THE PUBLIC DEBT.

Otago Daily Times, Issue 19529, 11 July 1925, Page 21

THE PUBLIC DEBT.

AN EXPERT ANALYSIS. REPORT TO CHAMBER OF COMMERCE. An informative statement of the public debt in the dominion, prepared by the Department of Economics. Canterbury College, in collaboration with the Canterbury Chamber of Commerce, was presented at Monday night’s meeting of that body (r-ay; the Christchurch Press). Summarised, the report was as follows; During the 10 years ended March 31. 1524, the State indebtedness of New Zealand increased by £127,000,000; £77,003,yc, of this was raised for war purposes, leaving a net increase for purposes other than war of £50,000,000 or £5.000,000 a year foi the 10 years. The total debt at March, 1924, was considerably more than twice as great ns in 1914, and roughly four times ns great as in 1904. The main facts of the recent growth paay bo summarsod as follows; — .. Silking Funds Gross Debt AocumuAt debt per head bi-tod March 3. (£ mil.) 41. (£ mil.) 1004 57.5 C 3 1-4 IS 14 54.7 83 3.0 1520 201.1 102 7.2 152.1 221. G IC4 12.9 The net debt at March, 1924, was thus £200,000,000, or nearly £155 per head o* population, a higher figure per head than of any other British dominion, except. Australia! and the amount, paid out of the Consolidated Fund for interest and sinking funds for 1923-24 was £8,882,000, and for 1924-25. £8.892,000. These amounts, how- ' ever, do not include interest on loans riaseu for advances to settlers, etc, The gross charge for interest in the year ended March, 1924 yms £9,632,000, and the sinking fund contributions bring the total cost of the debt service for that year up to £10,636,000 REPRODUCTIVE MONEY. Not all of the burden of this huge payment, however, falls upon the taxpayer. Part of the money borrowed has boon invested in undertakings classed as “reproductive” which infers that this part is expected to bo more or less self-supporting. The following table shows lh c relative amounts and proportions of the “reproductive” and “unproductive” portions of tnc debt at various periods. Reproductive Unproductive. Amount. Amount. £ mil. p.c. £mil. p.e. At Mar., 101-1 74- 78 20 22 1514 to 1524 War debts Other debts 45 50 5 10 At Mar., 1524 ... ... 119 64 102 4(1 Thus £119,000,000, or 54 per cent, of the present debt is classified as reproductive, and £102,000,000. or 46 per cent., as unproductive; of this latter total, £77,(X)0,C0C or throe-fourths is duo to war debt . Our public debt has now reached a point whore both its magnitude and its rate oi growth call for attention. I here are few who would expect that the dominion would cease to borrow overseas altogether. Hie legitimate demands by private business anc local bodies in the dominion for increased capital are considerable, and so far as the Government is concerned, British capital b often cheaper and more plentiful than local capital. In our young country there wil undoubtedly bo many openings yel for the wise investment of such capital by the Government in do veiopmontal works, but the time has corno when we should take clock of our position, realise how rapidly we are accumulating debt, and face frankly the urgent need for strict economy in our loan expenditure. DEBT OF £221.000.000. The table reproduced above shows that of the total public debt of New Zealand of £221,000,000, £102,000,000 is unproductive and £119,000,000 productive. The productive debt comprises the following invest monts:—About £54,000,000 is invested ii directly reproductive works, such as radwuye and hvdro-clectric dcvolnmcnt. and nearly £50,000,000 in land settlement ant advances of various kinds. In a detailed list of items included under these heads there are some which, though not paying their own way as yet, should prove well worth while in the near future- there arc some, of course, where expenditure has been premature or wasteful, which are unlikely to pav for many years to tome, but the majority of items, accounting for ninetenths of the total, should be paving their own way. 'll, would ho much better both for our credit overseas and in view of local criticism of expenditure, if the accounts were so presented ns to disclose clearly to what extent the burden falls on the taxpayer. The balance of about £16,000,C0C has lieen expended on roads and bridges, ■’nigation, immigration, etc, Much of this has boon wisely snont, and brings a relu’-n more than ample, though it cannot he measured in money. UNPRODUCTIVE DEBT. Of the unproductive debt of £102,000,000, £25,000,000 remains after excluding the war debt. Of this 9.3 millions has been spent on public buildings and 1.3 millions on education ; the balance is quite unproductive and mainly on accumulation of liabilites from the past, and includes Maori wars (2c millions), defence (3.8 millions), and the cost of raisng loans, old provincial debt, etc. (7.8 millions). For the future it should bo possible to arrange that, except in case of groat emcr. gency, there should he no furl her increase in the unproductive onrtion of the debt, SOURCE OF LOANS. It is worth while also to consider the source from which our loans come, and the recent changes in the distribution of our gross debt, which are shown in the following table; £ millions Debt Raised in Ton. N.Z. Aust. Tl. 1520 55.7 102.1 3.4 201.2 1024 114.8 104.5 2.0 22!..! Increase 10.1 2.4 1.4 20.1 THE INTEREST BILL. The increase during those four years :s therefore £20,000,000, or £5,000,000 a year, practically all raised in London. The year ended March, 1925, brought a further increase of £6,000,000 in the total, and £7,000,000 has boon raised in London since then. Something over £5,000,000 may therefore bo taken as the present average annual increase, and London is the source from which practically all of this conies. Ihe annual interest bill duo in London is also about £5,000,000, in addition to £4,500,000 duo in Now Zealand. We are thus, on average, balancing our interest bit in London every year by moans of fresh loans raised there. Good reasons may be adduced for questioning the advisability of raising almost all our loan money in London. ixiaua raised abroad tend to increase tho value of our imports by tho amount of tho loans. In practice tho tranfer of loan money raised abroad means that funds so raised are paid into the bank balances overseas, and tho banks transfer them merely by crediting tho amount to tho Government’s deposit accounts here. This means an inflation of credit in New Zealand by the amount of tho loan money transferrer]. It increases the total amount of purchasing power in the lominion without any corresponding increase in local production to justify it, for it increases the purchasing power of tho Government, without making any corresponding reduction on the pun chasing power of tho general public, a? would happen if the funds were raised locally by taxation or by local loans. EXTENT OF INFLATION. In 1923, the only year for which Govern ment import figures are available, net borrowings, exclusive of redemption, were £5,000,000, which equalled tiio interest payments duo abroad. In that year the Government imports wore £1,500,000. The dilferenco, £3,500,003, was tho extent of tho inflation, and therefore, of the increase of other imports, directly due to tiic borrowing abroad, in that year. This argument requires, of course, tho following important qualification; it tho Government credit in New Zealand derived from a loan in London is properly applied in directions vvhoro it is reproductive, the consequent inflation is healthy. Unfortunately, however, principles of this kind, which should govern foreign borrowings, are usually more honoured in the breach than in too observance. If the State raises its funds in New Zealand the effect is different. The purchasing power in the hands of the public is decreased by the same amount as that of the Government is increased. There is no inflation, for there is no increase of purchasing power, but simply a transfer of purchasing power from the public to tho Government. As tho loan money is spent, it is transferred back to the public again for services rendered. The not result is a debt recorded from tho State to tho people, and the annual interest, which comes from the people, goes back to them again, as docs the capital when it is ultimately repaid. Such raising of loans in itself does not affect our overseas transactions at all, consequently there is no direct effect either on imports or exports.

