AUSTRALIAN INDEBTEDNESS

Evening Star, Issue 10808, 17 December 1898, Page 1 (Supplement)

AUSTRALIAN INDEBTEDNESS

COMFORT FOR THE HOME INVESTOR.

[From Otr Special Cobresi-onuest.]

LONDON, November 4

Mr H. F. Billinghurst, F.S.S., vice-presi-dent of the Institute of Bankers, and a financier whose word carries the highest weight in the City, read a very interesting and instructive paper on the 'lndebtedness of the Australasian Colonies' to his colleagues of the banking world on Tuesday evening last. Nearly ten years ago Mr Billinghurst contributed a paper at an Institute meeting on a similar topic, which at the time met with considerable attention both in London and in the colonies.

In returning to the subject Mr Billing- ! hurst gave a short resume of the present position and prospects of certain colonial loans raised in the English market by the | Australasian group of colonies, noting the changes that nave taken place therein during the decade. He did not deal with the colonies separately, but treated them collectively and upon general principles. He opened "by showing the aggregate amount of the public debt of the Australasian colonies on the otst December, 1878, 1888, and 1896, the respective amounts being £65,800,000, £166,700,000, £223,900,000. Of this amount New South Wales is responsible for no less than 54i millions, Victoria for over 43 millions, Queensland for 32 millions, South Australia for 22 millions, New Zealand for 37£ millions, West Australia for over 8 millions, and Tasmania for 7£ millions. The indebtedness per head of population in 1898 of tho colonies Mr Billinghurst reckons at £52, and, taking the proportion of actual taxpayers as about one in four of the colonial community, he reckons that there is a burden of £7 7s per annum on each taxpayer to provide for the external miblic debt alone. To the argument that the interest on the public debt is largely provided for by the revenue from public works upon which the borrowings have been expended, he urges that that revenue amounts to onlv about 50 per cent, of the interest reouirecl, and that tho taxpayer has quite as nvneh to provide for this 50 per cent, by payment of railway fares, etc., as for the remaining 50 per cent, paid by taxee, direct or indirect. And hence, he says, the # serious aspect of colonial loans increasing in a greater proportion than tho population. He pointed out that the increase of pnpnlition during the last ten years has been u:.:.atisfaetory, and considers that it is not at all probable that, as the Government Statist of Victoria calculated, the total population of the colonies will amount in 1908 to over 5-J millions. In connection with this subject he says: " The colonists do not yet realise that the future prosperity of the great continent of the south and the adjacent islands depends so materially on the continued introduction of colonists of the right sort, who would take part in the development of the great natural resources of tho country, and be continually adding to the wealth of the community. No efforts should be spared by the colonists, by primary assistance or otherwise, to induce the advent of such immigrants." Concerning the change that has taken place in the rates of interest in favor of the colonies, Mr Billinghurst pointed out that within four or five years nearly the whole of the debenture stock bearing interest at from 6 to 4| per cent, will hava disappeared, leaving only loans at from 4 to 3 per cent, to be provided for. It is utterly impossible for anyono to forecast the financial aspects of the future, but he regards the surmise that the rates at whic'i the colonies can expect to borrow has now reached its minimum as quite reasonable. Mr Billinghurst proceeded to urge upen the colonies the inadvisability of issuing loans repayable at fixed dates. He said that the earlier loans placed on this market were all for moderate amounts, and repayable at fixed dates. These loans have been maturing from time to time, and by reason of the moderation of the amounts, and the more or less favorable time of their maturity, thev have all been met without appreciable difficulty, in most cases out of the proceeds of fresh loans issued at a lower rate of interest. The time, however, is approaching when later loans of considerable amount will have to be met or arranged for at a certain fixed date. These maturing