Extra spending not unchecked

Press, 20 September 1978, Page 16

Extra spending not unchecked

The Supplementary Estimates tabled last week by the Minister of Finance, Mr Muldoon, provide for a record $6OO million of extra spending this financial year. The deficit before borrowing, estimated at $lO5O million when the Budget was presented in June, must now rise to $l4OO million, as only $250 million had been provided in June for supplementary estimates. Education, social welfare and health each account for nearly $9O million in the Supplementary Estimates; and in the departments of health and education the staff salaries and wages take the lion’s share of the increased expenditure. The pay rises for public servants announced last month were evidently much bigger than the Government budgeted for in June, or was prepared to acknowledge publicly at that time. No practicable cuts in staffing half way through the financial year could have offset the back-dated increases in civil service pay to be paid in the next month or two.

The enlargement of Government expenditure has come under criticism from the Opposition. A reminder to taxpayers that they must eventually finance a deficit never goes amiss in the view of any party in opposition. The Labour Party, however, is not disposed to recommend that the salaries of public servants be held or reduced to ease the

tax burden. Instead, the Opposition view this year has been in favour of injecting more spending power into the economy. While the enlarged deficit is a move that the Opposition might well approve, the Labour Party also has to bear in mind its calculations for changes in income tax: the party must be wary of any spending that adds to the difficulties of finding revenue as an alternative to income tax.

A more important question than the dilemma of the Opposition is whether the higher deficit, probably to be reduced a little by tax on higher earnings, will add seriously to inflation. The Government had already taken steps last month to counter the inflationary impact of its extra spending. Among these the higher interest rates announced then will help to attract more savings to the Government sector. The Government is still walking the tightrope between unemployment and inflation. Measures to stimulate employment are likely to fuel inflation, which has, only in the last few months, started to decline. The decision last month to raise interest rates shows that the Government has resisted the temptation to stimulate the economy prematurely. Soundly based expansion must await a further reduction in inflation and a return to more profitable exporting.