LEVEL OF CONSUMPTION TOO HIGH. As a result of the overseas borrowing that has been practised so constantly, the dominion is enjoying now, ns it has been enjoying for at least 20 years, a_ level of consumption which is far Ironi justified by its current income. Wo are at present receiving annually, in the form of imports, more than five millions worth of goods in excess of what is warranted, in view of our interest obligations on State debt alone, by our current production for export. Moreover, it is at least doubtful whether in all rases wo aro getting full value for the liabilities wo are accumulating. The easy money that comes with unrestricted borrowing is itself a stimulus to extravagant expenditure, and it is questionable whether all the money spent on public works, etc., in recent years will prove as productive as was expected. The rapid growth of debt, together with the necessity to safeguard our national credit, aro, however, forcing upon us tho necessity for greater economy so as to reduce borrowing, especially from overseas. , . A very necessary reduction in tho dominion’s borrowing in London can only bo brought about in throe ways. First, by increased which is unthinkable-, second, by borrowing a larger proportion locally, hiit in this connection it must be rememliered that there is a limit to tho amount of money which tho Government should borrow locally, as over-borrowing b v the Government in the dominion cripples industry by making prohibitive the cost of now capital for private enterprise ; thirdly, by a reduction of Government exponditure. Speaking generally, it is ,the reduction of expenditure which should prove most efficacious, and it can only bo brought about by stricter control: this is our most pressing need at tho moment. To the subjects of the control of public expenditure and also the growing indebtedness of local bodies, the Chamber proposes to devote attention in further bulletins.

. Tho report was ordered to lie on the table.