PURSE STRINGS.

Auckland Star, Volume LXVI, Issue 275, 20 November 1935, Page 9

PURSE STRINGS.

TIGHT IN AUSTRALIA. LOAN COUNCIL REBUFFED. COMMONWEALTH BANK STAND (Prom Our Own Correspondent.) SYDNEY, November 11.

j The meeting of the Loan Council in ' Melbourne this week was more than : usually interesting to the Governments ; of the various States, because of the heavy programmes of Public Works to which they are committed and the necessity for absorbing a larger proportion of the unemployed. It may be remembered that in June last a loan of £12,500,000 was floated for these purposes as first instalment of ths larger loan already decided upon. But this issue was not so successful as its predecessors—chiefly because the terms of flotation, 3f per cent at a slight discount, were not sufficiently generous to impress the market favourably. As a consequence a considerable fraction of the issue had to be taken up by the underwriters and the Loan Council —or rather the Commonwealth Bank —wished to avoid this embarrassment for the future. Further, as the State deficits are being steadily reduced, our financial rulers are naturally anxious to see the Governments beginning to "taper off" the policy of borrowing so largely for public works, and desire a return to normal conditions. For these reasons the Premiers went to Melbourne this time with very little hope of getting all they wanted, or at least all that they meant to ask. Request for £21,000,000. The original intention of the Loan Council was to ask the Commonwealth Bank to agree to a loan of £21,000,000 to cover all requirements up to the end of next June. It must be remembered that the bank does not determine what amount shall be borrowed. But as it underwrites the loans it naturally has a voice in regard to the amount that is to be raised and the terms of flotation. Even before the Loan Council conferred

with the bank board it was a matter of general knowledge v that the bank would refuse to underwrite so large a sum, but most people were hardly prepared for what followed. The bank board notified the council that it could not agree to so heavy a loan, and that in any case it must refuse to make financial arrangements so far ahead. It therefore proposed as an alternative an issue of £7,500,000 to cover the programme for the next six months. This, with the amount raised in June, would bring up the total sum raised by loan this year for public works to £20,000,000, leaving a balance of from £6,000,000 to £10,000,000 to be raised for the completion of the programme later on.

Naturally the States—and especially the smaller States, whose needs are relatively the greatest —were dismayed by the negative attitude that tlie bank has adopted. New South Wales and South Australia, the most prosperous of them, advised the Loan Council to accept the bank board's offer. But some of the objectors—Victoria, where Mr. Dunstan cannot hope for the support of the La»bour party unless he can provide funds to extend employment, and to some extent Tasmania and Queensland — urged that a proposal for £10,000,000 should be put forward as a possible substitute. It was soon learned, however, that even this would have no chance of acceptance, and in the end the State Premiers were compelled to accept what the bank was prepared to underwrite, because they could get no more. Higher Interest Rate. This loan of £1,500,000 is to have a currency of 14 years and it will be issued at 90J at an interest rate of 3J per cent. The higher rate, as well as the smaller amount, is objectionable to the States; but it is pointed out that the comparative failure of the last loan at 3§ per cent leaves them no option. At the same time, with a view to distributing the risks, the trading banks will receive some slight concession for assisting the Commonwealth Bank to underwrite an l, the insurance companies are also to be admitted to the charmed circle. In this way it is hoped the success of the flotation will be secured.

As a matter of course the States are dissatisfied with the outcome of these negotiations. It is true that this loan will bring up the total loan cover on account of public works to £20,000,000 within the year; and there ia still a

balance —variously estimated as from £6,000,000 to £10,000,000—authorised for flotation by the close of the current financial period. But the Premiers have already committed themselves to heavy expenditure on public works account and they have not forgotten that the Bank Board has laid down the condition that a considerable proportion of the new loan must be employed to retrieve Trea-sui-y bills. This means that the States will have only about £(3,000,000 to divide between them out of the Commonwealth grant for public works during , the next six months, and they are manifestly disappointed. Press and Public Criticism. Even the "Sydney Morning Herald, , * which is all on the side of economy and against indiscriminate borrowing, haa pointed out that the public works contemplated are mostly for public services which will not compete with private enterprise, and they may become extremely valuable as financial assets even if they do not pay interest from the beginning on the capital invested. The "Telegraph," though it also condemns anything in the nature of reckless extravagance, has politely suggested that it is unfair to the Premier to imagine that when the Loan Council meets the representative of the Bank Board ,is "the one wise and provident counsellor," and that all the other members are simply spendthrifts. It urges that "the State Governments have an immediate and compelling responsibility toward their communities"—the need for finding work for the unemployed—and that inability to finance these public works on an adequate scale must affect prejudicially every section of the community.

On the last point the "Labour Daily" lias spoken with great emphasis. Under the hearting "Another Dose of Deflation" it maintains that the refusal of the Bank Board to find the mone3' for absolutely necessary public works will mean an increase of unemployment and loss of purchasing power to the whole community, throwing us back again into the trqugh_ of depression once more. "This is possibly'an of the case; but there is much to be said for the opinion held by a great many people less prejudiced and vehement than Mr. Lang, that the bank has obstructed our progress toward recovery by unduly limiting the flotation and by insisting on the use of some proportion of the loan for retiring Treasury bills.