SEARCHING ANALYSIS

Evening Star, Issue 20571, 25 August 1930, Page 9

SEARCHING ANALYSIS

AUSTRALIA’S GRAVE PROBLEMS FINANCIAL AND ECONOMIC SIR OTTO NIEMEYER'S REPORT Preßi Association —By Telcgrtpli—Copyright. SYDNEY, August 24. Sir Otto Niomeyer’s statement to the Conference of Premiers and Treasurers, after remarking that the practical solution of the serious problem was not rendered easier by the natural optimism of the Australians, among whom the general belief prevailed that there were unlimited markets abroad for Australian goods and that something would turn up, proceeds to sketch the elements of the situation.

Sir Otto regrets that none of the States has yet passed its Budget for the current year because Australia must be treated as a whole and the reactions of interstate finance and of State and Federal finance are essential to complete the view. The fortunes of all are interdependent. Nearly all tho States havp had deficits for at least three years, resulting in accumulated deficits largely unprovided for, except by temporary methods of finance. Tho Commonwealth alone has an accumulated deficit of £6,500,000, to which must he added the accumulations of tho 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 bo balanced owing to tho seasonal nature of tax receipts.

Apart from the Budget position there is an unfunded floating debt of about £3,000)000 and internal maturing securities between now and December totalling £18,000,000 for the Commonwealth and for £24,000,000 for the States, chiefly New South Wales and Victoria, followed by some £44,000,000 for the Commonwealth and the States in the next calendar year and £72,500,000 in 1933, and £51,000,000 in 1934. The external debt is large, and is made more severe by the depreciated exchange, and it includes no less than £36,000,000 practically at call in London, of which £18,000,000 is due to the Commonwealth Bank, nearly £8,000,000 in September to one London bank, and £10,000,000 in short Treasury bills, half of which is duo in September and the balance in December. Moreover, in a few years Australia will have a heavy funded external debt maturing, starting with £13,000,000 in 1932, near the time of the £72,500,000 of internal liability. Deposits in the savings banks are beginning to drop, and drop heavily in some cases, which increases the difficulty of dealing with internal maturities. The yield from taxation, which is already at a heavy level in relation to the national income, is dropping substantially and may be expected to fall more.

After referring to the weakness of Australian credit, Sir Otto points out that tho balance of trade is strongly unfavourable, tho exports having fallen from about £140,000,00 a year to something perhaps a little over £100,000,000, which, after providing for Government requirements, would not leave more than about £60,000,000 for all the other Australian payments overseas. Tho staple exports, wool and wheat, have declined in price, tho former by 45 per cent, and tho latter by 30 per cent., since 1926. This resulted in tho depreciation of tho exchange, which was maintained only at a 6i per cent, basis by exceptional and 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 as permanent solutions. Australia is off the Budget equilibrium, off the exchange equilibrium, and is faced by considerable unfunded and maturing debts, both internal and external. 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 tho gloomy picture is that, apart from £36,000,000 of tho unfunded debt, Australia, by a great piece of luck, has nonoxtcrnal maturities in 1930-31; that means that she has a maximum period of two years in which to put her house in order. These' serious manifestations of financial malaise are tho inevitable reflection of deeper economic causes. By a series of accidents, chiefly the' liberality of lenders and accidental high prices for Australian exports, Australia so far has been able to remain aside from tho general trend of world conditions and to maintain a standard of costs which tho rest of tho world has long since found impossible. While wholesale prices, compared with 1925, have fallen slightly in Australia, about 5 points, they fell 9 to 10 in Canada, New Zealand, and South Africa, 11 in the United States, and 17 in the United Kingdom down to the end of 192.). and 23 in 1930. From tho Australian angle the English figures are perhaps tho most important as more nearly reflecting tho world market. Thus, even with some drop in Australian prices, tho gap between this country and the rest of tho world is increasing rapidly and not diminishing, aiid it docs not need much reflection to appreciate tho probable effect on the value of the Australian exports. It may be hoped, though without certainty, that wool may maintain something like tho present level, but with heavy harvests antici{>ated in Canada, Argentina, and India, and a largo carry-over in Canada and f?ho United States, it is difficult to see how wheat prices can fail to drop further. Though the Australian wheat crop may bo larger than last year’s, its effect on tho aggregate value of exports is likely to bo small.

