Evening Post WEDNESDAY, MAY 31, 1939. DOMINION AND "THE CITY"

Evening Post, Volume CXXVII, Issue 126, 31 May 1939, Page 8

Evening Post WEDNESDAY, MAY 31, 1939. DOMINION AND "THE CITY"

The Minister of Finance (Mr. Nash) has arrived in England, and has begun his talks to, if not with, the London financiers. In one respect his statement, cabled today, is a good beginning, in another its value is questionable. Mr. Nash began by saying: "New Zealand will never default"—a clear and definite statement which can be heartily endorsed. He went on to say: Even though her Stocks' remained on the present basis—a price which has some politics in it—the Government would still meet the market. However, he hoped to convince the City that strictures on New Zealand were unjustified. Whatever the Government had done internally did not concern the City as long as it did not affect the Dominion's willingness and capacity to meet its interest charges. The suggestion that the present price of New Zealand Stocks in London is depressed partly by politics is not the best opening for a discussion, especially when the Minister's own statement disproves this allegation. Internal policy, quite truly, does not concern London "as long as it does not affect the Dominion's willingness and capacity" to meet external obligations. But can it be said that the internal polic)^ of New Zealand in the past three years is of this character? The willingness of New Zealand to meet overseas obligations in full has been affirmed by the Prime Minister and the Minister of Finance; but the capacity to do so has been affected. It has been affected so much that the Government has been compelled to take control of sterling exchange and restrict imports in order that debt service may be met. London is, of course, aware of these steps. London knows also why they are necessary and how far they are proving effective, and London cannot be expected to appreciate the , suggestion that, because the restrictions and the policy necessitating them have affected the price of New ; Zealand Stocks, therefore political considerations are entering into that price. There is much loose talk, usually with a political purpose, about the influence of the City and its desire to say what Dominion Governments shall or shall not do. ; But the main consideration fixing the ' price of Stocks and the rate at which Dominion Governments can borrow, : is confidence. When confidence is lessened, either in the Dominion or overseas, the cost of loans rises. This ] is not political. It is just the same consideration that decides tke terms . of transactions between individuals. <

The fact " that New Zealand's sterling resources have fallen so heavily naturally affects confidence. The drastic action taken to build up the funds again helps to restore belief in the Dominion's willingness and capacity to pay, but it will not be fully effective until it is proved that the remedy is successful. In the meantime New Zealand must do all that is possible to demonstrate her willingness and improve her capacity to meet her obligations. The Public Accounts, published yesterday, are a proof of the country's soundness if the finances are prudently managed. Also, they show the necessity for prudent management. Last year a revenue of over £14,000,000 was collected from Customs and sales tax. No country of this size could yield that revenue and £10,000,000 more from income and land taxes even for one year without feeling the strain severely unless it were highly productive. New Zealand cannot continue to do it. Sterling conservation measures, this year, are likely to reduce the yield. Prudent finance, then, dictates that action should be taken to reduce the need for such a heavy impost on industry and production. Unless the burden is lightened, production will diminish—and revenue will suffer still more.

Up to the present the Government has not given evidence of willingness to apply the necessary corrective to expenditure. If it is guided by the philosophy underlying Mr. Armstrong's statement in Christ-, church on Monday night it will, instead of extricating itself, get deeper into difficulty. Mr. Armstrong! gloried in the fact that nearly! £10,000,000 had been secured from the Reserve Bank at an interest rate of 2 per cent, to build State houses. "In building houses," he said, "the Government had created assets and had not put the country in debt." And he added:

There is no stopping-place and the country has no better asset for money borrowed and spent than that used in creating homes for the people.

"There is no stopping-place" recalls "the sky's the limit" and does not indicate the reserve in the use of credit that the Minister of Finance advocated in his address to the Labour Party conference. Mr. Nash then set limits to the use of credit

—mainly confining it to bringing idle labour and unused material together —but "no stopping-place" for credit when it has long passed these limits does not show caution. Homes for the people are a good asset, if constructed at a price the country can afford, but equally essential are industries and production, and if credit operations for housing and public works are carried so far that production and industries are hampered the economic consequences will show the stopping-place. The politician may see no debt and no stopping-place; but they are there, and the country will find itself dashed against them unless prudence applies the brake.