loans range in amount from £1,500,000 up to £29,000,000, and it is quite conceivable that the fixed date of payment may happen at a tim« when it may be impossible either to effect repayment or to make arrangements for renewal' of liquidation by menus of floating a fresh loan for the purpose. In order to guard against this inconvenience to the colonies it has been strongly urged upon them of late years to make the maturity of their loans elastic—that is to say, that the loans should be repayable, a.s heretofore, at a fixed date, hut that the colonies should have the right, on giving due notice, to repay at an earlier date, such earlier date to be within the range of ten or twenty -ears previous to the fixed due date, giving them, by this means, the opportunity of making arrangements for renewal or reduction of interest when the market appeared favorable for the operation, and not leaving the matter to be settled at a fixed future date, which might be highly inconvenient. It is satisfactory to note that during the decade under consideration this suggestion has been generally adopted, the colonies of New South Wales and New Zealand, however, still adhering to the fixed date for redemption. The time has, he considers, arrived for the colonies to consider whether it would not be desirable to cease altogether the issue of loans (in the shape of Stock) repayable at a fixed date. Two -of the requisites of a popular and marketable Stock are that it should be of a large am»unt, and that it should not be subject to repayment or re Auction of rate of interest, at all events for a lengthened period. The colonial loans hitherto have not fully carried out either of these requisites. It has been and continues to be of great service to the colonies that loans have hitherto been made terminable, inasmuch as since tbey began to borrow on this market the rate of interest they have had to offer has, from time to time, diminished; and as the loans raised at higher rates have matured, they have been replaced at a considerable reduction in the rate. But if the assumption be correct that the minimum rate has been reached, the desirability of issuing loans repayable at a fixed date no longer exists, and it would appear to be reasonable, both for the benefit of the colonies and of the investors, that future loans should be practicably interminable, whereby the colonies would "be saved the possibly serious difficulty of repayment or rearrangement at maturity, and investors would have large and marketable Stocks not necessarily subject to repayment or reduction of interest. Although the Stocks might be practicably interminable so far as the stockholders are concerned, the colonies should preserve the right of repayment although they might never exercise the right. The colonv of South Australia has, of course, set the example in this matter, and under the provisions of an Act relating to I the Consolidation of the Public Debt passed J bv the Legislature of South Australia on tho 12th August, 1896. In connection with this matter it should be noted that the colonies would be subject to an increased composition duty, payable to the Commissioners of Inland Revenue, in case of the issue here of Stock interminable, instead of being repayable at a fixed date. Turning to the question of the establishment of sinking funds, Mr Billinghurst assumed that, when issuing their loans repayable at certain dates, the colonies had at 'least the intention of repayment, although it practically has been and probably will be quite impossible for them to carry out the letter of their agreement, and repay at the respective dates of maturity without raising fresh loans to provide funds for such repayment. The capital has, in fact, been sunk to a large extent in the construction of railways and public works, and is not reproducible at will when repayment of the loans is required. It must not be forgotten, however, that the contract with the lenders is that they shall be repaid, as stipulated Should fature Ictans be issued without any stipulation as to repayment, this contract would not exist, but the colonies should, nevertheless, take every step to ensure eventual repayment and freedom from their liabilities. This could only be effected by the establishment of efficient sinking funds, and he regards a sinking fund as an absolute necessity with an interminable Stock.

