PUBLIC FINANCE

Evening Post, Issue 50, 27 August 1935, Page 10

PUBLIC FINANCE

THE SLUMP YEARS

"A DIFFICULT TASK"

GOVERNMENT POLICY

(Special to the "Evening Post.")

RANGIORA, This Day.

The policy of the Government in keeping down national expenditure and reducing borrowing during the past four years was defended by the Prime Minister (the Rt. Hon G. W. Forbes) in a pre-sessional address last evening. The Government had faced tremendous obstacles, he said, but the difficult period had been passed without the three deficits experienced getting beyond manageable limits.

"The effect of the crisis on public finance has undoubtedly rendered the task of this Government more difficult than that of any New Zealand Government since the eighties," said. Mr. Forbes. "For five years we. have striven to achieve a Budget equilibrium faced with a rapidly-declining revenue, with a large portion of our expenditure in the form of debt and other fixed charges, and with growing demands for unemployment relief. Indeed, as the crisis gathered momentum, prospective v deficits correspondingly increased. Each year as we have attempted to obtain a balanced Budget we have been faced by the prospect of huge deficits. The deficits have been due, on the one hand, to shrinkage in revenue as a result of the depression and, on the other, to inevitable increases in expenditure, also on account of the depression. We have endeavoured in all cases to prune expenditure and to effect every possible saving and economy. To make the burden on the taxpayer as light as possible we have drawn considerably upon, reserves. The aggregate assistance to the Budget from such non-re-curring items has amounted to £8,910,000. It was very fortunate for New Zealand that past Governments had built up reserves in times of prosperity which could be used in bad times such as these. In the last resort, however, we have had to meet the position by increasing taxation. SAVINGS EFFECTED. "The Government has frequently been taken to task because the total public expenditure, despite the fall in national income, has remained roughly about the same as before the slump, the figures for the last four financial years being: 1929-30, £25,200,882; 1932-33, £22,528,379; 1933----34, £24,202,027; 1934-35, £24,500,000. "This criticism is most unfair and shows a complete ignorance of the position," Mr. - Forbes declared. "In the first place the Government has effected savings in ordinary expenditure to the extent of approximately £9,986,000 per annum since 1931, but this has been offset by quite new and additional expenditure, much of it due to the depression. Secondly, it is unavoidable that some Government expenditure, which has no relation to income, should be completely rigid. For example, the heavy charge on the Public Debt is such an item, New Zealand's annual debt charge amounting to £12,800,000. Reductions in the interest on the internal debt made by the conversion loan amounted to £930,000. The charge on the overseas debt amounts to over £7,000,000 (New Zealand currency). The payment of this item has been made immensely more difficult by the fall in the value of our products. In 1929 debt charges absorbed approximately one-sixth of the value of our exports. In 1932, owing entirely to the fall,in values, they absoi-bed one-third of the value of the exports. In 1934, the Dominion had to export 45 per cent, more produce thai! in 1929 to meet a given amount of interest payment. Thirdly, there is the difficulty of effecting economies [without, doing irreparable damage to social and other important public services which the people of the Dominion have been accustomed to demand. "UNUSUAL, DIFFICULTIES." "Looking at the revenue ■ side it should be clear to all that the collection of the moneys which any Government must acquire to carry on the affairs of the country has presented most unusual difficulties. Customs revenue declined , from £7,605 976 in 1931 to £6,485,014 in 1934, while income tax declined from £4,003,606 in 1931 to £2,961,243 in 1934: despite the fact that in both instances it has been found necessary to increase the rate in order to make up for the decline in revenue. Last year, however, due to the return of more prosperous times, substantial increase in revenue from taxation took place, Customs revenue yielded £7,423,597 and income tax increased to "Reduced revenue from the main items of. taxation has had to bo compensated- for by new forms of taxation, despite the Government's full realisation of the fact that the very best assistance it could render towards complete recovery would be a substantial reduction in taxation. Such a reduction is our Constant aim and I hope that the time is approaching when it will be possible to give effect to it. POLICY OF BORROWING. "In the past, successive Governments have been able to avoid temporary difficulties in finance by adopting- the easy expedient of borrowing, This has been impossible to us in practice to any considerable extent, and we are convinced that it would, in any case be unwise in principle. Borrowing to meet current expenses in any business or in any household is a desperate resort and it is particularly so in the case of Governments. It is worth noting that for the relief of unemployment alone no less than £14,500,000 has been raised by taxation in this country without borrowing. Since 1931 only £1,000,000 has been borrowed overseas while in New Zealand only £5,655,475 has been added to the public debt. This represents an average annual increase of £1,664,000—a rate which compares more than favourably with the average of £7,000,000 per annum in the years before the depression. Though we have shown deficits in four of the six years since 1929 we' have been able, to keep them within manageable limits and last year we achieved a substantial surplus"