[Communicated to the Members _ of the Council.] C« 7 2 . *924- H .

LEAGUE OF NATIONS G en ev a, January 31st, 1924.

FINANCIAL RECONSTRUCTION OF AUSTRIA (Second Year)

THIRTEENTH REPORT

BY THE Commissioner-General of the League of Nations for Austria.

(Period December 15th, 1923, to J a n u a r y 15th, 1924. •— First month of the third Stage.)

I have the honour to submit to the Council of the League of Nations my first monthly report for the year 1924. It forms a continuation of my Twelfth Report (Document C. 13.1924. II) and the preceding reports, and relates to the period December 15th, 1923, to January 15th, 1924.

A month ago I drew the attention of the Council to certain symptoms of over-consumption which I thought I detected in Austria and which, I believe, are due to an inevitable reaction against the privations of former years and to the increase of private incomes produced by the process of adapting and readjusting the values of private capital which took place in 1923. This tendency, which at present creates a false impression of great prosperity throughout the country, appeared to me likely rather to delay than to advance the date on which satisfactory economic conditions and financial equilibrium could be permanently re-established. At the end of 1923, it produced a feverish desire to spend, which lent an impetus to trade and increased the State revenues, but I felt that, in view of the actual situation of the country, this state of affairs was not a normal one and might lead to a crisis, all the more serious because it had not been foreseen. At any rate, it seemed to me that the atmosphere of heedless extravagance in which private individuals lived was not conducive to the success of the essential task of reducing public expen­ diture. Its effect on prices renders it more difficult for the State to realise economies in admini­ strative expenditure, while it is proof of an attitude of mind which ignores the need of a spirit of sacrifice. The main danger was, I thought, that, on the basis of revenue which was perhaps only ephemeral, expenditure might be permanently fixed at too high a level. Since then, the situation has not undergone any noticeable change. Christmas and New-Year festivities have still further increased consumption, and the Vienna winter season, which is accom­ panied by much luxury expenditure, is at its height. Revenue from indirect taxation (in particular, from the tax on business turnover) continues to show an upward tendency, but it is still impossible to judge how far this improvement is permanent and how far merely temporary. None the less, in view of these exceptional receipts, the State’s dependents, such as officials and autonomous provinces, are seeking to benefit by the surplus, which they regard as permanent. The increased salaries granted to Government employees have not yet been covered by the suggested reduction in the amount of taxation refunded to the Provinces. The latter are even requesting the Central Government to guarantee them in every event an income greater than that — perhaps itself exceptional — which they received in 1923, although the very object of the reform was to induce them to effect economies and to cover the increase of expenditure resulting from the adjustment of salaries. In order to reconcile these points of view, therefore, the State is showing an ever greater tendency to work for an increase of revenue (which has hitherto always been obtained) rather than for a decrease of expenditure. W hat is required is a change in the public mentality. Mgr. Seipel, the Federal Chancellor, has clearly grasped this fact and has recently, in a state­ ment which has aroused much discussion, condemned the exaggerated consumption and indulgence in luxuries now everywhere apparent. If permanent and final recovery is to be attained — and that is our common aim — there must be some recovery from the present state of mind of Austria. The prevailing ideas will have to be entirely recast, and there must be a return to the conception of th r if t. The increase in the purchasing power of the public, due to the partial readjustment of capital values, has, moreover, already produced some effect on home prices. This effect has been ascribed to the monetary policy which has been followed, but it is in all probability due to the adaptation itself and to the excessive consumption to which it has given rise. At all events, the problem exists; I shall therefore in this report have occasion to draw the attention of the Council to the monetary question and to the question of prices ; both are most im portant at the present juncture.

S. d. N. 160 (F) + 220 (A), (prov. S. A.) + 1500 (F) 1400 (A) 3/24. Imp. Kundig. I T h e I nternational R econstruction L o a n .

The operations connected with the Guaranteed 1923-43 Loan were concluded before the end of August 1923. The only question left outstanding was the transfer to the Czechoslovak Govern­ ment of the securities due to it as repayment for the advance made by Czechoslovakia to Austria in 1922. It appears, however, that this m atter will soon be settled, and the net value of these securities was fixed some time ago at 60 million gold crowns. In these circumstances, the issue of the Guaranteed 1923-43 Loan, which was intended to provide a net sum of 585 million gold crowns, may be regarded as complete. In my n th Report to the Council (Doc. C. 735. 1923. II), I had the honour to summarise the terms and indicate the yield of each block. The Committee of Control of the Guarantor States, at its meeting in Paris on December 17th, 1923, took note of the results obtained and of the fact that the various blocks were floated subject to the conditions which it had laid down (less than 7% % average real interest), and it approved in detail the operations which had been carried out. The efforts made to furnish Austria with credit as provided in the Geneva Protocols are not confined to this 1923-43 International Loan, which was issued under the guarantee of Great Britain, France, Czechoslovakia, Italy, Belgium, Sweden, the Netherlands and Denmark. Two further loans were to be negotiated under the respective guarantees of the Swiss and Spanish Governments, which had not participated in guaranteeing the 585 million loan. T h e Swiss Government stated that it had been authorised by a decree of the Swiss Federal Assembly dated February 6th, 1923, to contribute 20 million gold crowns to the financial recon­ struction of Austria, either by way of a direct advance from the Government or otherwise. It is therefore empowered to place this money at Austria’s disposal when so requested without any further formalities. In order that the Austrian Government may not be required to pay interest now on a sum it is not at present utilising — since part of the International Loan is still available — the Government, with my permission, has not yet requested the payment of these 20 millions, knowing that it can obtain them as soon as they are required. T h e Spanish Government’s guarantee for a loan producing a net yield of 26 million gold crowns has been obtained and is now being utilised. The credit operations on the Spanish market h a v e been carried out between representatives of the Austrian Government and a group of Spanish banks, and the signatures were exchanged on December 15th, 1923; the money will be paid over by the banks without at present opening the loan to public subscription. The loan is of 52,300,000 Ptas. nominal capital value in obligations of 500 Ptas. issued at 405, bearing 6 % interest, dated December 1st, 1923, and repayable in twenty years. The Committee of Control has requested the deposit of the Spanish Government’s guarantee bonds, which, together with the Austrian Customs and tobacco security, are to cover the service of this loan, issued independently of the great Interna­ tional Loan, but on the same lines. All financial operations on the various European markets having thus been brought to a satisfactory conclusion — this being a condition laid down by the American Investment Syndicate for releasing the funds obtained by the United States Loan — I was able to request Messrs. Morgan & Co. to dissolve their syndicate on December 31st, 1923, and the net yield of the New York issue (viz. 21% million dollars) was, at the beginning of 1924, paid in to Account B, which is under my control.

II . E x e c u t io n o f t h e R e f o r m P r o g r a m m e .

A . The Provisional 3 / I2 th s fo r 1924.

In my n th Report (Document C. 735, Chapter III, A), I reported in detail the manner in which the 1924 draft budget was being drawn up. I indicated the limits fixed in the scheme of reform by stages established by the Provisional Delegation of the League of Nations, as regards the expenditure and the deficit for the first and second halves of this year. The net figure for expenditure in the draft, after regrouping the figures, remained within the limit of 6,600 milliards fixed in the scheme of the Provisional Delegation (yearly average). I should point out, however, that in these estimates no account has been taken of the additional expenditure resulting from the increase in the salaries of Austrian officials which has since taken place. (For details, see Chapter II of my last report. Document C. 13. 1924. II). At the outset, it seemed that the limits fixed had been exceeded and that new efforts would be required to cover the additional expenditure entailed by the increase of salaries. The Government felt that it ought not to resort to fresh taxation in order to cover this expenditure, but that it should modify the system of allocating the yield of certain Federal taxes between the Austrian Federation, the Pro­ vinces and the Communes (see paragraph B of this chapter of the report). This reform called for legislative steps which, if voted by Parliament, would necessitate a modification of these tech­ nical details in the draft budget. As it was impossible to take all these steps before the end of the year, the Minister of Finance, in order to avoid an illegal situation at the beginning of 1924, sub­ mitted to Parliament a draft for a provisional 4 /i2ths to cover the period January-April. By a law dated December 21st, 1923, Parliament voted a provisional 3_/i2ths, the total estimates of which correspond to a quarter of the total expenditure in the draft budget, i.e. to about 1,650 milliards of paper crowns, if the figures are regrouped for purposes of comparison with the pro­ gramme. The increase in salaries will be paid; the estimates of the draft budget have not, however, been augmented, and economies will therefore have to be effected on those items which are not connected with the salaries of officials. The maximum of 1,650 milliards for the first quarter of 1924 is within the limits fixed by the Delegation’s scheme, particularly as this scheme, of which the average calculated for one year is referred to above, provides for an average monthly expen­ diture of 573 milliards for the first half of 1924 and 527 milliards for the second half. The total estimates for January, February and March may, therefore, attain at the most 573x3 = 1,720 milliards, and the principal economies will have to be effected in the second half-year. It was, however, necessary to make sure that the deficit, as w'ell as the expenditure, should not be higher than the limit set by the Delegation. For this purpose, an article has been included in the draft budget obliging the Government to reduce the deficit to within the limits fixed; this clause is worded differently in the Law on the Provisional Twelfths. It is laid down therein that no expenditure may be incurred which is contrary to the provisions of the Third Geneva Protocol. The scheme of the Provisional Delegation is part of that Protocol and provides for a monthly deficit of 51 milliards during the first half of 1924, i.e. 153 milliards for the period January-M arch. The draft budget which has come into force under the Law on the Provisional Twelfths is cal­ culated on a basis of a deficit of 71 milliards per month, i.e. 210 milliards for the three months. The cover for the difference between the deficit under the Law on the Provisional Twelfths and the deficit allowed for in the Scheme of the Provisional Delegation will probably be provided by a revenue yield in excess of the budget estimates. The yield from taxation has, in point of fact, been estimated in the draft budget for 1924 with a wise caution to which I drew the attention of the Council in my n th Report (see page 7 of the Report in question).

B. Modification of the Law on the Refund of Part of certain Federal Taxes to the Provinces and C o m m u n es. (Law on the “Ertragsanteile”).

The modification of the Law on the “Ertragsanteile”, which was necessitated, as has been said, by the increase in the salaries of officials, has evoked strong opposition on the part of certain Provinces and Communes and is still being discussed under somewhat difficult conditions. The basic idea of the Scheme of Reform by Stages drawn up by the League of Nations Pro­ visional Delegation was that the budget should be balanced at a level which could be maintained in all circumstances. This is what the Third Protocol calls the permanent equilibrium of th e Austrian budget. The Delegation, therefore, in agreement with the Austrian Government, fixed the maximum expenditure for each half-year in 1923 and 1924. (For details, see Annexes II« and 116 to my 10th Report, Document C. 702. 1923. II.) The total taxation was not to exceed these limits, and, in order to emphasise this principle, the scheme also fixed for these periods, and for the year 1925, the sums which in one form or another the Provinces and Communes might receive. This idea is illustrated by the following table :

Extract from the Scheme of Reform by Stages drawn up by the Provisional Delegation.

Y ear 1923 | Y ear 1924 Y ear 1925 Nature of the Expenditure by the Federation 1st half | 2nd half 1st half 2nd half

Million paper crowns

6. Subsidies to independent administra­ tions for expenditure under the item “ S ta ff” ...... 239,760 239,760 119,520 119,520 7. Refund to independent administrations 216,462 302,860 4 3 5 ,8 8 8 4 5 7 ,4 8 8 988,414

T o t a l ...... 456,222 542,620 555-408 5 7 7 ,0 0 8 988,414

The Delegation’s idea was that, as in the case of the Federal Administration, the increase in the revenue of the Provinces and Communes should be accompanied by a reduction of certain expenditure, making it possible for them to reorganise their services on a normal scale. Moreover, it was far easier for the independent administrations than for the Federation to carry out reforms. In contradistinction to the latter, the Provinces and Communes had only to simplify their administration within the limits of their existing organisation. The Federation, on the contrary, had to reduce its administrative machinery, which had been that of a Great Power, to the strict minimum compatible with its present needs. The problem of revenue displays to an even more marked extent the difference between the Central Government and the inde­ pendent administrations. In the case of the State, the yield from taxation had in the future to take the place — even for the purpose of paying subsidies to the Provinces and Communes — of the sums which had been provided by inflation during the period of crisis. It is clear, therefore, that the Central Government will have' to increase its revenue and reduce its expenditure to a far greater extent than the independent administrations. W ith the intention of acting in conformity with the scheme of the Delegation, the Govern­ ment has accordingly carefully made provision in the Reconstruction Law (Wiederaufbaugesetz) for the allocation of the yield from taxation between the Federation, the Provinces and the — 4 -

Communes. This settlement, however, has produced results quite different from those intended in the Delegation's Scheme, as the following table will show :

Partial Refund of Taxes to the Provinces and Communes

Actual sums refunded to Maxima laid down in the Provinces and Communes Scheme of Reform by Stages Surplus in favour during the year 1923 and of the Provisional Dele­ of the independent to be refunded in gation of the League of administrations accordance with the Draft N ations Budget for 1924.

