CHAPTER II.

TOWNSVILLE: FLINDERS STREET, LOKING WESTTOWNSVILLE: FLINDERS STREET, LOOKING WEST

TOWNSVILLE: FLINDERS STREET, LOOKING WEST

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 "7½d. 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 £178,589, and the deficit only £1,514. For the second year there was a revenue surplus of £2,442 over the expenditure of £235,796. But there had been during the period an outlay of £63,210 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 £114,803, 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 duringthe 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 £401,421, including the transfer to revenue, an increase of £337,950 in a single year. Thus the loan expenditure was at the rate of about £5 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 £3,000,000 a year, whereas, even with the numerous railways lately started, the loan disbursements for 1908-9 did not quite reach 1¼ millions. Another consideration is that up to 1865 none of the loan works had become reproductive, and the 21¼ 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 1¼ millions of loan indebtedness at the end of 1865 imposed a burden upon the taxpayers of about £75,000 a year, or not far from £1 per head of the population.

In 1866, the time of the great crisis, the revenue expenditure increased by £241,690, creating a deficit of £200,653 for the year. The loan expenditure for the year was £965,346, bringing the total debt up to £2,214,123, equal to over £23 per head of the population. The total expenditure for the year, including loan, reached nearly £17 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 £37,217. For the ten years the net accumulated revenue deficit was £386,527, and the aggregate indebtedness nearly 3¼ millions. The interest charge was then about £225,000 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 £2 per head. It may here be remarked that in 1907-8 it was only £2 16s. 9d. per head, less railway netearnings of about £1 12s., reducing the net burden to about £1 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 £685,246 of borrowed money having been spent in 1865. This was at the rate of nearly £8 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 £50,000 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 thesecond 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 £120,000. 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 £350,000, 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 £487,333. 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 £158,874 was realised. This sum, with the excess surplus of £137,333 for the preceding year, totalled £296,207, leaving only £53,793 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 £240,000 to a surplus revenue account, and ended the year with a revenue deficit of £200,762. While the revenue of that year only increased by £40,913, the expenditure, in addition to the surplus revenue item, increased by £160,550. 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 1¼ millions, they had a further deficit of £51,663. 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.

HINCHINBROOK CHANNEL, NORTH QUEENSLANDHINCHINBROOK CHANNEL, NORTH QUEENSLAND

HINCHINBROOK CHANNEL, NORTH QUEENSLAND

THE NARROWS AND MOUNT LARCOMBE, NEAR GLADSTONETHE NARROWS AND MOUNT LARCOMBE, NEAR GLADSTONE

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 £216,808. 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 £382,346, 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 £5,553,000 were floated and a further sum of £1,233,000 was authorised, but not placed on the market. During the McIlwraith Administration of 1879-83 the revenue increased from rather less than 1½ millions to 2½ millions. The period was characterised by two deficits and three surpluses, showing accumulated surpluses of £272,412, without taking into account the sum of £382,346 transferred to revenue. During these years the colony was prosperous, the fair seasons, large loan expenditure, the establishment of the British-India serviceviaTorres Strait, and the free introduction of immigrants, all combining to push the country along the path of progress; but prosperity had compelled apro rataincrease of expenditure.

At the end of the quarter-century in 1884 the public debt was £16,570,850, on which the interest charge was £701,565. Of this amount £9,417,318 expended on railways was earning £2 18s. per cent. The length of lines open for traffic totalled 1,207 miles. The population was 309,913. About £2,350,000 had been spent on immigration, of which nearly a third of a million had come from revenue, £1,778,000 from loan, and the rest from "special receipts"—partly contributions from immigrants. The year's imports were of the declared value of £6,381,976, and the exports £4,673,864. Joint stock bank assets exceeded 11 millions, liabilitieswere nearly 7¾ millions, deposits exceeded 6 millions, and savings bank deposits were over 1 million. Of cattle there were 4¼ millions, of sheep less than 9½ 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 4¾ millions sterling of revenue. The value of minerals won for the year was £1,325,624. 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 3½ per cent. Moreover, mortgage loans and bank overdrafts bore a greatly reduced rate of interest.

