Premier’s Budget Speech

Hawke's Bay Tribune, Volume XXII, Issue 250, 5 October 1932, Page 8

Premier’s Budget Speech

No New Taxation This Year

Deficit Will be Reduced by Half

Outlook Improves : Revenue Holding Up

In the House of Representatives last evening, the Prime Minister, the Rt. Hon. G. W.*Forbes, delivered his Budget speech- One of the most significant statements in the Budget was to the effect that the prospective deficit for this financial year would be kept within £1,000,000, as against the April estimate of £2,000,000, while it may be possible to reduce this figure even further if the country is “given a little acceleration along the road to economic recovery.” Mainly on account of the improved revenue it will be possible to dispense entirely with any additional taxation. It was revealed that the net gain by savings over last year’s expenditure totalled £2,355,000. The expenditure for the current year will be £22,507,422, as compared with £24,860,000 last year.

“In the absence of the Hon. Downie Stewart, who, as honourable members are aware, is at present furthqMng the Dominion’s interests in London, I have again to submit for the information of honourable members the annual review of the public accounts, together with a summary of the Government’s stewardship during the past year,” said the Prime Minister.

“During this period the ‘economic blizzard,’ as it has somewhat aptly been described, continued with unabated force, and its effects were felt in all parts of the civilised world, particularly in the primary producing countries. World prices continued to fall at such an alarming rate that confidence was shattered and trading became seriously disorganised and unprofitable, with a consequent large increase in unemployment, hardship and suffering. Unprecedented strain was imposed upon the financial and economic structure of nations, leading to large Budget deficits, colossal losses, together with depreciation of currency, defaults, and, in some cases, serious disorders. Even the financial bulwarks of Great Britain were not proof against the international storm, and that great nation was forced off the gold standard in September, 1931. Few indeed will doubt that the year 1931 will go down in history as a year of world-wide calamity. EXTERNAL TRADE. “As is usual in such, circumstances, primary products suffered most from the fall in prices. New Zealand was thus among the countries that had to bear the full brunt of the depression. As pointed out by the Economic Committee in February last, export prices for 1931 were about 40 per cent, lower than for 1929, and appreciably lower than those ruling in 1914. The result is that about 80 per cent, more exports are now required to meet our annual debt charges. Furthermore, import prices on a sterling basis have fallen to the extent of about 12| per cent, only, and the net result of these unfavourable movements is a real loss to the Dominion of considerable magnitude. Exports for the year ended June, 1929, amounted, in round figures, to £56,240,000, and for the year ended 30th June last to £35,547,000 Compared with the previous year (i.e.', ended June. 1931), this last figure represents a decline of £1,400,000 in value, or approximately 4 per cent., whereas during the year export prices declined by approximately 11 per cent This means that to some extent falling price* were offset by increased production, which is cause for some satisfaction. Imports for the same years were —1929, £46,510.000; 1931, £33,370,000; and 1932, £23,060,000. There has thus been a very heavy falling-off in imports, the striking fact being that imports for last year were only about half what they were in 1929—n0t only in value, but also in quantity. This has undoubtedly been an important factor in the increase in the number of unemployed. “Combine! with this drastic curtailment of the purchasing power of our exports, we have the major internal problem of the wide disparity between costs and prices. In the words of the Economic Committee, ‘The fundamental cause of the depression in New Zealand is the fall in export prices combined with the failure of other prices, including interest, rent?, wages, fees, taxes, and other payments for services, to fall in sympathy.’ CURRENCY REFORM. ••It has been suggested that the violent fall in world prices is due wholly to inherent defects in the existing monetary systems, and that by means of currency reform the whole of the present difficulties could be made to disappear. There is admittedly an absence of unanimity amongst the foremost economists of the world as to the precise causes and the relative importance of the factors which have given rise to the existing condition.,, but it is nevertheless generally conceded that the causes are numerous and not due to any single factor. Monetary policy and the maldistribution of gold are apparently important conttibuting items, but reparations and war debts, together with tariffs and other restrictions on trade, are also considered to be important and perhaps more fundamental aspects of the problem. What is of more importance at this juncture is the hope that monetary policy and easy credit conditions in Great Britain can be made a powerful instrument in assisting to bring about a rise in sterling prices for primary products. In this connection the announcement made at the Ottawa Conference that. Great Britain intended to pursue a monetary policy designed to bring about a rise in wholesale prices is of firstrate importance. With these prices lies the key to our prosperity. This faet is apparently overlooked by those who main’, in that the Dominion can avoid the depression by adopting var ious internal currency proposals.