Millions of paper crowns

ist Half 1923 ...... 216,462 471,972 2 5 5 .5 1 0 2nd Half 1923 ...... 302,862 708,065 4 0 5 ,2 0 3 ist Half 1924 ...... 4 3 5 ,8 8 8 748,690 312,802 2nd Half 1924 ...... 4 5 7 .4 8 8 748,690 291,202

These surpluses are mainly due to the high yield from the income tax (Einkommensteuer), the tax on individual profits (besondere Erwerbsteuer), and the tax on business turnover (Waren- umsatzsteuer) (see table given in Annex II to this report). Obviously, if the Government had been able to foresee these results, the proportion of taxation subject to allocation would have been fixed differently at the time the Reconstruction Law was drafted. The considerable sums which the Provinces and Communes obtained as a result of the satis­ factory taxation-yield referred to above were still further augmented by the yield of local taxes, which had also been greatly increased. Such increases, indeed, compromised the policy of the Provisional Delegation, which had urged that the whole body of fiscal measures adopted should not prove a greater burden than the population of Austria could bear. Moreover, the need for effecting economies was not so obvious as it would have been if the exchequers ofthe independent administrations had had less funds at theirdisposal. Certain Provinces have not adequately reduced their administrative organisation ; others have employed their current funds in productive work on a large scale. Now, however desirable such works may be, they ought not to constitute, either directly or indirectly, a charge on the budget of the Federation, which shows a deficit. It would be sheer folly to prolong this situation. In view of these considerations, the Government’s desire to change the Law on “Ertrags­ anteile” is altogether reasonable. The Financial Minister submitted to Parliament a Draft Law, the provisions of wrhich may be summed up as follows. The yield of the income tax (Einkommen­ steuer) would be reserved exclusively for the Federation as from January ist, 1924. The total amount refunded to the independent administrations would therefore be reduced for 1924, in conformity with the Draft Budget, to 1,498 — 475 = 1,023 milliards, as against 893 provided for by the Delegation and 1,180 milliards actually refunded in 1923. The reduction of the Provincial and Communal “Ertragsanteile” to a figure lower than that which the Provinces and Communes received in 1923 would, however, have involved these admini­ strations in difficulties. The Government therefore inserted in the Draft Law a clause guaranteeing th e m : In 1924, 10 per cent., In 1925, 15 per cent., and in 1926, 20 per cent, more than in 1923. In thus guaranteeing to the Provinces and Communes a stable foundation for their finances the Government went as far as it could. It is therefore all the more regrettable that the spirit of conciliation shown by the Government has not been sufficiently appreciated by certain Pro­ vinces and Communes. The Commune of Vienna, in particular, very actively opposed the altera­ tion of the “Ertragsanteile”. It is to be hoped that the Government will be able to overcome these difficulties, and that the sums required for salaries will shortly be obtained by the passing of the Draft Law by Parliament.

C. Issue of Metal Currency.

In my n th Report (page 12) I stated that the Minister of Finance was making preparations for the issue of a metal currency. The crown now stands at only 1 /14,400th of its former value, and has thus ceased to possess the character of a monetary unit. In view of this and of the stabili­ sation of the exchange since September 1922, we are entitled to consider whether the time has not come to introduce a new monetary unit. Clearly this is a delicate operation, and might pro­ duce unexpected effects on prices. The work of reconstruction, moreover, is far from being com­ plete, and from this point of view it would undoubtedly be preferable to wait until Austria has also obtained budgetary and economic stability. There was, however, no objection to a provisional solution of the question. The Minister of Finance, therefore, on December 22nd, 1923, secured the passage through Parliament of a law authorising the issue of silver coins worth 5,000, 10,000 and 20,000 paper crowns respectively. A coin worth 10,000 crowns, which will be known as a “schilling”, is intended to prepare the way for introducing a definitive monetary unit in the future. Its intrinsic value is about — 5 —

8o per cent of its face value. The “schilling” is not, therefore, a monetary unit in the strict sense, in spite of the fact that it is legal tender for the payment of any amount. The reason for this is that the Government did not wish to give the public the impression that a coinage was being circulated inferior in quality to the notes it was intended to replace. In order, however, to mark the fact that the “schilling” does not constitute a new monetary unit, the law expressly lays down that the “schilling", the "half schilling” (5,000 paper crowns) and the "double schilling” (20,000 paper crowns) are divisional coinage. The high intrinsic value of the “schilling”, in spite of the fact that it is divisional coin, has been sharply criticised. I think, however, that this will strengthen confidence both at home and abroad in Austria’s monetary policy. In order to emphasise its desire to avoid fresh inflation in any form, the Government in this law has forgone all profits which may accrue to it as a result of the issue of the new currency. The profits in question will be utilised solely for the repayment of an equivalent portion of the State debt to the National Bank of Austria, contracted during the period of inflation. The law on the issue of the "schilling” was preceded by a law dated July 19th, 1923, on the entry into circulation of bronze and nickel coins representing 100, 200, 500, 1,000 and 2,000 paper crowns respectively. These coins, however, may only be tendered in payment up to a certain amount, and they therefore differ from the "schilling” in that they merely constitute small change. It is to be hoped that the absence of metal coins of a denomination lower than 100 paper crowns will not lead to a further rise of prices.

D. Other Measures of Reform.

Attention should be drawn to the following measures of reform adopted during the period December 15th-January 15 th.

1. Entry into Force of the Increased Tax on Business Turnover. In virtue of certain provisions of the Reconstruction Law, the Minister of Finance had decreed on March 10th, 1923, through the Extraordinary Cabinet Council, certain measures for carrying out the law on business transactions. This decree, which was based on the Reconstruction Law, provided during the year 1923 for a tax of 1 % on ordinary business transactions and of 12 % on transactions in luxury articles. During the period of about ten months which elapsed between its entry into force and the end of last year, the taxes provided a revenue of 557 milliards of paper crowns, of which 484 milliards were collected during the second half of the year. In execution of the Reconstruction Law, the decree of March 10th also provided that the rate of taxation on ordinary business turnover should for 1924 be raised from 1 to 2 per cent. The favourable results obtained in the second half of 1923, and the general fear that the increased rate might lead to a further rise in prices, induced the Minister of Finance to revise the whole method of levy­ ing this tax, in the light of experience gained last year. The undesirable effects which might have been produced by increasing the tax have as far as possible been mitigated.

2. Further Measures for the Reorganisation of the Federal Railways. In my n th Report (Chapter III,A) and my 12th Report (Chapter III, B), I referred to the increase in the "goods” and "passenger” rates which the Directors of the "Federal Railways” undertaking proposed to introduce as from January 1st, 1924. On that date the new rates came into force. In a latter report I shall examine the results obtained. As regards expenditure, the most important event in the period dealt with by this report was the incorporation, on January 1st last, of the Austrian lines of the “Donau-Adria-Save” Company (formerly known as the "Südbahn Company”) into the State system. I had occasion to refer in my 9th Report (Document C. 666. 1923. II, pages 2 and 3) to the efforts I had made to bring about this fusion. Its accomplishment at once enabled considerable economies to be made. The lines of the former “Südbahn” system in Austria no longer formed a single system after the territorial changes brought about by the War. Fusion has made it possible to allocate these lines for purposes of administration between the various local systems, which have thus obtained the necessary unity in their own areas. It has in this way been possible to abolish the former administration and obviate the complicated procedure of settling accounts, hitherto in force at all points at which the Südbahn system joined the State system. By utilising the formerly separate “Südbahn” and “State” systems and their rolling-stock to better purpose, in accordance with traffic requirements, economy will be effected in future on the hire of foreign rolling-stock. Apart from such special economies, it is clear that the great work of reorganisation which the railway administration is at present undertaking will meet with fewer obstacles than would have been the case if the “Südbahn” had remained a separate company. The underlying principle of this reorganisation is concentration, which, as Sir William Acworth pointed out in his report to me, is essential if the undertaking is to be run on business lines. In this way such departments in the Central Offices and in the Local Offices as overlap (for instance, those concerned with receipts and the purchase and distribution of material) may be abolished as the reform proceeds. A simplification of local organisations is required to complete the work of reform, and this reform, as a whole, will make it possible to reduce expenditure to a strict m in im u m . It is to be hoped that the management will continue to act energetically on the lines it is now following, for its efforts must indeed be directed towards effecting economies. Nothing could be more unwise than an attempt to re-establish the budget equilibrium of the undertaking by again raising rates. — 6 —

E . Reduction in the Number of Officials.

Progress in reorganising the railways is shown very clearly in the weekly returns which the Commissioner of Economies sends to me. After the dismissal of 3,332 officials of this undertaking between November 3rd and December 1st, 1923, the returns for the period December 1st to December 31st show a further reduction of staff to the extent of 6,802, or a total of more than 10,000 in the last two months of the year. In spite of these results, a great effort will still have to be made by the Central Board in order to reduce the staff on December 31st from 74,178 to the total of 64,000, which is the figure Sir William Acworth lays down in his report to me (see page 73 of that report). It is clear that the organisation of the undertaking will have to be simplified still further if this reduction is to be carried out. As regards the Central Administration, I have already on several occasions insisted that the extensive administrative reform provided for by the Reconstruction Law must be undertaken. It would be in the interests of the country for this reform to be accompanied by a general simpli­ fication of the provincial administrations. Such a work, undertaken in a real spirit of collaboration, with the intention of suppressing all duplication of work in every administration, would make it possible to reduce expenditure considerably. Results would take the form of a reduction in the number of Federal and Provincial officials. As far as the Central Government is concerned, it is particularly im portant that these measures should not be delayed. The results of the present delay are clearly seen by comparing the total figure of dismissals, which was 61,204 at the end of 1923, with that of 75,000 accepted by the Government in its agreement with the Provisional Delegation. (For the reduction in the number of officials during the period December ist-December 31st, 1923, see Annexes III A and III B to the present report.)

I I I . T h e F in a n c ia l S it u a t io n .

A. Position of the Treasury in December

The Provisional Budget for December 1923 provided for an expenditure of ...... 578 milliards a revenue o f ...... 494.7 ))

a n d a d eficit o f ...... 83.3 m illia rd s

I only undertook to release the last sum, as the total amount placed by me at the disposal of the Treasury between July 1st and November 30th already amounted to 1,054 milliards, and the Reform Scheme fixed 1,140 milliards as the maximum amount which might be released during the latter half of 1923. Since the negotiations concerning salaries had obliged the Government to concede increases involving an additional expenditure of 51 milliards a month (614 milliards a year), it was evident that the total actual expenditure would exceed these estimates, which were made before salaries had been adjusted. The salary to be paid at the end of December being that for January 1924, the new rates were applied; and as the Government had agreed that the reform should — by way of a Christmas present — be retrospective as from November, a still further expenditure to the extent of 51 x 2, or 102 milliards, was added to the estimates. The concessions granted after the strike of the Postal and Telegraph officials (the raising of the minimum bonus to 70,000 crowns) represented a further increase of about 8 milliards in expenditure. Taken as a whole, the estimated expenditure for December therefore reached :

I n s te a d o f ...... 578milliard s W ith th e n ew i n c r e a s e ...... + 5 1 » T h e C h ris tm a s p r e s e n t...... + 111 »

A to t a l o f ...... 740milliard s,

and the deficit became 83 + 51 4- m = 245 milliards.

