The Press Saturday, November 29, 1930. A Banker's Review.

Press, Volume LXVI, Issue 20098, 29 November 1930, Page 14

The Press Saturday, November 29, 1930. A Banker's Review.

We print this morning the address delivered by the chairman of the Bank of New South Wales at the annual meeting of shareholders in Sydney yesterday. It is an unusually clear review of economic conditions in Australia and New Zealand and of the bank's efforts to carry out its difficult responsibilities to the State, to its customers, and to the shareholders. That the strain of the trade recession has been unhesitatingly accepted is proved by the advances figures. At one period they indicated an extension of support by as much as £15,090,000 £12,000,000 of fresh advances and a ; drop of £3,000,000 in deposits; and after some contraction the bank has still £9,000,000 more out in advances than in September, 1925, and almost a million more than last year. Since there is no prospect of a quickened flow of deposits or of an easing demand for support, the bank has carefully strengthened, and is strengthening, its resources, by reorganising the composition of its liquid assets, to make them more readily available, and, with the help of a dividend reduction, by making large additions to the contingencies funds. The bank is therefore better equipped to meet present and prospective difficulties and also to supply its clients with the capital energy to take advantage of the turn of the tide, when it comes. But many readers will eount as the most valuable parts of Mr Buckland s address those in which he takes a more vigorous line of attack and defence than is usual. What he says in reply to criticism of the banks on the point of exchange and interest rates is particularly impressive, although reply is simplified when critics contiadict one . .other. Thus the banks are called on to " stabilise" prices, wages, and business, as if the fact were not that " the business situation is what many 'millions of people make it," while Australia is only " a very insignificant "part of the world of business"; and at the same time the banks are blamed for " pegging" the exchanges at :i falsely favourable level. The two facts which justify the banks are: first, that they are not in absolute control of the exchanges at all, since the open market operates quite independently; second, that the policy - rationing their customers' purchases of sterling has been exceedingly useful to the Government. In buying funds to meet interest and other charges, it has not been as badly handicapped on the London market as it might have been, if other purchases had been unrestricted; and this has relieved the taxpayer of the heavy additional burden imposed by every adverse move of the exchange. The references to interest rates in the address are even more interesting, however, and lead directly to an attack upon the Governments which have failed in their duty and persisted in imprudent policies. The question whether high interest rates are or are not " an advantage " to the banks is perhaps not -wholly answered -when it is said that taey limit the bounds of profitable borrowing. To the extent that this is true, and it is largely true, high rates are of course disadvantageous; but what is more to the point is their economic necessity and effect. If the normal cycle runs from higher rates, imposed to check rash and speculative expansion, to reduced rates, offered after a fall in costs and prices to revive healthy enterprise, then the important question is why this second phase, which has been reached almost everywhere else, has not been reached in Australia and New Zealand. Mr Buckland's explanation vigorously rejects the charge against the banks. He blames those -who undermine confidence by advocating unsound schemes of public finance, and blames the Governments, leaning on the banks to finance the very policies and commitments ■which have already sapped the strength of industry. Money that has filled the Government's stagnant pool cannot irrigate private enterprise. But, to make matters -worse,

the expenditure of tlioso funds 011 relief works and on the payment of salaries and wages to establishments built up by boom time activities has supported standards of living and an internal price level which the earning power of the general taxpayer cannot long sustain. While the politicians have delayed, a situation which might have been mas--1 tered without great hardship lias grown worse; and the difficulty of escape is being steadily increased by piling new taxes on the producer's back and adding to the weight of old ones. In New Zealand we see revenue sluggishly responding to new demands, yet have hot taken the warning. In Australia Mr Buckland doubts whether heavier taxation can produce a heavier yield and even suggests the grim possibility that many taxpayers will be unable to pay. Yet this disastrous infliction is maintained in order to support "an unsound and uneconomic " system of regulating trade and indus- " try and of developing the country in "excess of the economic possibilities." Although ■Mr Buckland carefully reminded his shareholders of the bank's New Zealand connexion, it may be said that in making these comments he had his eye on Australia only. The truth is, however, that he could not have fitted his words more aptly to New Zealand if he had been speaking in Wellington or Christchurch, to New Zealand shareholders, about New Zealand affairs. Ours is the same vicious system of regulation and fixation, the same recklessness in pursuing " develop- " ment" without calculating cost and benefit, or in ignoring the warning of the calculation; and ours is the same distress of over-taxation, which the Government can think of relieving only by more taxation. It will be a misfortune if the application of Mr Buckland's address to New Zealand is not accepted and very seriously studied.

A Gold Bonus. The cable message from Canberra announcing that the Federal Government has agreed to pay a bonus of twenty shillings an ounce on all gold produced in Australia in excess of last year's production must be read in conjunction with a good deal of information that has appeai-ed only in the Australian papers. In August last an iniluential deputation headed by representatives of gold-mining interests in Western Australia made an impressive appeal to Mr Scullin for a bonus on production, but was told very plainly that owing to the position of the Commonwealth finances the Government could not undertake to nnd the money required. The finances of the Commonwealth cannot be said iO ha.\e improved much since that date, but during Mr Scullin's absence the cause of the bonus seekers has been steadily pressed, and their representations seem at last to have fallen on sympathetic ears. A little over a month ago it was reported by cable that Mie Acting-Prime Minister, Mr Fenton, had announced that the Federal Ministry had decided to pay a bonus on the production of gold in Australia. The report was denied. It seems clear, however, that the Federal authorities have been giving close attention to the matter, and (if the latest message is not also denied) the Government seems to have changed its attitude completely. The offer, as reported, is limited to the production of new gold, that is gold in excess of what was extracted last year, and it would be interesting to be told how the bonus "will be applied, and what classes of producers will benetit. Gold production has been steadily declining in the Commonwealth during recent years, mainly because the richer deposits have been worked out and it does not j. ./ to extract and treat the lower-grade ores. Many companies have just managed to carry on, and only recently some of the mines at Broken Hill have had to be closed down altogether. It is therefore probable that the current year's production will be less than that of last year unless some rich new discoveries are made, and iu the bonus is only payable on the excess of last year's production it might not become payable at all. Or there may be an excess as the result of existing companies continuing unprofitable operations in order to maintain last year s output, and in that case also they would apparently have 110 claim to the bonus. Whatever the position is. there will be disputes about " new" and " old" gold, while the paying of the bonus will discourage the discovery of better and cheaper methods of production. It is of course less of an evil than wasting public money on useless jobs to give work to the unemployed.