BANKING POSITION. “Banking deposits for the quarter ended June last amounted to approximately £52,200,000 This amount is £4,800,000 less than for the June quarter in 1929, but £5,700,000 more than for the same period of. 1927. It is important to note, however, that whereas in 1927 only 47 per cent of the deposits were fixed, the percentage is now 68, indicating that the banking resources at the disposal of trade and industry are being used to a much less extent now than was formerly the case. Statistics of bank debits are not available for 1927, but it may be mentioned that in 1929 the weekly average of such debits was £22,000,000, against about £15,000,000 for the past year, a decline of 32 per cent in the turnover of money. In other words ample credit is available and what is lacking is the business confidence to make more use of it. “The immediate cause of the abandonment of the gold standard by Great Britain was the withdrawal from London of some hundreds of millions of foreign balances. As a result, and in view of the uncertainty as to the reactions which would follow the departure from the gold standard, the situation in the short-term market was delicate, and borrowing there became more difficult daily. “The Government, from the commencement of the crisis, was in close touch with the London authorities, and in December last advice was received that the short-term loan market could no longer be relied upon and that we must be prepared to finance all London requirements from New Zealand. I may mention that normally it was the practice to purchase each year sufficient London exchange to meet requirements in excess of the amount of the longterm borrowing. When the exchange rate rose to the present level, however, arrangements were made to utilise the short-term loan market in order to keep down the charges on taxation. At that time New Zealand Treasury bills were issued at rates as low at 2J per cent per annum. The intention was to continue this method of London finance until economic conditions improved, and no difficulty would probably have been experienced had it not been for the crisis in London. EXCHANGE POOL.

“That crisis necessitated an abrupt change of plans, and in order to ensure that ftlnds would be available to meet all commitments, including £4.000,000 of Treasury bills which were then outstanding, it was deemed advisable to arrange with the banks for the formation of an exchange pool. To meet all requirements in full, it was estimated that the Government would need £12,000,000 of exchange for the year, and local bodies about £2,000,000. Later, however, market conditions improved, rendering it possible to sell Reserve Fund securities without loss. In addition, a long-term loan of £5,000,000 was raised. In this way the Government’s exchange requirements for the year were reduced to about £5,000,000. “Under these circumstances, combined with a greater measure of stability in the position and the improved outlook for our external trade, the exchange pool was no longer required, and, as honourable members are aware, it was abolished as from July 1 last. The exchange pool was purely an emergency measure, taken in a time of crisis when it was impossible to forecast the trend of events. Under such circumstances, it was deemed advisable in the national interest to have the means of controlling the country’s overseas finance. BRITISH CONVERSION LOAN. “In the past twelve months Great Britain’s financial recovery has earned the admiration of the world, and, as, directly and indirectly, this recovery cannot, fail to react to the benefit of this Dominion, our interest in the matter is not detached. The latest evidence of th- financial strength of London is the successful conversion of £2,000 millions of 5 per cent. War Loan into 3J per cent, stock. The announcement of this gigantic financial operation caused the price of our 5 per cent, stock to increase from about £9B to £llO. The price has since declined to about 105, but has remained substantially above what it was prior to the announcement of the conversion. Influenced, no doubt, by the outstanding British success, many suggestions have been made that New Zealand should attempt to obtain some relief from loan charges in the same way. Tn our case, however, the conditions are by no means parallel. In the first instance, the British Government had the right to repay the War Loan, and, concurrently with the offer of conversion, gave notice of intention to do so at a time when the current rate of interest was very low. Only about £500,000 of our London debt falls due within the next two years, and the only option of repayment exercisable at, present is in connection with the £5,000,000 short-term bonds issued last year. “In so far as our internal debt is concerned, it may be pointed out that the amount held bv the public, amounts to approximately £60.000,000, of which nearly half consists of free-of-income-

tax securities. Further, as pointed out in the preliminary Budget delivered last session, the average rate of interest on the debt held by the public is only 4 7-8 per cent. The present market price of securities indicates that the effective borrowing rate is substantially above this level. Finally, very little of this debt falls due within the next year or so. Under these circumstances, it will be realised that the scope for reducing debt charges by means of conversion operations is very limited. LAUSANNE AND OTTAWA. “In addition to the financial recovery of London, the situation abroad has been materially improved by the achievement at Lausanne, where the matter of war reparations was, it is confidently hoped, finally disposed of. As reparations and war debts are generally considered to be one of the principal causes of the depression and one of the most difficult obstacles to surmount, the settlement at Lausanne is an important milestone on the road to economic recovery. “The Imperial Economic Conference at Ottawa constituted another such milestone.

