HARD FACTS

Evening Post, Volume CX, Issue 48, 25 August 1930, Page 9

HARD FACTS

AUSTRALIA'S PROBLEM

THE NIEMEYEE SUBVEY

SELF-HELP THE SOLUTION

United Press Association—By Electric Tele-

graph—Copyright.

SYDNEY, 24th August.

Sir Otto Niemeyer, in. his statement to the conference of Australian Premiers and Treasurers, after remarking that a practical solution of the serious problem is not rendered easier by the natural optimism of Australians, among whom the general belief prevails that there is an unlimited market abroad for Australian goods and that something will turn up, proceeds to sketch the elements of the situation.

Sir Otto regrets that none of the States yet has passed its Budget for the current year, because Australia must be treated as a whole, and the reactions of inter-State finance and of State and Federal finance are essential to a complete view. The fortunes of all are interdependent.

Characteristics of the Budget position are that the Commonwealth- and nearly all the States have had deficits for at least three years, resulting in accumulated deficits largely unprovided for, except by temporary methods of finance. The Commonwealth alone has an accumulated deficit of six and a half millions, to which must be added the accumulations of the States. The Commonwealth Budget on the Estimates presented is narrowly balanced, but it is clear that several States must face a substantial Budget problem. Even if the Budgets this year prove to be balanced, owing to the seasonal nature of the tax receipts, there will be ways and moans deficits in several during early months. MOUNTING DEBTS. Apart from the Budget position, there is an unfunded floating debt of about I three millions, also internal maturing securities between now and December, totalling eighteen millions for the Commonwealth, and some twenty-four millions for the States, chiefly New South WaScs and Victoria, followed by some forty-four millions for the Commonwealth and States in the next calendar year, seventy-two and a half millions in 1933, and fifty-one millions in 1934. The external debt is large, and made more severe by the depreciated exchange, and includes no less than thirtysix millions practically at call in London, of which eighteen millions are due to the Commonwealth Bank, nearly eight millions in September to one London bank, and ten millions short Treasury bills, half duo in September and the balauco in December. Moreover, in a few years Australia will have a heavy funded external debt maturing, starting with thirteen millions in 1932 —near the time of the seventy-two and a half millions internal liability. Deposits in the Savings Banks are beginning to drop, and to drop heavily in some cases, which increases the difficulty. Dealing with internal maturities, Sir Otto says the yield from taxation, already at a heavy level in relation to national income, is dropping substantially, and may be expected to fall more. DECLINE IN PRICES. After referring to the weakness of Australian credit, Sir Otto Niemeyer points out that the balance of trade is strongly unfavourable, having fallen from about one hundred and forty millions a yoar to something perhaps a little over a hundred millions, which, after providing for o Government requirements, would no"t leave more than about sixty millions for all other Australian payments overseas. The staple exports, wool and wheat, have declined in price, the former by 45 and the latter by 30 per cent., since 1926. This has resulted in the depreciation of exchange, which was maintained at a 6} per cent, basis only by exceptional drastic tariff increases, prohibitions, and the most rigid rationing of exchange by the banks. These are temporary expedients which have been tried elsewhere, and are not able to be regarded as permanent solutions. Australia is off Budget equilibrium, off exchange equilibrium, and faced by considerable unfunded and maturing debts, both internal and external, said Sir Otto. In addition, she has on her hands a very large programme of loan works for which no financial provision has been made. The only alleviation of the gloomy picture is that apart from the thirty-six millions of unfunded debt Australia, by a great piece of luck, has no external maturities in 1930-31. That means in effect that she has a maximum period of two years in which to put her house in ordor. DEEPER ECONOMIC CAUSES. These serious manifestations of financial malaise are the inevitable reflection of deeper •economic causes by a series of accidents, chiefly the liberality of lenders, and accidental high prices of Australian exports. Australia so far has been able to remain aside from the general trend of world conditions and to maintain a standard of costs which the rest of the world long since found impossible. While wholesale prices compared with 1925 have fallen slightly in Australia, about five points, they foil nine to ten points in Canada, New Zealand, and South Africa, eleven in the United States, seventeen in th& United Kingdom down to the end of 1929, and twenty-three in 1930. From the Australian angle the English figures are perhaps most important, more' nearly reflecting the world market. Thus even with some drop in Australian prices, the gap between . this country and the rest of the world is increasing rapidly and not diminishing. It does not need much reflection to appreciate the probable -effect on the valuo of Australian exports. It may be hoped, though without certainty, that wool may maintain somothing like its present level, but with heavy harvests anticipated in Canada, Argentina, and India, and the large carry-overs in Canada and the United States, it is difficult to see how wheat prices can fail to drop further. Though the Australian wheat crop may be larger than last year's, its effect on the- aggregate value of exports is likely to be small. LOWER NATIONAL INCOME. Sir Otto Niemeyer proceeds: "I think it will be generally admitted that Australia's national income has substantially diminished yet further, and from that lessened total you are driven to take an increased share in taxation, while at the same tinio making heavy calls for loans and conversions on diminishing current savings in a time of depression. Ono may put the same facts in another form. While values in the world export market to which you have to soil have fallen and are falling steadily, values in Australia have fallen vory little, and this fact itself intensifies the difficulties of achieving even a trade balance, to say nothing -of trade surpluses, which you need to meet your foreign payments. So long as the sheltered trades of Australia insist on taking so large a share of the national dividend, and even an increasingly large proportion as thp national dividend drops, the difficulties oi unsheltered exports and trades can only inorease. "Australia has to adjust henselt to