However, I only released, as I had intended— independently of the refund of the yield from Customs and Tobacco after the service of the loan had been covered — 83.3 milliards of paper crowns, as follows :

70 milliards from Account B (crowns) ; 13.3 » » » » (foreign currency) (3,622,000 French francs)

Total: 83.3 milliards (see, in Annex IV, Movements of Accounts A and B).

The remainder was met by the Government itself from the reserves at its free disposal, pro­ vided by the very satisfactory revenue for the last few months. It is also very probable that the revenue for December has, like that of the preceding months, exceeded the estimates of the Pro­ visional Budget, and covers part of the deficit referred to above without it being necessary for the State to draw to any great extent on its reserves. B . Closed, Accounts. The existence of these reserves has been the subject of discussion between the Finance Minister and myself. Their employment to cover fresh expenditure, over and above the estimates made when the Provisional Budgets were drawn up, raised a question of principle which I wished to have settled. There is no doubt that, by reason of the exceptional revenue obtained from taxation in the second half of 1923, the Government has been able to rely on having considerable sums at its free disposal. This is, indeed, the way in which the Government itself has benefited from the adjustm ent of values which provided the Austrian public with fresh resources, and which I described in my last report as a replacement of capital which would not recur. If we examine the last closed accounts published we shall see this quite clearly.Although the deficits of July August September October 1923 w ere o n l y ...... 86 82 151 63 m illia rd s instead of the deficits provided for in the P ro v is io n a l B u d g e t s ...... 276 264 218 188 » this is due to the fact that the actual revenue to the State has considerably exceeded the estimates, amounting to .... 539 539 440 544 » in s te a d o f ...... 3 9 3 3 7 9 4 ^ 4 4 6 4 » I have, however, released amounts on the basis of the deficits estimated in the Provisional Budgets It will therefore be seen that in the long run it was because the sums released by me were greater than the actual deficit that the State was able to constitute free reserves ; I should therefore be entitled to control the manner in which they are utilised. Geneva Protocol No. Ill, para. 4, provides that the Government may not “dispose of any funds derived from loans except by authorisation of the Commissioner-General, provided that the conditions which the Commissioner-General may attach to such authorisation shall have no other object than that of assuring the progressive realisation of the programme of reforms", which is based primarily on a reduction of expenditure intended to ensure in the future the per­ manent equilibrium of Austria’s finances. In the meantime, if satisfactory progress is recorded in this direction, the deficit is to be covered by withdrawals from the yield of the loans. Such withdrawals may only be sufficient to cover the actual deficit of the State, and should not exceed the figures estimated as deficit for each period, according to the Scheme of Reform by Stages which the Provisional Delegation of the Council of the League of Nations and the Austrian Government established together. Hitherto I have always been careful to make sure that the amounts released by me for each period did not exceed the limits which were laid down in the Reform Scheme, and were conse­ quently known in advance. It was less easy to make certain that the amounts released did not exceed the real requirements of the Government, because they had to be released before the closed accounts were available. I therefore placed the loan funds at the Government’s disposal in accord­ ance with provisional m onthly estimates, known as preliminary budgets, drawn up at the beginning of each month before the actual deficit was known. It now appears, from the closed accounts, that the sums released exceeded the actual requirements of the State, owing to the exceptional yield of taxation during a period of adjustment of values —- a yield for which no allowance could be made in the preliminary budgets. Consequently, the reserve at the free disposal of the Government has been increased each month by the difference between the sums released by me (which were limited only by the Reform Scheme) and the actual deficit. This is clearly contrary to the spirit of the financial supervision established by the Protocols. Merely as regards the free accounts of the Federal Treasury in paper crowns, the balance at the disposal of the Government increased from 135 milliards at the end of July to 307 at the end of November. Notwithstanding the payments made from this reserve in December without fresh releases on my part, the balance at the end of December was still 283 milliards, and is now (January 15th, 1924) 464 milliards. W ithout going so far at present as to request that the sums released in excess of the actual deficit — i.e., the surplus — should be paid back into the reserve accounts, I hold myself entitled to appropriate part of this money for the future requirements of the State. After all, the funds were not released as a result of a contractual obligation — they were placed at the disposal of the Government for the sole purpose of covering a deficit which, owing to exceptional circum­ stances, did not in fact occur. They are therefore released, at present, without purpose. The pur­ pose, however, will become clear during the next few months. The closed accounts for November are, I understand, more satisfactory than the preliminary budget estimates. They have not yet reached me, and I shall therefore deal with them in my next report.

C. Framing of the Preliminary Budget for January 1924. The monthof January 1924 opens the third half-yearlystage of the Reconstruction Scheme. According to the scheme, the average expenditure, receipts and deficit for each month should be as follows : Expenditure ...... 573 milliards R e c e i p t s ...... 5 22 ” D e f i c i t ...... 51 m illia rd s The experience of the previous stages has shown that the average monthly deficit allowed for a period of six months cannot be reached in the first preliminary budget, and that any excess which may be authorised at the beginning of the half-year must and can be made up during the ensuing months. Thus, during the first period (maximum deficit allowed by the Reform Scheme : 2,032 milliards for the half-year or 339 milliards per month), I succeeded in limiting the deficits in the six pre­ liminary budgets to 1,997 milliards, notwithstanding the fact that I had authorised a deficit of 405 milliards in January 1923. For the second period (maximum deficit under the scheme: 1,140 milliards for the half-year or 190 milliards per month), the estimates in the six preliminary budgets amounted to 1,139 milliards, though the deficits for July, August and September 1923 had been fixed at 276, 264 and 219 milliards respectively. I have therefore authorised for January 1924 a preliminary budget providing for: E x p e n d i t u r e ...... 592 m illia rd s R e c e i p t s ...... 513 » D e f i c i t ...... 79 m illia rd s I am, however, confident that the deficit for the half-year will not exceed 5 1 x 6 = 306 milliards. (For details, see Annex V.) The expenditure includes the additional charges incurred by the Government in consequence of the increase of salaries granted in December. I have, of course, drawn the attention of the Minister of Finance to the fact that this new expenditure (which was not included in the Draft Budget and consequently is not covered by the Law on the provisional twelfths) was incurred before any legal cover had been secured for it. Under the circumstances, in view of the undertakings which the Government has given to its officials, I have authorised the expenditure shown in the preliminary budget. I have, however, pointed out that my consent does not in any way imply that I shall not insist on having the new expenditure covered. I am still of opinion that it can only be agreed if it in no way hinders the necessary reduction of the deficit to the limits laid down in the Reform Scheme. I think, therefore, that the Government should consider without delay how it can meet these new charges, not out of the loan funds, but by a reform in the refund of taxes (Ertragsanteile) to the Provinces and by further economies in other directions. W ith a view to inducing the Government to hasten its action, I have informed the Minister of Finance that I shall not release any further funds until adequate cover has been provided for the increase in salaries. The Government must, therefore, meet all its needs to date out of its own reserves, i.e ., by using part of the surplus remaining from the sums released by me in 1923. It may be of interest to compare the preliminary budgets for

J a n u a r y 1923 a n d J a n u a r y 1924 Expenditure ...... 735 milliards 592 milliards R e c e i p t s ...... 330 » 513 » D e f i c i t ...... 405 m illia rd s 79 m illia rd s

The figures represent paper crowns having in each case almost exactly the same gold value (1 gold crown = 14,400 paper crowns), but only the deficit figures are capable of absolute com­ parison. The latter show that the monthly deficit has been reduced from 28 million gold crowns to 5 y 2 million gold crowns, i.e., by 80 % in one year. The refund of part of the taxes to the Provinces was, however, shown in January 1923 as expenditure (42 milliards), whereas in January 1924 it is deducted from receipts. Similarly, 75 milliards, representing the tax on railway traffic, has been omitted in 1924 from both the expen­ diture and the receipt sides. After making the necessary corrections — including the V erkehrs- steuer (tax on railway traffic) among the receipts and omitting the Ertragsanteile from the expen­ diture — we obtain the following figures for expenditure and receipts, which can be compared with each other and with the deficit figures : J a n u a r y 1923 J a n u a r y 1924. Expenditure . . 735 -— 42 = 693 milliards 592 + 75 = 667 milliards R e c e ip ts .... 330 -— 42 = 288 » 513 + 75 = 588 » D e f i c i t ...... 405 millia rd s 79 m illiard s.

It will be seen that, in reality, 92 % of the remarkable improvement in the situation is due to increased revenue and only 8 % to economy. I wish to draw the attention of the Govern­ ment to these facts, and hope that 1924 may really witness far-reaching reforms and adminis­ trative reorganisation. W ithout such reforms, the budget cannot be definitely and finally balanced at a level which the country’s finances can stand.

D . Assets assigned to the Service of the Loan.

Although the payment of Customs and Tobacco receipts was suspended for a few days in December owing to the postal strike (the money is transmitted through the post offices and through the Post Office Savings Bank), the yield from the assets assigned to the service of the loan again in December exceeded all previous records. The statement of accounts of the Austrian administration shows receipts to the value of 308 milliards of paper crowns (107 for Customs, 201 for Tobacco) as against 301 in November, 276 in October, 189 for the monthly average of the first half of 1923 and 145 for December 1922. Thus in a year the yield has more than doubled. — 9 —

The amounts paid into Account A under my control were :

Financial Month of December (December 9th to January 8th). Milliards of paper crowns. C u s t o m s ...... 9 5 .2 T o b a c c o ...... 1 8 5 .3 T o t a l ...... 2 8 0 .5 plus 19 milliards in three or six months’ bills. The total receipts under this head — though highly satisfactory in themselves (for they cover about four times over the service of the loan to which they are assigned) —■ are, as in all recent months, considerably lower than the figures shown in the accounts of the Austrian administration. According to the accounts for the first half of 1923, the receipts am ounted to 1,133 milliards, and an approximately equal sum was actually paid into Account A (1,125 milliards) ; but the statem ent of accounts for the second half of 1923 shows a total of 1,608 milliards, which is consider­ ably larger than the amount paid into the account under my control (1,529 milliards only). (For details, see Annex VI.) The explanation of this is to be found in the constant increase in the number of Customs bills, as a result of which certain receipts are not actually paid in for three or six months. The total yield in the form of bills, added to the total amount paid into Account A, is approximately equal to the figures shown in the accounts. I have drawn the attention of the Minister of Finance to the fact that payment by bills is greatly on the increase, not only in settlement of Customs charges, but also for the payment of a number of taxes. Thus a considerable portion of the Government’s present free reserve consists of bills which cannot be immediately realised as, in my opinion, bills so held always ought to be. A year ago the value of the Customs bills drawn each month did not exceed 3 mil­ liards ; to-day it has reached 20 milliards. Some of these bills will not be discounted by banks and most of them are made out at a discount rate considerably below the current rate of interest in Austria — a fact which explains the popularity of this method of payment among the Govern­ ment’s debtors. To accept in payment bills which are not adequately endorsed for acceptance, and to do so at a rate lower than that which would have to be paid if they were discounted or negotiated, seems to me to constitute an indirect remission of taxation, which a country in Austria's position cannot afford. I have, therefore, requested the Minister of Finance to see that this practice ceases. Personally, as it is my duty to supervise the collection of the yield from the assets assigned to the service of the loan, I. cannot permit the continuance of this system for Customs bills. The high figure of the December receipts is principally due to large sales of tobacco in anticipa­ tion of the holidays. M. Aliprandi, the Italian expert, whom I invited last summer to investigate the management of the Austrian tobacco monopoly, one of the securities for the reconstruction loan, has recently submitted his report, based on protracted and careful investigations on the spot. My office and the Austrian Government department concerned are now giving their careful consideration to the report, and will not overlook any valuable suggestions which it may contain for the development of the undertaking. As I pointed out in my last report, I have been able, in view of the large amounts paid into Account A, to request that the sums necessary for the service of the loan be covered a month in advance. The 67.7 milliards required for the payment on January 1st of 1 /12th of the interest and amortisation of the blocks issued have, therefore, been held back from the amount paid in December. (See position of Account A, Annexes IV A and VI B.) The whole of the surplus receipts for the month has been refunded to the Government for its free disposal, and it is no longer necessary to record the sums actually received between the 9th of one month and the 8th of the next. In future, therefore, I shaU compare the receipts between the 1st and the 30th with the figures shown in the accounts.

