COST OF LIVING

Dominion, Volume 23, Issue 221, 14 June 1930, Page 15

COST OF LIVING

Relationship to Tariff

POSITION CLARIFIED Protection-Free Trade Argument

(By

A. Ernest Mander.)

One cannot help feeling that much of the argument, tariff-protection versus free trade, is carried on without any clear recognition of what there is actually at stake. It is not the purpose of this article to offer arguments on either side; but the writer does think it desirable to ask how much, or how little, is really involved in the controversy. To what extent could the cost of living be reduced if Customs duties were abolished? The figures used in this article are taken from the 1930 Year Book, and refer to the year ended March, 1929. 'l’here are considerable fluctuations from year to year; but 1928-29 can probably be treated as a “normal” year for purposes of general discussion. The total revenue for Customs and excise is approximately £9,750,000. But we must remember that considerably more than half of this—£s,2so,ooo—is derived from the duties on petrol and tires, motorcars, alcoholic drink, and tobacco. We may suppose that no free trader would advocate free trade in these particular commodities; and so we can agree to exclude them from the discussion. It should be remembered further that, excluding the classes already mentioned from which nobody would suggest that the duty should be removed, the remainder of our imports amount to £38,009,000 —of which £20,000,000 are admitted duty fee. Besides British machinery and materials for New Zealand industries, together with most of the necessaries of life imported for sale to the working class, the duty free list, as established by the late Reform Government, includes nearly all Britishmade tools, implements, machinery, manures, and other'imports required by the farmers. This is not always remembered when the effect of the Customs is being discussed. , Prices Increased. We are left, then, with £18,000,000 imports (apart from cars, petrol, alcohol and tobacco) upon which £4,500,000 Customs duty is paid. The question is: To what extent does this duty affect the cost of living? And what would be the effect if the duty were abolished? It is true that retail prices arc increased by a greater amount than the amount of the duty., itself. Wholesalers and retailers add their standard percentages—and quite rightly, in view of the fact that they have been obliged to pay the duty as part of their own outlay. By the time the goods reach the consumer, the addition has probably risen to £7,200,000. Moreover, we ought to take into account the correspondingly higher prices of protected goods made in New Zealand. The largest item is “textiles and apparel,” .'or we manufacture in New Zealand about one-half' as much “textiles and apparel” as we import-—that is. about one-third of the total amount we use. Allowing also for this higher level of prices of New Zealand-made goods—the difference between the price of New Zealand goods under protection, and tlie price at which similar goods could be sold if imported free of duty—wc can perhaps take £9.250,000 as the figure representing the effect of the Customs tariff, both directly and indirectly, on the cost of living. Wlto Bears the Burden? This burden is not, however, distribut-. cd evenly over the whole community; and it Would be grossly misleading to divide this amount (£9,250,000) by the total population and regard the result as the burden placed on each individual. We have already seen that (excluding motor-ears, etc., alcoholic liquor and tobacco) considerably more than half our imports are admitted duty-free; and these include many of the necessaries of life for the workers, and also most farmers’ requisites. But even apart ftotn this, the burden of any given individual must be—not “average,” but more-or-to his spendings. It will be, for instance, roughly twice as great tor the man who earns and spends £4OO a year as for the man who earns and spends £2OO. Yet the burden is not exactly proportionate to income: the man with £4OO a year pays more than twice as much as tlie man with £200; and the man with £BOO pays more than twice as much as the man with £4OO. For. generally, the smaller the income, the smaller the proportion of it spent on articles upon Which Customs duty has been charged. But the actual hverage burden upon men with various incomes can be calculated. We then find that the effect of the Customs tariff is to increase the cost of living by about 4/- a week for each family nt the basic wage: about £25 a year for the man earning £400: about £55 a year for the man earning £800; and so on. Ignoring for the moment other considerations, the effect of abolishing all Customs duties (except on cars, petrol, alcohol and tobacco) would be to reduce the cost of living 4/- a week for the man at the basic wage, £25 a year for the man earning £4OO, and £55 a year for the man earning £BOO. But the State would be short of £4,500,000 revenue, which would need to be made up in some other way, and the investors and workers in a large number of New Zealand secondary industries would lose their capital and their jobs. ...... If Customs Duty Wore Abolished.

Nobody should advocate the abolition of Customs duties, the introduction of free trade, unless he has an alternative plan for raising £4,500,000 revenue to replace that now obtained through the Customs. Would he raise it by increasing incometax? The income-tax now obtained in respect, of personal incomes is about £1,200,000. Land tax yielded £1,150,000 before the recent increases, and £1,500,000 last year (1929-30). Who would suggest increasing income-tax to five times the present rate (on personal incomes) or increasing land tax to four times the present rate? Then how would — how could—the shortage of Revenue be made up if Customs duties (except on ears, tires, alcohol and tobucco) were abolished .' Some definite proposals must be made for replacing the Customs revenue before the question of abolishing the Customs can be discussed. Next we have to consider the result of abolishing the protection now afforded to New Zealand secondary industries. In all our secondary industries combined there are engaged about 81,000; the capital value of the land buildings, plant and machincry is £65,000.000; and the value ( added value”) of the product is about £32,500,000 per annum. . Much of this, however, would not be affected by the abolition of Customs duties. The above figures include those relating to dairy factories, freezing works, sawmills and so forth, and also the public utility services such as gasworks, electricity supply, and tramways. Obviously these would not be injured by the introduction of free trade; and there nre other industries, too, which would be unaffected. But in the industries which are now protected and which more or less depend for their existence upon the protection afforded, the number of workers employed is. probably about 26,000; while about £16.000.000 capital is invested in the buildings, plant and machinery. An Alternative Dan. To abolish the tariff protection would therefore throw out of work 26,000 workers—say 80,000 people, including the workers and their dependants—and it would destroy the value of £16,000,000 invested in buildings, plant and machinery. In addition, it would throw upon the community the necessity of raising £4,500,000 a year by some other form of taxation to replace the lost Customs revenue. This article is not written to support or oppose the demand for free trade or

the demand for increased protection. It is written only to clarify the position and indicate what there is at stake on both sides. But one may suggest that, in the light of these facts, full consideration should be given to the Reform Party’s proposal to lower the price of New Zealand manufactures, and so lower the cost of living, in another way—by “rationalising” our secondary industries. By organising on a rational basis; by co-ordinating the work of all the present scattered and independent units of industry; by arranging for factories to specialise; by introducing modern methods of scientific management: by adopting the principle of payment (above a minimum wage) by results —-in these ways it is believed that the efficiency of our secondary industries can be enormously increased, and the prices of New Zealand manufactures can accordingly he reduced. This seems to bo the only way of lowering th cost of livipg without destroying, as the abolition of the tariff would destroy, the New Zealand industries upon which at least 80,000 of our people depend for their livelihood. It is, at any rate, worth consideration.