evidence of default by the Commonwealth Government as well as by the Government of New South Wales. After Saturday’s meeting of the Loan Council, the following official statement was issued: -

The Cum mon wealth Government regards itself as being, in effect thu trustee lor the holders of New South Wales bonds, and, as such trustee, will take action against New South Wales in order to obtain the payment to the Commonwealth of the amount due to the bondholders. In addition, it will retain all moneys from time to time falling due to Kew South Wales from the Commonwealth, and will use them for the discharge of the interest liabilities of New South Wales.

Where does the Commonwealth Government obtain the idea that it is a trustee for the bondholder in view of the fact that the Financial Agreement clearly provides that the Commonwealth Government shall take over the States’ debts and assume liability for the payment of interest and principal in accordance with the provisions of part III. of the Financial Agreement? I am fortified in this opinion by the views expressed by the present leader of the Government when piloting the measures associated with the Financial Agreement through this chamber in 1928-29.

The action of the Government in declining to pay the amount had a ruinous effect upon Australia’s external credit. I do not desire to refer, except in passing, to the tragic effect of its decision. Some weeks afterwards, the Government, realizing that it had blundered, decided to drop the role of trustee for the bondholder,, and to accept its real responsibility - a responsibility which it should never have declined - and pav the bondholders in full.

In view of the clear provision in the Financial Agreement, this bill is merely an attempt to excuse the Government for the way in which it handled the matter. It is excusing itself to the bondholders; but it should be apologizing to them. As the Financial Agreement constitutes the Commonwealth Government the administrative authority the Government owes an apology to the State Governments, who look to it to maintain the financial integrity of the Commonwealth and of the States.

In following the proposals embodied in this measure, I find the same uncertainty on the part of the Government as was to be found in the way it handled the original difficulty at the Loan Council meeting in Melbourne. In the first instance a measure was introduced in another place giving the Government power to force a State to meet its liabilities, and also providing that the Commonwealth should at all times be responsible for the payment of interest and principal due by a State. After that measure had been debated for some time the Government changed its tactics. The provisions of the measure were separated. This bill specifically provides that the Commonwealth shall be liable for the debts of a State, and provision is made in a separate measure for the Commonwealth to compel a State to meet its liabilities.

I have followed the history of these proposals very closely, and I find that it is generally accepted that under the Financial Agreement the Commonwealth is responsible for the payment of interest. Even those supporting the Government have not attempted to refute that assertion. The only doubt which exists is as to whether a bondholder can sue the Commonwealth Government in the event of it failing to meet its liabilities on the due date. It is to remove that doubt that this measure has been introduced. If we are to continue in this way we shall not improve the credit of Australia as the Leader of the Government (Senator Pearce) said we should if we passed this bill. Overseas bondholders who lend their money to Australian Governments on the assumption that that Government is to be conducted on honest and business-like lines, and that the amount owing for interest or principal will be paid when due, are now to be told that the Commonwealth Government having taken over the State debts is responsible for the payment of interest and principal, and that a bondholder may take action to force the Commonwealth to make that payment. A bondholder could not sue the Commonwealth Government; but this Government, to prove its financial honesty, proposes to pass legislation to give a bondholder the right to sue. I venture to say that such a course is not likely to create a feeling of confidence in the minds of overseas bondholders. If there is no legal there is certainly a moral responsibility upon the Commonwealth. It has been said that our liability to overseas bondholders is of more importance than our liability to internal bondholders, because much of the money loaned to Australian Governments by internal bondholders represents profits made in developing our national resources with money borrowed overseas. Although I regret the bungling method in which the Government has handled this tragic business, I cordially support the bill, because it will, at least, prevent the Government from making the same mistake in the future.

Senator McLACHLAN:
Vice-President of the Executive Council · South Australia · UAP

– Those who have already spoken on this measure have stressed its necessity, but for party purposes have referred to the varying views of counsel on the Government’s action. The Government feel assured, however, that the bill will receive the support of honorable senators. The provision which Senator O’Halloran dissected in such an extraordinary manner is not as clear as the Leader of the Opposition (Senator Barnes) and Senator Sir Hal Colebatch suggest. There is in the Financial Agreement, which is the schedule to the Financial Agreement Validation Act, a paragraph which is headed : “ Taking over States’ public debts.” It reads -

Subject to the provisions of this part of this agreement the Commonwealth will take over on the 1st July, 1929 -

It then sets out particulars of the States’ debts and continues - and will in respect of the debts so taken over assume as between the Commonwealth and the States the liabilities of the States to the bondholders.

There is almost a clear negation, so far as I have gone, of the acceptance by the Commonwealth of any liability to the bondholder. Paragraph 2 provides -

Subject to this clause the Commonwealth will pay to bondholders from time to time interest payable on the public debts of the States taken over by the Commonwealth as aforesaid other than debts due by the States to the Commonwealth.

In examining the remainder of the clause we must look to see the meaning of the words “ subject to this clause “. There is nothing upon which these words can play. It is true that among the legal profession there are different views as to the meaning of the clause. In the next paragraph we find that the Commonwealth provides certain per capita payments.

Paragraph c of the same clause provides for payment by each State of interest to the Commonwealth.

Senator O’Halloran:

– Is that in order that the Commonwealth may pay the bondholders ?

Senator McLACHLAN:

– Yes. Eminent legal authorities say that payment is subject to the performance of that condition; that only then does the liability of the Commonwealth arise.

Senator Sir Hal Colebatch:

– That is the opinion of one set of lawyers.

Senator McLACHLAN:

– There is nothing else in either paragraphs d or e upon which the words, “subject to this clause,” can play. It is my duty to protect the Government in this matter to the extent of my ability; and when I am twitted by Senator O’Halloran about there being varying views among counsel, I reply that the honorable senator himself had varying views regarding this matter when the Government which he supported was in office. One set of counsel is of the opinion that the Commonwealth is under an absolute liability to the bondholder, whereas another set of lawyers, in an opinion given to the late Government, when trouble arose previously with New South Wales, stated -

On the assumption that a State has failed to pay the extra sum mentioned above, we advise on thequestion which arises as follows : -

In our opinion the agreement does not impose on the Commonwealth any legal obligation to the bondholders individually or collectively to pay interest on a debt taken over from a State.

The extra sunn mentioned is the difference between the so-called per capita payments and the amount the State had to find. That advice, which was tendered to the Scullin Government, should have made that Government take stock of its position under Part III. of the Agreement. Whatever the moral obligation, we must remember that financiers have regard rather to the strict legal position. If the obligation to do certain things is not clearly set out in law, and enforceable, then the credit of this country is impaired. I doubt whether any honorable senator could say with certainty that there is any obligation on the part of the Commonwealth in the first instance unless it receives certain moneys from the States. The position which arose was not in respect of moneys which had been converted; it arose in connexion with indebtedness overseas where there had been no conversion, and no liability on the part of the Commonwealth, and in respect of which the bondholder had to depend on the permanent provisions of the agreement. Let us consider the position in which the Commonwealth was placed. Here is a provision that the Commonwealth is liable only when it receives the money from the State concerned. Then, and only then, does any Commonwealth liability arise. A premature payment of that amount might be availed of by an unscrupulous government to defy recovery by the ordinary legal methods.

Senator Sir Hal Colebatch:

– Has the Government made a premature payment ?

Senator McLACHLAN:

– In a measure which is about to come before the Senate, the Government has taken steps to handle the situation from an entirely different angle. While honorable senators opposite may talk lightly of conflicting legal opinions, they would do well to search their own consciences, in which case they would admit that this clause must create a doubt in the minds of any. reasonable man as to the legal liability of the Commonwealth. There is such a doubt. That it exists is obviously not in the best interests of the country. Whatever the consequences, the Government has decided to remove that doubt, and, therefore, in this measure it offers to the bondholder a definite acceptance of liability by the Commonwealth Surely that is more desirable than that the position should be left in a state of uncertainty. The measure before us should put the matter right once and for all.

Senator Sir Hal Colebatch:

– Can the bondholders sue the Commonwealth under this bill?

Senator McLACHLAN:

– Yes ; but not under the agreement.

Senator Sir Hal Colebatch:

– Does not the Minister think that the position of the bondholder is weakened by his having to rely on an act of Parliament, which may be repealed, rather than on an agreement which is embodied in the Constitution?

Senator McLACHLAN:

– It is clear that at present the bondholder has no rights at all; but under this bill we are offering him a statutory contract which, while it remains in force, entitles him to make it a binding contract. Of course, as Senator Colebatch has suggested, a new government may come into office possessing morals in respect to financial matters which can only be described as of the barnyard type. Such a government could repeal this legislation. Nevertheless, while this legislation remains on the statutebook, it offers to bondholders overseas - pending such conversion as may take place, when our troubles in this respect will be ended - a definite undertaking by the Commonwealth to pay. There are interesting questions of law touching the great principle of novation which did arise under the agreement. The question may also arise under this legislation as to how far the Commonwealth Government can be bound. The desire of the great bulk of the people is for honest dealing. We may have to take some steps later to make the provision permanent. In the interest of Australia that ought to be done. Indeed, it should have been done when the opinion of the two distinguished members of the legal profession, to which I have referred, was brought under the notice of the late Government.

Senator Sir Hal Colebatch:

– Would not bondholders have been in a better position if the intention had been made clear in the agreement?

Senator McLACHLAN:

– Evidently the draftsman desired to avoid the danger associated with interfering, or attempting to interfere, with contracts entered into outside Australia. He wanted to see the Commonwealth in a safe position before it accepted any liability.

I have said sufficient to show that the Government has given this matter more than casual consideration. It has in. its possession the opinion of the two distinguished legal gentlemen to whom I have referred, and also an exactly opposite opinion by two other equally distinguished gentlemen. Having considered the whole position it has done what it thinks best in the circumstances. It has been suggested that there has been delay. I do not deny that that is so. The Financial Agreement was made between States, which it was believed intended to act honorably, and to fulfil the obligations which they incurred. Strength was given to that belief by the knowledge that in the past the States had fulfilled their obligations, notwithstanding the many difficulties which had arisen. It was an agreement drawn up on the basis of first-class national honour. That agreement was dishonoured by one State during the term of office of the late Government, which thereupon took prompt steps to rectify the position. I do not say whether those steps were effective or otherwise. I at least make no complaint regarding the action taken by the Scullin Government in this matter. It was confronted with a position unprecedented in the British Empire, for never before has a British State deliberately made default. I do not wonder that the Scullin Government was embarrassed by the position in which it found itself, lt issued a writ, only to find that considerable difficulties had to be surmounted. The Premier of New South Wales gave that Government his assurance that there would be no repetition of the happening, and that in future his State would fulfil its obligations. In view of that assurance steps were taken to clear up the position. The assurance of Mr. Lang was accepted, by the then Commonwealth Government, and later it was repeated to the Loan Council; but it was not honoured.

There has been some criticism of the Financial Agreement. Whatever its defects, I claim that the benefits which it has conferred on this country during the past two years have more than compensated for them. It has saved us from borrowing at ruinous rates, a result which, in itself, is sufficient to commend the agreement to posterity. This most recent default on the part of the New South Wales Government was made known to the Commonwealth Government almost on the eve of the date on which the amount became due in London. The circumstances associated with the default point to an absolute lack of honour on the part of the Government of Now South Wales. A few days earlier, under the provisions of Part II of the Financial Agreement, the sum of £243,000 had been paid to New South Wales by the Com- mon wealth Government in respect of the latter’s liability to make per capita payments to the States. That amount was taken, and representations were made that £450,000 would be available, but at the last moment, we found it was not unlessthe Commonwealth Government made an advance to New South Wales to the detriment of every other State. The behaviour of the Leader of the Government of New South Wales was nothing short of disgraceful. It was simple an endeavour on his part to take advantage of the unwillingness of the Commonwealth Government to suffer the good name of New South Wales to be dragged in the mire. It was an effort to secure a repetition of what had been done during the regime of the Scullin Government; it was an attempt to obtain from the Commonwealth Government through the Commonwealth Bank certain advances which would enable the Merry Man of Botany Bay to continue his expenditure on any scale he thought fit. In short, there was no honestattempt on the part of the Government of New South Wales to carry out the pledge it had given to the Scullin Government. It became apparent that if this thing was not to be allowed to be systematized; if we were not to have a continuing policy of default, the Commonwealth Government would need to consider the situation very carefully, and it did so. I venture to say that if honorable senators will look at the overseas price of Australian stocks to-day, they will find that there has been no great detriment to the credit of Australia and that whatever injury may have been done for a day or two-

Senator Sir Hal Colebatch:

– For a fortnight !

