SWEEPING PROPOSALS

Hawera Star, Volume L, 14 February 1931, Page 5

SWEEPING PROPOSALS

Economy Measures By Government TEN PER CENT. CUT FOR CIVIL SERVANTS Increase in General and Income Taxation Removal of Railways from Political Control The Prime Minister, the Rt. Hon. G. W. Forbes, issued last evening his expected statement on the general economic position of New Zealand and his proposals for meeting the situation. Faced with a probable deficit in the current year of £750,000, exclusive of earthquake expenditure, and a. prospective deficit of £4,500,000, in tiie coming financial, year, 1931-32, Mr Forbes has decided that expenditure must be reduced. This he proposes to do by a cut in all public service' wages and salaries of 10 per cent., thus saving £1,500,000; and by making economics in education expenditure, dcpoliticalising the railways, and making adjustments in lespect of war reparation moneys and the Highways Fund, so as to yield an extra £1,250,000 for the Consolidated Fund. These economies and adjustments taken together , are expected to save £2,750,000. The remainder of the shortage is to be made up by higher postage rates, giving £900,000, and increased income tax and possibly indirect taxes, providing £850,000. The public service cut will include Cabinet Ministers, M.’sP., all permanent officers, temporary employees, and overseas officers. Men on Public Works will be paid at the rate of 12/6 a day, a rate that will apply also to married relief workers. Single men on relief works arc to receive 9/- a day. The Prime Minister further says that the general reduction of costs cannot be achieved if the cut is confined to the public service and the Arbitration Court is, therefore, to be empowered to review existing awards. A special section of the statement is devoted to farmers’ finance and an appeal made to mortgagees and stock and station agents to meet the position in an “equitable spirit,” Mr Forbes stating that the State lending institutions will follow the sympathetic and reasonable line of action he commends to private lenders. The Government again warns creditors against any attempt at exploitation of the extraordinary situation and undertakes to set up adjustment commissions to assist parties in reaching an accommodation. A commission is also to inquire into the heavy cost of local government with a view to its reduction. The Prime Minister concludes with an appeal to other political parties and to the whole community for support and co-operation in carrying out the programme outlined so as to ensure a return of prosperity to the Dominion.

(Government Memorandums ■ WEiLLINGTON, Feb. 13. The accounts show that the revenue oi the Consolidated Fund lor the first nine months of this financial year amounted to £14,868,276, compared with £16,338,212 for the corresponding period of fast year, a decrease oi £1,4611,936. The main contributory cause of thii decrease in revenue is the comparativw decrease oi £4,220,(M) in the interest on the railways capital liability, k A falling-on: for. the financial year of approximately -x, < oU,UUO was allowed foi m the midget, based on tfie iact that the accumulated fosses oi the past having exhausted the railway reserves the interest that could be paid this ixnanciaf year would have to be decreas edi by the amount oi the Joss ror ths year. As explained in last year’s Budget, the prospective decrease in the interest item was much greater than £750,000. but was reducea to this figure after allowance had been made ior the possibilities of increasing the railway revenue and decreasing the expenditure. In recent months, however, notwithstanding certain increases in freight and fares ,the railway revenue nas .shown a considerable falling off and it is now clear that the amount of interest that can bo paid to the Consolidated Fund this financial year will fall soma hundreds oi thousands short of the Budget estimate.

