MINISTER OF FINANCE

Manawatu Standard, Volume LV, Issue 303, 20 November 1935, Page 7

MINISTER OF FINANCE

PALMERSTON NORTH VISIT

LARGE AUDIENCE ADDRESSED

The Minister of Finance (Rt. Hon. J. G. Coates) paid a flying- visit to Palmerston North to-day, and gave a vigorous address at the State Theatre in defence of the Government’s policy. Mr A. J. Graham presided over an audience of about 1000, the theatre being full. Representatives of all shades of political opinion were present in strong force, and the Minister, m tolerant mood for good-humoured banter, was g-iven a very enthusiastic reception)' He dealt compellingly with criticisms voiced concerning the Administration, defending its legislative measures and expressing the opinion that they had paved the way for a new atmosphere and feeling- of confidence. Amonn- those on the platform was the National candidate for Palmerston, Mr J. A. Nash, M.P.

PACTS UNASSAILABLE

Stating that he proposed to discuss with them matters they should try to understand, Mr Coates stated that some might have one view and he another, but tilt* facts were unassailable. Through the sudden _ shutting off of essential income to New Zealand, unemployment figures had jumped from 2.300 in 193$ to over 40.000 in 1031. and it became necessary to bridge the gap created bv the price fall. -No country had yet been able to make adjustments without ignoring costs. and France was now going through the unpleasant phase of caving to make economies. 'industry received the first shock of a drop in income, and in New Zealand that industry was primary production. Indicating the collapse which had occurred between 19-8 and 1931. Mr Coates said that export prices fell during that period by 43 per cent. The Government employed well-trained economists to survey the position and determine possible reactions to certain definite action proposed not carelessly, not promiscuously —but along prescribed lines. Every piece of legislation since passed came into that bringing together costs and prices and expenditure and income. RAISING OF EXCHANGE.

Though some disagreed with the raising of the excliange rate, it was the only course open. It nad increased tlie country s productive income by £14,000,00 U and tlie national income possibly by £40,000,000. It had enabled industry to compete with the depreciated currency of other countries using the same markets, and placed it on as nearly as possible an equal basis. It was incorrect that tlie Government s exchange policy had interfered with imports from the United Kingdom. These had increased in value by £7,000,000 during the present yehr to September. It was true that the raisof the exchange rate had cost New Zealand £1,600,0UU for debts and services overseas, but it had improved the Budgetary position by £3,500,000, showing a lavourable balance of £2,000,000. The proposal, mainly bv the Democrats, to give the farmers a £3,500,000 subsidy would constitute a direct charge on the taxpayers. The purchasing capacity of the farmer, upon whose rehabilitation the country depended, had been increased, and it was a distartion of the facts to say that his costs had risen proportionately, though they might have fluctuated to the extent of 5 per cent. , It must not be thought, continued Air Coates, that those in W elhngton did not realise tlie difficulties oi cutferent sections of the i)eople. llie Government hud not deviated from its course where unpopular measures were necessary, and they had not taken their hands from the plough. (Applause.) They hud at least earned the respect of the people. Prices, though subject to fluctuation, had remained practically stable, according to the Government Statistician, since the rate of exchange was raised. “Now, the exchange served tlie same purpose of bringing income into line with costs,” stated Air Coates. “Insofar as it transferred the. burden from the farmer to others ,it was only doing wliat would have happened anyway. But there were three important differences :(a) Lt operated directly and immediately on the income side instead of slowly, painfully and unevenly on the costs side. (b) By raising the farmer’s income it increased his power to buy goods. W ith exchange at par, the adjustment would have been made and the burden transferred by deflation, reduced production and reduced national income. This restriction on production would have meant an additional loss on the community as a whole. With exchange raised, deflation was avoided, purchasing power expanded, production was increased (from £83.0 million in 1931-32 to £98.8 million in 1933-34) and the na- ~ tional income raised. So it is not true to say that the exchange simply transferred from one pocket to another. Any Joss to the rest of the community was more than made good by increased production and profits which increased income.” SPREADING THE BURDEN.

