GOVT. POLICY

Greymouth Evening Star, 27 January 1933, Page 5

GOVT. POLICY

STATEMENTS TO HOUSE

By

Coalition Leaders

(Per Ministerial Favour). WELLINGTON, January Q. 7. MINISTERIAL STATEMENTS RELATING TO THE GOVERNMENT’S POLICY WERE PRESENTED IN THE HOUSE, TO-DAY, BY MESSRS. FORBES AND COATES. MR. FORBES SAID:—-

Honourable Members will recollect that on December 1 last, in intimating that it was proposed to move the adjournment of Parliament until January 26, I stated that the intention was to allow Cabinet to give a .fuller and more thorough examination of the proposals affecting the general economic position of the Dominion, and particularly the cjifficult condition of the farming industry, owing to' the further drop in prices of export produce in opr external markets, than was possible while Ministers were closely engaged in Parliamentary work. After the House adjourned, on December 9, the Government lost no time in making the necessary arrangements to have the fullest information supplied, as to the effect of the low prices on the budgets of the farming community, and in this conection Dr. Hight and Professors Belshaw and Tocker, were asked to come to Wellington to make a report upon the changes that had oc-j curred since the compilation of the re-' port of the Economic Committee, • of which they were members, in February, 1932. The report which they have furnished in compliance with this request has been most helpful to the Government, especially in arriving at the decision of Cabinet to bring about an increase ip the rate of exchange. The information supplied by farmers’ agencies, and by the various State-lending departments, showed that the farmer borrowers had slipped back very seriously in their payments of principal and interest, during the last twelve months. To give honourable members some idea of the magnitude of the arrears outstanding on loans to settlers, in respect of the State Advances Department, I quote the following figures. At March 31, 1931, the amount owing by settlers to the State Advances Office was £411,740. At March 31, 1932, it was £835,760, and at September 30, 1932, the total had increased to £1,056,830. In the Lands Department, £1,522,137w as due for rent and interest in arrear at September 30 last, and in addition the postponements of rent and interest' amounted to £283,650. I think Members" of the House will agree that the figures supplied by these two State Departments, furnish a fair idea as to the position of mortgaged farmers generally in the Dominion. The growth of these arrears on the part of the farming community has been particularly rapid during the

last few months, owing to their credit and reserves becoming exhausted, and the more recent decrease in the prices of their products, especially dairy produce, will, no doubt, accelerate this slide. It will be readily seen that a serious position has arisen, which will, soon become a further problem for the already overweighted Consolidated Fund.

COMPARATIVE FIGURES.

The reyiew of the economic position submitted by the Economic Committee, showed that it had become progressively worse since their report in February last. The following figures will illustrate this, taking the index figure of all New Zealand export prices for the period 1909-1913 as 100. Whilst in 1927 it had increased to 168, in November, 1932, it had fallen as low as 86, or a decrease of 49 per cent, in four years. I may mention, in passing, that the further recent decline in dairy produce prices is not taken into account in the figures I have just quoted.

Now, as to external trade, the most obvious effects of this decline in export prices may be seen in the overseas trade returns. In 1928, the value of our exports was £56.2 millions, whilst in 1932 it was £33.6 millions. The value of our imports for the same year.was £44.1 millions and £22.8 millions. These figures represent a decline of 50 per cent, in the value of our exports, and 53 per cent, in imports. The heavy fall in imports is, of course, the direct effect of the contraction in exports.

