PARLIAMENT— Inflation May Offset Lower Import Prices’

Greymouth Evening Star, 25 August 1948, Page 6

PARLIAMENT— Inflation May Offset Lower Import Prices’

(P.A.) WELLINGTON, August 24.

The Opposition’s view that Now Zealand currency should be on the same basis as sterling was stated by the Leader of the Opposition (Mr S. G. Holland) when lie opened the Budget, debate in the House of Representatives this evening. He referred Io difficulties that would arise from the change in the exchange rate, particularly for woolgrowers, who, he said, would benefit little from reduced costs. In a long speech he discussed the effects of the change on all sections of the community. Mr Holland said the return to parity should have been done earlier to enable the presentation of a Budget which meant something. Mr Nash had much to explain as to why he allowed his go to London to enter into produce negotiations with the United Kingdom on a basis which now had been rendered entirely false. Almost before the ink was dry on the agreements providing that the rise or fall in prices be limited to 7 A per cent, a year, Mr Nash in three minutes had cut the farmers’ income by 20 per cent., which was as much as the United Kingdom could do in three years. Lower Costs Preferred The Opposition believed that where the choice lay between higher wages and lower costs, the latter was preferable, said Mr Holland. He believed a return to exchange parity would assist to that end. The former rate, which was virtually tax on imported goods to subsidise exports, was put bn to meet a grave national emergency, which had now passed. The Minister had put the maximum emphasis on the benefits of altering the exchange rate, but had made the minimum reference to' those who would suffer. The simple facts were that for every pound in benefits there would be a pound of disadvantage to others. The alteration meant that exporters’ income was down by £30,000,000. and the Minister spoke as though ,£30,000,000 was nothing to the producers. Would the Minister be prepared to go to the watersiders, the miners, and others, and ask them to accept a 20 per cent, slash in their incomes and then draw on their savings to maintain those incomes? Other problems had been glossed over by the Minister, who had said that importers and manufacturers will) stocks landed at higher prices might worry a little and their best course would be to meet the .situation at. once. That meant that they would have to write their stocks down and sell at below cost price. Inflation And Wages Mr Holland said the Government’s .policy had been one of steady inflation and workers had realised that, as the Opposition had pointed out for years, they were no better off if increased wages were swallowed up in increased costs. The Opposition believed the process should have been a gradual one taken in progressive steps at irregular intervals. If the step were to be taken, a better time would have been a year ago before a heavy year’s importing began. Mr Holland said that while the New Zealand pound would now buy four American dollars instead of three, it was not the exchange rate but the numbers of dollars New Zealand had available which determined what New Zealand could buy from America, and the Minister had already announced that licences were to be cut 20 per cent. In 1947 New Zealand’s adverse trade balance with the United States was £15,000,000. Mr Holland said last year’s butter price was 205 s sterling, which was 256 s New Zealand, out of which 224 s was paid out and 32s paid into the pool account. For 1948-49 the price was 235 s sterling or New Zealand, which would barely allow for a payout of 2245, the same as last year, leaving a margin of Ils, or approximately Id per lb for payments into the pool account compared with nearly 3d per lb last year.

Meat Industry

As for the meat industry, the increase of 18 per cent, in sterling prices would give something with which to cushion the blow, but it should be remembered Britain gave that increase to foster production. There would be sufficient to maintain last season’s pay-out and put a reduced sum of about £1,000,000 in the pool account. Mr Holland said the effect of the change would have a varying effect on farming costs. Those on good, high production land, producing lambs and butter-fat, would receive the advantage of the higher prices just arranged and some reduction in costs through the lower prices of imported goods and materials. Farmers on. marginal land or high country would face a difficult position. They used little wire, machinery, or fertiliser, and relied largely on store stock and wool and . had two-thirds labour content in their cost structure. Imported goods would be cheaper, but not more plentiful. To protect local industries from stronger competition, would the Government impose a lock-out of the competing lower-priced goods? Effect On Family Budget

As far as the family budget was concerned, there would be no reduction in bread, butter, rent, coal, gas, electricity, wood, clothing, housing, milk, eggs, sugar, tea, meat, transport, fruit, or vegetables. By subsidies, locally-made boots and shoes had been reduced in price by approximately 10s. Now the exchange advantage had been taken from farmers it would not be unfair or unreasonable to suppose they would demand full market prices for hides and skins.

