Evening Post. MONDAY, MAY 30, 1938. PROSPERITY AND SPENDING

Evening Post, Volume CXXV, Issue 125, 30 May 1938, Page 8

Evening Post. MONDAY, MAY 30, 1938. PROSPERITY AND SPENDING

Economists are giving much support to the principle that, in a time of prosperity, public spending for capital purposes should be steadied up, so that the public finances may be in better condition to respond to a call for emergency expenditure in a future time of recession or depression. On that principle, a Government, or a spending public body, might decide, in prosperity, to create financial reserves, or alternatively to reduce taxation or rating. Reduction of taxation or rating tends to place the' reserves in the hands of taxpayers or ratepayers, instead of in the books of the spending authority. A reduction of taxpayer or ratepayer burdens tends to strengthen the ratepayer or taxpayer, enabling him to meet a later emergency call, in time of need. When need arises, the taxpayer and the ratepayer, can rise, to the occasion much more easily: if they are on a moderate basis of taxation and rating .than if they are already taxed and rated to capacity. Another advantage of tax-reduction and ratereduction is that it leaves in private pockets money that usually is better spent than public mon6y: and in this way private employers are better able to give employment, and to thus reduce the number of unemployed and the burden on public employment funds. There are two ways to reduce the number of unemployed; one is by increased private employment, the other by increased public employment. Anyone who agrees that the former is the better method must also agree that it operates more effectively if taxation pressure and rating pressure are moderate than if they are kept at emergency level. An instance of the parallel working of these two'methods was given by the Minister of Labour, Mr. Armstrong, in his speech at Northland jast week. He stated that

since the beginning of the year 11,000 men had been transferred from the Unemployment register to private employment,'and almost a similar number had been transferred to full-time employment with local bodies. On the Minister's figures, each method (private Employment and local body employment) is deducing the ■ unemployed by about 11,000 men. But while every, man taken off -the unemployment register by private employment is reducing;,the prosperitydemand imposed on taxes aiid rates by unemployment, this cannot be said of the. men who pass from unemployment to local body employment. Sooner or later their payment must be a charge on rates and/or .taxes, because any form of public borrowing, (short of repudiation) is only postponed payment. The 11,000 men who, Mr. Armstrong says, have gone to private employment create opportunity for a steadying of public expenditure, in preparation for later emergency. For the parallel employment of 11,000 men on public funds no such claim can be made. Jif there is anything in the above-mentioned economic principle of saving for the rainy day, a high level of public employment is riot in step with it, at a time when exports have reached a record,level and when their volume is providing both the means of spending and a plain warning not to over-spends ' ' It is no answer to say > that the works tbe local bodies will carry out are urgent. Some of them are. Consider the most urgent of the works indicated by the the sewerage works.

There were 84 towns with a total, population of. 100,000 which were without 'adequate sewerage systems. The estimated cost was £2,000,000, including a labour content of £1,400,000. That these services have been neglected for ten or twenty years may amount in some cases to a very serious matter; but it does not alter the fact that, if the economists are right, their principle will not be served by rushing to execute, out of overflowing revenues, capital works heavily in arrear. Nevertheless, if the orgy of spending must continue, the provision of sewerage seems to be its most tolerable form, for the price, in default, may be human life. But here arises a very vital question. What has scared these local bodies and caused them in the past to. neglect sewerage? The answer is, almost certainly, a fear of high rates. In what proportions, then, does the Minister propose to adjust the burden, as between ratepayer and taxpayer, of the two millions of capital expenditure on sewerage? When he speaks of a labour content of £1,400,000, on whom is this labour cost of £1,400,000 to rest? Suburban sewerage, like suburban transport, is a big factor in the housing question. It has been pointed out quently that, in the Wellington region, the unsewered borough ol Upper Hutt represents both aspects of the question—drainage and transport. And there are other instances. In almost all cases, the local question becomes a rating question. The Minister's remarks under this heading seem to call for explanation or extension. But however careful the local bodies may be to select necessary and not wasteful works, and however the load may be divided between ratepayer and taxpayer, the fact remains that a prosperity-revenue is being used for spending instead of for creating reserves or for tax-

reduction. In writing this we are aware of the statement of the Minister of Finance that he is putting aboiit £800,000 of last year's revenue to reserve. The question whether this sum is identical with, or additional to, the surplus of about £800,000 has not been answered. Even if it is- additional, the reserve operation is dwarfed by a continued public spending which competes with the private employer for labour, and which thus becomes one of the arguments used for the compensated price. A party that in 1935 held out a hope of reduced taxation (at any rate, no increase), which promised to remove the exchange differential and the sales tax, and which boasts that it did its thinking before it came to office, has provided a Government which has raised the rates of income tax and land tax as well as of certain protective Customs duties, and which has left sales tax and exchange untouched. An industrial recovery based largely on oversea factors beyond the Government's control was bound to fill the revenue coffers, and the Government's taxing policy has helped to swell the flood, though the policy of tax-and-spend is a negation both of economic theory and of what the > Government promised. These are the things that cannot be cancelled by. a, mere assertion that assets are being created —some sound (such as sewerage) and some doubtful. The Minister's claim that "all those activities are better than sustenance" has to stand the test of time. His Government is capitalising the national income of record exports to the last degree, it is creating no margin either in the Public Accounts or in the private pocket, and it is leaving the economists' potential emergency to take care of itself, with no more tribute than some passing gibe about an umbrella.