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10. Chapter X The Great Banking Crisis

ON April 27th, 1893, the Premier moved the suspension of the Standing Orders, in order to put through all its stages a Bill dealing with a banking crisis which had arisen, particularly in Victoria and New South Wales.

In New South Wales there was no need for emergency measures until the Australian Joint Stock Bank closed its doors. This was one of the leading banks in Sydney. I happen to know that this bank, with startling suddenness, made application to the other leading banks for assistance to the extent of £2,000,000 at least, the first £1,000,000 to be advanced within three days. The other banks declined to accede to this sudden demand, and the Australian Joint Stock Bank stopped payment.

When Sir George Dibbs, the Premier, took me into his confidence I at once tendered my best support in all measures that might prove necessary. The Houses of Parliament acted in the same spirit. A few took a more critical view as to the mischief that the emergency measures might produce, but fortunately their fears were not justified by the event.

The Bill to which I have referred was the first of a series. It was known as the “Bank Issue Bill.” Its main provisions were: (1) Bank notes to be a

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first charge on bank assets. (2) The grant temporarily of power to the Governor in Council to authorise larger issues of such notes; and (3) bank notes to be a legal tender. The opposition was mainly directed against the last provision, which Sir Henry Parkes and others strongly deprecated. The Bill became law a few days afterwards.

Towards the close of the same month another emergency Bill was passed—the “Current Account Deposits Bill.” The closing of so many banks—for reconstruction purposes mainly—left business men, large and small, in a trying position. The balances at their credit were locked up, and the object of the new measure was to relieve them. It was provided that the banks should issue to depositors certificates, showing the unencumbered amounts at their credit, and upon that certificate the Treasury was to advance 50 per cent. by Treasury notes, which were made legal tender. The Government did not give themselves a preferential claim, so that the depositors could get further advances elsewhere on the remaining 50 per cent. Rather a singular outcome followed. The banks offered to advance their customers 75 per cent. of their balances, and two leading banks offered 100 per cent. By such means the operation of the Act became limited, the amount applied for being about £360,000.

All the banks are stronger now than ever before. The crisis taught them many lessons which they have taken to heart.

There has never been a commercial crisis of any importance in the history of Australia so far,

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and only two banking crises. Each sprang from speculation in land, the former more than fifty years before in country lands for pastoral purposes, and the latter partly from that cause, and partly from wild speculations in land in or near the cities of Melbourne and Sydney; partly also because of the withdrawal of large sums of British money lent and suddenly withdrawn.

The precarious tenure of pastoral areas since 1861 down to 1884 had led to large freehold purchases, and in the remote interior of the Mother Colony immense sums were spent in improvements, especially to make storage for the scanty rainfalls. The rabbit plague which followed undermined everything in the nature of pastoral values in those districts. Probably never in the whole world's history had the importation of a few pets for the amusement of a wealthy man's children such tremendous consequences. From that trivial cause sprang the rabbit plague which, in spite of tremendous efforts to suppress it, remains the greatest of all pests over vast areas. The only efficient method of protecting pasturage is by wire netting enclosure. Many hundreds of thousands of miles of such netting are now maintained. The wire goes down only a few inches below the surface. When the rabbits discover that, the netting will only give them a little bit of gentle exercise!

In a Financial Statement made in October, 1893, the Premier stated that the revenue for 1893 would be gravely affected, in consequence of the recent banking crisis. He estimated that instead of a surplus of £442,000 there would be a deficiency, and that the

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deficiency for 1893 and previous years would be £1,299,000.

On February 1st, 1894, Mr. See delivered a Financial Statement. He proposed to issue Treasury Bills to wipe out the deficiency for 1892 and previous years, £1,198,000.

In June, 1894, the Opposition members gave me a complimentary picnic to the National Park and presented me with an address. The confidence they expressed in my leadership was a great encouragement to me.

When we got back to the House we found that what we considered a trick, and the Ministerialists an excellent joke, had been perpetrated. A new set of Standing Orders, hundreds in number, had been on the business paper every day for months. They embodied drastic powers intended to curb debate and defeat obstructive tactics. They were so sure to excite prolonged discussion that no time had been found for their consideration. Some clever brain conceived the idea that the absence of the Opposition at the picnic gave a chance of passing the whole set, without a single word of discussion, as a formal motion! We arrived at the House a few minutes late, and were astonished to find that all those new Standing Orders had become law. That those who laugh last laugh loudest was quite true in this case, because in a few days the Government went out, and the new Rules enabled me to deal with certain offenders for five years as rigorously as they had hoped to deal with us.