“At this Conference agreements of a far-reaching nature were concluded between the various parts of the Empire. The actual details of the results achieved will be submitted later by my colleague, the Right Hon. Mr Coates, but in the meantime I may sav that, generally speaking, the purpose of the agreements is to promote interEmpire trade on a reciprocal basis. Provision has been made to ensure for New Zealand tariff preferences in the United Kingdom market for a further term of five years, and in many instances the existing preferences have been increased. In return for these concessions New Zealand has under taken, subject to ratification by Parlia ment, to consider certain revisions in her Customs tariff and has also agreed that United Kingdom goods will in future be exempt from the present surtax, and that as soon as financial circumstances permit the primage duty on United Kingdom goods will also be abolished. BANK. “Monetary policy and banking questions were prominent matters in the deliberations at Ottawa. The other Gov ernments represented at the Conference recorded their intention, insofai as it lay in their power, to co-operatc with Great Britain in a monetary policy designed as far as possible to bring abou and maintain, within the limits of sound finance, low rates of interest and easy credit conditions, togethei with stability of exchanges with sterling. “In New Zealand we have at present no central authority to co-ordinate our banking system, control credit and the exchanges, and generally provide a connecting link with the Bank of England and the central institutions in the other parts of the Empire. Accordingly, the Government has decided to bring down this session a Bill designed to provide for the establishment of a Central Bank largely along the lines recommended by Sir Otto Niemeyer in his report presented in this House in 1931.

WORLD ECONOMIC CONFERENCE. “Following Ottawa, there is shortly to be a World Economic Conference in London, as a result of which we may confidently expect a further decisive forward movement in the restoration of trade and also some recovery in the price-level. Further, if any measure of success attends the long-drawn-out deliberations of the Disarmament Conference it will provide another fillip to recovery. “In fact, the calamitous fall in prices now appears to have been checked, and at present the tendency is in an upward direction. A spectacular recovery is not to be expected—business confidence has been so badly shaken and trade too much disorganised for that—but if the movements which have already started continue it can safely be said that the worst is past and that we are on the road to better times. EMERGENCY SESSION. “In the meantime, efforts have been made to cope with our internal situation, and with a view to dealing comprehensively with the more pressing of our problems, as honourable members are aware, a special session of Parliament was called early in the year. During that session legislation was passed extending the protection and relief afforded by the Mortgagors Relief Act to include all forms of mortgages, and provision was also made for the relief of lessees in certain cases (Mortgagors and Tenants Relief Act, 1932), as it was fully realised that these sections of the community particularly were experiencing great difficulty as a result of the general financial stringency. ‘ln regard to reductions in fixed charges, it was realised that in accordance with economic laws the amount of such charges would in the long run be reduced without State intervention, but in order that the adjustment might be made more rapidly, and thus shorten the period of hardship, provision was made by legislation (National Expenditure Adjustment Act, 1932) whereby rents and interest on mortgages generally were subject to a reduction of 20 per cent, as from the Ist. April last. In addition, Public Service salaries and wages were reduced by a further 5 to 12) per cent., and a stamp duty of 10 per cent, was imposed on income from Government and local-body securities. “Provision was made to meet cases of hardship. Reductions were also made in certain pensions and allowances, and generally an effort was made to spread the fall in national income over the whole community. Greater provision was also made for dealing with the urgent problem of unemploy ment. Amendments were made to the Arbitration Act in order that more elasticity might be introduced into wage agreements and working conditions, with a view to facilitating an increase in the volume of employment.” PUBLIC ACCOUNTS. “The conditions which I have just described necessarilv had their counterpart'and were reflected in the public finances for the year, for budgetary equilibrium can rest only on stability in the wider field of national trade and industry. “When economic conditions are changing as rapidly as was the case during the past two years, it is practically impossible to make reliable estimates of the revenue. Honourable members will recollect that the main Budget last year made provision to meet a prospective deficit of £6,850,000. of which £4,810,000 was on account of shrinkages in revenue.

