Our First Half-Century: A Review of Queensland Progress Based Upon Official Information

by Queensland

CHAPTER II.

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 "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 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 £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 net earnings 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 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 £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.