“Every section of tho community was called upon, in one form or another, to share in the sacrifice necessitated by the heavy tall in our overseas income—the farmer, the wage-earner, the civil servant, the debenture-holder, the mortgagee,” stated Mr Coates. “1 think I can say with every confidence that the Government have succeeded in reducing costs both to the farming industry and to business in general in a manner which has spread the burden of readjustment as equitably as possible under the complicated conditions of modern life. “By agreement with the banks, overdraft rates have been steadily reduced from 7 per cent, in February, 1930, to 44 per cent, in November, 1934. There has been a similar reduction in mortgage rates. Five years ago the rates charged on first-class security were between 6 and 7 per cent, 'to-day tho Mortgage Corporation is issuing loans at 4| per cent. By its conversion of the internal debt, the Government were able to effect a gross saving on the Consolidated Fund of approximately £1,000,000 per annum. A similar policy in regard to local body debt lias brought about an estimated saving of £400,000 per annum.” Administrative reductions, the Minister added, had brought a heap of trouble, but had to be faced, and it was fortunate that New Zealand had the support of such sound financial institutions as the banks. “It is assumed by some that the Reserve Bank is controlled from outbide New Zealand, and is used for political purposes,” stated Mr Coates. “That is entirely wrong. It is a national institution, and has brought the interest on Treasury bills down to 2 per cent, saving the taxpayers hundreds of thousands of pounds. There can be no institution more firmly planted in a country to conduct the channels of finance and credit. “The establishment ui the Reserve Bank gave New Zealand lor the first time an institution designed to control currency and credit in the interests of the people as a whole. The Reserve Bank has already assisted' in adjusting costs and prices by reducing interest and so relieving the Budget. In addi-

tion, it will make an important contribution toward stable progress in the future by easing credit during times of depression and restraining it during booms. The Reserve Bank is tiie national credit authority. It is the people's bank. It is a well-balanced concerned, owned entirely by the people of New Zealand, and controlled entirely in their interests. We must not allow the institution so wisely conceived to lie destroyed by permitting it to lie used as an instrument for the political manipulation of crazy finance by political parties inexperienced in the art of government. THE MORTGAGE CORPORATION. “When the establishment of the Mortgage Corporation was under consideration a thorough examination was made of the organisation of mortgage banks in other countries. Certain principles have been established by experience as being most suitable to mortgage finance and these were incorporated in the Mortgage Corporation of New Zealand. Tlie essential principle is the raising of the necessary funds by the issue of bonds to the public. These are secured against the whole of the assets of the undertaking—the share capital and reserves as well as the whole of the mortgages. By this means the risk is spread instead of being concentrated between two persons, which is what applies in the case of private mortgago loans. The reduction of risk cheapens and stabilises finance, while the large size will cheapen costs of administration, The Mortgage Corporation has already shown that it can raise finance from the public at rates comparable to those on Government securities. By offering advances at 4s per cent. it has made an important contribution to cheapening mortgage finance.” LOAN POLICY. “We never have had any money from England,” Air Coates was informed by a member of the audience when he proceeded to discuss the loan market “That makes no difference, replied Mr Coates. “We can bring the money out if we like, but it suits us better to use it to buy goods and services. “The Alortgage Corporation and its idea has brought a new era into this country, because of its power to control money rates,” declared Air Coates. “Competition is keen and there aie some who say the Alortgage Corporation is dangerous, lt is dangerous—for those who fear an institution which will remain permanently to cheapen money rates. That is why they are tender and sore.” (Applause.) „ “There are some who think the Government should continue to expand advances through a State Department. In the past it has always been difficult to raise enough to meet requirements in this way. The necessary funds have to be obtained by loans to the public which increase tlie national debt. It therefore tends to affect the confidence of investors in Government stock, and increase the cost of borrowing and prejudice conversion operations. The method of finance adopted by the Mortgage Corporation does not increase the national debt, and is a much more elastic system of finance, more readily capable of expansion. If there are losses, they have to be met by the Corporation itself. Losses on State Advances fall ultimately on tlie Consolidated Fund and make the problem of the Minister of Finance more difficult in times o depression. There have been many ll - informed criticisms of the Alortgage Corporation. For example, the Democrats are making the extraordinary statement that when the Moitgage Corporation has taken over onl ® millions of mortgages from the State lending departments, there will not be £1 left for investment. This statement is utterly untrue. The Mortgage Corporation can lend up to lo times its share capital plus reserves and it is bringing relief to those who have been harassed for years. The mortgagee is not likely to put his best into an industry unless he lias a future worth toiling for, and lie cannot dc that while he is carrying an impossible load of debts. There is no more sickening tiling to them than the constant irritation and worry of this burden, and we have got to straightei that uI L iHLtI UAI REACHED. “We have reached equilibrium,” declared Air Coates, “through the ex ; change rate, reductions in costs, ant mortgage adjustment. As a result ol outstanding pieces' of legislation, controversial every one of them, we have been able to get back to a norma balancing of accounts without fortuitous circumstances. We said it woulc take four years, and it has. I here n now an entirely different atmosphere in the country. There is an air of con fidence. Negotiations by the Govern ment in safeguarding markets have been a tremendous advantage deh nitely to this country. The statemem that the Government did not cariy oui its agreement at Ottawa cannot conn from any informed opinion at all There is not even room for the sugges tion that we violated some mystenoui principle by raising the exchang. rate. We would never have dreamt o tving ourselves uj> to such a thing Every particle of the Ottawa agree ment was more than carried out. “I would like to dissuade people o any fears that this country is holdinj too much by way of exchange fund at Home,” continued Air Coates. I is important to hold a reasonable sur plus there, but in fact, we are reducing

