LOAN EXPENDITURE

Sun (Auckland), Volume III, Issue 834, 30 November 1929, Page 11

LOAN EXPENDITURE

greater care needed BANK CHAIRMAN’S VIEWS The relationship of the public borrowing policy of a country to ern ployment and the general state of prosperity of the people, was commented on by Mr. Thomas Buekland, president of the Bank of New South Wales, in his annual address to shareholders in Sydney yesterday. Another proposal Is that all borrowing by Governments and local authorities should be restricted to the Commonwealth, and that no loans should be raised abroad, a policy with which I agree, said Mr. Buekland. To adopt this policy now, however, would restrict all development work in Australia to such proportion of the amount of the unnual savings of the Australian community as could be attracted to investment in such loans. To borrow beyond this would create Inflation in connection with the note issue. In a partiallydeveloped 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 development works to be carried on. To refuse absolutely to accept capital from abroad would be to slow up oar development suddenly and limit it to our own capacity to undertake it. The latter is the more desirable course, but, havimg pursued a policy of external borrowing for many decades, to turn round now and limit borrowing to the funds available 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 the 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 our requirements in the Immediate future. Should a policy of borrowing internally be persisted in, the funds so obtained must be withdrawn from the funds in use by the community in its trading and industrial activities, both agricultural and manufacturing. It is easy to see therefore, that the employment given on the one hand would increase the unemployment on the other, while the withdrawal of necessary finance would tend 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. UNPRODUCTIVE LOANS Much is made, and rightly so, of the distinction between borrowing for productive and for unproductive expenditure. I am afraid that much of our so-called productive expenditure is in reality more or less unproductive. To the extent that our loans are not fully productive they are a burden to us. and unproductive expenditure tends to leave nothing behind but debt and unemployment. Our borrowing policies in the 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 this 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 labour, and so far tend to lessen the productive power. Taxation is also a feature of the costs of production. We must realise now that the wastes of war and of unproductive expenditure in the sense I mentioned can only be 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 lead us to harder times and greater difficulties. Expenditures must be reduced. There is abundant evidence in the financial columns of the Press that capital is already having to face the readjustment. Labour as a rule benefits by falling prices and loses by rising prices. NEED OF LOWER COSTS Are we as a people incapable of facing the position we find ourselves in? Are we able to keep up artificial rates of wages and working restrictions the while repeated applications to the Courts show that real wages, that is, purchasing power, do not follow them? Is it sound to follow the doctrine of high wages for some, while others cannot find employment at that figure? Is it not better for all to work on a lower nominal wage? Could not the readjustment be made by small amounts monthly spread over an extended period, and •so reach a sound and profitable basis "with as little injury to trade and industry as possible? It is imperative that we should be able to produce both in the primary and secondary spheres at a cost enabling us to sell at a profit in c o inPetition with the outside world and, I emphasise, to do so without artificial aids such as bounties, etc. The serious increase in taxation is another feature of the high cost of production. This burden is accentuated by the 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. The address delivered by the prt'sident of the Bank of New South Wales at the annual meeting of slia Jj:Z holders was prepared before tne Federal Budget proposals were brought down in the Australian House °f Representatives.