Farmers’ Scheme For Holding Internal Costs

Press, Volume C, Issue 29687, 4 December 1961, Page 21

Farmers’ Scheme For Holding Internal Costs

The abolition of general wage orders, the fixing of income tax at the present rates, and Government action to build up reserves are suggested by the Dominion council of Federated Farmers as means of ensuring that internal costs are at levels that will not harm external trade.

The recommendations are made in a report adopted by the Dominion council of the organisation last month and released by the Dominion president (Mr W. Malcolm) yesterday.

"I realise that in view of the absence of financial discipline in this country for a very long time the report will not appeal to a great

number of people,” Mr Malcolm said. '‘Nevertheless, it is a sincere attempt by Federated Farmers to put forward something constructive and in the interests of the whole community.” "There had been a good deal of apprehension among farmers for Some time because of recurring crisec in connexion with overseas funds, he said, and they had been deeply concerned about the constant rise in internal costs. As a result, a cotn. mittee had brought down the report which had been adopted by the Dominion council. The report proposes that Federated Farmers should press for a policy of:— Cidvernment spending from revenue, apart from loans, to be fixed at a norm, which Would be a figure related to a percentage value of exports. the figure to be reviewed every three years. Income tax rates to be fixed at the present levels and kept there except when the Government decided io redistribute national income. The gradual paying off of the Reserve Bank from any Surplus remaining under this system? That if overseas price* rise or if the volume of overseas income increases the Government should use as much of the surplus as practicable to buy overseas funds to hold in reserve, the amount to be decided by a committee consisting of the Prime Minister, the Minister of Finance and the Leader of the Opposition “This would tend to Jake the whole question of overseas spending outside the realm of party polities," the statement says. That should o-vereas prices fall, the Government would then sell its overseas funds to the Reserve Bank and use the proceeds to finance expenditure in New Zealand, with the aim of providing full but not ovet-full employment. General Wage Orders Abolition of general wage orders and that any redistribution of the national income made by direct Government action, such as altering the level at which income is taxed for both income tax and social security. That when sufficient strength has been obtained in the reserves and enough money “mopped up" in New Zealand, the exchange rate should be freed and import and exchange control ended. That the Government should gradually abolish all monopolies and reduce protection to New Zealand industry to a level where it merely protects labour in the country and does not give “a present to investors." Commenting on the situation of the country and the proposals. the committee says: “With individuals, with organisations and with companies it is usual to relate expenditure to income—to decide how much is to be spent and then to allocate the spending between different needs and choices. "On the other hand, since the advent of Douglas Credit, the philosapily has gained ground that lack of money should not retard Government expenditure and that the economics of Government spending is something in a class of its own, “The idea has also been accepted that an expansion of manufacturing would reduce our need for overseas funds. The truth is, of course, that because of our lack of raw materials and the inflationary effect of Our policies of protection and full employment, the demand for overseas funds is increased by expansion of manufacturing.” The report continues that in the last 28 years factory production Including the pro-

cessing of primary produce, has increased in value of output from £137 million to £660 million. But the coun. try was still in difficulties over overseas funds. The value of exports and total taxation are compared in the report, and show that from be-ing less than half the value of exports in 1935 total taxation was now considerably in excess of it. Comparable figures were £45 million of exports and £2O million of taxation in 1&35 and £297 million of exports and £337 million of taxation this year. “As Government spending is one of the prime factors in Our inflationary processes and consequently in the demand for overseas funds, the moral is obvious,” the report continues. “It should be noted that the easing of import licensing :n 1955 and 1960 was also accompanied by an increase in taxation and, therefore, of spending. “If total taxation, which is all spent exceeds the value of our exports.” then the demand for overseas funds is always likely to exceed the supply,” the report says. “The present policy is like driving downhill with your feet on both the brake and the accelerator. The brake, of course, is credit restriction. The accelerator is Government spending. To blame the banks in these circumstances is like a driver who adopts such a course complaining that the petrol Stations make it too easy to get petrol.” On general wage orders, the report says the Government permits this procedure to increase costs while it IS compelled by the process to levy more taxation. Family Benefit "When governments release more purchasing power by increasing the family benefit, allow its capitalisation at less than they are paying for money and at the same time, by adjusting taxes, redistribute the national income, we must strike trouble because the whole process generates pressure on our overseas funds. “It is submitted that the only way in which the national income can be redistributed without creating demand for more overseas funds is by direct Govern, metrt action.” Some persons assumed that overseas income would keep on expanding for ever, the statement continues. Present experience should make the need tot reserves obvious. If Wages were raised, costs were raised, and with a fall in the value of exports New Zealand was placed in a most awkward situation. Implementation of the proposals in the report would obviate such a situation, the committee says. While no reference is made in the report to loans, the committee says these should be used sparingly to leave as much capital as possible available for directly productive purposes. The whole object of Government financial policy should be to keep the demand for money steady and stabie. and inter, eat rates would then also remain steady, as would thg exchange rate. If fluctuations of any magnitude occurred in these rates there was proof that the financial policy had failed.