FINANCIAL POLICY

Manawatu Standard, Volume LIII, Issue 243, 11 September 1933, Page 8

FINANCIAL POLICY

LABOUR PARTY CRITICAL/ MR HOLLAND’S SPEECH. ■ Per Press Association.CHRISTCHURCH, Sept. 10. Speaking at Cashmere on Saturday evening, Mr H. E. Holland, Leader of the Opposition, said that while Ministers of the Crown were busy making the exceedingly inaccurate and equally foolish charge that if the Labour Party came into office it would provide money for public needs by printing unlimited quantities of State notes, the last budgetary 'statement placed before the House by the acting-Prime Minister, Rt. Hon. J. G. Coates, showed that the Coalition had been living on paper issues, which, in the main, took the form of Treasury revenue and redemption bills. Indeed, the method adopted by the Coalition to finance its operations resolved itself into a procession of 1.0.U.’s drawn and negotiated by a Cabinet of hopeless Micawbers to redeem other 1.0.U.’5. Of the £15,845,000 issued in the form of Treasury bills in the financial year of 1932 a sum of nearly £4,500,000 was to redeem bills issued three months earlier. In addition to revenue bills, there were substantial transactions in redemption bills. At April I, 1931, redemption bills were outstanding to an amount of £3,550,000, and approximately £1,000,000 of this was “redeemed” by borrowing, and the remaining £2,500,000 was converted back into New Zealand debentures. A further amount of £4,000,000 was next issued in London in redemption of maturing New Zealand debentures. Originally this £4,000,000 issue was made at discount rates not exceeding 2i per cent., but in December, 1931, bills were renewed for six months at 6J per cent., and they were thus outstanding at the end of the financial year 1931-32. However, they were redeemed with money borrowed in May, 1933, and thus became submerged in a sea of national indebtedness. What had been floating debt was now indistinguishably part of the ever-increas-ing permanent debt. Treasury bills, as now used, constituted State securities pledged to the bank for the loan of bank-created money. Against these securities the bank made book entries in favour of the Government, and against these entries the Government was entitled to draw cheques which went into circulation, transferring credit from account to account. No legal tender money entered into the transaction as between the bank and the Government. Indeed, there was not in all New Zealand sufficient legal tender money to meet in one lump sum the Treasury bills issued in 1932. To meet its pressing liabilities the Coalition kept the printing presses busy turning out Treasury bills to be pawned to the bank at a comparatively high rate of interest. Against that method the Labour Party contended that, through the machinery of a nationalised banking system, the State could establish its own credits, based on the nation’s goods and services, for, after all, the only effective security at the back of the Treasury bills was the public credit and the foundation of all credit was goods produced and services established within the country. Mr Holland also dealt extensively with the question of the rate of exchange. No one yet knew, he said, what the. forcing up of the exchange rate would cost New Zealand, but lie was satisfied that the approximation made by himself at Sumner and supported by Mr F. Langstone, M.P., would not be found to be very far out. The proposal had never been before Parliament in the form of a Bill. The matter had been decided by Cabinet and had been put into effect by Order-in-Council, a method uncompromisingly denounced by Rt. Hon. G. W. Forbes when on the Opposition benches. The only part of the business which Parliament had been allowed to discuss was the indemnifying of the banks against loss in connection with the purchase of London surpluses. Hon. E. A. Ransom, Minister of Lands, had stated that the value of the high exchange policy to primary producers during the last seven months was £3,200,000, on a 15 per cent, basis, and £5,280,000 on a 25 per cent, basis. Then, since the pegging up of the exchange rate brought no additional money into New Zealand. on a 25 per cent, basis £5,250,-j 000 had been levied on the people of New Zealand, but, in the main, it ■ was not the working farmer who benefited, unless he was mortgagefree. The principal beneficiary was the mortgagee. In any case, farmers themselves had admitted that forcibly lifting the exchange rate could amount only to temporary relief. When it was first proposed not only the Labour Party, but aiso the Prime Minister, the banks, and practically all the economists of New Zealand, and most of tire newspapers, wejre against pegging-up the exchange rate. The sudden somersault of the Prime Minister was accomplished under pressure from .big land-holders within the Coalition, but so far there had been no satisfactory explanation of the somersault made by the banks to meet the Budgetary difficulties created by the pegging-up. The Government, while enormously weakening the source from which taxes were drawn, had introduced new imports of taxation, including the sales tax and taxes on sugar, petrol, tobacco, etc. He insisted that the Labour Party’s proposal for a guaranteed price to the primary producers was a far sounder proposal than forcing up the rate of exchange.