SUBSIDY SCHEME

Dominion, Volume 26, Issue 49, 21 November 1932, Page 10

SUBSIDY SCHEME

Direct Aid to Farmer ADVANTAGES STRESSED Financial Authority’s View • Voicing strong opposition to the proposal to raise the exchange rate to an artificially high level, a leading financial authority yesterday urged that the Government should adopt the far sounder policy of paying a bounty or subsidy to primary producers, who were by far the hardest hit by the fall in prices. He fully agreed with most of what had been said regarding the serious plight of the fanner, and he contended the payment of a subsidy would give immediate and substantial relief, at the same time being free from the many dangers of exchange inflation. The banks, as was stated in Saturday’s “Dominion,” were prepared to find the finance for the State to pay a subsidy to primary producers, and had suggested such a course some months ago. \ The proposal was for the Government to finance the scheme on Treasury bills, paying the subsidy in cash to the primary producers. The subsidy would be on a flat rate and the farmer would get a produce certificate, payable, as arranged by the Government, at post offices or elsewhere. The full co-operation of the banks in working the scheme would be assured. The Better Way. A subsidy would assuredly be the better way to assist the primary producer. He would get the cash quickly and the subsidy would not put up costs on imported goods and others that he had to buy. The subsidy would add but a comparatively small amount to the local value of produce. It would lessen the strain on those who were financing the primary producer, and so enable them to .get some alleviation of the heavy load they were bearing in carrying on—not only primary producers but many others as well. The increased return on income would not be sufficient to enable them to repay principal debts, though it would help to some extent toward meeting interest, which was now not only much reduced as to rate, but also, generally, much In arrear. Such a subsidy would help the primary producer without inflicting serious immediate harm and loss on the rest of the community, while the interest burden, as well as the capital cost, would be shared by the whole community. Would the rest of the community be agreeable to such a subsidy? As it would benefit those in greatest need, and whose welfare was of vital importance to the country, surely they would. The subsidy scheme would not bear hardly on £jie rest of the community and it would not entail on them the distress that a high exchange would. The annual interest cost of a subsidy would be reasonable, whereas the immediate annual cost of a high exchange would be extremely heavy. Financial Aspects Compared. Weighing the subsidy proposal in the scales with high exchange, the financial authority pointed out that either was bound to benefit the primary producer. Both would increase the country’s budgetary deficit, and eventually the public debt, but with a marked difference. A subsidy of, say, £5 million, would increase the annual Interest bill by £250,000. There would also be £5 million of Treasury bills which would have to l>e funded later on, unless surplus revenue, which had accrued frequently in the past, appeared, and was applied in redemption of the Treasury bills. On the other hand, an artificially high exchange, say a 25 per cent, rate, would Increase the budgetary deficit by increased exchange on Governmental payments overseas. Allowing £8,000,000 for interest and £1,000,000 for incidental payments, an increase of 15 per cent, on the present rate of exchange would involve an increase of payments abroad of £1,350,000 i>er annum. Additional to this, would be loss of Customs revenue up to £1,125,000, and loss of Income tax from traders of something like £375,000. Local bodies, also, would have to find an additional £300,000, as exchange on interest payments abroad. Problem of Unemployment. Then there was the grave problem of unemployment.' It was arguable that the payment of a direct subsidy to primary producers would react on the community generally in a tendency to reduce unemployment. It was certain that one effect of high exchange would be an increase of unemployment, due to the disorganisation of business, especially in branches concerned with the import trade. An artificially high exchange would make many businesses unprofitable and would lead to some, if not many, x closing down. It would further operate as an indiscriminate and high tariff against Britain. The subsidy to primary , producers would be entirely free from either of these objections.

Finally, artificially high exchange would be in conflict with the Dominion’s undertaking arising out of the Ottawa Conference. It was there agreed that stability of exchanges was necessary and desirable. The proposed subsidy would in no way impair anything implied in the Ottawa agreements.

LONDON EXCHANGE Strong Buying Demand Since tlie announcement in “The Dominion” of the movement for the raising of the exchange rate, the six trading banks have experienced a strong demand for London funds on tbe part of many business houses throughout the Dominion. Though the demand was not met in every case, the banks sold substantial amounts of exchange on Friday arid Saturday. Up till Saturday there had been no movement of note in the “outside market” rate. It is stated that some “outside” business was done on Friday at £llO/5/-. and in other eases at the same price as that charged by tbe banks. PROTEST FROM DUNEDIN Importers’ and Shippers’ Move By Telegraph.—Press Association. Dunedin. Nov. 19. The Importers’ ami Shippers’ Association at a special meeting decided to request its delegate on the New Zealand Importers’ Federation to protest emphatically against the exchange rate being artificially Interfered with.