Sir Otto proceeds: “ I think it is generally admitted that Australia’s national income has heen substantially diminished, and from that lessened total yon arc driven to take an in-

creased share in taxation, while at the same time making heavy calls for loans for conversions on diminishing current savings in a time of depression. One may put the same facts in another form. While values in tho world export market, to which you have to sell, have fallen and are falling steadily, values in Australia have fallen very little, and this fact intensifies the difficulties of achieving an even 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 tho national dividend drops the difficulties of unsheltered exports and trades can only increase. “ Australia has to adjust herself to tho world economic situation, which is more disadvantageous to her than any in the last decade. As a debtor nation Australia is interested in tho world price level, and this is everywhere falling rapidly, and it is likely to continue to fall. To this situation Australia has by no means adjusted herself, either as regards the situation of tho primary producers, or tho secondary production. Tho fall in price levels moans, apart from the increased burden of all debts, that (1) primary producers competing in world markets with Australia have a competitive advantage so long as the latter’s costs of production are not reduced; (2) Australian secondary industries must face fierce international competition, growing in intensity as the price levels fall, 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 is achieved at the cost of primary production. The primary producer can attempt to meet the situation by further depreciation in exchange. , Increasing tariffs prejudice tho primary producer, but rising exchange rates prejudice the whole fabric of national finance. Moreover, the argument so stated has assumed that the prices of Australian export 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 tho prices of those particular products in which Australia as an exporter is primarily interested, will decline more rapidly than tho general price level. Prices for finished goods in all countries are kept up by the inelastic character of tho ,wage system. While primary production docs not employ so much labour, it is more responsive to the direct pressure of supply and demand. Australia’s disadvantages are accentuated by climatic vagaries, and the combined effect of these factors has already 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 be given for the same volume of Australian purchases.”

Turning to factors affecting Australia’s economic situation from inside. Sir Ofto says: “ Australian production increased by only 1 per cent, per capita between 1911 and 1928, and this is obviously less than the rate of increase of the other countries, the products of which are 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 is also evidence that the standard of living in Australia has reached a point which is economically beyond the capacity of tho country to bear without a considerable reduction in costs, resulting in increased per capita output. At present, while the money wage of those employed is almost double that of 1911, the number of tboso who can attain that wage is so steadily decreasing, unemployment having doubled since 1924, that Australian workers as a body effectively receive little more than in 1911. Tho margin of those who have to bo carried neutralises in the total the advantages of those fully employed. This process must become more acute unless an adjustment is made which will enable a larger number to share the total national dividend. Australia must reassure tho world as to the direction in which she is going financially, and no one else can do that for her.” INTEREST IN BRITAIN FAITH IN AUSTRALIA’S FUTURE. LONDON, August 23. (Received August 25, at 8.5 a.m.) Not for years have Australian financial affairs received so much attention in the British Press as during the past week. First came ' a series 'of differing forecasts of the Melbourne Conference’s decision from various correspondents. Financial circles were relieved by the decisions, which were immediately published with the full official report, of which adequate summaries appeared in the entire Press, the City, generally, having taken time to digest tile report, has favourably received tho decisions as evidence of a nation-wide common policy. The appointment of a. committee of representatives of tho States, as well as of the Commonwealth, to carry out the decisions is welcomed as proof that the problems arc going to bo tackled earnestly and effectively, leading to a steady if gradual movement towards equilibrium. In the meantime, despite some wild alarmist Press cables from Australia, responsible quarters never doubted that tho recently consummated exchange pool ensures absolutely due provision for debt services. Sir Otto Niomeyer’s approval of tho Melbourne resolutions has naturally given added value to this, and leading authorities are convinced that if the people will only accept tho inevitable sacrifices Entailed by the necessity for reducing the costs of production' there will bo surer confidence here in the Australian situation than there has been for some time past.