Government Considering More Economic Curbs

Press, Volume CVI, Issue 31256, 31 December 1966, Page 1

Government Considering More Economic Curbs

(New Zealand Press Association!

WELLINGTON, December 30. The Prime Minister (Mr Holyoake) said today that the Government may have to do more to restrain demand in the economy.

In his New Year message, Mr Holyoake spoke of difficulties ahead, but said they should be of “short duration” and would be dealt with by the Government in a “steady and responsible manner.”

“Whatever action may be necessary, we must ensure that confidence in our farming and other export industries is maintained.”

Mr Holyoake referred to falling export prices, particularly the drop in returns from wool—“a new, unexpected problem of serious proportions.”

“The Government’s policies of giving incentives for greater production, which necessitated considerably increased capital investment on farms, in factories and for major works of national importance .resulted in our economy becoming over-exten-ded,” he said. “In fact, New Zealand has tried to do too much too quickly. However, the increased earnings from this increased capital investment will give our economy benefits in the years ahead. Farm Development “Most important, the farming industry on which we depend basically for our export earnings has achieved a rate of development never before achieved in New Zealand’s history. This has been one of the primary objectives of the policies we had been following. “When, on September 15, 1965 the Minister of Finance (Mr Lake) announced in Parliament the Government’s intention to use for the first time the resources available from the International Monetary Fund, he made it clear that this was because it was the Government’s intention to ensure a continuation of the growth of export industries and the development of industries with an export potential. “Positive incentives had been given which in combination with adequate developmental finance, had made it possible for farmers to plan for increased livestock production. The Minister of Finance said then that it seemed reasonable to look forward to some improvement in the wort price. Capital Works “We were deliberately encouraging a high rate of development in the farming and other export industries, and we were planning for tremendous additional electricity development at Manapouri and Tongariro to provide for major aluminium and steel industries.

*To do this we had to finance the 'short-fail' in export receipts which results from livestock retention, and also finance the rise in payments for imports of capital goods necessary for increased production and for important long - term developments of national importance.

“By the end of last production season, there were 4.200,000 more sheep and 367,000 more cattle on our farms than in 1965."

At current prices, the meat value alone of the additional livestock was about £23 million. Wool production was up 72.000.000 pounds and was expected to rise again this year. Dairy production was up also. The potential export value of increased farm production far exceeded the short and long-term capital liabilities of financing development. Import Payments “We have no extensive capital goods industries of our own, so the programme of heavy capital investment strained to the limit our resources of overseas exchange at the same time as export receipts were held down by livestock retention," said Mr Holyoake. “During the year ended June, 1966, payments for imports of capital goods rose by £24.5 million, including, for example, an increase of £7.6 million for agricultural machinery and plant, and approximately £4 million for industrial machinery and plant “In addition there was over £3 million of transport items. There was also an increase in the components of fertiliser. Expenditure of overseas funds for fertiliser materials almost doubled in the last three years to a record £12.6 million last season. Budget's Aim “Because it was evident that tightening of overseas capital markets would not make it easy to continue to finance this high rate of growth, and because the high level of imports of capital

goods in recent years had enabled modernisation over a wide area in most industries, especially farming, the 1966 Budget emphasised consolidation of the gains which had been made and provided for a somewhat slower rate of growth in the current year.

“The investment allowance was suspended, building programming was continued, and steps were taken to prevent losses to the official reserves from stock market operations outside the banking system. “In a speech to the Canterbury division of the New Zealand Institute of Management on August 16, the Minister of Finance said that in spite of it being election year, the Government would not relax credit policies. He predicted that some further tightening of business conditions could, therefore, be expected as we entered 1967.

“By the time the 1966 session of Parliament ended, it was clear that the measures we had taken were producing the desired trend.

“During the early months after the 1966 Budget, payments for private imports declined, and firm orders placed with overseas suppliers declined by more than the drop in payments. Manufacturers, wholesalers and retailers’ stocks rose substantially, and, of course, these stocks are another form of reserves. Earlier Prospects “On the available evidence the Government was reasonably reassured about prospects for 1967. The measures we had taken to bring about a reduction in internal demand were demonstrating their effectiveness. Expert opinion based on world statistics stated that there should be a rise in the price of wool. “The farmers of New Zealand had saved and otherwise raised the finance to increase their investment in the previous financial year by the unprecedented sum of £6B million. It seemed New Zealand had only to wait for this investment to pay off in higher export receipts. Losses Faced

“Now there is a new, unexpected problem of serious pro.

portions. During the last few weeks the price of wool has dropped very seriously. In spite of the tremendous rise in production for export we will now not receive the anticipated increase in overseas earnings. “If the present trend continues. the serious drop in the price of wool could cost us a very large sum. “New Zealand loses £3 million in overseas exchange each time the wool price drops by one penny. Latest sales show a drop of about 6d per lb on last season’s prices.

“It would not be so serious if we could rely on making up a loss of this magnitude from increased earnings for other exports. However, the present prices we are getting for meat and butter are low in relation to production costs.

“Fruit-growers lost almost £1 million on their exports during the season ended November 30. “At this stage, no-one can be sure that the recent serious drop in export prices will persist or whether they will turn upwards. The lower prices for our exports obviously are influenced by the restrictive policies of the governments in our main markets. “More Restraints” “However, the sterling area’s reserves have risen in recent months, and if this improvement accelerates, the undoubted latent demand for wool could become effective before the present season ends.

“Unfortunately, we cannot be sure of this, and, therefore, we cannot be sure at this stage that what we have done to restrain demand in the economy will be sufficient to hold the situation.

"We may have to do more to restrain demand. The Government is studying the position carefully. Whatever action may be necessary we must ensure that confidence in our farming and other export industries is maintained. We must also give priority to the completion of the major electricity projects which are necessary for the new and nationally important steel and aluminium industries.

“I shall publish a more comprehensive review of the economy when we have more adequate information about the trends in export prices. “We have already made one

important decision by determining, in the light of the present outlook, the basic allocation for the 1967-68 import licensing schedule, details of which will be announced at the earliest appropriate time.

“No Depression”

“While we are confronted with many uncertainties we can be sure of a number of things: “First: our economy is basically sound and the impetus given to growth in the export industries will stand us in good stead in the years ahead.

“Secondly, while there have been difficulties in international trade and payments which result partly from the efforts of Britian and the United States to solve their own overseas funds problems and to restore international confidence in their currencies, there is no likelihood of a recession in international trade of the kind which plagued the world in the 1930’5.

“Thirdly, we can expect that the setback to the growth of international trade will not be of long duration. International trade has more than doubled in the last 10 years, and if trade no more than keeps pace with world population growth, it must rise very rapidly in the years ahead.

“Finally, whatever the economic outlook, the Government will do whatever is necessary to protect the interests of the people of New Zealand as a whole. Entry To Markets “We will take whatever action is appropriate to the circumstances. We have confidence in the future of New Zealand. Whatever steps may be necessary we will endeav-. our to ensure the least possible interference with the steady growth and development of our country. We will keep the people informed of the situation. “The business of government is not easy in these troublous and rapidly changing times. We have assured entry into the British market from 1967 to 1972. We have the assurance that our interests will be safeguarded if Britain joins the E.E.C. Very considerable progress has been, and is being, made in the diversification of our overseas markets.

“Nevertheless, we cannot be complacent and we must face up to each difficulty as it arises.

“My New Year message to you is this: There are temporary difficulties ahead, but these should be of short duration and will be dealt with by the Government in a steady and responsible manner,” said Mr Holyoake.