Senator McLACHLAN:

– The stocks recovered within the fortnight. Indeed they recovered within four days. Whatever detriment may have been done in that period, it served its purpose. To the minds of the people here, to honest Australians, to the people of New South Wales who deprecate this behaviour on the part of their Government and were desirous of meeting their debts, but were not allowed to do so, it brought home the weaknesses contained in the provision of the Financial Agreement to which I have referred.

I agree with Senator O’Halloran and others that, apart altogether from the existence of the Financial Agreement, there is a moral responsibility on the part of the Commonwealth Government to stand behind every State that cannot pay. That is an almost fundamental requirement. It stood even before the obligations in thi3 respect were tied up by the law, because the whole social fabric of Australia must fall to pieces, the whole system of national finance must collapse unless the Commonwealth’ assumes a moral responsibility for default on the’ part of a State. But for the looser .relationship, under which that moral obligation existed, there has now been substituted the Financial Agreement which has steadied down the whole of our financial system and systematized it to an extent which I think is beneficial. Under the provisions of that agreement or in the other way, the Commonwealth is ultimately liable. The bondholder should have known that Australia would pay. There might have been delay; indeed there was delay; but he has his money, and our stocks, iu the light of the legislation we are now proposing and that which is yet to come, stand in London to-day very high indeed, compared with what they were.

Senator Sir Hal Colebatch:

– Not compared with the stocks of any other country.

Senator McLACHLAN:

– There are some countries whose stocks stand very high in London, but I doubt if the Australian stocks stand as high as they deserve to be. I have seen people sending money out of Australia at a great rate, but I doubt if there is any other country in the world, except Great Britain, in which money is safer than it is in Australia to-day.

Let me turn now to Senator O’Halloran’s criticism of some observations made by Senator Pearce in March, 1927. The honorable senator’s claim that the obligation was taken over under section 1 of the agreement, which was then under consideration in this chamber appears to a layman to be correct, but many legal difficulties faced the framers of that legislation. They realized the difficulties brought about by certain principles of law, but they did strive to frame a provision which would be just. The State was to provide the interest and the Commonwealth was to pay it over.

Senator O’Halloran:

– The honorable senator has assured us that the provision had the approval of learned counsel.

Senator McLACHLAN:

– Exactly. If the honorable senator will read the speech delivered by the Attorney-General (Mr. Latham) before he left for overseas, relative to the difficulties of section 1 of the permanent provisions, he will realize the difficulties encountered by the draftsman and how he endeavoured to overcome them. The position was full of them. I was fortunate enough to have some part in the framing of the original agreement. We realized the difficulties, but felt that they should be overcome in the interests of Australian finance generally.

Senator Barnes:

– Why not obtain a ruling of the High Court?

Senator McLACHLAN:

– Who is to get a ruling from the High Court, unless it be a State which brings an action against the Commonwealth? No State performing its obligations would bring an action against us and it will be a long time before the Government of New South Wales will venture upon any action to determine the meaning of section 1 of the agreement. . The late Government had two conflicting opinions, one saying that there was no liability on the part of the Commonwealth, and another directly the opposite. Why did it not resort to the method of obtaining the opinion of the High Court?

Senator Barnes:

– That is just what it did.

Senator McLACHLAN:

– It did nothing of the sort. It took action against New South Wales without ascertaining whether the bondholder had any rights. It settled the case on the assurance r.f the Premier of the State that he was going to be a good boy in future and would pay up.

Senator Barnes:

– He woke up to the fact that the High Court would decide in favour of the Commonwealth Government.

Senator McLACHLAN:

– If the ..-ase had gone to the High Court, the Government would have got judgment in its favour, but it might have been walking about still with its judgment unsatisfied, having regard to the provisions of the Judiciary Act.

Senator O’Halloran said that apologies are due from some persons. If apologies are needed for the passing of this legislation, or for any step taken by this Government, they should come from the man who is traducing the good name of New South Wales. He should apologize for the breach of agreement he has committed, the breach of the undertaking he gave to the ex-Prime Minister to fulfil his obligations in the future, and the breach of the undertaking he repeated to the Loan Council. It is unprecedented in the juristic history probably; of nations, for those who are holding office in a State - not the people of that State - deliberately to break their pledged word. Such an action can only react in the long run to the detriment of the State. To a certain extent it is reacting now to the detriment of Australia. In the interests of all who are parties to the agreement, and of the good name of the Commonwealth, as well as that of the people of New South Wales, some step had to be taken to declare the position and fulfil the obligations to the bondholders.

Senator Barnes:

– It is wonderful that it took three weeks for the Government to find that out.

Senator McLACHLAN:

– -From May, 1931, until it was routed from office at the end of the year, the Labour Government had this difficulty before it, but did nothing. For political reasons, or because it could not grapple with the problem, it sat tamely down, refusing to settle the matter in any shape or form except by accepting Mr. Lang’s word. In the meantime, Mr. Lang took from the Commonwealth Bank the good money of the Commonwealth Government.

Senator Barnes:

– The Government accepted Mr. Lang’s payment.

Senator McLACHLAN:

– But he paid nothing. It reminds me of a story I told on the hustings. When a small boy, I saw a man on a racecourse offering to sell for £2 a suede purse into which he apparently dropped four sovereigns. When you bought the purse you found in it four nice bright halfpennies. After he had exhausted his clientele on the racecourse, he was engaged diligently trying to sell one of his purses to a nervous young countryman. The purseman was clever. He exhibited the sovereigns. He opened the purse wide on the palm of his hand. Anybody could see him put the four sovereigns in it. At that point a huge ganger engaged on railway construction in the neighbourhood, reached out a brawny hand, seized it while it still contained four sovereigns and tossed back two of the sovereigns to the vendor, actually paying him with his own money. That is just what the Scullin Government was permitting. It took no steps to get the money from Mr. Lang. It was all so much eyewash to issue a writ against that State. We all know the statutory limits of the Commonwealth in such an action. The late Government simply went to the Commonwealth Bank, borrowed money, gave it to Mr. Lang, and allowed him to pay it back to the Commonwealth, just as the ganger paid the purse-seller with two of his own sovereigns. The Scullin Government sat tamely by while Mr. Lang carried out his policy. We heard from it not one word of the enormity of what was being done, or of the outrage to the morals of Australia. Honorable senators of the Opposition have twitted the Government with its alleged uncertainty, but not one word has come from them regarding this gentleman in New South Wales who has been responsible for the whole of this trouble, for besmirching the good name of Australia and for the inauguration of a legal system which will do something to mend any defects that have been found in the Financial Agreement. Whatever views honorable senators, as laymen, may have, there is a moral responsibility on this country to pay. I ask honorable senators not to believe for a moment that the legal responsibility is free from doubt. Just as the opinions offered to the Scullin Government differed, so may ours, but I think, in justice to those who have advised us, even laymen will have considerable doubts after having read the provisions of the agreement carefully.

Senator LYNCH:
Western Australia

– I cannot help a feeling of surprise that, when the Government is endeavouring to apply a remedy to correct a most unfortunate happening in Aus- tralian financial affairs, so much faultfinding should be indulged in by those who do not see eye to eye with the Ministry in this matter. Do these critics take the view that there is nothing wrong about the Commonwealth being called upon to pay to overseas bondholders over £1,000,000 on behalf of a defaulting State ? Do they say that the Government, having been forced into this position, is not justified in applying a remedy to recover the money? I heard Senator O’Halloran speaking this afternoon. After listening attentively to all that the honorable senator had to say, I gathered that he is against the bill. If he is not, then he certainly adopted a very questioning attitude. Let him consider the position of his State in this sorry business.. The Commonwealth, as I have said, has been obliged to pay over £l,000,000, including exchange, which represents the just debts of New South Wales. South Australia with its population of about half a million people must, as one of the States of the Commonwealth, bear its share of that burden, amounting to about £130,000. Is Senator O’Halloran agreeable to the taxpayers of South Australia, in addition to paying their own just proportion of Commonwealth debts, making a gift of £130,000 to New South Wales without taking action through the Commonwealth, to recover the amount?

Senator O’Halloran:

– There is nothing in this bill about attempting to recover money from New South Wales.

Senator LYNCH:

– But the money has been paid by the Commonwealth to meet the dishonoured obligation of the people of New South Wales, and, South Australia, as part of the Commonwealth, is expected to make its contribution. Is that not plain to Senator O’Halloran? Does not the honorable senator acknowledge that, if the Commonwealth had not met the bill, an obligation entered into by New South Wales would still be dishonoured ? And since the Commonwealth has paid this money, does Senator O’Halloran believe that the taxpayers of his State should make a gift of approximately £130,000 to New South Wales?

Senator O’Halloran:

-How does this bill affect the taxpayers of South Australia?

Senator Foll:

– Why is Senator O’Halloran flirting with Mr. Lang?

Senator LYNCH:

– Senator O’Halloran knows very well that this measure is complementary to another in which the Commonwealth acknowledges its liability to overseas bondholders. In other words, it gives bondholders the right to sue the Commonwealth Government.

Senator O’Halloran:

– But stop misrepresenting my position.

Senator LYNCH:

-We should try to get at close grips with this issue. This bill has either to be supported or rejected. Senator O’Halloran seems to be opposed to it. I am afraid that Senator Colebatch, as well as Senator Barnes, is in the same boat. Senator Colebatch strongly criticized it this afternoon, although he knows quite well that it is part and parcel of another measure to follow. I have listened carefully to all the word spinning that has been going on in this chamber this afternoon, and I should like to know exactly where we stand. I remind Senator Barnes, who is also opposing the bill, that unless this remedy is applied to. New South Wales the taxpayers of his State will be making a gift of about £300,000, representing Victoria’s share of the Commonwealth payment, to a party which, for the time being, commands a majority in the New South Wales Parliament. It will, of course, be understood that, while I speak in this strain about New South Wales, I mean no offence to those good citizens of that State who are quite willing to stand up to their obligations and have had no hand in putting Mr. Lang where he is to-day. For the time being we must speak over their heads. Since the head man in the Government of New South Wales has, for some time, proclaimed his unwillingness to pay the State’s just debts, the only alternative is for the Commonwealth to step into the breach, meet the dishonoured obligation, and take strong legal action against the defaulter. I do’ not quite know how to interpret Senator Colebatch’s treatment of the bill. Is he willing that the people of Western Australia should hand over, without demur, a gift of about £60,000 to the rich State of New South Wales?

Where does he stand in this matter? I am here to support the bill, because I believe that New South Wales, like every other State in the Commonwealth, should stand four-square to its promises, and bear its fair share of Commonwealth burdens.

This bill is the starting point in the attempt to secure redress from New South Wales. Since its introduction I ha’.’e been reading the opinions of a number of lead wig legal authorities whose views, I am sure, would add to the forensic knowledge of Senator O’Halloran. Happily this legislative action is unprecedented in the history of the British race, ever since the time when Simon de Montfort wrung the first instalment of parliamentary authority from an unwilling monarch. Never before has a British community been face to face with a situation due to the deliberate default on the part of the head of its Government. Happily it is the exception that proves the rule. British people have an envied reputation for honesty; they are ready at all times to discharge their obligations honorably, and on the due date. It is a thousand pities that we cannot say this of New South Wales to-day. Its head man lias flagrantly broken his word, and apparently he is not without apologists in this chamber. Why does not Mr. Lang pay the just debts of New South Wales? It is but fitting that I should remind Senator O’Halloran of Lord Holt’s observation, to be found in Broom’s Legal Maxims -

If Dien will multiply injuries, actions must be multiplied too, for every man that is injured ought to have his recompense.