the amount.” LABOUR’S PROPOSALS. Referring to “Democrat delusions,” Mr Coates said that they would require £22,000,000,. but their policy could only be put into effect by creating enormous. Budget deficits. file Labour Party claim that they would have prevented the iall in incomes and prices by guaranteeing prices at the level before the depression,” said Mr Coates. “Bet us examine this If we take the average prices for the years ifwn.7 to 1928-9 and the quantities actually exported between 1929-30 and 1934-35, the cost at current rates of exchange (i.e., HO and then 12o) would be 136 millions. At rate of change the cost would be 200 millions. It was not practicable to obtain these funds by borrowing, taxation or the raising of exchange. The most dangerous form of creating currency was bv the Labour proposals to create* credit A country with one-third of its

income drawn from exports could not insulate itself against overseas conditions by any system of guaranteed prices. . Concluding, the Minister said that so far as the Democrats were concerned, they were just -a vote-splitting machine, and that was all they were intended to bo. Their promises were illogical and impossible. The issue was direct and clear between Labour and the Government. The safest administration was that with experience and long training in the control of public “It is with some feeling of satisfaction that the Government has pulled this country through the most difficult period in its history. It has its hand to the plough and can keep a straight course. The Government which can give results is the present one, with its experience. We want quiet, level-headed application. I am not suggesting that we are super-men. We are honest citizens doing our best without playing upon memories of individual hardship,” said Air Coates. “We have a trained and practical administration with a complete knowledge of the capacity of tlie country. AVe have made certain headway. This Government leads and others follow. The issue now before the country is whether a Government which has resolutely pursued a considered policy of reconstruction to a successful conclusion is to be returned to put into effect a carefully devised and progressive programme.” The Minister was accorded a hearty vote of thanks on the motion of Mr O. Monrad. who expressed appreciation of the intelligent reception given the address and the attentive and patient hearing from a mixed audience. The resolution was carried in a burst of applause which drowned a few discordant voices. The Alinister, who had arrived in Palmerston North at 10.25 a.m., with his secretary, by an aeroplane piloted by Captain' Steelman, and had been welcomed on arrival by Professor H. Belshaw, Messrs \V. G. Black and W. H. Cadwallacter, left after lunch for Hastings.