Australia's Debt.

Press, Volume LXVII, Issue 20251, 1 June 1931, Page 10

Australia's Debt.

Before the Premiers' Conference adjourned for the week-end, according to a Melbourne message on .Saturday, Mr Scullin said in reply to Sir James Mitchell that " of course" the proposed four per cent, conversion loan i would be voluntary; but it is as well to follow the implications of the proposal beyond this statement, as far as the available information allows. In the first place, the loan is described in another message as of £556,000,000, which means that it is intended to convert the whole of the internal debt. This is a tremendous operation, to 'which there is probably no exact parallel; but the question arises whether it is to be considered as a single operation or ps a series. If the latter, then what is intended is to deal with loans m they mature* and since in

the five years, 1931 to 1935, Commonwealth debt amounting to £131,000,000 matures in Australia and State debt amounting to £132,000,000, the progressive relief derived would be considerable. On these lines, conversion would be "voluntary" if stockholders were given the option of receiving their capital back or of re-investing at the new rate. But that the proposal takes this form is unlikely. Both the terms in Which it is referred to and the need for making as large an immediate saving as possible suggest very forcibly that what is proposed is total and immediate conversion. If so, then the "voluntary" character of the scheme consists in the issue of an invitation to stockholders to exchange into the new loan, v with'the encouraging knowledge that if they do not their interest will thereafter be taxed at the rate of 25 per cent. A few days ago another version of the plan was reported, according to which the Government would invite stockholders to convert and then, if the response was largely favourable, take power to compel the minority. The difference is superficial, because the stockholder who insists on his five per cent, and is specially taxed is no better off than one who is compelled to accept four, or agrees to. The essential feature of both devices is a direct variation of the contract yield from investment in the State's securities, a quite different thing from indirect variation, due to increase in general taxation. If the direct variation is enforced by the State upon reluctant stockholders, there can be only an abstract distinction between one method of enforcement and another, or between application to ordinary stock and to stock issued tax-free. There is, however, or may be, one difference of a more real'kind to be noted. If the State were to compel unwilling bondholders to convert into the new forty-year loan, it would be claiming, in effect, the right to appropriate private capital for • a term, and this is next door to claiming, the right to appropriate it finally. It would bo making a sort of temporary capital levy. But if the bondholder, refusing to convert and being penalised by the special tax, still retained the right to recover his capital on the original maturity date, this dangerous exti'eme, at least, would be avoided. Much depends upon the Australian bondholders, many of them workers and men and women of slender means. If the proposal is adopted, and they respond freely to the invitation, the dangers of the scheme will be minimised and may even disappear. What those dangers are it is scarcely necessary to point out, in view of the cable messages from London. But they will be greater or less, in proportion as the attitude of the Australian people brings into prominence or subdues the compulsory features of the scheme. And Australian lenders are themselves entitled-to, the fullest consideration and protection. Should their consent make-a success of a difficult and anxious proposal, it would be a -calamity if they were not safeguarded against the callousness or stupidity of politicians. Obviously, they could be robbed and ruined by an inflation of prices; and it will be interesting to see if the politicians who are so ready to be saved by the bondholders will be equally ready to guarantee them.