TEN MILLIONS LOAN

Greymouth Evening Star, 16 August 1933, Page 8

TEN MILLIONS LOAN

MR COATES’S OBJECTIONS. [PER press association.] WELLINGTON, August 16. In the course of his written reply io the Mayor of Auckland regarding the proposal to raise a ten millions loan in New Zealand for rehabilitation purposes, Mr Coates said: —There is a natural temptation to look for relief in a method that is superficially appealing, but which on examination may prove to be more of a stimulant than a cure. The rise in prices of our products in England would automatically solve many of our troubles. Without'such rise, anything we can do internally would probably act only in the direction of spreading the burden without relieving the economic situation,unless we can establish trades or industries, which being efficient and self-supporting are not. a tax on community.

Apart from improving the quality of primary products and perhaps from different methods of marketing, we can do nothing to improve prices of our exports. The return to comparative prosperity will depend to a large extent on the revival of world prices, and international trade. It is quite conceivable that moderate borrowing would help, if the money were applied to specially selected undertakings, but the possible effects of any borrowing must always be carefully examined. A suggestion has been made that the ten millions could be obtained from £25,000,000 unearned income. Apart from the dubious social and ethical validity of the suggested compulsory '‘loan”, it must be remembered that most of this unearned income has been invested or used in some way. If increased Government expenditure is coincident with a revival of world trade, then spending would be of material help in quickening such revival, but otherwise the loan programme, insofar as it adds to spending power, would produce a burst of temporary prosperity, followed inevitably by a relapse. Assuming that the £10,000,000 mentioned could be obtained in the ordinary way at three per cent., this would mean an annual extra debt service of £300.000 unless money were expended on works that would provide their own loan charges.

Another aspect of the matter was that the market price of Government stocks would fall heavily. This effect would be definitely accentuated if compulsion were used.” There was now in sight, added Mr Coates, what he considered to be the greatest gain from the recent conversion operations—the lowering of market rates of interest. This benefit, which would be spread over every field of investment, would be lost if the price of the present four per cent. Government securities (approx. £115,000,000) was driven down as the result of excessive new issues. ■ Mi- Coates does not think it necessary to make any special provision for loans to local bodies.

The deputation also 'suggested using £2,500,000 of the proposed loan for relief of unemployment. Borrowing might temporarily alleviate matters, but if pay on relief works were raised substantially, the numbers of registered unemployed would probably be considerably increased, because business

firms, feeling that more adequate wages were being provided in other directions, would tend to give up their present attempt to assist by rationing work and employing men part time. If unemployment pay were brought too near to current rates of wages, men would largely lose the incentive to search for other work in their own trade or profession. Unemployment relief works from their very nature could not be fully productive, so that borrowing for this purpose, would, to a great extent, be merely adding to the dead weight of debt, leading if the policy were continued, to a breakdown of unemployment relief financing. The proposed subsidy to primary producers would need more than the £3,500,000 mentioned, and as it would be mainly applied to spending for consumption, the Government would be left with a dead weight of debt. Furthermore, primary producing industries are already receiving approximately the amount suggested through the exchange adjustment. The community cannot afford to give both the exchange benefit and a subsidy. As regards the amount proposed for public works, the Government has in hand a £3,500,000 programme which should provide useful productive work. It is not advisable to go further than this at present. The remaining item was £500,00' 1 for assistance to various gold-m mg schemes. This was one of the directions where additional assistance ought not to be necessary. The British departure from the gold standard, and the raising of the New Zealand exchange rate have each successively raised the price of gold. The community must continue to grapple with problems, and adopt measures that

will not hamper recovery, particularly as at the moment there are indications the worst is past, and there is good ground for hopes that better times are to be looked for in the not far distant future.