FRAMING THE BUDGET ‘Oil increases to cost N.Z. $200m’

Press, Volume CXIV, Issue 33487, 19 March 1974, Page 1

FRAMING THE BUDGET ‘Oil increases to cost N.Z. $200m’

New Zealand Press Association)

GISBORNE, March 18.

Oil exporters were likely to take an extra slsom to sl7om from New Zealand this year, while the total oil-induced deficit faced by New Zealand in the 1974-75 financial year (including extra freight costs) could well be over 8200 m. said the Minister of Finance (Mr Rowling) last evening.

In a speech to the Rotary club in Gisborne, Mr Rowling said the decision of the oil producers last December to increase their prices amounted to a “mini Budget” in its effect on the New Zealand economy.

The extraction of such large sums from New Zealand’s purchasing power would be one of the principal factors that would have to be considered in the framing of this year’s Budget. Mr Rowling said that the prospect of a deficit from oil was one that would continue for some years before developments in domestic energy-use patterns and the

economies of oil exporters enabled equilibrium to be restored. In the process, policies would be needed to develop and restructure the 'use of energy; and to ensure the vitality of important exports. ‘Siege mentality’ ' "To ' approach this new problem as a standard bal-ance-of-payments problem would lead to quite inappropriate policies being applied,” Mr Rowling said. “It would promote a siege

mentality not conducive to the sustained growth and to the sort of medium and longterm structural adjustments which will be needed in the economy to secure adequate living standards in the future.”

Dealing with energy, Mr Rowling said that New Zealand’s present oil use as a percentage of total primary energy consumption was quite high. New Zealand’s figure of about 60 per cent was low compared with Italy at 80 per cent or Japan at 75 per cent, but high compared with the United States and Britain (45 per cent) or Canada and Germany (55 per cent).

Coal and gas

The scope for reducing dependence on imported oil depended on the availability of other energy resources, but New Zealand was fortunate in having abundant coal reserves and two natural gas fields. Policies were needed for turning the demand for oil towards coal and gas, and for reducing demand. One incentive for effecting changes in the energy pattern would be price. “Beyond energy pricing policies the Government will be involved in new investment in the energy sector and providing any additional incentives required to induce appropriate changes in the private sector,” he said. Mr Rowling said that there were two long-term implications from the oil crisis: higher oil prices represented a cut in New Zealand’s real income, in this case between 2 and 3 per cent; and higher oil prices meant higher overall energy costs, as more use was made of energy sources with higher production costs. . Extra debt Mr Rowling said he did not think New Zealand would reduce imports to pay for the extra oil costs, but that extra debt would be incurred that would need to be paid off by building extra strength into the economy. “In other words a sustained rate of economic growth is now more crucial,” he said. "We should be aiming, while the oil deficit persists, to switch more of our available sources into investment.”

Dealing with higher energy production costs, Mr Rowling said that was the most basic way in which the oil crisis would affect living standards throughout the world. "Sustaining economic growth under these circumstances will place a higher premium on economic efficiency, not simply efficiency in the use of energy but efficiency in the use of all resources,” he said. ‘N.Z. well placed’ The Minister repeated his statement of last week that he had grounds to believe that New Zealand was well placed to maintain good economic growth over the next year and beyond. However he said that a serious recession in world trade and substantial falls in the returns for the country’s primary exports “could deflect us from such a course.” “History has shown us all too often that we" are very much at the mercy of circumstances overseas.” A severe cost-price squeeze could reduce investment in the farming and business sectors, he said. “Averting this prospect is much more dependent on our own efforts and is of course the objective of the stabilisation policies," .