AUSTRALIAN DEBTS

Nelson Evening Mail, Volume LXIV, 19 February 1931, Page 7

AUSTRALIAN DEBTS

COMMONWEALTH AND STATES The relations between the Commonwealth and the States in respect of Australian public debts was explained recently by Sir Hal Colebatch in the Sydney “Evening News.” The first paragraph in the Financial Agreement between them says:—“The Commonwealth will in respect of the debts taken over assume as between the Commonwealth and the States the liabilities of the States to the bondholders.” Hence the attitude of Mr Lang toward the Loan Council, the writer says, is due to the fact that the Commonwealth has not guaranteed the debts of the States but has taken them over. “The position is not that if Mr Lang defaults the Com--monwealth must pay. It is that the Commonwealth pays in any event, and must pay on due date. Its job then is to recover from Mr Lang. If he or any other State Premier makes default it cannot be the bondholder. It- must bo to the Commonwealth. Under the Financial Agreement each State is entitled to receive a certain annual sum out of Commonwealth revenue. In the case of New South Wales this sum is £2,917,411. Added to this is a further quarter of a million (approximately) as interest on transferred properties. The Commonwealth thus has in hand something over £3,000,000 per annum which can be applied toward meeting the interest engagements of New South Wales. But these engagements—to London and Australian bondholders—are in the neighbourhood of £12,000,000 per annum. Thus the Commonwealth has to depend on receiving from Mr Lang about £9,000,000 per annum from which to pay his interest bills. It will be seen at once that it is not a matter of Mr Lang requiring to obtain financial assistance from the Commonwealth hut of the Commonwealth needing to secure payment by Mr Lang.”

A .GENTLEMAN'S AGREEMENT SirjfHal Colebatch also says that the Financial Agreement contains a clausa under , which the States agree to indemnify the Commonwealth against all liabilities incurred on their behalf. “New South Wales, therefore, has no chance of escaping its obligations,” he says. “Wlren and how they are to be met is another matter. In the past, when each State was faced with the responsibility of honouring its own engagements, each had to arrange its affairs in order that interest might be met on due date. In other words, interest was the first charge upon its revenues. With States that honour at once the letter and spirit of the Financial Agreement this practice will continue; but there does not seem to be anything to prevent a reckless and irresponsible Government from making its interest the last charge instead of the first. . . .From two points of view the position is extremely dangerous. The removal of a definite check against extravagant and unprovided-for expenditure must, at no distant date, briim the State concerned to financial ruin. Ultimately the Commonwealth will be compelled to apply its legal remedies. In the meantime the practice of such a method by even one State must enormously increase the financial difficulties of the Commonwealth. Its adoption by others would quickly wreck the whole structure of Australian public finance. The Financial Agreement is a very ill-considered document. It can be amended only by the unanimous consent of all the parties. In its essence it is a gentleman’s agreement, and as such it is workable only among appropriate persons.” t ,