PUBLIC FINANCE (1859-1884).
Importance of Sound Finance.--A Great Colony Starts upon
a Bank Overdraft.--First Year's Revenue.--Land Sales as
Revenue.--Deficits in First Decade.--Transfer of Loan
Moneys to Revenue to Balance Accounts.--Heavy Public Works
Expenditure.--Crisis of 1866.--Inconvertible Paper Currency
Proposals.--Flotation of Treasury Bills.--Higher Customs
Duties.--Wiping Out a Deficit by Issue of Debentures.
--Transfer of Surplus to Surplus Revenue Account to Recoup
Loan Fund.--Incidental Protection.--Railway Land Reserves.
--Proceeds Used as Ordinary Revenue.--Three-million Loan.
--Condition of Affairs at Close of First Quarter-Century.
--Phenomenal Progress; Prospects Bright.
Sound finance is the sheet anchor of any Government, whether despotic
or democratic. Without a prudent guiding hand at the Treasury the ship
of State might as well be rudderless. In the fifty years of Queensland
history financial mistakes have been made, from which much public loss
as well as individual suffering has resulted. If those mistakes, or
some of them, are laid bare in this book, the object is not to reflect
upon Governments or individual Ministers, but to treasure the lessons
thus taught for future use.
Queensland began its career with a bank overdraft, for with "71/2d.
in the Treasury" on the date of the Queen's proclamation of the
colony it was necessary to provide funds in anticipation of revenue
collections. But at the outset borrowing was indulged in on a modest
scale. For 1860 the revenue was L178,589, and the deficit only L1,514.
For the second year there was a revenue surplus of L2,442 over the
expenditure of L235,796. But there had been during the period an
outlay of L63,210 on loan account. Besides this, of the total revenue
for the two-year period--including the twenty-one days of 1859--the
cash receipts from land sales, which strict political economists
hold to be capital, were L114,803, equal to 27 per cent. of the total
revenue. It may be assumed that the loan expenditure was entirely for
permanent or reproductive works; but only 73 per cent. of the money
spent for the service of the year was strictly revenue, the remainder
arising from land sales. Yet as New South Wales practice had lent
sanction to the use of land sales receipts as revenue, the Treasurer
(Mr. R. R. Mackenzie) may be admitted to have managed well, since at
the outset the estimates of revenue and expenditure were both wholly
conjectural. Mr. Mackenzie's successors were less fortunate; for
during the first decade, although the annual revenue had quadrupled,
there were only two years with surpluses.
There was another scarcely defensible transaction during the first ten
years' term. In 1864 the Treasurer, finding he would otherwise have
a relatively heavy deficit, balanced his budget by transferring from
Loan Fund to Revenue the total expenditure incurred upon immigration
since the foundation of the colony. In that year the loan outlay was
L401,421, including the transfer to revenue, an increase of L337,950
in a single year. Thus the loan expenditure was at the rate of about
L5 10s. per head of the population as ascertained by the census of the
year. The deficit of 1864 seems less excusable because the revenue had
increased by over 25 per cent. for the year. The incident illustrates
the danger of suddenly increasing loan expenditure, which produces
industrial and commercial activity, but at once adds to the cost of
public administration in various ways. Loan money spent on the same
scale per capita in Queensland to-day as in 1864 would mean a total
sum of about L3,000,000 a year, whereas, even with the numerous
railways lately started, the loan disbursements for 1908-9 did not
quite reach 11/4 millions. Another consideration is that up to 1865 none
of the loan works had become reproductive, and the 211/4 miles of
railway then open for traffic did not earn working expenses. Further,
the Government had been borrowing at 6 per cent. interest, which meant
that the 11/4 millions of loan indebtedness at the end of 1865 imposed a
burden upon the taxpayers of about L75,000 a year, or not far from L1
per head of the population.
In 1866, the time of the great crisis, the revenue expenditure
increased by L241,690, creating a deficit of L200,653 for the year.
The loan expenditure for the year was L965,346, bringing the total
debt up to L2,214,123, equal to over L23 per head of the population.
