§ I must describe with more particularity the proceedings in the year to contract the unwieldy and dangerous bulk of the unfunded or floating debt, which is far and away the most serious factor in our financial situation at this moment. This debt consisted on April 1st, 1905, of three items; the War Loan at 2¾ per cent, interest, repayable in 1910, £30,000,000; Exchequer bonds at 3 per cent., maturing as to £14,000,000 in 1905 and as to £6,500,000 in 1907; and, thirdly, Treasury bills at short dates and bearing varying rates of interest, £21,133,000, bringing out the total of the floating debt at £71,633,000. I ought to say for the sake of clearness we do not include in this enumeration the Exchequer bonds for £6,000,000 created under the Capital Expenditure Act of 1904. They have a Sinking Fund of their own.
§ What was done in the year 1905–6 to reduce the bulk of floating debt? The item my predecessor selected for immediate attack was that of Exchequer bonds, of which £14,000,000 were due to mature in December last. His plan was to pay off £4,000,000 of these bonds and to issue in place of the remainder a new series of £10,000,000 at 2¾ per cent, instead of 3 per cent., which were to have a currency of ten years, but to be redeemable by annual drawings of £1,000,000. The drawings were provided for by raising 293 for the time the annual fixed charge for the Debt from £27,000,000 to £28,000,000, and in this way what may be described as a new Sinking Fund was brought into existence, specially earmarked for the gradual redemption and extinction at the end of ten years of the £10,000,000. The immediate reduction effected by this operation in the unfunded debt was the paying off of £4,000,000 out of the £14,000,000 of the then current Exchequer bonds. How did my predecessor acquire the funds for that purpose? First and foremost, he took advantage, quite rightly, of a windfall from South Africa—;whence windfalls do not, as a rule, blow in the direction of the Exchequer-to the extent of £1,213,000. He then added to that the still unemployed new Sinking Fund of 1904 amounting to £2,219,000, and for the balance of £568,000 to make up the £4,000,000 he drew on the new Sinking Fund for the current year. These £10,000,000 of new bonds were issued in April, 1905, the instalments being spread over six months; and, notwithstanding that they bear interest at 2¾ per cent, and every holder must be repaid at par at the outside within ten years, the average price obtained did not exceed £98 13s. 10d. The Committee will see that, on the whole, it was a disappointing operation. The first £1,000,000 of the bonds was drawn in February, but not acually paid off till April 18th, and, therefore, that amount taken from the new Sinking Fund in 1905–6 cannot be credited to the discharge of the unfunded debt in that year. The Committee will observe that when I came into office last December the new Sinking Fund for 1905–6 was already hypothecated in respect of the payment of the old and the drawing of the new Exchequer bonds to the extent of £1,568,000. The total amount of the new Sinking Fund was £3,449,000. After much consideration, I directed that the balance, amounting with sundry accretions to £1,920,000, should be applied to paying off Treasury Bills as they fell due during the March quarter. The result is that the outstanding Treasury Bills, which were at the commencement of the financial year £21,133,000, have been reduced at its close to £19,213,000. The two operations together reduced the unfunded debt by £5,920,000, without taking into account the £1,000,000 of 294 new Exchequer bonds paid off during the present month. That means a net reduction in the capital indebtedness of the State for the year of £7,750,000, not altogether an unsatisfactory result. We have got to go back for nearly ten years, to find anything like a corresponding reduction. But I must add that if there is any meaning or force in the considerations which I have been urging, this is not the moment to slacken our efforts.