E . The Monetary Situation.

During the period December 7th, 1923, to January 7th, 1924, the Austrian National Bank reserves have increased by 22,000,000 gold crowns, although the amount in foreign currencies received from the State was extremely small and although its requirements were considerable. For such a large monthly increase we must go back to June, when the great movement of capital back to Austria was in progress. Some of these foreign currencies are apparently drawn from reserves which were converted into crowns to meet payments due at the end of the year. The tendency during the early weeks of January seems to suggest that this extraordinary increase in the reserves is purely temporary, like the increase in the holdings of bills, which have risen from 1,070 to 1,248 milliards during the same period. An additional reason for drawing some comparison between the movement of the reserve and the holdings of bills is supplied by the fact that the Bank, in addition to granting credit in the form of discount in crowns, has carried out im portant home investments in foreign currencies ; this is another indirect form of credit which should not be overlooked in any study of the home m a rk e t. The State debt has again been reduced by one milliard paper crowns during this period. The value of the notes in circulation rose between December 7 and January 7 from 6,502 to 6,810 milliards, and the amount of deposits payable at sight from 711 to 864. In view of the — 10 —

change in the rate at which the value of the reserve is calculated in paper crowns, no comparison can be made between the percentages of cover on the two dates. In accordance with Article 85 of the Statute, the value of the reserve in paper crowns is to be calculated on the average gold rate during the second half of the preceding year. In December 1923 this rate was 12,834 paper crowns to one gold crown (average gold Customs parity for the second half of 1922), and in January 1924 it was 14,400 (fixed gold Customs parity from July to December 1923). Consequently, the reserve on December 31st (305 million gold crowns) was reckoned at 3,915 milliards, and the reserve on January 7th (303 million gold crowns), though smaller, is reckoned at 4,368 milliards of paper crowns (see Annex VII). At this rate, the notes in circulation (6,810 milliards) are covered to the extent of 64.1 per cent by the reserve. If commitments arising out of deposits at sight are added, it will be seen that the B ank’s liabilities am ount to 7,674 milliards, 57 per cent of this amount being secured by the reserve ; and if the amount of the public debt is deducted from these obligations in conformity with the Statutes, the percentage of cover is 85 per cent, as against the 20 per cent prescribed (see Annex VIII). These facts, however, are not in themselves enough to exonerate the Bank from the reproach that its policy of stabilisation is a policy of inflation. In fla tio n on behalf of the State is not the only possible form of inflation, and the continued issue of secured notes at 100 per cent gold parity may influence prices in exactly the same way as a gold currency (e.g., in America), or an unsecured issue, if the point is reached at which the m arket is glutted with crowns and can absorb n o m o re. This argument has been advanced in Vienna itself by certain opponents of the policy of stabi­ lisation, who have not resigned themselves to the new relation between gold and the Austrian currency, and who would have liked to see an improvement in the crown exchange. On the basis of the admitted increase in prices, they have exploited the discomfort suffered by the public, owing to the high cost of living, and have concluded, somewhat prematurely, that the explanation is to be found in the monetary policy of the Bank. They claim that there is a certain connection between the rise in prices and the monthly increase in note circulation entailed by the purchase of all surplus foreign currencies on the market for new notes. I should not be taking part in this discussion had not my name been mentioned. Nobody is more apprehensive than myself of a return to the policy of inflation, and yet I have sometimes wondered whether it would always be possible to continue the policy of stabilisation — whether a time would not come when the Bank could not, without surfeiting the market, continue to issue new crowns to balance the offers of foreign currencies, which are always greater than the demand. At present, however, I do not consider that the problem is pressing. Since the beginning of 1924 there has been a lack rather than an excess of foreign currency on the market ; the policy of stabilisation at present therefore means deflation and not the issue of further currency. The latest trade deficit published (November) amounts to 85,000,000 gold crowns as against 59,000,000 in October, and a m onthly average of 47 from January to September. The other factors in the balance of accounts do not by any means offer, in compensation, the same credit balance which they showed a few months ago: the reimportation of exported capital is now at an end ; foreign capital is no longer attracted by the improvement on the stock exchange — the rise is an accomplished fact ; Government sales of currency drawn from the foreign loans are decreasing concurrently with the State deficit. Accordingly, I am of opinion that the amount of surplus foreign currencies which may have to be absorbed by the Bank in future will never be as great as the surplus which was absorbed — and absorbed without any difficulty — in 1923. If we take the note circulation, the reserve, and the holdings of bills, on the one hand, and prices on the other hand, we shall not, I think, be able to find in the past any such connection between the two series of movements as has been imagined or desired in certain quarters. A glance at the attached graph will make this perfectly clear. While the reserve and the commitments of the Bank (note circulation plus deposits) were following an approximately parallel course (the exchange being absolutely stationary), the indices of wholesale and retail prices showed only seasonal movements similar to those in other countries with a sound currency. In June, when the note circulation was increasing extremely quickly owing to the reimportation of capital resulting from the stock exchange adjustment and the legitimate anxiety of capitalists to take advantage of it, there was a fall in prices corresponding to the summer season. The discounting policy of the Bank was based upon the movement of prices. The abnormal rise in retail prices at the end of 1923 (there was no exceptional change in the movement of wholesale prices) is, in my opinion, due to the readjustment of private incomes to the increase in the purchasing power of private individuals and to the over-consumption already referred to, rather than to the monetary policy which is being pursued. It may, however, be admitted that the end of the stock exchange boom set free capital which has come back into circulation; but this is only another proof of the beneficial effect of stabilisation on the cost of living. T h e increase in the value of the crown, or the adoption of a new monetary standard, would, I think, lead to results the reverse of those desired. Inflation might occur at any time if the pur­ chasing power of the currency in circulation became too high in relation to the supply of goods offered. To increase the value of the crown would be to augment the purchasing power of holders of crowns ; importation would be encouraged, while, at the same time, the exportation of home- manufactured articles would be hampered by the higher gold-value costs of production. Moreover, it might prove impossible to arrest an upward movement, for such a movement would lead to a demand for crowns on the part of foreign speculators : this would entail an offer of foreign currencies and a rise — which might only be temporary — far greater than any which the country could support. Finally, therefore, I came to the conclusion that the most prudent and practical policy was that Gold a n d currency reserve M o n e t a r y Policy of fhe Austrian National BanK in 1923 holdings of bills and commitments 777b Mill fards of sight (Mole C irculation ♦ Deposits J Cover 50/1% The Increase in the gold and currency reserve continued tnrougnout 1923, Auetrla'a balance of accounts remaining favourable during tnia period of adjustment notwithstanding the deficit on the trade 7.126 Milliards (Notes)* 7000 ttOOO- balance. The conversion Into crowns of foreign Currencies derived -J Cover 55% * from the re-lmportation of exported capital and from foreign in à9 iB Miiliardsf R eserve) veatmenla In Austria was particularly notable In June, tn loan . 505rntli«on5 goiocr period, when tne value of Stock Exchange securities waa being adjusted The Bank abeortis ail foreign currenciee offered, thue forming its reserve and maintaining the exchange _ at the stabilised rate. The equivalent of thia , "QGV reaerve in crowns is provided mainly by fully secured new issues, easily absorbed by a (uarket already snort of floating capital

6000- 300C - rooo

• -2,586 !)iocK E xchan ge In d e x I?h00 S tock xchange index (Austrian slocn) — • —M From July onwards tne amount of deposit» . t engnt increased : tne Bank utilises them for the 5 0 0 0 purchase of surplus foreign currencies on the imarxet,thus retaining control over the exchange. Iwhile endeavouring to avoid ae far ae possible 2the issue of new no te e( danger of effect ox l ri­ le reaeed note circulation on home prices). H The increase of deposits thus helps to cover l ne Increase in the currency reserve. At the one "~"*of every month,011 the withdrawal of tne deposits f P. JU\ Deposits the note circulation is bound to encrease .f.323 Milliards (Holdings O' DlNo; to keep pace wlth the oncreaee laiBi Index of wholesale pnees s s Stock 111 A, — b!•> Fr. r Wholesale price ..^September onwards tne Exchange 4000 ,'°00- VS Bank endeavoured to pro- fit hy tne Tall in tael •J.- ....-Actual rate of Lnterea t I—— Holdmqs of Bills 14500 (Restriction ol credit during the 5toch L ^ch^nQej^oorn^ l i M or Index of E x c h a n g e Sfock Exchange loo 144001600Q to re&air. contr Index(Auslrian E/change maintained at stabilised rate of 14.4013of tne nank-rate oy ACOC lncreaalng 1 ta Company Stocky holdingo of bills, which normally re­ Index of t xchange iyxx gulate tne market. Depreciation. 1.740 Cosl-of-livinq Index v w w m Index In d ice s of P rices ! Cost of living) •Wholesale prices & cosl of living .

7 I» E3 3I 7 15 P3 E8 7 lb B SI 7 15 £3.30 7 l6 i l ll 7 15 to 30 7 l!N B 31 7 |5 e i il 7 [5 2 3 3 0 7 IS 23 31 7 !5 23 XI ' 15 F3 31 Ja n Feb. March April May Dune July Aug. 5epf Oct Nov Dec The holdings of Ireosury Bonds ( Stole debt to the Bank) decreased from £,050 milliards on Jan ?’h I9£3 to £,534 milliards on Dec 3|"’r I923 of stabilising the exchange. It was the only policy which would maintain public confidence, since money would at last cease to be a marketable commodity; it was a policy which would make it once more possible to establish estimates both for the State budget and in private concerns ; it would enable producers to reorganise their business without losing, at a single stroke, all their foreign markets — as would have happened if the crown had risen. It diminished the risk of an economic upheaval. Lastly, I suspect that an increase in the value of the crown would have been accompanied by a corresponding fall in wages ; and an improvement in the rate of exchange would thereby have led to an increase in home prices expressed in gold-values. The stabilisation of home prices in paper crowns as a substitute for the policy of stabilising the crown was impracticable. It would have required a careful regulation of exchange movements, any upward tendency in prices being counterbalanced by an upward movement of the crown; and such an attem pt was not feasible under existing European conditions. It would have involved serious risk due to speculative movements, and would in any case undoubtedly have been accom­ panied by an actual rise in gold prices, far greater than that which took place under the policy actively followed and which is exactly equal to the rise in paper prices. The stabilisation of the note circulation itself, with a complete stoppage of the printing press -— in short, deflation —- could not have prevented a rise in prices. This may be seen from the experience of the neighbouring countries : the withdrawal of 50 per cent of the notes in cir­ culation in Czechoslovakia in 1919 produced neither a fall in prices nor a rise in the value of the crown. On the contrary, it is generally adm itted that the years 1919 and 1920 were characterised by a rapid rise in the level of prices. It was not until two years later, when the note circulation was at its maximum, that the exchange rate was largely increased — for other reasons — thus bringing about a fall in paper prices, accompanied, however, by a considerable rise in gold prices. Suppose, then, that, when confidence was re-established in Austria and capital returned to the country, no fresh notes had been issued, there would have been a rise in the value of the crown, probably followed at a considerable interval by a fall in home prices in paper crowns. Owing to the increased value of every crown, the currency in circulation would have regained a normal gold value •— an effect which was actually produced by increasing the number of notes, the gold value of each remaining constant 1. Furthermore, gold prices would have reached an extremely dangerous level ; and the swollen expenditure of the State would have become daily greater (reckoned, in gold) and more difficult to reduce. The economic crisis would have been far more serious than it actually has been or will be; there would have been strikes, lockouts and bankruptcies. The phenomena connected with the readjustment of values would still have occurred. The value of stock-exchange securities would have been adjusted to a gold standard, though the diffe­ rence in paper crowns would have been less noticeable, owing to the improvement in the crown; sooner or later, over-consumption would have ensued, followed by a further rise in the cost of living due to new causes. If over-consumption had reached certain limits, the consequent increase in imports would have necessitated the imposition of restrictions and the setting-up of economic barriers ; otherwise, the over-appreciated exchange would have fallen once more, and the confi­ dence of the public would have been seriously shaken. The present situation, on the other hand, carries its own corrective. Instead of having to make allowance for a possible fall in the crown ■— as would have been the case under an unwise policy of improving the exchange -— we now have before us the prospect of automatic deflation. The Bank holds foreign currencies amounting to about three hundred million gold crowns, with which it can meet all possible emergencies. The currencies which came from abroad during the rise in stock-exchange values will be to some extent re-exported, or, in other words, repurchased with crowns by foreigners, and the note circulation will thus be diminished. The new rules formulated to govern dealings in foreign currencies render such deflation possible. Profits made on the home market, which merely constitute a recuperation of capital, though they are far too frequently regarded as income, and are therefore spent (thus reacting on prices), are being gradually with­ drawn, as over-consumption causes prices to rise. In so far as such profits have been employed in the purchase of foreign goods, they have increased the trade deficit and reduced the holdings of foreign currencies, i.e., diminished the note circulation. For the most part, however, these home profits have been retained in Austria, where they will be invested or will become savings deposits, and will regain their true character as capital. I am more than ever convinced that our object should be to retain the control of the exchange without issuing a number of notes greater than the market can absorb. In other words, any surplus foreign currencies should be purchased with crowns withdrawn from circulation, this latter operation being rendered possible by the reduction in the holdings of bills and Treasury bonds and the increase in deposits. This procedure is already being followed by the two countries (Czechoslovakia and Finland) which have anticipated Austria in adopting a policy of stabilisation. I do not overlook the dangers to which an excessive issue of crowns m ay give rise in the future. In a series of conferences, at the Ministry of Finance, with representatives of the National Bank, I have been careful to ascertain that we were in agreement. A careful study is to be made of the possible methods of avoiding an undue increase in the holdings of bills when business activity decreases, of increasing bank deposits, and, if need be, of encouraging the exportation of crowns by revising the regulations of the Devisenzentrale. If we desire to prevent the unfortunate effects on home prices which the absorption of surplus foreign currencies is otherwise bound to produce, we cannot afford to neglect any factor which may assist in retarding the circulation of notes and reducing the quantity already in circulation.

