COMMENT FROM THE CAPITAL WAGE FREEZE LESS LIKELY THAN RISE IN INTEREST RATES

Press, Volume CX, Issue 32425, 12 October 1970, Page 12

COMMENT FROM THE CAPITAL WAGE FREEZE LESS LIKELY THAN RISE IN INTEREST RATES

(By

C.R. MENTIPLAY,

our Parliamentary reporter)

WELLINGTON, October 11.—The chances of a mini-Budget which would considerably affect living conditions in New Zealand are increasing rather than diminishing. A high level of imports, disappointing sales rf primary praiucts overseas an uncertain trading future, and the increasing militance of wage demands are creating a situation in which something effective must be done by a reluctant Government. lining

The Minister of Finance (Mr Muldoon), now in the United States after a tour of the world centres of financial and economic power, will arrive back in New Zealand on Sunday, October 18—just a week from now. Within a week of. that date we are likely to know the worst. The problem is not a new one. It rises largely, if not principally, from the fact that New Zealand’s fortune rests on the quantities purchased and the prices paid overseas for our primary produce. These dictated the imposition of the so-called “black Budget” in 1958— a document which was almost dangerously optimistic in view of the facts known when it was written.

Last Budget optimistic The 1970 Budget was also optimistic, in that it could have no cognisance of trends and events which have made themselves felt since. The “mini-Budget” system, with its quicker action and promised quicker return, has been tried and found effective; but the Budget itself must be prepared in the old way, at the traditional time of the year, if only because this is the earliest opportunity New Zealand has of learning some of the relevant facts.

The Budget was presented by Mr Muldoon on the evening of June 25. In the intervening three and a half months, certain facts have become unpleasantly clearer. Mr Muldoon himself, through his recent personal contacts overseas, will know not only how New Zealand’s credit stands, but what the world’s financial experts would suggest could be done about it. Some politicians and others will claim within the next month that the World Bank has already dictated what courses must be taken. This is never true—but it cannot be denied that membership of the world organisation entails certain obligations. Wage freeze unlikely

As many of the price increases already worrying the community are due to increases in wage rates, and as other predicted wage increases can be expected to send prices still higher, the economist’s way of checking the spiral would be to impose a moratorium on wage rates for a specific period. Most authorities consulted regard this as unlikely. The “wage freeze—price freeze” solution was tried in Britain, with mixed success, but with definite 'reaction against the Government which tried it. In any case, it is contrary to National Party political philosophy. In any case, if something like this was intended—or indeed if any further legislation on industrial control were being considered, it would be unlikely that the Minister of Labour and Overseas Trade (Mr Mar-

shall) would be away from New Zealand during its introduction and discussion. Mr Marshall is scheduled to leave New Zealand on October 18—the day Mr Muldoon returns—for a trip to the United Nations headquarters at New York, followed by a round of E.E.C. calls in Britain and Europe. He may not see Mr Muldoon before he goes, and he will be away until the end of November—far later than the expected date of the rising of Parliament.

A “mini” prediction If a “mini-Budget” is decided on, its main object would be to hold down expenditure. It could contain the following elements: . 1. A sharp rise in interest rates; 2. An across-the-board rise in taxation on consumer goods; 3. The institution of a compulsory loan; 4. The restriction of imports. 5. Increase in payroll tax. INTEREST RATES have stolen up a long way from where they were only a few years ago, but they still compare more than favourably with the rates being paid even across the Tasman. This has been part of the tradition of New Zealand Governments over the years, and it is still dear to the hearts of both Government and Opposition. The Labour Party, as part of its post-depression policy, sponsored the use of money at very low rates for specific home-building purposes, and this policy has persisted, though the years have brought changes. In the financial crisis of the late 19505, it is noteworthy that neither the Labour Party Minister of Finance (Mr A. H. Nordmeyer) or the National Party Minister (the late Mr J. T. Watts) turned to higher interest rates as a solution. The raising of interest rates is regarded in both parties as something of a twoedged sword. Inevitably, it would affect local-body loans. Inevitably, also, it would deter young couples from building. Present financial stresses might be regarded as having enough of a deterrent effect on this sector of the economy. “If they have to pay interest rates of eight or nine per cent, as they do in other countries, It will certainly stop people from mortgaging their property or at least it will make them look twice before doing so,” a financial authority told me. “This is what the Government wants. But there is no denying that there are some disagreeable features.” CONSUMER GOODS have been a traditional target. A general move on taxation of consumer goods Would carry along' some aspects of the

taxation report of a few years ago which aimed at replacing much of our direct taxation with the indirect

variety. A logical first objective would be to increase taxation on cigarettes, tobacco and beer. Unfortunately for the consumer, the pattern has favoured this kind of taxation, for it has been clearly indicated that after a brief period demand remains unaffected.

One financial authority I consulted had a whimsical thought on this. “There was quite a lot of slack in beer prices—but I think it has all been taken up by the breweries and the hotel people,” he said ruefully. “I really don’t think there’s room for another rise just yet.”

A COMPULSORY LOAN is always a possibility. This can be carried out in a number of ways. At the time of inquiry it appeared that it was not a matter of first priority. RESTRICTION OF IMPORTS is of course the other end of the problem which begins with decreases in overseas sales. At present New Zealand’s primary produce is running through a bad period. The length of a period like this has proved to be quite unpredictable. There is also the chilling thought that this could happen permanently on Britain’s admission to the European Common Market.

It is uncomfortably in many minds at present that the amount New Zealand can buy from other countries is related directly to the amount sold. Against this we have the Government promise that import restrictions will be progressively phased out.

INCREASE IN THE PAYROLL TAX was effectively pencilled-in by Mr Muldoon as a possibility during early argument on this subject. The question is, has the sharp reaction by commerce and industry against the tax been effective enough to preclude an immediate increase? Over the last two months industrial employer groups have become aware of the possibility that merely to absorb the payroll tax is not enough. There is a strong feeling, particularly in the Auckland and Wellington business communities, that Mr Muldoon will wait only briefly before advancing the tax to the originally-intended figure of 4 per cent. The basic argument against this, of course, is that it must increase prices of goods and services. If the intention ever Was that the payroll tax should be absorbed without being passed on in any way to the

customer —then that intention must be diminished as the amount of the tax rises.