PUBLIC FINANCE

Hawke's Bay Tribune, Volume XVII, Issue 216, 26 August 1927, Page 6

PUBLIC FINANCE

BALLANCE TO MASSEY ILLUMINATING ADDRESS BY PROFESSOR B. E. MURFHY The Welsey Hall, Hastings, was filled last evening with a discriminating and intensely interested audience assembled to hear Professor B. E. Murphy deliver a lecture on public finance' in New Zealand, covering the period of the Ministries in power from Ballance to Massey, a subject which the epeaker dealt with lucidly, compactly and inrormatively, combined with a raciness and a delicious sense of humour, which endowed with a piquancy and flavour a discourse which, in the hpnds of less happy speakers, would have been a dry and unimpressive submission of facts and figures. He inspired his statistics with life and even with a fascination that held the attention of his hearers to the close. Mr. George Ebbett. who presided, introduced the speaker, who was received with applause and who in the course of his lecture said that probably most would agree with what he would say and possibly many would disagree, but those who disagreed could easily dispose of the nosition by saying that they were right and be was wrong. It was true that there were financial differences of policy in New Zealand, but. from 1891. a s fai as finance was concerned, there hail been no essential difference in the policies of the two parties in power Each party went in for borrowing, and it must be admitted that, in this, they had public opinion behind them It was a fundamental principle if every democratic Government to give the public what thev wanted, and if that was bad. well it was the fault of the public Seldom had one political party any more principle than another. THE PUBLIC DEBT. In 1891, the general Government owed 39 millions, in 1914 it owed 100 millions, in 1920 201 millions and in 1926 239 millions, and now it owed 245 millions In 1921 local bodies borrowed 6 millions, using to 61 millions in 1926. so that it could b» borrowed 6 millions, rising to 61 rapidty in recent years. The present gross debt was 300 millions and 100 rnifflons of that bad been put on since 1919. Absolute figures were no use unless compared Compare the debt in capital aspect with the asset’ pledged against it, in the sense that the debt was a lien on the national wealth, income and production. When a loan was raised abroad, the interest had to be found abroad and the produce was earmarked in London to meet the interest. Our exports went out and enriched other lands. The money borrowed in New Zealand was a burden to the Government but not to this country, because it was paid to ourselves—that wa s to those who lent the money. The Government must tax. but it was a matter it bookkeeping amongst ourselves. The gross aggregate debt in 1926 was 291 millions, of which 142.1 millions were held in New Zealand and 148.5 was held abroad. That was surprising, because most people thought that the borrowing abroad amounted to much more. It practically amounted co half borrowed in New Zealand ami half abroad so that the weight of the debt was less than was generally thought. To compare that with he assets of the country, as set out in last year’s Year Book the estimated public wealth was 282 millions, private wealth 7741 millions, making a total of 10564 millions. This, less the debt in New Zealand (142.1 millions! left the net national wealth at 914.4 millions, leaving the pro portion of the debt held abroad as 16 per cent. Figures were not available as to the amount of private capital borrowed from outside, but if was sn small that it would not seriously affect the picture.

NATIONAL ASSETS. This external borrowing did hot seem large, said the speaker, but one difference between assets and debts was that debts were facts that would not reduce themselves, whilst assets were not facts, but estimates which often depended on optimism which might exaggerate them fearfully. The national assets included railways valued at 53.7 millions, but no one knew their worth, the value of which lay in their earning power; forests and State lands were valued at 72j millions and immigration at three millions, whilst private lands were valued at 587 millions, capital value. It was difficult to regard the valuation of land as otherwise than conjectural at the present time, and immigration was not an asset at all, so that the main asset consisted of the land and its productiveness. The Government and local bodies had assets exceeding their debts. In 1926 the Government debt amounted to 239 millions and their assets to 247.7 millions, whilst, in the same year, the local bodies' debt amounted to 60 millions and their assets to 63 millions. Optimists might take too rosy a view of the position and pessimists would say. “Why, after three years of high prices, is the country up to its neck in debt.’’ But, after all. the borrowings were not anything like the wild-cat schemes they were believed to be, whilst the national assets were equal, if not greater, than the liabilities and the assets depended on the productiveness of the land. In bad times there was a scarcity of capital and the interest hardened in consequence, but the earning power, and consequently the value of assets, shrunk. When a loan was renewed the interest became higher by one per cent. It might be said that one per cent, was not much but one pet cent, on 300 million was a good deal

