AUSTRALIAN FINANCE

Taranaki Daily News, 13 November 1929, Page 18

AUSTRALIAN FINANCE

HARD. TIMES AHEAD POSTPONING THE EVIL DAY. / REACTIONS IN DOMINION.

(From Our Own Correspondent.) Wellington, Nov. 9. ■ ■ For a considerable time the Australian Commonwealth has been living on,money borrowed lavishly at home and abroad and expended extravagantly, so that it cannot understand the present position. Neither the Commonwealth nor the States can borrow in London or New York, and recourse has been had to the issue of Treasury bills and obtaining overdrafts-from the bank. New South Wales is, or was, paying 6i per cent, to the Westminster Bank on overdraft account. Good seasons and high prices have combined with extensive borrowing to postpone for Australia the inevitable post-war financial . adjustment. Instead of making use of the opportunity of putting- its -financial house in order, it has been made a time of over-borrow-ing and over-spending. This is where the time serving politician has got iii his , work, and' he has worked overtime on the job. For the misuse of opportunity all classes are to blame, and all classes must pay. , ; The Labour Government is. not to be envied its task. The . gravity .of the "situation is such that all classes must assist the Government in restoring the economic structure, for the trouble in Australia to-day is economic, and not political, ■ and, unfortunately, the remedies must be applied by politicians, who have a greater regard for votes than for the welfare, of the country. Whatever the Labour Government does must cause hardship. If it curtails ex u penditure on, public works and reduces administrative costs it will create unemployment, and if .it increases taxation it will cause industry to curtail operations and reduce staffs, so that whatever the Government does must lead to unemployment and hardships. of an extreme ” character. And yet this hardship must be ensured, for the Commonwealth must curtail the expenditure of borrowed money and impose additional taxation. A nation, like the individual, must pay for : extravagant and riotous liv; in S- '

° NEW £10,000,000 LOAN. The Commonwealth Government, is issuing a. five-year loan in. Australia for £10,6b0,000, bearing interest at 5$ per cent, per annum. But the loan is being issued at a discount of 2 per cent.,-that is for every £9B lent to the Government the lender will receive £5 5s in interest and at the end of the term 1934 he will be paid £lOO for his £9B, so that the return on the investment is "more than 51 per cent. The country will no doubt find the money, but if too large an amount is obtained from the banks the trade and commerce of the country will be very much handicapped. ' The immediate effect of the Australian ' position is that the share market is irregular. Shares that the listed on the inter-State exchanges are , quoted at varying prices, and those shares showing a relatively small return are being sacri'ficed and the money reinvested in other securities returning a better rate of interest on capital. • The Journal of Commerce, Melbourne, in seeking a reason for the state of de- ~ pression which has characterised the market recently, says it is necessary to 'investigate the general economic situation, and the Journal adds that the most •important factors are: (a) The indications that we must expect a much smaller wool cheque for the season. It has been estimated that this will be less than last year by £15,000,000. (b) Owing to" an increase in the ratio of bank advances to deposits banking funds are ' limited,' consequently monetary contingents are stringent, (c), A decrease .in Government loan expenditure _ which . 'means less purchasing power in the 'hands of the "peopie, less aales by re " tailers, less orders by manufacturers and consequently the possibility 01 "smaller profits for many listed companies. (d) The unsettled industrial contitions, aggravated by the continued coal dispute, (e) The upward trend of interest rates, coupled with the big loan conversions falling due next year. This has a tendency to depress the present • value of fixed interest-bearing Securities such as Government bonds, (f) The state of international finance, (g) Tlie state 'of Government finance And the possibility of increased taxation.

CONDITIONS DECIDEDLY BAD. The conditions in Australia are decidedly bad, and cannot be improved by the Federal Government mopping up £10,000,000 of local money. New Zealand. is a great deal better off in comparison. The wool and meat cheques w ill be less than last year,' but. against that the Government is spending borrowed money rather freely, and that should help to maintain the purchasing power. Money rates, however, are bound to advance in sympathy with Australia, for if they fail to do so there, will be a migration of capital to Australia to take advantage of the better returns to be obtained there, which would make inroads on bank money in the Dominion, and the banks would then be obliged to raise the rates. Bankers are no doubt keeping a very close watch on the monetary movements oh the other side, and it would not be surprising if rates here do go up. The Labour Government in Australia may make use of the. Commonwealth Bank, and insist on its issuing notes in accordance with the legal cover. The bank must cover its note issue to the extent of 25 per cent, in gold. At present the metal reserve is 40 per cent, so that there is ample margin for note expansion. _____