The Treasury’s Report On N.Z. Economy

Press, Volume XCVII, Issue 28493, 24 January 1958, Page 12

The Treasury’s Report On N.Z. Economy

(From Our Parliamentary Reporter) WELLINGTON, January 23. “Under present conditions of full employment, it would be unwise to assume that local production could make a substantial contribution to replacing the roods which are restricted under an import licensing arrangement. This means that fewer goods will be available and that a somewhat lower standard of living must be accepted. . . . This is an inevitable concomitant of a situation where terms of trade turn against an exporting country such as New Zealand and overseas funds are not adequate to support continuing balance of payments deficits. . . .” In these words, a confidential Treasury /report summarises the position in New Zealand today. The report, quoted by the Minister of Finance (Mr A. H. Nordmeyer) tonight, was tabled in the House after Mr Nordmeyer’s attention had been drawn by Mr J. T. Watts (Opposition, Fendalton) to standing orders. The survey, entitled “The Economic Situation in New Zealand,” starts with the ominous words: “The economic situation of New Zealand has deteriorated rapidly and to a serious extent since about the middle of 1957.” The Economic Survey for 1957 recorded a measure of success in restraining internal demand, and claimed that the excessive pressure on resources had weakened. “The critical factor in the situation is the sharp adverse movement in terms of trade which has been accentuated in recent months,” say the report tabled tonight. “For the last six months of 1957, payments for private imports will average about £4 million a month above the comparable figures for 1956, while at the same time prices for export products, notably dairy produce, have declined. “Concessions in taxation, both actual and prospective, a continued high demand for labour and steadily rising wage levels, and also some relaxation of monetary policies, have resulted in a level of demand for both consumption and investment goods at current price levels much greater than we can afford from current earnings. Higher-Priced Imports “While there has been some increase in the balance of payments, the greater part of this increase stems from a price increase in imported goods,” continues the report. “The prices of imported goods for the June quarter, 1957. were 9 per cent, above the average level of prices for imported goods in 1956. “To restore equilibrium in the balance of payments without attempting to add to the overseas reserves during 1958, would require a reduction of imports of about £3O million at present prices. It would be difficult but not impossible to achieve a reduction of this order without threatening unemployment in some industries consequent on recurring shortages of raw materials. But in the short run while other measures are being taken, it may be a practicable target.” After discussing the effects of a reduction of imports, the report continues: “The central point of the problem is that total spending of both Government and private sections exceeds the resources available from current earnings and the amount we can safely draw from our overseas assets.

“Experience over the last few years suggests that voluntary saving will not succeed in reducing demand to a level consistent with the goods and services available. However, small savings should be encouraged in order to attract funds to the Government for budgetary reasons. "The most effective method of reducing this tendency to excessive spending is a combination of increasing taxation revenues and reducing Government expenditure. Preferably resulting in a Cash surplus on Government transactions.” Bank Advances The report says that some part of the rise in imports may have been facilitated by a slight easing of credit restraints in recent months. “Bank advances are now (December 12, 1957, the date of the report) about £6 million to £7 million above the comparable level of a year ago, and over recent months trading banks have not been under any serious pressure. There would be no great difficulty, and some advantage, in tightening up the reserve ratios in order to squeeze trading banks and encourage them to reduce their advances.” The report forecasts continued increases in the consumers’ price index, while rising import prices work through into retail prices, and while increases in charges such as electricity tariffs are brought into account. '•The plentitude of goods available for consumers has been a

factor In limiting price movements, and the greatest clanger to be apprehended in prices is a rise associated with shortages following a cutback in imports.” Prices For Exports The report speaks of wide fluctuations in market prices. Wool prices are not giving much concern and meat prices are described as “reasonably satisfactory.” A fall in meat prices is expected early this year. The report says that the real problem is dairy produce It comments: “It is certain export market prices will average a return significantly below the guaranteed prices paid in New Zealand.” “The main problem on the export side is that associated with access to supplementary markets, mainly in the group of countries now known as the European economic community,” says the report. “Continued access to and expansion of our markets in these countries is vital to a healthy export economy. In turn, this question raises a whole complex of problems surrounding our commercial relations with the United Kingdom. “A secondary, but by no means unimportant point, is the necessity to promote the expansion of our export trade by all practicable means, but success in this direction is not likely until we have secured new undertakings with the United Kingdom and with our principal markets in Europe.”

The report says earlier estimates of balance of payments for 1957 by the Reserve Bank showed a deficit of £l7 million. This has now been revised to £25 million. The main new factors taken into account are, on the receipts side, a reduction of £2.5 million for meat receipts and £3 million for i wool. High bank overdraft rates . in England have led to a greater i reliance on New Zealand banks to finance purchases of these products until they are actually : landed in England. Due to this : time lag a considerable sum which would normally be received this ’ calendar year will be carried over into next year. “On the payments side, ‘other payments’ have been revised upwards reflecting a continuing trend 1 mainly attributable to high inter- ’ est and dividend remittances 1 overseas. ' “Private imports at £260 mil--1 lion assume higher figures for the • last two months of 1957 than the ’ previous year. This is though ’ justified on the basis of the trend ‘ of imports. , A detailed survey of receipts and expenditures reveals the fol--3 lowing forecast for 1958: » Total export receipts, £321 mil--1 lion. r Total payments, £355 million. 5 Deficit, £33.5 million. r This compared with the 1957 z estimated figures of: 1 Receipts, £324 million. 1 Payments, £348 million. Deficit,* £24.7 million.