That is a sound maxim by one of the highest authorities in the legal world in Great Britain. Let us consider its application to the present situation. Although great injury is dene to the whole Commonwealth by the default, of New South Wales, at the instigation of the leader of a party for the time being in political control in that State, his apologists in this chamber are not even prepared to say a. harsh word about him, or to remind him that, if the other States of the Commonwealth walked the same crooked road, Australia would never be able to take an honoured place amongthe nations of the world. Our only hope now lies in tlie knowledge that the majority of the people abroad believe that the Commonwealth will not, under any pretence, dishonour its obligations. As the purpose of this bill is to compel the Premier of New South Wales to honour his obligations, support should be unanimous. It is the first legislative attempt to make Mr. Lang and his supporters “ sit up.”

The Leader of the Opposition (Senator Barnes) had something to say about matters which this Government had left undone. What did his Government do? 1 do not wish to find fault with the Scullin administration, but I remind Senator Barnes that all it succeeded in getting, in return for its payment of £4,500,000 on behalf of ‘New South Wales, was Mr. Lang’s I.O.U., and even then the Commonwealth Government had to back the bill. It might have been dishonoured if the bill was not so supported. This Government, having in mind Mr. Lang’s habit of ignoring his promises - he gave an undertaking to the Loan Council that he would pay accrued interest, provide for future interest payments and observe the Premiers plan by reducing adjustable expenditure by 20 per cent. - decided that it would take no further risks. Hence this bill.

Senator Sir George Pearce:

– The irony of the situation lies in the fact that Mr. Lang’s I.O.U., given to the previous Government, is now a Commonwealth liability.

Senator LYNCH:

– Of course it is. It is time the Commonwealth paid particular attention to this gentleman, who has so seriously besmirched the honour of Australia in the eyes of the world. Also it is time that we knew where his apologists stand. The bill, I repeat, is the first step to compel the Premier of New South Wales to redeem his promises - no more and no le3S.

Some people appear to have a doubt as to the obligations of the Commonwealth in respect of State debts incurred before the adoption of the Financial Agreement. The principle was affirmed over 35 years ago when the people approved of what is now known as section 105 of the Constitution which authorizes the Commonwealth to take over State debts existing at the establishment of the Commonwealth. Twenty-nine years afterwards, as a result of experience in the working of the Constitution, they carried a referendum empowering the Commonwealth to take over the whole of the State debts. The people approved of the Financial Agreement,because they believed it would make tor economy - lower rates of interest on maturing loans and lower rates for new flotations. No one ever dreamed that the day would come when it would be necessary to pass legislation, not to save money, but to save our character as a people. That is what we are doing now, and although action such as this may be unpleasant to a defaulting State, it must be taken in the interests of the nation. If it were possible to right the position that exists without resorting to the method proposed by this bill, I should favour the adoption of that course; but I cannot face the possibility of Western Australia being called upon to provide £60,000 or £70,000 for the rich State of New South Wales, without attempting to institute a remedy. If this proposal should fail, we shall have to find the money. Western Australia is badly in need of money at the present time for her own pressing requirements, and so also, I apprehend, is every other State in the Commonwealth.

Senator O’Halloran:

– It is sponging on the rest of Australia; it has not adhered to the Premiers plan, any more than has New South Wales.

Senator LYNCH:

– I pass by that observation, which the honorable senator in his more collected moments would not dream of making. Western Australia has been the milch cow of the Commonwealth over long; annually it buys from other States £10,000,000 worth of goods, including goods from South Australia, while that State buys little from Western Australia. Mr. Lang is the embodiment of self-government in his State, and it is unfortunate that, in order to institute a remedy for the trouble that he has created, the constitutional rights of the States have to be invaded. The alternative, however, is an ugly one, and, in my opinion, no honorable senator would be prepared to take it. Dodge the issue as we may, this is the remedy, and honorable senators have to say either “ Yes “ or “ No “, and stand by the consequences. New South Wales is well able to live within its means, and, at the same time, to honour the pledges it has given. But what do we find? Not only has no attempt been made by it to give effect to the Premiers plan, but, on the contrary, wages have been increased, and the hours of labour lessened in that State, at a time when every effort should have been made to cut its coat according to its cloth. Whatever energy we have, and whatever powers we possess, should be devoted to the solving of the problem which confronts us, so that Australia might once more be placed on an even keel, and its industries regain that prosperity which at one time they enjoyed. New South Wales is a good place for the followers of Mr. Lang; but they have benefited at the expense of those unfortunate persons who had saved out of their earnings. This surplus, however, is now dried up, and he has to ask other States to help him. He even has the audacity to seek to justify his action. In this chamber his mouthpieces say “ Our State has twofifths of the population of Australia.” It has five-fifths of the nation’s audacity, when it asks other States to stand under its burden and help it out of its difficulties. The good elements in New South Wales do not make such statements. I hope that when an appeal is next made to the electors of that State, Mr. Lang will be relegated to that political obscurity from which he should never have emerged. He has done nothing but blacken the fair name of this country. I do not wish to face the prospect of the taxpayers of Western Australia having to pay one penny piece so that Mr. Lang, or the party which is in power in New South Wales to-day, may escape from its difficulties and be kept in power by the poorer and more honest parts of Australia. Western Australia has difficulties enough of its own, due to its remoteness, its geographical and climatic drawbacks, and the fact that it is subject to the will of a dominant majority in eastern Australia, which is fashioning and forging a policy that does not suit it, and never will suit it for generations to come. I refuse, point blank, on its behalf, to be a party to contributing a single copper towards the liquidation of Mr. Lang’s indebtedness, or the rehabilitation of his name. I shall not say that he has a bad name, but he certainly has a most extraordinary one. The trouble with which we are confronted is directly traceable to the party of which he is. the head. He has been encouraged by a body of men who could have driven him out of public life as easily as they can breathe the morning air, and who could have made that State behave itself as other States are doing. For the time being, however, he is in power by the will of the people, and we have temporarily to put up with him. It will be observed that there is here a collision of two high principles. In the first place, there are the self-governing powers of New South Wales, ensured to it under the Constitution. Then, there are the rights of the Commonwealth, which have to be jealously safeguarded. Which is to be supreme? I say that we must uphold the right of the Commonwealth to go after its own, and to secure it. Above all else, we must see that those who trifle with the good name of Australia receive no quarter, and are put iu their proper place, because they are enemies of their own class and of Australia as a whole.

I support the bill whole-heartedly. I hope that those honorable senators who have shown tenderness towards Mr. Lang, his party, and his policy, will tell Australia that they do not approve of his conduct, that what he is doing is ruining, not only the party that he represents, but also the cause of democracy in this country, and that, above all else, he is lowering the name of Australia in the eyes of all self-respecting men both outside and inside Australia. After all, we cannot carry on unless we have the respect of those people iri the distance as well as those who are at home. We can only evoke that, respect if we respect ourselves; and we can respect ourselves only if we pay our way. We cannot do that by making good fellows of ourselves at the expense of other people. That is what has happened in New South Wales. The ruling party in that State has been making a good fellow of itself, at other people’s expense. Within its own borders it has impoverished the better element of society, and, having exhausted its resources there, is now appealing to the rest of Australia to help it to maintain the higher standard it has set up, so that it might continue in power. A halt must be called, if only in our own interest. Apart altogether from the mischievous and ruinous effect upon our good name abroad, we cannot afford to continue the practice that has been adopted. Who are our bondholders? They are persons who, out of their savings, for generations perhaps, have invested with trustee societies in the Old Country, and by virtue of the fact that our stocks enjoyed the distinction of being on the trustee security list, we have been able to raise loans much more easily in the past. After all, those whose surplus- earnings have enabled Australia to prosecute a public works policy, are in the main struggling individuals. They have been benefactors to Australia in the past. I can recall the jubilation that was evidenced throughout the land whenever a government succeeded in floating a loan. When a government of the same political complexion a3 that of Mr. Lang did so, up went the hats of its supporters, there were fervent exclamations regarding the high esteem in which, our credit was held, and labour was employed right and left. Now, however, when it comes to the payment of interest, the practice of one State Government is to default. Every other civilized nation in the world is discharging its interest commitments. Even the discredited South American republics are doing so without a murmur. Surely what they can do, an Australian community should experience no difficulty in doing. Yet one Australian government says that, not only is it unable to do so, but would not even if it could.

As I view the situation, the Commonwealth Government is not undertaking this task with a ready will, but regards it as most unpleasant. As has been repeatedly stated, this is the first experience of the kind in any English-speaking community. It is clear that political parties in this country have been, outbidding each other in the expenditure of money upon a so-called bold public works programme; and the very party which at one time was a nonborrowing party has been the worst offender of all. The Labour party had a non-borrowing plank in its platform, bw violated it, and has spent -more lavishly out of loan funds than has any other party in the history of this country. If the figures could be procured, it would be shown that during the regime of the Labour party in every State there was a greater addition to our public indebtedness than occurred during the tenure of office of any other party. Yet a section of that very party will not now pay its interest on the loans the raising of which it cheered to the echo! That is not honorable nor upright conduct. There is honour even among those who frequent unregistered race-courses, but there is no honour among those to whom I refer. They are doing in New South “Wales what is not being attempted by South American republics, which, according to the general opinion among the nations, are supposed not to have the highest standard of either financial or public morality. Surely it is time, in our own interests, to punish such people and reduce them to their proper level. If the nation were to follow the suicidal course adopted by one State, it would not be long before it would be in the same category as a Corsican bandit. It has been left to the most populous and richest State to make a beginning. Mr. Lang should have been put in his proper place long ago.

Senator Sir GEORGE PEARCE:
Minister for Defence · Western Australia · UAP

[5. 51 J. - I wish briefly to refer to two points raised by Senator Colebatch. In the first place he said that he doubted whether my statement that the Commonwealth liability under the Financial Agreement is a contingent liability was endorsed by any of the legal members of the Cabinet. In the same speech he proceeded to criticize the AttorneyGeneral (Mr. Latham) for having said that there was not a contract as against the Commonwealth, which is the same as saying that the Commonwealth liability is a contingent liability. This afternoon, the honorable senator also heard the Acting Attorney-General (Senator McLachlan) saying the same thing in this chamber. In the light of those two statements, I think that the honorable senator will now see that he did me an injustice when he said that I put that statement forward on my own responsibility without having consulted the legal members of the

Cabinet. The other point to which I direct attention relates to the honorable senator’s reference to the opinion given by counsel on a certain historic occasion. The suggestion was that the counsel who advised the Scullin Government probably advised this Government in a different direction. Since the honorable senator made that assertion, he has heard the Vice-President of the Executive Council (Senator McLachlan) quote the opinion of the two eminent counsel who advised the Government in quite a different direction from that in which Senator Colebatch thought we had been advised. I take this opportunity of assuring the honorable senator and the Senate that the counsel who advised the Scullin Government were not the counsel who advised this Government.

Question resolved in the affirmative.

Bill read a second time.

In committee :

Clauses 1 and 2 agreed to.

Clause 3 -

In this act, unless the contrary intention appears - “ Bondholder “ means an owner of any -

Fixed deposit receipts or special deposit receipts for moneys borrowed for other than temporary purposes, issued or created by a State or by or on behalf of a colony the predecessor of the State in respect of borrowed moneys, but does not include the Commonwealth.

Senator Sir Hal Colebatch:

– Will the Minister (Senator Pearce) explain the meaning of the words “but does not include the Commonwealth.”

Senator Sir GEORGE PEARCE:
Minister for Defence · Western Australia · UAP

[5.55]. - I am advised that those words are used in the definition of “bondholder “ in the Financial Agreement. The Commonwealth is not included in this instance, because it is bound by the Loan Acts under which it borrows money.

Senator Sir Hal Colebatch:

– Does the right honorable senator mean that “ bondholder “ does not include the holder of Commonwealth bonds? Would not that be wrong?

Senator Sir GEORGE PEARCE.No; because here we are merely dealing with a State liability to the bondholder.

Senator Sir HAL COLEBATCH (Western Australia) [5.57]. - The clause provides that “ bondholder “ means “ an . owner of any fixed deposit receipts or special deposit receipts for moneys borrowed for other than temporary purposes, issued or created by a State or by or on behalf of a Colony, the predecessor of a State, in respect of borrowed moneys, but does not include the Commonwealth “. If the intention is, as the Minister suggests, I should think it would be necessary to use the words “but does not include the holder of bonds issued by the Commonwealth “. If there is good reason for drafting the clause in this way, very well.

