FRIDAY, JANUARY 20, 1933. PLAYING WITH DYNAMITE.

Auckland Star, Volume LXIV, Issue 16, 20 January 1933, Page 6

FRIDAY, JANUARY 20, 1933. PLAYING WITH DYNAMITE.

Against the advice of the Minister of Finance, against the opinion of the permanent hearl of the Treasury, and in spite of the stand made by the Associated Banks, the Government has forced the issue and increased the exchange rate on London to 25 per cent. It is a farmers' government, and the pressure of its supporters has been too strong and too persistent to be resisted. But it cannot be accepted that Government action is in the best interests of the country. No one can endorse the view of the Cabinet on such a question when it is diametrically opposed to the opinion of all'its financial advisers. The banks have perforce had to agree, but they are indemnified against loss on the surplus of exchange that must accumulate abroad. Even with the exchange at 10 per cent, London funds were steadily increasing, and there was a case for a reduction rather than an increase of the rate. Now there must be a rapid transfer of New Zealand money to Britain, and though the banks may be compensated, the national and industrial finance of th§ Dominion must be disrupted to such an extent that it is impossible to see all the contingencies that are liable to arise.

We can, however, make an approximate calculation on past figures that will show at least something of the way in which Government costs will increase as a result of arbitrarily raising the exchange rate 15 per cent. New Zealand's trade returns for the twelve months ended November last showed exports of £37,000,000 and imports of £22,750,000, giving a favourable visible balance amounting to £14,280,000. Allowing for a reduction in imports of 25 per cent, owing to the high exchange, the value of the import trade would drop to £17,000,000. The external debt charges of £8,200,000 which the Government and local bodies have to meet annually in London would be increased by £1,200,000 above their present amount. Presuming that the export figures are maintained, which is not unreasonable, then the combined amount to be found for permanent charges and imports would leave a surplus of exchange of about £10,000,000 on which the Government would require to pay the banks upwards of £1,500,000. The additional cost to importers even on a reduced total of £17,000,000 would be two and a half millions. The national increase Avould be £2,700,000, and the total cost to the country little short of £5,000,000. Th«<Secretfiry Mithe Treasury goes further that this, estimating the extra cost to the Government at £3,500,000.

It is difficult to see'where in this overtaxed country, with its dwindling revenues, it can hope to secure such a sum. At a time when the Government is clamouring to reduce costs in every direction it has definitely added 15 per cent to the cost of living, thus involving wage scales and accentuating the burden of . unemployment. Temporarily the farmer may secure a benefit, but within a very few months this will be adjusted by an increase of internal prices to meet the altered conditions.

There is one point that we think should be strongly urged on the Government, and that is that the tariff on manufactured goods should be immediately subject to a 15 per cent rebate. If this course is taken without delay the stream of importation will be much less seriously disturbed, and any revenue that may be sacrificed will be more than compensated by there being no fall in the quantity of imports, and therefore less money to be found to purchase the surplus of exchange abroad. The Government is under a pledge made at Ottawa to reduce existing tariffs, and its action in introducing the equivalent of a 15 per cent addition over the whole import field is a flagrant breach of faith. This can be avoided by the simple expedient that we have suggested. It would obviate that serious dislocation of business that the 15 per cent increase has precipitated on the community, and at the same time tho disastrous effects on national finance would be in some measure modified.

AVe are launched on troublous waters, and quite apart from the financial difficulties, political repeycussions that may involve the existence of the Coalition Government are a consequence that it is to be presumed Cabinet took into consideration before making such a momentous decision.