Economic Council Urges Incentives For Exports

Press, Volume CII, Issue 30042, 29 January 1963, Page 11

Economic Council Urges Incentives For Exports

(From Our Own Reporter)

WELLINGTON, January 28. . Greater financial incentives to earn overseas exchange and increase productivity are favoured by the Monetary and Economic Council in its third report to the Government. To pay for the incentives, the council says the Government must restrain some of its spending, or else raise extra taxation in ways which will provide the least impediment to growth.

The Government is recommended to declare publicly that it will avoid the inflationary pressures and balance of payments difficulties which have developed in several previous, election years, “and which have always subsequently required an uncomfortable reversal.”

To reduce the prospective •‘international deficit" in the public accounts. the Govern* ment is recommended to raise a further public loan of about £lO million next month.

•The campaign to stimulate savings should be continued and the Government should reconsider its decision not to permit the trading banks to operate savings bank tacili* ties." the recommendations continue

“A policy of firm control over bank credit should be continued, the banks being advised that the reserve ration system will be applied with the objective of restraining the rate of growth of advances to a maximum of £5 or £6 million in a full year.

import Licences “The Government should be firm in its administration of the existing import licensing schedule and in the policy on the new schedule to be issued in March, in the awareness that current prospects provide no grounds for increasing the annual rate of payments for private imports above the £24om to £2som envisaged in the current schedule ” The Government must be ready to increase taxation or restrain expenditure if private spending begins to increase excessively, as indicated by renewed labour shortages and a rise in importing which, in spite of controls. exceeds what can be afforded with prudent borrowing. the council says Along with the measures recommended to preserve economic stability, the Government should introduce further measures this year, supplementary to thoee already instituted. towards promoting an expansion of foreign exchange earnings, encouraging economy in the use of exchange and stimulating productivity "If the producer boarddepartmental committee investigating trends in farm output and investment considers that production is in-

creasing at a slower rate than the national interest demands, it is essential that the Government should give consideration to the introduction of positive policies, in addition to tax incentives, to stimulate a higher rate of investment in the production of inert and wool.” the council continues

As export incentives, the council suggests that individuals and firms should be permitted to deduct from theer income for taxation any increase in earnings of overseas exchange they have achieved ver those recorded on average over the previous two or three years. “Hie Government, in addition to giving greater weight to the stimulation of exports, should also give priority to those of its expenditures which are vital for development and to concessions in company tax and personal inc une tax designed to stimulate productivity,” it says At a time when the general situation required a fiscal policy designed to restrain excessive spending, it would be necessary for taxation on spending to he increased unless the Government was prepared to exchange its policy on current expenditures, the council says, alter examining the overseas earning incentives. Extra Taxation

"We believe that any extra taxation should be concentrated on spending involving the use of overseas exchange.’’ it continues “Only with such a tax. allied with measures to improve earnings of overseas exchange and stimulate productivity in New Zealand will it be possible to give the required emphasis to improving the balance between exchange earning and exchange spending and to altering the balance between present consumption and provision for future development upon which any firmly-based hope of main-

taining full employment and raising real incomes must

depend.” Recognising that an exchange tax would raise the coot of imported goods and affect the cost of living, the council says it would be equitable to make some adjustments to pensions and other incomes at the lower end of the income scale to prevent the tax from bearing with disproportionate severity on those least able to bear it.

"Buit in other respects, the short-term disadvantages of the tax should be accepted,” it says. The council concludes its report by saying it would be unrealistic to hope that present markets will offer such higher prices for the present exports that the exchange bottleneck will be removed without effort by New Zealand. “We have not yet made a national effort commensurate with the magnitude of the problem that looms ahead and demands a solution.”