On June 25th, 1894, Parliament was dissolved. It would have died a natural death on July 14th. The chief

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changes under the new electoral law were: (1) The issue of electors' rights, so that each voter should produce his right before his vote was received, instead of simply giving his name and number on the electoral roll; (2) the abolition of plural voting; (3) the establishment of single electorates; (4) written nominations of candidates, and abolition of the hustings addresses; and (5) the polling was fixed for one day. East Sydney was divided into four electorates. I became a candidate for the central part, which was called the King Division.

The main features of my appeal to the electors were: (1) The repeal of the Protective Duties imposed; (2) the establishment of a real Free Trade tariff; (3) a system of direct taxation to make up the loss of revenue; (4) changes in the methods of keeping the Public Accounts, removing obscurity and uncertainty by a cash basis, the actual revenue in each year being set against the actual expenditure in that year. I also arraigned the Government, its policy and conduct, in the strongest terms.

The result of the elections was a great victory for the Opposition. Mr. Barton, Mr. F. B. Suttor, Mr. Traill, Mr. Melville, and other prominent Protectionists were defeated. Our number was 63 against 43 supporters of Sir George Dibbs. The Labour Party was 18 strong. The Labour Party suffered a severe reverse, having only 18 members in the new House as against 30 returned in the 1891 election. I was particularly pleased with the defeat of those Protectionist members of the Labour Party who broke away from the ballot on my vote of censure.

Photograph facing p.102. King Edward VII

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Although the Labour element had decreased, the appearance of Mr. J. C. Watson and Mr. W. M. Hughes in the new House—both afterwards Prime Ministers of Australia—was destined to make all the difference in the long run, because they were both men of a very high order of ability and force.

After this crushing defeat Ministers did not resign. Even if every member of the Labour Party voted with them they would still be in a minority of 2. But there was no chance of that because on my policy of direct taxation, or at least on that part which proposed a tax on land values, the party was solidly favourable.

Instead of resigning, the Government actually asked His Excellency to appoint a large number of their friends to the Legislative Council, appointments which hold good for life. Sir Robert Duff offered Sir George Dibbs a considerable number, but not the whole number, and would not budge from that position. Sir George then resigned and I was sent for.

The following was my first Administration:—

Premier and Colonial Treasurer   Myself 
Colonial Secretary. . .  Mr. J. N. Brunker 
Attorney-General . . .  Mr. G. B. Simpson, Q.C. 
Secretary for Lands . .  Mr. J. H. Carruthers. 
Secretary for Public Works Mr. J. H. Young. 
Minister for Justice . .  Mr. A. J. Gould. 
Minister for Public Instruction   Mr. Jacob Garrard. 
Minister for Mines and Agriculture . . . .  Mr. S. Smith. 
Postmaster-General . .  Mr. J. Cook. 
Vice-President of the Executive Council . . .  Mr. W. H. Suttor. 

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Mr. G. B. Simpson was elevated to the Supreme Court Bench, and Mr. J. H. Want became Attorney-General on December 18th in the same year. On March 15th in the following year Mr. W. H. Suttor resigned because of failing health, and Dr. Garran succeeded him.

I do not think any Premier ever had a more devoted set of colleagues. Nor do I believe that any set of Ministers could have carried on the public departments with a higher degree of honour and efficiency. We went through a series of bitter struggles in the House and in the country without any sort of quarrel. My course was thus free from internal worries. Every Prime Minister knows the value of such colleagues.

Six have passed away: Mr. James N. Brunker, Sir George Simpson, Mr. W. H. Suttor, his successor Dr. Garran, Mr. J. H. Young, and Mr. J. H. Want. Mr. Carruthers afterwards became Premier of New South Wales, and Mr. Cook Prime Minister of Australia.

Parliament met for the dispatch of business on August 28th.

