The Press THURSDAY, APRIL 13, 1967. The British Budget

Press, Volume CVI, Issue 31343, 13 April 1967, Page 12

The Press THURSDAY, APRIL 13, 1967. The British Budget

The Budget brought down on Tuesday by the Chancellor of the Exchequer (Mr Callaghan) is a brave document— brave because it does virtually nothing to relieve unemployment, which has risen from 270,000 (seasonally adjusted) 12 months ago to more than 450,000 in March this year. A Labour Government which will allow unemployment to rise unchecked because of its determination to right the balance of payments shows real fortitude.

The only Budget measure even tinged with socialism was the tax concession for widows with children and single women with aged dependants. The selective employment tax introduced last year is virtually unchanged; the refund of half this tax paid by part-time workers may have a marginal effect on the employment of married women and retired people. The “ voluntary ” restrictions on British investment abroad are to be continued. Introducing these measures last year, Mr Callaghan said they might be removed “ in a year or two ”; on Tuesday he used the phrase “ by 1970 ”. He was not going to create unemployment at home “to allow “ capital to pour out overseas ”, he said.

Mr Callaghan missed the opportunity in this Budget of introducing any of the tax reforms which have been urged. The “Economist”, for instance, has argued in favour of a change in the structure of company taxation to bring it more into line with the European system. Most of the European countries which Britain hopes soon to join in the European Economic Community have a turn-over tax, a “ cascade ” tax, or an added-value tax. The “Economist” suggested that Britain should start substituting an added-value tax for part of its present company tax. Lake the selective employment tax, an added-value tax could be remitted on exports. This cannot be done with direct taxation on profits. Mr Callaghan also ignored advice to modify the selective employment tax for non-manufacturing export firms and for firms employing staff in areas of high unemployment. And he rejected pleas for reduced Government expenditure and cuts in such “disincentive” taxes as the surtax. Finally, and perhaps most importantly, Mr Callaghan offered no stimulus to investment in the private sector. Investment fell last year and is likely to continue to fall until consumption recovers significantly; and Mr Callaghan has indicated that will not occur until the balance of payments is well under control. But technological progress depends on investment; by holding back investment Mr Callaghan is prejudicing the future development of British industry. The 1966 and 1967 arrears of investment in new equipment for industry may cost the British export drive dearly in the next few years. These shortcomings, however, affect the future rather than the present. The immediate impact of the United Kingdom Budget abroad has been an improvement in the standing of sterling, reflecting the confidence of foreign exchange dealers and bankers in the determination of the Labour Government to maintain the value of the pound. This augurs well for the British balance of payments this year, and should enable the Bank of England to reduce its Bank Rate from the present 6 per cent in the next week or two. Subsidiaries of English firms abroad, including those in New Zealand, will be disappointed that restrictions on the outflow of investment funds from Britain remain firm. On balance, though, the Budget is helpful rather than harmful to New Zealand’s interests. The recent improvement in Britain’s balance of payments—gold and dollar reserves rose £32 million in March alone —will evidently continue, thus ensuring an improvement in Britain’s ability to finance imports. Any further reduction in the Bank Rate will add strength to the wool market, traditionally sensitive to changes in interest rates.