I will now take production in relation to. national income. The estimate of national income is approximately made by adding about 20 per cent, to the official estimates of total production. The following table sets out the position:—Estimated value of total production (millions), farm products 1928-29, 82.1, 1932-33, 49.0. Other products 61.2 —32.5. Total production 123.3—81.5. National- income 1928-29, 150, 1932-33, 98. 1928-29 equals 100—100.65. There is thus a fall in national income of 35 per cent. It may therefore be concluded that the national money income which constitutes the purchasing power of the community has declined by at least one-third of the 1928-29 income. Again in regard to internal trade and finance it is inevitable that a decline of this magnitude should be reflected in the volume of internal trade. The best available indication of internal business is the return of total debits per week to all bank accounts in the Dominion, published by the Government Statistician. These show that in 1929 the average debits Were £20.9 millions and in 1932, £13.5 millions, or a decline of 35 per cent. In the total volume of financial business in the country, the figures I have given to the House present a striking record of the decline that has occurred in New Zealand’s income and trade. The effects of the depression have been cumulative. Felt first by the farmers they have been passed on to the producers of local goods and services of all kinds. The full extent of these effects, however, is only now beginning to be felt in internal trade. The farmers in their efforts to maintain production have drawn upon resources of capital and credit. Now largely they have to depend solely on income from the sale of their products. As the resources upon which they can draw become progressively exhausted, their purchasing power must decline further, and the effect on the cities and towns must be felt more severely.

COSTS AND PRICES.

It becomes apparent, therefore, that the essence of the present difficulty is in the progressive disappearance of

profits and in the increase of losses, the restoration of sound business conditions, the expansion of production, the absorption bf the unemployed, the increase in purchasing power and in demand, and the revival of general business activity. All these must denend on' the creation of such condi-

tions as will permit profits to re-ap-pear. Profits depend on the relation of costs to prices. Since 1929, export prices have declined by 49 pei' cent. Retail prices have fallen by only 19 pei’ cent., wholesale prices by 14 per cent., and -vyages (nominal) by 16 per ■ cent. A reduction of internal prices aiid costs of about 35 per cent is required to bring about the same relationship to export prices as existed in 1929. The main problem is to reduce the disparity between costs and selling prices. To let matters drift, and allow undirected deflation to have full sway, would be obviously unthinkable, and could not be countenanced by the Government. Such a policy would dangerously aggravate our already serious difficulties. Cabinet, in its consideration of the position, has examined various suggested remedies, having for their objective the increasing of prices, such as a rise in the rate of exchange, various forms of internal credit expansion, including a grant or bonus to primary producers and also a grant or subsidy to farmers, financed by taxation. After mature deliberation, the Government came to the conclusion that an increase in the rate of exchange from 110 to 125 would be more advantageous to the country as a whole, than any other method in easing our presept difficulties. The Government approached the banks, and requested them to take the necessary action to give effect to this decision. In their arrangement with the banks. the Government have undertaken to indempify them against any loss that may be incurred on the sale of exchange purchased at the new figure, and a Bill will be introduced accordingly to obtain the necessary Parliamentary authority to give effect to this undertaking. I dp not, jn this statement, propose to deal in detail with the various arguments for and against this decision. Ample opportunity will be afforded to honourable members foi' discussing the subject. I will briefly mention some of the advantages which may 'be expected to accrue from the course that has been decided upon. The national income and the national spending power will be proportionately increased. It is estimated that the proportion of costs likely to increase . with a rise in exchange is small. At the present time, industry and trade are being contracted, and unemployment has not decreased, because much business cannot be conducted on a profitable basis with production contracting, as it is at present, because of maladjustment of costs and prices. A rise in exchange, which increases prices more than costs, will certainly tend to arrest the decline, and may stimulate an increase. It may be urged that the primary effect of a rise in exchange is to increase Budget expenditure through the increase in the cost of overseas interest payments, and to reduce Customs revenue temporarily, but the secondary and more important effect is to prevent an appreciably greater fall in taxable capacity and non-tax receipts. It is confidently anticipated that the net benefit to the Budget from the increase in the exchange rate wil not be long delayed.

CHANGE OF OPINION.