prospects were reviewed after the close of tne half-year. The supplementary estimates were, therefore, restricted to the unusually low total oi £123,000, against £24b’,000 allowed for them m the Budget. Steps were taken to augment the revenue as much as possible in other directions and a close control oi expenditure was instituted. It was thought at the time that these measures would meet the situation and enable the accounts to be balanced, but since then with most startling sudueliness mere nas occurred an unprecedented fail in the prices obtained for our primary products, involving the loss ox many millions in the national income. and the resulting sharp contraction in business, coupled with exchange rates raised to heights previously undreamt of m this JDommion, has led to a failing on in imports and Customs revenue beyond all expectations. Close budgeting under such abnormal conditions is very difficult, and, in tact, almost impossible. As indicated abovu, the* sudden change in economic conditions lias also had a marked effect on railway revenue and, must inevitably affect, practically every item of revenue. it very effort' has been made, and, needles's to say, will contmue to be made, to reduce the net shortage to a minimum, but with the finances already strained in an endeavour to cope with an unexpected shortage in Customs there is no possibility of also making good tlie anticipated large shortage m railways interest. Consequently, nothwitlislanding the sacrifices the people wore called upon to make and the steps taken by the Government to balance the Budget. I regret to say that the position as 1 now stun it up indicates that the financial year whl close* with a deficit which may possibly reach three-quarters* of a million, without taking into consideration any expenditure which may be incurred this financial year out of the Consolidated Fund on account of the earthquake. While it is not a matter that directly concerns the Dominion ,it may be* added that most other countries affected by the slump, including Great Britain, tile United States and Canada, appear tq be suffering from similar financial troubles, and national deficits are already announced for this year in | these and many other countries. ECONOMIC POSITION AND OUTLOOK.

THE; CUSTOMS REVENUE. The Customs revenue for th© nine months jvas approximately* £743,000 less than for tlie corresponding period or last year, but the position is not as bad as this figure would indicate, as a decrease of £367,000 was allowed for in th© Budget. Still, on a proportionate Dasis the receipts are nearly £350,000 short, tnd as imports continue to snow a io-.avy lulling off, particularly in luxury items, where the duty is highest, it is not anticipated that th© shortage will be made* good before March 31. The large deei'eases referred to were partly offset by a comparative increase ot £IIO,OOO under tbe heading of stamp and death duties, but this was anticipated and allowed for in the Budget. J’he revenue from petrol tax, tire tax, and duties and licenses on .noror y«-

hi Ices- shows a comparative increase pi £265,600, but at present this revenue r- passes automatically to the Main Highways Account and the local authorities, i and thus will not affect the resait ci the Consolidated Fund on the expenditure &ido. The nine months’ figures snow the following comparative results: PERMANENT APPR OPRIATIONS. 1930 1929 Decrease £12,854,477 £13,205,860 £351,383 ANiN U AI, APPItOPIM ATIONS. £5.526,088 £5,652,760 £126.672 TOTALS. £18,380,585 £18,858,620 £478,055 The published accounts in the new form show clearly the position in respect to the various items concerned under permanent appropriations. There was a comparative increase of £130,000 for debt charges, but this was expected and was allowed for in the' estimates under special Acts. DECREASE IN EXPENDITURE. The expenditure .showed a net decrease of £480,000, due mainly to the transfer of the charge for subsidies to local authorities to the main highways account and the cancellation of the subsidies on branch lines of railway Pensions show an increase of £72,000. The annual departmental votes, as a whole show a net comparative decrease of £127,000 for the nine months, the chief contributing votes being defence and naval defence. Increases arc shown lor education and some other votes, but generally the returns indicate that the vote expenditure is being kept within the curtailed estimates for this financial vear. . . . To sum up the position the results for the nine months clearly indicate 1 T that the, revenue for the financial year is we'll below the Budget estimate. In regard to Customs revenue I may say that the probability of a shoitage in this item was disclosed: when the

J_t is now practically certain that the value of our exports for this financial year will show a falling off of over 20 per cent, as compared with the returns received, for the' previous year. It would appear that prices have now reached bottom; and while apparently no one can speak with any degree of certainty as to the future course of events, ’ there is no indication that there will he any marked recovery in prices, although it is hoped that there wil'i be some movement in that direction. In fact, economists in all countries seem to be in agreement that prices in the world’s markets will remain permanently at a lower le-vel than wo have been accustomed to in recent years. Under these circumstances we cannot count on the value of exports being appreciably more next financial year than for this year, imports, of course, must also contract to the same extent, and generally it would appear that the Dominion has no option but- to adjust, its affairs to a. permanently Mower level of prices. That is the basic fact which has to he faced. It will be apparent to all that if our income has decreased many millions, with every indication of continuing at a low level, our whole economic structure adjusted over a period of years to the former high level is now top-heavy and cannot be- maintained. That is to say, the present level of values wages prices, and costs generally cannot be supported on the reduced income. Everything has to come down to the new level. There is no escape, from that .and if tlie inevitable adjustments are not made now it ■will not be long before the structure will lx l brought down by its own weight, in which case the loss and suffering involved would lie greatly accentuated. On the other hand, if steps are taken now to make the necessary adjustments in costs it is hoped that it will not be

