STATE'S DEFICIT.

Auckland Star, Volume LXI, Issue 137, 12 June 1930, Page 7

STATE'S DEFICIT.

HOW WILL IT BE MET? ANOTHER LOAN LIKELY. POSSIBLE RESOURCE TO HIGHWAY FUNDS. HIGHER TAXES INEVITABLE. (By Telegraph.—Special to "Star."); WELLINGTON, this day. For the relief of the present financial stringency in the Dominion, observers of the situation are predicting that the Government will raise an additional loan. A survey fail to reveal any easy way out of the situation, which has been created by the sudden collapse of the railways, the mounting costs of debt service and the depression in imports and consequently in Customs revenue. Though the Prime Minister has announced that "cuts" are being made in every possible direction, it is freely admitted .by the financial authorities of the Government that no dramatic economies are possible.

In his review of the situation the Hon. G. W. Forbes said the estimated shortage was* £3,000,000. Despite the ,fact that this has been taken as an overstatement, deliberately intended to prepare the people for the coming year, it appears that it is rather short of the Government's needs. Last year, relief works expenditure, of which no cognisance was -taken by Mr. Forbes, cost the country about £1,400,000, and even if the report of the Committee on Unemployment is translated into legislation on the terms of their recommendations, the outcome is uncertain and it is possible that a considerable sum will be expended upon relief works this year, especially as it is impossible to set up the necessary machinery for the operation of the sustenance fund until threequarters of the year is gone. ,

The actual revenue shortage is therefore likely to be nearer £4,000,000 than £3,000,000.

Economies Limited.

Though the pruning knife is now beingused upon all Departments subject to annual vote, and though a policy of the strictest economy is endorsed in relation to subsidies and Government grants, it is quite impossible for the Government to effect the necessary saving in Wellington. Indeed, to do so would disorganise State services and render the position even more difficult. The only quarter where there is the possibility of making a drastic cut is in the defence expenditure, and even there the savings are expected to be inadequate.

Last year, for the period which ended at March 31 last, the importations to the Dominion totalled £49,107,000. That represented an increase of £4,000,000 over both 1928 and 1929. Importations are now expected to fall to the extent of £4,500,000, which; will bring them down to the 1928 level, while the revenue will drop from about £9,000,000 to £8,000,000. What ;• is-also evident is that With a shrinking;trade in imports, the question of revenue is difficult. The. easiest and most certain return could be Obtained from tea and sugar which, with a small tax, would yield £500,000 between them, but a tax on food is considered to be a political impossibility. Other items on which the tariff might be raised would be problematic' in return, and to revise the tariff would open up a larger question than the Government is prepared to face. The easiest way to gain some substantial revenue would be a further increase in the primage duty, and this is being taken into consideration. " "

No Surpluses to Gathefr.

In other directions also the position is difficult. Besides the fact that Customs revenue is an uncertain question, there must be faced the further fact that it would need a substantial increase in.income tax—about 35 to 40 per 'cent—to yield anything like the necessary revenue needed. On top of this, there is no chance of adding to the 'Consolidated Fund by gathering in various small surpluses, as. Sir Joseph Ward did last year, for,the, excellent •reason that there are no surpluses to gather. The largest item, and one upon which the Government must look with longing eyes, is the Road Fund, which would furnish in the region of £1,000,000, but at present that money is vested in a statutory body, the Highways Board, which may spend it as it chooses, and is not subject to Government control. In addition, any such move would be greeted with hostility by the motorists, who would regard it as a breach of faith. Nevertheless, it is obvious from the Prime Minister's statement that the reign of the Highways Board as at present constituted is short, and one of the reasons at the back of his statement may be the fact that a raid on the road fund is anticipated.

Some increased taxation is thus inevitable, but even after it is imposed the revenue will be insufficient. It is anticipated that the committee which is to be appointed to overhaul the Railway Department will be able to make savings of about £500,000 if its anticipated recommendation relative to new freight arrangements—and notably the cessation of free services—is adopted. The easiest way out for the Government will be to raise an additional loan, in the hope that the. rising prices of produce next year will restore the revenue. This was done during the 1908-9 depression, and it is likely to be done again this year.