Evening Post. FRIDAY, MAY 30, 1930. FACING FINANCE FACTS

Evening Post, Volume CIX, Issue 125, 30 May 1930, Page 8

Evening Post. FRIDAY, MAY 30, 1930. FACING FINANCE FACTS

The Prime Minister is to be commended for taking the country into his confidence at once on finance. His statement does not cover the whole ground; but this could not be expected. He has stated plainly the problem that must be faced: a fall in revenue and an increase in expenditure. Later he will require to examine the details more particularly and to explore certain areas on which he has not hitherto entered. In the meantime the public are warned that economy must be the order of the day. Forewarning of this was given in Mr. Forbes's address to the country after his assumption of the Premiership. He proposed economy in the administration of existing services, and that "requests for the State to provide additional services or undertake additional works will bo considered in terms of taxation."

■ It must bo recognised that while there are many projects that might be undertaken for the benefit of the people generally, we must consider whether the country can really afford such ( services in the light of present commitments and the -relative economic position of the producers and other sections of the community.

Private citizens must adjust their expenditure to their income and do without that which they cannot affWd, "and the same inexorable economic laws must apply to the State1."

As Minister of Finance Mr. Forbes has now gone a step further and indicated die size of the gap between revenue and expenditure, and the measures to be taken to bridge that gap. He foresees a Budget shortage of £3,000,000, made up of loss of revenue (chiefly through Customs), £1,250,000; loss of interest from the railways, £1.250,000; normal growth in the cost of Slate services, £500,----000. To bridge the gap he proposes to exercise rigid economy; but the directions are not fully set out. Half a million may be saved by review of departmental votes; but it is not exactly clear whether this half-mil-lion includes the saving to^ be expected by a "serious overhaul"' of naval and military defence. On defence savings we have already staled our views emphatically. We must consider first our obligation and efficiency. We can save almost half a million at once by cutting out all expenditure on naval defence—returning ,to Britain the war vessels which we are maintaining and going back on our word to contribute to Singapore. But the cost will be our own dishonour. We shall be repudiating obligations which are, morally as binding upon us as any debt charges. We shall be leaning again on the Mother Country, which has its own financial burdens, for the defence which is the insurance of our seaborne trade. We do not suggest that no saving on defence is possible, &ut we do affirm that efficiency • and an honourable discharge of our national duty must be the first considerations.

The other remedies stated by Mr. Forbes are: a Commission to examine Railway expenditure, renewed attention to the .co-ordination of road and rail transport, withdrawal or reduction of subsidies on bequests, and curtailment of hospital board capital expenditure. There are also general proposals to examine loan expenditure and consider which works may be expected to pay their own way, and there is a hint of economy in education. The most important of these proposals is that relating to the railways. A commission may discover means of economising, but the root of the, trouble lies, as we have emphasised for years, in the wasteful duplication and competition between road and rail. This involves loss in two directions: loss of revenue to the railways and increased cost in road construction and maintenance. A commission on railway expenditure will not cure that. It must be grappled with now by the Government. At least three years ago the trouble was stated by Mr. Coates. It has been restated since by Mr. K. S. Williams and Sir Joseph Ward. Yet no remedy has been applied. Necessity now compels action. This huge drain upoi national resources (and the effect on State finances is only part of the loss) cannot be longer permitted. There must be a thorough overhaul, and this overhaul must include not only operation duplications, but new constructions (of both roads and railways) which will prolong and increase the waste. Particularly must the Government re-examine its railway construction and apply to it die test'which Mr. Forbes specifies for other forms of loan expenditure: Will it return its 'capital charges, or increase the toll levied on the taxpayer? It is not a hopeful augury for such re-examination that the member for Motueka returned to his electorate from the United Party caucus with the assurance, respecting the Midland railway, that "the gap will be filled despite the earthquake talk of'the opponents of the line."' A re-examination policy which begins by excluding some projects will not commend itself to the country at large. The other economy proposals may be further considered when the Minister of Finance supplies more particulars. But when he does so we hope that he will go further than ho l.has done in his first statement, and

will discuss those classes of expenditure which have increased under United Government administration. The expenditure in 1929-30 was approximately a million greater than in the previous year. There were two outstanding increases: unemplqyment relief, which in various directions involved a total expenditure of £1,400,000, and loan charges. Any suggestion that there should be economy in the relief.of unemployment will be met, ot course, from certain quarters with an accusation of inhumanity; but that must not deter the Government from examining the methods which it has employed and considering whether some of its measures have not tended to aggravation of the problem rather than alleviation. There is also an important point to be considered regarding borrowing, apart from the question (already emphasised) of whether the works undertaken will'pay their way, and Mr. Forbes states:

Capital used for State Advances siml other purposes that arc earning full interest obviously imposes no burden on taxpayers as such.

This is not so obvious as the Minister of Finance would have us believe. In the first place, there is grave risk of a taxpayjng charge when money to he lent at 5f per cent, is borrowed at 5J- per cent., as it is being nov.-. Secondly, and more important, if the Government borrows heavily on the local market for State Advances it helps to harden lhe / interest rale for other borrowing. When local loans have to be renewed or flotations made for purposes other than Advances, this higher interest rate must be paid—and paid directly by the taxpayer. These are financial facts which must be reckoned in the Government's overhaul. The Prime Minister has begun well by warning the country of the difficulties ahead. We trust that he will continue on the same lines, and submit all forms of expenditure to close and impartial scrutiny.