1 The value of the note circulation on December 30th, 1923, at the rate of 14,400 paper crowns to the gold crown, was 495 million gold crowns, or 22 per cent of the pre-war note circulation in Austria-Hungary. — 13 —

IV . E c o n o m ic S it u a t i o n .

The observations which I made last month apply even more forcibly at present. The number of unemployed in receipt of relief increased between the end of November and the end of December from 78,000 to 95,000, of whom 45,000 were in Vienna and 6,000 in the suburbs. The increase is not wholly due to the seasonal stoppage of certain occupations during the winter; it is, I think, a sign of a coming economic crisis, the danger of which cannot be concealed by the present rise in prices. This rise, which gives the impression of a reassuring activity in trade as long as the home market is still engaged in executing its orders, is accompanied by a rise in the index of wholesale prices, which has increased from 18.181 to 18.748, and in the cost-of-living index, which had increased by 4 % at the beginning of January. The situation as regards foreign trade is still more striking. The trade deficit for October was exceptionally high (59 million gold crowns), but the November balance shows a deficit of 85 millions. Exports amounted to less than 84 millions, while imports exceeded 169 millions. As I have already had occasion to remark, the rise in the cost of living and the increase of imports is mainly due, I think, to the movement towards the adjustment of prices and the over­ consumption which has ensued. It is impossible to over-emphasise the effect which these conditions may produce on the work of reconstruction and on the permanency -— so necessary a condition— of the results to be obtained. In view, however, of their origin, I do not think that these condi­ tions warrant any undue anxiety. Stock-exchange prices have been finally adjusted; the resulting over-consumption, which is increasing imports and raising prices, can only be temporary and will probably be followed by commercial stagnation — perhaps even by a crisis. W hatever may have been said to the contrary, I am of opinion that the world level of prices has been reached in Austria, except as regards rents. I therefore consider that the gradual adjustment of prices to international market quotations is inadequate as an explanation of the high cost of living; such explanation is incompatible with statistical results and with the observa­ tions which anyone living in Austria can make for himself. I referred in my last report to the effect which the adjustment of private incomes produced on consumption and on the economic situation. The return of exported capital was already helping to bring about these results : it was tending to restore to circulation the ready money which, in the form of reserves in foreign currencies, had become immobilised savings. Dollars or Swiss francs transferred from private individuals to the reserve of the National Bank entirely changed character : in private hands they were, indeed, Austrian assets, but they were secret assets, whereas in the hands of the Bank— even if the Bank does not lend them in Austria, as it has done at times — their value is represented elsewhere by crowns in circulation, which react upon the movement of currency. All these newly available funds eventually passed to the stock exchange for re-investment, and it was on the stock exchange that their value increased as a result of the boom. Only part of the profits earned were invested in non-speculative securities or were used, for the purpose of subscribing to im portant new issues and capital-increases. Stock was subsequently realised, and in too m any cases Austrians regarded as normal income the profits which they had made once and once only on the adjustment of values. As these profits were spent they gave rise to the somewhat fictitious trade activity of recent months, the increase in the importation of luxury articles and the rise in prices. Nevertheless, the consuming public is not wholly to blame for the high cost of living. Traders have also unfortunately grown accustomed to large and easy profits, and have insisted that these p ro fits should be excessively high : the wide margin of profit, which was reasonable when the currency was fluctuating, has not been sufficiently reduced. Owing to the temporary increase in home consumption, traders have overlooked the fact that they must moderate their demands if they are to continue to compete in foreign markets. It is in this direction, I think, that the danger now lies. Lastly, a by no means negligible factor in the cost of living is the increased burden of taxation. In the present situation of Austria, taxation does not merely constitute a redistribution of existing wealth, by which official bodies set in circulation the funds collected from the public (thus pre­ venting the latter from spending such funds for its own benefit). A portion of the revenue is derived from taxes on profits made by private individuals on the adjustment of values, and these profits would normally have been re-invested and not spent. It cannot be denied that, at the present time, public revenue consists largely of exceptional receipts due to readjustment, and I have therefore repeatedly urged that expenditure should be reduced to a level corresponding to the probable normal yield of taxation. I regard this reduction as absolutely essential, because I am convinced that the paying capacity of the Austrian taxpayer will not remain permanently at its present level. The Vienna banks will not this year enjoy the exceptional advantages which they possessed last year. Production, too, is likely to feel the effects of foreign competition when, in the course of stabilisation, the industries of neighbouring countries recover their powers of expansion and competition. We cannot, therefore, allow production to be handicapped by excessive fiscal burdens. I shall continue to press strongly for action in this direction, though I am bound to admit that the problem is more difficult to solve in a federal State like Austria than in a centralised country. The Geneva Protocols fixed the maximum expenditure which the Government was to incur. The object was to ensure that the effects of reconstruction should be permanent, and to limit the burdens placed upon the Austrian taxpayer. Under the present Constitution, however, notwithstanding all the economies which can and must be effected by the Central Government, — 14 — taxation may become excessive owing to the fact that the States forming the Confederation have power to levy their own taxes. Quite apart from Federal taxation, this local taxation constitutes a heavy burden on the public, and is not in all cases justified by the necessity of maintaining public services. Too many States, particularly the Vienna Municipality, which is regarded as one of them, rely on taxation to meet capital expenditure, which cannot be defrayed out of annual revenue without serious danger to the national production. In this direction grave problems arise, which call for the consideration of all who are anxious to see the reconstruction of Austria placed on a lasting foundation. These problems have been raised in connection with the reform of the Ertragsanteile — the division of State taxes between the Federal Government and the Provinces; and they will be raised again. When financial disputes occur between the Confederation and its constituent States, there is an unfortunate tendency to reach agreement at the expense of the taxpayer. The States refuse to limit their own taxation, for that would compel them to effect economies; they therefore propose that the Confederation should obtain the funds it requires by fresh taxation, while they themselves are following the same line of action. It is essential that expenditure of every kind should be reduced, and reduced under supervision, if production is to increase and the economic and financial life of the country is to be established on a firm foundation. — 15 —

LIST OF ANNEXES.

Page I. (a) S ta tis tic a l D a ta for D ece m b e r 1 9 2 3 ...... 16 (6) Figures in Milliards of Paper Crowns, on which the Calculations in Gold Crowns in Annex I a are b a s e d ...... 18

II. Table of Taxes and Duties divided between the Federal Government and the In d e p e n d e n t A d m i n i s t r a t i o n s ...... 20

III. Return dated December 31st, 1923, showing Reduction of Staff : («) C e n tra l A d m i n i s t r a t i o n ...... 21 (b) S ta te U n d e r t a k i n g s ...... 21

IV. (a) Position of Account A during December 1923 ...... 22 (b) P o sitio n of A c c o u n t B d u rin g D e c e m b e r 1 9 2 3 ...... 23

V. P re lim in a ry B u d g e t, J a n u a r y 1 9 2 4 ...... 24

VI. (a) Return, certified by the Commissioner-General of the League of Nations, showing th e S u m s a c tu a lly p a id in to th e A cco u n t u n d e r his C o n t r o l ...... - 5 (b) S ta te m e n t of A cco u n ts of th e A u s tria n A d m in i s t r a ti o n ...... 26

VII. Comparative Table of the Balance-sheets of the National Bank of Austria 27

VIII. P o sitio n of th e N a tio n a l B a n k of A u s t r i a ...... — i 6 —

Annex la. S T A T IS T IC A L DATj Value in million

Second Stage First Stage

Third Stage P u b l ic F in a n c e s . Monthly average January 1924 M onth Second \ First half-year 1923

(a) Gross receipts : December Customs . . 7-4 7-- 4-9 Tobacco . . 13-9 11.6

Total 21.3 18.6 131 (b) Monthly preliminary budgets : December Estimated expenditure 41.1 40.1 43-7 5 Ï-5 Estimated receipts . . . 35-6 34-3 30.6 28.4

Deficit. 5-5 5-8 131 231 (c) Closed accounts for last fiscal period : October J uly-October E x p e n d itu r e ...... 42.1 42.4 494 Receipts ...... 37-7 35-8 35 I

Deficit 4-4 6.6 14-3

Discharged

R e d u c t io n in t h e N u m b e r of O f fic ia l s Total In December 1923 up to January 1 st, 192, Central administration and State undertakings . . . . 8,021 61,318 (+ 3,200 Southern Railway) 1923 T r a d e a n d I n d u s t r y . M onthly average Monthly avera°t November January-November for 3rd quarter Value of imports 169.- 127.9 131.1 Value of exports 83.8 76.- 81.3

Trade deficit (exclusive of movements of precious metals) 85-2 51-9 49.!

End of Second Stage First Stage December November 1923 1923

Number of unemployed receiving relief * ...... 95.069 78,390 95.594 (Corresponding m onth in 1 9 2 2 ) ...... (117.144) (82,923) (33.393) Number of emigrants proceeding abroad * * ...... 605 881 1.557 (Corresponding m onth in 1 9 2 2 ) ...... (1.278) ( 1 . 2 1 4 ) (719) Number of travellers who stayed at hotels in Vienna •*. . . . 38,470 38,163 30.132 (Corresponding month in 1922) ...... (22,301) (3 1 . 7 6 4 ) (43.244) Official index of the cost of living ** : I F o o d ...... 12,860 12,647 14.132 I C lo th in g ...... 18,673 18,156 15.323 A. I House rent ...... 724 724 496 Cost of living ( Light and fu e l...... 14.525 15,168 15.364 (July 1914 = 1) 1 I Combined in d e x ...... 11,249 11,149 11.513 ditto excluding house r e n t ...... 13.948 13.823 14.338 B. | F o o d s tu f f s ...... 16,216 15.749 17.124 Wholesale prices ! Materials required by industries .... 22,582 22,374 21.061 (1st half 1914 = 1) I ' Combined in d e x ...... 18,181 17.795 18.339 Exchange index according to the average rate of the dollar ** 1 gold crown = paper crowns...... 14,298 14,298 14.316 (corresponding m onth in 1922) (14.313) (14.740) (3.282)

F in a n c e o t h e r t h a n P u b l ic .