He instanced the plan pursued by the Westralian Government, by whom provision is made not only for the half-yearly payment of interest on loans at the stipulated rate, but a further sum, equal to an additional 1 per cent., is invested in the names of trustees for the sole purpose of providing for the ultimate redemption of tho loans. To the suggestion often made that the provision of 1 per cent, per annum should be simply made use of for the periodical purchase of the Stock of the particular loan and the consequent cancellation from time to time of the Stock so purchased, instead of allowing it to accumulate at compound interest in the hands of trustees, Mr Billinghurst urges that such a plan would be found practically unworkable in a moderate-sized loin with a fixed date of maturity, inasmuch as in the later life of the loan there would probably be no sellers of the Stock, and the m.mcy for purchase must either lie idle or be invested otherwise until needed for repayment. Should, however, the Stock of the future be issued on the interminable ba is, Mr Billinghurst can think of no better mode of making use of sinking funds than by investment from time to time in Stock for the purpose of cancelling them. One of the main reasons for the loans of Canada standing so well on the London market is, ho believes, the excellent system of sinking funds adopted by the Dominion Government.

Concerning the consolidation and conversion of loans, a subject which has occupied the minds of many Colonial Treasurers during the past decade, Mr Billinghurst expressed a hope that for the future the colonies will entertain the question of issuing consolidated Interminable Stocks at a fixed rate of interest, to which could be added the amount of fresh borrowings from time to time, and into which maturing loans could be converted on terms to be arranged as occasion arises. It would be further desirable that, for the convenience of investors, as well r>ossibly for the convenience of the colonies in respect to the provision of interest, that each colony should have two such Consolidated Stocks —one with interest payable, say, in January and July; and the other in April and October, or such other months as might be suitable.

The lecturer next drew attention to what he deems oue of tho most satisfactory features of Australasian indebtedness during the past decade —viz., .the marked increase in local colonial Stocks. Mr Billinghurst then discussed what he called " the weak point about Australasian indebtedness," which is that nearly the whole of the debt has been raised outside the colonies, and that their resources have to be denuded annually to tho extent of the interest that has to be remitted abroad. The interest on tho AustralHsian public debt raised in London amounts at present to about £4,000,000 annually, and the nuestion for consideration is: How such a sum is to bo periodically remitted out of the resources of the colonies. It was pointed out in 1889 that the colonies, by reason of their constant borrowing in London, wero always enabled to provide for the interest due in London out of their funds here without any necessity for remittance, but that the constant borrowing would Mioner or later cease, and that then the 'urdon of providing for these remittances would be felt. Further, that the only mode >f remittance that could be provided was by the export of produce, mineral, agricultural", or otherwise, in excess of the value required to pay for the goods imported; and, seeing that the total Australasian imports in 1888 were £65,256,000, and the exports only £57,600,000, it was a grave question as to how tho remittances were to be made. In '896, however, the imports were £61,540,000 and the exports £66,590,000, and he considers we may tints take it that the ability of the colonies to remit the interest on their public indebtedness is now well established. After a few words on the prospects of Federition, Mr Billinghurst summarised his eneral review of Australasian indebtedness, its augmentation in the past decade, its present position, and its future prospects, hus:

That the public debt of the Australasian colonies has been increased with more moderation during the past decade than during that which preceded it, but that the increase has proceeded at a greater ratio than the increase of population, and although the present imount of the. public debt is by no means excessive, it would be only prudent in the future '"or the colonies to still further moderate the axtension of their debts; and, on the other hand, to promote in every possible way the increase of population by offering such induce'nents as would attract the needful class of immigrants. That the rate of interest which it is necessary for the colonies to offer when raising their onus has, during the decade, sensibly diminished, and that tho rate now current may .•easonably be regarded as a minimum. That tho fixed dates for repayment of some if Die larger colonial loans ia coming within ueasurablo dißtanco, and that, to avoid the >oasible difficulties of arranging for repayment ir renewal of large amounts at a certain fixed date, it would be well, in tho future, for the colonies to offer Stocks practically interminable, but with the right reserved for the Governments to repay, if they thought well to do so, on or after a certain future date. That the establishment of sinking funds is uot only very desirable, but absolutely necessary, if loans, in future, are to be interminable.

That the consolidation and conversion of existing loans would be desirable, if it could be accomplished equitably for the stockholders. That tho increase of local colonial Stock, during the decade, is most advantageous to the colonists, and must bo regarded on this sido with much favor.

That the prospects of the colonies being enabled to remit their interest periodically without inconvenience hare b«on materially imoroTed durkig the decade. And, finally, that the probability of Federation opens up entirely fresh prospects in the matter of public indebtedness. Further, that one cannot fail to come to the conclusion that tl* position of the Australasian colonie* is sound, and can continue to invest confidently in their Stocks. Tho admirablo way in which, during the past deeade, they have shown that, when needed, they can restrain their undue desire to Increase their indebtedness, to practise rigid economy, and to provide for all their necessary outgoings, must be eminently satisfactory to English lenders, especially when we remenrber that they have had to encounter during the period very serious drawbacks to their prosperity—notably the financial crisis of 1893 and the continued droughts later on.-