The Gisborne Herald. WITH WHICH IS INCORPORATED “THE TIMES.” GTSBORNE, SATURDAY, JULY 15, 1939. AUSTRALIAN FINANCES

Gisborne Herald, Volume LXVI, Issue 19990, 15 July 1939, Page 4

The Gisborne Herald. WITH WHICH IS INCORPORATED “THE TIMES.” GTSBORNE, SATURDAY, JULY 15, 1939. AUSTRALIAN FINANCES

Notwithstanding an increase of £l,000,000 in the expenditure on defence, the Commonwealth ended its financial year with a surplus of more than £OOO.OOO, which, in view of economic conditions generally, is a matter for satisfaction. It is clear, however, that this year Australia is not likely to liiid everything “easy sailing,” and its financial position, in view of the similarity ol' conditions to those in New Zealand, is deserving of study. Being chiefly a primary producing country, Australian trends closely parallel those of New Zealand. For the two years prior to the current one, there was a steady record of progress, high export income being reflected in every branch of industry. Only the other day, for instance, it was reported that the production from secondary industries in 1937-38 amounted to nearly £200,000,000 and established a record, while the number of factories and their employees showed substantial increases. This year there has been a slight, recession, but the explanation is found in the falling off of returns from the basic industries. The wool cheque alone is reported to show a drop of nearly £5,000,000, and, even more serious, is a decline of about £15.000,000 in the returns from wheat. This position, obviously, must affect the whole economy of the Commonwealth.

Tlie procedure in Australia has been to allow this situation to adjust itself by normal and orthodox methods. Naturally, as in New Zealand, overseas funds commenced to shrink and the position at one stage was serious enough to occasion concern. In iccent months, however, there has been some improvement and the latest returns allowed that the Commonwealth Bank alone had nearly £20,000,000 in London funds, a decline of £9,000,000 or 30 ner cent, compared win. £10,000,800 anc GO per cent in New Zealand. The reduction of purenasing powei in Australia, consequent on the lower export income, has been reflected in a contraction of imports, although the inevitable time-lag has prevented the trade balance being entirely adjusted. At the end of May, however, Australia had a favourable balance of £13,000,000, compared with £ 16,000,000 for the corresponding period of the previous year. In New Zealand, at the end of April, although the position was a good cleat better

than a year earlier, the excess of imports amounted to only £4,500,000, so that the Commonwealth, without any artificial import restrictions, was relatively much better situated. Even then, it is frankly recognised that Australia has a difficult year ahead, and her plans for the future make an interesting study.

The basis of the Australian plan for the coming year is its new loan policy, the Loan Council having recently approved a programme which will involve borrowing £41,000,000 during the year, this being the largest total since the depression. On the face of it, this is a largo amount, but on a population basis it would be equivalent to only £10,000,000 in New Zealand. Australia, however, is in a comparatively fortunate position. During the past few years when conditions have been relatively prosperous and industry has been expanding, the Loan Council has reduced borrowing

to a minimum and public works in all States have been rigidly curtailed. This has resulted in both finance and economic works being conserved for a period like the present. One problem that presents itself, of course, is that the prevailing conditions necessarily imply rising interest rates, but here again the Commonwealth is comparatively fortunate. The market yield on Commonwealth securities has remained at slightly less than 4 per cent, whereas in New Zealand the return is between 41 and 3:{ per cent. Provided the recession is not too protracted. therefore, it would seem that Australia, from a loan point of view, is favourably situated to meet the position.

It is clear, however, that borrowing alone will not suffice to adjust Australian finance to the present situation. The Government has three main problems—to take up the slack caused through the decline in industry. to meet the needs of a growing defence problem, and to secure compensation for the inevitable fall in State revenue. The first requirement can be met through borrowing for public works and loans will assist die defence programme, but there will still be a substantial gap in ordinary revenues. It has been estimated that another £4,000,000 or £5,000,000 will require to be found by way of taxation and a rise in the income tax is regarded as inevitable. Again the position might be regarded as disturbing. since it would mean imposing a heavier drain on the taxpayer just at a time when he was less able to stand it, but when it is remembered that the suggested increase in taxation would be equal, on a population basis, to a rise of only £1.000,000 in Now Zealand it will be seen that it is far from disastrous. More than that, Australia is again in the fortunate position of having conserved her resources in the

pant few years. Instead of taxation being increased, there have been substantial reductions, so that it is probable that the position will be met merely by restoring the rates of taxation to their former level.