I'he progressive drift m the finances increased so rapidly, however, that within a very short period it became evident that inadequate allowance had been made for reveinue shrinkages and provision was made in the Supplementary Budget to meet further anticipated decreases amounting to £1,250,000. Steps were thus taken to cope with a contraction in revenue of no less than £6,060,000. Unemployment subsidies, further assistance to hard-pressed farmers by way of fertiliser subsidies, together with unavoidable increases in debt charges, pensions, etc., brought the total anticipated gap to be bridged up to £8,445,000, equal to about onethird of the total Budget. This formidable task, it was hoped, would be accomplished by means of stringent economies, reductions in salaries and wages, the use of reserves, and some heavy increases in taxation. In short, a greater effort was made to maintain a balanced Budget. It failed to the extent of £2,140,000, almost wholly due to shortages in the revenues. The result was disappointing, but the drastic steps taken and the heavy additional burdens so cheerfully shouldered by the people were certainly not in vain, for without them the public finances would clearly have reached such a hopeless position as to constitute a menace to the general financial stability of the Dominion. We came out with a deficit, but of manageable size, so are entitled to claim that the situation was saved. REVENUE. “The total revenue received during the year amounted to £22,719,733, consisting of £16,189,967 proceeds of taxation, £2,868,138 from interest receipts, and £2,166,803 from departmental and miscellaneous receipts, while £1,494,825 was drawn from reserves.

“The items making up these amounts are set out in the comparative tables attached to this Statement. It will be seen that in comparison with the Budget estimates the total revenue shortage amounted to £1,946,000, the chief contributing item being Customs revenue, £846,000. This item is, of course, dependent on the volume and nature of the goods imported. In this connection it is interesting to note that the main items concerned in the contraction of imports were apparel and textiles, motor-ears and parts, and spirituous liquors. “Income-tax receipts fell short of the estimate by £487,000. In times like the present this item is particularly difficult to estimate, for even a comparativey small decrease in gross income may mean a relatively heavy fall in profits. Land-tax, on the other hand, is more easily calculated, but under present circumstances the ability of the people to pay is the uncertain factor. The receipts for this item were £83,000 short of the Budget estimate. Stamp and death duties contributed £190,000 towards the revenue shortage. Death duties, always an incalculable item, produced £65,000 less revenue than had been allowed for. The remainder of the decrease was, for the most part, due to the contraction in duty on instruments and in totalisator revenue being greater than was anticipated. Both of these items directly reflect the prevailing economic conditions. • x x i “The interest receipts, in total, tell only £60,000 short of expectations. Railway revenue showed a heavy fall-ing-off during the year, but great efforts were made by the Railway Board to meet the position by economies in expenditure. Even so, the amount of net revenue paid to the Consolidated Fund was £90,000 short of the estimate. Incidentally, the amount paid was only about one-third of the interest due on the capital invested. Interest on ‘other public moneys' ’exceeded the estimate by £30,000. Departmental and miscellaneous receipts fell short to the extent of £319,000, the amount being spread over practically all of the items concerned. EXPENDITURE. “The net expenditure for the year totalled £24,860,552, against an estimate of £24,627,561—an excess of £232,991. The estimate, however, included no allowance for exchange on remittances to London, but, owing to the abrupt change in the plan of London finance to which I have already referred, expenditure for this purpose amounted to £374,473. On the items covered by the Budget there was thus a saving in expenditure of approximately £140,000. “Under ‘Permanent Appropriation, the expenditure amounted to £17,854,462, an excess over the estimates of approximately £140,000. Interest charges contributed £94,000 to this excess the reason being that, owing to the 'deficit, issues of Treasury bills were greater than was anticipated. Further on the departure of Great Britain from the gold standard Trea-sury-bill rates in London rose sharply. “Of the annual votes covering the departmental expenses the amount appropriated was £6,911,673, but the expenditure, apart from the unexpected item of exchange already referred to, was kept down to £6,631,617, thus providing a saving of £280,000 in reduction of the deficit. This result is particularly satisfactory in view of the fact that the estimates for the year were pared down following the work of the 1931 Economy Committee. Practically every vote contributed towards the saving, which resulted from a multitude of small savings following a stringent control over every detail of expenditure. TREASURY BILLS. ‘ ‘ Owing to the depletion of the working cash balances in the Consolidated Fund and the shortage of revenue, also in order to finance remittances to London under the exehange-pool arrangements, it was found necessary or advantageous to make considerable use of Treasury bills during the year. A reference to the published accounts will show that revenue bills to the amount of £15,845,000- were issued. To the extent of £4,485,000, however such issues included renewal, of bills issued jn the first instance usually for a period of three months only. The net amount involved was thus £11,360,000, of which £3,425,000 was issued in London at rates varying between 2 and 2| per cent, early in the year, but rising to 6J per cent, following the departure from the gold standard. All these London bills were redeemed. “Issues of revenue bills in New Zealand amounted to £7,935.000. discounted for the most part at 5J per cent, and 5 7-16 per cent.,' but in a few cases at rates as low as 2 per cent. Bills to the value of £4,905,000 were redeemed before the year closed, leaving £3,030,000 of floating debt to be carried forward, representing the deficit for the vear to the extent of £1,862,218, and the balance carried forward in the Consolidated Fund. 51,167,782. From a cash point of view, however, the £3,030,000 of outstanding bills was covered by fixed deposits held in London amounting to £.3,105,000. These deposits arose partly from cash remitted from New Zealand during the last quarter of 1931-

