ESTIMATING THE DEFICIT

Evening Post, Volume CXV, Issue 40, 17 February 1933, Page 6

ESTIMATING THE DEFICIT

The Minister of Finance was not clear in his statement last night of the effect of exchange on the Budget deficit. Answering the argument that the sales tax .was imposed to make up the additional Budget-gap due to .exchange, he said that the deficit would; have been £6,100,000 apart from exchange. He claimed also that Mr. Downie Stewart had included £580,000 for extra exchange on interest for next year, but the Treasury had bought up credits to meet this. This statement calls for. amplification. Does, the Minister of Finance mean that the Treasury, anticipating a rise in exchange, had bought up credits to meet Government interest charges? Mr.- Stewart's calculation showed £1,050,000 as the added cost of the increase to 25 per cent., and Mr. Coates's own statement included the same figure. For the 10 per cent. Mr. Coates showed £350,000 as the extra cost, on account of a full year. It is assumed that this means £350,000 more than the current year. Mr. Stewart on the other hand allowed £800,000 for the addition made by the 10 per cent, to the Budget. During the current year (according to Mr. Forbes's Budget) exchange cost £350,000, though the Government's exchange requirements were reduced to £5,000,000 by the issue of a £5,000,000' loan and ■the sale of Reserve Fund- securities. ■Unless'the Government contemplates similar operations this year the cost of the 10 per cent., as it appears to us, must approximate £800,000. Even on Mr. Coates's own figuresH£3so,ooo added-to £350,000 for this year—it is £700,000. " For the rest,. any' differences in the calculations of the Minister arid the ex-Minister, must be accounted for by varying estimates of the amount ■of the revenue decreases attributable to exchange. Mr. Coates showed the total estimated decreases as Customs, £1,400,000 and income tax; £750,000. Mr. Stewart estimated the decreases due to exchange at £1,250,000 for .Customs and £500,000 for income tax and other items. Mr. Coates did not show how much of the fall was due to exchange, but the evidence of the Sec-retary-to the Treasury (previously published) supports Mr. Stewart's calculation. In any circumstances there is" no escaping the fact" that a big 'gap in the Budget was shown before the exchange was raised. By extra taxes and further use -of .reserves this'gap could have been almost bridged. But the exchange rise .so widened it that all the, re.serves and all the taxation had to be brought into the Budget and even then there remained a gap'far too great for assured safely. With a Budget difficult to balance under the most favourable ■ conditions, the Government added to the load so that balance became out of the question.