Senator McLachlan:

– The object of this clause is to exclude the Commonwealth pursuant to what has been done under the Financial Agreement.

Senator RAE:
NEW SOUTH WALES · ALP; LANG LAB from 1931

– I do not like to set my opinion against that of legal authorities, although one is justified to some extent in doing so, seeing that legal authorities so frequently differ among themselves. It seems to me that the words to which reference has been made are calculated to create confusion. Even if the contention that the Commonwealth assumes liability in the Loan Acts under which money is borrowed, is correct, what harm would there be in omitting these words altogether, seeing that each Loan Act provides that the Commonwealth shall assume responsibility for repayment. In what way would it weaken the position if these words were omitted?

Senator Sir George Pearce:

– The honorable senator will see that they apply to fixed deposits receipts issued or created by a State but not those created by the Commonwealth.

Senator RAE:
NEW SOUTH WALES

– If the Minister says that the Commonwealth is made liable under its several Loan Acts, and there is no need to repeat the liability in this measure, the omission of these words cannot possibly do any harm.

Senator MCLACHLAN:
Vice-President of the Executive Council · South Australia · UAP

– Part I. of the Financial Agreement provides that “ bondholder “ means “an owner of any fixed deposit receipts “ - as is provided in this bill - “ or special deposit receipts for money borrowed for other than temporary purposes issued or created by a State or by or on behalf of a colony the predecessor of a State in respect of borrowed moneys, but does not include the Commonwealth.”

Senator Sir Hal Colebatch:

– That means that it does not include the Commonwealth as a bondholder from a State.

Senator MCLACHLAN:

– Yes.

Senator- Sampson. - Does not the preamble make it clear?

Senator McLACHLAN:
SOUTH AUSTRALIA · NAT

– Yes. The Commonwealth would be dealing with itself, and it is to exclude that possibility that these words are used. It may appear to be a little absurd to use these words, but we are following the language used in the Financial Agreement.

Clause agreed to.

Clause 4 -

  1. The Commonwealth shall be entitled to recover from a State, by suit in the High Court, any moneys (due and payable and unpaid by the State by virtue of the Financial Agreements or this act) for which the Commonwealth has become liable by virtue of the Financial Agreements or this act, or which the Commonwealth has paid in pursuance of those agreements or this act.
Senator Sir GEORGE PEARCE:
Minister for Defence · Western Australia · UAP

[6.3].- I move-

That before the word “ The the words “ In addition to and without prejudice to any other remedy or relief “be inserted.

This amendment is submitted by the draftsman because it has been pointed out that the Commonwealth has certain methods of relief under the Judiciary Act. We desire to insert these words, so nhat by passing sub-clause 4 as it stands, we do not, by inference, preclude ourselves from these other methods of relief.

Senator Lynch:

– Can the Minister (Senator Pearce) say if this clause rs sufficiently comprehensive to cover future borrowings bv States?

Senator Sir GEORGE PEARCE.All future borrowings must be Commonwealth borrowings.

Senator Lynch:

– Is it not provided that in certain circumstances the States may borrow with the consent of the Commonwealth ?

Senator Sir GEORGE PEARCE:

– In such cases, the bonds will be Commonwealth bonds.

Amendment agreed to.

Clause, as amended, agreed to.

Clause 5 agreed to.

Preamble and title agreed to.

Bill reported with an amendment; report adopted.

page 709

ADDRESS-IN-REPLY

Presentation to His Excellency the Governor-General.

The PRESIDENT (Senator the Hon W Kingsmill:

– I have ascertained that His Excellency the Governor-General will be pleased to receive the Address-in-Reply at Government House at 11 a.m. tomorrow. I invite as many honorable senators as can make it convenient to do so to accompany me.

Sitting suspended from 6.8 to 8 p.m.

page 709

FINANCIAL AGREEMENTS ENFORCEMENT BILL

Second Reading

Debate resumed from the 4th March (vide page 663), on motion by Senator Sir George Pearce -

That the bil] be now read a second time.

Senator BARNES:
Victoria

.- As I said this afternoon when dealing with a previous measure, I am of the opinion that it is this bill which should include in its preamble the words “ grave doubts “. If ever there was a piece of legislation, or contemplated legislation, about whose constitutionality doubts have been expressed by constitutional lawyers, experts and others, it is this. We have only to remember that at first, this bill, and that with which we have dealt to-day, were embodied in one measure; but owing to the doubt held regarding its constitutionality, even, I venture to say, by the framers of the bill itself, it was split into two separate bills. Even when that had been done, the Government found it necessary to make substantial alterations. Were honorable senators generally able to peruse the opinions of the eminent counsel to which Senator Pearce and Senator McLachlan have glibly referred, we might learn , what is in the Government’s mind, and be willing to pass the bill without lengthy debate. The fears in the mind of the Opposition might easily have been allayed had honorable senators been given access to the weighty opinions of counsel which have guided the Government.

I wish to make it .clear that any adverse comment which I may make regarding this measure does not apply to the measure itself, but only to the method which the Government proposes to adopt to make the Government of New South Wales honour its obligations. The Opposition agrees with the Government that the rest of Australia should not be saddled with the debt of any one State. We, on this side, do not stand for repudiation. We would not repudiate our own debts, and, as Australians, we are jealous of our good name, and are determined that, at all hazards, we shall not be branded as quitters.

In the absence of information regarding the legal opinions on which the Government bases its action I, as a layman, wish to draw attention to certain points which have been worrying me as to the constitutionality of this bill. I hope that Senator McLachlan, who is a lawyer, will be able to explain my troubles away.

In the preamble to the bill reference is made to section 105a of the Constitution, which provides that the Commonwealth may make agreements with the States regarding the payment of the public debts of the States, including the matters mentioned in paragraphs a to f of sub-section 1. A perusal of sub-section 5 indicates that an agreement so entered into is placed above anything in the Constitution; and it would appear that no law of the Commonwealth can be enacted which would in any way alter the relations of the parties to the agreement as set out therein. In other words, the authority to take action against a defaulting State can be obtained only under the authority of the agreement itself. This measure alters an agreement entered into by two or more parties without the consent of one of the contracting parties. That, surely, is unusual.

Senator Sir George Pearce:

– How can this bill be an amendment of the agreement, seeing that the honorable senator has admitted that the agreement cannot be altered without the consent of all the parties thereto?

Senator BARNES:

– I say it should not be altered ; but I propose to establish that the bill aims at doing something which is constitutionally wrong. Let us suppose that Senator McLachlan had entered into an agreement with me under which he contracted to make me quarterly payments in respect of certain copyright or patent rights. Let us suppose, further, that circumstances arose later which necessitated an alteration of the agreement, and that, without consulting him, I arbitrarily altered the terms of the agreement. Honorable senators stand aghast at any such suggestion. But that is what the Commonwealth Government proposes to do by this bill. Sub-section 4 of section 105a of the Constitution provides that “ any such agreement may be varied or rescinded by the parties thereto “. I ask honorable senators to bear in mind particularly those last four words, “by the parties thereto “. They mean that nothing can be done arbitrarily without the consent of all the parties. The Government appears to be pinning its faith to sub-section 3, which provides that “ the Parliament may make laws for the carrying out of any such agreement “. I submit that it was never intended that such drastic powers as those conferred by this bill should be read- into what was clearly intended to be only a machinery clause.

Senator Sir George Pearce:

– What do those words mean?

Senator BARNES:

– They are intended to apply to the necessary machinery for carrying out the agreement; but it was never intended to read into such language the drastic power contemplated by this bill. Under this measure the Government is taking to itself the right to alter an agreement without the consent of the other parties thereto. Sub-clause 4, which deals with any variations of any agreement entered into, is definite. It provides that any such agreement may be varied or rescinded only with the consent of the parties thereto. I speak, not as a lawyer, but as a layman. If any honorable senator can explain away my fears I shall be content; but I say definitely that the representatives of the States would not even have considered the signing of the Financial Agreement had they thought that by so doing they would confer on the Commonwealth the drastic powers which this bill seeks to vest in it. I ask honorable senators representing New South Wales would Mr. Bavin, who signed the agreement on behalf of that State, have been willing to sign his State’s death warrant? Yet the Leader of the Government (Senator

Pearce) tells us that the Premiers understood fully what was meant by the agreement. The right honorable gentleman said that great care had been taken in the framing of this agreement because it had to run the gauntlet of every State Parliament as well as the Federal Parliament, which meant that it would be subjected to careful scrutiny by the legal departments of the Commonwealth and the States. I ask my Victorian colleagues on the opposite side of the chamber whether they think that the Premier of that State would willingly have signed away his right to collect the revenue of his State should the Commonwealth not be satisfied with his scheme.

Senator J B Hayes:

– Does the honorable senator mean that the representatives of the States would not have signed the agreement had they known that they would have to carry it out?

Senator BARNES:

– They would not have signed it had they known that the Commonwealth would have the right to alter the agreement without their consent.

Senator McLachlan:

– Where is the agreement altered?

Senator BARNES:

– It is altered by the bill which provides for the seizure of the revenue of a State. This was not even considered, let alone mentioned, when the original agreement was being dealt with. I ask senators from Queensland whether Mr. McCormack, or even Mr. Moore, would have agreed that, in certain circumstances, the Commonwealth should practically put in the bailiffs to collect the revenue of Queensland. I ask the same question of South Australian senators. Do they think that Mr. Butler would have signed an agreement practically to make his State the vassal of the Commonwealth? Would that Western Australian champion of State rights, Mr. Collier, or that greater champion, Sir James Mitchell, have signed away the sovereign rights of that State by entering into an agreement which allowed the Commonwealth to alter its terms without consulting the other parties thereto? It is obvious from the protest which Sir James Mitchell has made against this legislation that he would not have signed away the sovereign rights of Western Australia. Last, but not least, comes Tasmania, the smallest State of our Federa tion, and yet the only State whose Government and Parliament has had sufficient courage to protest against this coercive legislation. I repeat that it was never contemplated that such drastic legislation should he placed on t(he statute-book.

In support of my contention that any variation of the agreement can be made only with the consent of the parties thereto, I draw attention to clause 2d of Part III. which provides definitely the method by which payment shall be made by a State.

Senator Sir George Pearce:

– What would happen if a State said that it would not pay?

Senator BARNES:

– The Financial Agreement gives the Commonwealth Government ample power to compel a State fo honour its obligations. I made that claim to-day in respect of another bill; I. now make it in respect of this measure. Honorable senators may be justified in claiming that the machinery already provided is too slow and unwieldy to bring into line a State which is not willing to stand up to its obligations. The Scullin Government accepted what it believed to be its responsibility under the Financial Agreement, and paid the interest due by New South Wales when that State defaulted. It then took action to enforce the terms of the agreement. Evidently the State was convinced that the Commonwealth had acted rightly, for it paid up, but not in the way indicated by Senator McLachlan to-day. Mr. Lang did not sell a purse with nothing in it in order to pay Mr. Scullin, as the honorable senator suggested. In order to discharge his responsibility he passed on treasury-hills which are a recognized “medium of exchange.

Senator GREENE:
NEW SOUTH WALES · NAT

– Who signed the treasury-bills ?

Senator BARNES:

– It does not matter who signed them on behalf of .the people %e represented. It is the- people to whom the Commonwealth looks to accept the responsibility for the proper carrying out of the agreement.

Now let us consider section 105a, paragraph 5 of which reads -

Every such agreement . . . shall be binding upon the Commonwealth and the States thereto, notwithstanding anything contained in this Constitution … or in any law, of the Parliament of the Commonwealth or of any State.

Surely that is explicit enough for any ordinary layman. I must confess that I cannot see any loophole through which Senator McLachlan, despite his acute legal mind, can drive a horse and cart by means of a measure of the nature now submitted. Does the honorable senator maintain that the Commonwealth can, by any law of its own, prescribe any method by which the payments by a State are to be made, when the agreement, which the provision I have just read states specifically is supreme over the Constitution and any other law of the Commonwealth, contains a definite declaration that such payments “ shall be arranged between the Commonwealth and that State “ ?

