Taking over public debts of States.

105. The Parliament may take over439 from the States their public debts as existing at the establishment of the Commonwealth440, or a proportion thereof according to the respective numbers of their people as shown by the latest statistics of the Commonwealth, and may convert, renew, or consolidate such debts441, or any part thereof; and the States shall indemnify the Commonwealth442 in respect of the debts taken over, and thereafter the interest payable in respect of

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the debts shall be deducted and retained from the portions of the surplus revenue of the Commonwealth payable to the several States, or if such surplus is insufficient, or if there is no surplus, then the deficiency or the whole amount shall be paid by the several States443.

UNITED STATES.—All debts contracted and engagements entered into, before the adoption of this Constitution, shall be as valid against the United States under this Constitution as under the Confederation —Const., Art. VI, sec. 1. (This refers to the war debt of the Confederation—not to the debts of the States.) CANADA.—Canada shall be liable for the debts and liabilities of each Province existing at the Union.—B.N.A Act, 1867, sec. 111. (The Provinces were made liable to Canada for the amounts by which their indebtedness exceeded certain specified amounts.—Secs. 112–116.)

HISTORICAL NOTE.—The original clause in the Bill of 1891 was as follows:—

“The Parliament of the Commonwealth may, with the consent of the Parliaments of all the States, make laws for taking over and consolidating the whole or any part of the public debt of any State of States, but so that a State shall be liable to indemnify the Commonwealth in respect of the amount of a debt taken over, and that the amount of interest payable in respect of a debt shall be deducted and retained from time to time from the share of the surplus revenue of the Commonwealth which would otherwise be payable to the State.”

In the Sydney Convention of 1891, Sir John Bray moved an amendment, somewhat on Canadian lines, to make the Commonwealth liable at once for the debts of each State existing at the time of union, and to make the States liable to the Commonwealth for any excess of such debts over a fixed amount per head of the population. Most of the members favoured ultimate consolidation, but this was thought to go too far. The points in its favour were that it would get rid of the dangerous surplus, and result in a large saving of interest; the chief point made against it was that it involved the transfer of a liability without corresponding assets. The last argument was answered by pointing out that the revenue powers of the Commonwealth were the equivalent asset; but the real objection, from the point of view of New South Wales, was that the proposal might dictate a high revenue tariff. The amendment was negatived. A protest was made against requiring the consent of “all the States,” but the clause was passed without alteration. (Conv. Deb., Syd., 1891, pp. 835–49.)

Adelaide Session, 1897.—The clause as introduced at Adelaide provided that the Parliament might, with the consent of the Parliament of any State, take over the whole or any part of the debt of that State. The rest of the clause was as before, with an addendum that “upon any conversion or renewal of the loan representing the debt, any benefit or advantage in interest or otherwise arising therefrom shall be applied to the reduction of the debt.” There was much diversity of opinion upon the whole subject. Mr. Reid had nothing to say, so long as no compulsory proposition was made. Sir George Turner would have liked a compulsory taking over of all the debts, but in view of Mr. Reid's strong objection he did not press this. Still, he thought that the power should be to take all the debts of all the States, and he objected to the consent of the States being required. Mr. Holder and Mr. McMillan pointed out that compulsory consolidation meant making a present of the federal security to the bondholders; but they approved of giving the Parliament power to act without the consent of the States. Some thought that the power should be limited to existing debts; others that it ought to extend to future debts; some thought that future State borrowing should be restricted; others that this was impossible.

Eventually, on Sir George Turner's motion, the requirement of the consent of the State Parliaments was omitted, on division, by 20 to 15, and the power was limited to “the whole, or a rateable proportion of the public debts of the States as existing at the establishment of the Commonwealth.” The provision requiring any savings made to be spent in reduction of interest was negatived, and Mr. Higgins added a declaration that

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the “rateable proportion” should be calculated on a population basis. (Conv. Deb., Adel., pp. 1085–1103.)

Melbourne Session, 1898.—At Melbourne, Mr. Glynn moved an amendment providing for compulsory consolidation of debts, each State indemnifying the Commonwealth for any excess of its debts over the average indebtedness. This, after a long debate, was negatived.

Mr. Holder (for Mr. McMillan) then moved (Debates, p. 1577) to insert, after “Parliament,” the words “may take over the whole or any part of the debt of the State, subject to the consent of the State.” On this Sir Geo. Turner moved the substitution of “shall” for “may,” which was carried by 25 votes to 8; a division which, coming as it did after the rejection of the guarantees, signified a desire on the part of the Convention to make some definite provision with regard to the threefold problem of the debts, the railways and the guarantees. Mr. Holder lamented this “unfortunate vote” on the ground that it would at least put our worst securities on a level with our best, and would make a present of millions to the bondholders; whilst Mr. Reid (who had been absent when the vote was taken) objected on the ground that it dictated a high tariff. The Convention, after some debate, showed a disposition to reverse the effect of its vote. The amendment was consequentially amended by the omission of all words after “shall take over;” but the proposal to insert these words in the clause was negatived, on division, by 19 to 18, and the clause was agreed to without any amendment. (Conv. Deb., Melb., pp. 1540–1653.) Drafting amendments were made before the 1st Report, and after the 4th Report.