The total expenditure for the year, including loan, reached nearly L17
per head. It is not surprising that a mere handful of people,
plunging into debt at that reckless speed, found their credit suddenly
shattered. In 1869, the last year of the decade, though the revenue
had advanced to nearly three-quarters of a million, there was a
deficit for the year of L37,217. For the ten years the net accumulated
revenue deficit was L386,527, and the aggregate indebtedness nearly
31/4 millions. The interest charge was then about L225,000 per annum,
and the entire weight of it fell upon consolidated revenue. The
population being 109,897, the interest burden was at the rate of over
L2 per head. It may here be remarked that in 1907-8 it was only
L2 16s. 9d. per head, less railway net earnings of about L1 12s.,
reducing the net burden to about L1 5s. per head. Recurring to the
debacle of 1866, it should be mentioned that the catastrophe was
largely due to the failure of the Agra Bank, when all railway works
were suddenly suspended, and the colony was plunged into the depths
of extreme depression. During the two preceding years the loan
expenditure had been largely in excess of revenue disbursements, no
less than L685,246 of borrowed money having been spent in 1865. This
was at the rate of nearly L8 per head of the total population, and its
sudden cessation threatened thousands of the people of the colony with
ruin. For not only had their sources of income been suddenly cut off,
and landed property become almost valueless, but increased taxation
had to be imposed.
Yet the catastrophe was not wholly the fault of the Government. It was
the consequence of the monetary and commercial crisis in the mother
country in 1866. The Sydney branch of the Agra and Masterman's Bank
had engaged to furnish L50,000 monthly to the Queensland Government
for the prosecution of railways and other reproductive works pending
the negotiation of the loan authorised by Parliament. The bank was of
good standing, and under ordinary conditions its contract would have
amply secured the position of the Treasury. Its failure could not have
been foreseen; but the incident proves the unwisdom of a Government
leaning upon any banking institution for heavy advances which can
only be made on the assumption that normal deposits are maintained.
In Queensland the position was intensified by the proposal of the
Macalister Government to issue inconvertible legal tender notes,
because it gave countenance to the economic fallacy that any
Government can make money to an indefinable amount with the aid of the
printing press. The resignation of Ministers because their advice had
been refused by the Governor shook for the moment the very foundations
of authority; and had not Mr. Herbert's services been available on
the eve of his departure for England the consequences might have been
grave indeed. But he consented to take office without portfolio for
a few days with several other members, and, by getting authority
from Parliament to issue Treasury bills, he saved the country from
financial chaos. As it was, the ordeal proved a severe test of the
loyalty of the people of the colony.
On the establishment of Queensland a Customs tariff imposing light
revenue duties was inherited from New South Wales. Under it spirits
bore a duty of only 7s. per gallon. In 1865 the Treasurer, Mr.
(afterwards Sir) Joshua Peter Bell, introduced a bill to raise the
spirit duties by 3s. per gallon, and the duty on other intoxicants in
proportion. The bill passed the second reading without debate, for it
must have been felt that with the rapidly increasing interest charge
further taxation ought years before to have been imposed. After the
crisis of 1866 had subsided, further increased duties for temporary
purposes were passed, as were also stamp duties, so that the revenue
for the following year, despite the depression, showed the important
increment of about L120,000. Happily the Crocodile goldfield, near
Rockhampton, was discovered towards the close of 1866, and the Gympie
goldfield during the next succeeding year. Hence for the remainder
of the decade revenue, despite prolonged stagnation in business,
steadily, if not rapidly, increased.
In 1869 authority had been obtained from Parliament to liquidate the
accumulated deficits by the issue of Treasury bills for the sum
of L350,000, the increased duties of Customs imposed for temporary
purposes in 1866 being at the same time continued for twelve months.
In January, 1872, the Treasurer (Mr. Bell) referred in committee of
the Assembly to the accumulated deficit, stating that the Treasury
bills which had temporarily provided for it were falling due, and that
there was no hope of paying the amount out of revenue. He therefore
announced the intention of the Government to retire the bills and fund
the debt by issuing long-dated debentures. That having been done, the
effect was to produce a surplus for the year 1872 of L487,333. This
indicated that had the Government exhibited a little more confidence
the whole amount of the deficit might have been paid off out of
revenue; for in the next year, shortly before the Palmer Government
went out of office, a further surplus of L158,874 was realised. This
sum, with the excess surplus of L137,333 for the preceding year,
totalled L296,207, leaving only L53,793 short of the entire amount of
the Treasury bills. In the next year there would have been a surplus,
but the Macalister Ministry, which assumed office early in January,
1874--Mr. William Hemmant being Treasurer--carried L240,000 to a
surplus revenue account, and ended the year with a revenue deficit of
L200,762. While the revenue of that year only increased by L40,913,
the expenditure, in addition to the surplus revenue item, increased by
L160,550. The Macalister Ministry could not keep down expenditure,
and in 1875-6--the end of the financial year having been changed from
December to June--with a revenue slightly exceeding 11/4 millions, they
had a further deficit of L51,663. The same party continued in power
for a further two years under the leadership successively of Mr.
