COMMENT FROM THE CAPITAL INCENTIVE BUDGET LIKELY WITH TAX RATES STEADY

Press, Volume CVIII, Issue 31677, 13 May 1968, Page 12

COMMENT FROM THE CAPITAL INCENTIVE BUDGET LIKELY WITH TAX RATES STEADY

(From Our Parliamentary Reporter) WELLINGTON, May 12—Fears that the 1968 Budget would bring a sharp increase in the rates of taxation, both.direct and indirect, have been largely annulled by the. figures now flowing ipto the hands of the Government’s financial advisers.

The prediction now is that this.will be a “Hold-the-Line” Budget with few changes in the rates of taxation, and with an increase in incentives intended to improve, sub-standard parts of the economy.

The fear of another “Blaek Budget” has stemmed largoly from an appreCiatiotf 'of the gravity of New Zealand's economic situation.' Six month* ago thia forced the Minister of Finance (Mr Muldoon) to send a letter of intent to the International Monetary Fund explaining the Government’s intended course, and asking for a one-year stand-by credit arrangement for SUSB7 million. Last week, because uf changes in the situation, Mr Muldoon sent another letter to the managing director of the I.M.F. (Mr P. Schweitzer). It was a progress report—but it was much more than that.

Balance Expected ' The imorovemeitis reported by Mr Muldoon were ones which he later described privately as “dramatic.” The struggle back towards a current account balance, which was expected to take several years, is now expected to end next April. . As usual, factors -outside the control of Wiy Government have brought some of the improvement. Wool is moving, though slowly. The meat season has been “quite good” when compared with predictions. Dairy products have held up well, and arc marketing steadily. The Government’s mea-

sures, including devaluation, have proved most effective, according to Mr Muldoon, it is recollected that when advised of these measures, officers of the I.M.F. and World Bank expressed their approval. \ In the last few months. New Zealand’s short-term overseas debt has been reduced by 49 per. cent. The debt stood at $216.8 million on February 20. Today it is $127.4 million. By June 30 a further $23 million will have been repaid—a total reduction in four months of $112.3 million. The Government’s shortterm borrowing policy was designed to deal with a declining balance-of-payments situation. It began with an LM.F. loan of SUS62.Sm (SNZSS.4m) in November, 1965. New -Zealand has even had to slow down her rate of repayment in-deference to Britain, which has been apprehensive over the effect of large withdrawals of sterling. Under the I.M.F. rules, New Zealand has maximum drawing rights of, $175.3 million. This means that, if she so desired, New Zealand could draw a further $121.7 million. Wary Of Boom The situation .is such that Mr Muldoon has real fears of a boom developing. “This could develop into a situation •in which we should have to

start all over again,” he ‘said I recently. “A boom could be as serious for. New Zealand as a depression’.” This is 'Why the most likely line, to he followed is the one described by the Deputy Prime .Minister (Mr Marshall) several years ago as “Steady Does It.” It is obvious that the Budget as a document fs no longer as powerful as it used to be. Last year’s system of mini-Budgets and licensing adjustments deprived the 1967 i Budget of much of its force. Though there has not been such early action this year, a similar effect may be noted

in the 1968 Budget. Last year Mr Muldoon made it clear very early that there would be no one-shot panacea for economic ills. Instead of awaiting the arrival of the Budget, he administered the Government’s first physic in February, 1967, and followed

this up with a second dose three months later. By the the time the Budget arrived on June 22 there was evidence of the effects of themini-Budgets. The 1967 Budget has tended to be regarded as a “nothing Budget.” Speaking to business and trade groups round the country about that time, Mr Muldoon made it clear in simple language that he was keeping a close watch on the economy, and that the Government had other plans if the circumstances arose. " He also said the Government would not leave restrictions in force a moment longer than was necessary. In other words, the Budget as a year-round package panacea had ceased to exist Judging by their comments at the time, many leaders in the business and trade groups were prepared to accept this as an improvement on the old once-a-year system. There has been some reaction against the so-called "boom-bust” sequence as it has appeared in some industries, notably house-building. Incentive Scheme Mr Muldoon’s recent letter to the I.M.F. contained revised figures of net domestic assets. Assurances were given that the net domestic assets of the Reserve Bank would be held to $2OO million between May and August, and to I

$230 million between August and October. "This does not mean that New Zealand must continue plodding along the recovery path at the same gait,” Mr Muldoon said. "The figures of net domestic assets contained in my recent letter do not interfere with the Government’s ability to stimulate the various sectors of the economy that may require it as we go along.” An example of such stimui lation has already occurred in a field which was badly hit earlier by restrictions on finance. This was the building industry, which in some areas has experienced acute depression:

Quick action was taken some months ago to relax restrictions on the larger building projects, ?nd lending in: stitutions were given the opportunity to use a percentage of loan moneys for financing homes. Last week, the loan limits of the State Advances Corporation were increased on certain sections where there is an encumbrance. This should stimulate housebuilding, and should prevent many more building teams from breaking up. It is a positive way of using funds available to stimulate a depressed sector—but there is some argument as to whether a better result would be obtained if the demand for housing were fixed for several years ahead, as advocated by the Monetary and Economic Council and the National Housing Council. Budget Date

The presentation of the Budget will follow a different pattern this year from 1967 Last year the House of Representatives began its session in April, and went into recess at the end of May, having disposed of the Address-in-Reply debate. It was back again, after a fortnight of committee work, to deal with the Budget, which came down on June 23. This year there is no official indication yet of when the House will start its year's work, let alone when the Budget will appear. The most likely date for the Parliamentary session to start would be June 19. As the “set-piece” Address-in-Reply debate will occupy a fortnight or more, the Budget is not likely to be I presented before July 4.