Tony Smith (Casey, Liberal Party, Deputy Chairman , Coalition Policy Development Committee) Share this | Hansard source

In speaking on the Appropriation Bill (No. 3) 2011-12 and Appropriation Bill (No. 4) 2011-12, I want to take a detailed look at the economic approach of our current Treasurer. I could not help but notice last week in question time that the Treasurer expressed his admiration for one of his predecessors in that position. The Treasurer confessed to being a great fan of Edward Granville Theodore, who served in the one-term government of James Scullin. There is a reason why the tenure of Scullin as Prime Minister and Theodore as Treasurer was so brief. While Scullin might be neck and neck with former Prime Minister Gough Whitlam and the current member for Lalor in the competition for the title of Australia's worst Prime Minister, there is absolutely no doubt that Theodore was the worst Treasurer this Commonwealth has ever seen.

I thought it might benefit the House to look more closely at the details of Theodore's record. It was almost 81 years ago to the day that Theodore was down the hill in Old Parliament House scheming to adopt policies that would have inflicted economic ruin on the people of Australia. Policies that would have shattered confidence in Australia's economy and consigned the Australian people to penury, poverty and pain. At the core of those policies lay a piece of legislation entitled the Fiduciary Notes Bill 1931. The bill was crafted as an ill-conceived response to the Great Depression. It was, thankfully, defeated in the Senate. Had it passed, this stimulus-on-steroids package would have blown out Commonwealth spending by a whopping 22 per cent over the 1930-31 budget levels.

That gives rise to the question of what the result would have been if Ted Theodore's Fiduciary Notes Bill had been approved by this House and the other place and had received royal assent. The answer to that question is hyperinflation. The same sort of massive, out-of-control inflation that ravages the creditworthiness of nations and the livelihoods of individuals. But inflation was not a casual by-product of this legislation. In fact, quite the contrary, it was the core objective. As Theodore openly stated in his second reading speech, the bill was deliberately intended to: 'trigger the upward movement of prices resulting from credits made available'.

The Scullin government's mad rush to catastrophe was stopped by a brave Labor man, Joe Lyons, and a handful of other brave Labor souls who put country above party. Lyons resigned from the Scullin ministry and on 11 March 1931 voted no confidence in the Scullin government thus expelling himself from the ranks of the ALP. Lyons's decision to go into political exile was an agonising one. He explained his reasons in a policy speech he delivered during the 1931 election campaign, when he led the newly formed United Australia Party. I would like to quote from that speech. He said:

It was not easy for us to break an association which had endured for the whole of our political lives. We made that break solely because we believed that the government, by its financial drift and dangerous inflation schemes, was leading the country surely and swiftly to destruction.

As Anne Henderson explains in her magisterial biography of Lyons, it was not so much that Lyons left Labor but that Labor left Lyons.

The truly interesting thing about the Fiduciary Notes Bill is the manner of its adoption by Theodore as Treasurer in the Scullin government. At the end of 1930 Lyons was serving as acting Treasurer while Prime Minister Scullin was overseas dealing with the crisis and Ted Theodore had been forced to step down from the frontbench due to a royal commission in Queensland. Acting in that role Lyons faithfully upheld a policy of responsible government finance.

But then two things happened. In January 1931 Theodore was reinstated as the federal Treasurer and New South Wales Premier Jack Lang entered the picture of federal politics and policy. Lang was a crude left-wing populist firebrand whose claim to fame rested on the fact that he tried to repudiate New South Wales's overseas debt. In early 1931 Lang began pushing those same policies of default upon the Commonwealth. Lang's political power extended not only to his state political colleagues but to the New South Wales Labor contingent in Canberra as well. So when Lang spoke Scullin and Theodore began to wobble. While they did not do what Lang demanded, they did dramatically change course because of him. Scullin and Theodore threw Lyons under the proverbial bus and abruptly swerved Australia towards a future of debt and deficit, funny money and inflation.

The historical record makes it crystal clear that this diametric shift of policy was not motivated by high-minded ideals or a crisis of confidence. No, the historical record demonstrates that Theodore's shift from responsibility to recklessness was motivated by weak political expediency. When the minions of Lang menaced the stability of the Scullin government, Theodore cast fiscal sobriety adrift in order to neutralise that political threat.

