EFFECT ON BUDGET

Dominion, Volume 26, Issue 103, 25 January 1933, Page 10

EFFECT ON BUDGET

Higher Exchange Rate £3,050,000 INVOLVED Mention of Sales Tax Made Although practically the whole of the discussions at yesterday’s caucus of members of the Coalition were confined to the Government’s policy of exchange inflation, other aspects of the economic situation and. possible remedies received consideration. From what can be gathered, it was made evident from the speeches of the party leaders that all other proposals for presentation to Parliament were believed by Cabinet to be bound up with that of exchange which, it was inferred, formed the key proposal of the latest programme of adjustment.Frank statements of opinion were sought by Cabinet from those present, for it is stated that final decisions have not been reached on certain specific points, although a plan of action has been mapped out. As already reported, members were acquainted with the Government’s proposals for reducing interest rates and railway freights and providing for a remission of county rates up to 25 per cent, although it was explained that the exact method by which relief will be given to the farmers by these means had not been decided upon. It was stated to the caucus that the question of interest rates reductions was still fairly open. The Government, it was said, had been in touch with the banks, but it was not yet determined whether the bank overdraft rate. would come down as a preliminary to other reductions, or whether a move would be initiated to cut internal loan interest by means of voluntary or compulsory conversions. Effect of High Rate. One piece of information for which most members were waiting concerned the immediate effect which the increase in the exchange rate would have on the Budgetary position. It was stated by a leading member of the Ministry that the total amount involved would, be £3,050,000, this corresponding closely with the estimate given some days ago, and being made up as Reduction in Customs receipts 1,000,000 Extra cost of remitting interest payments overseas .. 1,050,000 Indemnification of banks against loss on exchange purchases 1,000,000 Although the additional burden on the Consolidated Fund will, therefore, be considerable, Cabinet is stated to be confident that the ultimate benefit to the State finances will outweigh the temporary disadvantages. The case of Australia was quoted at the caucus, it being stated that the opinion of certain leading economists was that the higher rate had saved the Commonwealth economically, although the circumstances in New Zealand were not identical. It was' pointed out that, as might have been expected after a period of low prices, world production, according to the latest figures supplied to the Government, had fallen, the reduction amounting to 15 per cent. The necessity for New Zealand to maintain production was accordingly emphasised. Next Year’s Budget. The expectation is that New Zealand will be faced with a fairly large prospective deficit next financial year, and that it will be impossible to balance the Budget, although conditions ’are expected to improve, but whether in time to enable budgetary equilibrium to be reached in 1934, as hoped, is officially doubted. The Government is fully expected to be placed in the position of having to search for more revenue next year, and there is a belief in some quarters that recourse will be had to the sales tax which was mentioned by the Economic Committee at the beginning of last year. This was then estimated to produce.£l,ooo,ooo, but it would probably not be sufficient to recompense the Budget for the additional burdens which will be placed on it through the rise in the exchange rate.. ( Discussing. the position of the State finances last evening, the Prime Minister, Rt. Hon. G. W. Forbes, said the nine months’ figures would be available shortly, and from what could be gathered at the moment the Government expected that its estimates of revenue and expenditure would be fairly closely reached. Revenue was apparently hold-, ing up reasonably well, he said, and there was every expectation that it would be possible to end the financial year with no more than the £1,000,000 deficit for which provision had already been made. ■ :