TEST WILL COME LATER

Nelson Evening Mail, Volume LXXI, 15 November 1937, Page 8

TEST WILL COME LATER

FINANCIAL POLICY CAN RESERVES STAND THE STRAIN? NEW ZEALAND'S POSITION Ihe real tests of the present financial policy nf high Government expenditure in New Zealand'will came when revenue begins to fall and ample reserves are no longer available, according to the latest bulletin of the Canterbury C bomber ol Commerce. A review lias been issued of the Dominion's Budget recently presented by the Minister of Finance (the lion. Walter Nash.) "It has been widely advocated that governments should borrow and spend money on public works in time of depression, and curtail such borrowing and expenditure in time of prosperity,” says the bulletin. "The values of overseas trade, bank debits, note circulation and the yield of taxation are all now at very high levels, and indicate boom conditions. ‘‘lt appears that in Now Zealand the boom is being stimulated by lavish public expenditure, which is using up reserves both of capital and taxable capacity, that will be needed badly if and when prices fall and business contracts. Money lent by the Reserve Bank, the Post Office Savings Bank, and other departments, represents reserves accumulated since the depression passed its worst phase. These, together with current savings, are being heavily drawn upon. In addition the taxpayers arc required to contribute heavily towards government expenditure. EXHAUSTION OF RESERVES "It is doubtful whether the present yield of taxation can be maintained, and certain that it will (all if overseas prices decline seriously. “Moreover the reserves accumulated must become exhausted if drawn on continuously, and their investment in public securities destroys their liquidity. From 1929 to 1932. Savings Banks deposits were reduced by £7,100.000. If such withdrawals were made again the Reserve Bank would be called on to find most of the money, and it might have to assist the Government in other ways as well, in a time of scarce and dear money. "In such ways as this the present financial policy might well Jnad lo serious financial difficulties. Heavy Government expenditure is popular and pleasant while it lasts and for those who benefit from h. But every penny of it has to be paid, and sooner or later, whatever the Government spends, the people must pay. The real tests of present financial policy will come when revenue begins to fall and ample reserves arc no longer available.”