“Lower Welfare Benefits Could Reduce Inflation”

Press, Volume C, Issue 29511, 12 May 1961, Page 15

“Lower Welfare Benefits Could Reduce Inflation”

The country was not in a crisis but in a strong squeeze, said Professor A. J. Danks, associate professor of economics at the University of Canterbury, in an address yesterday to a meeting of the Christchurch Accountant Students’ Society.

Professor Danks suggested three ways in which the country's economy could be strengthened. These were lower subsidies, lower capital expenditure and a reduction in the welfare state expenditure bill.

The New Zealand economy was suffering from a serious internal inflation and balance of payments troubles. The text for his address was provided by the Government’s announcement of the extension of the import licensing year, he said. The proper economic accompaniment of the extension of import control was a budget which wduld take up surplus purchasing power. It should be a deflationary budget; one which would take in more than it paid out in goods and services. “We have to face the unpleasant reality of a budget that raises receipts in relation to expenditure,” said Professor Danks. Three Fields

There were three fields in which expenditure could be reduced. One was by lower subsidies on say. butter, bread and milk. Subsidised loan money for housing could be reduced. Building was over-expanded and it was one of the potent factors in inflation. The second field was that of lower capital expenditure. That was not easy in a country with a growing

population where more schools, reading and other services were required. It was much more difficult to reduce Government expenditure than the public recognised.

“I am almost frightened to mention the third field with the press present," said Professor Danks. “Can we lower the welfare state expenditure bill? The most reasonable way to reduce this bill would be to cut out the allowance for the first child. It is reasonable to assume that people in New Zealand can afford to keep one child. I cannot think that this suggested reduction would be popular." Raised Taxes Could taxes be raised? Professor Danks considered they could be. It was nonsense to say saturation point had been reached. It was a matter of what the country would put up with. It might be a good idea, where unpopular decisions had to be made, to have five-year Parliaments so that governments would have time to recover popularity. “A reduction in housing would not be popular. A reduction in welfare benefits would not be popular. Increased taxes would not be popular. The present position suggests that we have to be tough with ourselves. The choice is gither a deflationary budget or higher prices,” he said. The Government was showing signs of taking the right steps. The quite marked restraint on imports would require implementation from a deflationary budget. The balance of payments was such that New Zealand would probably need to borrow abroad. Labour Shortage Earlier in his address Professor Danks said that in inflation the supply side could not catch up with the demand. The most characteristic manifestation of inflation was the shortage of labour. It was very serious indeed in New Zealand. Immigration would not cure the position. To cure it the demand must be reduced. Probably the critical place for reduction was in building. Private imports were running at a level the country simply could not afford. The situation required stringency in rationing. The total picture was a disturbing one.

A good deal of policy already pointed to deflating the economy. Interest policy was designed to make capital dearer and to increase the credit squeeze. A change in hire-purchase regulations was to make it harder for the consumer to take goods off the market, said Professor Danks.