The Australian Loan Council is a unique body. Established in 1928-9 as a part of the Financial Agreement, after the opinion had become widespread that the credit of the whole of Australia, under existing conditions, could never be much higher than that of its weakest state, the Loan Council was given full legislative and constitutional status as the body which was to handle all borrowing by Commonwealth and state governments, except borrowing for temporary purposes or by the Commonwealth for purposes of defence. Against its decisions there is no appeal because the Council is not directly responsible to any one Parliament or electorate. “If,” as Mr. Forgan Smith of Queensland has complained, “any Premier agrees [at a meeting of the Loan Council] to a line of policy from which his State Parliament dissents, all that this Parliament can do is, by means of a vote of no confidence, to remove him from office. Nevertheless the decision of the Loan Council would stand.” It is more than probable that nobody foresaw the extent to which, in the depression, the Loan Council might “be made the instrument of forcing upon the Commonwealth and the States a common policy involving the very details of their internal administration.”
Reduction of deficits. The first evidence of the powers of the Loan Council came in April, 1931, when Australia was fumbling for a proper policy to stem depression. On the initiative of the Council the so-called Copland Committee was appointed and on the basis of the report of this Committee the “Premiers' plan” was drawn up, which aimed, through a variety of measures, at a prompt balancing of budgets. These were long steps forward, but the question as to what could be done to keep governments in line still had to be answered, and here again the Loan Council had an important role. Early in 1932 New South Wales defaulted on its debt, and then approached the Loan Council for additional authority to borrow.