ECONOMIC CRISIS.

Alexandra Herald and Central Otago Gazette, Issue 1813, 4 November 1931, Page 8

ECONOMIC CRISIS.

NEW ZEALAND : S PROBLEMS. i Xciv Zealand is the subject of the j latest circular of ihe Bank of New South Wales—a very well-written and informative publication at any time, and issued at irregular intervals. In reviewing the economic and financial conditions in the Dominion, the writer shows that they are ihe relies of the world-wide depression. Trices of exported New Zealand products have fallen, but the volume, at any rate, of meat and dairy produce has increased, lint there has been a heavy reduction in income caused by the lower prices. This is shown by setting out the trade figures for the seasonal periods, JulyDecember and January-June, for the past two years. "In short," states the writer, "there is an acute maladjust- ! meut of forces formerly in equilibI rium." Restoration of this equilib- ! rium is the problem confronting the Dominion. The severity of the depression depends upon the fall in export prices and the degree to which overseas loans have to be contracted. "Now Zealand," the circular continues, "has been fortunate in both respects." Butpresent prices for New Zealand exports are well below pre-war figures, and while they may recover to some extent as the world depression lifts, it cannot be assumed that the favourable prices of the post-war period will be restored. It follows that a permanent ! and major adjustment in internal econ- | omic conditions must be undertaken if | New Zealand is to meet the new situation without acute disturbances and a protracted depression. Quotation with approval is made from the memorandum of Mr Justice Frazer, attached to the judgment of the Arbitration Court on May 29 last —viz.: "With a general reduction of our national income must come a general readjustment of the distribution of that income." The writer shows how the sudden cessation of the normal ilow of loan money has affected the Dominion's position, and points out that this reduction in income from oversea- loans has to be reckoned with as one of the major influences necessitating economic adjustment in New Zealand. The Exchange Position. The benefit to the producer-exporter derived from the current rate of exchange is dealt with at some length; and it is also remarked that the suspension of the Bank of England's obligation to sell gold freely, and the consequent depreciation of sterling, have raised the prices of New Zealand exporis in the British markets. For goods sold in other countries, prices have not rise!!, but when the proceeds :ire converted into sterling they are enhanced by the depreciation of the sterling. This will render it easier for Xew Zealand to meet her interest obligations overseas, and tend to In- ! crease her London credits. 1 "It should not be forgotten, however, that the prices of her exports have been falling almost continuously since the exchange rate was fixed at 10 per cent., and the recent increase in the sterling value of exports is merely a corrective to this fall. Moreover, for the immediate future it will be more difficult to raise loans in London. It cannot therefore lie anticipated that the movement of the British exchange rate will provide a basis for lowering the New Zealand rate." The Fanner Benefits. While the exchange rate puts up the price of imports by JO per cent., their additional cos' being spread over the whole community, the offset of the rate is beneficial to the producer-exporter. ; Bat the burden imposed on the Budgetby the exchange rate on meeting overseas interest obligations, taking into account the amount of public debt held in Australia, am unts to less than £700,000. | "This is the cost to the Budget, but it is not the only effect on the Budget. ! By keeping up the gross income of the export producers and the interest price level, the high exchange rale maintains the money value of national income above what it would be at a parity of exchange. This increases the

revenue from taxation. If it leads to an increase of only 5 per cent, the benefit to the Budget will be £OOO,OOO. The exchange rate also increases the capacity of primary producers to meet their interest obligations, and thus sustains Government revenue from this

"On the whole, its benefits to the Budget are at least equal to the costs in the immediate future, and will, in the long run, be considerably more than the costs. As overseas prices improve, the exchange rate may be brought down without disturbance to export producers. It may thus be assumed that in the present acute difficulties confronting the Dominion, an exchange rate of 10 per cent, is valuable both as a deterrent on remittances to London and as a relief to producers who have suffered first, and most severely, in the crisis." Remedial Measures. Steps already taken, in Now Zealand towards readjustment are' reviewed, such as revision and reduction of wages, mortgagee relief legislation and reduction in the interest rates of banks and Post Office Savings Bank and lending institutions. Stress is laid on the growth of! public bodies' indebtedness and growth of taxation during the past ten years. It is shown how public revenue has declined, and doubt is expressed as to whether the revenue can be maintained at £18,000,000 per annum (the last year's and this year's estimated receipts from taxation). "The basis of the payment of taxes is the national income, and high rates are no remedy for a fall in income . . . "Revenue will consequently be lower in the next financial year, and the reserves used in the present year will not be available, though others may be used.'' The estimates were . revised subsequent to the above remarks, and a deficiency in revenue shown, but amended estimates show- revenue £24,060,000, expenditure £24,540,000, leaving a surplus of £126,000. A strong point is made of the need for reduced costs, and it is hold that "A further revision of wages is essential. This must be supplemented by a careful review of efficiency in all domestic industry. "Prices of goods and services purchased by the farmer must be reduced if his costs are to come down in conformity with the fall in income. "Farmers' own direct costs must bo readjusted, and credit available. The banks can be relied upon to provide credit, and the more rapidly costs are reduced the more readily can credit be made available. The banks have already maintained advances at a high level, despite the fall in prices for farm products, and they have done their part, the ratio of advances to deposits at June 30, 1931, being 105.4 per cent. "A readjustment of public and private finance" and further application of measures already taken should restore prosperity in export production. "Such prosperity is the only sound basis upon which both public and private finance can be adjusted satisfactorily to the new conditions."