DOMINION FINANCE

Dominion, Volume 14, Issue 247, 13 July 1921, Page 6

DOMINION FINANCE

1 IMPORTANT STATEMENT BY THE MINISTER 1 THE ALLOCATION OF THE SURPLUS ’ CONDITION OF THE PUBLIC ’ ACCOUNTS NECESSITY FOR CAUTION A statement regarding the public finance of New Zealand was issued by the Acting-Prime Minister (Sir Francis Bell) yesterday. The Minister explained to a Dominion reporter that the statement had been prepared for issue on June 9 last. "It sets forth the position as on that date,” he said, "and nothing has been j.dded with regard to events or conditions since that date. Publication was delayed during the financial negotiations in London precedent to the issue of the .£5.000,000 loan, le.-t a continuance of the determined efforts by certain persons to impugn the truth of any statement of mine on the subject of the public finances should result in misrepresentation in London. "I am not sanguine enough to expec,f; that those who have been engaged in attempting to prove that the Government was in possession of- huge sums of money at its command in the months of April and May by reason of the surplus of last year will bo convinced of tfteir error by this or any other statement of the Government. Nevertheless, I have some hope that an official statement, vouched as correct by tho Treasury, may prevent the general public from being further misled." The official statement is as follows: — I think it better to begin this statement by emphasising the distinction between the Consolidated Fund (ordinary revenue account) and the Public Works Fund—a distinction between income and capital. The Consolidated Fund is a revenue fund pure and simple. Into that fund passes tho annual revenue from all sources, and out of it is pnid the cost of the Public Service. The credits of the Public Works Fund consist of borrowed imoney, the only exception being the occasional payment into tho Public Works Fund by authority of Parliament of surpluses from the 'Consolidated Fund- Out of the Public Works Fund is provided tho capital expenditure of the country on railway and road construction, buddings of all kinds, capital additions to railway plant and lines, post office and telegraph buildings, telegraph and. telephone extensions, and other capital expenditure of a similar nature. Out of Consolidated Fund tho interest end sinking fund in moneys borrowed for the Public Wo .’ks Fund are paid. Since the war there has been the war expenses account, into which '.he huge sums borrowed for the war have been paid, and out of which the charges of the war have teen defrayed- The interest and sinking fund on the moneys borrowed for war purposes are paid out of the Consolidated Fund. The annual revenue in the Consolidated Fund is charged with the salaries and wages of the Public Service, with all pensions, and with the whole interest and sinking fund on the Public Debt. Apart from the territorial revenue from rents and interest amj, some similar receipts, tho whole annual revenues of the Consolidated Fund are derived from taxation direct or indirect.

Authorities for borrowing money for capital purposes are to be found in many of our statutes, each authority being granted for a specific purpose. For example, authority to borrow for electric supply is still unexhausted to the extent of about nine millions. The Hauraki Plains and Rnngitaiki Land Drainage Acts contain authority to borrow for their specific purposes, and there are the large authorities of the Discharged Soldiers’ Settlement Act, Swamps and Land Drainage Acts, and last, but not least, tho Education Loans Act. It will be understood that I am here quoting only a few examples of statutes granting authority to borrow money apart from the general public works and railways loan authorising statutes. Authority to borrow may exist to an unlimited extent, but from whom, and how, is the money to be borrowed? TT is not, I believe, fully understood that this Dominion has not borrowed for any public works purposes on the London market since the year 1914. It has raised in New Zealand for war purposes during that period no less a sum than £55,198,000, and in addition a large sum for discharged soldiers’ settlement. Notwithstanding that wholly unprecedented strain upon the finance of the Dominion, it has, been able since the year 1914 to borrow within the Dominion practically the whole of the moneys required for and expended on public works and for the special works for which authority is given under the various statutes. War loans and discharged soldiers’ settlement loan were raised by direct subscription from the public and also from financial institutions, upon which the Government had been accustomed to roly for provision of capital money from time to time. It must be obvious that the present extraordinary fall in the value of our staple products has created financial conditions under which surplus capital moneys on tho securities of Government loans are no longer available to the same extent as in previous years. The balances at tho credit of all loan accounts, except the discharged soldiers’ settlement account and the war expenses account, aro insignificant; but expenditure is necessarily going on upon each account, and credit balances can only be maintained by the provision of such moneys as can from time to time be borrowed, supplemented as far as possible from the credit balance of the Consolidated Fund. The Consolidated Fund and Its Surplus. I turn now to the Consolidated Fund and its surplus. The surplus of any year consists of the amount by which the ordinary revenue of the year exceeds the expenditure of the year (ex- . elusive of capital expenditure), plus the amount brought forward as tho surplus of file preceding year. Two large sources of revenue, the land tax and the income tax. aro collected late in the year, and it follows that in the earlier months i of the year the expenditure in each ; month exceeds the revenue. A consider- ; able part of a surplus existing at any | March 31 is required to keep the Con- , solidated Fund in credit during the | earlier months of t"he next year, and that ; part is not available for any other pur- j pose. Towards the end of tho year the ■ cash credit accumulates, and the ques- | tion at that time arises in each year (T ; am hero writing not of the past year j only, but of a practice existing for many ; years! whether borrowing powers should j be exercised by raising money elsewhere I and paying interest, or whether parts of I the credit balance at the Consolidated , Fund should be utilised by investing i temporarily in authorised loans, and so , saving interest. Part of the credit bnl- ■ aiicos are so used to save interest. Sucl. j moneys so invested are still to the ercdif ; of tho Consolidated Fund, though not at credit of its account at its bankers, and if it lie possible to raise money later, the borrowed money can be applied in purchase of the investments of the Consolidated Fund, which, upon that sale will have again restored to its credit at its bankers fhe amount invested. 1 eihaps this process may be more readily followed by considering the alternative | process of investing in securities other I than Government securities, when it is obvious that the temporary investment gain-q interest and docs not deplete >c actual balance eventually. The difference between the twp processes is that investment upon Government