Deposits in banks and savings banks * (millions of gold c r o w n s ) ...... "...... 41-3 38.2 23-5 Stock Exchange index (first half 1914 = 1) * * ...... I 2,586 2.336 1.479

A u s t r ia n N a t io n a l B a n k *. State Debt to the National Bank (advances during period of inflation)...... 197-4 197-5 198.4 Holding of b i ll s ...... \ 1 0 3 - 85- 5 5 - Gold reserve and foreign currency holdings ...... 305- 278.- 203.- Value of notes in circulation ...... 555- 512- 423.- (at the rate of 1 4 ,4 0 0 )...... (495--) Percentage of circulation covered by metal reserve 55-% 54-2% 47-9% (at the rate of 14,400, new statutory rate for 1924). . . . (61.6%)

* At the end oi the month. ** During the month. — 17 —

OR DECEMBER 1923. Annex la.

{gold crowns. i = approx. 22 gold crowns $1 = approx. 5 gold crowns

Beginning of Reform Scheme

December 1922

R e m a r k s

4 - The Customs and Tobacco receipts for December 1923 are thus more than double the receipts for December 6 .- 1922, and more than four times the interest and sinking fund charges on the international loan (4.7 million gold crowns per month) which they guarantee.

The programme provides for a monthly average : For the 3 rd stage 2nd stage rst stage 57-3 E x p e n d itu re ...... 3^.839.8 44.6 5o million gold crowns 19.2 Receipts .3 Î1.4 26.5 » » »

38.1 Deficit 3.5 13.2 23.5 million gold crowns The actual average of the closed accounts for the first half-year should be compared with the programme and with the average of the authorised preliminary budgets : From July-October For the first half-year 1923 E x p e n d itu r e ...... 45.2 5i .5 million gold crowns Receipts...... 28.8 28.4 » » »

D e f i c i t ...... 16.4 23.1 million gold crowns The actual deficit for the first ten months of 1923 thus amounts to considerably less than that allowed for under the Programme and in the preliminary budgets, owing to the high figure of the receipts during the Strength on period of readjustment. January 1st, IÇ24 184.150 The Programme provides for the discharge of a total of 100,000 officials, of whom 75,000 plus 22,635 employees on should have been dismissed before December 31st, 1923. The Southern Railway staff was not under the Southern Railway) the authority of the State administration when the work of reconstruction began. omparison with monthly average 1 st quarter md quarter The adverse trade balance for the first eleven months of 1923 am ounts to 577 mil­ 116.6 117.9 lion gold croruns, as against 544 millions for the whole of the year 1922. 73.2 69.2

43-4 48.7

Beginning of Reform Scheme Increase or Decrease

December September Compared with Since 1922 1922 preceding month September 1922

120,525 37.999 — — The number of unemployed receiving relief was 169,147 in February 1923. 1,278 1,036 — —

22,301 51,223 — —

— — — Index for the first half of January 1924 (+ 4 %).

9,375 11,271 + 1% = equality .11,740 j All the indices in this table — -—■ — — .14,565 j are calculated according to ———— the present prices in paper — — — money as compared with pre-war prices (co-efficient of —— — - .18,748 1 high cost of living). What cost 1 in 1914 now costs x M.3I3 15,123 — — 5 % .14,298 I paper crowns. The exchange index has beeti calculated by taking as base (= 100) the parity of exchange between the Austrian krone and the dollar. E.g., if the dollar at par cost 4-g35 Kr. and the average Vienna rate on New York for the month of Septem­ ber rg23 is 70.561, the index for that month is obtained by the following calculation : 7-7 2.1 + 8% f 1,866% 70,361 = 14,298 719 502 + n % + 416% T i 35 Since 2,680 Jan. •jth, 1923 Jan. jth, 1923 The National Bank of Austria began ope­ 199-3 — 0.1% - 1% rations on Jan. 2nd, 1923. In accordance 57-~ millions of gold cr. + 21% + 81% with the statutes, the sums in gold crowns 9 3 - (rate of exchange + 10% + 228% are calculated on the basis of the average 315- 12,834) + 8% + 76% rate of exchange for the second half of the preceding year, which for De­ 29.4% —— cember is still 12,834 paper crowns to each gold crown (average rate July- Decem ber 1922). i 8

Annex lb. FIGURES IN MILLIARD'

ON WHICH THE CALCULATIONS lï

Third stage Second Stage First Stage

Monthly average M onth January 1924 in 1923 Second First half-year 1923 half-year 1923

P u b l i c F i n a n c e s

(a) G ross R eceip ts : D ecem ber x O tx C u sto m s ......

00 70 T o b a c c o ...... — 167.6 119

T o ta l . . . — 307.9 2 6 8 .- 189

(b) Preliminary Monthly Budgets : December

Estimated Expenditure ...... 591.8 578.- 630.2 742.2 E s tim a te d R e c e ip ts ...... 512. 494-7 440.3 409-3

E s tim a te d D eficit ...... 79.1 83.3 189.9 332-9

(c) Closed Accounts for last Fiscal Period: October July to Oct.

Actual Expenditure : (E s tim a te fo r O c to b e r: 6 5 2 .5 ) ...... — 6 0 7 .- 6 1 1 .- 712.2 Actual Receipts: (Estim ate for October : 4 6 4 .2 ) ...... 543-7 5 1 5 .4 506.4

A c tu a l D eficit : (Estim ate for October : 188 3 ) ...... — 633 95-6 205.8

Second Stage End of First Stage June 1923 Ending Ending December 1923 N ovem ber 1923

B a n k s *

Value of Deposits in the banks and savings b a n k s ...... 595-- 550.- 338.- S ta te D e b t owing to the National B a n k ...... 2,534-- 2, 535-- 2,547-- Holdings of B ills ...... 1 ,3 2 3 -- 1,093 - 713.- Value of Gold Reserve and Foreign Currency Hold­ in g s ...... 3,9 15 - 3,567 - 2 ,6 0 6 - Notes in circulation ...... 7 ,1 2 6 .- 6,578.- 5,433--

* At the end of the month. - 19 -

)F PAPER CROWNS A n n ex l b .

}old Cr o w n s in A n n e x l a a r e b a sed

Beginning The rate of exchange adopted is the stabilised rate of 14,400 of Reform Scheme paper crowns to the gold crown (gold parity rate fixed for Customs).

D ecem ber 1922 The receipts for December are the highest yet recorded.

58 87 The plan provides for a monthly average during the :

I 45 Third stage Second stage. First stage. Expenditure . . 573 milliards 643 milliards 719 milliards R e c e ip ts .... 522 » 453 » 380 » October-December 1922 (Monthly average) D e f i c i t ...... 51 » 190 » 339 860 288 Comparison with the average for the Authorised Preliminary 5 7 2 B u d g e ts : July-October. The 1st half-year 1923. Expenditure . 651.7 milliards Expenditure . 742.2 milliards Receipts . . . 415.- » Receipts . . . 409.3 milliards

D eficit .... 236.7 » Deficit .... 3 3 2 .9 »

The closed accounts thus show much better results than was anticipated.

Beginning of Reform Scheme

December 1922 Septem ber 1922

IIO.- 31.6 2 ,5 5 8 . - F i rst balance-sheet 7 3 2 ." of the Austrian National Bank IJ 9 5 - (Jan. 7th, 1923.) 4 ,0 5 4 -- - Annex II.

TABLE OF TAXES AND DUTIES DIVIDED BETWEEN THE FEDERAL GOVERNMENT AND THE INDEPENDENT ADMINISTRATIONS

Yield of taxes Percentage of taxes Actual sums refunded in 1923 to the provinces and communes Classes of taxes and duties divided between the Federal Government divided in 1923 refunded to the in millions of paper crowns and the Independent Administrations in millions of provinces and com­ paper crowns m unes in 1923 1st half-year 2nd half-year Total

Tax on profits in general ...... 1 4 6,503.4 50 % 18,766.1 5 4 ,4 8 5 -6 73.251.7 180,342.3 T a x o n sp ecial p r o f i t s ...... 3 6 0 .6 8 4 .6 50 % 80 ,6 9 8 .9 99,6434 Tax on unearned income according to declaration .... 1 ,8 3 2 - 50 % 155.4 760.6 9 1 6 .- 267.364.1 516.932.1 In c o m e t a x ...... 1,033,864.2 50 % 249,568.- 22,097.1 32 .8 1 7 .7 T a x o n im m o v a b le p r o p e r t y ...... 4 1 ,0 2 2 .2 80 % 10,720.6 E q u iv a le n t t a x ...... 615-4 80 % 1 4 8 .- 344-3 4 9 2 .3 S u p e rta x o n i n h e r i t a n c e s ...... 5.420.1 IOO % 2 ,1 7 0 4 3,249-7 5,420.1 145.064.1 167.146.1 T a x o n c o m m e rc ia l t r a n s a c t i o n s ...... 557.I 53-9 30 % 2 2 ,0 8 2 .- 21,720.8 D u ty o n a l c o h o l ...... 183.833.7 30 % 33,429-3 55.150.1 36.092.5 D u ty o n b e e r ...... 199,771-5 30 % 2 3 ,8 3 9 -- 59,931-5 62 ,8 1 0 .3 Duty on wine (excluding inspection fees) ...... 2 0 9 ,3 6 8 .- 30 % 29,279.8 33.530.5 I , l 62 .2 3 ,204.2 D u ty o n sp a rk lin g w i n e s ...... • 5.458.1 80 % 4 ,3 6 6 .4 I I ,6 6 o . 6 8,7 9 9 .6 20.460.2 Export duty on tim ber ...... 54,809.1 37‘/» %

1,180,036.8 T o t a l ...... 2,800,336.2 — 4 7 1 ,9 7 1 .8 7 0 8 ,0 6 5 .- — 21 —

Annex Ilia.

RETURN DATED DECEMBER 31st, 1923, SHOWING REDUCTION OF STAFF.

A. Central Administration.

Strength Reduction | Increase Strength on on Departm ent between Dec. 1st, Dec. 1st, and Dec. 31st, Dec. 31st, 1923 — 1923 + 1923

I. Audit Office. . . . 51 2 49 2 . Federal Chancellory 3 7 6 5 — 371 3 . » )) (Foreign Affairs) . . 520 2 — 5 18 4 - )) )) ( I n te rio r)...... 21,726 8 l — 21,645 5 . » )) ( J u s t i c e ) ...... 6,217 25 — 6,192 6 . » Ministry of F in a n c e ...... 9 ,4 ° ° 4 4 — 9 ,3 5 6 7 . )) )) )) E d u c a t i o n ...... 4 ,6 4 5 61 — 4,584 8 . )) )) )) Public Welfare . . . 2 ,4 4 3 43 — 2,400 9- » )) )) Agricult. & Forestry . 1,049 11 — 1,038 1 0 . )) )> » W a r ...... 6,483 88 — 6 ,3 9 5 1 1 . )) )) » Commerce and Trans­ port (Commerce) . 6,886 54 — 6,832 12. » )) )) Commerce and Trans­ port (Transport) . . 158 36 — 122

Total A . . 5 9 ,9 5 4 4 5 2 5 9 ,5 0 2

Annex IIIb.

B . State Undertakings.

