RECORD AND GROWING PRODUCTION YEAR, HIGH WAGES AND NATIONAL INCOME, CAPITAL EXPANSION, SHOWN BY BUDGET

Grey River Argus, 19 August 1949, Page 5

RECORD AND GROWING PRODUCTION YEAR, HIGH WAGES AND NATIONAL INCOME, CAPITAL EXPANSION, SHOWN BY BUDGET

BENEFITS INCREASED, INCOME TAX CONCESSION AND FARM EXPORTERS WELL SUBSIDISED

WELLINGTON, August 18

The Financial Statement was to-night delivered to Parliament' in Committee of Supply by the Kight Hon. W. Nash, Minister of Finance. He said: ‘The financial year that has just passed has been one of general buoyancy and success. There has been a comfortable surplus in the Public Account. Economic activity is at a level higher than ever before, as is manifested by the state of full employment, the record volume of total production which is steadily increasing—high levels of wages and national income—and capital development which is proceeding at a rate commensurate with other fields of economic progress. Our standard of living, which is reflected in our records of health, education, and culture, is among the highest in the world. While our community cannot show many examples of superabundance of "wealth in the hands of single individuals, yet, on the other hand, there is no poverty or want.

Rt Hon Nash was warmly applauded when he completed the presentation of the budget, after nearl?/ two hours. Apart from an occasional facetious remark, there were few interjections throughout the evening. The galleries were well tilled. There were only one or two vacant seats when the House met, and Mr Nash crossed the floor of the House in the customary manner, to present a copy of the Budget to the Leader Of the Opposition, Mr S. G. Holland, before beginning to read it. There were women in the galleries. They included twelve knitters and one engaged in tatting. They all appeared to follow Mr Nash attentively. A portion of the budget which caused obvious interest on Opposition benches was a reference to possible dollar loans from the United States and Canada. Mr Nash resumed his seat at 9.20 p.m. Mr F. D.oidge (Nat., Tauranga) said “Swan Song” while the Government members warmly applauded the Minister. When Mr Nash concluded the House adjourned at 9.27 until 10.30 tomorrow. After his opening remarks Mr Nash continued: — , ti , , These satisfactory conditions have resulted mainly from our own efforts in the production of goods for our local needs and for export. It should be remembered, however, that New Zealand has been among the fortunate minority of nations whose production facilities and property were not seriously damaged by the direct effects of war. The war did adversely affect New Zealand in a variety of ways; and that those effects have not even yet been entirely overcome. The payment of interest on the public debt incurred during the 1939-45 war must continue. Shortages, mainly in the sphere of capital goods, still affect progress to some extent. Within our own economy, and in all overseas countries, the wastage of production in war inevitably engendered inflationary pressures. It is clear that, while some difficulties remain, New Zealand has now progressed, especially in terms of goods available, beyond the levels of pre-war years. It can be said, too, that the inflationary pressures consequent on the war have receded to some extent, both at home and overseas. By its policy of stabilisation of costs and by price and other essential controls, the Government nas achieved the highest practicable degree of economic equilibrium. It has not been possible to avoid all effects of external conditions in view of the fact that approximately one half of our production and consumption is involved in overseas trade. However, on the evidence of the success of the stabilisation policy, it is obvious that New Zealand is not inevitably bound to follow completely all economic fluctuations in the rest of the world. It should be stressed, however, that a contributory factor in the present conditions of prosperity has been our ability to sell overseas, at profitable prices, a large proportion of our production. A sense of security, and faith in the continuance of the present satisfactory conditions can be justified only by careful forethought, collective endeavour, and the will to work. . Developments overseas, particularly during the past few months, indicate that the principal countries of the world are now moving from the postwar era of inflation into a period of re-adjustment. The needs of war and the deferred demands after the war had built up what seemed to be an insatiable market for production. Consequently, the seller remained in a superior position until a few months ago. Prices had risen and employment remained at extraordinary levels. With the satisfaction of deferred demand and the return of millions of war-workers into civilian employment it was inevitable that the markets should change in favour of the buyer, that prices should recede and that employment should to some extent decline.