George Thorn and Mr. John Douglas. Revenue continued fairly elastic,
and the deficit period was followed by two years showing small
surpluses.
[Illustration: HINCHINBROOK CHANNEL, NORTH QUEENSLAND]
[Illustration: THE NARROWS AND MOUNT LARCOMBE, NEAR GLADSTONE]
Early in 1879 the McIlwraith Ministry assumed office, at a time when,
as the Premier himself admitted in his Budget speech of 1880, the
colony was "emerging from a state of depression induced by three bad
seasons of an extraordinary character," so that the year 1878-9
closed with the considerable deficit of L216,808. This was partly due,
however, to the operation of the Western Railway Act and the Railway
Reserves Act, by which the most saleable land in the colony had been
included in railway reserves, and the proceeds of sales, instead of as
previously going into consolidated revenue, were placed to the credit
of a special fund. Mr. (afterwards Sir Thomas) McIlwraith while in
opposition had predicted that this course would produce a revenue
deficit; consequently on attaining office he induced Parliament
to sanction the transfer of all these sums, totalling L382,346,
to consolidated revenue. Mr. McIlwraith argued that it would be
impossible to construct a tithe of the railways needed in different
parts of the colony out of the proceeds of land sales, and that it
would be sufficient if the interest on railways, until they became
fully reproductive, were defrayed from that source. Parliament
accepted that view, and forthwith authorised a loan of 3 millions for
a comprehensive schedule of railways proposed by the Government in
1879-80. Between August, 1879, and May, 1883, loans amounting
to L5,553,000 were floated and a further sum of L1,233,000 was
authorised, but not placed on the market. During the McIlwraith
Administration of 1879-83 the revenue increased from rather less than
11/2 millions to 21/2 millions. The period was characterised by
two deficits and three surpluses, showing accumulated surpluses of
L272,412, without taking into account the sum of L382,346 transferred
to revenue. During these years the colony was prosperous, the
fair seasons, large loan expenditure, the establishment of the
British-India service _via_ Torres Strait, and the free introduction
of immigrants, all combining to push the country along the path
of progress; but prosperity had compelled a _pro rata_ increase of
expenditure.
At the end of the quarter-century in 1884 the public debt was
L16,570,850, on which the interest charge was L701,565. Of this amount
L9,417,318 expended on railways was earning L2 18s. per cent. The
length of lines open for traffic totalled 1,207 miles. The population
was 309,913. About L2,350,000 had been spent on immigration, of which
nearly a third of a million had come from revenue, L1,778,000 from
loan, and the rest from "special receipts"--partly contributions
from immigrants. The year's imports were of the declared value of
L6,381,976, and the exports L4,673,864. Joint stock bank assets
exceeded 11 millions, liabilities were nearly 73/4 millions, deposits
exceeded 6 millions, and savings bank deposits were over 1 million. Of
cattle there were 41/4 millions, of sheep less than 91/2 millions, while
horses numbered 253,116. There were 6,979 miles of telegraph line
constructed. There were over 7 million acres of land alienated, which
had produced over 43/4 millions sterling of revenue. The value of
minerals won for the year was L1,325,624. There were 528 schools with
60,701 scholars, 5,185 subscribers to public libraries, and 60,257
volumes. Comparing these figures with those of 1860 it will be seen
that, despite droughts, floods, and financial crises, the progress
attained had been phenomenal.
Thus in a financial aspect the first quarter-century closed glowingly,
despite a severe Western drought in 1883. There had been rapid and
apparently solid progression, and the disasters of 1866, which seemed
at the time to threaten the solvency of Government and people alike,
had become an unpleasant memory--a catastrophe very unlikely to recur
for various reasons, among them being that the railways were beginning
greatly to facilitate transport, as well as to show considerable net
earnings; while instead of the Government borrowing at 6 per cent., as
formerly, money in abundance could be got at 31/2 per cent. Moreover,
mortgage loans and bank overdrafts bore a greatly reduced rate of
interest.