FOUR MILLIONS

Evening Post, Volume CXV, Issue 38, 15 February 1933, Page 12

FOUR MILLIONS

NO MORE FROM BANKS

AUSTRALIA'S LOANS

i —(From "The Post's" Representative.) '; . SYDNEY, February 9. "The extent to which the Governments bf. Australia are dependent upon the Commonwealth, Bank has again been emphasised.--, at .another ..meeting-of-the . Loan Council, just concluded. The collective Governments asked for a loan of £6,000,000 "for works, but had to be content with i£4,0Q0;000, which is barely sufficient to carry them to the end of the current financial year. For a long time it appeared as though the Commonwealth Bank .would not grant more than £2,000,000, . and the prospect of a serious deadlock on "this issue must have caused the Premiers many anxious: moments. In agreeing to a compromise the bank made it. clear, that Tbeginning with the next financial year no further moriey for loan work would be raised by. means o£ Treasury" bills. This means' that iri' the near future the Governments will have to go on the open market for any money they require, and if they are to: be successful in this direction a-great change in-public opinion is necessary.". It is generally believed that Australia, for a time at least, has done enough.borrowing, and it is not'likely that a resumption of the borrowing policy will-be encouraged. The last loan opened by the Commonwealth was. a failure/the banks being left with the major- portion of the amount required. The banks will think twice, before they agree to underwrite, another: loan. • -.' .Throughout; the negotiations the mem-:bers-of-'theTßank Board," led by. Sir Robert Gibson,'have displayed a feeling that it was highly undesirable to" continue dealing with the general financial- position in-a piecemeal manner: They, desir.d:.to"wjden, the scope of the negotiation ■ by. giving;consideration to the loan requirements?, for-, next year as well as this. lAs things were,, /the.. Governments we're led' more" and more to rely solely on assistance from the banks. It was -felt that that-method belonged essentially, to the eriiergency period, which, had passed, and that-it. was ' necessary for the Gov- - ernmerits- again to assume direct "responsibility for their, financial affairs. The Loan Council welcomed, the information that the "board would" prefer to discuss the position on such "a wide basis and gladly extended the time for negotiations. There was a shock for the Premiers on Saturday morning when the board offered to provide only £2,000,000 to -carry on the works programme to "May 1. The • Loan Council took the "view that this opposition was' hardly reasonable, because it gave'the council little "time to" frame a-general policy,- particularly as two of the States, would be holding a General TBlection within the time specified. It was following this that a compromise was reached., i In birder, to appease" the board, the Governments have undertaken to raise their.own funds for loan works required after June 30. From time to time there will be, consultations between the Loan Council.and the Commonwealth Bank as , ' to the ; time for an approach to the mar- • ket. "It-is- not. however,' contemplated that there shall be any approach for some months, and then. only when conditions appear to be favourable. The basis of the arrangement with the bank is that the "Loan Council will have first call on moneys raised toi the extent of the works prograriurie agreed to. Itit is .found; that conditions are favourable to _ the raising of further money, such additional money will be devoted to the funding of some portion of the .floating debt. It has also been .arranged that, in the event of the necessity arising for the financing of further revenue deficits during the coming financial year, these will be met by the issue of Treasury bills in accordance with the practice which has been followed during previous financial years. As the negotiations have led to a thorough underStanding between the Bank Board and the Loan Council as to next year's .finances, they are. regarded as very satisfactory, arid, of the greatest! possible value. If is clear,. nevertheless,' that the actual position will not;be clarified. until .the money market is tested following a joint appeal to 'investors from the Commonwealth and the State Governments. _ ' -. Perhaps the most satisfactory feature of •- the > last meeting of the Loan Council isr the revelation that all the Goyern-rhents-are now living witbu. tbe estimates., presented at' the beginning of the year and that the arranged deficits will not be exceeded. The whole position will be reviewed again in May next, when the Loan Council will resume; to consider the finances for the financial year 1933-34. The , new agreement implies an intention on the : part of the combined Governments to reduce the floating debt, whicK has: grown to' the huge figure. of . £86,000,0001 The growth has caused the Bank Board some concern,-and has led to an insistence- that, the amount shall be reduced as soon as possible. At the[ same time, a,comparison of the increase in the floating debt last year with the increase for the previous year furnishes the best evidence that the Governments are relying on resources of income and curbing of expenditure.' Whereas in the calendar year 1931 the floating debt in Australia increased by £80,500,000, in 1 1932 the floating debt increased by only £17,212,000, an- amount which in December was diminished to £13,247,000 by funding from the nroceeds of'the last loan.