The Evening Star WEDNESDAY, OCTOBER 7, 1931. PROBLEMS IN FINANCE.

Evening Star, Issue 20917, 7 October 1931, Page 8

The Evening Star WEDNESDAY, OCTOBER 7, 1931. PROBLEMS IN FINANCE.

The main points in the New Zealand Supplementary Budget on which anticipatory anxiety was concentrated were probably regarding rates of interest and higher direct taxation. Now Zealand in her financial policy has imitated Britain fairly closely, and it would have been by no moans altogether unexpected if Mr Stewart had intimated that a conversion scheme of internal debts was under consideration. That is the position in Britain, Mr Snowden having announced that the Government would await a favourable opportunity for such an operation. The New Zealand Minister of Finance, however, declines absolutely to entertain any such proposal. There can ho no doubt that, of all resorts to Budget balancing, it would bo the most efficacious and certain —despite Mr Downie Stewart’s contention that, taking into account certain set-offs which he deems as following inevitably from such action, tho result would bo to burden tho Budget still further instead of balancing it. In a country so highly taxed per head as New Zealand is already, higher scales of taxation on a greatly diminished national income yield most disappointing results. As Mr Stewart himself says, in these uncertain times tho ground is constantly moving under one’s feet. Reduction of expenditure is thus far more reliable than attempts to extort more revenue, and, as Mr Forbes said in his Budget a little over two months ago, the largest single item in the State expenditure is debt charges, amounting roughly to eleven millions sterling out of a total of nearly twentyfive millions. But Mr Stewart says that “whatever tho position of private borrowers may ho, tho State is still able to pay its debts.” His defence of his decision is, of course, logical. Ho places first the credit of New Zealand overseas. Despite his plain and plump statement- that “ the sooner wo cease borrowing abroad tho better ” —far more explicit and emphatic than his former declarations that New Zealand must “taper off” in her borrowing—it thus appears, that sudden and complete cessation from approaching tho loan market is not yet within the sphere of practical politics. So Mr Stewart says that “in no circumstances %

could the State claim relief in respect of overseas interest payments.” We take this to mean that the New Zealand Government would not even bestir itself to minimise the disadvantage resulting from the pronounced difference in values between the English and the New Zealand pound, by which our overseas interest hill must now bo considerably swelled, unless the Government is in a far more advantageous position in respect of exchange rates than is the ordinary trader. So much for the overseas bondholder. As to New Zealand investors in Government loans raised locally, Mr Stewart paints out that the average rate of interest on Government securities in New Zealand is about ■!} per cent., and contends, reasonably enough, that conversion would probably bring no relief. Some of whatever the New Zealand bondholder may stand to gain, or retain, by the Government’s stand in this matter of interest rates lie may have taken away from him by higher taxation. Mr Stewart assumes that any reduction of interest payable to bondholders would be compulsory, and therefore a breach of contract or a default by the State; but, on the other hand, fair and justly applied taxation of them would involve no breach of contract. It is not altogether a distinction without a difference, but the point is a rather fine one. As to the re-lending branches of the Government’s financial operations, wo fail to see why it should follow that the Government, having reduced the rate of interest to its bondholders, must perforce charge lower interest to clients under the various States Advances schemes, who already enjoy terms somewhat under competitive rates and in general receive more tender treatment than those who borrow through other channels. In view of what we wrote a month ago concerning the ‘ Burden of Interest,’ we confess to some disappointment over the uncompromising attitude; but, if ifc is really a fact that bottom has been touched in respect of commodity prices and that in tho coming season these will recover some of their lost ground, tho relative gain of people drawing fixed incomes from bonds through the fall of prices tends to disappear, while, as stated above, tho position will be made loss inequitable by revived taxation.

Nevertheless, wo cannot but think it incongruous that, in the same statement which contains a refusal to consider loan conversion, there is also an intimation that Parliament will bo asked to alter tiro arbitration system by leaving conciliation compulsory but making arbitration optional. The reason given is that our wages system is too rigid for present economic conditions, and that there is need for a reduction of costs, particularly 7 of farmers’ costs. That is to say, it is proposed that Government shall not stand in the way of a further lowering of wages. As to why there must bo rigidity in the matter of income from investments and flexibility in income from personal effort, there are a number of persons in tho latter category who will remain unconvinced. The individual taxpayer will have his wages or salary further trenched on by tho increase of Jd per or, on what ho smokes, whether tho tobacco is imported or locally grown, and presumably by the passing on by tho petrol companies of tho additional 2d per gallon on motor fuel. Then, ns to direct taxation, there is, for those above the £SOO line, the extra 4d in tho £1 income tax, the principle of graduation hero being departed from. In conclusion, it has to bo pointed out that tho revenue shortages which tho now Minister of Finance is seeking to make up Exceed ouo and a-half million pounds, of which nearly a million pounds is represented by the failure of tho railways by that amount to pay interest on their capital cost, is it the fault of Government administration or of tho taxpayer that that capita! cost is inordinately high? Is it the fault of tho taxpayer or of tho railways administration that tho railways arc not better utilised for both goods and passenger purposes? If our railways could bo made to pay, no such exceptional otforts as aro being now asked of tho people would be required in order to enable Homo investors in our railways (for as such in great degree may our overseas Government bondholders be regarded) to receive steady incomes to which British investors in British railways have latterly been entire strangers.