FINANCIAL POLICY

New Zealand Herald, Volume LXXV, Issue 23010, 11 April 1938, Page 14

FINANCIAL POLICY

ME. NASH'S PHILOSOPHY USE OF RESERVE BANK ORTHODOXY MAINTAINED LUCK OF MOUNTING REVENUE No. ill. BY SIR HARRY GULLETT, M.H.R. "I know where we are, where we are going, and the difficulties ahead of us." Mr. Nash. Minister of Finance in Now Zealand, made this declaration to me without the least demonstration of feeling. His words were a quiet, sincere expression of the confidence the man has in himself, in his plans for social progress and the principles upon which he believes those plans to be based. His experience has been wider than that of his leader, Mr. Savage. Born in Kidminstcr, Staffordshire (where the carpets are made), he has, since his migration to New Zealand, substantially advanced his position. And this is not astonishing, because the New Zealand Minister of Finance is admitted by his strongest political opponents to be a man of outstanding capacity and versatility. To-day ho is the first debater in the New Zealand Parliament. His interests have ranged beyond an intensive study of New Zealand's social conditions and the steps necessary to improve them. He is deeply concerned with international affairs, and has attended more than one of the conferences upon Pacific Relations; he has also been New Zealand's delegate to the annual conference of the International Labour Office at Geneva. He is an avowed Socialist, an idealist, and, as the events of the past two years have shown, a man who rejoices m strong action. A refreshing feature of a political talk with tbis heavilv-loaded Minister is that he surveys the highly controversial field without class feeling, and that is equally true of his leader,. Mr. Savage, and other Ministers I met. One finds, with little exception, the same happy characteristic among leaders in trade unionism and as a rule among the workers. Reserve Bank Legislation

Tlio issues of current Now Zealand politics are nearly all familiar. This is particularly true of the control of the Reserve Bank and the 40-hour week. Mr. Curtin's endeavour at the last election to bring the Commonwealth Bank (the Reserve Hank of Australia) under the direct authority of Cabinet, lias been achieved by Mr. Nash as Minister of Finance in New Zealand. When the Reserve Bank of New Zealand was established in 1933 by Mr. Coates, as Minister of Finance, it was of peculiar composition and control. Of its total general reserve fund' of £1 .000.000, the Government contributed £1,000.000. and £'500,000 was subscribed by the public in 100.000 shares of £5. bearing cumulative interest at 5 per cent. Of the seven directors, three were appointed by the Government and four by the subscribers. The Reserve Bank Amendment Act passed under Mr. • Nash's guidance effected impressive changes. Tho private shareholders were bought out upon very generous terms, and the Government supplied the shortage of £500.000 in the original capital, thus becoming the sole owner of the bank. Mr. Lefaux, the original Governor, who to New Zealand from the Bank of England. still holds his position, and the seven directors continued in office for the time being. Section 10

All directors now hold office afc the pleasure of the Governor-General, which may be taken to mean that they may be summarily removed at any time they fail to meet the wishes of the Cabinet. This leads us on to Section 10 (1) in the Amended Act. bv which the Government assumed direct control of the bank, the creation of credit and the note issue. The clause is of such significance that it deserves to be quoted in full:—

"It shall be the general function of the Reserve Bank, within the limits of its powers, to give effect as far as may be to the monetary policy of the Government as communicated to it from time to time by the Minister of Finance. For this purpose, and to the end that the economic and social welfare of New Zealand may be promoted and maintained, the bank shall regulate and control credit and currency in New Zealand, tho transfer of moneys to or from New Zealand, and the disposal of moneys that are derived from the sale of *anv New Zealand products and for the time being are held overseas." Powers Still Unused

So far. Mr. Nash has made no use of the powers which, in the Government's view it possesses over the Reserve Bank under Article 10. Since the Article was passed by Parliament there has been nothing in the nature of inflation. The bank has made heavy advances —amounting to some millions—to enable the Government to purchase all export butter at the guaranteed price f o.b. under the new dairy produce control scheme. But this is nothing more than a matter of temporary finance of the kind previously practised more or less by the trading banks before the new dairy produce scheme came into operation. The Reserve Bank is recouped as the butter is sold overseas. _ 1 he bank is also believed to be financing the Government's housing scheme, but upon what terms has not been disclosed. However, as a fair commerieal rent is to be charged for the houses, it may be assumed that this advance does not represent credit creation. No Unorthodox Acts It can be said with complete confidence that the Reserve Bank of New Zealand has not so far been asked by • the Savage Government to do anything which is not a common practice between. say, the Government of the United Kingdom and tho Bank of England. or the French Government and the Bank of France. But this fact is far from reassuring to the business and financial world of New Zealand. First there is tho phenomenal speed with which the Government rushed the Reserve Bank amending measure through the new Parliament. That seemed to indicate a disposition to begin early with the creation of credits. But an individual who contemplated the acquisition of wealth by unorthodox means would probably be turned from his purpose if at that moment he was lucky enough to win a big sweepstake in Tattersall's. And that is, in the field of politics, something like what happened to Mr. Nash as Minister of Finance. Wallowing in Riches From the day the Savage Government took office, it has positively wallowed in increased revenue. This has come in part from a sharp increase in the rates of income tax and of land tax. But in the main it has poured in from rapidlyswollen returns from both direct and indirect taxation —the result of very heavy production in all important fields, attended by a super-wave of high prices for primary products. The same surge in prosperity has enabled the Government to keep public works expenditure going at the rate of more than £1,000.000 a month during the current year without recourso to consolidated revenue, loan money or credit creation by the Reserve Bank. Will the luck of the Government continue, or will it be forced to use its compulsory powers over the Reserve Bank and create credit? This question will be turned over in a following article. *