CONTROLLED EXCHANGE

Otago Daily Times, Issue 22294, 21 June 1934, Page 8

CONTROLLED EXCHANGE

DIRECT AND INDIRECT COSTS IMPORTERS’ FEDERATION ESTIMATE The following statement has been issued by the executive ■of the New Zealand Importers’ Federation: — Controlled exchange at the artificial fate of 25 per cent, has been operating for 17 months, since January, 1033, and, from the Government’s recently published audited accounts covering the twelve months ended March 31, 1934, much is .revealed regarding the staggering cost of this dangerous experiment with the Dominion’s financial stability. It is time the public .-realised the dangers of the position. The depreciated rate continues to operate and there is no real reason to suppose that the cost to be faced for the current twelve months will be any less than it was for the year ended March 31 last. Consider the following approximate figures dealing with the cost of the exchange during one year alone;— Direct Costs. £ Twenty-five per cent, extra on Government overseas debt payments .. 1,797,000 Twenty-five per cent, premium on surplus funds taken over from banks (£20,094,000) 5,023,000 Difference between Interest paid to banks on Treasury bills and In- , terest received by Government on London money. (London Interest averaged at 1 per cent.: local Interest at 5 per cent. Calculated at 4 per cent difference on half of £20,094,000. Four per cent, on £10,000,000) 400,000 Twenty-flvo per cent, extra on overseas debt payments by local bodies. (Interest payable to United Kingdom, £880,772) 220.000 Total direct costs 7)440,000 Indirect Costs. Twenty-five per cent, extra cost of imports (estimated by taking difference between sterling value and value in New Zealand currency as shown In Government Abstract of Statistics) .. .. 4,658,000 Sales tax made necessary by exchange disruption of Government finance. (From Abstract of Statistics) .. 1,847,000 Extra cost of shipping charges. Outward freights at 12} per cent, of £5,000,000. (Note: Total exports for the year were valued at £46,000,000 New Zealand currency, > - and freight approximates 10 per* cent, of value. Though official exchange Is 25 per cent, an agreement with shipping companies provides for surcharge of only 13 2-3 per cent, on butter and wool freights. Exchange on freights of other goods does not average lower, but 12i per cent, has been used for conservative calculation. Inward freights are covered by extra cost of Imports—see Item above— freight being added to the landed value.) 625,000

Total Indirect costa .. .. 7.130,000

Total, direct and Indirect £14,570,000

There are other indirect coats in addition to those shown above. The Minister of Finance has already announced that the Central Bank will purchase all sterling held by the Government in London, but that any loss on this transaction will be borne by the Government. It would appear that the Government still cherishes the hope that there will shortly arise so great a demand for sterling. to pay for imports from Great Britain that no ultimate loss will have to be faced these heavy holdings. The executive of; the New Zealand Importers’ Federation expresses its firm belief that it is not possible our importations will be swelled to such an extent that they will balance our exports for the next two years and also take care of the twenty millions in sterling which had accumulated by March last. In fact, so long as the present artificial rate of 25 per cent is in existence so long will imports lag, and it will not be until the exchange is considerably reduced that the volume of imports will increase appreciably. , , , The Central Bank, it is understood, will purchase all the excess sterling held by the Government in London by crediting the Government, in New Zealand, 'with an equivalent amount in New Zealand currency, and, with that, the Government will retire Treasury bills held by the Associated Banks. Such a transaction certainly suggests inflation, as when it "is completed the local banks will hold additional funds in New Zealand amounting to between twenty-five and thirty millions. It is well known-that avenues for the employment of already existing capital are very difficult to find. , It is possible that these transactions will have the effect of permanently depredating our currency and, if that takes place, the problem of our dairy farmers will be rendered even more difficult when the Ottawa agreement expires. It is an axiom that everything in this ■world has to be paid for sooner or later, and this executive is convinced that any temporary benefits which the farming community may have seemed to secure from the depreciation of our currency will be more than counter-balanced by the future grave difficulties which face the marketing of our produce in Britain while New Zealand’s currency remains depreciated.

“FANTASTIC CALCULATIONS” THE IMPORTERS’ STATEMENT. MR COATES’S CRITICISM. (Per United Press Association.) WELLINGTON. June 20. “My attention has been directed to a statement which is being published by the New Zealand Importers’ Federation and which contains fantastic miscalculatious as to the allegedly enormous financial cost of the exchange rate adjustment,” stated the Minister of Finance (Mr J. G. Coates) to-night. “Regarded as a whole, the calculations are, in fact, so fantastic that they carry their own condemnation, aud it is needless to comment generally.’’ Some pointg of comparative detail may, however, be mentioned. First, the sales tax is brought into account as ‘ an indirect cost ’ of the exchange adjustment. It is no such thing, and the repeated false assertion to the contrary have never been substantiated. If the federation or any other persistent critic would take the trouble to ascertain the facts they would see that the former Minister of Finance (Mr Downie Stewart), while not in favour of the exchange rate adjustment, stated explicitly that the sales tax did not result from the variation in the exchange rate. To quote his words from Hansard, Mr Stewart said, ‘lt would be Unfair of me not to say that, apart from the raising of the exchange,_ so far as I had an opportunity of looking at the position, either a sales tax or some heavy alternative taxation would have had to' be imposed to cope with the deficit that was in prospect. - “ The federation has also made an obvious blunder in simple arithmetic,” continued Mr Coates. “ The direct cost of the transaction they allege (quite inaccurately) to be £7.000,000 odd, and to this they proceed to add f 1.800,000, being the proceeds of the taxation which they argue to have been made necessary by the transaction. For what reason these figures have been added together it is impossible to conceive. Their own argument is that the direct cost has been £7.000,000, of which f 1,800.000 has been met by new taxation, and these two sums are solemnly added together to show the inflated total described as ‘ direct and indirect loss.’ It is simple nonsense. It is on a par with arguing that the year’s public expenditure. ; is £20,000,000. the taxation is £20,000,000, and that the cost of government is. therefore, £40,000,000. “ The federation the fear that inflation will resul"from the transaction to whmh. with such inaccurate arithmetic, they tako cypontion. When this word is iwed it would nt least be interestinc if the federation would say preciselv what it menus hr lufiefion.”'