DEPLETED LONDON BALANCES

Dominion, Volume 32, Issue 262, 3 August 1939, Page 5

DEPLETED LONDON BALANCES

View That AU Classes Will Suffer GOVERNMENT’S POLICY i BLAMED 5 Mr. Downie Stewart On “Stop-Gap” Remedies I By Telegraph—Prefete Association. DUNEDIN, August. 2. A warning that exhaustion of the Dominion’s sterling balances in London must eventually afiect all classes of the community and that the Government’s “stop-gap” remedies would only serve to accentuate the position in the long run, was given by Mr. W. Downie Stewart, in an address at the annual meeting tonight of the Dunedin Chamber of Commerce. Mr. Stewart, who emphasized the fundamental importance of London balances in relation to the whole economic life of New Zealand, criticized the Government’s financial policy, describing it as one of “eat, drink and be ifierry,” and expressed the opinion that the greatest danger of the hasty development, of secondary industries was increased costs and further burdens on all-important export industries. He also accused the Government of extravagance, which, he said, had raised the necessity for further taxation and prophesied that a continuation of Labour’s financial policy would mean another pilgrimage to London by the Minister of Finance in an effort to obtain help from “those whose advice we ignore.” “Is the Prime Minister’s belief based on the idea that a nation may be wealthy in one place and poor in another, just as a man may be a millionaire in his own country, but short of cash in, say, India?” Mr. Stewart asked. "Is not this what the wageearner believes to be the explanation of the present difficulties and chaos in the import trade? Have we by accident or by the malevolent designs of ‘gangster’ financiers fallen short of cash in London while remaining wealthy in New Zealand. 11 Unfortunately the ease is more serious. “If something has gone wrong with London balances then the effects must be felt in New Zealand. At. present, it is mainly traders and importers who feel the blow, but trade is our life blood, and before long wageearners and all. classes will be affected and the Government stop-gap , remedies will accentuate the mischief. Reserve Bank Report. “They are set forth clearly,” said Mr. Stewart, "in a report just published by the Reserve Bank, and, here again, London funds are the test. It is there slated that, because of surplus .sterling funds toeing practically exhausted, any further credit expansion in New Zealand would cause, sooner or later, a general rise in prices, with a consequent fall in the value of all savings, wages, salaries and pensions. In other words our standard of living would fall. The Reserve Bank, therefore, stresses'the desirability of avoiding further recourse to it for accommodation, and urges the Government to limit its expenditure io what can be raised by taxation or borrowing from the public in New Zealand or overseas. “This statement is highly significant and important, for one of the Government's chief policy measures was to take control of public credit and establish a national credit authority, whose duty it will be to provide money service, to .give effect to the will of Parliament.' This measure was carried in 1936 as an essential feature of Its expansionist policy. Mr. Nash said, AVe have idle labour, idle machinery and raw material, and all we want is credit or money to make them fructify. Il does not matter in the least,’ he said, ‘how much money I issue so long as goods are produced,’ but in the Budget the Prime Minister now says we have too much money and not enough goods. “If that was the result of his expansionist policy, he now decides to expand more, to tax more, borrow more and spend more, in a vain attempt to sustain the standard of living. He cannot' blame the Reserve Bank, for, though his election promise was that it would supply all the money he needed, he has now worked it to a standstill and has fallen back ou more taxation and an appeal to the thrifty to IcnVl their savings. But, as the Government has complete political control of the Reserve Bank, it can no longer raise the cry that it is thwarted by private financiers. “Short Sprint” Policy. “Various explanations have been offered of the exhaustion of funds.” Mr. Stewart continued, "but the two main factors seem to have been oyerimportation and the outflow of capital from New Zealand. Heavy imports were the natural result of increased spending power caused by higher wages and expansionist policy. _ It was what is called a 'short sprint’ policy and the nation has to lake a longer view than that, unless It accepts the 'eat, drink and be merry policy' of eating up seed coni. "But. it is strange to. And Mr. Savage accusing ids predecessors ot 'hoarding up moneys in London, which, ho thinks, should have been used to relieve distress and unemployment.’

“Tlie greatest danger of all,” said Mr. Stewart, ‘‘is that this hothouse development of secondary industries must menu increased costs and further burdens on our all-important export industries. Our exports must compete in world markets. If they get a bad setback, it is quite certain that our secondary industries will not flourish.

“The Minister says he will control prices, but this is almost an impossible task. Probably here, as in Germany, if the manufacturer is not allowed to raise his prices, he will reduce the quality of his output. “On nil hands the Government was warm'd that it ought to shorten sail. Instead of that it lias crammed on more canvas. The need for extra taxation arises directly from the Government’s own extravagance. The Prime Minister says it is necessary to make up the loss of Customs revenue due to restricted imports, which, in turn, is due to exchange control. In fact the whole story reads like a genealogical table in the Bible. Expansion policy begat Purchasing power, purchasing power begat over-importations, overimportations begat depletion of overseas funds, this begat exchange control and all the mischiefs that followed including the present imposition of higher taxation but it also begat many sidelines, such as rising costs for fariu-

ers, rising interest rates and fall in the prices of our Government stock. Credit in London. “Had New Zealand kept her good name and credit in Loudon,” Mr. Stewart concluded, “her loan renewal and other transactions could have been arranged without difficulty, but on the present policy it. will not be long before the Minister of Finance has to make another hasty pilgrimage to London, imploring help from those whose advice we ignore. Ou the day Mr. Nash reached London, he was reported as having made the astonishing statement, ‘That it would be more difficult for the United Kingdom to live without New Zealand than it would be for New Zealand to live without the United Kingdom,’ but so far the only result of the insulation policy seems to have been to make its more supinely dependent on Britain than over in our history.”