Govt. Advised To Cut Own Spending

Press, Volume CV, Issue 31028, 6 April 1966, Page 3

Govt. Advised To Cut Own Spending

(New Zealand Press Association) HAMILTON, April 5. The Government’s present policies to restrict inflation are unlikely to be very effective. until it uses fiscal methods and cuts down its own spending, according to Mr L. C. Bayliss, a Monetary and Economic Council economist.

, “The Government has laid great emphasis on monetary measures to control inflation, i but these measures are not I likely to be as effective as the Government hopes," he said in an address to the Waikato council of the Economic Society. “I think it is almost certain that they will have a relatively minor impact. “The main reason for this is that controls on trading banks have very little impact

lon the sources of funds available to companies.” i There were about 60,000 private and public companies in New Zealand with total assets of about £l5OO million, said Mr Bayliss. A glaring gap was the lack of statistics for private companies, but the Reserve Bank analysis of sources of funds to public companies showed that trading banks in the last two years had supplied less than 3 per cent of their funds. “Furthermore, over a period of 10 years, as a result of the Government’s policies and in particular, the restriction of bank advances, the importance of the trading banks as a source of finance to the prii vate sector as a whole has sharply declined."

Mr Bayliss said there was also a political reason for controls on borrowing. “If a person is refused a loan by a trading bank during a credit squeeze, the odium reflects on the bank and not the Government.”

Because of the reduced importance of the trading banks and because of inflation, which had maintained company profits at a high level, a high proportion of funds available to companies came from retained profits and depreciation allowances, he said. “Over the last 10 years comnanies have obtained about £750 million from these 'sources and only about £5O million from trading banks. “To be really effective in controlling inflation the Government will have to use fiscal methods and cut back on its own spending. These are the methods being used in i virtually every other democratic country today."