BANK AND GOVERNMENTS

New Zealand Herald, Volume LXX, Issue 21515, 12 June 1933, Page 8

BANK AND GOVERNMENTS

It is reported that the Commonwealth Bank has agreed to provide £8,500,000 to cover deficits of the Australian States in the coming financial year, which opens on July 1. Hesitation to commit itself to requests by the Loan Council is also reported, a circumstance which illustrates again how far the bank has acted as a financial conscience to the Australian Governments in the past two or three years. Its fiat was responsible for the original Premiers' Plan, drawn up in June, 1931. The Federal Prime Minister informed the conference which devised this measure of financial rehabilitation that the Governments were going back financially at the rate of £40,000,000 a year collectively. Up to that time deficits had been met by bank overdrafts, but the Commonwealth Bank had notified the Governments that the limit in this direction had been reached. Therefore there was devised the scheme for a gradual restoration of balance in the accounts. The process has not gone according to plan; the Commonwealth Bank has done more toward covering deficits than was estimated as necessary at the outset. The first year to be dealt with was 1931-32. Originally the plan allowed for a combined deficit of £14,650,000. Later this figure was revised, to an adjusted total of £12,660,000. The actual result at June 30 last year was an aggregate deficit of £19,490,000. It was announced a day or two ago that the combined deficits for the year about to close would be well within the £9,000,000 set for them ; but according to the original plan they should not have exceeded £6,000,000. For 1933-54 provision is being made for £8,500,000, though this is the year in which all Budgets should have balanced. The bank concurs in estimates which deviate seriously from the plan. It has been claimed that the Commonwealth Bank has disproved the assertion of a British Treasury expert that in times of financial strain central banks never successfully resist the demands of Governments determined on easy finance through credit expansion. It has done so only in part, though it has acted as a powerful check on their tendency to budget for deficits.