THE PRESS MONDAY, JUNE 25, 1979. The Budget and the farmer

Press, 25 June 1979, Page 16

THE PRESS MONDAY, JUNE 25, 1979. The Budget and the farmer

The output from many farms in New Zealand could be increased substantially. That would be good for the country. New Zealand has no surpluses of its agricultural produce and, if it had more, it could sell more. The effects of agricultural protectionism in industrial countries have been to stop the expansion of markets, to spoil other markets, and to cause some production to be limited. In spite of these effects of protectionism, New Zealand at present could sell more lamb, more wool, more beef, and more dairy products if it had more of them to export.

The reasons why New Zealand does not have them are complex. The Budget should remove at least some of the reasons. The devaluation of 5 per cent will increase the amount of money coming to farmers because the prices paid overseas will convert to more New Zealand dollars. Imported machinery, chemicals, and fertiliser will cost more, but the proposals to adjust the exchange rate for the New Zealand dollar in line with inflation rates and the raising of the minimum prices should give farmers confidence to plan a substantial increase in production. In fact, because of generally high prices and the devaluation, the support prices will probably not be invoked. That is as it should be.

The smaller increase in the minimum price set for milk has not been well received by dairy farmers; yet this restraint makes sense. The last thing that New Zealand wants is a surplus of milk production. At present the country is selling all its dairy products but the future is uncertain and an expansion of the dairy industry would be ill advised. If some dairy farmers are encouraged to turn to alternative production that would be good.

No wholesale shift from dairy production is called for. The ups and downs of markets in the past should be sufficient to persuade both farmers and the Government that drastic and sudden switches in production are not justified. While it would be unwise to foster the growth of the dairy industry in such uncertain times, it would be equally

unwise to dismantle an industry which remains one of the world’s most efficient.

Higher exemptions from estate duties are obviously directed at farming. Taxation of inheritances is obviously a matter of political philosophy; in farming it is also very much a practical consideration. Much agricultural wealth has been diverted from agriculture to insure against death duties and capital that should have been invested in farm output has gone elsewhere.

If farms are not to remain continuing family enterprises they will almost certainly become State or corporate businesses. Unless it is resolved by a Government that property generally should not be inherited, the means to finance the most productive use of land after the death of an owner should not be taxed away from the owner’s successors. The taxation of great inherited wealth continues as a form of capital gains tax but, as a result of the 1979 Budget, estate duty no longer applies to farms of moderate proportions. This change may have the effect of making farm investment more attractive and may even tend to increase land prices. Ultimately, however, land prices will be determined by what the buyer is prepared to pay.

Farmers will be able to claim less of their investment in equipment as a tax allowance and the subsidy on fertiliser has been more than halved. These changes are part of the Government’s policy to move from subsidies on farm inputs to the encouragement of farm output by way of price guarantees. Initially the extra cash outlay by farmers may cause some farmers to hesitate to invest in equipment and fertiliser. To get the benefits of assured prices, they will have to bear with the added costs of production. They cannot reasonably expect to get Government support at both ends of their business. Cropping farmers in particular may feel hard hit by the investment allowance’s reduction. Seeing the guarantees for other produce they are bound to be pressing more than ever for increases in the prices set for grains. On balance, however, the Budget has been an encouraging one for the farmers without adding immediately to the taxpayers’ burden.