ECONOMIC CURBS INDICATED

Press, Volume CVI, Issue 31291, 10 February 1967, Page 1

ECONOMIC CURBS INDICATED

Elimination Of Subsidies, Higher Charges Advised

(From Our Own Reporter)

WELLINGTON, February 9.

Economic measures considered necessary by the Government to cut down excess spending will be announced tomorrow night by the Prime Minister (Mr Holyoake).

“In the main these measures are similar to those recommended by the Monetary and Economic Council for immediate implementation,” Mr Holyoake said tonight.

The council’s main recommendations are:—

(1) The limitation to the rise in Government and local authority expenditure in the next financial year to no more than 2| to 3 per cent.

(2) The elimination of consumer subsidies with compensation for means test pensions and benefits. (3) Increased charges for certain Government goods and services.

These measures can be implemented without further legislation. Together, it is estimated, they would produce a saying in expenditure of £2O million to £25 million.

“Increased Indirect taxes as also suggested by the council would, however, require Parliamentary sanction. The Government is considering whether to convene an early session of Parliament this year to discuss the economic situation, and to introduce whatever additional measures might be appropriate,” said Mr Holyoake.

Other Measures The other recommendations of the council are: The institution of a tax on electricity consumption. The raising of taxation on petrol, cars, tobacco, alcohol and other consumer items. The imposition of travel and overseas exchange purchase taxes.

The Government will also probably borrow from the International Monetary Fund.

A decision on whether Parliament will meet on March 30, or soon after, has not yet been made.

Discussions on whether an early sitting of Parliament should be called occupied much of the time of the Government caucus during its late session tonight. An early session is desired by many members. The Monetary and Economic Council, in its report, called for a two-pronged attack on the nation’s economic problems with more overseas borrowing and a curb on internal spending, the Press Association reported. Need For Loans The council said the need for more overseas loans was “imperative” to prevent a drain on overseas reserves to the extent indicated by trade and other economic transactions. It suggested a broad range of corrective fiscal measures to slow the growth of spending generally and the demand for exports in particular. The council said it was “strongly opposed” to intensification or reintroduction of direct controls such as those on prices, imports, or capital issues. Change In Income Last year, said the council, appeared to have marked the end of a rising trend in export prices and income which began in 1963. “The economy faces the most serious difficulties in financing external transactions

that have been encountered for many years and internal spending and economic activity must be readjusted more in conformity with the level of export receipts now expected.”

Export earnings for the year ending in June were forecast by the council at £382 million, down £2O million on the 1966 figure. Since March last year, the rate of increase in spending in New Zealand had slowed, but insufficiently to match the now slower growth in effective production. "In the current year to

March, 1967, money expenditure is likely to be about 5J per cent higher than the previous year. Falling export prices and hence the worsening terms of trade, however, mean the effective volume of production will be only about 2} per cent higher.”

The council estimates that on the present level of export prices, the growth in effective production in the coming year will be even lower at no more than about 2 pbr cent. The council warned that the growing deficit in the current account of overseas exchange transactions (estimated at £77 million in the year ending in June) plus overseas debt repayment meant that £B6 million would have to be financed overseas. Reserves Position If no further borrowing were possible before June, total overseas reserves would have fallen to about £45 million, the council claimed. Such a balance would leave little margin to meet the normal seasonal call on reserves in the second half of the year. x “It would certainly not be adequate to meet the further over-all deficits in 1968 and 1969, which would seem to be in prospect unless internal expenditures and the demand for imports are brought more into balance with the likely growth in effective production.” The council warned that too much must not be expected too quickly from its suggested interim measures. If applied immediately, they would begin to affect the level of spending soon.