The full effects of the present depression have not yet been fully felt, but it is quite certain that unless further adjustments are made, the national income and taxable capacity will fall further. It will be remembered that, a short time ago, I expressed the opinion that the question of exchange was one that should be properly determined by the banks. Since that date, and consequent upon a close examination of the position, the Government came to the conclusion that the matter had become one of serious national importance, and could not be left to outside agencies. If the country had been able to continue without an alteration in the rate of exchange, no one would have been better pleased than myself, but in the history of all countries grave emergencies arise, when it becomes necessary for a Government to interpose and place upon their own shoulders the responsibility foi* the. course of action they deem best in the interests of the country. What I stated on the occasion to which I have referred was my opinion in the light of the conditions then existing. These conditions have unfortunately become more unfavourable, and rendered action on the part of the Government imperative. I recognise that the action of the Government in bringing about an increase in the rate of exchange does not find favour with thdse engaged in the import trade and in other business circles, but I would earnestly ask those who are loudly criticising the Government, to view the position from a national standpoint, and consider what would happen if a policy of extreme deflation, with all its attendant evils, were allowed to hold sway. Two of the outstanding factors which appealed to the Government were the existence of a* distressed farming community, and the unfortunate position of the unemployed. It is indeed a sad state of affairs when 68,000 of our citizens are out of employment, at a time usually regarded as the busiest season of the year. When we remember this fact, I feel certain that the pressing nature of the problem must be brought home to every one of us. I would ask our critics to regard the position in the same spirit as actuated the Government in coming to its decision. If orthodox methods fail to find a solution in times of grave emergency, then I claim that the Government is justified in resorting to other means, in order to lighten the burdens of the people. I feel confident that,

witli the stimulation which,, will now be given to both primary and secondary industries, we may look forward to a gradual but certain absorption of a large number of those who are at present unemployed. The importance of this aspect of present conditions can, in the view of the Government, no longer be ignored. There are those’who hold different opinions from the Government in regard to the policy of raising the rate of exchange to relieve what all must agree is a very serious position, but it is the responsibility of the Government to decide the course to be adopted. This we have done, and we are confident that the wisdom of this step will ere long be apparent.

MR COATES’S REVIEW.

Mr Coates said: — Since the adjournment of the House, the Government have again taken thorough stock of the economic position of the country, and have considered ways and means of meeting the situation. In particular, the Government have been concerned about the plight of the primary industry, which is. the basis of the whole economic structure of this Dominion. During 1932 there was a further heavy fall in export prices, and the general level of those prices, as shown by the index numbers, is now little more than one-half of what it was in 1929. Comparing the position, as shown by the Government Statistician’s index of prices in 1914 and in November, 1932, we have export prices 21 per cent below 1914, farm expenditure (year 1931) 49 per cent, above 1914, retail prices 29 per cent, above 1914, and wholesale prices 21 per cent, above 1914. The notable feature, and the one calling for urgent action, is the fall in export prices. This fall in prices is disastrous, and it renders the financial position and outlook of a large Proportion of farmers increasingly difficult. They have been able to carry on and to maintain production only by failing to meet their fixed charges, and by living on capital, but farm maintenance is suffering, and in many cases stock is being sacrificed. If some effective action is not taken, a greatly-reduced volume of production must assuredly follow. During the past year much was done in one way

and another in the direction of relieving the situation, but it all fell far short of what was required to bridge the widening gap between costs and prices. New Zealand, in common with other countries, has been looking to a recovery of world prices. Unfortunately, these hopes have not been realised. On the contrary, as is well known, prices have fallen still further. The fall has been particularly severe in those products which are the exports of New Zealand. We have not yet received the full benefit from the agreements made at Ottawa, and I am confident that, following the World Economic Conference, steps will be taken by the Great Powers to remove some of the principal underlying causes of the depression, and to bring about a rise in world prices. These measures will assist the Dominion, but the Government are satisfied, after a searching examination of the situation, that we cannot afford to wait any longer for assistance

from these sources. We must immediately take steps of a far-reaching nature to assist our primary industries.

