DEBTS TO PAY

Hawera Star, Volume L, 25 August 1930, Page 5

DEBTS TO PAY

AUSTRALIA’S DILEMMA ADVERSE TRADE BALANCE PRODUCTION AND COSTS DRASTIC REVISION NECESSARY. United Association—By KK-tni’ 'i«*.i«3irife a ‘L SYDNEY, Aug. 24. The statement by Sir Otto Niemeyer, Bank of England representative, to the Premiers’ conference on finance on Friday, reviewed the difficulties of the serious situation and showed some of the errors the country was making. Sir Otto surveyed the country’s enormous indebtedness and the unfavourable balance of trade and made it clear that production must be increased and the standard of costs revised.

After remarking a practical solution of the serious problem was not rendered easier by tlhe natural optimism of Australians, among whom a general belief prevailed that there was an unlimited market abroad for Australian goods and that something would turn up, Sir Otto proceeded to sketch the elements of the situation. He regretted none of the States had yet passed a Budget for the current year because Australia must he treated as a whole and the reactions of interstate finance and of State and Federal finance were essential to complete the view. The fortunes of all were inter-dependent. A characteristic of the Budget position was that the Comomnwealth and nearlv all the States had deficits largely unprovided for except by temporary methods of finance. The Commonwealth Budget on the estimates presented was narrowly balanced, but it was clear that several States must face a substantial Budget problem even if the Budgets this year prove balanced. Owing to the seasonal nature of tax receiots there would be ways and means deficits in several during the early months. LARGE UNFUNDED DEBTS.

.Apart ii'orn ttie Budget position there was an unfunded floating debt or about £3,000,000 and internal securities maturing between now and Pecemoer totalling £18,000,000 for the Common wealth and £24,000,000 for the States, chiefly New South Wales and Victoria, followed by £44,000,000 for the Commonwealth and States in the next calendar year, £72,500,000 in 1933 and £51,000,000 in 1934. The external debt was large, Sir Otto continued, and was made more severe by tiie depreciated exchange. It included no less than £36,000,000 practically at call in London, of which £18,000,000 was due to the Commonwealth Bank. nearly £8,000,000 in September to one London bank, and £10,000,000 in short Treasury bills, half due in September and the balance in December. Moreover, in a few years Australia would have maturing a heavy funded external debt, starting with' £13,000,000 in 1932 near the time of the £72,500,000 internal liability. Dejwsits at savings banks were beginning to drop, the drop heavily in some cases, which increased the difficulty of dealing with internal maturities, Sir Otto said. The yield from taxation, already at a heavy level in relation to national income, was dropping substantially and might be expected to fall more. After referring to the weakness of Australian credit Sir Otto pointed out that the balance of trade was strongly unfavourable, having fallen from about £140,000,000 a year to something perl taps a little over £100,000,000, which after providing for Government requirements would not leave more than about £60,000,000 for all other Australian payments. The overseas staple exports, wool and wheat, had declined in price, the former by 45 per cent and the latter by 30 per cent since 1926. This had resulted in depreciation of exchange, which could he maintained at a six and a-half per cent basis only by exceptionally drastic tariff increases, prohibition and a most rigid rationing of exchange by the banks. These were temporary expedients which had heen tried elsewhere and were not able to he regarded as permanent solutions. SERIOUS MANIFESTATIONS.

Australia was off the Budget equilibrium, off tile exchange equilibrium, and faced with considerable unfunded ami maturing debts, both internal and external Jn addition there was a very large programme of loan works for which no financial provision had been made. The only alleviation of the gloomy picture was that apart from £36,Ctk),U)O of unfunded debt Australia, by a great piece of luck, had no external maturities in 1930-31. In effect that meant Australia had a maximum period of two years in which to put its house in order. These serious manifestations of financial malaise were inevitable reflections of a deeper economic depression caused by a series of accidents, chiefly the liberality of lenders and the high prices of Australian exports. Australia so far had been able to remain aside from the general trend of world conditions and to maintain a standard of costs which the rest of the world had long since found impossible. While wholesale prices compared with 1925 had fallen slightly in Australia, by about live points, they fell nine to ten in Canada, New Zealand and South Africa, eleven in the United Kingdom, seventeen in the United States down to the end of 1929 and twenty-three in J 93!) from ihe Aust nil inn. The English figures were perhaps the most important, more nearly reflecting the world market. Thus I even with some drop in Australian prices the gap between this country and ihe rest, of the world was increasing rapidly and not diminishing. “It does not need much reflection,” said Sir Otto, “to appreciate the probable effect on the value of Australian exports. ft may be hoped, though without certainty, that wool may maintain something like the present level, hut with heavy harvests anticipated in ’Canada, Argentina and India, and i large carry-overs in Canada and the United States, it is difficult to see how wheat prices can fail to drop further. Though the Australian wheat crop may be larger than last year’s, its effect on the aggregate value of exports is I likely to he small. j “I think it is generally admitted that Australia’s national income has ! substantially diminished yet further,” ! Otto proceeded, “and from that I lessened total you are driven to take | an increased share in taxation, while | at the same time making heavy calls for loans and conversions on diminish-

ilia current savings in a time of depression.

“One may put the same facts in another form: While values in the 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 itself intensifies the difficulties of achieving an even trade balance, to say nothing of the trade surpluses 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 the national dividend drops, the difficulties of the unsheltered exports and trades can only increase.

“Australia has to adjust itself to a world economic situation more disadvantageous to Australia than any in the past decade. As a debtor nation Australia is interested in the world price level, and this everywhere is falling rapidly. It is likely to continue falling. To this situation Australia has by no means adjusted itself as regards either the situation of the primary producers or secondary production. “The fail in price levels means, apart from the increased burden of all debts, that (1) primary producers competing in the world markets with Australia have a competitive advantage so long as the latter’s costs of production are not reduced, and (2) Australian secondary industries must face fierce international competition, growing: in intensity as the price level falls unless the Australian secondary industries in turn are 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 rates, prejudicing the whole fabric of national finance. “Moreover, tne argument so stated has assumed that 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 the prices of those particular products in which Australia as exporter is primarily interested will decline more rapidly than the general. price level. “Prices for finished goods in all countries are kept up by the inelastic character of the wage system. While primary production, not employing much labour, is more responsive to direct pressure of supply and demand, Australia’s disadvantages are accentuated by climatic vagaries, 'l’lie combined effect of these factors already has been to alter the position of Australia. BARGAINING AGAINST WORLD.

“Australia is bargaining to sell its own production against that of the rest of ibe world. A larger quantity of Australian goods must now be given for the same volume of Australian purchases.”

Turning to the factors affecting Australia's economic situation from the inside. Sir Otto Niemeyer said Australian production had increased by only one per cent, per capita between If)11 and 1928. This obviously was less than the rate of increase in other countries’ products competing with Australia in Australia. Between 192425 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. In the United States factory employment fell A per cent., but output rose 15 per cent. In the United Kingdom the industrial population was 5 per cent, greater and the production 7 per cent. more. There was also evidence that the standard of living in Australia had readied a point which economically was beyond the capacity of the country to bear without considerable reduction of costs resulting in increased per capita output. At present, while the money wage of those employed was almost double that of 1911, the number of those who could attain that wage was steadily decreasing, unemployment having doubled since 1924. Australian workers as a body received little more than in 1911, and the margin of those who had been carried neutralised in the total the advantages of those fully emploved. This process must become acute unless adjustment was made enabling a larger number to share the total national dividend. •“The Australians must assure the world as to the direction in which they are going financially,” Sir Otto stated, “and no one else can do that lor them.”