The Ten-million Loan.—Ministers Practically Granted Control of Five Years' Loan Money.—Vigorous Railway Policy.—Effect of Over-spending.—Inflation of Values.—Increased Taxation.—Succession of Deficits.—Second McIlwraith Ministry.—A Protectionist Tariff.—Temporary Increase of Revenue.—Heavy Contraction in 1890.—Another Big Loan; Failure of Flotation.—The First Underwritten Australian Loan.—Amended Audit Act Limiting Spending Power of Government.

At the end of 1883 the Griffith Ministry succeeded to office with a strong following. It was early in March, 1884, that the Appropriation and Loan Acts for 1883-4 became law, but the regular session of the year did not begin until 7th July. It was in this session that the Government introduced their colossal railway extension scheme, and their famous "Ten-million Loan Act"—actually, however, the amount was £9,980,000. This sum was to be spent during the following five years, which meant that the members of the Assembly voted in a lump sum, and on an unprecedented scale, the loan expenditure for the maximum term of the Parliament. The effect was also to ensure the life of the Ministry for the same term, as it was intended to expend about 2 millions sterling a year, or about £6 10s. per annum per head of the population. This was equal to about three-fourths of the total consolidated revenue for 1884.

The Ministry no doubt meant well, and their preparation of a schedule of works to extend over five years was in the abstract commendable. But the expenditure of so much loan money provoked inflation in values, and led to unhealthy speculation in land. Although Ministers did not in any one year quite reach their 2-million conventional limit of loan outlay, the 10 millions were exhausted soon after their retirement from office, and a further loan had to be authorised to finish their uncompleted works. While such railways as the "Via Recta" (Ipswich to Warwick) and the Cloncurry to the Gulf lines were both on the 1884 loan schedule—the amount set down for each being £500,000—they have never been even commenced to this day, a quarter of a century since they were passed by the Assembly. Other lines then authorised absorbed more than the amount voted, and necessarily had afterwards to be completed to make them reproductive.

The revenue not proving as expansive as the necessities of the Treasury required, an Act passed in 1885 imposed 5 per cent. ad valorem duties upon most kinds of industrial machinery, increased the spirit duties to 12s. per gallon, and levied upon log and undressed timber a duty of 1s. per 100 feet superficial and upon dressed timber of 1s. 6d. per 100 feet. In the following year the ad valorem duties were increased to 7½ per cent., except as to machinery, which remained at 5 per cent.; but small levies like these were as drops in the bucket by comparison with the constantly expanding needs of the Treasurer.

The 10-million loan schedule did not exhaust the list of what were deemed necessary works. In 1886 a special Act was passed appropriating £123,000, to be raised by Treasury bills having a term of five years, for the duplication of the Brisbane-Ipswich railway, and the completion of the lines from Mackay to Eton and Hamilton, and from Ravenswood Junction to Ravenswood, respectively. In the year following an Act was passed authorising the issue of further Treasury bills amounting to £349,834 for the construction of eight small lines, and the extension of the Brisbane and Southport line, with a branch to Beaudesert, thus bringing the railways and works loan schedule of the Griffith Ministry up to £10,452,834.

By the advent of the financial year 1888-9, most intelligent public men felt gravely disturbed. The bank deposits, which had been trebled in a decade, had to earn interest on the additional 7 millions of money held and advanced. When the Griffith Ministry retired from office in June, 1888, they had recorded four successive annual deficits aggregating £968,313, although between 1884-5 and 1887-8 the revenue had increased by £456,861, and there had been spent over 1¾ millions of loan money per annum in addition. During the year 1888-9, after Sir Thomas McIlwraith assumed office, the expenditure increased by £128,922, but he obtained a revenue increase of about £437,000. This increase chiefly arose from the heavier duties levied under the protectionist Customs tariff of 1888; but in 1889-90 there was an almost equivalent shrinkage in both Customs and total revenue. Bad times partly accounted for the subsequent inelasticity of Customs receipts, for not until 1895-6 were the total revenue figures of 1888-9 again touched.