32 under the exchange-pool arrangement, and partly from the sale of Reserve Fund securities in London.

“In addition to the revenue bills, there were also considerable transactions in redemption bills —that is, bills issued in redemption of debentures and other long-term debt securities. As stated in th* main Budget for 1931, redemption bills to the amount of £3,550000 were outstanding on the Ist April, 1931, having been issued to avoid heavy exchange cost in remitting cash to London.

‘ ‘ Of this floating debt m London, £971,250 was redeemed out of the proceeds of the £5,000,000 loan raised in June, 1931, and the balance of £2,578,750 was converted back into New Zealand debentures. A further £4,000,000 of bills was, however, issued in London in redemption of New Zealand debentures, and this was the amount that was taken into account when the exchange pool was formed. Issued earlier at discount rates varying from 2 1-16 per cent, to 2j per cent., these bills in December, 1931, were renewed by special arrangement for six months at a rate of 6 1-! per cent. The bills were thus outstanding at the end of the financial year, but were paid off out of the proceeds of the £5,000,000 long-term loan raised in May last. In addition, a small redemption bill of £25,000 held by a Government Department, in New Zealand was also outstanding on the 31st March last. “The Treasury bill transactions as a whole will doubtless appear to be intricate, but they illustrate the difficulties of finance in a troublesome period. BUDGETARY POSITION FOR 1932-33. “The prospective position for the current financial year was outlined in the preliminary Financial Statement presented to the House in April- last. It will be remembered that we were confronted with a prospective budgetary shortage estimated at £8,300,000, at a time when resources had ‘already been generally strained in the effort to balance last year's Budget, and very little in the way of taxable capacity remains. “To the extent of £7,300,000 this huge prospective shortage arose from heavy shrinkages in the various item!) of revenue. The outlook, however, has undergone a change for the better during the past few months, and, as half the year has now elapsed, more accurate estimates can be made of the probable receipts under the various headings. Accordingly the estimated revenue decreases given in the previous statement have been varied somewhat. “The main alteration is in respect of Customs revenue, which it was anticipated would fall to £5,000,000. During the first five months of this financial year, however, receipts are £250,000 ahead of those for the corresponding period of last year. Imports for the period showed a comparative decrease of £406,000, and the additional revenue was due to the fact that the increased duties imposed last year were opferative from the Ist August, 1931, only. Given a reasonably good season, with an improvement in overseas prices of which there are hopeful indications, it appears likely now that the value of exports for the year will reach last year's total. This should allow of much the same volume of imports, for, with due allowance for interest and other invisible import items, the balance of external trade was on the right side last year. Accordingly, after a careful investigation of the prospects for various classes of goods, and making allowances for the loss of revenue arising out of the tariff reductions to be made to give effect to the Ottawa agreements, I have decided to put the estimate down at £5,700,000, which is approximately £200,000 less than was received last year. '' Beer duty, it is considered, should produce the same amount of revenue as was received last year, the decrease in the volume of business being offset by the higher duties imposed last year. MOTOR, STAMP AND DEATH DUTIES. “The economic conditions are also adversely affecting the revenue item of ‘Motor-vehicles —Duties and licenses.’ There is a falling-off in the registration of vehicles, and this, of course, must be reflected in a lower ' petrol-ocnsumption. It is estimated that the revenue will show a fallingoff of approximately £200,000. “Stamp and death duties appear to be relatively stable at the lower level last year, but it has been deemed advisable to allow for further decreases in racing revenue, amuse-ment-tax, and duty on instruments. On the other hand, allowance has to be made for the receipts from the 10-per-cent, stamp duty on interest from Government securities imposed by the National Expenditure Adjustment Act. Incidentally, it may be mentioned that this latter item will not be a net gain to the Budget, as it is offset by reductions in mortgage interest, particularly on State Advances securities. Taking all factors into consideration, the estimate for stamp and death duties has been set down at £2,900,000, which is approximately £lOO,OOO ahead of last year’s receipts. LAND AND INCOME TAX. “Then there is income-tax, which under present circumstances is admittedly the most uncertain item in the Budget. This year’s tax is assessed on last year’s income. It is well known that in many cases profits have fallen away to zero, and, as the assessments have not yet been made and compiled, it is very difficult to estimate the effect in the aggregate on the amount of tax due. On such information as is available, I have set the estimate down at £3,400,000 for this year. This is approximately £1,050,000 less than the receipts for' last financial year. Land-tax due can be calculated with much more precision, although the position is'to some extent complicated by subdivisions and revaluations. The main uncertain element, however, is the ability of landowners to pay. Last year’s receipts, assessed on the lower rates of tax provided for, were £83,000 short of the Budget estimate, and for this year it is deemed advisable to allow for a further decrease of £27,000. “Apart from taxation, there is a considerable amount of revenue derived from interest and other receipts. Under interest the most difficult item is interest on railway capital. This item represents the net earnings of the railways. As previously pointed out, railway revenue directly reflects the depressed state of trade and industry, and has beeti falling steadily, although the rate of decline is now easing off. To a considerable extent the decline has been offset by savings in expendimaintained, there is a minimum beyond ture, but, if the services are to be

