FINANCE-PUBLIC AND PRIVATE

AUSTRALIAN BORROWING

BY ARTHUR W. KIDDY.

ONSIDERABLE interest has been aroused in financial ;ides during the past fortnight by the publication of pamphlet on Australian finance by Mr. Sidney Russell 'ooke and Mr. E. H. Davenport. Both gentlemen are vell-known in the London Stock Markets and by reason f the searching analysis to which Australian finance is objected and also because many of the views expressed

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re in accord with those held in financial circles here, the iamphlet has commanded the greater attention. In fact, t may be said to have been issued at the psychological moment when a good deal of borrowing by some of the Australian States and the very partial success attending me of the loans had already attracted attention to the encral subject of Australian borrowing.

Nevertheless, I think it is open to question whether he writers of this pamphlet in their anxiety to compel ttention to certain defects in Australian finance nay not, in some respects, have slightly overstated the use against the Commonwealth of Australia and some if the borrowing States. Those who are enthusiasts in lie matter of Empire development and are not, perhaps, sufficiently imbued with the necessity for the observance of sound financial principles may, in their zeal for financing Colonial developments, often overlook the need for the Oversea Dominions to exercise all due economy in the matter of financial administration, and in the case of Australia, where Labour Government in some of the States have undoubtedly been responsible for a good deal of extravagant expenditure, there is a tendency perhaps in some quarters to gloss over these defects as though n•liat might be inexcusable in some purely foreign country is quite permissible in the case of an Oversea Dominion. On the other hand, there are also those who are inclined to go to the other extreme and to overlook what is un- doubtedly true, namely, that money invested in the development of our Oversea Dominions constitutes a direct contribution to the strengthening of the Empire itself and, therefore, the economic position of the Mother Country.

EMPIRE RESOURCES.

The pamphlet which I have mentioned certainly refers to the resources of our Oversea Dominions and I ain glad to note emphasizes the desirability of Australian developments being financed from this country rather than from the United States. At the same time, in the mass of interesting statistics given with regard to the Australian liabilities and assets there is, perhaps, rather a tendency to measure the latter on a kind of foot-rule principle without a sufficient exercise of legitimate imagination as regards both the resources of the enormous continent of Australia and the importance to the whole Empire of thoie resources being developed as rapidly as possible. This was always a matter of vital importance to the Empire, but never, perhaps, of such great importance as in the new conditions of this country after tl_e War.

FRIENDLY AND LEGITIMATE CRITICISM.

But while I am not, therefore, disposed to follow too closely the arguments as to the precise extent to which Australian wealth and assets may have been mortgaged by existing borrowing., nor to indulge in too great concern about the heaviness of Australian debt per capita When compared with other countries, there are certain points raised by Mr. Cooke and Mr.. Davenport which cannot be too strongly emphasized and supported, for they may be said to have been raised in all friendliness to our Australian Dominions, and those who are in authority will do well. o note them carefully. Moreover, if only in view of the vast amount of maturing debt Which will have to be dealt with in the comparatively near future, through various consolidation loans, it will be well that recognition should be prompt:.--

THE TRUSTEE ACT.

On more than one occasion I have ventured in these columns to remind our Oversea Dominions, and Australia in particular, of the very special advantages enjoyed by them in borrowing in this country under the Trustee Act. The Colonial Stock Act of 1900 laid down that the Trustee Act of 1893 should include any Colonial Stock which has been duly registered in the United Kingdom and which has observed whatever conditions have been prescribed in Treasury Orders. The Order, however, is of a very simple description, merely declaring that the Colony shall provide by legislation for the payment out of its revenues of any sums which may become payable to stockholders under any judgment, decree, rule or order of a Court in the United Kingdom, and that the Colonial Government shall formally agree that any Colonial legislation which appears to the British Government to alter any of the provisions of the stock, to the injury of the stockholders, or to involve a departure from the original contract in regard to the stock, would properly be dis- allowed. Undoubtedly, however, as the pamphlet just published on Australian finance asserts, the public is often under the impression that some very great protection is involved in the matter of Colonial Government securities and that in some mysterious manner the issues themselves are investigated by the Treasury. This, of course, is scarcely the case, and it becomes all the more necessary, therefore, that our Oversea borrowers should not take any advantage of the privileges enjoyed under the Colonial Stock Act. In other words, intending investors have a right to expect that much fuller information shall be given in the published prospectuses than is at presc nt given in many of the prospectuses of the Australian State Loans.

PROSPECTUS DEFECTS.

It is on this particular point that the critics of Australian finance are on thoroughly sound ground. Without going into the question of whether the entire Debt of Australia is unwieldy or not, or into the still more controversial subject of whether the purposes of borrowing are always desirable, the investor undoubtedly has a right to be told in the prospectus all the purposes for which the money is required. He is also entitled to much fullei information than is sometimes afforded with regard to the particulars of the condition of the borrower's finances, the state of its Debt and all information with regard to sinking funds; providing for final repayment of the Loan also, where possible, a clear statement of the general resources of the borrower. In fact, if all the Australian State prospectuses were on the lines of the New Zealand Loan prospectuses, there would be little need for the criticism which has been provoked, for in the New Zealand prospectuses the fullest possible information is given to the borrower and that fact is well recognized and appreci- ated in the London market. •

CRITICISM OR ATTACK

If the main observations of this highly critical pamphlet had been along the lines of its concluding observations, it could only have fulfilled 'a useful purpose, expressing, as it does, in forcible terms, the views not only of the critical observer, but of those most friendly to the Com- monwealth of Australia and to the various Australian States. It is to be feared, however, that the usefulness of the criticism may be somewhat impaired by the vigour not so much of its investigation into, but of its actual attack upon Australian finance, which we should imagine is likely to evoke, sooner or later, a retort. The requirements on the part of investors in Australian securities suggested at the end of the pamphlet are so entirely reasonable in character that very little in the way of argument should be required to commend those requirements to the right quarters. I think, however,. that those authorities in Australia who may feel aggrieved by some of the statements of the pamphlet and their manner of preientment can feel assured that while the _City is at one with the suggestion for somewhat greater economy in borrowing and for fuller information in the public prospectus, it is not in accord with anything in the nature of an attack upon the finances of Australia as a whole.