The year 1889-90 was characterised by a deficit of £483,979, for the drop of £402,857 in revenue and the increase of £197,969 in expenditure dislocated the finances, and caused the retirement of the Morehead Government after an ineffectual attempt to impose a general tax of 5 per cent. on all property, both real and personal. The coalition Griffith-McIlwraith

BARRON GORGE, BELOW THE FALLS, CAIRNS RAILWAYBARRON GORGE, BELOW THE FALLS, CAIRNS RAILWAY

BARRON GORGE, BELOW THE FALLS, CAIRNS RAILWAY

Administration followed, but could not in such a time of value shrinkages materially increase revenue, while expenditure was thought to be irreducible. Despite a Loan Act for 1½ millions passed in 1888-9, to provide for works temporarily met by floating Treasury bills during the two preceding years, another large loan was authorised in 1890, its total being nearly 3¾ millions sterling. This money was needed to retire debentures maturing on 1st July, 1891, amounting to £1,170,950, and no less than £422,850 deficiency loss on the loans of 1882, 1884, and 1889, thus leaving little more than 2 millions for railway and harbour works. This 3¾ million Loan Act did not receive the Royal assent until December, 1890, and the stock was issued a few months later at a most unfortunate time. The monetary tension which culminated in 1893 was already felt in the London market, and the credit of Queensland had become much impaired by the fact that during the preceding decade (1880-81 to 1889-90) the colony's obligations had increased by £16,706,834, bringing the funded public debt up to £28,105,684—nearly £70 per head of the population—while railway net earnings were steadily dwindling.

The cable soon flashed the unwelcome news that only £1,554,834 was subscribed. After some difficulty a Stock Exchange syndicate was formed to underwrite £1,182,400 of the balance, the price realised for the whole amount taken up averaging £87 6s. 1d. per £100 of 3½ per cent. stock. Thus the net proceeds of the loan of £3,704,800 were only £3,234,376, a depreciation loss of £470,424. The interest charge on this new loan was £129,668; so that the interest, while nominally 3½ per cent., was really just 4 per cent. on the money received, and, in addition, at due date (1930), £470,424 depreciation will have to be made good. But the tragedy did not end there, for the money borrowed, or the greater part of it, had not reached the Treasury in 1893, but ranked among the "suspended bank deposits" which then paralysed both Government and private depositors.

That the time chosen for going on the money market was not opportune may be gathered from the fact that in 1889 Queensland 3½ per cent. stock had brought £96 0s. 11d. per £100, and in 1894—three years after the forced sale at £87 6s. 1d. in 1891—an issue of our stock of the same denomination brought £98 14s. 0¼d. per £100. It may be noted that the Queensland loan of 1890-91 was the first underwritten Government loan issued by an Australian colony, though since that time all Government loans have been underwritten. Heavy as our sacrifice in 1891 may have been, it was infinitely less disastrous than making default must have proved; and perhaps after all the experience gained was worth its cost,for, although the colony staggered under the blow, its progress was checked only for the time.

In 1890 an amending Audit Act was passed—Sir Thomas McIlwraith being then Treasurer—section 4 of which made the important provision that it should not be lawful for the Colonial Treasurer to expend any moneys standing to the credit of the Loan Fund Account except under the authority of an annual or special Appropriation Act, in like manner as moneys were expended out of the Consolidated Revenue Fund for the current expenses of government. By section 6 it was provided that, when it was necessary to expend for any work money in excess of the appropriation, then, if such sum were included in any Appropriation Act, the Governor in Council might authorise the additional expenditure from the Loan Fund. By section 8, annual Loan Estimates, specifying the nature of the work proposed, were to be submitted, as in the case of the Estimates of ordinary expenditure. This Act was passed to avoid the evil of placing large amounts of borrowed money at the uncontrolled disposal of the Ministry of the day.

Sir Hugh Nelson at the Treasury.—Credit of Colony Restored.—Assistance to Financial Institutions and Primary Industries.—Savings Bank Stock Act.—Public Debt Reduction Fund.—Treasurer's Cautious and Prudent Administration.—Money Obtained in London at a Record Price.

