CAPITAL EXPENDITURE.

Otago Witness, Issue 3774, 13 July 1926, Page 18

CAPITAL EXPENDITURE.

LAST YEAR’S OUTLAY. In the course of the Budget Minister of Finance reviewed New Zealand’s capital expenditure for the past year, which, though for the most part reproductive, represented, he said, a large outlay for the size of the population. The Minister suggested that as high terms for borrowed money meant an increase in the cost of services to the consumer, a tapering-off policy should be adopted on the completion of the large undertakings now in hand, until our population and trade had increased, l'he Minister said: In the last financial year, including £500,000 transferred from the Consolidated Fund, a total of £6,924,520 was made available for carrying on the public works and general development programme of the Government. The net expenditure on capital works out of accounts to which the additional loan capital was allocated may be summarised as follows: — £ Kailway construction, additions, and improvement . 2,786,190 Telegraphs and elephones .. 931,661 Hydro-electric supply .. .. 945,573 Main highwa3 r s and roads .. 949,077 Irrigation, swamp drainage, and rivers improvement .. .. 229,569 Public buildings, including schools 849,041 Other public works 489,308 Total £7,180,479 Considering the population of the Dominion, the above is certainly a large capital outlay for one year. It will be observed, however, that the greater part (pbout £4,700,000) was expended on the first three items enumerated—on railways, telegraphs and telephones, and hydro-elec-tric power schemes—all of which are productive works which as soon as completed will earn a large part, if not the whole, of the interest payable on the relative portion of the public debt. Main highways and irrigation and swamp drainage can also be classed as productive, though the return is in some rases not so immedaite. In regard to such productive works it Is essential that every phase of the question *—and particularly the probable earning capacity—should be carefully considered before extensions or new works are undertaken, but once construction has been commenced it is obviously sound business that the work should be completed as quickly as possible, in order that the concern may •tart to earn Interest. For this reason curtailment of finance for undertakings in band would undoubtedly leava us with Unproductive assets.

The second class of expenditure—on roads and schools and other public buildings—cannot be classed as unproductive, though there is no immediate monetary return. Roads, for instance, are necessary to open up new lands for settlement and to improve the existing means of communication, while education is vitally necessary to enable the next generation to be properly equipped to maintain and improve the standard of prosperity in this favoured Dominion. In this class of expenditure it is essential that the State should take the long view; but such expenditure is in the meantime a direct charge on the taxpayer as such, and care must be taken to see that the spend, ing rate is regulated in accordance with the real needs of the country and the financial strength of the Dominion. Although this class of expenditure cannot be placed on a commercial basis it is essential that the cost of renewals and replacements should be met out of revenue. An important consideration is the weight of the war burdens. The war debt in itself is a heavy dead-weight charge, and If further direct charges are placed on the taxpayer at a rate in advance of the increase in population and wealth of the Dominion, it must mean increased taxation, which in turn would retard business and hinder the development of the country. Another important factor which also affects productive expenditure is the price at which fresh capital can be. obtained. The greater part of our public works have been constructed with capital obtained on relatively very favourable terms, but as a result of the huge destruction of capital during the war it is not to be expected that money will be cheap in the near future. In this connection, 400, it must not be forgotten that a large part of the loan capital raised in the past" at low rates will fall due In the new few years and have to be renewed at current rates of interest. The loan recently raised In London cost, including redemption of the discount and expenses over the period of the loan, about £5 0s 2d per cent. Used in the construction of productive works this means ultimately increased costs of the services to the consumer, and it Is certainly too expensive to be used for works not financially productive. I hold the view that on completion of the largo undertakings now in hand in respect of railways and hydro-electric power, a tapering-off policy should be adopted until a further national stocktaking justifies extensions commensurate with our increasing population and trade.