maintained, there is a minimum beyond which expenditure cannot be reduced. The reductions in salaries and wages assisted the finances of the Bailway Board considerably. Allowing for this and other relevant factors, it is considered that the net revenue for this financial year will not bo more than £lOO,OOO below that of last year. “Other interest items will probably be adversely affected to an extent estimated at £220,000. In this connection it may be mentioned that interest on the Public Debt Redemption Fund will suffer as a result of the reduction in interest-rates of the Common Fund of the Public Trust Office, following th’e reduction in mortgage interest under the provisions of the National Expenditure Adjustment Act and relief given to mortgagors. Interest on publi moneys will also be less, due to the fact that .balances available for investment are smaller and rates of interest in London are low.

1 ‘ The land revenues, departmental receipts, and other miscellaneous items grouped in the accounts under “Other Receipts” produced last year, apart from the amount drawn from reserves, revenue totalling approximately £2,167,000. Of this amount £940,000 came from Post and Telegraph profits. For the current financial year the estimate for this item has been set down at half this amount —viz., £470,000. The estimates for the other items in this group have been varied somewhat on account of the closing of some of the separate accounts. The net result is an aggregate estimate which is £387,000 less than receipts for last financial year. “The remaining item on the revenue side of the accounts is the amount drawn from reserves. Last year £1,495,000 was derived from this source, and in the preliminary Financial Statement it was estimated that only, about £200,000 derived from repayment of discharged soldier settlement mortgages would be available this financial year. Honourable members will recollect, however, that arrangements were made with the Bank of New Zealand, with the National Bank of New Zealand participating in the deal, to liquidate up to £2,500,000 of the reserves invested in discharged soldiers settlement mortgages by hypothecating the securities. The present intention is that the amount obtained by this procedure will be repaid as instalments of principal are received in respect of these mortgages. This arrangement takes the place of the proposal contained in the preliminary Financial Statement to find £2,200,000 by additional taxation. By thus utilising a considerable proportion of our remaining reserves, having regard to actual and probable deficits, the Government has conserved what remains of the taxable capacity of the people and avoided imposing further heavy burdens upon the community at a time when it is finding great difficulty in holding its own against the weight of the depression. It is hoped that this respite from further taxation will be an encouragement to trade and industry, and thus hasten the process of recovery. BUDGET PROGRAMME. “To sum up this review of the revenue prospects for this financial year, the estimates, in total, amount to £21,1530,009, which is £1,090,000 less than the receipts for last year. As, however, last year’s receipts fell short of a balanced Budget to the extent of £2,140,000, the problem resolves itself into a question of reducing the total of last year’s expenditure by £3,230,000. The actual reduction in items required to balance the Budget is found about £4,250,000, for, as pointed out in the preliminary Statement, in the ordinary course a substantial amount of additional expenditure has to be provided for. “A reference to the summary of last year's expenditure will show that about 40 per cent, consists of debt services, and that a large proportion of the remainder is of a rigid nature. Thus the' scope even for drastic reductions is not nearly as large as might be supposed when considering merely the total »f expenditure. This fact was recognised by the 1932 Economists’ Committee, which considered that a further reduction of £2,250,000 was about as much as could be expected without unduly impairing existing social services or breaking down the organisation of the Public Service. “Further, while