When the banking crisis occurred in 1893, Mr. (afterwards Sir) Hugh Nelson, who had previously held office with distinction as Railway Minister for about two years, reluctantly took charge of the embarrassed Treasury. Entering Parliament after the general election in 1883, he had from the first given evidence of more than common knowledge of public finance. Mr. Nelson was an exceedingly modest man, and an indifferent public speaker at best; but he possessed courage, thoroughness, and scholarly knowledge. In public matters he always aimed at taking the line of least resistance; but knowing what he knew in March, 1893, his assumption of office as Treasurer must be regarded as an act of heroism dictated by regard for the public welfare. Quietly and unobtrusively he worked, refusing all invitations to appear on public platforms, and while affecting contempt for politicians who constantly apostrophised "the people," he determined to set the affairs of the colony straight. Revenue at that time had almost touched bottom, and was very inelastic; and Mr. Nelson followed the example of his immediate predecessor in keeping a tight hand upon expenditure. For 1892-3 there had been a reduction of outlay of about £70,000 only, as compared with the preceding year, the June deficit having been reduced to £111,676; but in the next year he realised rather less revenue, yet reduced expenditure by £206,000, closing the year with a small deficit of £8,467. As this was the time in which most commercial and financial disaster was suffered from the crisis, this economy was a feat worth accomplishing, although the drastic reduction of expenditure tended to aggravate the crisis by delaying the restoration of confidence. After 1893-4 followed six surpluses.

In the midst of the bank reconstructions of 1893 there had been a general election, and Parliament met on 25th May. Between then and 18th October, 1893, Mr. Nelson, as Treasurer in the McIlwraith Ministry,passed those financial measures which were the greatest achievements of his career. An unpopular measure was his Civil Service Special Retrenchment Act, but it was imperative, and civil servants were indeed fortunate, when so large a number of their friends in private life were left destitute, in being able to draw their diminished salaries month by month. The Queensland National Bank Limited Agreement Act enabled that institution to resume business, though the public sacrifice was great. Acts were also passed for encouraging meat and dairy works; for advancing guaranteed loans by the Treasury to sugar works companies; for Treasury advances upon the notes of suspended joint stock banks; for the issue of Treasury notes, made legal tender throughout the colony save by the Treasury; and for the imposition of a yearly tax of 10 per cent. on notes issued by banks. In the same session was passed an Act for giving relief to public depositors, such as treasurers of hospitals and other public institutions, by making Treasury advances upon the amount of their locked-up deposits.

Another important measure of this period was the Government Savings Bank Stock Act of 1894, under which any savings bank depositor may exchange his deposit for £10, or any multiple thereof, of Government stock redeemable in 1945, and bearing not more than 3½ per cent. interest. In 1897 the amount of such stock issuable was increased from £1,000,000 to £2,000,000. The object of this measure was to give depositors the opportunity of making investments in small amounts of Government stock, for which there would always be a buoyant market in the event of cash being required; and also to safeguard the Treasury by reducing the amount of money held on account of savings bank deposits repayable at call. In 1897 the total deposits did not exceed 2½ millions; to-day they total over 5 millions. It is therefore satisfactory to note that the Treasurer (Mr. Hawthorn) early in the current year made arrangements for enlarging the sale of savings bank stock in the manner intended by the author of the Act.

In 1895 Mr. Nelson passed the amended Audit Act under which, if it appears by the Treasurer's annual statement that there is a surplus of receipts for any financial year, the money shall, before the 31st day of December following, be paid to the trustees of the Public Debt Reduction Fund created by the Act, and by them applied, first to the purchase of Treasury bills, and then to the purchase of inscribed stock at the current market price, stock so purchased to be cancelled. As a Treasurer with a deficit is bound to make provision for its liquidation at the end of a financial year, the effect of the Act has been to start every year with aclean sheet. By this practice an ingenious Treasurer is deprived of the opportunity of juggling with accumulated surpluses.

