COMING FIGHT.

Auckland Star, Volume LXIX, Issue 206, 1 September 1938, Page 26

COMING FIGHT.

AT LOAN COUNCIL. J FINANCES OF STATES. i OUTLOOK IN AUSTRALIA, (From Our Own OorrpsiKHKkMijt.) SYDNEY, August 20. There begins in Sydney to-day a meeting of all the interstate Premiers, called by the Premier of New South Wales, Mr. Stevens, to discuss the plight of the wheat farmers, in view of the terrific drop in the world market and the reported decision to abandon the imperial preference of 2/ to allow American wheat on to the London market. The States have bad to take the matter in hand because the Federal Government is still sulking over the result of the referendum, about two years a«o when its marketing proposals were defeated. The most it has done is to promise ta,citly that it will give whatever legislative sanction ig needed to any agreement reached b* the State Premiers toJielp the farmers. The Premiers, however, are now certain to go much further and to discuss the general financial position of the States in view of the forthcoming meeting of the Loan Council towards the end of September.

A few weeks ago I told how Mr. Stevens had come out boldly as a convert to the idea of increased Government expenditure on reproductive Public Works as a means of isolating Australia's economy from the shocks of world events overseas. Since then Labour's man of mystery, the Queensland Premier, Mr. Forgan Smith, has announced that he will back Mr. Stevens in his plan. Together the two Premiers represent about half of the population of Australia, and of all the States theirs are the two capable of the greatest potential development.

Need for Allies. But it by no means follows that they will have their way at the Loan Counci'l, where the voting system reminds one of the absurd arrangement which long ago helped to bring about the downfall of the Roman Republic, and in our own times to render the League of Nations largely unworkable. At the Loan Council the rule is one vote to each State, irrespective of population or economic importance. So Mr, Stevens and" Mr. Forgan Smith will need allies. One is in sight and another is doubtful. The first is the Labour Premier of Tasmania, Mr. Ogilvie, who on arriving in Sydney said plainly that the Loan Council was starving the States. "The real masters of Australia." he eaid, "are the members of the Commonwealth Bank Board. Before Loan Council meetings the Bank Board issues its ultimatum. The representatives of the State Governments might just as well stay at home." The second possible ally is the Liberal Premier of Victoria, Mr. Dunatan, but he is apparently more concerned with possible developments in the future than immediate action, for he said that what he wanted to do was to reverse the present policy, and cut down public works in good times and increase them in bad. Mr. Butler's Warning. On the other hand the South Australian Premier, Mr. Butler, has been warning New South Wales not to forget what he describes ae the disastrous results of over-epending and over-bor-rowing in pre-depreseion years. Mr.; Ogilvie and Mr. Dunstan, too, will be chary about getting offside with Canberra at present, for an extremely powerful financial group is pressing the Federal Government for a tariff on newsprint to finance a bounty for production of it in Tasmania, using partly Tasmanian hardwoods and partly imported pulp. On the whole it seems likely that the Loan Council fight, which will not be Mr. Stevens' first, will end, as it has always ended, in New South Wales getting a little more than the Commonwealth Bank Board had intended to give it, hut a lot less than it had hoped to secure. Apparently the fall in export prices has not yet taken effect on internal activity in Australia, for retail sales for June were 7.8 per eent more than in June, 1937, and manufacturing industries have attained a new peak in employment and outlook. A .list of the earnings, for the year ended Jyjrte 30, of 15 representative companies also shows a rise of 11 per cent. Included among these are Australian 8.H.P., Ccqtnmercial Bank of Sydney, Burns Phiip, and Gordon and Go"tch v -

But othfr effects are revealed by banking returns, which show a considerable rise in the proportion of 'advances to deposits, although it must be admitted that this is partly due to heavy borrowing by paetoralists for handfeeding during the long drought now happily over. According to figures supplied by Professor Hytten, economic adviser to the Bank of New South Wales, advances by 10 trading banks in the second quarter of 1038 were £7,000,000 greater than in the first quarter, but deposits decreased by £750,000. The percentage of advances to deposits increased from 86.6 to 89.15, and the percentage of cash reserves to deposits decreased from 12.37 to 10.48. What this means in effect is that the trading banke are lending up to the full limit of British banking practice, which is to keep advances and cash reserves in the proportion of about nine to one.. Central Bank's Power. i If, therefore, interim! ; «redit Ie to be extended to fight the fall In export prices, it can be done only by the Com-* monwealth Bank, which *is the central bank m Australia, in one of the usual two ways—either by buying > securities or printing more notes. A rather mysterious report, which appeared in the "Daily Telegraph," •nggwte thai Mr. Stevens' plans mag

have found some support among the (banks. The "Telegraph" quoted "a Sydney banker" a& stating that . the only remedy for the fall in export prices was a public works programme such as i the Premier appeared to have in mind.

This unidentified "banker" went on to say that this depended on the Government and the Commonwealth Bank getting together. Referring to a possible increase in the note issue the banker said, "This is a form of inflation, but is not a bad thing if it is not allowed to get out of hand. A mild form of inflation is greatly to Iμ? preferred to extensive unemployment through restriction of credit."

Unfortunately, Mr. Stevens' plan has come at rather an inopportune time. In the first place the Federal Government has to find £43.000.000 in the next three years for defence, and in the second jilace it has now become plain that the National Health Insurance scheme is going- to frive the State budget* a knork. It has been estimated that it will <wt the State Governments £300.000. and that from New South Wales as a whole the scheme will draw £.->.000,000 the first vear.