recognising on the one hand that the finances of the State must not be allowed to get out of hand —for that would only accentuate the difficulties of the Dominion generally—on the other hand the Government was concerned not to add to those already formidable difficulties in the effort to balance the Budget. In other words, the Government is not losing sight of the fact that economic recovery is a corollary to Budget stability. “ Accordingly, after a careful consideration of all aspects of the problem, it was considered advisable not to attempt to restore Budget equilibrium this financial year, but to confine our efforts to reducing the deficit to not more than £2,000,000. This is considered to be a manageable amount, which will not disturb the financial stability of the country. At the same time, it should not be overlooked that this programme means incurring further floating debt which has to be liquidated sooner or later. Thus the programme adopted is an extraordinary one, designed to provide a breathingspace. It cannot be continued for long, for to pile up debt of this nature is only building up a further serious obstacle to economic restoration. ECONOMY MEASURES. “Towards the close of last financial year, as soon as it became evident that the country was faced with further heavy contractions in the revenue, a National Expenditure Commission was set up to review the expenditure in detail and make recommendations to the Government for effecting forthwith all possible reductions. The interim report of the Commission was presented during the special session called principally to give effect to some of its most important recommendations. The final report has iust recently been presented to this House, and the thanks of the country are due to the members of the Commission for the painstaking manner in which they carried out the onerous duty placed upon them. Since the report has been received the Government has been busily engaged in considering the recommendations. A great many of these have been adopted and are reflected in the Budget estimates. In fact, much has been done in a relatively short time to effect reductions, but making extensive economies in services takes a long time. In many of the cases already approved the full saving will not be obtained until next financial

year. Some of the recommendations, notably those relating to hospital reorganisation, involve far-reaching changes and call for very careiul consideration before any action can be taken. Even if adopted, the full benefit would not be obtained for some years. That in itself, is, of course, no reason' why such recommendations should not be adopted. In fact, a permanent lightening of the burden of expenditure must to a large extent de-

pend upon far-reaching changes to obtain equal service at less cost, or a definite curtailment of services rendered by the State. After the reductions that have been made in recent years, the possibilities of effecting further savings in administrative costs of existing services are very, limited. However, a steady pressure s being maintained to keep costs as low as possible.

STATE SUPERANNUATION FUNDS. “As already indicated when submitting the finai report, one of the most important matters dealt with by the Commission was the position of the State Superannuation Funds. As honourable members are aware, the financial position of these funds is most unsatisfactory if not precarious. Prompt action to stop the drift is essential, but under present economic conditions the whole cost of placing the funds in a sound position cannot be made a charge on taxation. Accordingly, the recommendations made provide for an overhaul of the whole scneme of superannuation whereby in effect the burden of the rehabilitation of the finances of the funds will be approximately halved between the State and its employees. This part of the Commission’s report does net provide for any present saving in public expenditure, but, if adopted, the proposals recommended will have the eftectiof lightening a dere liability of the State that is becoming increasingly urgent. It is therefore proposed to introduce a Bill along the lines recommended in the report. SAVINGS IN EXPENDITURE.