ON THE ROAD TO MARKET, CENTRAL QUEENSLANDON THE ROAD TO MARKET, CENTRAL QUEENSLAND

ON THE ROAD TO MARKET, CENTRAL QUEENSLAND

FAT CATTLE, CENTRAL QUEENSLANDFAT CATTLE, CENTRAL QUEENSLAND

FAT CATTLE, CENTRAL QUEENSLAND

In April, 1898, when Sir Hugh Nelson retired from active politics, he had just completed five years' service as Treasurer. During that time he had gone to the London money market only twice, and had issued stock to the amount of only 3¾ millions. Of that sum, moreover, the 2 millions asked for in 1894 was for retiring Treasury bills, and for the liquidation of the deficit on account of previously issued loans. In 1896 the Loan Act totalled £2,324,480, though it was not all placed by Sir Hugh Nelson. It provided for further railway extensions, and included half a million sterling for loans in terms of the Local Works Loans Act under the Sugar Works Guarantee Act; £600,000 was applied to the purchase at par of savings bank stock for cancellation, only 1½ millions being placed on the London market. Of these two loans issued subsequent to the 1893 crisis, the first, bearing 3½ per cent. interest, realised £98 14s. 0¼d. net per £100 of stock, and the other, floated in 1897, bearing 3 per cent., brought £95 15s. 10¾d., the record price for money obtained by the issue of Queensland Government stock in London.

The Philp Ministry.—Large Surplus.—Loan Acts for Seven and a-half Millions Sterling.—Drought Disasters and Sacrifices for Federation.—Accumulated Revenue Deficits of over £1,000,000.—Rebuff on London Stock Exchange.—Resignation of Philp Ministry.

When Mr. Philp took charge of the Treasury in March, 1898, the credit of the colony appeared to have been fully restored. True, the funded public debt had grown to 33½ millions, but the population had also increased to 484,700, so that the public debt proper was slightly more than £69 per head. The year 1897-8 closed with the small surplus of £20,724 at the Treasury, and revenue was steadily improving. In June, 1899, Mr. Philp had the largest surplus realised for seventeen years, nearly £150,000, but then an era of drought began. Still revenue continued to advance until the establishment of federation in 1901, when financial trouble was accentuated. The year 1899-1900 had shown a small surplus of £47,789, to be followed by three successive deficits aggregating £1,151,469. Mr. Philp, an old colonist, an experienced business man, and with a full knowledge of its varied resources, had unbounded confidence in the future of the State. Soon after he became Premier at the close of 1899, he essayed a bold public works policy, and during his first three years of office he induced Parliament to sanction the borrowing of nearly 7½ millions sterling. But he did not issue the whole of the last 2¼ millions. Owing principally to the South African war, colonial stocks were not high in favour in 1900, and the Queensland Government, acting on the best advice, decided to call for tenders for the £1,400,000 of 3 per cent. stock placed on the English money market in July of that year. The loan only realised £91 5s. 1½d. per cent., about the same price that was obtained by New South Wales and West Australia in the same year. Of the balance of the loan, £900,000 was taken up in Queensland by the trustees of the Government Savings Bank at £97 per cent., and £46,600, sold locally and bearing 3½ per cent. interest, realised £99 10s. 8¼d. net, the local market not being affected by the adverse influences and the choice of investments which operated in London. In October, 1901, for £1,374,213offered in London at 3 per cent., the extremely low price of £88 12s. 4d. was obtained; and in 1903, when the then Treasurer (Mr. T. B. Cribb) again sought to enter the London market with 3½ per cent. stock, he could only place £750,000 worth at the low rate of £92 19s. 11¾d. Times had indeed changed, and for the moment the State was practically excluded from the London money market. The balance of the loan has been, and is being, issued in Queensland, about £456,000 being still unsold.

The year 1899-1900, from the revenue standpoint, was the record year of the century. Wool brought extremely high prices in London, and loan expenditure had been maintained during the previous two years at an average of a little over £1,000,000 per annum. For the next year, one-half of which was subsequent to the proclamation of the Commonwealth, revenue showed a decline of nearly half a million sterling, although loan outlay had been increased rather than lessened. Two reasons could be assigned for this shrinkage—a bad season in the West, and the dislocation of accounts resulting from federation. Still, in 1899-1900, the expenditure from revenue was fully maintained, with the result that on 30th June, 1901, the deficit exceeded half a million.

