COALITION CAUCUS

Manawatu Standard, Volume LIII, Issue 50, 26 January 1933, Page 6

COALITION CAUCUS

discussion on exchange rate. GOVERNMENT’S POLICY MEASURE. (Bv Telegraph—Special to Standard.) V AVELLINGTON, Jan. 20. The completion of the Coalition Caucus leaves members with the feeling that a high pegged rate of exchange as a means' of internal inflation is the Government’s vital policy measure. S', other"' i>roposals were definitelv sn!mitted. For instance, it had been suggested that country ratepayers would be provided with additional direct help this year, but Cabinet has not come to a decision on that point It was suggested to Coalition members that the rise in the exchange, by producing an improved position among the farmers, must be quickly reflected in their increased spending power, with a consequent improvement in the rate collection. An interesting alternative to the exchange solution that was thoroughly ventilated was that of a bonus on exports. This, it is said, would involve raising at least £3,000,000, and its effect on the exchange would be equivalent to a rise of 10 per cent, in the rate. The distribution of the bonus, it -was argued, could not be made in direct proportion to the needs of the individual farmers and therefore it presented no advantage over the inflationary method involved in the higher exchange. Ministers appear to have satisfied the majority of their supporters that an increased national income must result in an easing of the conditions leading to greater spending power from which the local manufacturers must benefit and unemployment in the cities be reduced.

It was put plainly to members that the best device bad been adopted for maintaining production —a vitally essential matter in the face of the discouraging economic factors. The national income was declining so heavily that, if it was placed at the standard of 100 in 1929, the proportionate point to-day is 65, demonstrating how the business volume had decreased owing to the lowered income from exports. Figures were produced, based on periodic debits in banking accounts, which, if- placed a.t the index point of 100 in 1928-29, would now stand at 65. Wages on the same computation have dropped from 100 to 84, but there has been a serious lag in the fall of retail prices compared with export produce, the latter having dropped in two years from the index point of 100 to 53, while on the same basis the retail prices stand at 81. The Government’s proposal, ’it was contended, would avoid the worst effects of deflation, and, as the economic welfare of the community is more important than its currency standard, once this is admitted there was justification for a modification of the monetary standard. That the course which the Government has adopted will have an adverse effect on the Budget, due to the higher external interest costs, was admitted, but at the same time the high exchange advocates pressed the view that, without this solution, there would also be budgetary difficulties, and- that greater elasticity in the spending power would have a good influence on the finances of the local bodies and the general Government.