THE PRESS TUESDAY, DECEMBER 21, 1976. Paying for the good times

Press, 21 December 1976, Page 20

THE PRESS TUESDAY, DECEMBER 21, 1976. Paying for the good times

The family which saves part of its income when times are good will have something put by as a reserve if the family income should fall or if the prices of its essential purchases rise. The family which lives up to its income in good times has no protection in hard times. It must either borrow in order to preserve its standard of living, and hope, like Mr Micawber, that something will turn up to make repayment possible; or else it will have to cut back its standard of living to fit the restraints of a reduced income.

A country’s finances are much more complicated than those of a family, but in the end the same rules apply. A country which lives within its means in good times, and puts something by has a reserve when its terms of trade decline: when imports become more expensive or the return for its exports declines. But a country’ which goes on a spending spree when it has an income windfall will end up having to borrow, and having to reduce its spending—its standard of living—when times turn sour.

The point is so obvious it ought to be self-evident. It has been spelt out in a background paper issued yesterday by the office of the Prime Minister. The whole “household” of New Zealand enjoyed an increased income in 1972 and 1973 as export returns rose faster than the prices which had to be paid for imports. With higher oil prices and world-wide inflation the situation changed in 1974, yet for two more years New Zealand went on spending as though nothing had happened. The national “ household ” tried to maintain the same high standard of living, even though it had to borrow to do so. Now, if the debts are not to become a serious and even frightening burden, the national living standard will have to come down a little. Even though returns from exports are showing some improvement, debts have to be repaid, and this time New Zealanders should

have the wisdom to build up the country’s reserves as soon as they can.

It is no coincidence that the background paper has appeared shortly before the claim for a general wage order of about 11 per cent is to be heard by the new Wages Tribunal. But whatever the motives of the authors of the paper in making it available now, the finding and the conclusions to be drawn from them remain the same. The country cannot afford any real increase in its spending power; in fact, the modest decline of the last few months will have to be continued for some time to bring the demand for goods and services back into balance with the country’s ability to pay.

Through no extra effort on their own part, New Zealanders were producing more per head of population in 1972 and 1973, because of the higher returns which the country received for its exports. The country’s standard of living rose accordingly. Since then the terms of trade and individual productivity have fallen. When members of the household work a little less hard, or when they earn a little less for what they do, the whole household has to tighten its belt. That is unpalatable; it may even seem unfair when part of the decline in income is caused by factors beyond the control of the national “ household ” —the greed of oil producers, for example, and the decline in demand for New Zealand’s primary products. But that is no justification for some members of that household—some sections of the community—to attempt to achieve a bigger share of a smaller cake. Those who enjoyed taking the country on a short-sighted spending spree a few years ago should, in fairness, be ready now to accept the restraints of harder times. After all, if the country’s standard of living has to revert to the level of 1972, as the Prime Minister’s office suggests in this report, was anyone so very much worse off four years ago than they are today?