As the Prime Minister has said, it was never contemplated that any party to the agreement would default, but I urge that the default of any party to a private agreement or contract would not give to the other party the right to put into the agreement some provision not previously contained in it, particularly such a drastic provision as is contemplated by this measure, with a view to obtaining redress in respect of the default. Surely the Commonwealth Government cannot be deemed to be in a different position from that of a private individual. It should, therefore, seek its remedy in the courts as a private individual is obliged to do. As a layman, I should like to have these points settled by a member of the legal fraternity. They may be easily explained, but they certainly require some attention from honorable senators more qualified to deal with such matters of law than I am.

Apart from the legal, or shall I say, apparent constitutional difficulties, there are some troubles of a totally different nature. I foresee the possibility of a serious conflict between State and Commonwealth authorities, unless the whole matter is handled very delicately by men of discretion and tact. Let us visualize what would happen in New South Wales should the people of the State, or a fairly large proportion of them, resent this reckless intrusion into what is practically the State’s domestic affairs. To all intents and purposes the Commonwealth proposes to step in and say “Hold! Your government has defaulted. We demand settlement of the amount which we have paid to overseas bondholders, and you must, therefore’, pay your taxes to us”. Itis idle for us to suppose that the State officials would be over enthusiastic in co-operating with Commonwealth officials in handing over what would probably represent money from which their salaries were to be paid. Supposing the Premier of the State decided, in view of the fact that he would have no funds with which to pay his officials, that for the time being he would dispense with their services. The Commonwealth’, in such an extremity, would be obliged to make its own arrangements through the State for the collection of the full amount of revenue it required. A number of people would probably decline, on principle, to pay their taxes to the Commonwealth. They would be prosecuted. The Commonwealth would probably use the State activities to prosecute them, and, probably, at a later stage, would use the State police to collect fines and so forth. Even Ministers of the Crown may, under this bill, be indicted before officers who may be their subordinates. Truly an amazing proposition! Ere long the position would become farcical in the extreme, and before finality was reached, and all litigation and fighting completed, the people of Australia would be involved in an. enormous expenditure. After all, whether the Government of New South Wales or the Government of the Commonwealth ultimately foots the bill, the only source f rom which the money for all these fights can be drawn is the unfortunate taxpayers, who, in nine cases out of ten, do not know what all the trouble is about and care less until they are called upon to pay.

At this late stage I appeal to the Government to take the course that appears to me to be the correct one, and that is to proceed along the lines the Scullin Government proposed to follow until Mr. Lang came to heel and agreed to pay up.

Senator Sir Hal Colebatch:

– Why Hid not the Scullin Government make him pay instead of making him agree to pay?

Senator BARNES:

– He paid. We could go no further than that. If , the honorable senator argues that Mr. Lang may promise to pay and carry out the terms of his agreement, but not do so, my answer is, “ Next time show him no quarter until he furnishes satisfactory guarantees, but, at the same time, stick to the judiciary to settle the matter and not political action, which is always more or less tainted and viewed with suspicion by the people concerned “. If the present Government adopted that course, it would have the support of all sections of the community, because it would be doing the fair and honest thing in testing the validity of its claim before the courts of the land.

When the Lang Government defaulted, the Scullin Government recognized the liability of the Commonwealth to the bondholders, and promptly paid them. It carried Mr. Lang on for four or five months to the tune of about £6,000,000 until Mr. Lang, possibly seeing the error of his ways, or, perhaps, getting better advice, saw that there was no hope of escaping the responsibility of his State, and capitulated. At any rate, he paid about £4,500,000, and the Commonwealth Government deducted £1,500,000 from moneys due by the Commonwealth to the State, the account being squared in that way. The proceedings which had been commenced in the High Court were stopped, because once Mr. Lang had paid, there was no further need for an appeal to the Court. But the Scullin Government blazed the trail for any succeeding government. Up to that stage the procedure adopted was a guide to others to carry on.

Senator Sir George Pearce:

– If the Government had got judgment in the High Court against the State of New South’ Wales, how would it have recovered ?

Senator BARNES:

– A judgment given in favour of the Commonwealth would be lawfully carried out by the machinery at the disposal of the Commonwealth.

Senator Sir George Pearce:

– Would the honorable senator have put a receiver into the State Treasury?

Senator BARNES:

– It might have been done in that way.

Senator McLachlan:

-. - Does the honorable senator suggest that the Scullin Government was proposing to do that?

Senator BARNES:

– I do not suggest that the Scullin Government was entitled to consider what other steps should be taken until it got the verdict of the court.

Senator Sir George Pearce:

– If the court gave a judgment in favour of the Commonwealth, what did the Scullin Government propose to do?

Senator BARNES:

– It is no use taking your fences until you come to them. Nevertheless, the Scullin Government relied on the machinery of the law to enable it to enforce the terms of the agreement, and this Government should have done the same, instead of adopting the coercive methods by which it is nowendeavouring to bring the State into line. At any time other States besides New South “Wales may be in the same predicament’; they may endeavour to dodge their responsibilities under the Financial Agreement. If that should happen, the Commonwealth will be forced into the same position, and willynilly, we shall be obliged to default.

Like the Government, I have no desire to dodge the responsibilities of Australia, but I am anxious to dodge the possibility of conflict that may be precipitated by bringing one element of the people up against another. I am not accusing honorable senators on the Government side of any desire to precipitate such a conflict, but this bill seems to me to be an attempt to allocate to the Commonwealth powers which it has no right to claim under the terms of the Financial Agreement. An indication of that has already come from Tasmania and Western Australia. The bill has not been very long in front of us, and it is quite possible that other States who are equally and vitally concerned may find occasion to protest when their governments have had time to consider its provisions. The protests already received should be sufficient to cause the Government to pause before it goes so far as to make it difficult for people in the State to carry on their affairs. I trust that some Minister will allay the fears in my mind and in the minds of many other honorable senators. If that is done, I do not know that there is tiny need for much talk upon this bill.

Senator SAMPSON:
Tasmania

– My mind takes me back to the time, five years ago, when the Financial Agreement, which now is a part of our Constitution, was under discussion in the Senate. On that occasion, honorable senators from Tasmania were inundated with press cuttings, telegrams and letters of protest, urging that the interests of the State would be jeopardized by the adoption of that proposal.

To-day history is repeating itself in the case of honorable senators from Tasmania and other States. Some kind friend has just sent me a leading article, published in one of the Tasmanian daily newspapers on the 4th Mardi, dealing with the Commonwealth control of State affairs as it may be affected by this legislation. Reference is made to a resolution of protest carried in the State House of Assembly against the assumption of large powers as contained in this bill. The writer of the article then goes on to say that the Tasmanian senators must regard the situation as very serious indeed. It is quite evident that he is not a machine gunner, because he likens the Government’s legislative proposals to an attempt to destroy an individual, not by a rifle shot, but by twirling round a machine gun, trusting that, in the general destruction, at least the culprit will be hit. Who ever heard of a machine gun being “ twirled “. He then draws an analogy from Charles Lamb’s description of the Chinese method of obtaining roast pork by burning down the house, and suggests that, in the ‘ course of time, the political pendulum might swing again in favour of the Labour party, and we might have in power in the Commonwealth a Labour Government which might be tempted to use this legal machinery against the States. Evidently, the writer has some respect for the honour and integrity of the present Commonwealth Government, but visualizes dismal happenings if, by any chance, our friends in the Labour party are returned to power. Then, he says, the smaller States would inevitably be forced into unification through the medium of involuntary bankruptcy.

I have no desire to traverse the ground covered by the Leader of the Opposition (Senator Barnes) this evening, but I cannot help remarking that one or two of his arguments were quite fallacious. He appears to have forgotten the existence of the High Court. As one of the functions of that tribunal is to interpret the Constitution, some of his fears are, I believe,more imaginative than real.

During last week-end I did my poor best to study the bill, and to appreciate its probable effect, and I could not help feeling that the resolution passed by the Tasmanian House of Assembly because of this “far-reaching” and “ dangerous “ legislation was illfounded because, after all, the bill is merely an attempt on the part of the Commonwealth to exact obedience from States which may attempt to, or do break their pledged word. All the States are parties to the Financial Agreement, and, as far as I understand this measure, its sole purpose is to enforce that contract. I feel sure that the Leader of the Opposition in the Tasmanian House of Assembly stampeded the House into the adoption of the resolution of protest, which, in my judgment, was ill-considered, and gave evidence of lack of quiet thought and study. I agree with Senator Barnes that possibly the Tasmanian members had not seen the bill, and relied on reports in the daily press for their information as to what was its object. It should be noted also that the Legislative Council, which for the most part comprises a solid body of opinion in Tasmania, did not think it necessary to join in the protest against this legislation, and I submit that any such protest, to be effective, should have had the endorsement of both Houses of the State Parliament. Actually, the case for opposition to the proposals was rather weak, because the State Government did not. take the initiative in. the matter. The motion was forced upon the Government by the Leader of the Opposition.

Senator O’Halloran:

– I thought the Premier of Tasmania moved it.

Senator SAMPSON:

– I know he did, and I shall explain the reason before I resume my seat.

T do not like the bill. Who does? I am sure that even the Government, of which I am a supporter, does not like it either. As the Financial Agreement is a contract, under which the Commonwealth accepts responsibility for State debts, it is entitled toexpect the States to stand up to their part of the bargain. No one ever dreamed,, when the agreement was made, that anyState Government would fail to honour its obligations. For this reason, it wasnot considered necessary to include in it provisions to deal with a position such asthat which confronts us to-day. In the circumstances, then, is it not reasonable toexpect that all the other States will support the Commonwealth in its determination to prevent the oldest and richest State from getting away with deliberate and premeditated default, thus throwing upon the other States burdens which properly belong to New South Wales ? If the Commonwealth and the other States are going to sit supinely by and allow the brigand to get away with the loot, they deserve all that is coming to them. The smaller States must realize that the more the Commonwealth has to carry of obligations which should be discharged by New South Wales, the less will the Commonwealth be able to assist them.

I claim to be, first and foremost, as a Tasmanian senator, a sincere defender of the rights of my State in the federation. This bill does not, in any way, weaken the authority of the States. If theFinancial Agreement is right, and I believe it is - I supported it at the time notwithstanding pressure that was brought to bear upon me and threats of what would happen if I voted for it - what objection can there be to giving the Commonwealth power to enforce it, should it be necessary to do so? The meanrs adopted under this bill are drastic, but desperate diseases require desperate remedies. Since the situation of the Commonwealth and those States which are honouring their obligations is desperate, we must not flinch from the application of a desperate remedy. In any event, the cure is no more than what the law provides as between one individual and another, namely, the performance of all the conditions of a contract. The Financial Agreement is a contract, which has been broken by one of the States, and this bill merely gives’ to the central government power to enforce the contract in the interests of the Commonwealth and the other States. What in the name of common sense is wrong with any pro- posal to give to the Commonwealth full power to recover what is justly due to it? Since this power cannot be used against a State that is not in default, no State which gives faithful and honest performance of its contract with the Commonwealth has anything to fear from the bill.

Notwithstanding the leading article, which appeared in a southern Tasmanian newspaper, I personally consider that the fears which obviously are felt are not justified by the facts. As for the bogus fear expressed by the Leader of the Opposition in the House of Assembly, in regard to this bill endangering the rights or the sovereignty of the States - that is simply grotesque; because that honorable and learned gentleman is a member of a party which is absolutely pledged to unification. When he starts to yell out about this being an infringement of State rights, and of the sovereignty of the State of Tasmania, he talks with his tongue in his cheek; he is simply humbugging, and doing a bit of leg pulling. I regret very much that he “ got away “ with it in the House of Assembly last week, as he certainly did. I cannot believe that any man who is pledged to unification can sincerely say that this bill is aimed at the “rights and the sovereignty of the States of this Commonwealth. When this gentleman poses as a true-blue State righter, he is merely humbugging.

I deplore the necessity for this bill. But wilful and deliberate default is an ugly thing, and must be met with stern and unrelenting action. You cannot palter with it; stern and unrelenting action has to be taken against it. Therefore, notwithstanding the clamour, the fears and the misgivings in the Tasmanian House of Assembly, I am up to the hilt with the Commonwealth Government in this matter, and support the bill.

