Parties agree—and differ

Press, 9 June 1977, Page 2

Parties agree—and differ

PA Wellington The Monetary and Economic Council’s report emphasised the difficulties facing the Government in framing its budget, said the acting Minister of Finance (Mr Templeton).

New Zealanders could take confidence from the fact that despite the largest fall in its standard of living of all O.E.C.D. countries, and despite the shock of the oil crisis, the Government was handling the country's economic problems as well as any of its O.E.C.D. partners, he said.

Commenting on the council’s discussion about the handling of the economy in 1976, Mr Templeton said that the present Government had inherited a very high Budget deficit.

It had immediately taken action to reduce expenditure and increase revenue, but this took time to take effect. As a result, in the early months of last year the monetary base continued to expand as a result of the Labour Government’s budgetary policies. Such monetary expansions and subsequent increases in lending followed a pattern which had been experienced several times in the past and always proved difficult to control, Mr Templeton said. The monetary policy measures, particularly the flexible interest-rate policies, introduced in March last year represented a first step towards achieving greater monetary control, and were a precondition for the change to a system of openmarket operations as advocated in the council’s report.

The report supported Labour Party criticisms of the Government’s economic policies, said the Leader of the Opposition (Mr Rowling). “I pointed out about the middle of last year that the Government’s monetary policy was too easy,” he said. “I predicted this policy would result in higher imports.”

The council in its report had confirmed this view. “It said the loose money policv was ‘an important factor in the high level of domestic demand, the continued growth of import payments and the high rate of inflation’,” Mr Rowling said. “The council bluntly said that the Government’s fiscal end monetary policies were ‘inconsistent’—and I can only agree with this comment.

“In layman’s terms, what the council is saying is, that if the Government had continued with the Labour Administration’s policy .of very tight control over credit, the balance of payments would be in much better shape than it is today.” New Zealanders would pay for the Government’s inability to capitalise on the last year’s export boom, he said.

“The council’s report has also supported the Labour Party’s call for radical tax reform,” said Mr Rowling. “As the council points out, inflation has shifted the tax burden heavily on to those in the low-income to middle-income range. These sections must be granted significant relief in this year’s budget,” he said.