There is every reason for believing that wise financial administration by the Governments concerned will ensure that the readjustment is beneficial, and that they will not allow the position to grow into a major recession. INTERNATIONAL TRADE The war which concluded four years ago accentuated a change in the pattern of trade which had been developing from the beginning of this century. Western European countries, which had traditionally been the main exporters of food and raw materials and the main exporters of manufactured' goods had, even before the war, met with increasing competition, especially from the Western Hemisphere. The war hastened the trend, the completion of which may otherwise have taken many more years. Most of the participants in the war suffered violent disruption and destruction of productive resources. Many of them were obliged to draw on their reserves of gold and convertible currency, and to sell their overseas investments, the interest from which had previously assisted them to bal-ance,-their overseas receipts and payments. On the other hand, a few countries relatively unscarred by the war developed their levels of pro-, duction to unprecedented heights. With the close of the war, the devastated countries could only look to those few fortunate nations for vitally needed goods. At the same time, those who most needed imports could

not produce sufficient exports to pay for them. The dollai’ shortage has arisen directly from those causes. In the meantime, a way had to be found by which the Western European countries could be saved from economic ruin and political disruption. Co-operation among the affected nations was necessary _ and promises to be highly beneficial, but without assistance from the Western Hemisphere, no efforts, however strenuous, could be successful. From the end of the war up to June, 1947, the United States had provided by loans and other means approximately £5,000,000,000 to assist the rest of the world. In 1947, the United States announced that it was prepared to give a further sum—up to £5,000 million—towards European recovery, over a period extending to 1952,

The results of this most generous and unselfish act have already been notable. With the assistance of Marshall Aid, production in Western Europe, and particularly in the United Kingdom, has been substantially expanded during the past year. The aid from the European Recovery Programme cannot, of itself, solve the economic problem of the Western European countries. By severe restriction of imports, especially from hard currency areas; by the expansion of production and exports; and by an increasing volume of intraEuropean trade and financial payments, the beneficaries are striving t,o play their part in the achievement of full recovery. It is now evident that this recovery cannot be completely attained by the end of 1952, as was originally hoped. With the prevailing economic conditions, particularly in the United States, it has been increasingly difficult to expand or maintain present exports to the hard-currency markets;

The difficulties which the United Kingdom is now experiencing have significant effects on the whole sterling "area, of which New Zealand is a member. Dollar receipts from exports by sterling area countries have decreased to such an extent that the gap between receipts and payments of dollars is now too great to be covered by E.R.P. payments. The deficit has fallen on the slender gold and dollar reserves of the sterling area, of which the United Kingdom is custodian. If the present rat e of decline of these reserves continues, they will be exhausted within twelve months.

It is vital that this should not occur, lor such a development would severely impede the functioning of the sterling area system, and the achievement of multilateral trade for the world as a whole would be drastically retarded. The drain on the gold and convertible currency reserves of the sterling area must be arrested. To ensure the continuity of operation of the sterling area system, these reserves must be built up. Urgency therefore dictates that sterling area countries must achieve an immediate increase in earnings from exports to dollar countries; and that sterling area countries must carefully reveiw their imports from hard currency sources. MINISTERIAL CONFERENCE—DOLLAR DIFFICULTIES The whole problem was the subject of discussions in London on July 8,9, and 10 between the United Kingdom Chancellor of the Exchequer (Sir Stafford Cripps), the President of the Board of Trade (Mr Harold Wilson), the Secretary to the United States Treasury (Mr John W- Snyder), and the Canadian Minister of Finance (Mr Douglas Abbott). At the conclusion of this meeting, a communique was issued giving a general outline of the discussions, the main points of which may be summarised as follows:— (a) Particular stress was laid on the necessity of finding solutions which would maintain high levels of employment and enable world trade and international payments to develop on a multilateral basis. (b) The aim must be the achievement of a pattern of world trade in which the dollar and non-dollar countries can operate within one single multilateral system. (c) The general approach to existing problems must be based upon full recognition of their profound and long-term character. (d) The difficulties were an aggravation of deep seated maladjustments; and remedies other than financial assistance from Canada and the United States must be explored. (e) It was proposed that fact-find-ing discussions should take place between the three Governments in preparation for a further meeting of Ministers at Washington in September next.