Senator Sir HAL COLEBATCH (Western Australia) [8.48]. - I have the greatest sympathy with the Government in the difficult situation in which it is placed, and have not the slightest doubt that the whole of the blame rests on the shoulders of the previous Government. When Mr. Lang defaulted twelve months ago, he did not say, “I cannot pay,” but “ I will not pay.” The mere fact that he expressed himself in that way would have amply justified the previous Government in compelling him to pay, and in refusing to accept “what it did accept, merely his acknowledgment of liability. The Leader of the Opposition in this chamber (Senator Barnes) has said that Mr. Lang paid. Mr. Lang did not pay. Had the previous Government compelled him to pay, had it refrained from continuously making advances to him after he had said, “ I will not pay “ and had qualified his statement by accepting the liability, the chances are that Mr. Theodore would have smashed. Mr. Lang before Mr. Lang smashed Mr. Theodore. I am not at all sure that we have not got rid of the greater danger of the two. But be that as it may, I repeat that the difficulty we are in now is the making of another government; and the only reason why I find myself unable to support this bill is that I do not think it will meet the position. Senator Sampson quoted an old saying that desperate diseases require desperate remedies. There is another old saying that perhaps is more applicable to this particular case. It is, “Any stick is good enough to beat a dog with.” It seems to me that there could be no more dangerous proceeding than to attack a savage dog with a rotten stick. I caution this Government to make sure that it is not using a stick that will break in its hands.

I am not competent to pass any opinion as to the constitutional validity of this measure; but I claim that I am competent to put to the Government questions concerning the constitutional issue which its legal advisers in this chamber should be able to answer. It is obvious, I think, that if this measure does not comply with the Consti tution, if the High Court should rule that it is against the Constitution, then so far from attacking Mr. Lang, we shall be in a worse position than when we started.

I ask the Acting Attorney-General (Senator McLachlan) to give special attention to two or three points, with a view to relieving me of the difficulty in which I am placed. It seems to me that a portion of this bill contemplates, not legislative, but judicial action. I refer particularly to that portion which enables this Parliament to decide that a debt is due, and provides that the Commonwealth shall proceed to execution without approaching the High Court. I say again that I am not competent to give a legal opinion; but in my view that appears to be a judicial and not a legislative action. Under chapter 3 of the Constitution, the judicial power of the Commonwealth is vested in the High Court. I direct special attention to section 78 of the Constitution, which reads -

Tlie Parliament may make laws conferring rights to proceed against the Commonwealth or a State in respect of matters within the limits of the judicial power.

Where is there m the Constitution any power given to this Parliament to make laws, not to proceed against a State on a matter within the limits of the judicial power, but to carry out the functions of the High Court by declaring a State to be in default and owing money to the Commonwealth, and prescribing the method by which the Commonwealth may proceed to recover that money without appealing to the High Court?

Senator Duncan-Hughes:

– Is there not such a provision in section 105a?

Senator Sir HAL COLEBATCH.That section overrides the Constitution. I recollect that when the Financial Agreement was under discussion, and I took strong exception to section 105a because it overrode the Constitution, I received from the right honorable the present Leader of the Senate (Senator Pearce) a telegram conveying the opinion of the then Attorney-General (Mr. Latham) that section 105a(5) did not override the Constitution, and that its only purpose was the protection of the States so that some future Commonwealth Government might not pass a law breaking the Financial Agreement. But admitting, as I have always contended, that section 105a (5) does override the Constitution, it overrides it only so far as the Financial Agreement itself is concerned. I have no hesitation, even with my limited legal knowledge, in affirming that it does not confer the power to override the Constitution in a bill of this nature. Any act that this Parliament may pass with the idea of carrying out the Financial Agreement will not, by virtue of section 105a (5) override the Constitution.

Senator DUNCAN-HUGHES:
SOUTH AUSTRALIA · UAP

-Hughes. - Section 78 is not exclusive, is it?

Senator Sir HAL COLEBATCH:

– I suggest that it is exclusive. Where else in the Constitution is power conferred on the Parliament to make laws to proceed against a State?

We have had short quotations from the opinion of unnamed legal authorities in different parts of the Commonwealth. I intend to give a short quotation from the opinion of a very eminent authority in one of the principal cities of the Commonwealth - an opinion given not to Mr. Lang, not to his Government or to his party, but to persons who are already seriously aggrieved by Mr. Lang’s legislation, and who fearthat they may be placed in a still more awkward position if this bill is allowed to become law.

Senator Sampson:

– Is this authority unnamed, too?

Senator Sir HAL COLEBATCH.It is the fashion to produce a portion of the authority’s opinion, without naming the authority. But I give the assurance that the portion that I propose to read is entirely consistent with the whole of the opinion - as I have no doubt the other portions that have been given were consistent with those opinions. This legal authority says -

The provisions of Parts III. and IV. will have to be carefully considered, especially in view of the possibility that such provisions, or some of them, may be unconstitutional. It is clearly most desirable, from the point of view of taxpayers and others, that the question of the constitutionality or otherwise of the act should be determined at the earliest possible moment after it becomes law, and before the Commonwealth Government seeks to enforce it against any person or corporation.

Senator Sampson:

– That means that we have to wait for the High Court.

Senator Sir HAL COLEBATCH:

– It amuses me to hear legal men particularly, complaining about the law’s delay and saying, “ We cannot wait for the High Court.” What is suggested? Is the ordinary litigant to adopt a similar course of action ? Is the ordinary person, who is offended by something that some one else has done, to say, “I will not abide the law’s delays-; I will take the law into my own hand a.nd remedy my grievance.” Everybody else has to put up with the law’s delays; they have to go to the appropriate court. Surely it is one of the first principles of British justice that no person can be both the plaintiff and the judge in his own cause. If the law’s delays are to be regretted, they are probably just as regrettable in the case of a private individual who has an honest claim to enforce against another private individual, as they are in this instance. I am astonished to find so many legal authorities complaining about the delay involved in going to the High Court. It suggests to me a lack of respect for the law that we should not expect t.o find in such a quarter.

I am not at all sure that it would not bo worth the Government’s while to consider bringing dow.n an amendment of the Judiciary Act. If it should find - and very eminent legal authorities suggest the great possibility of its finding - that this particular act is unconstitutional, what will be its position? The High Court is certain to be very jealous of any invasion of its judicial rights; that is unquestionable. The measure that we have already passed will give the Government an undoubted right to take proceedings; but it may find itself up against the Judiciary Act when it attempts to enforce judgment. I merely suggest that it might be worth the Government’s while, apart altogether from what the fate of this measure may be, to consider tho wisdom of introducing a bill for an act to amend the Judiciary Act, so that, if, proceeding under the bill already passed, a verdict is obtained, the High Court may be able to give to the Government even as great powers as are included in this bill in connexion with the recovery of the judgment. It is unnecessary for me to dwell on that point. Honorable senators are well aware that section 65 of the Judiciary Act provides that -

No execution or attachment, or process in the nature thereof, shall bo issued against the property or revenues of tlie Commonwealth or of a State in any such suit;

I would not presume to suggest the manner in which that section might be amended. But I have no hesitation in saying that to meet a case like the present, where a State deliberately defaults, where it is a question, not of inability, but of refusal, to pay, the remedy which seems to lie with the Commonwealth under the Judiciary Act is not sufficient. It should be possible for the court to give the Commonwealth a readier method of recovery in a case of that kind. It is not only with Chapter III. of the Constitution that this bill seems to be in conflict. I find it very difficult to reconcile sections 106 and 107, saving the powers of the States, with the bill, which prohibits a State Government from collecting taxation from its own citizens. It seems to me that the whole bill, if it is not, in fact, contrary to the letter of the Constitution, does very seriously offend against the spirit of it. It is for this 2’eason that I propose to vote against it.

While I am not competent to judge as to the actual legal bearing of the constitutional aspect of this question, I claim to be competent to judge the spirit of the Constitution, and I say that the Senate, which was constituted to safeguard the interests of the States, has no right to pass any legislation which infringes the spirit of the Constitution. That this bill does that is not open to argument. The Leader of the Opposition (Senator Barnes) said that had this provision been in the agreement, no State would have signed it. I agree with that view. When the honorable senator made that remark another honorable senator interjected, “Does not the honorable senator think the States should be compelled to abide by their agreement “. Of course, they should. And when they gave power to the Commonwealth Parliament to pass laws for carrying out the agreement, no doubt they fully understood that those laws would be of a nature to force them to obey. But how? Through the accepted method of bringing a case before the High Court and by an order of that court. I go further than the Leader of the Opposition, and say that had any State dreamt that a condition of enforcement entirely foreign to the established principles of British justice would, be applied against, them, not one State representative would have signed the agreement.

This is not an act against a wilfully defaulting State. We should get that out of our mind. If we could have an act against Mr. Lang - against’ a purely defaulting State - I should not care very much how extreme it was except that the Commonwealth Government might easily overreach itself and fall on the other side. But this measure will be applicable to every State, not that refuses to pay its liabilities, but that cannot pay them.

Senator Duncan-Hughes:

– Is it not to remain in operation for only two years?

Senator Sir HAL COLEBATCH:

– Yes ; but the same point again arises. If, in fact, it is unconstitutional, it does not matter - it will be wiped out altogether. But if it is not absolutely contrary to the strict wording of the Constitution, but is, in fact, as I maintain it is, contrary to the spirit of the Constitution, and we enact it for two years, any government can, with this precedent before it, reenact it. That is my real reason for opposing the bill. I am not going to place myself in a position where I shall be unable to oppose a re-enactment of the measure.

I have no doubt that if this bill is passed the High Court will be moved at once, not by the Commonwealth Government proceeding on the merits of the case, but by the other side, by way of injunction, as to the constitutionality of the bill.For that reason it seems to me that the matter is more likely to be delayed than expedited. It is regrettable that in existing circumstances there must be delay in bringing Mr. Lang to book; but I question very much whether the Government will avoid that delay by endeavouring to get behind the back of the High Court. If the Government tries, and fails, it will inevitably prolong the delay, and, more than that, it will be in very grave danger of exciting in certain quarters a sort of sympathy for Mr. Lang - the idea that he is being martyred.

SenatorO’Hallloran. - That is one of the gravest dangers.

Senator Sir HAL COLEBATCH:

– It is. Moving, as I do, among citizens of New South Wales, I know how serious that danger is. Honorable senators would be surprised if they knew the extraordinary views that many persons are taking of this situation, and also concerning Mr. Lang. I do not wish to say anything against the people of a great State such as New South Wales, but I know what is being said in certain circles where one would not imagine such sentiments could be expressed.

Senator Sir George Pearce:

– The people of New South Wales did not show much sympathy for Mr. Lang at the last federal election.

Senator Sir HAL COLEBATCH.No. I do not think that the view to which I refer is held by the great bulk of the people; but I caution the Government against taking action likely to excite sympathy for the present Premier of that State. Take my own case. I do not think that anybody should be proceeded against in this way. Every one is entitled to the protection, of the courts of the land. I do not believe that any person should be judged guilty by the plaintiff, and that an extreme remedy - a remedy which, up to the present, has never been put into force in any part of the world - should be applied, not on an order of the court, but on an order of the plaintiff.

Senator Sir George Pearce:

– Is there any doubt as to whether the State owes the money?

Senator Sir HAL COLEBATCH:

– Of course there is no doubt. Neither is there doubt in hundreds of civil actions that are brought before the court as to the merits of the case; but there is doubt as to how it is to be settled. There is very grave doubt as to whether the High Court would agree to this method of settling this dispute. If it does, well and good. If the Commonwealth Government obtained a decision of the High Court that the money was due, and also an. order of the court as to the method by which it was to proceed, it would have the full volume of public opinion behind it. In such circumstances there would be no trouble whatever. The only trouble relates to the delay that must inevitably occur. It is an inheritance of this Government from its predecessor. If the Scullin Government had acted as it should have done, Mr. Lang could have been brought up to scratch long ago. We are now in the second half of the financial year, a period during which revenue comes more freely into the State coffers, and it appears to be possible that Mr. Lang, by refusing to pay the interest due, may be able, with this larger amount of revenue at his disposal, to carry on longer than would otherwise be the case..