EXPORT PRICES AND INTEREST If the general export prices tended downwards and interest upwards, that increased the annual weight cf lhe debt, apart from further borrow, ing, continued Professor Murphy. In 1896 the prices dropped to bedrock, but the war altered the conditions and the prices rose up till 1920, : nd since then they had (alien rapidly. It was thought that they would stabilise at 50 per cent, above prewar prices, but they did not and if the fall continued they would get slowly down to the prices of pre-war dates, with the result that our weight would be getting heavier because of the hardening of the interest, and the prices of onr products falling lower. The proper basis of consideration was not the capital and debt aspect hut the income and expend' ture aspect. The notion of private capital had little relevancy to the funds and transactions of the State,

which were long-term businesses, while capital was only a stream of deferred income and its maintenance only a stream of expenditure. What mattered to the State was the annual charge for debt service and the annual revenue to meet it. WEIGHT OF WAR DEBT. Recently, said the Professor, the Hon. W. Downie Stewart, in his Budget, gave the following figures Interest on war dent 3.55 millions, interest on ordinary debt 7.05 millions, total interest 10.6 millions, less recoveries of income in respect ol loan items. 4.8 millions, leaving the balance met out of taxation 5.8 millions The extent to which the total debt was reproductive was 4.8 millions ,or 45 per cent, of the total of 10.6 millions interest. If the war debt was omitted, the non-war deb> would be productive of 68 per cent. It was wrong, however, to cast aside the weight of the war debt, because it led uninformed or careless people to ignore the war debt of 80 millions and write it off. The fact of 3.55 millions interest on the war debt should not be excluded. Incurring additional debt to repay a war debt did not make it any the less weight, as the Ministers seemed to imply War debt could not be converted mtn reproductive debt by the most versa tile financier. The debt was reproductive o n the Government’s own figures only to the extent of 45 per cent. ■ The speaker considered the question as to whether the borrowing policy was sound economically. He believed the policy was sound, and i. carried to a point of prudence quite a good case could be made for it. STATE PROPOSITIONS. New Zealand, said the speaker, was different from the settled and densely populated countries of Eitrope, which had their roads and bridges and other public utilities gathered in the centuries, and from America with a large accretion ot capital and a big population. New Zealand had not many wealthy men as wealth was computed, and in the earlier days the country wanted opening up and that open-up was difficult. It was impossible for the early settlers to do this out of then own resources unless reinforced with out,side capital, and if left to be raised by private persons, the rate of Interest would be ruinous. Surely it would be better to raise the aggregate required through the State, pledging the whole body ns security, and so raise a bigger capital, at a cheaper rate to promote costly works nhich would have been impossible otherwise. The State made for a uniform development of the country thus co-relatitig progress. Privately owned railways were a curse to any new country because they gave private enterprise a strangle hold over the people and so it was hette' that such matteis ns railways, roads, bridges, etc., should be owned an I controlled bv the State and that ’be people should have the arterial com munications in their own hands. Beside the State could undertake proposition? of a desirable nature, which would be too expensive, and the returns from which would be too remote, for the private capitalist who looked for orompt dividendThe St-ite could look for important though indirect, returns in the form of th" people’s welfare and in epenin - up the country, which would not attract a private lender.

BORROWING. Borrowing was justified, said Professor Murphy, provided it was raised for reproductive works. The question was whether they had gone too far or too fast. He would quote figures and his audience could decide for themselves. In the period 18911925 the increase in the population was 203 per cent., in capital value ol land 481 per cent., increase in exports 576 per eent., in Government revenue 681 per cent,, in Government "X-

