The Press FRIDAY, JUNE 26, 1964. Mr Lake’s Neat Balance

Press, Volume CIII, Issue 30477, 26 June 1964, Page 10

The Press FRIDAY, JUNE 26, 1964. Mr Lake’s Neat Balance

The Minister of Finance (Mr Lake) has neatly balanced his Budget between the poles of economic pessimism and political optimism. He has not acted sharply to reduce consumption by deterrent taxes; nor has he encouraged consumption by substantial reductions in direct tax rates. Human nature being what it is, the latter omission will probably—and probably wrongly—be most criticised; but neither should surprise anyone. In a sense, Mr Lake and his Government are repeating in reverse their fiscal policy of 1961, fortified, no doubt, by the recollection that they out-guessed all the experts three years ago.

Two allied criticisms of this steady approach can fairly be made. The first is that, in his concern not to encourage consumer spending, Mr Lake has given only limited incentives to primary production, useful though they are. The second is that he has not taken the opportunity to move away from the taxation of naming (and producing) towards the taxation of spending. Such reforms may, however, be only postponed while Mr Lake is marshalling his resources, including the expected huge increase of £33 million in tax revenue on buoyant incomes. That windfall this year will almost meet the proposed increase in expenditure, chiefly in such essential fields as education and defence.

Mr Lake has taken a more optimistic view of private spending than the Monetary and Economic Council, apparently because he believes the emphasis recently has been on capital investment rather than on consumer goods. If he is right, the pressure on overseas earnings should be relieved from two directions—a tapering-off of demand for machinery and equipment and an increase in home production. Much will depend on how efficiently and economically our industries have used their additional resources.

Taxpayers as individuals will thank Mr Lake more for what he has not done than for what he has done. Nevertheless, he has given some small but welcome relief. Though he has persisted with the unpopular land tax, he has wisely reduced estate duty. It should also be noted that income tax adjustments, designed chiefly to remove anomalies and causes of friction, include a 10 per cent rebate for the whole year, whereas last year the rebate applied for only six months —or, over the whole year, at a rate of 5 per cent The increased tax exemption for life-insurance premiums, besides helping an important section of the community, will promote the contractual savings that are such an important factor in economic policy.

The test of Mr Lake’s Budget is to be found neither in the satisfaction of those who will pay no more for their beer and tobacco nor in the dissatisfaction of those who will pay no less in direct taxation. It will come later in the year when such indicators as the level of overseas funds, the retail price index, and the volume of production show whether the Government has been able to manage its “boomlet”. We have our reservations on this; but we must admire the coolness with which the Government is going about the business.