Evening post. FRIDAY, NOVEMBER 22, 1935.

Evening Post, Volume CXX, Issue 125, 22 November 1935, Page 10

Evening post. FRIDAY, NOVEMBER 22, 1935.

TWO FINANCIAL PLANS «

Attempts are made by the Labour Party to ridicule the question put by its opponents: "Where is the inoriey to come from?" But the seriousness of the issue cannot be joked away, nor can it be disposed of by indignantly describing requests for information as "Colossal cheek; confounded impudence." However, as the campaign goes on, little bits are added to the public information. The Leader of the Labour Party added quite an important item at Gisborne ■when, in replying to questions by the "Gisborne Times'' he revealed that the funds for the Napier-Gisborne line would be obtained by what is usually termed "costless credit."

The question of completing the line will come before Parliament, Mr. Savage said, and it will be resolved to do so. The cost will then be assessed, say, at £2,000,000, and credit will then be issued for that amount, using the same instruments of exchange as now. We would do the same as now would be necessary, but that there would be no tax on the public credit. I would sooner owe £5 to myself than to the Editor of the "Gisborne Times." There you are then, and I don't think I have left out any detail except the colour of the notes.

We cannot interpret the statement that "there would be no tax on the public credit" except as meaning that the issue of notes is to be made free of charge—with no interest payable. This removes any idea there may have been previously that Labour, after making the Reserve Bank subject wholly to political control, would continue to operate the banking system according to existing banking practice. An effort has been made by some Labour speakers to create the impression that this would be done; that the bankers would continue as usual, but would be servants of the State instead of a private corporation. They will be servants of the State; but they will be required to take their orders, and those orders will be given on new principles. We are not yet told how the plan will be worked out. As we have already pointed out the Reserve Bank Act includes provisions against the issue of unlimited credit and unlimited financing of the Government. It is possible within those provisions that a Labour Government would be able to obtain £2,000,000 for the Napier-Gisborne line, but if that method of financing is adopted for one public work it is extremely improbable that it will be the only work so financed. What will be the consequences? Labour has declared that it will safeguard the savings of the people and we assume from this that it will adopt the inconsistent course of using "costless credit" and yet paying interest on other borrowings. But even if it does so, the value of those savings will be depreciated. It must be, first by the loss of earn-ing-power in a "costless credit" community, and next by loss of purchasing power through depreciation of the currency. As more and more credit is issued (and Labour has a big programme and many promises) the inflation of the currency will proceed faster and faster. We believe that some members of the Labour Party would try to check this headlong course; but they would be overruled by the majority who would have their eyes on the voters for the next election. The purchasing power of wages and salaries and savings would steadily fall, and there would be a breakneck race to raise the nominal value to keep pace. We cannot agree with Mr. Savage that he has left out "no detail except the colour of the notes"; but he has shown something—that the currency will have a pronounced water-mark —so much water that the electors will not see the colour of their money.

The Leader of the Democrat Party has not followed the example of Labour in hesitating lo disclose details of his financial policy. While there are important questions that may yet be asked the statement made by Mr. Hislop last night affords sufficient information lo enable the public to assess fairly the merits of the Democrat financial plan. It is ingenious and yet simple. By transferring the burden of unemployment lo an £8,000,000 Development and Unemployment Loan the Demoncrat Party will release the Unemployment Fund for other uses. This fund will then be applied to finance the superannuation and health insurance schemes. These schemes in turn will relieve the Budget of heavy expenditure (at present met by direct ordinary taxation) for pensions and, to some extent, for health services, and thus permit tax reductions. We have not space here to examine all ihe details that Mr. Hislop has given, though these details are important, especially as touching rearrangement of the amortisation of the Public Debt (which might be a euphemism for the old and popular device of reducing sinking funds) and the savings anticipated by pulling into effect the recommendations of the National Expenditure Commission which the Coalition Government has overlooked.

vlf the main principles of the plan j are sound these details can be adjusted. To the main principles we raise one objection and allach an- . other proviso. The objection is one we have previously staled, that while it is reasonable to continue the emergency unemployment charge so that the funds may be used to inaugurate a superannuation and health insurance scheme, the reasonableness disappears if ihe scheme is not to be truly universal, but sec-

tional. With sectional benefits the continuance of llic wage tax would amount lo a substantial permanent addition lo income tax for the non-beneficiaries. We do not think this equitable, any more than it would be to continue the emergency charge (as the present Government tendency appears to be) for a development of industry fund. The proviso we would add relates to the use of'loan money lo carry or rehabilitate the unemployed. If the rehabilitation in private industry is permanent and the works promoted are self-supporting the scheme is not highly dangerous—but it is an "if" that must be thoroughly considered. With self-supporting works and industries, the Democrat plan would not be greatly different in cost from the present Government idea:. With loan and unemployment fund the Government has an amount approaching £8,000,000. The Democrat Party would have the £8,000,000 from loan and it would be doubly important therefore to see that it was wisely and reproductively spent, otherwise there would be danger of attempting to "borrow ourselves back to prosperity."