(f) The necessity for action to meet imnjediate problems was recognised, but no suggestion was made that sterling should be devalued. At the conference, Ministers were present from the United Kingdom, Canada, Australia, South Africa, India, Pakistan; Ceylon, Southern Rhodesia, and New Zealand. Meetings continued between officials for some days subsequently, and it was arranged that there should later be continuous consultation and exchange of information at the official level between Commonwealth representatives in London. It was agreed that the Commonwealth Liaison Committee, which has been functioning in London for some time in connection with the European Recovery Programme and related mat-

ters, would be an appropriate body to undertake such work. The crisis was precipitated by a sharp fall in United States imports, brought about mostly by a decline in business activity in that country. Owing to a fall in sales to the United States the reserves held in dollars and gold by the United Kingdom on behalf of the sterling area were decreasing so rapidly that immediate action to stop it was essential. On the best information available it appeared that dollar earnings during 1949-50 would be sufficient for 75 per cent, only of the value of imports from the dollar area during 1948. Great Britain took immediate action to reduce imports accordingly, and the New Zealand Government has agreed to reducing its demand upon dollar resources by reprogramming of imports and where appropriate by other means. It is obvious that cutting down imports might retard the achievement of the longer range objective of a balance based on full employment and a high level of multilateral trade. It was, therefore, strongly urged on behalf of New Zealand that everything possible should b e done to meet the immediate problem by increasing dollar earnings and where appropriate by borrowing dollars. It will be generally agreed, that without interfering with essential food supplies to Great Britain, New Zealand could make a contribution to the dollar pool. I am confident that an appreciable proportion of our contribution can take 'the form of increased dollar earnings. Special measures will therefore be taken to increase exports to the United States and Canada and to ensure that we obtain the benefit in dollars from such exports. At present we are losing dollars through operations in New Zealand goods in free sterling markets by dealers in other countries. To the extent that we need to import essential requirements, particularly for capital purposes, from Canada and the United States, consideration will be given to borrowing dollars provided loans can be obtained on reasonable terms and conditions. It was recognised at the conference that a permanent solution could be found only in a world-wide pattern of full and productive employment such as would make possible a selfbalancing system of international payments. This involves the development of the agricultural and industrial resources of the sterling area and in‘fact of the whole of the nondollar world to provide more primary products and manufactured goods for supply at competitive prices to dollar markets and to other markets at present abnormally dependent upon supplies from dollar countries. Developments in many countries and particularly in undeveloped countries are held up by lack of capital. Dollar countries could hasten a permanent solution of present difficulties by encouraging international investment in productive enterprises by their citizens and through national and international institutions. In the past such an investment policy consistently pursued over many years by Great Britain was a powerful factor in the development of the British Commonwealth and also of the United States and other countries. Countries in the dollar area can also assist by maintaining a high level of employment, income and demand in their territories and by facilitating and encouraging the purchase of goods and services from other countries.

For their part the Commonwealth representatives at the conference agreed that what was necessary was the speediest possible increase in efficient and economic production and co-operation to secure the most effective use of the. resources available to the stealing area. This should be combined with an expansion of sales in dollar markets with special attention to prices, selling methods, and market requirements and more intensive efforts to increase dollar earnings from services of all kinds including tourist services. With its natural attractions New Zealand should be able to earn more from the tourist trade and this matter is being fully explored. Organisation and co-operation and the assistance of capital can be powerful aids, but in the long run every country must earn its own standard of living by greater and more efficient production. All our efforts should be bent in this direction. THE DOLLAR DIFFICULTIES The Government is satisfied that recessions in trade cannot b e avoided by purchasing less from any given country. The objective should be to sell more. Price adjustment can best be achieved by increasing efficiency rather than by curtailing costs by wag e reductions. The permanent solution of the present problem can be achieved only by expanding demand and increasing ffiultilateral international trade. Raising of loans in the surplus countries for productive purposes is the best method of overcoming the immediate difficulty. Loans should be made available on reasonable terms to the buying countries by the surplus countries. The Government has instituted inquiries as to the availability on reasonable terms and conditions of loans from Canada and the United States. _ The immediate and long term solution is the expansion of production and of exports to Canada, to the United States; and to other dollar countries, and the raising of loans to meet the present deficit between exports to and imports from those countries.