FLOATING DEFICIT

Evening Post, Volume CXIII, Issue 10, 13 January 1932, Page 12

FLOATING DEFICIT

AUSTRALIA'S PROBLEM

STATE EXPENDITURE

,;; "Evening Post," 13th January. > ? The. menace of the floating deficit—the accumulation ■of temporary financial accommodation to meet current expenses, both- at home and in London—is causing some concern to politicians and financial experts in Australia, and the Loan Coun-cil-will probably be called upon to deal wjth the; .problem. To-day Australia's floating deficit is said to be between £jt6,ooo,q(Kran(l £50,000,000. '

• -Suggesfcious; have been made from time to time,that the floating deficit-should be funded) so that the Commonwealth and the States might get a clear start. Though the ; prospects of doing this in June last, either/in Australia- or overseas, -were considered to be only fair, if possible at all, the outlook, in Enaland particularly, is at present; viewed stijl~ leas favourably. The cbuntry from; which Australia expected aid is herself in financial' difficulties.

. -Iltecqntly:-the;Westminster. Bank .renewed ~',£5,000,000 worth of Commonwealth Treasury bonds, and the other day it was announced'that £250,000 had been paid offi This, amount was described as a ' fdrop in. ?the! ocean," and it was stated tljat .it-,*was. a clear, indication that Australia could not pay off the burden at the moment,- -arid- a reason why the accomTnodation, has been renewed. There is a tdkr in' certain that if a substan-tal'-'amount" is not soon redeemed, either by: being- funded- or- paid off,. the rate of interest ;may' be increased to" meet the situation,'";'>/"-^. -..0.-."''-■ "- •'■'--■ . .

;FbF'three years thia floating deficit has been, accumulating (states.a.. writer, in. the Melhourini "Age"). , It had' its "genesis iri-.a long eatablishetl British Treasury custom; which has been slavishly followed here,' of .raising : temporary, financial v assistance byi overdrafts, the issue of Treasury bills', and, short-term debentures to reteet the lag in revenue in the first half ofijhe financial year. ■ For example,, this money; is. borrowed against income tax to be. collected .in- the second half of the year;' against .paymenta ..by., debtors,to States, and all other sources of revenue. Victoria ■;'; affords' a ' Btrikujg" example •".. of whafc-has';been.:going' on. \; On SOth June las,t f 9,856,000 was owing.;for temporary accommodation, of which £6,804,000 was due: in-'London. To-day ■ it is nearly ■£13,pOO;000.': On 30th: , November the amount.. : was , £12".411,000, of which' £6,945,000 was due in London- on bank balance;--Treasury: bills, and 6hort-term debentuSßS.6' -TheiTest is due in Australia, including £5;15O,00O in Treasury bills held by; the banks.. This is the accumulation of; three years.: Prior to that time drafts were, raised in London for financing the "State's? but•.;'. were- later floated into. ordinary long-term loans. The money was "iised, "for 'machinery for the railwaysi Electricity. Commission, and other-Statem undertakings.- So' in five months . there 'has: been an.; increase. of £2,500,000 ■■-in-; this ; temporary accommodation 'in Victoria. .Some of it will te paid ofi 'y in.-the nest..;sis : months, but how iniich.?'.' The shifting'; position, 111 this Slate. is t typical' of that iv other States. They are ;alf.; "still drifting 'despite their pledged-'adherence to -the Premiers' plan. Victoria has already drifted £245,000 further, than the pledged deficit to the Pre-" miers' ..Conference in". June: Other. : States are no better oil: some are worse.

T l-The jvhole ;■ basis of the Premiers' plan was that Budget equilibrium "should be"c's: tablishcd 'in-three or five years.- The reduced deficits of the present financial'year ■were to have'been-the. first step. Next year another step , toward the goal was promised.. On being gHen that undertaking the, financial inafitutions; agreed :to financially,, carry--.the Commonwealth and tHe States.;;J-'lt:isithe' ileparture'by the States- .from£tK.is%agreenient. that -is causing anxiety to iuianciers. A financial expert "ivhft—was—present—at-the- Premiers' Conferences .who: analysed Budgets and their shortcomings, declared. thatthe fiuaucjal situation was still: serious. , He said that- the. States were not yet living; within itheir ™co.me? after allowing for the Budget shortages'declared in June last. Until the States, Bhowed .a disposition to adhere, rigidly, to/the plan. he. did not think financial .institutions and investors would be ■prepared to find the money, with which_ to find tlie "shortrterm accommodation "referfeff to,-of"to find- move'to spend oil" .current," expenses that, should be met from revenue. Neither did-he believe.that the-necessary money would be willingly i'oiind for loans. The situation in Great Britain at. presen;; was.practically hopeless from a. money-raising point of view.

i T.lio"'Federalßudget, however, will be bijlhiiced in Jiine next and .this will mean t%'el : release of' about £5,000,000 of the Prethievs' plan deficit, but financiers,doubt ■\vl}ethe,r:it -will be allowed to stand against any'; excess deficits the States may pile Tip. The change-Of;Federal Government, it is believed, ■' may improve the outlook, at least.'- within Australia, where, ]on i'.aiithori'ty'stated, a'good deal of money w.as not- earning-'' much interests and which might be'made, available ■ if the States would only adhere to the Premiers' plan. The fapfi thafc the Commonwealth is feBponsible forinterest is expected to inspire some confidence,..but the sluggishness of the St-atie^ is detracting1 from this prospeot. 'An indication of how slowly-the people are' voluntarily furnishing loan money is afforded by the. ovßr-the-counter sales at the State Treasui-y. Up to the end of November only £323,000 had been received for t^e^fire. months, but the St-ate loan fund showed a', bank overdraft of £P;C02;000;; ~although" £2,879,000 was paid in redemptions.: It is regarded as certain that the loan "requirements of the States this year^will; have to. again be cut down. The .experts, referred to the view that because of the loan renewals this year it-will-be. difficult to provide as: much extra loan money ■as in the present financial- year. ; The.meeting- of the Loan Council at "the end of January will'be a. mom.entous one,f aridHhe new Prime Minister may be, -compelled to crack the whip to force States' back into line with the Premiers' plan. -. : .. .: ; - -