REVALUATION OF N.Z. POUND

Press, Volume LXXXIV, Issue 25581, 24 August 1948, Page 5

REVALUATION OF N.Z. POUND

“FINANCIAL TIMES” COMMENT DOMINION’S INTERNAL DIFFICULTIES (Special Correspondent N.Z.P.A.) (Rec. 7 p.m.) LONDON. August 22. The “Financial Times” devotes a leading article a column and a half long to New Zealand’s currency revaluation and an examination of New Zealand’s financial and economic position. It says that any policy which would embarrass Britain would be entirely out of character on the part of New Zealand. “Other Commonwealth countries may have rivalled, but none has surpassed New Zealand’s unremitting efforts to ease Britain’s problems,” continues the article. “The magnitude of the New Zealand effort, in fact, is responsible in part for the domestic difficulties for which her currency revaluation is intended to provide a partial solution.” After commenting that New Zealand has used her system of import control with great severity in order to minimise the drain upon the sterling area’s gold and dollar reserves, the “Financial Times” says that this policy of curtailing imports severely while at the same time expanding exports as much as possible, has created serious internal difficulties fc>r New Zealand, and has caused rapidly mounting local dissatisfaction. f “To what extent will the Dominion’s difficulties be eased by the currency revaluation?” asks the article. “If the appreciation of the New Zealand pound brought a comparable increase in foreign currency proceeds of exports, a correspondingly larger volume of imports could be obtained for the same volume of exports. Domestic inflationary pressure would then slacken quickly. But food contracts with Britain govern the proceeds from most of New Zealand’s exports and preclude any material expansion in sterling income. An expansion of imports, which is urgently necessary, would therefore involve a fresh deterioration of New Zealand’s already unfavourable balance of payments, and by absorbing British goods which would otherwise flow to the hard currency areas it would also run counter to New Zealand’s policy of giving maximum aid to Britain.

“Overexporting and Underimporting” “But this very generous policy is perhaps being pushed too far. Less than half N6w Zealand’s exports to the United Kingdom are being covered by her amports from Britain. New Zealand, altogether, has been overexporting and underimporting. She has been subjecting herself in the process to strains which threaten to damage ner productive powers—if they have not already done so.” The “Financial Times” expresses the opinion that if the currency revaluation is permitted to find its logical culmination and there is a sharp cut in New Zealand’s export surplus, the results will be valuable. Larger quantities of goods will be available at lower prices, and the general cost of living will fall. “On the assumption that import restrictions will be relaxed, that living costs and farm production costs will decrease because of cheaper imports, and that primary producers will receive a larger proportion of export proceeds through the Stabilisation Fund, the internal position of New Zealand should be significantly strengthened in due season.” The “Financial Times” says that the “penal taxation of profits” in New Zealand offers no incentives to entrepreneurs or to the entry of overseas capital. Moreover, the Budget is so heavily weighted by expenditure on social security and other State projects that it is wholly unable to provide tax relief on the scale best calculated to stimulate both capital and labour to the maximum effort. “The coming months will show whether the benefits of the currency revaluation can offset the burdens of penal taxation and a costly system of social security,” concludes the article.