Senator Sampson:

– How could the Scullin Government have brought Mr. Lang to heel?

Senator Sir HAL COLEBATCH:

– By not accepting his mere admission of liability ; by saying to him, “ You must pay before you receive any more money “.

Senator Sampson:

– Would that have been of any advantage?

Senator Sir HAL COLEBATCH:

– It would have left him without financial resources at a time when he had very little revenue coming in. The only way to stop Mr. Lang is to stop his supplies.

Senator Lynch:

– ‘Will not this ‘bring the matter to a head quicker than anything else?

Senator Sir HAL COLEBATCH:

– It will unless the High Court says the Government has gone behind the Constitution - that it has usurped the judicial function of the High Court. A great many constitutional lawyers of high standing take the view that the High Court, properly, and because of its jealousy of its judicial functions, will say that the Parliament is exercising not its legislative, but its judicial functions; that it is giving judgment against the debtor, and prescribing the method by which the creditor may recover its debt. The method being adopted in this instance has never been tried in . any other country, which makes the position more difficult

Senator Sir George Pearce:

– The Commonwealth is exercising a power given to it by the States under the Financial Agreement.

Senator Sir HAL COLEBATCH.The Minister may take that view. Apparently he contends that this bill, because it is to carry out the Financial Agreement, overrides the Constitution.

Senator Sir George Pearce:

– No; it is in conformity with the Constitution. This is part of the Constitution.

Senator Sir HAL COLEBATCH:

– It would be futile for the right honorable senator and I to argue a legal point of that kind, since we do not possess the necessary legal knowledge.

Senator Sampson:

– The Financial Agreement is a part of the Constitution.

Senator Sir HAL COLEBATCH.Quite so. There is power in the Financial Agreement to make laws to carry it out, but does that override the Constitution itself, which gives the Parliament power to make laws for proceeding’ against a State ? There is nothing, I suggest, in the agreement that the Parliament in carrying it out may go beyond the Constitution, and put the judicial power of the High Court out of office.

Senator Duncan-Hughes:

– It has to be read in conjunction with the Constitution. Section 105a, sub-clause 5, is quite to the point.

Senator Sir HAL COLEBATCH:

– It makes the Financial Agreement superior to the ‘Constitution; but it does not say that an act passed by this Parliament for the carrying outof the agreement is superiortothe Constitution. Any act which this Parliament passes for giving effect to the . agreement must be in accordance with the Constitution . There is no room for a difference of opinion on that point.

Senator Duncan-Hughes:

– So far as the Constitution, as amended by section 105A, is not amended.

Senator Sir HAL COLEBATCH:

– That refers only to the Constitution in that particular. That amendment does not amend the Constitution in the way of giving this Parliament judicial powers, in the way of saying that this Parliament may, in carrying out this agreement, go beyond the Constitution. In the carrying out of the agreement, Parliament may exercise the whole of its constitutional powers, but it cannot go beyond that.

We have had repeated assurances from the Prime Minister (Mr. Lyons) that this measure will apply only to wilfully defaulting States. I have not the slightest doubt that that is the intention, but the trouble is that under the Financial Agreement there are only two or three States which are not bound to be defaulting States at some time or other unless they obtain financial assistance from the Commonwealth. There are two outstanding facts that we cannot ignore. One is that without help from the Commonwealth several of the States will be unable to meet their obligations. That is not to the discredit of those States.

Senator Sir George Pearce:

– They would not be wilfully defaulting States.

Senator Sir HAL COLEBATCH.ATo. If this bill specifically provided that these extraordinary provisions would be enforced only against wilfully defaulting States, I should withdraw my opposition as far as the spirit of the Constitution is concerned, and hope that the High Court might regard it as being within the letter of the Constitution. But there is nothing in this measure with respect to a State “ wilfully “ defaulting ; it is failure to pay. It is not the fault of these States that they are not, able to pay. A number of independent investigations have been carried out by persons, who have no interest in the States themselves, into the affairs of Western Australia, South Australia, and Tasmania. Each of these investigating bodies has come to the same conclusion: that these States are prejudiced by certain features of federal policy, and on that account will at all times be unable to pay their way without assistance from the Commonwealth. The other outstanding fact is that the Australian people, like all young and, indeed, old communities, too, are very fickle in their political adherences. A little over two years ago the Scullin Government was returned with an enormous majority; but the tide of public opinion had so changed that three months ago the party in opposition to it was returned to power with an even greater majority. In the whirligig of time, each party has its revenge, so that we must visualize the time when legislation of this nature will be administered by a government whose policy is unification. Unlike the honorable senator who preceded me, I believe that the doubts expressed by a certain Tasma.nian newspaper are well-founded. We should not pass legislation which we, might fear to have administered by any party at any time. I believe that an act of Parliament should be of such a nature as to be safe in the hands of any party. If the. bill goes into committee, I shall support the two years limitation as a sort of last straw to which we may cling. We can always hope that there will be a majority in the Senate which will prevent a measure being passed for unworthy purposes. The purpose of this bill is commendable; it is to bring to book a State which has deliberately defaulted. No steps could be too extreme to accomplish that purpose.

Senator Sampson:

– What steps would the honorable senator take?

Senator Sir HAL COLEBATCH:

– I would start an action in the High Court for the recovery of the money as soon as possible. I should probably also introduce a bill to amend section 65 of the Judiciary Act, to make it possible, if the High Court saw fit, to take more extreme steps than are now possible for the recovery of the money.

Senator GREENE:
NEW SOUTH WALES · NAT

– - What does the honorable senator think would be a reasonable time in which to obtain a judgment?

Senator Sir HAL COLEBATCH.That difficulty arises in connexion with every judicial proceeding.

Senator Herbert Hays:

– It would probably take two years.

Senator Sir HAL COLEBATCH:

– I do not see why a judgment should not be obtained in a much shorter period than two years. If it took that long to obtain a judgment, it would be because of some defect in the legal machinery.

Senator Thompson:

– It would be comparatively easy to obtain a judgment in a much shorter period than two years, but the difficulty would come later in executing that judgment.

Senator Sir HAL COLEBATCH:

– If the Judiciary Act were amended, why could we not get an order of the High Court, which would carry us as far as this bill would take us? I suggest that we are treading on dangerous ground when we say that we shall take this extraordinary action, because we are afraid that the ordinary processes of the law will take too long.

Senator Lynch:

– This is the shortest way to find out whether we have the powers we require.

Senator Sir HAL COLEBATCH.That may be so; but I doubt whether it is the quickest way to bring Mr. Lang to book. We have a safeguard in the promise of the Prime Minister, which I know will be honoured, that at the earliest possible moment the States which are doing their utmost to comply with the Premiers plan will be consulted, and that if fresh legislation is then considered desirable, it will be introduced. My only regret is that the conference with the States could not have taken place before this measure was introduced.

It is with, great regret that I take this step. While I am not competent to judge as to the constitutionality of this bill, I am able to say that it is a flagrant violation of the spirit of the Constitution.

Senator Sampson:

– In what way?

Senator Sir HAL COLEBATCH.Because the Constitution limits the power of the Commonwealth to take action against the States. The Constitution gives this Parliament no judicial powers whatever, yet this bill confers on Parliament the right to exercise a judicial power. It makes Parliament both the judge and the executioner. It confers on Parliament judicial functions which, under the Constitution, are specifically reserved to the High Court. If the judicial power of the High Court is to be undermined, it will not be long before very little of the Commonwealth is left.

I oppose the bill on the further ground that I shall never agree to giving one political party in power a weapon that I would not give to another party.

Senator Sampson:

– The honorable senator could not prevent it.

Senator Sir HAL COLEBATCH.Perhaps not, although I should do my best to do so. I, at, least, will not put myself in the position that I could not vote against a bill because I was refusing a power which I had given to another government. I intend to keep myself free to vote against any proposal that comes before the Senate.

Senator O’HALLORAN:
South Australia

– I wish to make it clear at the outset that I have no sympathy with a government which deliberately defaults, nor have I any desire to burden the people of the other States, whose governments are honestly endeavouring to carry out their undertakings to their creditors, with the liabilities of a defaulting State. It is imperative that Ave in Australia should recognize our obligations to pay in full those from whom we have. borrowed money for the development of this country, at least to the limit of our capacity to do so. Should, unfortunately, the time ever arrive when we are not in a position to meet our commitments in full, then I submit that any alteration of the contract entered into with our creditors ought to be made only after due negotiation with them. Nevertheless, I shall oppose this bill, not becauseI disagree with the object which it seeks to attain, but because 1 believe that it legalizes a clumsy and dangerous procedure, which might involve the Commonwealth in protracted and costly litigation. I heard a gentleman remark the other day that if this bill becomes law the Government of New South Wales could carry out its undertakings under the Premiers plan, and balance its budget because of the amount it would receive as income tax from the lawyers who would make huge incomes by appearing in the court as a result of its passing. Although that is probably an exaggeration, I see a danger of protracted and costly litigation if this bill becomes law in its present form. Senator Colebatch saw one virtue in the bill - its limitation to two years. In my opinion, that is one of the weaknesses of the measure. If the principle underlying the bill is right, it is worthy of incorporation in our statutes for all time. We all hope that before two years have elapsed conditions in New South Wales will have so changed that that State will again be honouring its obligations under the Financial Agreement. But thereis no guarantee that in the future that State, or any other State, will be able to avoid getting into financial difficulties.

Senator GREENE:
NEW SOUTH WALES · NAT

– It would be easy for Parliament to re-enact this legislation after two years.

Senator O’HALLORAN:

– The Leader of the Government gave some extraordinary reasons why we should accept the bill in its present form. He said that by limiting its operation to two years we should have an opportunity of testing it, and that then we could either re-enact or remodel it, as circumstances required. The relations of the States and the Commonwealth are too vital to be made the plaything of experimental legislation.I object to the bill also because its provisions apply not only to the State which at the moment is regarded as a sinner, but also to all the other States as well. Honorable senators should be convinced that the bill is necessary, as well as constitutional, before they vote for the second reading.

Senator Sampson referred to the views expressed in a Tasmanian newspaper, and said that a certain resolution had been passed unanimously by the Tasmanian House of Assembly. The honorable senator paid a great tribute to the Leader of the Opposition in the Tasmanian House of Assembly, who belongs to the same political party as myself, as being responsible for the passing of the motion protesting against the principles incorporated in this bill, because of the soundly grounded fear that Tasmania might, at some time or other, fall under the ban of this legislation. It is well known to honorable senators that the Labour party in the Tasmanian House of Assembly is in a very considerable minority. But the point that the honorable senator avoided, despite a direct question put to him, was an explanation why the Premier of Tasmania moved the motion. I venture to say that the fact that he did so, and that it was carried unanimously in a House with a preponderance of members of the political faith represented by the Government in this Parliament, shows that it was something more than a shrewd move on the part of the Leader of the Opposition in the Tasmanian House to embarrass the Federal Government. It was in fact an expression of the fear of all parties in Tasmania that this legislation might inflict some evil upon the State of Tasmania.

We have been told that this bill is essential if the Financial Agreement is to be enforced as between the. Commonwealth and the States. I cannot reconcile that view-point with public utterances of the Attorney-General (Mr. Latham) and Mr. Bruce, both prominent members of the present Government, that the steps taken by the Scullin Government in the case of the default of New South Wales last year were the proper steps to take. That being thecase, why does not the present Government take the same steps?

Something has been said, during the course of this debate, about deliberate default, and I venture to say that it is one of the points that will intrude very largely into the legal proceedings, which, I feel sure, will ensue upon the passage of this bill. Much has been made of the fact that, allegedly, the Government of New South Wales has deliberately defaulted. I have rib sympathy with the methods adopted by the Premier of the State in his relations with the Commonwealth, but we cannot shut out of our minds one thing which has played an important part in the drafting and presentation of this bill, and that is the matter of party politics. Following upon the success of his party at the elections, the Prime Minister (Mr. Lyons) declared that his party proposed to destroy the present Government of New South Wales, and it would appear that this bill is one of the means to that end. It is an attitude unworthy of a Commonwealth Government whose duty it is to administer the Constitution as it finds it without fear or favour to any State, and irrespective of the political complexion of the Government in power in any State.

