CREDIT FINANCE

Gisborne Herald, Volume LXVII, Issue 20414, 26 November 1940, Page 12

CREDIT FINANCE

AUSTRALIAN VIEW POLICY NOT SOUND FEAR OF RISING PRICES CANBERRA, Nov. 21. “This is not a time when we can look with safety to any considerable further expansion of credit,” said the Federal Treasurer, Mr. A. W. Fadden, in his Budget speech to-day. Such expansion, he said, would lead to a serious and continuing rise of prices. Australia could not rely upon a method of that kind to finance her war effort. At the same time, any opportunities for the safe expansion of credit would be eagerly seized by the Government. Continuing, Mr. Fadden said: — ‘Money is now plentiful. Employment lias so increased that there is little of our normal labour force unemployed, and what is still unemployed cannot be easily or quickly brought into productive activity. Prices are rising steadily although slowly. Civil consumption, except in a few directions, has not fallen below peace-time levels, but has rather increased. Forthcoming Expansion “Further we are already committed ,o a considerable expansion of credit n Uie near future. Some of last year’s credit expansion has- been dammed up in rising Treasury' balances. This year those balances will oe spent and will have their full effect -in incomes and the liquid assets ol die banks. A substantial part of thcidvance by the Commonwealth Bank .or last year's wheat crop is still outdandiug. The financing of tire new jrop by the Commonwealth Bank will involve a further expansion of credit, .m'.il the crop can be marketed. Similar, ;f smaller, expansions are certain o be involved in marketing other primery products. “Expenditure in Australia by the fovernment on war, or anything else, nust come in some way from the ockcts of the people. It may come ry loans, where a man willingly gives tp spending power in tire present in return tor spending power in the ulure. It may come by a system of axation designed to take from each nan according to his ability to pay. It nay come by expansion of credit, vhereby spending power is taken rom the community by rising prices. Vhcn business is slipping back and rices art tending to fall, expansion ■f credit may only help to keep prices ■table.

Concealed Taxation “At other times, expansion of credit iS a concealed tax or so much in the shilling on every shilling in the community—a flat rate tax, irrespective of income, which is unquestionably' not an equitable form of taxation. It makes no attempt to apportion the burden according to ability to pay. indeed, it bears most heavily on those with fixed incomes or wages and salaries which lag behind the rising cost of living. Above all, it depreciates the value of small savings—in insurance' policies, savings bank deposits, and the like. The Government’s financial policy is liberal, but it stops short at reckless measures which would have such inequitable results and could only end in financial and economic collapse. “My conclusion is that we must not rely on expansion of credit for our vvar finance. This is not to state positively that we shall not get assistance from it, but only that we must not count on it in advance. It is certain that we do not want more expansion than is now going on, and is inevitable in the immediate future. But the effects on our economy of all kinds of wartime control, including the impending taxation, cannot be predicted with certainty. Preserving Money Value “I am therefore budgeting only for defence expenditure which is inevitb!e, and am not making provision for additional war commitments which nay well have to be..met. “The Government adheres to its resolution to preserve the value of money and to resist any inflationary rise of prices. If the position is threatened by any such temporary help from the Central Bank, the Government will not be slow to take the necessary corrective action through taxation" or other appropriate measures.” Mr. Fadden said that war expendiare this financial year would bo £143,000.000 in Australia and a further £43,000,000 overseas —a total of £186,000,000. The war expenditure would be financed as follows:—With additional taxation it is expected to receive from the proposals just submitted, the Budget will contribute £65,220.000; certain balances in trust account are available .amounting to £3,549,000: the balance to be met from loan, including borrowings to meet overseas expenditure. and cash balances of £24.500.000 on hand at July 1, 1940, will be £117,231,000.