long before the economic machine will accommodate itself io the. new basis, with the reductions in costs offset by a reduction, in the* cost of living. The Government aoorilingly proposes to deal with the situation in a comprehensive manner but as complete unity of action throughout the Dominion is essential to the carrying through of what in any case will prove a difficult matter. I appeal to local authorities and public institutions and all private: firms to follow the lead of the Government and so hasten the process of readjustment.

PROSPECTIVE BUDGET POSITION. So far as the public finances are concerned, the economic situation will undoubtedly mean a large shrinkage in the revenue next financial year. A oompartivc falling off of from 20 per cciit. to 2o you cent, in tlie value of imports is liltely I<> lower Customs revenue bv an oven greater proportion, as the lalling off is 'likely to be heaviest in the luxury items, where, generally speaking, the rates of duty are highest. .In view of the* uncertainty as to prices and the exact effect of the slump and the high exchanges on external trade it is admittedly very difficult at this stage to forecast the amount of th© Customs revenue for tlie next financial year, but, having regard to the circumstances, it is considered that a falling off of about £2,000,600 is likely in comparison with the amount budgeted for this financial year. In regard to income tax, winch will be bused on th© trading results for the current financial year it is obvious that a substantial decrease is to be expected as in the case of Customs. The extent of that decrease is a very difficult matter to guage*, but on the best information at present available' it is estimated at about £500,000. Then there is the ..item for railway interest in respect of which the experience of the last few' months clearly indicates that the amount that can be paid will be considerably loss than the £1,380,000 allowed for’in th© present year’s Budget. In the next financial year additional benefit is to* be expected from the fact that the increase in rates and fares, and from the economies recently effected, will operate lor a full year, but against that a- further ['allin rr off in the volume of traffic is considered to be practically inevitable under the present economic conditions. It anticipated that tlie comparative decrease will not be far short of £500,000.

The totalisator revenue, and to a lesser extent the amusement tax, ana other items of stamp revenue are already being adversely affected by the slump, and accordingly, having regard to the present economic outlook, a comparative decline estimated at about £300,000 is to be expected under the heading of stamp and death duties next financial year. . , . , All the other items included ni tne revenue of the* Consolidated Fund have also been carefully reviewed, and the prospects in regard to each weighed in the balance. Practically all of them are expected to be adversely affected, although the falling off is naturally greater in som© than in others. _ The total shortage in the meantime is set down at about £300,000.

POSITION OF EXPENDITURE. i*ne position in regard to expenditure is still being reviewed in detail by the economy committee set up by tne government ipr this purpose as soon as tbe iiresent trend of affairs, in public finance became apparent. This committee is painstakingly investigating each departmental vote in turn, with a view to effecting all possible reduetons consistent with, the mantenance of services considered necessary for the welfare of th© community.

In view of th© fact tnat this financial year will end in less than two months, the work of the committee can have little effect on this years’ finances, but it will be extremely valuable when the Eestimates for next financial year are 'being reviewed. In this connection I would like to istate that every effort was made this year to obtain the maximum of administrative economy, and if further reductions of expenditure are to be obtained —and I think it will be generally agreed that this is essential under the present conditions —it can only be done by eliminating or curtailing some of the services at present supplied by the State either free or below cost. That is to say, some of the monetary grants at present given on work done by the departments below cost will have to be reduced, or perhaps entirely stopped. In private life most of lies, hi hard times have to forego many desirable things because wc cannot afford them, and the same economic laws apply to the State, which, of course, is merely the people as a corporate body. To return to the prospective Budgetary position, next financial year’s expenditure will be increased by about £200.000 under the heading of debt charges, which is a rigid item where expenditure of capital for developmental purposes is necessary. Then provision will have to 'be made for the usual automatic increases in pensions and the cost of the general election, and for a new item of about £600,000 in subsidies payable under the provisions of the Unemployment Act. Thus, on the present basis of expenditure for th© departmental votes and the remainder of the items payable under special Acts of Parliament —that is. without making any allowance lor any other possible increases hut eliminating certain non-recurring items — there would be a comparative increase in expenditure next vear of at least £900,000.