Some light has been thrown on the attitude of the present Government towards the State of New South Wales by the proceedings at the recent meeting of the Loan Council and the recent conference of State Ministers, held in Melbourne, at the end of January and the beginning of February last. The Premiers met to consider how the Premiers plan had operated after approximately six months activity, and to see whether its provisions in regard to the reduction of deficits and the securing of budgetary equilibrium had succeeded. New South Wales was not the only State which had failed to live within the Premiers plan. The States of Western Australia and Tasmania came to that meeting, and had to admit that they had failed to keep within the Premiers plan to approximately the same extent as had New South Wales. As a matter of fact, Western Australia was a. worse offender than New South Wales, because it had not only failed to reduce its estimated budget deficit at the time the Premiers plan was drawn up, but had actually exceeded the amount by oyer £100,000.

Senator Sir George Pearce:

– Yes, but it had carried out a 20 per cent, reduction in its adjustable expenditure.

Senator O’HALLORAN:

– Of course it had, but my conception of the Premiers plan was not that the only people to make a sacrifice should be the workers, the oldage pensioners - in a word the humblest sections of the community - but that it should be carried out in its entirety, that the Governments which were not meeting their commitments should raise the maximum of revenue by taxation and should effect the maximum of economy. As Senator Pearce has pointed out, Western Australia had carried out its undertaking to reduce expenditure, but it had failed to raise revenue by taxing its citizens at something like the Australian average. Had it done so, it would have been able to keep within the limits prescribed by the plan. The reverse had taken place in New South Wales. There is no doubt about the steps taken by the present Government of New South Wales to raise the maximum of revenue. It is alleged, however, that it has not carried out the maximum of economy and looking at the figures by and large, there may be something in that charge. If a Government has failed to carry out its obligations it does not much matter in what way it has failed to do so.

One of the provisions of the Financial Agreement and the Constitution which comes to the forefront in the consideration of this measure is that even-handed justice must be meted out to all governments irrespective of their political complexions. Yet when Mr. Lang made application to the Loan .Council for the issue of treasury-bills for a further £500,000 to meet interest payments falling due on the part of the State at the beginning of February, he was told that he could not secure that assistance. He did not say deliberately “ I am going to default.” He asked the Loan Council to enable him to depart from what was known as the Premiers plan to the extent of a further £500,000 to meet his commitments. The Loan Council said “ No.” Mr. Lang then said “Very well. I cannot pay my interest on the due date.” Western Australia and Tasmania said the same thing. They asked for accommodation. I think it was £460,000 in the case of Western Australia, and £140,000 in the case of Tasmania. The Loan Council did not declare that Western Australia and Tasmania had failed to carry out their obligations under the Premiers plan, and consequently were not entitled to further assistance. On the contrary, it agreed that the Commonwealth Bank should discount treasury-bills for one-half the amounts applied for by those States in order to finance them over a difficult period. The point I wish to stress is that, if those States had not received assistance through the Loan Council, in all probability they would have been forced to default, just as New South Wales has defaulted, and the Commonwealth would have been obliged to accept the responsibility for interest payments on their behalf.

This Parliament must not make the fatal mistake of allowing its decisions to be determined in the party room. There should not be even a tinge of party politics about legislation of this nature, because the Commonwealth is acting for the people as a whole, and I submit that the people of New South Wales are entitled to the same consideration as is given to the people of any other State. The fact that, for the time being, Mr. Lang is Premier of that State, should not weigh with this Parliament. Mr. Lang did not appoint himself ; he is in his present position by virtue of the votes of the electors of New South Wales. He was returned by an overwhelming majority at the last State election, and I assume that he will be retired from it by as great a majority on the next occasion, if this Government does the right thing by the people of New South Wales. But if, in its attempts to bring about the downfall of Mr. Lang, “ it persecutes the people of New South Wales, they may look for a champion against Commonwealth- aggression, and they may range themselves behind the present Premier. This is why I interjected, when Senator Sir Hal Colebatch was speaking, that the bungling way in which this Government had handled the negotiations with New South Wales, uptodate, constituted a serious menace to the Commonwealth. It has made mistake after mistake, and I believe it is about to commit another grave blunder by the passage of this legislation. If the Premier of New South Wales and his supporters become an even greater power in the land than they are to-day, it will be because of the action of this Government.

Honorable senators on this side have been twitted with . having no alternative proposals. The machinery already exists under the Constitution and in the Financial Agreement for safeguarding the interest of the Commonwealth in every way. As a layman I have to take a layman’s view of the legal provisions in the Financial Agreement, but having studied it together with the Constitution, and having some knowledge of events which led up to its acceptance by the various States, I feel sure that it contains all that is necessary. One of the conditions under which the agreement was accepted in 1928 was that power should he sought hy the Commonwealth to amend the Constitution so that the agreement could be definitely implemented. Taking a layman’s view of the situation, I think we should tread warily. Part III. of the Financial Agreement, dealing with the taking over of States public debts, provides in paragraphs c and d of clause 2 - ((.) Each State shall in each year during the same period of 5S years pay to .the Commonwealth the excess over the amounts to be provided by the Commonwealth under the last preceding sub-clause necessary to make up as they fall due the interest charges falling due in that year on the public debt of that State taken over by the Commonwealth as aforesaid and then unpaid, and on any moneys borrowed hy the Commonwealth on behalf of that State and then unpaid, and after the expiration of the said period each State shall in each year pay to the Commonwealth, as they fall due, the whole of the interest charges on any debt then unpaid and included in the public debt of that State taken over by the Commonwealth as aforesaid and on any moneys borrowed by the Common wealth on behalf of that State and then unpaid.

  1. The method by which payments shall be made by a State under sub-clause c of this clause shall be arranged from time to time between the Commonwealth and that State.

Paragraph d seems to imply that it is the duty of the Commonwealth to consider the interests of the States in making agreements as to how the sum specified shall be paid. What consultation took place between this Government and the Government of New South Wales prior to the introduction of this legislation? Paragraph c. which I have just quoted, implies a definite responsibility on the part’ of a State to pay to the Commonwealth the interest and principal of all State debts taken over by the Commonwealth. Clause 3 of Part TV. of the agreement, kiion-.ii as the indemnity clause, reads -

Each Stale iigrees with the Commonwealth that it will by the faithful performance of its obligations under this agreement indemnify the Commonwealth against all liabilities whatsoever in respect of the public debt of thai State taken over by the Commonwealth as aforesaid (other than the liabilities of the Commonwealth under this agreement to pay interest and to make sinking fund contributions and under clause 4 of ]?art III. of this agreement) and in respect of all loans of that State in respect of which this agreement provides that sinking fund contributions shall be made.

That definitely indemnifies the Commonwealth in respect of all moneys paid on behalf of the States or a State.

Senator Colebatch has already pointed out that the Commonwealth has the right to recover payments from a defaulting State by the ordinary processes of the law. In this respect, the procedure does not differ from that followed in the event of default, by an individual citizen, of the conditions of a contract. The injured party may always exercise the right to recover. Although the High Court is the interpreter of the Constitution, this Parliament is asked to pass legislation to enforce payment from a certain State, even before the aid of the High Court has been invoked. It is an entirely new principle of British jurisprudence, to make a man the judge in his own cause. What would happen to me if I claimed that another honorable senator owed me £10, and, upon being told by him that he owed only £5, I knocked him down and took £10 out of his pocket? Clearly, there would be an action for assault, because I had constituted myself the judge in my own cause. This is precisely what the Government is doing in the case of New South Wales. In no respect does that action differ from the hypothetical case which I have just cited. It proposes that the Commonwealth shall determine, by resolution, that a defaulting State is indebted in a certain sum, and then proceeds to garnishee sufficient of the State’s revenue to ‘ repay itself.

Senator RAE:
NEW SOUTH WALES · ALP; LANG LAB from 1931

– Not garnishee, because that would be a court procedure. It, proposes to “ take “ from the State’s revenue.

Senator O’HALLORAN:
SOUTH AUSTRALIA · ALP

– The honorable senator is right. The Commonwealth proposes to help itself to a State’s revenue. It is true, that a State agaiust which this action is taken will have the right to appeal to the High Court for an injunction to restrain the Commonwealth from proceeding on its motion, and I venture to think that despite this legislative weapon, which, the Government is fashioning, the High Court will, in the final analysis, determine what New South Wales owes to the Commonwealth, ami also the manner in which it. shall bt; paid. Why then the need for this bill ¥ The Government, we are assured, is fortified by the opinion of certain unnamed legal gentlemen, who assert that thi j is the only method by which a judgment can be enforced against. New South Wales. But why does not the Ministry resort to the ordinary processes of the law? Why is it attempting new procedure which, in my opinion, is bound 10 fail?

Wc are told that the bill is necessary because there is need for urgency. It is, I think, fairly obvious that New South Wales will make application to the High Court for an injunction to restrain the Commonwealth from proceeding to act under this legislation. Then the question to be determined will be not whether the Commonwealth lias a recoverable claim against New South Wales, but whether an application by the Commonwealth under this legislation is valid. The legal argument may extend over several months in the High Court, where our legal friends will be reaping a wonderful harvest at the expense of the taxpayers, but the unfortunate citizen of New South Wales will not know where he stands.

Senator Sir George PEARCE:

– In those cireumgtsnc.es he will not bc unfortunate, because be will not pay.

Senator O’HALLORAN:
SOUTH AUSTRALIA · ALP

– He will be confronted with this difficulty: If the High Court rules that this act is intra vires, and he has not made payment to the Commonwealth, he will have broken its provisions and have rendered himself liable to its punitive sections. If, on the other hand, he pays the Commonwealth, and refuses to pay the State because of the indemnification provisions of this measure, and eventually the High Court rules that the act is ultra vires, he will come into conflict with the State.

Senator Sir George Pearce:

– His money would be returned to him.

Senator O’HALLORAN:

– That may involve him in litigation with either the Commonwealth or the State. Take the case of a hotelkeeper in Kew South Wales. He has to pay a licence-foe to the State Government as a condition precedent to the carrying on of his business. The Commonwealth Government may seize the amount which he and all other hotelkeepers are liable to pay, mid a !New South Wales police officer may prefer a charge of sly grog-selling against him for selling liquor without having paid a licence-fee to the State. Quite it number of very estimable citizens of New South Wales may be involved in no end of difficulty in determining the authority to which they shall pay the sums that must be paid to some, authority. lt is difficult to imagine where they may laud themselves, having paid one authority, because of the conflict of opinion respecting the powers of the other authority. This legislation has been ill-conceived. The duty of the Commonwealth Government, as has been pointed out by other honorable senators during the course of this debate, is to apply the provisions of the Constitution to every State without fear or favour. New South Wales is in this position to-day. It may be the turn of my State or of Western Australia or Tasmania to-morrow; because, as was rightly pointed out by Senator Colebatch, those three States cannot carry on without some form of financial assistance from the Commonwealth Government. All the independent investigations that have been made into their affairs of recent years, have proved abundantly that they are entitled to very substantial assistance. In this connexion, a mistake wa3 mode by the Loan Council. Instead of preferential treatment being given by way of a loan to Western Australia and Tasmania, if their figures substantiated their claim to special consideration, that special consideration should have been in the form of a grant from this Parliament, to compensate them for the disabilities caused by federation. If we pass this bill, we shall place in the hands of the Commonwealth Parliament a lever that may bo used against those States. If special consideration is not forthcoming, they and South Australia will have extreme difficulty in meeting their obligations.

Having observed the maimer in which this Government has handled the negotiations with New South Wales, I am not prepared to give to it the additional power (hat it seeks under this measure, -which may he used against my own State or against some of the other States which arc suffering to-day in the way I have indicated. “For that reason, I propose to vote against tho second reading of the bill.

Debate (on motion by Senator Greene) adjourned.

Senate adjourned al 1 (>..” p.m.

Cite as: Australia, Senate, Debates, 8 March 1932, viewed 22 October 2017, <http://historichansard.net/senate/1932/19320308_senate_13_133/>.

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