Economist Wants Heavier Taxes

Press, Volume CIII, Issue 30603, 20 November 1964, Page 1

Economist Wants Heavier Taxes

With the economy in a highly inflationary situation and the prospect of a substantial deficit in the balance of payments at the end of next June, there should now be a supplementary budget raising taxes, preferably on imports, said Professor B. P. Philpott, professor of agricultural economics at Lincoln College, yesterday.

Professor Philpott, who was addressing farmers attending a field day at the college, said that the inflationary state of the economy was showing itself in increased wages and prices—prices would probably rise 5 per cent this year compared with 2 per cent in the last five years—job vacancies, which were up by 25 per cent and unemployment, which was down by 30 per cent. As long as this situation continued, wages and prices would continue to rise. Imports were soaring, and there was a prospect of a severe balance-of-payments deficit in the 1964-65 year. The reasons for this were the sharp rise in farm incomes from meat and wool prices; higher levels of Government spending not matched by equivalent higher levels of taxation with the easy Budget this year; and higher wages and salaries, including those of members of Parliament and university professors. It was important to note

that higher wage levels were not necessarily a result of the Arbitration Court increase of 6 per cent. They were attributable to the very high level of demand for goods and services, so that businessmen had been scrambling for labour and. were not at all averse to paying higher wages because in conditions of high demand these increases could be passed on into prices with immunity, especially as with import control there was no competition from cheaper imports to worry about. The result was that in the year ended last June, in spite of a record overseas export income of more than £4oom—a rise of £6om on the previous period—New Zealand had still achieved a surplus of only £2m in its balance of payments to add to its very meagre reserves. “More Unpleasant” “When we look forward to the year ending June next year the situation looks very much more unpleasant,” said Professor Philpott. “On the basis of my forecasts of export prices and production, I should think that over-all export income will be about the same as in 1963-64, or may even decline by £lom. On the payments side we

have a very high level of private imports—perhaps even higher than the 1963-64 record of £293m—and a rapidly growing bill for invisible payments such as freight on exports and imports. “It is not difficult, therefore, to foresee the meagre £2m surplus in the year ended June this year turned by June of next year into a £2om to £2sm deficit, which would have to be financed by using up overseas reserves or borrowing.” Professor Philpott said that inflation on this scale was bad enough for farmers, for most inflation was paid for by farmers in the end. But there were wider, and, in his view, even more worrying implications. Export Production This year there had at long last been recognition by the country of the need for greated export production, and this had found its expression in the setting up of the Agricultural Development Conference. It was clear from the excellent work of this conference that, among other things, special tax and other incentives were needed for agriculture, and in fact there had to be a massive shift in real resources away from non-export-ing to exporting industries. “But however worthy these recommendations are, only in their wildest dreams could the authorities consider tax reductions now or over the next year with the over-all economic situation as I have outlined it. Thus any moves towards a coherent farm policy in New Zealand will have to be sacrificed in the meantime until the economy is once again got in. order.” In considering how the economy might be put in order, Professor Philpott said that the cures did not include price control, more import control, or pious exhortations by the Government to the public and the National Roads Board to spend less and save more. “Got To Be Rocked” “It is no use trying to avoid rocking the boat,” he said. “The boat has got to be rocked if spending is to be.curtailed, and it is the level of spending and the level of demand which have got to be tackled and curtailed if we are to make any progress.” To be positive. Professor Philpott said, the Government should have heeded all the warnings of economists and the Monetary and Economic Council and not introduced an easy Budget this year. It should have raised taxes, preferably taxes on imports. Having failed to do that it should now bring down a supplementary budget containing such provisions. This was happening in the United Kingdom, where the balance-of-payments deficit of perhaps £soom was a far smaller proportion of over-all trade than was New Zealand’s. Above all, there had to be a recognition by the public and the Government that it' was the Government’s responsibility to control the level of demand by tax changes in the budget, so that with the economy kept in good shape there was some scope for special tax concessions for exporters as required. Without this, agricultural development conferences could be held, until people were blue in the face, but with no useful result