To sum up the prospective budgetary position for the next financial year, all the information at 'present available indicates that the Government and the country are faced with the formidable problem of providing in on© way or another for the following before next year’s Budget can bo balanced:

ing from the reductions in the salaries ami wages of the general public service, including teachers, directly chargeable in tlie Consolidated Fund, together with the benefit, to be derived from similar reductions to be made in tlie railway and postal services, and from the reduction in the amount of subsidies payable to public bodies. In addition, as' a result of the_ work of tlie economy committee, it is anticipated that further substantial reductions can be made in expenditure of the Consolidated Fund and the railways apart from tlie proposed allround reduction in salaries and wages.

In regard to expenditure on education I may say that the Government intends to set up a special committee to investigate fully the financial side of this important social service which, including the debt charges on the loan expenditure on buildings, is at present costing (lie Dominon about £4.500.000 nor annum, which is too heavy a burden on taxation under present economic conditions. It is lioped that this committee will he able to find ways of making large savings without in anv way lowering the standard of education. As to the railways, the Government has decided to give effect to one of the main recommendations of the Koyal Commission of Inquiry and place this national transport system under the control of a non-political hoard of directors as a temporary measure for one or two years.

Further relief for the Consolidated Fund is to be obtained by utilising the reparation moneys received from Germany for debt repayment purposes as part of the provision required under tlie general repayment of the public debt system. In this connection it. may he explained that at present the reparation moneys as received are applied in the reduction of the war debt in addition to the repayment of debt effected under the funded debt agreement with the British Government and the cumulative repayment of the public debt system. The proposal is that for a year or two the reparation moneys shall form part of the financial provision required for the latter instead of being additional thereto.

FINANCE OE HIGHWAYS. Another matter that will have to be brought under review is the present arrangement concerning highways finance. It will he remembered that last session, as part of the_ adjustments made in connection with the finances for the current financial year, portion of the roading costs previously payable out of general taxation was transferred to the highways account, and the petrol tax increased by 2d to cover the cost of tlie additional items in order that the amount made available for highways expenditure should not he diminished. Even so, in view of the difference of opinion about* the matter and in regard to the allocation of part of the petrol tax to local authorities. the amending legislation was made operative until August next only, and an undertaking was given that the whole question of highways finance would he investigated before that date by a Parliamentary committee. This undertaking will he given effect to. but it will he apparent to all that tlie highways finance* cannot be considered apart* from public finance generally'.

At present the whole of the proceeds from Customs duties on petrol and tyres, together with certain license fees and fintte. etc., are earmarkd for roading expenditure, but circumstances have changed considerably since those arrangements were made. In principle the earmarking of any tax for a particular purpose is unsound, and the amount which the community can afford to spend on roacls is a. matter which, should be determined in relation to the relative urgency of all the other calls on the public purse and the financial position of the country generally. As it is. the relief to general taxation through transferring the charge for subsidies to local authorities and sundry other items to the taxation earmarked for highways will certainly have to he continued, and in addition it would appear that the serious position of the public finances gene rail v will vender it necessary to make other radical changes in relief of general axation

The earmarked revenues are at present more than sufficient to cover the maintenance expenditure on highways. The reduction in expenditure apart from salaries and wages and the various adjustments that T have re-, ferrod to will, it is estimated,_ improve the position of the Consolidated Fund to the extent of about £1,250,000. It is proposed to obtain further assistance towards the Budgetary shortage by increasing the _ postal rates. The additional revenue is estimated at about £900.000 per annum to come to* the Consolidated Fund.

