COMMONWEALTH RESPONSIBILITY.
By or before the date of this article appearing in print it will be known whether or not New South Wales* has actually defaulted in its payment of the April interest, or perhaps, in view of the attitude taken by Mr. Lang, it would be more correct to say whether the Commonwealth Government has permitted the conse- quences of Mr. Lang's action to be translated into a default so far as the bondholders are concerned. For it is probable that New South Wales stocks would have fallen even more than they have done but for the fact that some two years ago the Federal Government of Australia took over the obligations of the various States and a Loan Council was also established bringing under the control of the Federal Government all future external loans raised by the Australian States. In view of the importance which attaches to this responsibility of the Commonwealth Government, it may be useful to quote the actual terms of the Act of 1929. Under the head of " Permanent Provisions " there occurs the following : " Subject to the provisions of this. Part of this Agreement the Commonwealth will take over on the 1st July, 1929 :
" (1) the balance then unpaid of the gross public debt of each State existing on 30th June, 1927 ; and
" (2) all other debts of each State existing on the 1st July, 1929, for moneys borrowed by that State which by this Agreement are deemed to be moneys borrowed by the Commonwealth for and on behalf of that State—
and will in respect of the debts so taken over assume as between the Commonwealth and the States the liabilities of the States to bondholders.
" (a) Subject to this clause the Commonwealth will pay to bond- holders from time to time interest payable on the Public Debts of the States taken over by the Commonwealth as aforesaid other than debts due by the States to the Commonwealth."
Not only, therefore, would it seem to be quite clear from the foregoing that the Commonwealth Government accepted this responsibility for the State debts, but in most of the new Loans which have been issued since a reminder has been given of this new feature in Australian finance tending to reassure investors. Indeed, the Times of Friday last quoted a reference which was made in the prospectus of the last New South Wales Loan issued in December, 1927, a special point being then made of the clause in the Validation Act of 1929. The prospectus said : " This agreement will operate for two years, before the end of which period the people will be asked by referenda to embody t he terms of the agreement permanently in the Federal Constitution. The agreement contemplates that the Commonwealth shall take Over the debts of the States.. . . This agreement will apply to this and all existing loans of the States. . . . When embodied in the Federal Constitution . . . securities issued by the State, including the present issue for New South Wales, would be guaranteed by the. Commonwealth, and the principal and interest would be a charge on the consolidated revenues of the Commonwealth and the State concerned."
* At the time of proof revision comes the welcome but expected announcement that the Commonwealth Government has accepted responsibility for the April interest on the New South Wales Loans, while all the cables from Australia testify to the indignation throughout the country with regard to Mr. Lang's action. Hence I am able to make the title of this article Repudiation Repudiated and to record a rally in Australian stocks. A. W. K.
(Continued on page 562.)
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