A Crown Lands Bill was at once introduced. The Minister (Mr. Carruthers) made a very able speech. The right of the Crown tenants to the value of their improvements was for the first time recognised; so was the classification of Crown Lands as to their widely differing values. Instead of a limited period for residence, all free selections became subject to a perpetual condition of residence, by the selector first and by all transferees afterwards. This was a change which struck at the roots of a great

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abuse. Then provision was made for homestead leases of large area in the remote districts. But perhaps the most important change was the division of pastoral leases into two halves, one of which was to be open to the free selector, whilst the pastoral lessee got a long term for the other half. This put an end over that half to uncertainty of tenure and chances of blackmail.

The Minister gave some important figures showing the failure of the law of 1861 to achieve its good intentions. In 1861 there were far more residents in the country than in the towns. Thirty years of the new legislation, instead of making the difference greater, sadly reversed it, there being 730,000 in the towns as against 380,000 beyond them.

Of course, bad laws were not the only cause of that migration from country to town, especially that to the capital city. In all the Australian Colonies similar movements have occurred. Each of the capitals of the six States is on the coast, and within the reach of sea breezes and sea bathing during the summer months. Comfort and enjoyment abound in the capitals; in the far interior there are few comforts, much hard work, and grave risks owing to bad seasons, which hit the country districts hardest and the towns least. In the few square miles which contain the six capitals, 40 per cent. of the population of Australia is to be found!

I intimated to the House that we desired to establish a new practice in dealing with Bills of the first importance—that of proceeding with one at a time. The other course was productive of delay and dissipation of energy.

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My first Financial Statement was delivered on November 7th. The Crown Lands Bill having been taken through Committee, I announced that we were going to proceed at once with a Local Government Bill. This had been a standing item in legislative programmes for many years.

I also announced that the Machinery Bill in connection with land and income taxes was being prepared and would soon be submitted.

I pointed out that the House would adjourn before Christmas, and in March or April would meet again, when I would submit my tariff and taxation measures. I proposed to make the financial year run from July 1st to June 30th, as in Victoria, Queensland, South Australia, and the United States of America. I also stated that the old system of keeping votes open after the end of the financial year would be ended, and that each year the accounts would be balanced, cash received against cash spent, as under the British system. To give the cash system a fair start I informed the Committee that I would, as proposed by my predecessor, put into a further issue of Treasury Bills the amount of the deficiency for 1893 and previous years. There was an emergency account called the “Treasurer's Advance Account,” under which unforeseen claims could be met before Parliament voted the money. At first the sum that could be spent in one year in that way was limited to £100,000, afterwards increased to £200,000; but by a series of payments out and payments in the moneys actually used under that account had risen largely beyond the total allowed. In one year it rose to £750,000! I proposed

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to stop that. One of the causes of these enormous drafts, which quite upset the stability of our finances, was the fact that expenditure was grossly under-estimated, coupled with the fact that the accounts were not kept on a cash basis. I warned the high officials that any gross under-estimate in future would lead to grave action on my part. The Principal Under-Secretary had reported to me that in spite of repeated efforts to get his estimates for “Charitable Allowances” put “at the right figures, they were always cut down, and claims charged on to a succeeding year.” This was only too general throughout the spending departments.

One very gross case occurred shortly before I came into office. Under the head of “Roads and Bridges” a sum of £216,000 was written off as “not likely to be required.” I asked, “Did the Roads Department know of this?” The answer was, “Certainly not! We required every penny of it, and the roads and bridges are now out of repair in consequence of that reduction!”

As the beginning of the new financial year was on July 1st, I submitted Estimates for the six months to June 30th, 1895. I expected a deficiency of £280,000, largely owing to the fact that the departments had been warned that I would not tolerate under-estimates of expenditure.

Including that deficiency with those for the previous years I found a total of £1,356,000:—

1894 and previous years . .  £1,076,000 
1895, January to June . .  280,000 

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as to which I proposed, as I have stated, to adopt the intention of my predecessors, providing for it by the issue of Treasury Bills, to be gradually paid off.

If Mr. See had left the Treasury Bills for his estimated deficiency, I would have been saved a great deal of annoyance. If the £216,000 so urgently required for roads and bridges had not been marked to be written off, his deficiency would have been £216,000 more.

As for 1894, the figures added to the old deficiency a new deficiency, estimated at £373,000. But by a transfer of which the former Premier and the Auditor-General approved, I reduced the deficiency of my predecessor to a figure ultimately below his own estimate.