At the outset, the general line of approach favoured by the Government in bringing costs and prices into line -may be indicated. It is frequently said that an initial and fundamental choice must be made, the choice between either reducing costs or increasing; otherwise, and less accurately, the choice is said to lie between “deflation'’ and “inflation.” Our view is that, with the choice of reducing costs or increasing monetary receipts, the country should deliberately proceed by both methods. The gap to be bridged is wide. By approaching the problem from both ends, by deliberately planning to increase receipts, and, where possible, to reduce' costs, we shall bring adjustment, with less dislocation than if we seek to obtain adjustment by one method alone. Presently, I shall refer to certain directions in which the reduction of costs, as well as the increasing of receipts, is to be sought, but at once I may say that a further reduction in the rates of wages and salaries in the Government employment is not contemplated, and this is itself a reason for our taking in hand adjustments of an alternative kind. All suggested methods, such as a bounty on exports, remission of rates and land tax, exemption of farm loans from incometax, and the direct issue of credit by the Government, were carefully considered, but the raising of

THE EXCHANGE RATES

was deemed preferable to all other methods, and, as Hon. members are aware, action has already been taken in this direction. Arrangements have been made with the associated banks, whereby the exchange rate for telegraphic transfers New Zealand on London has been raised from £llO to £125 foi’ £lOO in London, and other rates have been raised correspondingly. .This action has been taken by the Banks at. the request of the Government, and as a method of economic adjustment. This being so. it is reasonable that the banks should bo safeguarded against loss in giving effect to the Government’s policy. Accordingly, the Government have agreed to safeguard the banks against, loss arising out of exchange dealings at the new rates. This, in effect, means that, the Government -wil] purchase any surplus London credits bought by the banks at the new rates, of whic hthey are unable to dispose at the current rates, in this way, the Government may be called upon to purchase more exchange limn is actually needed for current requirements, but any such surplus amount can be used to pay off debt abroad with funds borrowed in New Zealand. The net effect, apart from exchange, is thus a transfer of debt from abroad to New Zealand. While some surplus exchange may hove to be purchased during the first year, it. is considered that this is but a temporary phase, as

conditions will soon adjust themselves to the new position. The Government recognise that whatever 1 lierate of exchange may be. stability is a, most important factor in the interests of all sections of the community. This being so, it is proposed to maintain the present rain of exchange for

a reasonable period, and f may say that, it will not be departed from lightly. It. is, of course, impossible to fix any definite period, as we cannot foresee the course of events, either in New Zealand or abroad. A Bill to give effect to the arrangemcml with the banks wil! shortly be introduced.

R EVEN HE I )ECREA SE

Having regard to all these considerations, it is at present anticipated that

the Customs revenue £or the next financial year will show a falling off, ■ compared, with the probable receipts for this year, of £1,400,000. j Income tax, which will be based on 1 this year’s trading operations, will undoubtedly be less, but at present it I is difficult to gauge the extent of the | shrinkage. Tentatively, a comparative decrease of £750,000 is being' allowed for. Stamp and death duties revenue has been well maintained during the current year. Next year however, decreases in valuations will adversely affect death duties, while there is likely to be a further decline in other items, particularly duty on instruments and racing revenue. The net decrease in the revenue is estimated at £250,000. interest receipts from the Railways will be directly affected by the pro-

posed reduction in freight charges and with a further probable decline in the receipts from other investments, the net shrinkage is estimated at £220,000. The Post Office revenue continues to reflect the general slackness in business, but, on the other hand, if the services are to be maintained, there is a limit to the extent to which falling revenue can be offset by savings in expenditure. For these reasons, on present indications, the Post Office estimates that it will not be able to

do more than make ends meet next year, so that no revenue is likely to be received under the heading of Post and Telegraph profits. This will ipcrease the revenue shrinkage by the amount anticipated to come to hand this year, viz., £470,000. The remaining items of revenue will all be more or less affected by the continuance of the present conditions, and a net decrease of £260,000 has been put down for such items. RESERVES.

This year’s revenue will include £2,500,000 to be derived from the liquidation of reserves invested in discharged soldiers’ settlement mortgages. Special arrangements haye been made for the liquidation of these mortgages by way of hypothecation of the securities. With the possibility of obtaining any further assistance under this heading, I will deal shortly, in reviewing possible, remedial measures, but in the meantime the item is being deducted.

