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Hokitika Guardian, 22 November 1932, Page 4

Considerable opposition is being shown by commerciail mien throughout New Zealand at the proposal to raise the rat© of exchange. One leading businessman says already the Government is budgeting for a deficit of nearly £1,€00,000 and the Minister of Finance has intimated that taxable capacity has reached a point where the law of diminishing returns has s;t in. It appears obvious that the Government could not raise additional taxation to meet premiums on surphis bill? of exchange, but it is possible that it will adopt the Australian policy of borrowing money from thei banks and creating a floating debt. The floating debt of tlie Commonwealth now amounts to something like £IOO,OOO- - and a large jihrt of it is due to exchange. It is anticipated that the Few Zealand Government would be required to meet at least £5,000,000 yearly in accumulated! surpluses which would have, to b© purchased by the State. This money could be used for repayment of overseas debt service, but for every £500.000 so purchased a premium of £1,250,000 would have to be paid. Should the Government not be able to meet the premium out of taxation it would have to make arrangements to liquidate the amount by borrowing, as Australia lia« done. In till© case of the Commonwealth the money borrowed! lias been turned into floating debt on which interest hhs naturally to be paid. Financial authorities also refute the supposition that high exchange would have an expansive effect on the volume of intern] credit. Tn fact, it was argued to-day that the result would be in the onnosite direction. As a re nit of higher exchange the exporting farmer would naturally receive a, bonus on lih export's, and it is assumed by high exchange advocates that lie would pass this money into circulation. This procedure would, no doubt, apply if the farmer wor e free from <j bt, but a,s the great majority cf formers have to fate commitments with bank's, stock and station agents and o', her financial institutions, the f dditMiihl money would go to these people who had first call on the farmer’s income, namely, bis mortgagees and creditors. The effect would be that the farmer’s “bonus” would not reach him at all," but would go to liquidhte bis debts. This would ml an contraction rather than an expansion of cred’t. Naturally, high will act in t'm same way as an increase in the tariff and tend to stimulate secondary industries., It is contended by exchange inflationists that. tTis result will, be an increase in avenues of employment and

o-eneral expansion of internal commercial and industrial activities. “It lias to be remembered, however,” said one man, "that the country will have to face a severe shrinkage in the Customs revenue, which accounts for ti e major portion of the revenue of the State, and in addition, there will be the extra burden of overseas debt service.” These factors, it is .a-igued by those who have examined 1 the position, will more than, cancel the inflationary effect of an artificially high exchange.