THE BUDGET.

Auckland Star, Volume LXVI, Issue 203, 28 August 1935, Page 12

THE BUDGET.

modern practice. long-t£rm balancing. MB. COATES' EXPLANATION. The principle of balancing the Budget was explained by the Minister of Finance, Mr. Coates, in an address to the Auckland Crtditmen's- Club at the Farmers' Tea Rooms to-day. "During the last year our credit position has become progressively better, and we have no floating debt whatever." he said. "What other countries of the world can show a position at the present time comparable to that of New Zealand?" At the outset Mr. Coates explained that the nation was the same as every individual and every firm, in that revenue had to cover expenditure. The difficulty was to decide at what interval the books must be balanced — should it bo quarterly, yearly, or for longer period?. The traditional method was yearly, but there was no strictly business reason why that should be so. However, the tradition and practice was to draw a lino at March 31 every year. Ho did not mean that there should be no balancing of accounts, for he thought most emphatically that there should be; but the yearly period was to some extent arbitrary. What meaning was to be taken out of an unbalance budget? The obvious fact was that expenditure had exceeded income. If that occurred in a series of good years, one should have reason to suspect that the country's accounts were not as well managed as they might be; but even then it was'difficult to judge. For example, in New Zealand's particular case, the income tax returns for one year were based on the incomes of the previous year. Thus income- tax returns might be high, yet economic conditions might have slacken ed. Budgets and Depressions. "In twentieth century practice it has become recognised that an unbalanced budget in the depths of a depression is not only inevitable, but often wise," said Mr. Coates. "We should remember that a budget can bo balanced with 'nought' on either side. This merely illustrates that there is a limit to which expenditure can bo cut. The policy in a depression should therefore bo to rcduco expenditure wherever the reductions will not do harm to the social and economic structure, and, if revenue falls short, to uso reserves and budget for a deficit. The next step is gradually to close tho gap in the accounts, and while still keeping a tight rein on expenditure, finally balance the budget and use any surplus which subsequently accrues to pay off tho earlier deficits. In this way, tho accounts are balanced—but over a period of four or fivo years. Incidentally, I might mention that tho events themselves have illustrated tho need for a longer term than a three-year Parliament. Tho policy I have outlined took considerably more than three years to bring to a successful issue. A policy of strict Budget-balancing in the depths of a depression, said the Minister, had serious economic repercussions. Costs and expenditure should bo •reduced in a general way to correspond with the fall in prices, but there came a stage when further reduction of expenditure by the Government not only did harm to the permanent economic fabric of the country, but intensified the depression by its deflationary effects. In Other Countries. "The using of bank resources to finance a deficit has ensured that spending power has been kept up. Budgeting for a deficit acta as a buffer against the depression and avoids any further deflation than a collapse in trading returns would warrant. Other countries of the world have used this principle in meeting the depression. Sweden, for in-, stance, deliberately unbalanced her Budget, instituted a public works programme and depreciated her currency in order to preserve equilibrium in her economy. Japan has adopted the same policy, but a balanced Budget is not within sight for Japan. Australia adopted similar methods. g "Differences between New Zealand and the countries mentioned should be noted. Japan and Sweden could safely embark .upon a big public works programme financed by borrowing because of the comparatively low public debt per head. The International Labour Office gives the figures at: —Japan, 119 Swiss francs per head; Sweden, 300 Swiss francs per head; United. Kingdom, 2724 Swiss francs per head. The New Zealand figure would be over 2000 Swiss francs per head. It will easily be seer, why Japan and Sweden could increase their public debt, whereas it is a far different matter for New Zealand. Successful Conversion. "Might I refer briefly to the recent conversion operations in London ?" concluded the Minister. "We had £10,133,800 of 5 per cent stock maturing in 1945. But an optional maturity clausi enabled us to convert this year. There was no need to pay off the loan from the point of view of our credit standing or from the supply of loan funds, but in order to obtain the lowest possible rate of interest, £2,135,000 of the maturing loan was met by a cash payment. That enabled us to obtain the record low rate of 3 per cent, the stock being issued at 98J for 20 years. The Australian conj version loan issued some time later was also at 3 per cent (at par), but only for a period of' four to six years. The' period of the, loan is the important point." New Zealand's High Reputation. In the course of his address Mr. Coates referred several times to the high reputation that New Zealand enjoyed in the United Kingdom. The statement that New Zealand stocks ranked as high as any British stocks on tho British market was greeted with applause. The Minister said that he hoped New Zea(land citizens would always be' ready to discuss with the United Kingdom any problems that cropped up, and if possible to come to some mutual arrangement. It was not advisable that the United 'Kingdom should come to decisions affecting New. Zealand without discussions in which the effects of the proposals could be made clear.

New Zealand's policy, said the Minister, should be to slowly forge ahead. It was desirable that a close contact should be kept with the United Kingdom, which could be a tremendous factor in the Dominion's recovery. "But we cannot depend on the United Kingdom to pull us out of troubles," he said. "That is up to us."