The farmer would not be slow to claim that he was fairly entitled to receive the full export price for tallow and other by-products. At present farmers were subsidising local production by £1,250,000 a year. Mr Holland said imported dress materials would be 20 to 25 per cent, cheaper, but already there was a subsidy on clothing amounting to £BOO,OOO. Imported fruit and foodstuffs would be cheaper, but not locally grown produce. There would be an insignificant change in tobacco and cigarettes, and no change in the cost of furniture. Crockery would be cheaper. Cqsts should be reduced substantially on motor-cars and machinery, but the tendency of

world prices was to increase still further. Price Of Petrol Exchange applied only to the actual cost of petrol and freight, which amounted to a total of lOd a gallon in the total retail price of 2s 9id. Whatever reduction there might be would probably be offset by an increase in overseas costs of Id a gallon. The gold industry would face a big cut in- income, and it was feared many of the claims on the West Coast would cease operations. The New Zealand tourist industry would be hard hit, especially in view of Australia’s refusal to follow the 1 New Zealand decision to lift the exchange rate. He thought the reduction in the selling price of imported motor tyres would be about £2, but could the new tyre factories which were to operate in New Zealand meet that new competition or were English tyres to be locked out? Competition From Australia New Zealand already had an adverse trade balance with Australia of £10,000,000 and stood a very good chance of losing what trade it had. He considered that the effect of the change would be to make £15,000,000 worth of Australian goods cheaper and easier to sell in New Zealand and to make £4.000,000 worth of New Zealand goods dearer and harder to sell in competition with Australian industries. - Whatever might be accomplished by exchange adjustment could and probably would be cancelled out by inflation, said Mr Holland. The gap between income and goods available could be bridged by increasing goods, stopping the creation of more money and using what we had, promoting efficiency in local industry, instituting incentive schemes, bonus and profit-sharing systems, and initiating incentive taxation concessions. The Government had done nothing about curbing inflation, mainly because the Labour Party had not agreed to piece work, incentive payments, or other schemes unless by agreement between the union and the employers. 'MINISTER GIVES REASONS FOR CABINET DECISION (P.A.) WELLINGTON, August 24. The decision to bring the exchange rate back to parity had not been forced on the Government by any individual or group of individuals, right, left or centre, said the Minister of Industries and Commerce (Mr A. H. Nordmeyer) in the House of Representatives this evening, when he followed the Leader of the Opposition (Mr S. G. Holland) in the Budget debate. Mr Nordmeyer said excess purchasing power developed during, the war made it essential to continue anti-inflationary controls. The very existence of the dairy and meat industry accounts and the accumulation of funds in them was a temptation to many to seek access to those funds, and the announcement of higher produce prices had been swiftly followed by a demand for a pay-out to farmers which would have swallowed most of that increase. Had this been agreed to all sections of the community would have joined in the scramble for a similar addition to their incomes, and the results, in higher prices would have negatived any increases granted. The rise in prices in spite of price control had been most severe in imported goods, over which the Government had no control until they were landed. If further steps had not been taken the deiwand by all sections of the community for higher monetary incomes would have become irresistible. The Government therefore decided on a course far less perilous than that of giving way to the demand for higher incomes for all groups. Import control would be used to protect local manufacturers, fl here was an ample field from which to select goods without exposing them to dangerous competition. The country was never in a better position to stand the inevitable dislocations which must follow an exchange adjustment. What ill-effects there were would have arisen whenever appreciation was undertaken by whatever Government. As some people profited from' the opposite step in 1933, it was only right they should bear some of the burden of the present adjustment.