Wage and Salary Cuts

Dominion, Volume 24, Issue 239, 6 July 1931, Page 11

Wage and Salary Cuts

Sir, —“Interested” asks some correspondent to answer two questions, and as he has mentioned the New Zealand Welfare League we venture to try and answer the two questions put forward. His first query is: "Why is, it that the Bank Rate is 7i to 8 per cent, in New Zealand and only 2} per cent at Home?’ “Interested” has fallen into the common error that the “Bank Rate” which is fixed from time to time by the Bank of England is the rate at which advances are made. To fully explain this Bank Rate would take up too much space, but, shortly put, it is the official minimum rate at which the Bank of England will discount bills. Through this official rate it holds some control over the movements of gold. If the export of gold grows, to'an extent which • reduces the amount held by the Bank of England beyond what is considered a safe minimum to hold- as a backing for the note issue, the bank uses its dis count rate as a corrective and raises it. Thus the “Bank Rate” as quoted in our cables is not the rate which banks charge for advances, so to compare the Bank Rate with the rates charged by banks for advances is quite a mistake. “Interested” has another question included in his first—namely, is money cheaper in England because a Labour Government rules? The answer is, “Decidedly no.” As a matter of fact money is cheaper in most countries than it is in New Zealand, but, even.so, many factors enter into the rate of interest charged, such as the' credit of the borrower, the security offered, and the term of the loan. An instance of this was seen when our Government a week or two ago borrowed five million on the London market and had to pay a little over six per cent.; the Bank Rate was then at 2J per cent., thus it can be seen that this had nothing to do with loan rates. > One of the principal reasons why tndney is dearer in New Zealand than it is in other countries is that the Government will persist in offering 5J per cent, for bonds sold over the counter. The banks and other lending institutions, which must get money from numerous small depositors before they can make advances, have to offer a rate higher than the world’s rate, of interest, in order to compete with the absurdly high rath offered by the Government ; this naturally keeps up the rates in loans of all kinds and other advances. The Go- ' vernment could bring down the rate for loans at once by reducing the rates they are offering for their bonds. As to “Interested’s” second question, about reducing wages: The Macmillan Committee has not yet made its report in England, but we have had a cabled forecast of what it was likely to be, and that forecast (in a Socialist paper, by the way) has been definitely denied as correct by numbers of the committee. He then makes' the following curious misstatement:- “In New Zealand we think that if salaries and wages are reduced the people will have more, to spent and trade will boom, and follows this up with a distinct untruth when he says that this absurd opinion has been advanced by the banks, legal men and the Welfare League. , . Thus ‘lnterested’s” second question is based on two errors—first, on a report which has not yet been made; and, fsecond, on an opinion that has never been advanced —so there is really no question to answer. ' , May we point out, however, that no New Zealander with any sense at all has ever reasoned “that wage reduction rave people more to spend and would make trade boom.”. What we have argued is that as New Zealand is abso-

lutely dependent on its exports for its very existence, we must be able to prodiice at a cost to, enable us to sell our goods abroad at a figure . which_will cover the cost of production. VVhen our wages are artificially tied up on the unsound basis of cost of living rather than on the amount, produced these costs cannot come down. . , . i. However, to fully deal with this would take up too much of your valuable space, so we will quote Mr. Scullin, who put it very well and tersely: “It is purely a matter of arithmetic.’’—We are, etc., N.Z. WELFARE LEAGUE. Wellington, June 26.