BUDGET ANALYSED.

Auckland Star, Volume LXIII, Issue 238, 7 October 1932, Page 3

BUDGET ANALYSED.

REVIEW BY MR. SAVAGE. PRICES AND CURRENCY. REDUCED PURCHASING POWER. (By Telegraph.—Parliamentary Reporter.) WELLINGTON, this clay. A wide range of important questions was brought under review by Mr. M. ,J* Savage (Labour, Auckland West) in the House last night in the course of his analysis of the Financial Statement. Currency, trade, price levels and Treasury bill issues were among the general subjects examined. "It is difficult to see how anything other than a fall in prices of primary products could happen among nations which are competing with each other ill a vain attempt to increase trade by reducing the wages of their customers," said Mr. Savage, in discussing the trade position. "As to the part played by currency it is noticeable that a number of currency reformers are not so enthusiastic about raising wages as they are about raising commodity prices. It seems to be quite plain that liig'h prices cannot be established on low wages, neither can currency in circulation be increased without raising wages. Past experience should convince any thinking person that in currency matters Parliament can and should be master." In this connection Mr. Savage recalled what had been done during the war.

First Inflation Experiment. The State at that time, however, needed more than currency; it required extensive credit, which it created in the form of war loans. The mistake it made was that it largely substituted currency for taxation. It used the printing press instead of the Taxation Department, and laid the foundation for the deplorable position the country was in to-day. It also created a debt to the banks and other bondholders for something that really belonged to the people. While Government supporters to-day accuscd currency reformers of a. desire to inflate the currency, they overlooked that it was the National Government formed during the war which was entitled to the credit of making the first experiment in currency inflation. During the war the Government actually took complete control of the monetary system, even to the extent of curtailing expenditure by citizens in certain directions which were considered to be undesirable at the time. "The Government could do the same thing to-morrow to carry out a plan of national development," Mr. Savage asserted. "It could do it with the assistance of the Associated Banks, or in spite of their opposition, if it came to that. When Parliament puts its foot down even bankers must obey!"

British Loan Conversion. Referring to tho British loan conversion, Mr. Savage said the original loan was floated in 1917 at a discount of 5 per cent* and at 5 per cent interest. The discount meant a present of £100,000,000 to the bondholders right away. At that time the pound sterling was worth about 10/ in purchasing power. For every 20 years the loan remained outstanding, Britain would pay another £2,000,000,000 in interest, and still owe the principal. As the loan was allowed to remain outstanding for 15 years Britain paid £1,500,000,000 in interest at the rate of 5 per cent. Although nearly all of the loan had been converted into stock bearing 3J per cent, Britain still owed the money, and was paying interest in a currency that was to-day worth double the value of the money borrowed. A one-shilling-in-the-pound fall in prices of other commodities in Britain meant adding £100,000,000 to that part of Britain's debt. To return to the 1914 price level would add £1,000,000,000 to that debt. In approximately seven years Britain would have paid £2,000,000,000 in interest and would still owe the original amount. "S much has been written about the wonderful patriotism of the bondholders that a glimpse at thp other side of the picture is not out of place," Mr. Savage commented. " Mad Underselling Rush." "Delegates representing the various parts of the Empire whose Governments were all engaged in a wage-slashing campaign met in confcrence to dctise means of increasing trade with each other," said Mr. Savage, in a reference to the Ottawa Conference. "How they propose to do that on a reduced purchasing power in the countries concerned has not been made clear. Trade, internal and external, depends upon our own power to buy. We cannot cont.nuc to sell at economic prices unless we can afford to pay economic prices for the goods taken in exchange from our cus- . tomcrs. Britain's power to pay good i prices for. Dominion products will be 1 decided by her rastomer'a ability to pay economic prices for British goods. If our standard of living is low, due to low i wages, we cannot be good customers for i British goods, and, therefore, British l workmen will be unemployed and unable 1 to purchase our products.

"In reply to those who suggest wage reductions as a means of getting costs ■ down so that we can compete in the world's markets, I would ask: What guarantee have we that other countries competing for the same markets will not cut wages to the same or even greater extent? That is exactly what is happening, and in the mad rush to undersell each other, the only foundation upon which increased trade can 'be built is rapidly disappearing. Every nation is trying to s»dl more and buy less." As far as New Zealand was concerned, the source of all revenue was rapidly being destroyed, as examination of the Budget would show.

Superannuation Funds. Dealing with the state of the superannuation funds, Mr. Savage said the present huge shortage indicated that money that should have gone into the funds (in order to make good the State's part of a sacred contract with public servants) had been used to build up tTie surpluses shown ill successive Financial Statements. At various times the salaries of public servants had been reduced', not to enable the Dominion to make good the privileges promised in the Superannuation Act, but to enable other creditors to be paid. Had the full amount of the public service salary reductions since 1922 been paid into the superannuation funds, there would have been a different story to tell; and there would hav& fatness*