SINKING FUNDS

Otago Daily Times, Issue 21978, 13 June 1933, Page 11

SINKING FUNDS

AUSTRALIA’S' BURDEN PROPOSALS FOR SUSPENSION. (From Oue Own Correspondent.) SYDNEY, June 1. With the approach of another Premiers’ Conference, at which the Estimates for the 1933-34 Budgets of all Australian Governments will have to be discussed, a closer examination is being made by Ministerg and officials of the suggestion that payments to the National Debt Sinking Fund should be suspended until the return of more prosperous times. There are many advocates of this, and just as many opponents, but it is certain now that the matter will be officially placed before the conference by the representatives of at least one of the States.

State representatives are clearly worried over their Budgetary prospects, and their chief concern is that there should be some plan for the readjustment of finance so that the State Budgets will get their share of the improved financial position. So far the Commonwealth has had the lion's share, which may be due to the fact that the Prime Minister is Mr Lyons. The proposal for the suspension of Sinking Fund payments finds favour because it would directly and immediately relieve State Budgets of expenditure amounting to £3,000,000 annually. Furthermore, it would relieve the Commonwealth of an even greater amount, and so allow' a largo reduction in Federal taxation, which would benefit State revenues, and enable the States to get within a measurable distance of balancing their Budgets in the next financial year. The realisation is growing that it is absurd for Australian Governments to be borrowing money from the banks to pay it into the Debt Redemption Fund. The contributions to the Sinking Fund next year should total £7,000,000. State deficits are almost certain to exceed that sum. Presumably the Commonwealth Bank will have to lend the money to the Governments it o meet the deficits, so that actually the Sinking Fund payments will have to be made out of money borrowed from the banks to meet deficits. It is surely clear that a continuation of that process would be farcical. It is pointed out by one .authority that it is an established principle of finance that contributions to a Sinking Fund for a reduction of debt, to be effective, must be made from a surplus of revenue receipts over revenue expenditure. When there is no such surplus effective Sinking Fund payments cannot be made. The device of paying borrowed money into the fund docs not contribute anything to the redemption of the total debt. It merely increases the debt by the amount that is borrowed and contributed. ft the contributions from the Governments to the National Debt Sinking 1 find are suspended for the next financial year the Sinking Fund will, at the end of the year, be in exactly the same position as it was at the end of last year, when the £7,000,000 of contributions had to be found out of borrowed money. the fund will neither benefit nor lose by the decision of the Premiers. But the Budgets would benefit by the suspension, and the floating debt would not be increased. After all, the proposed suspension does not seem to be the dreadful thing some people would make us believe. There is no reason, in the circumstances, why it should reflect on the credit of Australia.