But that is not the worst of it. In October 1931 Theodore introduced the Debt Conversion Bill No. 2, legislation that essentially constituted a raid on Commonwealth and state bond holders. Through legislative fiat, that bill would have forced bond holders to forfeit 22.5 per cent of their investments. It was an arrogant act of confiscation. Oblivious to all the objections and heedless of any dissent, Theodore intended to deploy the coercive power of the state to trample roughshod over the private property rights of Australian people. Lyons spoke out forcefully against the nature of the Debt Conversion Bill describing it as being 'of most objectionable character, the most extraordinary thing ever done by any government'. The most telling condemnation of Ted Theodore's economic policies came from within the Labor's own ranks. South Australian Labor Senator Harry Kneebone took no prisoners in his denunciation of Theodore's Debt Conversion Bill. On 4 November 1931, during the Senate debate on the bill, Kneebone said:

People are sent to gaol for things much less criminal than what this bill proposes. … In my opinion we are not justified in passing such a deceitful piece of legislation. … We are asked to commit an act of injustice which will redound to the discredit of the Parliament for many years to come.

Despite such principled opposition from some Labor people, the Debt Conversion Act was accorded royal assent on 7 December 1931. Thankfully—only twelve days later—this misconceived legislation and the misbegotten government that spawned it were swept away by the victory of Joe Lyons and the United Australia Party at a federal election. And what a victory it was. In a landslide of historic proportions, Labor was reduced from 46 seats in the then 75-member House of Representatives to a mere 14. One of Lyons's first acts as Prime Minister was to repeal the coercive provisions of the Debt Conversion Act.

The 1931 federal election was a decisive repudiation of both Theodore's economic policies and of Theodore the politician. He lost his suburban Sydney seat of Dalley. But he has not lost his place in the heart of the current Treasurer, the member for Lilley. And the member for Lilley is not the only Theodore-groupie amongst those on the Labor side. Just yesterday the member for Wakefield approvingly described Theodore as a 'stalwart of the union movement'.

The historical and economic illiteracy of some of those opposite never ceases to amaze. There is no doubt that those opposite devote much time and effort to mythmaking and rewriting history to camouflage their party's record of economic failure. But the current Treasurer's hero worship of Ted Theodore can be explained by one of only two possible options—ignorance of the facts or ignorance of economics. It is entirely possible that the current Treasurer is not educated on the topic of Ted Theodore's disastrous reign of error. Or, alternatively, the current Treasurer knows all about it and actually believes Theodore' s approach was the right way to go. Those are the only two choices. It must duly be noted that the Labor Party does have form when it comes to the glorification of economic wreckers. Case in point: the incomprehensible reverence shown towards Jack Lang by another former Labor Treasurer, Paul Keating—despite the fact that Lang was sacked as Premier over his insistence that New South Wales should default on its debt obligations.

From our vantage point eight decades on, we see the decisive verdict of history on the question of who was right—Lyons or Theodore. After his resounding victory at the polls in December 1931, Lyons had the opportunity to put his policies into practice, until his untimely death in 1939. Lyons practised fiscal restraint, and restored confidence in the Australian economy. As Anne Henderson points out, from 1929 to 1940 Australia's real GDP grew by almost 17 per cent. Compare that stellar figure to the paltry 1.6 per cent growth rate over the same period in America, where Keynesianism reigned supreme under FDR's New Deal. On the question of unemployment, in the Australia of Joe Lyons the jobless rate had dropped into the single digits by 1936. By contrast, despite hyper-spending by the Roosevelt administration, American unemployment remained in the high teens well into the 1940s.

Those figures speak volumes. But I fear they speak a language that the current Treasurer, the member for Lilley, finds unintelligible. Ted Theodore was the wrong man, in the wrong place, at the wrong time. At a critical juncture in Australia's history he failed to meet the challenge. With all the great figures who loom large in the annals of our nation, it is puzzling that the current Treasurer has chosen Ted Theodore as his icon of admiration and emulation. The member for Lilley would be well-advised to seek a more appropriate object of hero worship. In fact, I would suggest Anne Henderson's magnificent biography of Lyons might be a good place to start. He could then remember a true labour person who stood up for Australia in its hour of need.

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