STATE IN DISGRACE.

New Zealand Herald, Volume LXVIII, Issue 20842, 8 April 1931, Page 6

STATE IN DISGRACE.

MR. LANG'S REPUDIATION. NEW,SOUTH WALES' INTEREST COMMONWEALTH'S OBLIGATIONS [FROM OCR OWN CORRESPONDENT.] SYDNEY. April 2. "Event's moved quickly -following the dramatic announcement last week that the Premier/of New South Wales, Mr. Lang, •would refuse to pay interest in London due on April 1. Although Mr. Lang-had made many, ihreats that lie would repudiate interest, the public was stunned •when they became a reality—when it was known that the State would face financial disgrace in .the eyes of the world. Even Mr.. Lang's own Ministers admitted their surprise that their leader should take the extreme step.

The Commonwealth Government was quick to realise that its honour, too, was at stakej and although Parliament and the Cabinet had gono into recess for Easter Ministers were summoned to Sydney to consider the serious situation that developed almost within a few hours. Right tip ..to.the eleventh, hour,: it seems, Mr. Scullin had faith in Mr. Lang, but he now knows that his confidence in Mr. Lang's determination to see New South Wales through its trials was misplaced. So definite was the announcement originally made by Mr. Lang that no endeavour was made to induce him to reconsider it. When the Prime Minister came to Sydney to attend the special Federal Cabinet, it was thought that he would at least seek an interview with Mr. Lang, 'bjit no discussion with him took glace. There are two features of Mr. Lang's policy-that have amazed everyone—his intention to meet the New York debt of £125,337, and his inclusion in the London repudiation of an obligation of £186,376, due through the Bank of England for interest at. the rate of only 3 per cent. The total interest bill due in London was £729,251, and it is a great blow to the Federal Government that it should have to meet this on top of troubles enough of its own. The money will be made available in London through the exchange pool set up in London by the banks last year/Federal Government's Position. Under arrangement with the banks the commitments of the Australian Governments, . aggregating about £36,000,000 a year, of which approximately £2,000,000 is for services and the remainder for interest, are a first charge on Australia's export credits. When such charges are met by the banks in London, an equivalent amount is paid into the banks in Australia by the Government concerned. Until recently Mr.' Lang was a party to this arrangement, but he has 6een fit to tear up a scrap of paper, and the. Commonwealth must bear the brunt of his wild and, to many, dishonest policy. It. is ;,certain that whatever the legal position the Commonwealth would have paid*the debt and so saved Australia the dishonour; of repudiation, but under the terms' of//tjje financial agreement there is no escape for the Federal Government. •It stands as guaranror of all the States, and when one State fails the Commonwealth must go to the rescue. In announcing that the Federal Government would meet the debt due in London, Mr. Scullin said: "The position created by. Mr. Lang's determination not to' meet interest due to. bondholders in London is.most serious. Not.only has it struck a blow at the prestige of Australia, but. it has raised questions of great magnitude as to the financial relations between the Commonwealth and the States, and the rights and obligations of the Commonwealth in respect of a defaulting State. "When the financial agreement was drawn up, such action as that. taken by the Government of New South Wales waa not contemplated. So it became necessary for the Crown Law Department to secure the opinion of counsel to remove any doubt existing as to the obligation on the Commonwealth to pay, and its r'ght to use Commonwealth funds for that purpose; also its ability to recover fro.n a defaulting State. J ' We "have received advice that makes it clear that if a State defaults in its interest payments, those payments become a Commonwealth obligation." No Escape lor Mr. Lang.

It is stated by competent authorities that the Commonwealth clearly has power to sue NeW South Wales for the recovery of the amount of the debt that it will pay. The Commonwealth Government has been eo advised', and it is thought that it will move in (he High Court for an order making interest charges a first call on the revenues of the State. In the proceedings Mr. Lang and-his fellow Ministers would be cited personally, and if they persisted in their present policy, the Court having ruled that their action was illegal, they would be adjudged guilty of contempt, with the ''ordinary penalties on conviction. The consensus of legal opinion is that the financial agreement is watertight and that there is no escape for Mr. Lang. One constitutional authority, Sir Edward Mitchell, K.C., states that if the Commonwealth decided not to take action it •would be open for any of the States to do eo. If tfyat is so, then the Bruce-Page Government in carrying through the agreement builded better than they knew —better than was generally realised. It has been,pointed out that should the High Court uphold the views expressed by eminent, counsel, the operations of the agree ment would compel sound financial methods throughout Australia. With default impossible, Governments would bo compelled to keep their expenditure within the limits of their receipts.