BANK OF N.S.W.

Poverty Bay Herald, Volume LV, Issue 17126, 5 December 1929, Page 11

BANK OF N.S.W.

A NOTE OF WARNING PRESIDENT’S ANNUAL REVIEW' Tho address of tho president of the Bank of New South Wales, Mr. Thomas Buckland, . in moving the adoption of the report and balance-sheet at the annual meeting of shareholders, is of particular interest on the present occasion. Mr. Buckland, whose speech, by tho. way, was composed and printed before the Budget proposals of the Commonwealth Labor Government were brought down a lew days ago, traverses the trend of events in private and public finance in Australia, .and issues a note of warning which must command serious attention in this Dominion as well as in the Commonwealth. Mr.. Buckland, in the course of his address, said : "There is evidence of the marked drop during recent years .in tho prices of our staples, of the continuation of drought conditions in many districts, and of increasing costs and the lack of: continuity, affecting industry and .commerce to the disadvantage of all. “Taking the less important items iirst, the note circulation in New Zealand shows a small decrease. Bills payable at £7,284,000 represents a small increase of £84,000. “Bank premises are £225,000 higher and stand at £1,450,000. The increase is largely, due to the new. head office building, and the now building for our Brisbane, branch. SLOWING UP OF PROGRESS. “Deposits, £66,056.000, show a small increase of £1,541,030. This, taken with the like experience of other. banks, is evidence ot the slowing-up of our national progress, and a lower capacity to provide tor the development of the many and varied industries of the community. It seems necessary to repeat what I said two years ago in this connection. The drain on local funds, as the result of borrowings by Governments and local authorities, appreciably affects the accumulation of deposits. This in turn reduces the funds available for advances, and for that private enterprise upon which our progress and wealth mainly depend. Without a steady and appreciable increase in deposits year by year the banks cannot extend their support to the development of the community. The banks cannot create credit except by resorting to inllation with its painful aftermath. “This leads me to the point 1 wish particularly to stress. The people as a whole will bring about their own undoing if they pursue the policy of past years with its extravagant and often unreproductive expenditures. Such policies, with their reduction of output — not necessarily the value of output —• must bring hard times and force upon us a lower standard of living. Whou these are combined with a serious fall in tho prices obtainable for our chief staple, wool, and a considerable reduction in the quantity of another, wheal, due to adverse weather conditions, the outlook is hard indeed. The figures of the balance-sheet give full support to the position thus outlined. “Advances have been increased by £8,074,000, making a total of £59,427,000. When taken with the comparatively small increase in deposits, this is a. striking testimony to the way in which our customers have found it necessary to lean upon us during the past year, and when it is realised that the experience of the other banks is similar to ours in this department also, it behoves all of us to take stock of our position, both as a community and as individuals. The money for these increased advances has been provided mainly from our liquid assets, Government and other securities, Treasury bills, and cash, which show reductions of £2,074,000, £2,000,000, and £4,090.000 respectively. On the other hand, money at short call has increased by £1,220,000, and other items show small increases. Last year our holding in cash was on tho high side for this time of year, so that the reduction is not as 'important as it may appear at first sight. • “These figures will begin to readjust themselves as the proceeds of our produce come to hand and the community accommodates itself to our altered conditions. This readjustment will, however, tend to. be slower than in past years. The prices and quantities of our primary products are so much less and the national income is so much smaller. “The capital is the same as last year, £7,500,000, and it is proposed to add £250,000 to the reserve found, making it £6,150,000. CONSERVATION OF RESOURCES. “In view of the serious fall in the prices of our staples over recent years, there must follow an appreciable fall in tho values of our.lands and other assets of the community! Your directors therefore feel that the prudent»course is to conserve the resources of the bank. It is proposed to pay the usual dividend at tho rate of *lO per cent, per annum, but not to pay a bonus on this occasion. The shareholders have had the benefit of four bonuses in succession, or, in other words, have received in four years dividends which would in the ordinary course have been paid over a period of fivo years. “This decision will not come altogether as a surprise to you, as 1 have warned you on each occasion that the bonus is a matter of each year only, and not to be taken as a precedent or an earnest of continuance. In 1927 I asked tho newspopers not to include tho bonus whon stating the rate of return on the quoted price of our shares. This advice. I regret to say, was utterly disregarded. TAXATION BURDEN. “Before leaving our own immediate affairs, it * is desirable that I should draw your attention to tho burden taxation is becoming in our own particular case. The bank has paid £350,086 during the year. This is an increase of £55(741 on the amount paid last year, and of £79,019 on the year before. Taxation now represents a cliargo of £4 13s 4d jier cent, on our capital, a charge which in two years lias risen something over 1 per cent. “As to the future, the season is opening with more promise of good rains, and wc look forward in the hope that tho long drought will pass from our western areas at no distant date. Could wc but settle our industrial troubles and reduce our costs of production to enablo both primary and secondary industries to work on a profitable competitive basis with tho rest of the world, and secure in their freedom from strife, the present trade depression would soon pass. “The seasons in New Zealand have been good aud the* country is prosperous. The external trade shows a, substantial balance in favor of exports, while Australia’s balance is the other way. ‘‘Conditions in Fiji, are good, despite lower prices for sugar and copra, tie are also those in Papua and the Mandated Territory of New Guinea. REDUCED AUSTRALIAN EXPORTS. “The reduction in the quantity of our chief exports, duo to tho drought conditions which have prevailed over many parts of . Australia, coupled with the continued fall in values, is having the effect of decreasing Australian funds abroad. These funds are required for the discharge of Government and other obligations, and for the handling of

