The Press SATURDAY, DECEMBER 28, 1957. Government’s Problems Of Its Own Making

Press, Volume XCVI, Issue 28471, 28 December 1957, Page 8

The Press SATURDAY, DECEMBER 28, 1957. Government’s Problems Of Its Own Making

Labour Cabinet Ministers have apparently had their Christinas spoiled by the need to study ways of solving economic problems largely created by their own inflationary election policy. The new Government should not be surprised by the rapid decline in New Zealand’s overseas funds because this trend and the reasons for it have been clear enough for several months. Some contribution to the trouble was made by the former Government’s reluctance to maintain the credit squeeze at full pressure in an election year characterised by Labour promises of easy money. A much more significant contribution was made by the Labour Party’s early announcement of its £ 100 income tax rebate. The possibility of -another £lB million in circulation was an invitation to importers to- prepare for an upsurge of public demand should Labour be returned. Also, knowing Labour’s fondness for direct controls, importers would be anxious to support their claims to licences by building up their turnover in what will probably be the base year for restriction calculations. Had the old Government been re-elected the position could have been righted more easily, because much less money would have been in circulation and merchants would have found themselves overstocked. That would immediately curb enthusiasm for overimporting. Much more unpleasant action is now required, as the Prime Minister (Mr Nash), at least, must have foreseen when he started on a spending spree at a time obviously calling for greater, not less, care in the management of national finances.

The Government’s reported opinion that the credit squeeze failed because it was applied to the wrong persons is a misreading of the facts. Actually the credit squeeze worked well as long as the National Party was prepared to keep up the gentle pressure. During 1956 inflation was wrung out of the economy, prices were stabilised, and overseas balances began to assume a healthy aspect. The former Government was unwise to relax the squeeze, because this would have little influence on votes and because the National Party had to expect that whatever it offered electors the Labour Party would bid higher. Stricter control of credit would have restrained the inflationary influence of Labour’s policy, though the National Party cannot be blamed for creating that effect. Those who did find the credit squeeze irksome will probably think of it wistfully when the new Government imposes its own version. If this attempts to differentiate among classes of borrowers it will probably create many more anomalies than orthodox methods did. The Government is also said to be anxious to bring down production costs. Since these are powerfully influenced by labour charges, that will be a difficult task for a party depending largely on trade union support. This is not the first time Labour policies have caused a run on New Zealand’s overseas funds. Much the same thing happened 20 years ago. Control procedures have become more efficient in the meantime; but the problem itself may be more difficult with falling overseas prices, and more of Labour's inflationary promises still to be honoured.