pendituitf 652 per cent., in taxation 750 per cent., and the increase in the national, plus the local body, debt had increased 614 per cent., or tn three times as much as the popula tion. In 1913 the average tax was £6 18'2 and in 1926 it was £l6 6 7 or 236 per cent, in 13 years. In considering the growth of these figures thej must keep in mind the change in the value of money. In 1920 money had only half the pmchasing power it had in 191! and now an income of from £650 to £7OO would be necessai • to maintain a standard which in 1911 could be kept on £4OO. The value of money, now ever, was rising, which meant in creased weight of debt, because these figures did not fall but our produce, with which we pay our debt did. The growth was in part nveounted for bv the depreciation of the value <if money and bv war psychology brought about by the great outpour ings of wealth, which got people used to thinking in big figures and getting used to the spending of large sums thus breaking down our previous habits of caution and breeding ex travagance. without thought for the future, which was a great menace People wanted to “get things done.’ a cry which swept the country at Ltm last election (which Mr. Coates had disavowed, declaring that he had never gave utterance to the state ment). all of which meant borrowing and the spending of lots of money leaving posterity to pay. which was hardlv fair because they, like onr selves, would want to have things of their own done and they would have to carry this mill-stone round theii necks. In judging whether borrowin,.’ had eqne far enough or whethe' borrowing should go further, the l must consider if the works would ne reproductive: would projected raff ways be as useful, directly or in directly, as arterial lines of commnni cation: the possibility of duplication, esnecially in transport; the possi bility of causing depression through fixing capital in public works, buildings, power plenty etc., in advance of requirements or on too extravagant a scale for the country to stand at present: the diversion of capital from agriculture and industry to public works wa s already causing a shortage of working capital, especially for farming; where was the State to stop and was private enterprise to lie left no field? the depressing effect of over taxation on economic life; the future trend of interest rates (there were hints from London that borrowing was to he curtailed); the future trend of export prices: the probable prosperity of the Dominion (our exports and the earning value of public assets) ami could we live indefinitely, and provide employment on borrowed monev?—it could not be a permanent policy.

H A T.F-HF,A RTED CRITICISM There seemed to be an apathy existing at present in criticism of public finance, said the speaker Little was said about the Budget ami then the criticism was half-hearted. The politicians sold the goods and they had to impress the ordinary man, who yawned if they criticised

finance. Discussion on finance bored people and secured no votes. It would be idle to say that the papers and the politicians were not interested in public finance, but they did not trouble, because the people were not interested. The community dissatisfied with expenditure were mainly people with a stake in the country and, if th„y felt dissatisfied, they considered it was extravagant. The working men said that they had not their fair share of the wealth and when the democratic party gets into power schemes of taxation would be evolved for the mitigation of this disparity in the distribution of wealth. The Labour party, that was the Opposition, would not pull up the Government for what other people would look upon as extravagance. Another [joint of view was thai Ministers and members of the party in power might not agree with the financial policy, but the vote on the Budget was one of confidence or noconfidence and thev would have to vote with their party. They would have to be whole-hoggers and keep their mouths shut. Politicians were so placed that their criticism was tempered by their position. What was wanted was constructive criticism directed to principles and not persons. Another problem was the produc-. tivitity of the State undertakings and the tests of productivity were operating expenses, interest on capital, depreciation and maintenance provision for fair share of national and local taxation, reserve to cover fluctuations provision for services from othei Government departments and allowance for the advantage the Government got from the use of special powers. They must consider the duplication of services, and in this regard he instanced the case of the Eastbourne ferries and busses competing against each other: the Gisborne-Napier railway on which the Government spent millions, whilst Gisborne was borrowing for its harbour to take business from the railway and other bodies were borrowing to make roads to take money from both. There were 21 ports in New Zealand and 15 of them, in which he did not include the Napier harbour, hardly did enough to fill big liner. Tin's kept the railway revenue down and the big boats went round these harbours picking up small cargoes, which increased -he rates of freight. MUCH POOR. LAND, There was much poor land in New Zealand, said the Professor. The total area was 64.4 million acres, .lie unoccupied area 22.8 million acres occupied 43.6 million, unimproved (bush, scrub, native grass etc.) 25 million, and. of the remaining 18t million acres. 16.2 millions were down in permanent pasture and 2.4 millions were intensely cultivated. State and public bodies being elected by popular, vote were liable to employ public works funds to secure votes n s a sort of electioneering dole. This was openly done in Seddon's day but this fatal weakness had disappeared almost- entirely during th? past 20 years. There, however, existed a mqro subtle danger in the tendency of using public works funds for un-

employment relief works, especially in bad times when unemployment was rife, in order to tide over a difficulty. That was wrong and the circumstances, which were tragic, should tie met by other means, in his opinion by insurance.

CONSTRUCTIVE CRITICISM ESSENTIAL.

He concluded by saying that, at the present time, sound constructive criticism of the public finance was essential to prevent mistakes and keep the public debt within-navigable limits. A sound policy could not be pursued unless public men got strong support in carrying out a firm policy, and this they did not get. There must he much more criticism of public finance than had been the case for rears pasV. The speaker resumed his sent amidst continued applause and he was accorded a hearty vote of thanks by acclamation