In the next year, 1901-2, there was a further decline of about half a million in revenue, arising (1) from one-fourth of the State's Customs revenue and the whole of its postal revenue being retained by the Commonwealth, and (2) from the sparse rainfall and the heavy drop in London wool prices. Thus, although the apparent expenditure showed a decline of about £650,000 due to the cost of the transferred departments being defrayed by the Commonwealth, the financial year ended with a deficit of £431,940. The year 1902 was the most disastrous with respect to rainfall that Australia ever experienced, and the drought struck Queensland with cruel intensity. The revenue of 1902-3 was maintained at nearly the level of the previous year, good rains having fallen early in 1903, while the expenditure was cut down by about a quarter of a million; yet there was a further deficit of £191,341, despite the fact that an income tax had been imposed and a Public Service Special Retrenchment Act passed which resulted in a saving of £87,000.

The Philp regime practically ended with an accumulated deficit, as above mentioned, of £1,151,469; for, about two months after the close of the financial year 1902-3, the Ministry were compelled by a schism in their party to resign office. They had been long popularly stigmatised as the "Continuous Government." The work of the coalition of 1890 having been accomplished, Ministers had exhausted their popularity; yet theprobability is that but for the financial debacle the end would not have come quite so soon. The drought having by this time broken, a return of prosperity was naturally expected; but on the one hand Ministers had made enemies by severe retrenchment, and on the other hand they were blamed for having failed to balance their budget.

When Parliament met on 21st July, 1903, Mr. Philp appeared still to command a working majority—though somewhat diminished by the general election of 1902-3 compared with that which had followed him for three years previously. But on the 8th of September the Treasurer, Mr. T. B. Cribb, carried his taxation resolutions in Committee of Ways and Means, after an acrimonious debate, by a majority of only two votes in a House of sixty-five, several prominent Government supporters voting with the Noes. Mr. Philp then moved the adjournment of the House, and next day announced the resignation of his Ministry.

MAROOCHY RIVER AND NINDERRY MOUNTAIN, NORTH COAST RAILWAYMAROOCHY RIVER AND NINDERRY MOUNTAIN, NORTH COAST RAILWAY

MAROOCHY RIVER AND NINDERRY MOUNTAIN, NORTH COAST RAILWAY

The Morgan-Kidston Ministry.—Economy in Revenue Expenditure.—Great Reduction in Loan Outlay.—Equilibrium Established at the Treasury.—Retrenchment and Taxation.—Improvement of Finances.—A Record Surplus for Queensland.—Land Sales Proceeds Act.—Abstention from Borrowing.—First Loan Floated since 1903.—Sound Position of Queensland.—Value of State Securities.—Reproductiveness of Railways Built out of Loan Money.—Public Estate Improvement Fund.—How Recourse to Money Market has been Avoided.

On the 15th September, 1903, the Speaker's resignation was announced, and on the 17th Mr. (now Sir) Arthur Morgan announced the formation of a new Ministry with himself as Premier, his colleagues including the leader, (the late Mr. W. H. Browne) and another prominent member of the Labour party (Mr. W. Kidston). The new Ministry came in expressly to restore the financial equilibrium, the Treasurer being Mr. Kidston. Retrenchment became the order of the day, although the Estimates of the late Government were adopted, having regard to the fact that the first quarter of the financial year had practically expired. The pruning-knife was applied with vigour, and loan expenditure rapidly lessened, although existing railway contracts had of course to be completed.

On 30th June following, revenue showed an increase of £69,000, while expenditure had been reduced by £110,000, the financial year ending with a deficit of only £12,424. Loan expenditure had been brought down to £603,805, a reduction of no less than £418,600 compared with the previous year. In the middle of the session of 1904 the Premier advised a dissolution, which was granted; and after the general election the Ministry returned in such strength as to warrant Parliament in treating their policy, especially the financial part of it, as practically a mandate from the constituencies.

In 1904-5 the revenue being within £41 of the amount of the preceding year, while the expenditure was about £26,000 less, a surplus, the first for five years, was recorded for the nominal sum of £13,995. Seeing that loan expenditure had been reduced to less than a quarter of a million, thatgeneral retrenchment had been carried out, and that a recovery of trade and industry was not yet clearly apparent, the result must be deemed highly satisfactory; also, the Treasurer refused, after his first year of office, to continue the practice of charging to loan fund the amount spent by the Commonwealth Government on new works and buildings. The amount was not large, but even the £20,000 to £30,000 per annum so expended would, if transferred to loan, have improved the appearance of the State revenue account.