INTEREST CHARGES, With the fall in prices and the decrease in the volume of business, fixed charges have become a serious problem in practically all business, and as the prices of primary products hayp fallen most severely, the burden of fixed charges is particularly acute in the business of farming. Thus, the question of lowering interest charge? must be a major item in any scheme for adjustment of costs. The Gpy,eminent are anxious to bring about lower market rates of interest on a sound basis. ’lf this can be achieved, it will be of much greater and of more lasting benefit to all sections of the community, than a simple cut in existing charges. In London, interest rates in the short-term loan market have fallen to a very low level, and following the recent British conversion, long-term rates are also coming down fairly rapidly. In Australia, comprehensive steps were taken to reduce the rates of interest on all existing securities of the Government and local bodies, and this, together with other measures, has led to lower market rates of interest in New Zealand. Our market rates of interest continue to be relatively high, and it would appear that the situation is influenced by the rates on the large volume of existing securities. The Government consider it essential that interest rates on existing securities should be brought down to a lower level, and at present we are discussing ways and means of achieving this object. I am not in a position at this stage to make any definite statement, but 1 hope in due course to be able to bring forward comprehensive proposals for dealing with the whole problem, and so far as possible, on a voluntary basis This is a difficult matter, particularly in-so-far as local bodies’ debts are concerned, because there are so many local authorities with securities on the market. Any reductions brought about in the interest rates on local body debts, insofar as they exceed the benefit at present derived from the 10 per cent stamp duty, would enable local authorities to give further relief to ratepayers. Any such relief would, of course, be of direct assistance in lowering the fixed charges of exporters and other producers. If the more comprehensive proposals can be successfully arranged, the present 10 per cent, stamp duty, which is somewhat irksome to bondholders, will be abolished, concurrently with the reduction of interest on Government and local body securities. , We have also to consider the de posit rates and

OVERDRAFT RATES.

Discussions in regard to these matters are well in hand, and I am hopeful that arrangements can be completed to lighten the cost of these items.

Finally, there is the problem of mortgage rates. As lion. members are aware, legislation is already upon the Statute Book, providing for a ,20 per cent reduction and for the review of individual cases by the Mortgagors’ Adjustment Commissions and the Courts. Insofar as statutory reduction is concerned, I do not think it would be in the interests of borrowers to go any further in this direction, for it must be recognised that if industry is to be carried on, the confidence of investors must, be retained. The existing powers for the review of individual cases are already very extensive and no further major amendments of the law appear to be necessary. Moreover .it. should not be overlooked that if the rates of interest on Government, and local body security, and on deposits, can be brought down, this in itself must make mortgage investments relatively more attractive than they are at. present, and consequently will induce more investments in this direction. In fact, a lowering of interest rates on giltedged securities must benefit all borrowers, as it will permeate through the whole field of investment.

RAILWAY FREIGHT CHARGES

As a further step towards bringing down costs, arrangements are being madii with the Railways Board for a reduction of about 15 per cent, in freight charges, covering a fairly wide range of commodities. ’Phis will add to our budgetary difficulties, perhaps to the extent of £160,000 in the first year; although increased traffic at the lower rates may later reduce the amount, of the loss involved. In any case, it is considered tlyit the reduction is warranted from the more im-

portant viewpoint of assisting to reduce working costs. i It has been the practice of New ZeaGand Governments, during the last few !years, to hold periodical inquiries into the Customs tariff. Such inquiries (were held in 1921 and 1927, and the i time would in the ordinary course be ripe for a further investigation. The need .for such an investigation is all tho more urgent, owing to the existing economic and financial crisis, which has had such a catastrophic effect on world prices. In New Zealand, more particularly, the tariff should be overhauled, owing to the fact that our export trade depends almost wholly upon our primary products, and the lower prices obtainable have made it necessary to reduce costs of production to the lowest possible level consistent with an orderly economic and industrial development. No one will question the fact that the increase of customs taxation is a very important

