The Press WEDNESDAY, FEBRUARY 9, 1966. Need To Restrain Spending

Press, Volume CV, Issue 30980, 9 February 1966, Page 12

The Press WEDNESDAY, FEBRUARY 9, 1966. Need To Restrain Spending

As a nation, New Zealand is overspending. x..xs is apparent from a study of the Reserve Bank’s summary of overseas exchange transactions for 1965. In spite of an increase of £34 million in New Zealand’s borrowing abroad—net of lending abroad and other capital payments —the over-all balance last year was a deficit of £l2 million, compared with a surplus of £3 million the previous year. A drop of £’l million in export receipts was only partly responsible for the massive £49 million deterioration on current account, as was the £7 million increase in the deficit on invisible items. The £26 million increase in pajments for private imports was the dominant item.

But for the £22 million loan from the International Monetary Fund towards the end of last year, New Zealand’s overseas reserves would have fallen to their lowest post-war level, which would have proved embarrassing to the country’s bankers and traders. New Zealand might, possibly, be able to borrow abroad again this year on the same scale as last year, but even if this were possible it would not be desirable. Sooner or later New Zealand must learn to live within its income, and the sooner this position is reached the smaller will be the legacy of debt from the years of over-importing. It is evidently the belief of senior members of the Government that, left to itself, the balance of payments would eventually correct itself. The release of many commodities, mainly raw materials, from import licensing from July 1 last year was expected to lead to an increase of, perhaps, £lO million in private imports as stocks of the newlyreleased items were built up. In the first six months of the licensing year private imports actually rose £25 million. The Government Statistician’s estimate of imports for the six months ending next June is £153 million—£9 million more than in the same period last year. The critical question now is what will be the rate of importing in the last six months of this calendar year? If imports can be kept down to about £l5O million a modest level of overseas borrowing would enable the partial, but welcome, release of import controls to be maintained. This objective will be realised—in the absence of any unexpected improvement in export prices—only by the exercise of firm fiscal and monetary measures. Provided that internal demand is kept in check and money remains tight, the business community will lack both the incentive and the means to stockpile unnecessarily. The need for much higher defence expenditure in the coming fiscal year also hints at a tough Budget.

Such austerity in election year will certainly not appeal to the Government; but today’s more sophisticated electorate is suspicious of fiscal irresponsibility. A refusal by the National Government in 1957 to take firm steps to control the economy did not save it from defeat at the polls that year; and Labour’s 1958 Budget, of unexpected severity, persuaded the electorate it had been hoodwinked. The political lesson of 1957-58, which is pertinent in the comparable circumstances of today, is that economic realities must, sooner or later, be squarely faced.