In 1904 the obnoxious but necessary Special Retrenchment Act was re-enacted for the nine months of the financial year still remaining, the rate of deduction being diminished by one-half, while provision was made that any surplus revenue for the financial year should be paid to the public servants. The year closed with a surplus of £13,995, which was at once distributedpro rataamong the retrenched officers. The continuation of the Act was not popular among public servants, but it was deemed necessary in the interests of the wider community; and, as the net result was that a public officer only lost 7s. 6d. for every £1 deducted from his salary during the two previous years, it can hardly be considered unfair, having regard to the losses sustained by the general public during the same period. Another unpopular measure was the Income Tax Amending Act, which exempted from taxation incomes of £100 and under, but in regard to the larger incomes somewhat increased the taxation then levied. In 1906 a further Income Tax Amending Act was passed, adding to the taxation in some cases, but raising the exemption to £160 and granting an exemption of £120 on incomes between £160 and £200. In 1907 another amendment of the Act increased the exemption to £200 on all incomes, and reduced certain imposts, which had the effect of relinquishing revenue to the extent of £40,000 to £50,000 for the year. But times had then improved, and the Treasurer could afford this grateful relief to the poorer classes of the community.

Early in 1906, owing to the death of Sir Hugh Nelson, Mr. Morgan retired from the Ministry, Mr. Kidston becoming Chief Secretary in his stead, while still retaining the Treasurership. Mr. Morgan then accepted the Presidency of the Legislative Council. In the year 1905-6 the revenue had become buoyant, the increase for the year being £258,124. The expenditure had also increased by over one-half that amount, the year closing with the surplus of £127,811. Loan outlay also showed an increase, totalling nearly £300,000. In 1906-7 there was a revenue jump of £454,389, with an increase in expenditure of £186,085, the record Queensland surplusof £396,115 being realised.aFor 1907-8 the revenue increase was £180,486, while the expenditure increase was £461,299, and the surplus only £115,302. Loan outlay also advanced to £1,033,676. Including the Commonwealth collections the total revenue for 1907-8 approached 5½ millions, or nearly 1 million in excess of the most fruitful year before federation.

In November, 1906, a brief but important Act was passed providing that all moneys received in payment for auction sales of town, suburban, and country lands, or of such lands if subsequently purchased by selection, should hereafter be paid into the Loan Fund Account. But proceeds of the land sold under the Special Sales of Land Act of 1901 were not included, those moneys having been already appropriated to the repayment of sums borrowed upon certain Treasury bills issued in aid of revenue in former years. It is the policy of the Kidston Government, however, not to alienate lands under the Special Sales Act; therefore the deficits of former years which had been liquidated with the proceeds of Treasury bills, and practically formed a floating debt, are being gradually compensated for by the transfer of annual surpluses to the Public Debt Reduction Fund, the total amount of stock thus cancelled having on 30th June, 1908, reached the respectable amount of £942,641 since the inception of the fund.

One of the wise determinations of Mr. Kidston as Treasurer was to keep off the London money market for several years at least after the rebuff received by his predecessor in 1903. Consequently he abstained from making any attempt to float a loan till March, 1909, when £2,000,000 worth of 3½ per cent. stock was disposed of. The net proceeds were equal to £94 9s. 6½d. per cent., a price about equivalent to that obtained by New South Wales a little earlier in the year. This, although dearer money than was obtained by issues of Queensland stock in the closing decade of the last century, compares not unfavourably with the prices obtained earlier in the financial year for other gilt-edged securities on the London market.

The net average rate of interest payable on the public debt of Queensland on 30th June, 1908, was £3 14s. 1d. per cent., but this rather high rate arose from the fact that more than a moiety of the total debt was incurred many years ago, when all Australian stocks bore 4 per cent. interest. The lowest average rate now paid by any Australian State is £3 8s. 9d. by Western Australia, most of whose stock was issued during the closing decade of the 19th century, and bears from 3¼ to 3½ per cent.

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