factor in connection with such costs, and with the general cost of living of the whole community. Apart from these considerations, New Zealand is committed under the Ottawa agreement to conduct such an inquiry, the question having been there approached from the view point of facilitating trade with the United Kingdom, in return for valuable concessions given to this Dominion. The Government have no intention of exposing to unreasonable competition any industry Ayhich can function on an economical and efficient basis. On the other hand, as I have indicated, the country cannot afford to maintain tariffs which increase costs of production, and the cost of living, unless a real benefit accrues to the community. Therefrom, i ( t is intended to set up a small body, \yhi.ch will review the whole position, and make recommendations with respect to tariff rates. It is proposed that the inquiry should commence as soon as possible. It will be remembered that under article 8 of the Ottawa agreement, it was arranged that the United Kingdom producers should have an opportunity of putting forward their views at the tariff investigation. The Government are in communication with His Majesty’s Government in the United Kingdom, with a view to ascertaining when the producers there will be in a position to furnish the necessary information. When a reply is received, an indication will be given as to the date on which the inquiry yzjll commence. The personnel of th,e investigating body will be made known at as early a date as possible after th'e rising of Parliament.

BUDGETARY POSITION.

The various proposals, outlined will for th,e most part accentuate rather than relieve the budgetary position, but taking a.broader view, it cannot be gainsaid that if we fail to take steps tQ enable our primary industries to carry on, and to maintain a high state of efficiency, our budgetary position Will, before long, be still more seriously affected. Already the shrinkage in the national income has been such as seriously to diminish the taxable capacity of tfi.e country. A justification of the increased exchange rate, from the viewpoint of the Government’s budget, is that the increase which this action should produce in oui’ national income as measured in New Zealand money, must later strengthen also our taxable capacity. Tfie budgetary situation for the current financial year may be regarded as satisfactory in that in general the estimated results for the year will be fairly closely realised. Tfie position will be reviewed in more detail later, when the figures for the first nine months of the year have been audited and are available for publication. In the meantime, I may say that our expectation is that with the utilisation of reserves, amounting to £2,500,000, the year will close with a deficit in the vicinity of £700,000 for the next financial year. If the revenue and the expenditure were the same as is now anticipated for this year, we would, of course, come out with a deficit of a. similar amount. Unfortun ately, our problem is not as simple as that, and to obtain the prospective shortage, we have to add to this £700,000 the further anticipated, shrinkage in the revenue and any unavoidable increases in expenditure. While the raising of the exchange rates will be of immediate benefit to the primary producers, it will be some

time before the beneficial reaction can be felt by the rest of the community, or be reflected in the budget. In fact, it is anticipated that the immediate effect on the budget will be an adverse one, pending the time when business generally can be adjusted to the changed conditions. Accordingly, so far as the next financial year is concerned, it is considered advisable to allow for a further falling off in the revenue, and particularly in customs revenue. In addition to the effects of the increase in the exchange rates. and the other proposals which I have already outlined, tho revenue would inevitably have been further affected by the continuance oi the slump conditions, the effects tending to be cumulative. In addition, in estimating the Customs revenue, we have also to allow for the fact that the concessions given following the Ottawa conference will be operative for the full year. Apart from all these special considerations, the difficulty of forecasting the budgetary position for 1933-34 is increased by many uncertain factors over which we have no control. For instance, the trend of overseas prices for primary products and any steps that may be taken following the world economic conference may materially affect our estimates.

EXPENDITURE.

To arrive at the net budgetary shortage on the other side of the accounts, we have to consider what additional items of expenditure have to bo provided for exchange, based on tho anticipated results for this year. The largest, expenditure increase will undoubtedly be under the heading of exchange, due to the fact, that a considerable amount of the funds required in London for the current, financial year wore remitted during the closing months of the last financial year, under the exchange pool arrangements. The expenditure on exchange for this year will not exceed £350,000. For the next financial year, even at the 10 per cent, rate, this item would have been doubled, involving an increase of £350.000 in the sum required. The increase in the exchange rate adds a further £1,050,000 to the coat in New Zealand currency. of remitting payments due on loans contracted' in the United Kingdom. In addition, the Treasury estimates allow for a contraction of imports to such an extent that the exchange surplus in London will total £ 1,000,000, and that the extra exchange costs under the indemnity arrangements wil! amount to £1,000,000 (that is, 25 per cent, of the exchange surplus). it is to be added that wo have no precedent in New Zealand by which the possible accumulation of funds in London, by