Strength Reduction I Increase Strength D epartm ent on between on Dec. 1 st, Dec. 1st and Dec. 31st, Dec. 31st, 1923 — 1923 + 1923

2. Federal Chancellory (Undertakings) . . . 2 5 0 4 ------246 6. » Ministry of Finance (Undertkgs) . 9 ,7 5 0 7 9 ,7 4 3 7 . » » » Education: Adminis­ tration of State T h e a t r e s ...... 1,129 29 — 1,100 8. » » » Public Welfare: Hos­ pitals and Federal Dispensaries . . . 5 ,4 1 8 218 — 5,200 9. » » » Agriculture and Fo­ rests Administration of Forests) .... 2 ,4 7 3 12 — 2,461 11. » » » Commerce and Trans­ port (Commerce) : Undertakings . . . i ,342 — 11 1,3 5 3 12. » » » C o m m erce a n d T r a n s ­ port (Transport) : Board of Federal R a ilw a y s ...... 80,980 6,802 — 7 4 ,1 7 8 13. « » » Commerce and Trans­ port (Transport) : Central Postal Ad­ m in is tra tio n . . . . 30,875 508 — 30,367 O Total B. . . 132,217 OO + 124,648 L a 11 — -,569 p lu s T o ta l A . . . 5 9 ,9 5 4 4 5 2 5 9 ,5 0 2

Grand Totals . . 192,171 8,021 184,150

C. Southern Railway ...... 2 5 ,8 3 5 3,200 22,635 — 22 —

Annex IV a.

POSITION OF ACCOUNT “A” DURING DECEMBER, 1923.

C u s t o m s a n d T o b a c c o . Account A Gold crowns Paper crowns (millions) (milliards) T?TrrvTPTÇ (the proportion of lvtLtiris, thereceiptspaid in Receipts from December 1st to 8th : Golnegiigïbie)Cally T o b a c c o ...... 0 .0 0 1 3 6 .- C u s t o m s ...... — 4 4 . -

Receipts from December gth to 31 st:

T o b a c c o ...... 0 .0 0 0 2 I 3 I -5 C u s t o m s ...... — 63-5

Total Receipts in D ecem ber ...... 0 .0 0 1 2 2 7 5 -- B a la n c e o n N o v e m b e r 3 0 t h ...... 0 .0 0 4 1 34 --

A v a i l a b l e ...... 0 .0 0 5 3 3 0 9 - -

E x p e n d i t u r e .

The receipts from November gth to December 8th w ere 2 7 4 .5 m illia r d s from which the sum required for the service of the loan on De­ cember 1st (67.5 milliards) was deducted at the end of No­ v e m b e r. The balance of the receipts for November am ounting to 274.5 — 67.5 = 207 milliards should therefore have been refunded. Instead of doing so, the Commissioner-General abandoned the system of refunding the balance on the period from the 9th of one month to the 8th of the next, and asked that the service of the loan should be covered one month in advance. The equivalent of the foreign currency necessary for the service of the loan on J a n u a r y 1 st was therefore deducted on December 12th from the balance available, i.e. fo r th e : British block ...... 3 1 .5 m illia rd s American 14.- » Austrian » 7.3 » French » 4.9 » Italian » 4.7 » Swiss » 2.3 » Swedish » 1.7 » D u tc h » 0 . 6 » Belgian » 0 . 6 »

Total . . 67.7 milliards 6 7 .7

The amounts subsequently paid into Account “A” until December 31st, not being required to cover the service of the loan, which was already provided for, were automatically transferred to the general account, i.e. 309 — 6 7 .7 = 2 4 1 .3 m i l l i a r d s ...... 2 4 1 -3 corresponding to the refund of receipts in November and D ecem b er. The sums paid in at the beginning of January will cover the service of the loan on February 1st and the balance of the receipts in January will be transferred to the account of the Government for free disposal, after passing through Account "A” and being entered therein.

Balance on December 31 st, 1923 o. 0053 nil. (or 5.348 gold crowns). — 23 —

A n n e x IV b

POSITION OF ACCOUNT “B” DURING DECEMBER, 1923.

T r e a s u r y T ransactions .

Account B. RECEIPTS. Foreign currencies Paper crowns (dollar value) (milliards) Balance on November 3 0 th, 1 9 2 3 ...... 23,132,000 4 -- R e c e ip ts fro m e x te rn a l lo a n s (p o rtio n ) ...... 50,000 £10,000 sterling (portion), £1,584 — £256 sterling (interest). E x c h a n g e r e a d ju s tm e n ts ...... — 97,000

Available . . . 23,085,000 4 --

S e r v ic e o f t h e L o a n .

The monthly payment to the trustees on J a n u a r y 1 st (1 /12 of th e annual service) necessitated the deduction of the following sums at the end of December :

102,704 dollars for the Austrian block £102,145 sterling » » English » 1,291,232 French francs » » French » 1,519,097 Italian lire » » Italian » 182.402 Swiss francs » » Sw iss » 95,652 Swedish crowns » » Swedish » 21,888 Dutch florins » » Dutch 182.402 Belgian francs » » Belgian

T o ta l .... — 760,000

while $197,509 were reserved to the New York account from the yield of the loan still held in America on that date.

The equivalent in paper crowns in both series of operations was taken from the yield of the Customs and Tobacco account and transferred to Account “B” instead of to Account “A” . . . + 6 7 .7

P a y m e n t o f t h e Co st s o f t h e L o a n .

Conveyance ofscrip and expenses of the Loan Commission(portion) — 1,000

T r e a s u r y in D e c e m b e r .

Released for the Government for Southern Railway settlement : 3 million French francs against payment of the equivalent in p a p e r c ro w n s in to A c c o u n t " B ” ...... — 157,000 + I I - -

Released for the deficit : 70 m illia rd s in p a p e r c r o w n s ...... — 7 0 .- 13.3 » in the form of 3,622,000 French francs .... — 187,000

83.3 milliards

The balance on December 3is<, 1923, was therefore ...... $21,980,000 12.7 m illiard s. — 24 —

Annex V.

PRELIMINARY BUDGET — JANUARY 1923 The refund of taxation to the provinces * is deducted from the figures for actual receipts as was done during the second stage and not added to expenditure, as was done during the first stage. The yield of the tax on railway traffic is left at the disposal of the Federal Railways in respect of the lines controlled by them; it is therefore deducted from their deficit and does not figure in the receipts as contemplated in the reform scheme. 1 gold crown is taken as equal to 14,400 paper crowns.

THIRD STAGE OF REFORM SCHEME : JANUARY-JULY, 1924 League of Nations Scheme (III) Estimates for Annual basis January 11924 FEDERAL EXPENDITURE 12 /12 6/12 1/12 1 /12 In millions of paper crowns

1. Service of the D e b t ...... (a) Reconstruction l o a n s ...... 475,200 79,200 j (b) Other debts ...... ( 95°>4°° 8,966.4 2. Pensions and a llo w a n c e s...... 875,500 437,750 72,960 87,160.8 3. A r m y ...... 540,000 270,000 45,000 46,000.— 4. Public Welfare ...... 460,000 230,400 38,400 52,383 9 5. Other administrative se rv ic e s...... 2,395,400 2 1,197,700 199,617 184,405.6 6. Payments to independent administrations : (a) Subsidies for s t a f f ...... 239,000 119,500 19,916 21,211.3 (6) Refund of t a x e s ...... * *** (c) Other p a y m e n ts ...... 49,100 2 24,550 4,091 --- 7. Railways : (a) State railways (d e fic it)...... 648,000 324,000 54,000 60,605.- (6) Southern Railway (deficit) ...... 441,000 2 220,500 36,750 --- (c) Other R a il w a y s ...... 138,500 69,250 11,541 7»955 — 8. Deficit on other u n d e rta k in g s...... 144,000 72,000 12,000 12,397-7 9. Deficit on m onopolies ...... —— — —

Total E x p e n d it u r e ...... 6,881,700 3,440,850 573,475 555,8198 Plus the new increase in salaries excluding those of railway staff already shown above (11 + 4 mil­ liards) ...... —— — 36,000.—

T o ta l...... 6,881,700 3,440,850 573,475 591,819.8

FEDERAL RECEIPTS

1. Customs ...... 1,296,000 648,000 108,000 100,000.— 2. Im port and export d u tie s ...... 101,500 50,750 8.458 7,000.- 3. Taxes 011 co m m o d itie s...... 433,200 216,600 36,100 62,000.— 4. Direct ta x e s ...... 792,000 396,000 66,000 100,476.- 5. Tax on railway tr a ffic ...... 1,036,800 518,400 86,400 2,000.— 1 6. Taxes (other than taxes on railway traffic) .... 1,497.600 748,800 124,800 255,900.-

T o ta l...... 5,157,100 2,578,550 429,758 527,367- * Less taxes refunded to independent administrations . — 871,800 — 435,900 — 72,650 — 90,830.2

B alance...... 4,285,300 2,142,650 357,io8 436,536.8 7. Receipts from other administrative departments . 394,600 197,300 32,884 9,683.4 8. Tobacco monopoly ( n e t ) ...... i,357,9oo 678,950 113,158 49,968.2 9. Salt monopoly ( n e t ) ...... 93,600 46,800 7,800 8,891- 10. Other monopolies ( n e t) ...... 16,200 8,100 i ,350 5,058.2 11. Productive undertakings (n e t)...... 120,600 60,300 10,050 2,55°-5

Total R e c e i p t s ...... 6,268,200 3,134,100 522,350 512,688.1 Total E x p e n d it u r e ...... 6,881,700 3,440,850 573,475 591,819.8

Déficit ...... 613,500 306,750 51,125 79, i 3i -7

( 1 ) Tax on Railway Traffic : Total estimate of yield of tax (as compared with figures in the program m e)...... 7 7 ,2 6 2 .- Share left in possession of State R ailw ays...... 5 8 ,0 0 0 .- Share left in possession of Southern R a il w a y ...... 1 7 ,2 6 2 .-

B a l a n c e ofR e c e ipt s ...... 2 ,0 0 0 .-

(2) The League of Nations scheme under Item (5) : Other Administrative services ; appropriated . . . 3,024,000 instead of 2,395,400 million paper crowns The following sums have been deducted from this item and entered under : Item (6) “Payments to independent administrations” : (c) Other p a y m e n ts ...... — 49,100 49,100 » » » and Item (7) "Railways": (6) Southern R ailw ay ...... — 441,000 441,000 » » » (c) Other R a ilw a y s ...... — 138,500 138,500 » » »

Hence Item (5) am ounts t o ...... 2,395,400 instead of 3,024,000 » » » The total estimates of Federal expenditure are therefore not affected. — 25 —

Annex VI a.

RETURN CERTIFIED BY THE COMMISSIONER-GENERAL OF THE LEAGUE OF NATIONS IN AUSTRIA, SHOWING THE SUMS ACTUALLY PAID INTO THE ACCOUNT UNDER HIS CONTROL

(Account A)

G r o ss R e c e ip t s from C u st o m s a n d T o b a c c o .

Rec<îipts Or approxi­ Value in millions of gold crowns Financial Period 1923 Total mately in of sums necessary for the service millions of of the loan remitted each month Customs Tobacco gold crowns to the trustees

(1) (2) (3) (4) (5) (6)

Millio ns of paper crowns

First half-year 1923 January (9/1 to 8 /II) .... 64,925.7 123,152.- 188,077.7 1 3 - February (9 /II to 8 /III) . ■ . 60,279.2 108,966.- 169,245.2 11.7 March (9 /III to 8 /IV) .... 64,883.8 108,942.9 173,826.7 12.— April (9 /IV to 8 /V ) ...... 76,437-5 113,845- 190,282.5 13-2 May (9 /V to 8 / V I ) ...... 65,181.1 144,4997 209,680.8 14.6 June (9 /VI to 8/VII) .... 66,171.5 127,895.4 194,066.9 13-5 4.1 for payment of July 1 -I

Total for the first half-year 397,878.8 7—7,3° 1 -— 1,125,174.8 7 8 - (Monthly Average) . . (66,313.1) (121,217.—) (187,530.-) (13--)

Second half-year 1923 July (9 /VII to 8/VIII) . . . 80,756.7 155,034 2 23 5 ,79°-9 16.4 4.4 for payment of August 1st August (9 /VIII to 8 /IX) . . 67.733-6 146,512.3 214,245.9 14.9 4.8 » >, » September 1st September (9 /IX to 8 /X) . . 87,496.3 l6l,065.6 248,561.9 ! 7-3 4.8 » » » October 1st 11.5 » » » October 15th October (9 /X to 8 /XI) . . . 106,776.9 168,330.2 275,107.1 19.1 ) 4.8 » « November 1st November (9 /XI to 8 /XII). . 116,990.- 157.537-6 *74 ,5 - 7-6 19.1 4.7 » .. » December 1st December (9 /X II to 8 /I ) . . . 95,217-- 185,341.8 280,558.8 19-5 4.8 » » - January 1st

Total for second half-year . 554,97°-5 973.821.7 1,528,792.2 106.3 (Monthly Average) . . (9 2 ,49 5 -1 ) (162,303.6) (254,798.7) (!7-7)

Total for 1923 ...... 952,849.3 1 1,701,122.7 2,653,967.-1 184.3 29.8 (Monthly Average) . . (79,404.1) (141,670.2) (211,164■-) (15-3)

1 In addition a large number of bills falling due in respect of Customs during the first half of 1924 figure in the Customs receipts.