a world economic situation more disadvantageous to her than any in the last decade. As a debtor nation, Australia is interested in the world price level, and this everywhere) is falling rapidly. It is likely to continue falling. To this situation Australia has by no means adjusted herself, either as regards the situation of primary producers or secondary production. PRIMARY PRODUCER'S BURDEN. "The fall in price levels means, apart from the increased burden of all debts, that, firstly, the primary producers competing in the world markets with Australia, have a competitive advantage so long as the latter's costs of production are not reduced, and, secondly, Australian secondary industries must face fierce international competition, growing in intensity as the price level falls. Unless it in turn is able to reduce costs the secondary producer can attempt to meet this price situation by increased tariff protection, but this simply means his protection, achieved at the cost of primary production. The primary producer can attempt to meet the situation by a further depreciation, in exchange. Increasing tariffs prejudice the primary producer, but rising exchange rates prejudice the whole fabric of national finance. '•Moreover an argument so stated has assumed that the prices of Australian ex23ort products in the world markets are accurately reflected by movements in the general world price level. This is not the case, and there is considerable reason to fear that the prices of those particular products in which Australia as exporter is primarily interested will decline more rapidly than the general price level. Prices for finished goods in all countries are kept up by the inelastic character of the wage system, while primary production not employing much labour is more responsive to the direct pressure of supply and demand. Australia's disadvantages are accentuated by climatic vagaries. "The combined effect of these factors already has been to alter the position of Australia in bargaining to sell her own production against that of the rest of the .world. A larger quantity of Australian goods must now bo given for the same volume of Australian purchases." LOITER PRODUCTION. Turning to factors 'affecting Australia's economic situation from the inside Sir Otto Nicmeyer says that Australian production had increased by only 1 per cent, per capita between 1911 and 1928. This obviously was less than the rate of increase of other countries' products competing with Australia's. In Australia between 1924-25 and 1927-28 the number of workers employed rose 5 per cent., but the output was only 3 per cent, higher. In the same period United States factory employment fell 5 per cent., but the output rose 15 per cent. In the United Kingdom the industrial population was 5 per cent, greater and production 7 per cent. more. There was also evidence that the standard of living in Australia had reached a point which economically was beyond the capacity of the country to bear without considerable reduction of costs, resulting in an increased per capita output. At present, ■while the money wage of those employed is almost double that of 1911, the number of those who can attain that wage ia so steadily decreasing—unemployment having doubled since 1924—that Australian workers as a body effectively receive littlo more than in 1911. The margin of those who have to be carried neutralises in the total the advantages of those fully employed. This process must become more acute unless an adjustment is made enabling a larger mmber to share the total national dividend. Australia must reassure the world as to the direction in which she is going financially and no one else can do that for her.