Coming Into Line

Sun (Auckland), Volume IV, Issue 1059, 25 August 1930, Page 9

Coming Into Line

AUSTRALIA’S BIG PROBLEM

Prosperity Era Ended

FINANCIAL EXPERT GIVES ADVICE

SYDNEY, Sunday. AUSTRALIA has to adjust herself to a world economic situation, more disadvantageous to her than any in the last decade. As a debtor nation, Australia is interested in Ilic world price level, and this everywhere is falling rapidly. It is likely to continue to fall. To this situation Australia has by no means adjusted herself.” These are the words of Sir Otto Niemeyer, the British financial expert, in reporting upon Australia’s financial position.

Australia, he adds, must reassure the world as to the direction in which she was going financially—and, no one else coijld do that for her.

Sir Otto Niemeyer, in his statement to the Premiers’ Conference, said the practical solution of a serious problem was not rendered easier by the natural optimism of the Australians, among whom a general belief prevailed that there was an unlimited market abroad for Australian goods, and that something. would turn up. He then proceeded to sketch the elements of the situation. Sir Otto £aid lie regretted that none of the States had yet passed its Budget for the current year, because Australia must be treated as a *whole, and the reactions of inter-State finance, and of State and Federal finance, were essential to a complete view. The fortunes of all were interdependent. The characteristics of the Budget position were that the Commonwealth and nearly all the States had had deficits for at least three years, which had resulted in accumulated deficits, largely unprovided for except by temporary methods of finance. The Commonwealth alone had accumulated a deficit of £6,500,000, to which must be added the accumulations of the States. The Commonwealth Budget, on the estimates presented, was narrowly balanced, but it was clear that several States must face a substantial Budget problem. HEAVILY IN DEBT Even if the Budgets this year proved to be balanced, owing to the seasonal nature of the tax receipts, there must be Ways and Means deficits in several during the early months. Apart from the Budget position, there was the unfunded floating debt, about £3,000,000, and also the internal securities maturing between now and December, totalling £18,000,000 for the Commonwealth and about £24,000,000 for the States. These are chiefly New South Wales and Victoria, followed by about £ 000,000 for the Commonwealth and the States in the next calendar year, £72.500,000 in 1933, and £51,000,000 in 1934. The external debt was large and was made more severe by the depreciated exchange. It included no less than £36,000,000 practically at call in London, of which £18,000.000 was due to the Commonwealth Bank, nearly £8,000,000 in September <0 one London bank, and £10,000,000 of short date Treasury Bills, half due in September, the balance in December. TAXATION YIELD DROPS Moreover, in a few years Australia would have a heavy funded extenrnal debt maturing, starting with £13,000,000 in 1932, near the time of tho £72,500,000 internal liability. Deposits in the savings banks were beginning to drop, and drop heavily in some cases, which increased tho difficulty of dealing with the internal maturitic The yield from taxation already at a heavy level in relation to the national income was dropping substantially, and might be expected to fall more. The balance of trade was strongly

unfavourable, the value o£ exports having fallen from about £140,000,000 a year to perhaps a little over £100,000,000, which, after providing for Government requirements, would not leave more than about £60,000,000 fo rail over Australian payments overseas. The staple exports, wool and wheat, had declined in price, the former by 45 per cent., the latter by 30 per cent., since 1926. This had resulted in the depreciation of the exchange, which was maintained at a per cent, basis only by exceptionally drastic tariff increases and prohibitions and by the most rigid rationing of the exchange by the banks. NO PROVISION FOR WORKS These were temporary expedient;* which had been tried elsewhere and could not be regarded as permanent solutions. Australia was off the Budget equilibrium, off the Exchange equilibrium, and was faced by considerable unfunded and maturing debts, both internal and external. In addition she had on her hands a very large programme of loan works, for which no financial provision had been made. The only alleviation of the gloomy picture was that, apart from £36,000,000 of unfunded debt, Australia by a great piece of luck had no external maturities in 1930-31. That meant, in effect, that she had a maximum period of two years in which to put her house in order. Three serious manifestations of financial malaise were the inevitable reflection of deeper economic causes. By a series of accidents, chiefly the liberality of lenders and the accidental high prices for Australian exports, Australia has so far had been able to remain apart from the general trend of world conditions, and to maintain a standard of costs which the rest of the world had long since found impossible. PRIMARY PRODUCE While wholesale prices compared with 1925 had fallen slightly in Australia, about five points, they had fallen nine to ten points in Canada, New Zealand and South Africa, 11 in the United States, and 17 in the United Kingdom, down to the end of 1929, and 23 in 1930. From the Australian angle the British figures were perhaps the most important and more nearly reflected the world market. Thus even with some drop in Australian prices the gap between Australia and the rest of the world was increasing rapidly, and not diminishing. It did not need much reflection to appreciate the probable effect on the value of Australian exports.

It might be hoped, although without certainly, that wool might maintain something like its present level, but with the heavy harvests anticipated in Canada and Argentine and India, and the large carry-over in Canada and the United States, it was difficult to see how wheat prices could fail to drop further. Although the Australian wheat crop might be larger than last year’s, its effect on

the aggregate value of exports was likely to be small. INCOME WILL SHRINK Sir Otto proceeded: —“I think it. is generally admitted that Australia’s national income will be substantially diminished yet further, and from that lessened total you are driven to take an increased share in taxation, while at the same time making heavy calls for loans and conversions on diminishing current svings at a time of depression. “One may put the same facts in another form. While values in the world’s export market, to which you have to sell, have fallen, and are falling steadily, values in Australia have fallen very little, and this fact itself intensities the difficulties of achieving even a. trade balance, to say nothing of the trade surplus which you need to meet your foreign payments. ‘So long as the sheltered trades of Australia insist on taking so large a share of the national dividend, and even an increasingly large proportion asthe national dividend drops, the difficulties of the unsheltered exports and trades can only increase.