THE OTAGO DAILY TIMES SATURDAY, MAY 6, 1950. THE RIGHT ROAD

Otago Daily Times, Issue 27382, 6 May 1950, Page 6

THE OTAGO DAILY TIMES SATURDAY, MAY 6, 1950. THE RIGHT ROAD

Earlier this year Mr Holland gave the people the first frank—and disturbingly revealing—view of the true state of the country’s finances which they had had in years. He then promised that his Government would not shirk its responsibility of restoring our financial system. Last night he proved that he is as* good as his word. The principal public interest in his announcement will be centred on the sharp reductions in subsidies on common consumer goods, and the intention to abolish subsidies on others. The people all, since all are consumers, will have to pay more over the counter for bread, flour, milk, butter, tea, coal, eggs and, eventually, woollen goods of local manufacture. The prospects can arouse no elation in. the breast of the bread-winner or his spouse. But the added costs —which are estimated at 4 per cent, on the index figure—will not come as hard as those easy to panic will be now fearing and those anxious to arouse political feeling will soon be declaiming.

There will be, on Mr Holland’s statement, an opportunity for the wage-earner to offset his extra household costs by a cost of living bonus. This can be taken into account with present wage adjustment claims, and the consequence will be that the New Zealand worker will receive wage compensation directly related _to increased living costs. Any citizen of this country who realises how arbitrarily, how waywardly, subsidies have protected him, or have failed to protect him, from soaring prices must know that the result of asking him to pay the real value of his purchases is to benefit him. Concealing the process of inflation by indiscriminate hand-outs from the consumer’s own purse is not only dishonest but ineffectual. Making it possible for the consumer to pay for what he buys is not only economically sound, it is honest and conducive to an honest personal appreciation of the facts of existence. There was but one way in which the Government could deal with the subsidy problem, which was growing out of control. The Government has taken the course —it has cut and removed the subsidies. Its decision to allow, in effect, earnings to reach a compensating level is not, of course, such sound economic practice. This must mean a rise in costs of production, an inflationary tendency to off-balance the antiinflationary action that has been taken. But there are, apart from the positive net gain in national economic stability, other advantages. Subsidies not only conceal costs, they smother productive efficiency. It is notorious that in subsidised industries (as in over-protected industries) efficiency lags. The Government is not just bringing the facts of living costs home to the consumer, it is putting the realities of costs before the producer. The gain is incalculable, but it should prove to be considerable throughout business and industry.

In the steps announced last night, in the steps proposed to bring telephone rentals and railway charges nearer to the actual cost of the services provided, the Government is fixing the way to a sound economy. For the present the few steps forward are to be accompanied by a step back; but if Mr Holland and his colleagues remain resolute on their course the people of New Zealand can look forward, and at no far distant time, to a new security based upon incomes with real spending power—a prosperity of worth for work.