REDUCTION IN IMPORTS MOST IMPORTANT TASK

Press, Volume CXIV, Issue 33673, 24 October 1974, Page 5

REDUCTION IN IMPORTS MOST IMPORTANT TASK

New Zealand’s level of importing must be reduced to restore the balance of payments to a manageable situation—the most important task in the next year or more, according to the report.

But a surplus on the current account is not a realistic eleven desirable policy target at present, it says. “We cannot expect enough improvement in our export receipts before 1976 to produce a surplus without reducing imports and other payments to a level which would create a severe recession in the economy.”

The Government intends to slow the growth of demand, restrain incomes growth, and encourage improved efficiency and growth of exports. Since mid-1973, when New Zealand could buy nearly 40 per cent more imports with the receipts from the same volume of exports than 18 months previously, the terms of trade have deteriorated rapidly and this is expected to continue. The latest survey of overseas orders suggested that new orders were already being reduced and, as restocking was completed, and the rate of economic growth .slowed, a significant reduction in imports and import payments should occur. Time lag "We expect this downward trend to be apparent early next year, but it will be sometime before imports are reduced to a level that we can afford to sustain in the long term,” it says. The report does not suggest that there will be any change on sales tax on new vehicles or the recent morerestrictive hire-purchase terms. The present rate of deficit is clearly not sustainable, the report says. “Our reserves must not be allowed to fall below a minimum safety level, and there are limits to how much you

can safely borrow. Until our terms of trade improve, we must reduce our level of imports. “This will require us to accept a lower rate of growth in spending. The Government’s policy is to do this gradually,” the report says. More borrowing “But even with a marked improvement in the balance of payments by 1975-76, there will be a need; for more borrowing beyond "that already undertaken before the economy can be expected to move into a manageable current account position,” it warns. “The current set-back to our prosperity makes it necessary for the Government to rigorously re-examine its priorities. It may, therefore, take longer to implement all its social objectives than previously planned,” it says. The Government is reviewing the expenditure programmes of the Education Department, Ministry of Works and Development, and Railways Department. These have been instructed to review expenditure with high import content. Social services in public spending must not, be allowed to bear too heavily on essential social services. We cannot, therefore, avoid fairly rapid increases in our expenditure. As stated in the 1974 Budget, the time is not ripe for major tax concessions, except for selective

purposes such as to increase exports, productivity or savings, or to achieve a more efficient use of resources. “General tax concessions would themselves encourage more spending by the private sector at a time when the need for restraint is paramount,” the report says. “The rapid increase in money for housing in 1973 pushed up property prices, making it much more difficult for homebuyers to bridge the gap between the cost of a property and the mortgage he could raise.

“The present tightening of mortgage funds can only be regarded as a necessary return to balance in the property market,” it says. Building rate The Government’s objectives for housing are to give a higher priority to lowerincome groups and to see that the industry attains a rate of construction which it can hold in the long run. It will also ensure that there is a reasonable supply of mortgage finance • from private lenders. The restricted monetary policy will continue, but special measures may be needed to ensure that the banks are able to provide funds for essential activities, the report says. “The Government will ensure that essential farming and manufacturing activities are not denied funds.”