AUSTRALIAN FINANCE.

New Zealand Herald, Volume LXIX, Issue 21098, 4 February 1932, Page 8

AUSTRALIAN FINANCE.

A disturbing revelation of the state of the public finances in Australia is contained in the proposals of the Commonwealth Government arising out of Mr. Lang's default in interest payments. Tt is now stated that the Government has decided to ask the banks to finance loan programmes for the remainder of the year and to retain the share of New South Wales to pay interest in respect of which the State is expected to default. Manifestly, this is not a solution of the situation in New South Wales. Since Mr. Lang proposed to borrow the money to meet the State interest liability, he will presumably be quite indifferent whether the borrowing is frankly to cover a deficiency of revenue or nominally for "loan expenditure." The dangerous significance of the proposal is that the Commonwealth Government is asking the banks to finance loan expenditure for the whole of Australia. Only a few days ago it was announced that the aggregate deficits for this year would be £18,000,000 instead of the £12,000.000 contemplated by the Premiers' Plan and a peremptory warning was given by the Commonwealth Bank that this deterioration must be checked. The banks are financing the deficits by making advances against Treasury bills. That is simply inflation, and the extent to which the deficits exceed the estimates represents the degree in which the experiment in controlled inflation is getting out of control. How can the banks finance loan expenditure except by further inflation, unless they withhold from commerce and industry the funds required by the loan programmes? The proposal raises a further question. Why is it necessary to resort to the banks'? Granted that overseas borrowing is impossible, and assuming that the loan programmes are confined to legitimate, reproductive enterprises, why cannot the

Governments finance them by issuing loans to the public'? Either they propose to spend far more than the domestic resources of Australia allow or the public credit is so low that there would* be no subscriptions to a public loan. In other words, the present situation is the inevitable consequences of the socalled debt conversion scheme which, in spite of euphemistic propaganda, represented partial repudiation. Confidence in Government securities has been undermined, and the Governments, on the admission of this proposal, dare not risk the discredit of public rejection of a new issue of securities. If Australia is indeed embarking upon an accelerated process of inflation—restrained only by the unwillingness of the banks to grant unlimited accommodation—the misgivings aroused by certain features of the reconstruction plan will be greatly increased.