Profitability in private sector a priority for new Govt

Press, Volume CXVI, Issue 34045, 8 January 1976, Page 11

Profitability in private sector a priority for new Govt

LVero Zealand Press Association)

WELLINGTON. One of the priorities of the National Government will be to restore profitability to private industry, according to the annual report of the Bank of New South AVales.

I This will involve the relaxation in price controls.) and also the adoption of a! more flexible interest rate! : policy, the report states. ' As announced, group net) profit rose 6.8 per cent to a) record SAust36.Bm in the) (year to September 30. During the last two export; seasons, recession overseas) and unprecedented inflation; in import prices caused a; deterioration of 43 per cent 1 in New Zealand’s terms of international trade, the report states. , In the year to September] 30, the deficit on overseas; exchange transactions was 51027 m, compared with ai surplus of $246m two years before—a rate of fall greater than during the depression of the 19305. The effect on primary producers was . particularly severe, reducing farmers’ incomes to little more than half those in 1973. “By drawing on reserves built up in the boom of 1972-73, by extensive use of subsidies and a heavy programme of overseas borrow- ' ing, the economy has so far <been insulated from the worst effects of recession abroad.” Business activity' and employment have been kept high and investment stimu-

latea in nope of a recovery] [in export prices in 1975-76.! [ “The costs of this policy iof insulation, in terms of the) distortion of the economy and) [the acceptance of a longIterm burden of debt repayment, have been heavy. The estimated budget deficit of ■s946m for 1975-76 will grow I considerably as tax revenue [declines, and costs of social [welfare policies and education continue to rise. i “The New Zealand dollar has been devalued twice in : less than a year by a total • of 20 per cent. Inflation in I New Zealand could continue •to rise in 1976 when it is abating elsewhere,” states the i report. Rigid price controls have [so far prevented the worst effects of inflation from flowing on to New Zealand prices, but they have also reduced ! business profitability, leading [to inadequate reserves, low [investment and excessive reliance on borrowed funds. “One of the priorities of the newly-elected Government will be to restore profitability to private industry. This will involve the relaxation in price controls. A more flexible interest rate 'policy will also be adopted, and the controlled and uncontrolled financial markets

| will be brought closer tojgether. encouraging a more efficient and competitive [financial sector. ; “The steady outflow of funds through the unfavourable balance of payments reduced the growth of the money l supply to a nominal amount in the second-half of 1974. Consequently the Government placed special deposits with the banks to ease the tax drain in March, and jto support the volume of [lending to essential indus- ) lies. “From June onwards tradling bank deposits increased (again through rising net [Government expenditure. By • September the total was 7 [per cent higher for the year, j “Trading bank lending, (however, was only margin■;ally higher than in September 1974. Monetary policy [(was kept tight, and the risking liquidity of the banking [system was absorbed by an

(increase in reserve assets! ! ratios, the report says. | “In July, the authorities! ■announced a number of sig-[ [nificant monetary measures, [including a sharp increase in [interest rates for Government securities, and the exclusion from interest controls of bank deposits for periods in excess of three years. The latter followed a similar concession to the finance companies in the Budget. I “For many years the banks have canvassed the in[efficiencies of monetary pollicy based upon tight controls iof banks while the secondary imarket of financial institutions was able to expand unchecked. ■ Considerable progress has [been made towards more [realistic interest rates for [Government borrowing, and • with the change of Governjment we expect an active interest rate policy to become ■ a prominent feature of the | New Zealand monetary system.”