securities is a depletion until the Government is able to borrow money elsewhere to redeem those securities. The process of investment results in this, that the surplus existing on March 31 of any year consists partly of cash at credit of the Consolidated Fund, and partly of moneys temporarily invested out of that fund prior to March 31. But there is another class of investment of the moneys of the Consolidated Fund made in London in liquid securities, to meet our engagements there. There are two credit balances of cash — one in New Zealand, and one in London. And the London credit balance and investments must always amount to a large Bum. We have to pay in London not onlv tho interest on our debt duo in England. but all sorts of accounts of large amounts for material and plant purchased in England. We have, no doubt, the permanent reserve investment of two millions in London on realisable securities to meet exceptional emergencies; but if an emergency should arise requiring the -use of that fund, wo should have immediately to replace the investments temporarily realised. The two-million investment is a security which no one but a lunatic would treat as available for the finance of any year. The above explanation is necessary to render intelligible the figures at March 31 last, with which I now deal. The actual surplus of the Consolidated Fund, including the surplus of tho preceding year brought forward, is correctly stated to bo £8.591,208. But the cash balance at credit of the Consolidated Fund at its bankers in New Zealand on March 31 last was £4,475,000. The London investments in realisable securities and the cash at credit in London amounted together (of course excluding the twomillion reserve fund) to £2,131,000. That amount in London is less than is required. and must be supplemented later. Antecedent to March 31 the Treasury had invested in Government securities in New Zealand under authorising Acts, partly to enable the public works to bo carried on, and partly in redemption of loans falling due, a sum of £1,167.000. There was also over £BOO,OOO outstanding in London and New Zealand in the hands of imprestees, practically all of which had been expended, a small portion, only of which will bo recoverable. During tho two months which have expired since March 31, as is usual, the ordinary current expenditure has largely exceeded the revenue. But the Treasury during those two •months has paid in New Zealand for interest on New Zealand loans £1,540,090, and has paid in London for interest on English loans £1.322,000. ’The Treasury has further, in consequence of the extreme difficulty of obtaining loan moneys for capital works found it necessary since March 31 to invest in authorised Government securities no less a sum than £1,032,000 from the Consolidated Fund credit. Dirge sums are out in the hands of imprestees practically all of which have been expended. There are some small credit balances at each of the several capital accounts, but most of them will require supplement at a very early date. The balance at the credit of the Consolidated Fund to-dav (June 9) is £si 1,000, io which has to be added the sum 'of £500.000 placed on fixed deposit maturing at an earlv date. It must not be supposed for a moment that the Dominion’s financial position is not absolutely sound. There is full provision for the performance of all its annual obligations. But it must lie clear to every reasonable person that the real strain is in procuring capital moneys for further expenditure upon public works. 'There are. still some sources from which very limited funds for those purposes can be obtained within New Zealand. Aly principal object in this statement is to make it clear to the public that there is no possibility of further subvention of loan moneys from the Consolidated Fund. So far as concerns the ordinary accounts of the country, and its payment of interest to its creditors, and salaries and wages to its servants, the finance is absolutely sound and assured; but with regard to the provision for capital expenditure on public works, the financial conditions render the procurement of loan moneys in New Zealand exceptionally difficult.