THE FINANCIAL MELON

Evening Post, Volume CXIX, Issue 134, 8 June 1935, Page 8

THE FINANCIAL MELON

(To the Editor.)

Sir,—ln your leading article under the heading, "The 'Windfall* Surplus" on Monday last, you say, inter alia:— "The Government has certainly acted wisely in the meantime in using its 'windfall' surplus to offset previous deficits, thus putting it out of the reach of those who would like to cut up the melon." In this connection I would point out that a big part of the melon referred to has yet to be taken out of the pockets' of the people, in other words, it is what may be termed "concealed taxation" immediately available to the Consolidated Fund through the agency of the Reserve Bank, but to be imposed at some future date. Moreover, when' the rest of the melon is collected from the people, it is more than likely that we will have the pleasure of seeing someone else eat the whole of our melon, as well as some of the melons that we have stored in London. As you pointed out in your article the major part of the "windfall" surplus, or in figures £1,360,000, was due to profits arising from the sale of gold. Of this sum £272,000 represents exchange premium, and the balance remains in London as sterling exchange, therefore it is not until this sterling exchange is taken up by New Zealand importers that the exchange premium will actually be paid. No doubt you will see by now. Sir, that our melon is not quite so substantial as it might be, and you are wondering how the other fellow is likely to have the pleasure of cutting up and eating our melons while we look on and enjoy (?) his feast. The explanation is simple. Our sterling balance in London is something over £20,000,000 and owing to the restoration of cuts, etc., in the Old Country, the price level there is bound to rise. If the price level rises 10 per cent, it means that our sterling balance will purchase proportionately less, in other words it would mean a direct loss to New Zealand of over £2,000,000. Losses such as the one mentioned are almost bound to occur, and can be debited to maintenance of the "exchange baby," but the trouble is that' although these losses are "very real" they are concealed, and although the man in the street will feel the burden of them he will not realise" from whence comes the burden.—l am, etc., W. S. CEDERHOLM.

itA loss in purchasing power due to a rise in sterling prices, would be felt by New Zealand whether ' the funds were held in London or had to be remitter' from New Zealand. In the leading article quoted, however, we mentioned the possibility of losses on sterling funds, stating: "We are still of opinion that the gold profits, accruing as they do from the Reserve Bank establishment, should be earmarked against the contingent liability which rests on the Consolidated Fund on account of high exchange."—Ed.]