“As to the other recommendations made by the Commission, honourable members will recollect that towards the close of last session a detailed statement was made in this House setting out the savings arising out of the recommendations of the interim report adopted by the Government. The total of the estimated savings this year was £2,010,000, with further saving next financial year of £246,000. The savings for this year however, included £150,000 additional credits-in-aid from reparation-moneys, following, the expiration of the Hoover moratorium. As reparations have now been practically cancelled, this item will not materialise. The net estimated savings for this year are thus reduced to £1,890,000. Approximately £420,000 of the savings affect the expenditure of the Railways and the Post and Telegraph Departments, and these savings are reflected in the revenue of the Consolidated Fund. Further, the savings estimated by the Commission are based on last year’s appropriations, and, as these were underspent to the extent of £140,000, this amount has to be brought into account in making a com. parison between this year’s estimates and last year’s expenditure. “In their final report the Commission estimated that their recommendations, if adopted, would result in a total saving of £845,000. This amount includes £300,000 to be obtained from a reorganisation of the hospital system. The Government has not yet had time to consider this proposal serious, ly, and, in any case, it would not be possible to obtain any saving from it this financial year. Of the other recommendations, the ones already approved will bring about a further reduction of approximately £210,000 in the annual votes for this financial year. When it is remembered that salaries and wages account for about £5,000,000 out of the £6,630,000 expended under last year’s votes, it will be realised that the saving of £210,000 is a more drastic one than appears at first sight. “A further saving to the Consolidated Fund, though not to taxpayers, arises out of the change made in the finances of the Unemployment Fund, Legislation passed last session abolished the subsidy from the Consolidated Fund. Provision has, however, been made for £167,000 of subsidy payable up to the time the amending Act came into operation. The net saving to the Consolidated Fund is thus £950,000.

“There is also a saving of £140,000 in hospital subsidies, due to the Unemployment Board relieving the hospital boards of a portion of the responsibility of supplying charitable aid. “The estimated fall of £200,000 in the revenue from what is usually known as motor taxation automatically reduces by a similar amount the charge against the Consolidated Fund for transfers to the Main Highways Account and the local bodies. In addition, there is, of course, the special amount of £500,000 included in the National Expenditure Commission’s recommendations and provided for by legislation passed last session. FUNDED DEBT PAYMENTS. “Following the Hon. Mr Downie Stewart’s personal representations in London in regard to our difficulties, Great Britain has again extended a helping hand by consenting to postpone tor another year all payments due on our Funded War Debt and certain other debts due to the British Government. The additional relief to this year’s Budget is £825,000, in addition to which a saving or £47,000 will accrue to the State Advances Office. Our grateful thanks are due to the Mother Country for this substantial, pleasure of assistance during the acute period of our troubles. “Apart from these postponements, debt charges would have shown an increase of £325,000 due to the last London loan and the extensive use of Treasury bills and other forms of borrowing to finance the remittances to London, last year’s deficit, etc. As it is, there is now an estimated net decrease in debt charges amounting to £500,000. “Against all these savings there has to be set various unavoidable increases, estimated at £975,000. This sum is made up as follows: — £ Reimbursement of State Advances and other funds of , reduction in mortgage interest under the National Expenditure • Adjustment Act 250,000 Additional pensions 200,000 Increased cost of lime and fertiliser subsidies to assist farmers 135,000 Naval defence—Commissioning of second cruiser 55,000 Shrinkage in ci;edits-in-aid ... 115,000 Other miscellaneous items (net) 220,000 £975,000 “The first item to cover reductions in mortgage interest is provided for out of the additional stamp duties derived from the 10 per cent, duty on interest on Government securities. “The additional pensions are mostly old-age pensions and family allowances. The increase is considerably more than usual, and reflects the difficult times we are passing through. “All the adjustments made in the expenditure estimates may be summarised as follows:— REDUCTIONS. From National Expenditure Commission’s recommendations £2,100,000 less amounts affecting railways and Post Office reflected in the revenue (£420,000) and under-expenditure of appropriations last year (£140,000) — £560,000: total, £1,540,000. £ Motor taxation 200,000 Hospital subsidies 140,000 Unemployment subsidies 950,000 Debt charges 500,000 3,330,000 Less increases and new items 975,000 Net reduction on last year’s expenditure £2.355,000