REJECTED.

Auckland Star, Volume LXIV, Issue 191, 15 August 1933, Page 7

REJECTED.

£10,000,000 PLAN.

REPLY BY MR. COATES.

PROPOSALS EXAMINED,

The proposal made by certain business men in Auckland, that £10,000,000 be raised in New Zealand for rehabilitation purposes, which proposal was the subject of a deputation to the Rt. Hon. J. G. Coates, acting-Prime Minister, has been considered by the Minister, and he has replied to the Mayor, Mr. G. W. Hutchison, that in his opinion the proposal would not be in the real interests of the Dominion.

"At a time such as the present," said Mr. Coates, "when the economic life of the country is suffering, the natural temptation is to look for relief in a method that is superficially appealing, but which, on examination, may prove to bo more of a stimulant than a cure. In all proposed methods we must ascertain whether they involve sacrificing the future for a temporary present benefit— that is, whether on balance our economic life willji)e helped or hindered by the under consideration."

The Minister referred to a remark he had made at the deputation, that those who had interviewed him were possiblyinfluenced by the plan of the British economist, Mr. J. M. Keynes, in his pamphlet "The Means 'to Prosperity." A programme of Public Works expenditure could only be supplementary to an upturn in business conditions. The economist intended his proposal to apply to creditor countries when the time was opportune, as he contended it now was in Great Britain, with the intention of raising pricee. The circumstances of New Zealand were very different from those in Britain, in that New Zealand had a simpler economic structure, with a small internal market and an export trade" almost wholly in primary products, the prices ,of which" definitely governed the prosperity or otherwise of New Zealand. A rise in the. prices of our products in England would automatically solve many of our troubles. Without such a rise, anything that the Dominion could do internally would probably act only in the direction of spreading the burden without relieving tne economic situation. World Prices. Mr. Coates said he was of opinion that New Zealand's return to comparative prosperity depended to a large extent on a revival of world prices and international trade. Apart from tlie dubious social and ethical validity of the suggested compulsory loan, it ha I to be remembered that most of the £25,000,000 of unearned income which Mr. C. F. Bennett had referred to had become invested or used in some way. The speiiSing of money raised by the issue of Government securities constituted an addition to community purchasing power only to the extent that the money raised was, previously hoarded, or to the degree to which 1 buyers of such securities used them as collateral as borrowing from the banks. New Zealand's borrowing in the past decade could only be kept up on the assumption that export prices would be sustained. It was obvious at the present juncture that the Dominion could not maintain a large loan'programme tor any length of time. No Compulsion. "To attempt to use compulsion, as was suggested," said Mr. Coates, "would, I feel sure, be a great mistake, but assuming that the £10,000,000 could be obtained in the ordinary way of 3 per cent, this would mean an annual extra debt service of £300,000—a very heavy addition to the country's interest burden, unless, of course, the money were expended on works that would provide their own loan charges." He had to consider the effect of the issue of such a large amount of additional securities on the market price for Government stocks in general. There was no doubt they would fall heavily, and this would be definitely accentuated if compulsion were used, for the stocks issued to people who ,did not want investments of such a nature would simply be thrown on the market. There was in sight the greatest gain from recent conversion operations —the lowering of market rates of interest. Thebenefit, which would be spread over every field of investment, would be lost if the price of -the present 4 per cent Government securities of approximately £115,000,000 were driven down as the result of excessive new issues. The Minister said Fie did not tuink it necessary to make any special provisions for loans to local bodies, which could proceed in the usual way after obtaining the consent of the Loans Board. Many local bodies were now in financial difficulties, and it was a moot point whether many ratepayers would agree to, or could pay, the increase in rates occasioned by extra interest charges brought about by additional borrowing. Unemployment Relief. Dealing with the deputation's suggestion for using £2,500,000 of the proposed loan for the relief of unemploy|nient, Mr. Coates said that it had to be ', remembered that if the pay on relief works were raised substantially in the manner suggested, the numbers of registered unemployed would be considerably increased. Business firms, feeling that more adequate wages were being provided in other directions, would tend to give up their present attempt to assist by rationing work and employing men part time. If unemployment pay were brought too near the current rates of wages, men would largely lose their incentive to search for other work. Unemployment relief works, from their very nature, could not be fully productive, so that borrowing for that purpose would, to a great extent, be adding to the dead-weig-ht debt, leading later on to. a breakdown of unemployment relief financing. There was an onus on the community to do its best for the unemployed, but the country had not to lose sight of the necessity of living within its means, nationally as well as privately. "The Only Real Cure." "It would not be in the interests of New Zealand to adopt the proposal put forward," said Mr. Coates in conclusion. , "We must continue to grapple with our problems and adopt measures that will not hamper recovery, particularly as 'there are at the moment indications that the worst is past, and there are ffood grounds for hopes that better times arc to bo looked for in the not far distant future. The only real cure for unemployment is reabsorption in profitable industry, and in our efforts to relieve distress we must be careful not to make this more difficult by increasing overhead costs or destroying the essential element of business confidence."