reason of the altered exchange rate, may be accurately forecast, and with the general uncertainty in external conditions it would be hazardous to attempt any precise estimate. Indeed, there are authorities who consider that the accumulation of funds in London will fall short of the stated figure, and that any temporary loss will bo recoverable later. However, the estimate of £1,000,000 is taken as a working figure for the purpose of present calculations of debt charges. As indicated in the Budget, a very drastic reduction was made m the borrowing for capital works for the currrent financial year. For the next financial year, it would appear that the amount that can be provided' will be still less, although a small amount will be necessary for carrying on essential works. The debt charges, however, will fie considerably increased; owing to -tile necessity for relying upon the Treasury Bill fin ance to cover past deficits, and financing general' requirements during the year, and tfie prospective shortage for next year. The estimated increase in expenditure under this heading is £350,000.' This .estimate makes no allowance for a resumption of the funded debt payments to the British Government. Payments under this item have been suspended "during the current financial year, pursuant to the arrangements made with the British Government, biit if no further action is taken, the half-yearly payment will fall due on December 1 next. It appears likely, however, that some action in regard to war debts will be taken before then, so that to some extent this item may be regarded as a contingent one. If the instalment is paid the net cost to .the Budget will bet about £825,000. ' 1

It will be remeinfiered that as part of the Budget for tfie current financial year, provision was made to retain in the Consolidated Fund up to £500,000 of revenue that would otherwise have been transferred automatically to the Main Highways Account. This provision was for the current year only, and’ if it is not extended, the result \vill be a comparative increase of that amount in the expenditure of the Consolidated Fund

Regarding pensions, normally there is a progressive increase in the cost of pensions, but owing to the depression the increase for old-age pensions and family allowances will inevitably b 0 larger than is usual. Accordingly, provision will have to be made for a further £500,000 for the cost of pensions. To sum up the prospective budgetary position, it would appear that we are faced with a gap in the finances of £9,850,000, made up as follows: — Equivalent of current year’s shortage £700,000. Revenue decreases, .Customs £1,400,u00. Income tax £750,000. Stamp and death duties £250,600. Interest receipts £220.000. Post and Telegraph profits £470,000. Other items £260,000. reserves £2,500,000. Total £5,850,000.

Expenditure increases: Exchange extra cost external debt charges on account of full year at £llO, £350,000. Extra cost of external debt charges by reason of exchange increase to £125, £1,050,000; allowed for cost of exchange on surplus bank funds in London, £1,000,000. Total £2,400,000. Other items: Additional interest ami other debt charges £350,000. Motor taxation payable to Main Highways Fund £500,000. Pensions £50,000. Total £3,300,000. Gross total £9,850,000.

Large gaps in the public finances have had to be bridged in one way or another, and as time goes on the possibilities of further remedial measures become more limited. With the sources of revenue seriously depicted there is the clearest need for rigid economy in public expenditure, and to this the Government are giving constant attention. During the past two years, drastic cuts have been made in the expenditure, and during the present year the Government have had the detailed report of the National Expenditure Commission to work upon. Of t-he recommendations that have already b.een given effe.ct to a further net saving, estimated at £11)0,000, will be obtained next year, arising out. of the fact that the economies will be operative for the full year. Of the total recommendations of the Commission, the items not yet given effect to amount to £ 1,150.000, but. £ SOO,OOO of this is bound up in three items, viz., naval defence reduction to one cruiser standard £200,000, reorganisation of the hospital system £300,000, reduction in expenditure on agriculture, cancellation of subsidies on lime and fertilisers, etc., £300,000. As a matter of policy it is not considered advisable to adopt the first item, and the position of the primary producers precludes any possibility of adopting the last item. As for the. reorganisation of the hospital system, this is a matter that has not been overlooked, but it is obviously a. proposition that would take some time to obtain any relief in the expenditv.r?.

