The Press FRIDAY, JUNE 17, 1966. Gentle Restraint

Press, Volume CVI, Issue 31088, 17 June 1966, Page 8

The Press FRIDAY, JUNE 17, 1966. Gentle Restraint

The Minister of Finance has drawn only a light rein on the economy. His Budget measures contain none of the rigorous restraints, to reduce consumer demand and attack inflationary pressures, that have been recommended by some economists. Mr Lake’s estimate of the increase in Government expenditure for the current year, excluding debt repayment, is £4B million. This is almost double the increase recommended by the Monetary and Economic Council. Taxation and other revenue estimated to produce £573 million will leave a deficit of £59 million, or £lO million more than last year and £l9 million more than the council considered an acceptable maximum. The biggest increases in public expenditure will be on services for the community, notably education, defence, and health, and on social security benefits. The public demand for this expenditure runs high; but the taxpayer, direct and indirect, has not been asked to reduce his private spending to meet the higher Budget deficiency.

Nevertheless, for an election year, this is a prudent and responsible Budget. The Government must be given credit for eschewing the hoped-for taxation reductions to which Mr Lake referred at the end of his speech and for curbing its own capital and works expenditure. This, when combined with the high rate of capital investment in the private sector, has been a source of strain on the labour and material resources of the country and on overseas exchange. But no-one will pretend that it is easy to keep a tight hand on Government spending when virtually every section of the community is demanding an extension of public works and services. Instead of a direct attempt to reduce consumer expenditure, the Budget’s main measures are designed to stimulate private savings and, by the temporary suspension of investment allowances, to slow down the recently high rate of industrial expansion. Because of the reductions already made in import licences, the effect on industry will probably not be onerous. Depreciation allowances and tax deductions for export promotion expenses will continue. New “ taxation “ incentives ” to encourage increases in livestock and industrial exports should bring a lasting benefit to the economy. The capacity to produce and the ability to import materials and plant have already been restricted by import licensing cuts. The physical capacity of industries to expand has been curtailed. The loss of the investment allowance, which applied to industries regardless of their efficiency, economic importance, or export potential, will therefore have slight effect.

Mr Lake’s proposals to control the formation of capital seem sound enough. The raising of the interest rates on Government loans, to keep them slightly ahead of local body rates, and the higher interest rate for savings in investment accounts will provide some further competition for the private sector. The extension of regulations to control the raising of capital in New Zealand by overseas companies will be a useful and necessary brake on industrial expansion and will protect the interests of domestic firms on a tightened capital market. Although the removal of the percentage limit on life insurance and superannuation exemptions from income tax is not very significant, the extension of the exemption to policies on the lives of a taxpayer’s wife and children will be welcomed.

The ordinary citizen is not likely to feel more than marginal effects from this Budget. Mr Lake’s intention to underspend from the Consolidated Revenue Account means that the amount of money injected into the economy by the Government will be about £lB million less than last year. This must be regarded as a minor effort to reduce inflation. The success of the policies confirmed by this Budget depends on increased productivity rather than on reduced demand. The Budget For Others The Council of Organisations for Relief Service Overseas launched its first appeal to New Zealanders to support the Freedom from Hunger Campaign four years ago. C.0.R.5.0. can now demonstrate the results of earlier appeals in worth-while achievements. Small as they may seem in contrast to the hunger of millions more people in the world, they are surely the greatest encouragement to New Zealanders to continue and increase their support for the campaign in tomorrow’s national appeal. If anyone questions the rightness of giving hungry people the strength, the knowledge, tools, or animal and seed stocks to produce more food for themselves he must show that what has already been achieved is wrong. In the last four years New Zealanders have given £1,300,000 to the campaign. They have still had more than 5000 times that amount to spend on themselves. And most will have spent it with less scrupulous attention to value than C.0.R.5.0. devotes to its projects.