P.M. predicts hard times ahead as increased Govt deficit takes effect

Press, 17 January 1979, Page 1

P.M. predicts hard times ahead as increased Govt deficit takes effect

The impact of an increased Government deficit would fall heavily during the first half of the coming financial year, the Prime Minister (Mr Muldoon) said last evening.

But he saw no need for the Government to alter its short-term policies, Mr Muldoon said in a speech to the nation, prepared for delivery to the Orewa Rotary Club. The Press Association says Mr Muldoon also:

— Again rejected devaluation as a panacea for New Zealand’s economic problems.

— Predicted that New Zealand’s gains from the Tokyo Round of international trade negotiations could be so small a; to appear ludicrous on paper.

— Forecast a move towards a trade agreement with the European Economic Community.

— Described most recent comments on the economy as having fallen into error.

— Dismissed Opposition predictions of a S2OOOM internal deficit and 12 per cent inflation this year. —Blamed the last Labour Government for the nation’s economic ills.

— Threatened militant unions with legislative controls. — Pledged to reduce the percentage of gross national product being spent by the Government. Mr Muldoon said that the increased Government deficit this year and next year “will be loaded in terms of time” and would fall particularly heavily during the June and September quarters of the next financial year. “As liquidity in the monetary system is high at present it will be necessary to keep a tight hold during this period,” he said. But in this part of economic policy, events were falling very closely in line with what the Government had expected. “Our problems going into the next year are not great, given that I have made it clear that there will be no room for major tax concessions or major increases in expenditure during the 1979-80 years,” he said.

On devaluation, Mr Muldoon said that international exchange rates had affected New Zealand’s export performance, and there were those who said devaluation was the answer to the problem. Devaluation would increase the incomes of exporters and increase the costs of everyone by the same amount. The main reason given for devaluation was to make exports more competitive. It was also seen as off-setting the decline in terms of trade of farmers, Mr Muldoon said. “All these things can be accomplished by direct assistance to the various export sections without the adverse effect of the impact of devaluation on the price of imports,” he said. The other side was the adverse effect on the Government’s own accounts. One of the reasons for the establishment of the Bretton Woods system was to prevent the competitive devaluation of the 1930 s

which brought world-wide depression. The Labour Party’s election policy would have brought the worst effects of devaluation without increasing the incomes of exporters, Mr Muldoon said.

New Zealand had a considerable advantage in labour costs over Australia and the export performance remained so good that New Zealand still feared direct reprisals in the forms of quotas.

Mr Muldoon said that the Leader of the Opposition (Mr Rowling) “in his usual non-specific manner has been babbling about devaluation for some months.”

“There may be a time when the New Zealand dollar will have its value altered . . .. and it may be that alteration will be a devaluation.” But, Mr Muldoon said, devaluation was not a panacea for any of the problems he had referred to in his speech.