Nelson Evening Mail SATURDAY, NOVEMBER 26, 1938 NEW ZEALAND’S FINANCIAL POSITION

Nelson Evening Mail, Volume LXXII, 26 November 1938, Page 8

Nelson Evening Mail SATURDAY, NOVEMBER 26, 1938 NEW ZEALAND’S FINANCIAL POSITION

DURING the recent General Election campaign in New Zealand there was strong criticism of the Government’s financial policy and of the lack of adequate provision for meeting future obligations at home and abroad. Developments are demonstrating that this criticism was to a great extent warranted. Without being pessimistic, it may be admitted that the outlook is not so bright as we should like it to be. At the same time it must not be forgotten that the Government on 1 sth October last received an emphatic endorsement of its policy. Whether the full implications of that policy so far as finances and financial administration are concerned were fully appreciated by the electors may be open to doubt. They were probably of less moment than the social ameliora-

live legislation and proposals of the Government. Ihe fact remains that the Government’s past and promised policy received the ' emphatic backing of more than a , majority of the people. T hat fact jis fully borne in mind by the j critics of to-day. Recently an appeal was made by a prominent j Wellington business man for all sections of the community to get I behind the Government and assist it to carry out the policy “so sweepingly endorsed by the people.” At the same time he sounded a note of warning to the Government and “urged that something be done to relieve the present crushing burden of taxation.’’ Then Professor Hytten, economic adviser to the Bank of New South Wales, reviewed the continuing heavy fall in the sterling funds of the Reserve Bank, the causes that appear to be responsible, and possible consequences, which are not desirable. Next we have the considered j statement of Mr W. J. Poison, M.P., in an address to the New Zealand Primary and Ancillary Industries Producers’ Council. It should be noted that these and other recent utterances of the

same nature are not merely destructive. Suggestions are made to the Government with the object of assisting it to check what appears to be a financial drift. Although that drift may be largely due to the effects of the Government’s policy, the purely party aspect is not being stressed. Provision of a remedy is the prime essential. for instance, Professor Tocker suggests internal borrowing of, say, ten millions, to pay off the Reserve Bank debt. Such a loan would also have the effect of taking out of the hands of the people that amount of money and ; to that extent would discourage importing. Whatever method is adopted, he says, “the country would have to live within its income.’’ Yesterday a warning and some criticism of New Zealand’s position and policy was uttered by the President of the Bank of New South Wales, as summarised in this issue. We do not doubt that the Government realises the seriousness of the position which must be causing it grave concern, as is indicated by recent guarded statements by the Prime Minister. Although Mr Poison dealt with the position largely as it affects the primary producer, he quoted facts of maior importance to all interests. He emphasised that during the past two years London funds had diminished at the rate of approximately £9,000.000 a year; trading banks’ advances were at the peak figure of £55,500,000; the proportion of reserve to liabilities of the Reserve Bank was less than half it was last vear; the advances of the Reserve Bank to the Government on overdraft were £8,000.000, which, plus the amount of investments (presumably Government securities) gave a total of £1 1,750,000 of Reserve Bank credit, other than for ad vances for dairy produce, I the bulk of which would be repaid. Mr Poison summarised the causes of the present position as follows: The use of Reserve Bank

credit, which was really manufactured money, coupled with j lavish Government expenditure, the feeling of uneasiness and uncertainty concerning the Government’s intentions with regard to finance and industry which had caused a flight of capital (a course ol action that has been strongly criticised) ; an excess of imports brought about largely by the Government’s spending policy. To improve the position and stop the drain on the London funds Mr Poison suggested borrowing in London, and a further depreciation of the currency; for example, raising the exchange rate, rationing of exchange or some form of import control; a reduction of expenditure, allowing interest rates to rise, and a stimulation of production. Mr Poison, however, stressed the great danger of rationing exchange, but declared that if the country were to remain solvent, internal spending must be reduced or the unpleasant experience of inflation would be faced. The stimulation of production was absolutely necessary, said Mr Poison, but farmers could not compete as employers with the public works. “It is futile,” he said, “to talk of expanding production, while industry, both primary and secondary, is being asked to carry crippling burdens.’’ The speaker considered it should be evident that there must be “a drastic overhaul of our finances if we are to be saved from a serious economic crisis.” In Mr Poison’s opinion, “sacrifices must be demanded of all sections of the community and the farming industries will have to bear their share.” Moreover, he thinks “the primary producer should give a lead publicly, and if the Government is willing to face up to the position and take proper and effective steps to deal with it, we should make every effort to assist them.” 1 here is no need to reiterate that the Government will soon have to face big loan renewals and heavy expenditure on improved social services, the financing of which has not yet been provided for in full, ev en for the first year. In fact the ultimate cost of these services is not yet known. However, the electors—a large majority of them—have expressed their confidence in the Govern- j ment and its policy—and will look to the Government to overcome the difficulties predicted. With m arkets overseas not so I good as could be wished, the policy of insulation so confidently promised, may be put to the test. It is satisfactory to observe that the Prime Minister in addressing Federation of Labour delegates

this week, reiterated the necessity lor employing fewer men on work that was not directly productive, and more on the production of consumable goods in the secondary industries. He also emphasised that “they could not produce wealth simply by turning a handle and printing money.” That is perfectly true. Satisfaction will be felt, too, that Mr Savage has been able to secure the promised cooperation of the Federation of Labour in promoting the smooth working of industry and in increasing production. Productive output has been seriously hampered by strikes and lock-outs recently and if the co-operation of the Federation results in their elimination, it will be welcomed by Government and people alike.