EXPENDITURE ON PUBLIC WORKS

Press, Volume LXXIV, Issue 22464, 27 July 1938, Page 12

EXPENDITURE ON PUBLIC WORKS

Regulation To The Labour Market RESERVE BANK’S ADVICE Overseas Funds And Trade Discussed [From Our Parliamentary Reporter.] WELLINGTON, July 26. The desirability of some regulation of expenditure on public works, so lhat less might be spent in good times, is mentioned in the annual report of the board of directors of the Reserve Bank, which was tabled in the House of Representatives to-day by the Hon. W. Nash (Minister for Finance). The report was signed by Mr L. Lofeaux, governor, and Mr W. L. Ward, deputy governor, and recommends the regulation of public works expenditure according to the state of the labour market in other directions. The accumulation of London funds to meet an expanded public works programme in less prosperous times was also advised. “An important element in the economic development of New Zealand has been the fact that the products of expanding pastoral industries have found in Great Britain a secure market, unhampered by restrictive trade policies,” the report states. “At the present time, when .the channels of international trade are obstructed by the widespread adoption of restrictions on trade and foreign exchange, it is gratifying to note that New Zealand still holds a favourable position in the British market. During the last year. 85.8 per cent, of the total exports of New Zealand were shipped to British countries, including 79.5 per cent._ to Great Britain. The total value of imports increased considerably during the year, partly due to a rise in prices, and partly to increased quantities. These additional imports were accounted for to some extent by increased consumption; but there was also a considerable building up of importers’ stocks of certain commodities. Increased Imports “Notable increases, in both value and quantity, occurred in imports of motor vehicles, iron and steel goods, and i machinery. An. unusually large import was that of 3.000,000 bushels of wheat, rendered necessary by the reduced yield of local wheat crops. “Banking figures have naturally reflected the general rise in prices and in business turnover, increases having been recorded in note circulation, advances, and bank debits. The percentage of trading bank advances to deposits has risen from 68 per cent, in March. 1937, to 82 per cent, in March, 1938. Post Office Savings Bank deposits during the year exceeded withdrawals by £3,400,000,. and accumulated deposits, including interest, have risen from £58,000,000 to £63,000,000. , . “The maintenance of a high level of business activity has naturally reacted favourably on Government finances,” the report adds, “and In spite of the absence of borrowing overseas, it has been possible to finance an extensive programme of public works expenditure, partly by revenue from taxation, partly by loans from the Post Office Savings Bank and other Government departments, and as regards housing by advances from the Reserve Bank, which, however, have been temporarily repaid out of funds available from other sources. Public works construction has, therefore, been an important factor in determining the distribution of capital and labour resources, and the nature and volume of employment. "With the exception of the Primary Products Marketing Department overdrafts, all advances made by the bank to the Government were repaid by the end of the financial year. This restraint in the use of ’Reserve Bank credit for financing public expenditure is regarded by the board as a wise course to have followed during a year of relatively high export values, especially as there has been a large increase in trading bank advances, and a decrease of £7,800,000 in New Zealand currency in the combined net overseas assets of the Reserve Bank and the trading banks. Reserve Bank Funds

“While not wishing to comment on the question of public works .generally, the board regards it as highly desirable, on financial. grounds, that the extent of such works should be regulated as far as practicable according to the state of employment .in other directions, a slowing down being arranged when the demand for labour for other purposes is relatively satisfactory, and an acceleration during periods of comparative business inactivity. It is considered, however, that in neither event should reliance be placed on the requisite funds being provided by the Reserve Bank when they can reasonably be derived from other sources unless, and to the extent that any expansion of currency is indicated at the time. If, however, recourse is to be had to additional expenditure on . public works during periods of relative trade depression, the board would stress the importance of avoiding any undue expansion of credit when the tfdde position of the Dominion is favourable for, in the ordinary sense, unless overseas funds are allowed to accumulate when the proceeds of exports—and consequently the national income—are at a high level, it would be difficult to maintain purchasing power—involving strain on the overseas position—if and when the Dominion’s overseas trade position materially deteriorates.”