The sum necessary for the purchase of currencies required for the service of the loan is deducted each month front the Customs and the Tobacco Monopoly gross receipts. The gold value of these sums is given in Column 6. — The surplus of the receipts (5-6) is refunded to the Austrian Government. The currencies thus purchased each month are equivalent to one-twelfth per cent of the sums required for interest, the amortisation and the costs in the first year. They are immediately placed at the disposal of the trustees. Vienna, January 15th, 1924.

The Commissioner-General of the League of Nations in Austria:

(Signed) A. R. Zim m e r m a n . Annex VI b.

STATEMENT OF ACCOUNTS OF THE AUSTRIAN ADMINISTRATION

showing

i. T h e A m o u n t fo r w h ic h P a y m e n t S h e e t s h a v e b e e n m a d e o u t d u r in g t h e M o n t h .

Customs and Tobacco.

Customs Tobacco Total Or approximate­ 1923 ly in millions of gold crowns Millions of paper crowns

First half-year : J a n u a r y ...... 60,177.8 101,502.5 161,680.3 11.2 February ...... 57' I24-3 110,412.7 1 6 7,537- 11.6 M a r c h ...... 80,946.3 114,689.7 195,636- 13.6 A p r il...... 69,842.6 107,415.3 177,257-9 12.3 M a y ...... 68,746.5 147,336.8 216,083.3 1 5 - J u n e ...... 65,5316 132,098.3 197,629.9 13-7

Total for first h a lf - y e a r ...... 402,369.1 713,455-3 1,115,824.4 77-4 (Monthly Average) ...... (67,061.5) (118,909.2) (185,970.7) (12.9)

Second half-year : J u l y ...... 86,339.4 147,222.4 233,561.8 16.2 A u g u s t...... 79,991.1 162,145.1 242,136.2 16.8 S e p t e m b e r ...... 94,660.1 156,362.4 251,022.5 • 7-4 October ...... 124,076.2 160,921.3 284,997.5 19.8 November ...... 107,419.4 178,582.1 286,001.5 19.9 D ecem ber...... 119,654.6 200,788.8 320,443.4 22.3

Total for second half-year...... 612,140.8 1,006,022.1 1,618,162.9 112.4 (Monthly Average) ...... (102,023.5) (167,670.3) (269,690.5) (18.7)

Total for 1 9 2 3 ...... 1,014,509.9 I,7I9,477-4 2,733,987-3 189.8 (Monthly Average) ...... (84,542-5) (143,289.8) (227,832.3) (15-8)

2. T h e T otal S u m s fro m t h e F in a n c ia l P e r io d o r from t h e P r e v io u s F in a n c ia l P e r io d s w h ic h h a v e h a d to

b e p a id d u r in g t h e M o n t h in Ca s h or in B il l s .

Customs Or appro­ ximately In paper in millions 1923 In gold In Bills Total Tobacco Total crowns of gold crowns Value (in millions of paper crowns)

First half-year : January ...... 122.8 64.9234 3,076.- 68,122.2 101,502.5 169,624.7 11.8 F eb ru ary ...... 16.2 55,862.8 3,909.2 59,788.2 110,425.6 170,213.8 11.8 M a rc h ...... 3,103.6 65,226.1 4.8751 73,204.8 114,720.8 187,925.6 1 3 - A p r i l ...... 2,850.9 70,305.8 7,770.8 80,927.5 107,226.2 188,153.7 13 i May ...... 851.1 59,654-3 7,243-2 67,748.6 147,376.7 215,125.3 14.8 J u n e ...... 13-9 64,063.8 5,624.8 69,702.5 132,492.6 202,195.1 141

Total for first half-year . 6,958.5 380,036.2 32,499 1 4 Z9,493-8 7X3.744-4 1,133,238.2 78.6 (Monthly Average) . . (1.159.7) (63,339.3) (5,4i6 -5) (69,915.6) (118,957.4) (188,873.-) (131)

Second Half-year : July ...... 1,269.9 72,606.2 11,107.5 84,983.6 147,222.4 232,206.— 16.1 A u g u s t ...... 24.2 69,088.2 10,781.8 79,894.2 162,145.x 242,039.3 16.8 S e p te m b e r...... 633-3 78,5i 5-8 12,815.2 91,964.3 156,362.7 248,326.7 17-3 O c to b e r ...... 57-4 97,599-2 ! 7.877-5 115,534-1 160,921.3 276,455-4 19.2 N o v e m b e r...... 43-2 105,840.7 16,804.2 122,688.1 178,582.- 301,270.1 20.9 D e c e m b e r...... 5-4 87.834-3 19,246.5 107,086.2 200,788.8 307,875.- 21.4

Total for second half-year 2,033.4 511,484.4 88,632.7 602,150.5 1,006,022.3 1,608,152.5 h i .7 (Monthly Average) . . (338.9) (85,247.4) (14,772.1) (100,358.4) (167,670.4) (268,025.4) (18.6)

Total for 1 9 2 3 ...... 8,991.9 891,520.6 121,131.8 1,021,644.3 1,719,766.7 2,741,390.7 189-3 (Monthly average) . . (749-3) (74.293-4) (10,094.3) (85,137.-) (143,313.9) (228,449.2) (15.8) Annex VII.

COMPARATIVE TABLE OF THE BALANCE-SHEETS OF THE NATIONAL BANK OF AUSTRIA.

Statement of Accounts Statem ent of Accounts Statement- of Accounts Statement of Accounts Statement of Accounts Headings on Dec. 7th, 1923 on Dec. 15th, 1923 on Dec. 23rd, 1923 on Dec. 31 st, 1923 on Jan. 7 th ,1924

A ss e t s : (Paper crowns) (Paper crowns) (Paper crowns) (Paper crowns) (Paper crowns) Metal reserve : * Minted and unminted g o l d ...... 62,110,638,500 81,671,793,700 84,006,692,200 83,176,905,900 93,050,000,800 Currencies and securities (calculated in conformity with Art. 85 of the Statutes). 3,54h.3i 7,756,3°o 3,528.505,637,500 3,591,998,116,800 3,832,132,293,800 4,274,644,218,400

3,608,434,394,800 3,610,177,431,200 3,676,004,809,000 3,915.309,199,700 4,367,694,219,200

Bills discounted, warrants and other securities . . 1,070,480.035,400 1,141,378,120,100 1,245,805,706,100 1,323,369,722,300 1.248,491,117,600 Secured loans ...... 2,083,813,900 2,045,791,300 1,988,437,100 2,010,285,100 1,946,175,600 State debt in respect of former a d v a n c e s ...... 2,534,490,382,700 2,534,490,382,700 2,534,490,382,700 2,534,490,382,700 2,533,434,345,000 Buildings and installations...... 38,833,598,900 38,833,598,900 38,833,598,900 38,833,598,900 33,646,312,600 Other a s s e ts ...... 2,803,565,311,900 2,741,756,1)! 9,000 2,722,967,471,600 2,748,933,420,200 2,121,001,830,400

Total A s s e t s . . . 10,057,887,537,600 10,068,680,943,200 10,270,090,405,400 10,562,946,608,900 10,306,213,990,400

L ia b il it i e s :

Share capital (30,000,000 gold crowns) .... 385,020,000,000 385,020,000,000 385,020,000,000 385,020,000,000 432,000,000,000 Total value of notes in c ir c u la tio n ...... 6,502,232,212,300 6,682,070,257,100 6,840,627,177,600 7,125,755,190,000 6,809,629,507,000 Obligations in respect of current accounts and other obligations to be met at sight . 711,085,681,500 603,992,477,400 615,835,874,400 649,424,399,800 864,191,739,500 Other liabilities ...... 2.459,549,643,800 2,397,598,208,700 2,428,607,353,400 2,402,747,019,100 2,200,392,743,900

Total L ia b il it ie s 10,057,887,537,600 10,068,680,943,200 10,270,090,405,400 10,562,946,608,900 10,306,213,990,400

(Gold crowns) (Gold crowns) (Gold crowns) (Gold crowns) (Gold crowns) * Ihe value of the metal reserve in gold crowns was : Minted and unminted gold ...... 4,840,006.11 6,363,705.29 6,545,635-98 6,480,980.67 6,461,805.61 Currencies and securities (calculated in conformity with Art.8=5 of the Statutes) 276,322,094.15 274,934,208.94 279,881,417.86 298,592,199.92 296,850,292.94

T otal ...... 281,162,100.26 281,297,914.23 286,427,053.84 305,073,180.59 303,3x2,098.55

G e n e r a l O bservations : In conformity with the Statutes (Art. 85): For December 1923 the value in paper crowns of the metal reserve is calculated at the rate of 12,834 paper crowns to the gold crown (average rate of exchange in the second half of 1922 reckoned at the gold parity rate fixed weekly for the payment of Customs duties). F01 January 1924 at the rate of 14.400 paper crowns to the gold crown (average rate of exchange in the second half of 1923) heure the increase in the value in paper crowns of the metal reserve between December 31st, 1923, and January yth 1924, despite the reduction of its total in gold crowns. Gold parity for Customs from April 9th, 1923 (invariable) = 14,400 paper crowns. Rate of interest of Bank since September 4th, 1922: On bills of exchange, warrants and other securities .... 9% On advances on Government stock and State Treasury Bonds 9 1/2% On advances on other securities...... 10% Annex VIII.

POSITION OF THE NATIONAL BANK OF AUSTRIA.

Extract from the Statutes :

, ''Article 85. — The total bank-note circulation, as well as all immediate liabilities, but exclusive of Federal Loan Debt (Art. 53, concerning Treasury Bonds) shall he covered by the cash reserve to the extent of 20 % for the first five years...” v 30 5 y ’’

"Article 86. — ... In so far as liabilities to be covered in accordance with Article 85 exceed the cash reserve, they must be covered by bills discounted ... During a period or rive years ... loans on pledged movable property ... (Art. 64) may also be included in the cover of the note circulation.”

Required Position on B a n k C o v e r by Statutes December 7th, 1923 December 1 5 th, 1 9 2 3 December 2 3 rd, 1 9 2 3 December 3 1 st, 1 9 2 3 January 7th, 1924

In m lllions of paper crovms Metal reserve ...... 3.608.4 3,610.2 3 .6 7 6 .- 3.915-3 4 .3 6 7 . 7 Holdings of bills ...... 1.070.5 I,I 4M 1,245-8 1 .3 2 3 - 4 1 . 2 4 8 . 5 Loans on pledged movable property ...... — 2.1 2.— 2.- 2 .- 1-9 100 4 ,6 8 1 .- 4,923.8 4.753-6 5 .2 4 0 . 7 5 ,6 1 8 . 1 In C irculation...... ■ ...... 6,502.2 6,682.1 Current a c c o u n t s ...... 6,840.6 7.125-8 6,809.6 — 711.1 604.- 615.8 649.4 Less State debt (former a d v a n c e s )...... 864.2 — 2.534-5 — 2,534.5 — 2.534-5 — 2,534.5 — 2,533.4

100 4,678.8 4-751-6 4,921.9 5 .2 4 0 . 7 5.140.4

Metal Reserve : Circulation + current accounts — State D e b t...... 20% 77-i% 76% 74-7% 74-7% 8 5 % Metal Reserve : Circulation + current acc o u n ts...... — 50 % 49-5% 49-3% 50.4% 56.9% Metal Reserve : C irc u la tio n ...... 55-5 % 54% 53-7% 55% 64.1%