Evening Post TUESDAY, JULY 25, 1939. CREDITS AND DEBT

Evening Post, Volume CXXVIII, Issue 21, 25 July 1939, Page 8

Evening Post TUESDAY, JULY 25, 1939. CREDITS AND DEBT

"Borrowing means debt in perpetuity," said Mr. Savage in an election speech as Leader of the Opposition in 1935. This and the Labour Government's self-laudation for its abstention from overseas borrowing are apparently now forgotten. Of course, the Government had no need to borrow overseas while there were over £40,000,000 of Lon- | don credits to draw upon. Now, however, the tune is changed. The achievement now is the success of the Minister of Finance in borrowing £9,000,000 overseas, following a public loan of £4,500,000 raised internally. Public relief at the provision of sterling funds, staving off the threat of an immediate crisis, has been such that the right-about-face of Government policy, with all that it implies, is almost overlooked. Yet it should not be. The Government came into' office with promises of a new plan which would avoid the much-criticised borrowing of its predecessors. It would use public credit. It has done so—to the limit of safety. It has also used a swollen revenue and increased taxation, and it has borrowed heavily from Government Departments. Yet, in spite of the I phenomenally good fortune that has attended its financial operations, it has now gone back on its former j ideas and borrowed publicly, bc/th*! in New Zealand and overseas.

Before the London credits were arranged, the Prime Minister made his excuses in advance, saying that he would apologise to no one for an overseas loan to pay for raw materials for New Zealand industry. But that excuse, as we pointed out at the time, is not valid. Overseas borrowing to buy raw materials is largely different from other overseas borrowing only if finished products are exported to redeem the loan. There is little possibility of this in New Zealand. We have no export market for manufactured goods. They are for internal consumption. overseas loan to buy raw materials really amounts to the purchase of partly-processed goods for internal consumption on credit. The only saving made is in the finishing process, and-as this is undertaken at comparatively high cost it is a costly saving to the consumer.

The important question now is what is New Zealand to do in the future. Mr. Nash is reported as saying that New Zealand hoped to repay the credits [meaning the £4,000,000 for private imports] from funds ibuilt up during the export season of 1940, as the facilities might again be needed at the end of 1940. How is this to be done if import restrictions are to be relaxed? Is relaxation possible? Mr. Nash states: "Our intention is to maintain the import regulations, but to relax the restrictions as and when the state of London funds permits." If, however, the restrictions continue on the scale set for the second period of 1939, British manufacturers will not be satisfied that they have had a fair return for the grant of export credits. Something more is certainly implied in the assurance that it was not the intention of the New Zealand Government to employ the import licensing policy in order to give protection to New Zealand industries against the import of United Kingdom goods on a scale which prevented full opportunity for reasonable competition. The proposed effort* to repay credits during the coming export season is praiseworthy, but how is it attainable if this assurance is to be kept?

Export credits cannot be added to further. That is' plain from Mr. Nash's statement. But there is another problem of internal credit. The Reserve Bank report makes it quite clear that the use of credit cannot go further without serious consequences. Internal credit expansion did not force up prices greatly last year because the added purchasing power found an outlet in overseas imports. "Commodity prices remained relatively stable throughout the year," states the report. Now that the surplus sterling reserves have been -practically • exhausted a different situation is presented.

In existing circumstances, the report adds, any additional credit expansion would inevitably tend to cause, sooner or later, a general rise in prices, with a consequent diminution in the value of all savings, wages, salaries, and pensions.

Already there are disturbing evidences of rising living costs. But if credit is used further- the rate of rise will be accelerated. It will quickly amount to a substantial cut in all income—wages, pensions, and profits. Whether it likes the task or not, the Government must cut its coat according to its/ cloth. Overseas credit and internal credit now compel the measures which should have been taken months ago.