INCRIEA'SUD POSTADE RATE. The Government recognises that the Id postage has been an incentive to business generally, and it is with muclf regret that this proposal is brought forward. At the same time it is felt 1 that it is the lesser evil in that it is preferable to increase [postage rates under the present circumstances than to impose heavy increases in taxation in other directions and thereby hinder a revival of business to a much greater extent.

Some increases in general taxation will, however, be necessary to make up the balance of the anticipated shortage of £4,500,000. Part of the additional amount required the Government proposes to obtain from income tax, which is not only the most equitable form of taxation, but also the one that has the least effect upon working costs. Detailed proposals or an amended schedule of rates have not yet lieen worked out. In addition to income tax it is quite probable that some increases will have to be made in indirect taxation, but the Government is anxious to keep such increases as low as possible in order that the cost of living and working costs of the primary producers and of business generally should not be thereby increased.

SHRINKAGE IN REVENUE. | £ Customs 2,000,000 Income' tax «00.000 Railway interest i,™ Stamp revenue 300-080 Other items 300,060 Total £3,000,000 increases IN expenditure. Debt charges rOOOOO Other items JOO - (HJ<) Total £9Wm Total shortage 04,500,000 That is the position as far as it can he estimated at this stage,-and I. have taken the earliest opportunity of laying the facts before the country, being confident that the people will accord the Government that measure oi cooperation and summit, which is necessary if the position is to he met and the' Budget balanced by means that will assist rather than retard the general economic recovery of the Dominion. , Ti ! To balance next year’s Budget towards meeting the prospective Budgetary shortage'of £4.500,000 flic reductions in salaries and wages by 10 per cent ns mentioned elsewhere, it is calculated. provide nearly £1,500,000. This amount includes the saving aris-

The recent disastrous earthquake- in Hawke’s Bay will undoubtedly mean heavy additional expenditure on the part of the State, but until more definite information is available as to the losses that have been incurred and the restoration plans are more advanced it will not he possible to even approximately estimate what the eost to the State’will he. Under these circumstances it is obviously not possible for me to indicate at present in what manner the State’s share in the restoration work is to he financed. In the meantime no allowance has been made for earthquake expenditure _in this survey of the Budgetary position for next fin finical year, and any reoiiirenicnts out of the Consolidated Fund on that account will increase the prospective shortage. Provision will bo made accordingly. To sum up the Government’s pro-

posals for balancing the next year’s Budget, it is proposed that the anticipated shortage of £4,500,000 shall be provided for in the following manner: Reduction in salaries and wages, £1,500,000. Reductions in other expenditure and financial adjustments, £1,250,000. Increase in postage rates, £900,000. Addition taxation (direct and indirect), £850,00. Total, £4,500,000.

GUARDING COUNTRY’S CREDIT. As indicated earlier in this statement, these measures for balancing the Budget have been chosen with a view to assisting also as far as possible the solution of the wider economic problem on which depends the maintenance of Budgetary equilibrium. The proposals are admittedly drastic, but it will be agreed that nothing but drastic measures will meet the serious position that has arisen as a result pf factors entirely beyond our control.

It only remains for us to face the facts resolutely and put our house in order. New Zealand has a great reputation for sound finance huilt up over a long period with balanced Budgets, and though we are now beset with many difficulties it is our bounden duty to safeguard New Zealand’s name by balancing the Budget. In any case, any temporary advantage or relief that might he obtained by doing otherwise would have to he paid for with compound interest in the future, and the not very distant future at that.

The experience in other countries since the war is eloquent testimony of that fact. In other words, the State must make ends meet sooner or later, and any delay in doing iso only makes the recovery increasingly difficult. Accordingly tiie Government gives the balancing of the Budget a paramount position in its policy, and while there may be a diversity of opinion as to how it should be done, I feel sure that the principle at any rate is heartily endorsed by every section of the community.

LABOUR PARTY’S ATTITUDE

MR HOLLAND TO REVIEW STATEMENT.

WESTPORT, Feb. 14. Asked this morning his view of the statement issued by Mr. Forbes, Mr. H. E. Holland (leader of the Labour Party) said on bcbailf of the party lie would make available for publication oil Monday a comprehensive review of the Government’s latest change of policy.