Monetary Council Warns Govt. On Budget

Press, Volume CII, Issue 30153, 10 June 1963, Page 12

Monetary Council Warns Govt. On Budget

The Government is warned against an expansive Budget in the latest report of the Economic and Monetary Council, which says that such a Budget would probably necessitate restrictive measures next year.

The report says: “The council, on the evidence of its own extensive inquiries of rapidly-rising bank debits and of surveys of business opinion, is convinced that a considerable expansion of spending is already in train in New Zealand. It would be unwise deliberately to accelerate the pace of expansion through budgetary generosity, or relaxations in credit control or import licensing. “This would generate a sharp increase of expenditure which could not be long sustained, with the result that measures of restraint would probably be called for in 1964 !

“The situation at present has many similarities with the position in May, 1960 We feel that it would be well to recall how healthy the economic position then appeared and how quickly it deteriorated because of a quite excessive increase in the rate of national expenditure and a fall in export receipts. “Boom Psychology"

“The avoidance of an excessive rate of increase in national expenditure will largely depend on avoiding a return to the boom psychology prevalent amongst the public and businessmen in the latter part of 1960 Statements from Ministers as to the need for economic restraint have been admirable in their context, but have yet to convince the business community that a further substantial rise in consumer spending will not take place Expectations will largely be determined by Ministerial actions which effectively support Ministerial statements. “It is most important that the announced target of £250 million Of private import payments be adhered to and that the business community should believe that a substantial administrative easing in import licence issue will not take place. As a further indication of Government intenton we believe that the target tor bank advances at the end of December. 1963. should be published Budget’s Key Role

“The forthcoming Budget will play a key role tn shaping short-term economic trends If. as seems not unlikely. Government expenditure were to expand by about £25 million, or more han 5 per cent., in 1963-64. this of itself would provide a substantial stimulus to the economy

“It is possible that, at existing tax rates, revenue would rise m step with expenditure. but even if that were so. the amount which Government would have to borrow to cover its expenditure would remain at the high level which it reached last year.

“Given that £BO million of the public debt—£2o million more than last year—falls due for repayment in New Zealand in 1963-64, an even more substantial internal cash deficit than last year’s would occur, unless Government managed to induce a larger proportion than usual of holders of maturing stock to convert it and to attract loanable funds into Govern-

ment securities on a’ larger scale than last year.

“A substantial internal cash deficit would not, in the council's view, be consistent with the aim of ensuring steady expansion in New Zealand's current circumstances. If Government regards this aim as important, and if it wishes to give tax concessions to stimulate productivity and the earning of overseas exchange this year, then it must, we believe, offset these by corresponding restraints on its own expenditure or by corresponding increases in taxes on private

spending or in charges for Government services.

“So far, the rise in expenditure in 1963 has been within the capacity of the economy Given firm fiscal policies, the desirable expansion which is occurring should not develop into an unhealthy boom. It is important that this year’s Budget should not confirm an unfortunately widespread impression that the triennial cycle is about to be repeated, and so create the problems of instability which most people are very anxious to avoid”