The Daily News WEDNESDAY, JUNE 10, 1931. AUSTRALIA’S LOAN PLAN.

Taranaki Daily News, 10 June 1931, Page 4

The Daily News WEDNESDAY, JUNE 10, 1931. AUSTRALIA’S LOAN PLAN.

The day to day reports of _ the efforts of the Australian Premiers’ Conference to find a way out of the financial morass into which extravagance has plunged the Commonwealth should at least pi’ovide a good lesson for other countries. New Zealand is in no great need of it, having pursued a saner policy and being able at the present moment to obtain substantial credit in the London market, but the spectacle of Australia s difficulties may serve, at any rate, as a warning against the unwisdom of any possible attempt to depart from the path of financial rectitude. The extreme seriousness of the position in the Commonwealth could not have been more impressively demonstrated than by the calling into consultation of the Senate’s Opposition leader, Six* George Pearce, and the leader and deputy-leader of the Opposition in the House of Representatives, Mr. J. A. Lyons and Mr. J. G. Latham. That the conference had to be reinforced in this way after sitting for three weeks indicates clearly enough the extreme delicacy and difficulty of its task. It is so drastic a stop which the Prime Minister and his associates propose to take that united action, is the first essential to its success, and unity must be guaranteed before the necessary legislation is drafted. In order that

thc Commonwealth may be relieved of excessive obligations the conference has planned to issue a conversion loan of £556,000,000 at 4 per cent., that sum representing the Commonwealth debentures already domiciled in Australia. When the plan first took shape the available information on the subject conveyed the idea that the conversion of the existing bonds was to be a matter of compulsion so far as Australian creditors were concerned, and it was pointed out at the time that action of such a nature would be only a degree better than Mr. Lang’s repudiation or Mr. Theodore’s inflation. Since then the details of the plan have been.stated more clearly, and always with insistence on the point that conversion is to be voluntary. There are two classes of current debentures, one being subject to income tax and the other exempt, and nothing has been said as to the means to be adopted of differentiating between them, though a statement that they are to be converted “on the same basis” may be interpreted to mean that the separate rights of the two classes will be preserved. The most interesting information cabled during the past few days is that, though conversion is to be voluntary, it is proposed to impose a tax of 25 per cent, on bonds that are not converted into the new loan, and that the Government is to have the right of redemption after 1950. The currency of the loan will, no doubt, be considered far less important than the rate of interest. But it is the suggestion of a penal tax of 25 per cent, on the interest from unconverted bonds which arrests attention. The effect of such a tax would be to reduce the return on these holdings to about 4 per cent., so that the Treasury would be in the position of saving as much as if the whole of the £556,000,000 had been converted, and the bondholders would be no better off than if they had accepted the new issue. It seems therefore that the principle of the conversion is to be compulsion, and the ultimate success of the operation will depend very largely upon the spirit in which the people of Australia accept it. If, as it was put in the report of the committee of experts to. the conference, the .conversion can be achieved “by a great patriotic movement backed by a large volume of consent on the part of bondholders” public confidence will ensure stability. If the bondholders convert unwillingly the result may be further impairment of Australian credit. People who lend their money to their country do not necessarily take up debentures with the idea of holding them until the date on which they will mature and the State will repay the capital. Debentures are negotiable securities, so that at any time a holder may offer them in the market and obtain his capital, or as much more or as much less as he thinks it is worth. Unwilling holders of the Australian 4 pei* cent, bonds would perhaps flood the market with them, and they would have to be sold at a discount, for securities naturally find their own level. The influence of such a movement upon the Commonwealth’s credit abroad would be prejudicial, and the very drastic remedy applied to cure the present malady would not be completely successful. For the sake of the future it is to be hoped that the people of Australia as a whole will be willing to pay for the loss that their Governments have made. It is going to be hard for them, but it is only by saci'ifice they can keep their country solvent and restore the national credit.