The remaining recommendations of the Commission. are now ber ing gone into, bqt the most that can be hoped to be obtained from them is £200,000. While on the question of economies, I would like to recall the efforts that have been made since the depression developed to m,eet the situation by (economies and adjustments in "the expenditure of the Consolidated Fund. Towards the close of the financial year 192930, right at the commencement of the .trouble, efforts were £o keep down departmental expenditure, and for that year a saving pf £200,000 was mad.e ip the vot.es. Jp the".following year, savings and adjustments totalled £1,360,000. As tfie depression deepened in 1931-32, efforts in this, direction were redoubled, and, as the result of drastic action in various directions, savings aggregating £4,320,000 were effected. As for jthe current financial year, the economies and adjustments to fie pffe’eted "are summarised in the Budget, and amount in the aggregate* to £3,350,000. The grand total of tfie Relief to the Consolidated Fupd frorn ' these savings and adjustments, sin.ee the depression developed, amounts to no less than £9,490,000, briery made up as follows: —

Savings: Reductions in salaries and wages £ 2,31Q,0,00. suspension of Yar debts (net saving), £1,370,00,0, reductions in grants and subsidies £440.000. general reductions in departmental votes £1,760,000, reductions in railways and Post and Telegraph expenditure £1,5.3,0,000, rqd&c.tjyjns ‘in pensions £300,000; total £7,710,000. Adjustments: Abolition of .unemployment subsidy £950,000, benefit from motor taxa.tioq. £500,0.00, other adjustments £330,000; totql £1,780,000; grand total £9,490,00.

Some of the adjustments admittedly represent only a transfer of th© burden to other accounts, hut th,ey d° provide additional relief to the general Budget. It will, I think, p.e generally recognised that h,uge savings cannot be obtained without flrastje action, and the figures I have mentioned give some indication of the efforts made by th.e Goy.ernmpnt in meet the situation by effecting .economies in public expenditure. From th© general position I haye outlined, I,think it will be clear to ail that the assistance being received this year from the. Main Highways revenue will have to be continued next year, for th© position is such that the best, possible use must he niade of all revenue to the State. As I have already indicated, arrangements for dealing with interest on Government and local body securities have not yet been finalised, but if our proposals can be successfully carried through, a udt saving of about. £400,000 will accrue to the Budget. . The present book value of past surpluses invested in the discharged soldier settlement mortgages is £10,500,000; £2,500,000 will be drawn upon for the current financial year, and we will doubtless eventually have to write off substantial losses. . Even so, an ample margin will remain, and I hope to arrange to liquidate up to a further £2,000,000 to augment the revenues for next financial year.

NEW TAXATION.

For the rest, to bring the prospective deficit down to, say, what .may be regardco as a safe amount, I am afraid there will be no alternative but to have further recourse to additional taxation. Details of this cannot be given at present, as the proposals have not yet been finalised, but I think it will be necessary to find ways and means of raising up to £2,400,000 which, with the other items I have mentioned, will be sufficient to bring the deficit down to about £4,500,000. This will mean increasing our floating debt by that amount, but against that it should not be overlooked that the expenditure will include proyi? sion for £1,400,00.0 under the statu? tory debt repayment scheme. This will mean that the net increase iji debt, as a result of the prospective shortage, will not fie much in excess of £3,0,00,000, whicji amount may be considered as safe- That is: to say, it will not be large enough to in anyway endanger the financial stability of the country, which must be safeguarded at all costs. The Government have felt obliged, in the general in.terest of the Dominion, to take a course of action of an unprecedented , character. This has been done with a clear realisation of the implications and of the difficulties in the way. We are confident that the country will recognise, as the days pass, that the de? cision made is amply justified'. After the Ministerial had been read, Mr Forbes intimated that h e expected the Banking Indem? nity Bill to be ready for presentation at 2.30 p.m. He suggested that the House should be adjourned until then, and this course was adopted, the House adjourning at 11.25 a.m«