Australia’s external trade. It would be very unwise to attempt to correct the present position by placing an embargo on imports generally or on specified imports. To do so would in the first instance damage our good trade name; then create injustices among the trading community according to the way in which different sections are placed with regard to their external commitments and further expose individual traders to tho risk of damages for breach of contract, etc. On the other hand, should prohibition of imports become effective, we should lose our Customs revenue and ultimately be unable to sell abroad our surplus products—wool, wheat, etc. These products would then become valueless or of little value, as production is far in excess of Australia s capacity to consume, and disaster would be tile result. “As against this question of restriction of imports, we have certain sec tions- of the community who have, resorted to, or wish to resort to, artificial means of controlling the realisation ol their produce. I do not think that- any such artificial tafnpering with the course of marketing will in the end achieve the objects aimed at, but the serious aspect of the case, from our point of view, is that those who have sponsored such schemes have apparently overlooked tho question of finance. Mow is it possible for us to carry over a considerably extended period the product already harvested or shorn, while at the same lime wo are called upon to finance tho growing harvest or clip? In times when money is plentiful it might be possible to go a long way towards achieving this object, but in a period when our loads are already heavy it is very doubtful whether our financial resources will enable such schemes to be carried through without denying the necessary finance to those in lifted of it for the current season s requirements. There is another aspect of this question. - It is unsound for the producer to become a speculator in bis produce. BORROWING. “In a partially developed country such as Australia it is necessary for a time that capital in addition to the savings of the community should be attracted from outside, to enable important schemes of developmental works to be, carried on. To refuse absolutely to accept capital from abroad would be to slow up our development suddenly and limit it to our own capacity to undertake it. The latter is the more desirable course, but having pursued such a policy of external borrowing for many decades, to turn round now and limit borrowing to the funds availablo in the Commonwealth would be to increase unemployment- far beyond the conditions now obtaining. “Largely owing to the tremendous wastage of accumulated capital during the war and the policies pursued more or less throughout tho world during and since- then, the supplies of available funds fall short of requirements, and rates of interest are tending to harden throughout the financial world. Owing to this there is no doubt that we shall have to pay more for bur requirements in the immediate future. Should a policy of borrowing internally bo persisted in, the funds so obtained must be withdrawn from the funds in use in the community in its trading and industrial activities, both primary and secondary. It is easy to see, therefore, that the employment given on tho one hand would increase the unemployment on the other, while the withdrawal of necessary finance would tond to weaken or destroy a proportion' of industries already existing, and the income available for taxation for Government purposes would be reduced over the whole community. “Much is made, and rightly so, of the distinction between borrowing for productive and unproductive expenditure. I am afraid that much of our so-called productive expenditure is in reality more or less unproductive. The simple practical rule for productive expenditure is that after a term of years the undertaking should repay the original expenditure, in addition to providing interest, depreciation, etc., during the currency of the loan. To the extent that our loans are not fully pro ductive they are a burden to us, and unproductive expenditure tends to leave nothing behind but debt and unemployment. HIGH COST OF PRODUCTION. “Our borrowing policies in (be past have contributed materially to our unemployment problem. The scale of borrowing has meant inflation, with rising prices and disordered trade. With our arbitrary systems of wage fixing tin's policy meant higher and yet higher wages. We cannot* have continual and general rises in wages and keep the costs of production within economic limits. “Taxation on capital will indirectly affect the wages of labor, and so far tend to lessen tile productive power. Taxation is also a feature of tlie costs of production. “Tho serious reduction in our national income during recent years must impress everyone with the urgent necessity of reducing the costs of production as well as public and private expenditure. Wo must realise row that the wastes of war and of unproductive expenditure in tho sense I mentioned above can only bo made good by greater effort. There is no other way out. Expedients such as borrowing to provide employment, inflation of the note issue, or the maintenance of high prices by fixing money wages or restricting output, will lend us t.c harder times and greater difficulties. Expenditure must ho reduced. There is abundant evidence in tho financial columns of the press that capital is already having to face the readjustment. “Labor as a rule benefits by falling prices and loses by rising prices. Are we as a peopio incapable of facing tho position! we find ourselves in? Are wc ablo to keep up artificial rates of wages and working restrictions while repeated applications to the courts show that- real wages, that is, purchasing power, do not follow them? It is imperative that we should he able to produce, both in the primary and the secondary spheres at- a- cost enabling us to sell at a profit in competition with the outside world. “The serious increase in taxation is another feature of the high cost of production. This burden is accentuated by tlie uncertainty, from year to year, in the incidence of taxation and by the administration of the various Acts, which is too often , unsympathetic and failing in appreciation of the needs and difficulties of the taxpayers concerned.”