Poverty Bay Herald PUBLISHED EVERY EVENING GISBORNE, FRIDAY, OCTOBER 9, 1936. LABOUR FINANCING

Poverty Bay Herald, Volume LXIII, Issue 19141, 9 October 1936, Page 4

Poverty Bay Herald PUBLISHED EVERY EVENING GISBORNE, FRIDAY, OCTOBER 9, 1936. LABOUR FINANCING

Despite the reticence of .Ministers regarding details, the intentions of the Government for financing i' s ambitious program me arc gradually becoming known, mid the information which, liy degrees, is being forced to light is calculated to do almost anything except inspire confidence in the future of the Dominion. Successive

Governments have attempted to wan: the country against the dangers of continued borrowing, but no one has been more emphatic in his dernnieiation of this practice than the present Prime Minister. In the course of his pre-election addresses he asserted that "borrowing means debt in perpetuity, which already has reached unmanageable proportions." Referring specifically to the Gishorne railway he stated that the "method of completing the line will not be to borrow money for the purpose. . . . We will simply pass the credit and finish the job." The difference between tlie Government \s precepts and its practice was never more convincingly demonstrated than in the second Fin since Bill of the session, for the bill actually authorises borrowing for the frisbornc railway. Under this bill, the Minister oi Finance is empowered to borrow no hvs than £13,000,000 for public works main highways, and housing. Thus, in it~ first venr oi* office, the Labour

Government is proposing to increase tin' "debl in perpetuity" by a larger amount than in any other year in the historr of the country with tho exception of the war period and the year following it. How is it possible to square this decision with the previous denunciation of the raising of loans? In some circumstances, the use of borrowed money could readily bo .justified, Iml it. will not be warranted unless it can bo shown thai the expenditure will be reproductive, and the Government's proposals do not measure up to this cardinal requirement. Except whore the contemplated works are self-supporting, the interest on loans becomes n charge upon the taxpayers, and so far as can be .judged this will be the position in regard to the bulk of the £13,000,000 which it is now planned, to spend. Certainly the £2,000,000 to be spent on main highways will not pay interest to the Exchequer; little of the £(5,000,000 allocated to public works can be expected to do so; and only pari of the interest on the £5,000,000 for housing will be recouped by the department concerned, This means, not only that the ''debt in perpetuity which Ims already reached unmanageable proportions" will be increased by £1:1,000,000, but also that there will be ;i permanent addition to an annual taxation bill which, in proportion, is easily the highest: in the world and, it is strongly suspected, has also reached unmanageable proportions. And if this exposition of Labour finance is not sufficiently perturbing, it is' only necessary to remember that the Government in this bill and previ-

ous ones has taken almosl unlimited power to borrow from the Reserve Hank.

The explanation of the Minister of Finance as to how the money is to he obtained provides furl her food for very serious thought. His explana-

tion, either by accident or design, was vague in the extreme, but, the points which have been allowed, somewhat

reluctantly, to emerge, are not reinsuring. Hitherto, all the talk has been about using that nebulous thing known as "the public credit." Today. .Mr; Nash states the Government intends "to utilise the savings of the people," a phrase that will be much more understandable to the people concerned, and that if more money is required —presumably after the people's savings have been exhausted by the State —"created money" will be obtained from the Kescrve Bank. The inference to bo drawn from these statements may not bo what the Minister really intends to convey, but it is so gravely alarming as to require that there should ,be the utmost frankness as to the- real proposals.

Despite the fact that there are idle funds in every institution in the country; the Minister states that the Government is positively of the opinion that some new money is needed, and, apparently, it is going to "create" £3,000,000 worth of printing press money which, ultimately, will go to swell the existing hoards of frozen capital. In other words, instead of taking existing funds into circulation, it is going to provide more paper money to be taken out of it.

The dangers of this policy can best be described in Mr. Nash's own words when replying to the Budget debate. "We must make sure," he said, "that there is a pound's worth of goods or services behind every extra pound of credit created." That has been the procedure in the past, but what goods or services will there be behind the £3,000,000 worth of paper which the -Government is going to distribute in payment for its schemes? The fact that assets may subsequently be created does not mean that there is any backing for the credit when it is issued. "If we issue too much (i-edit." said Mr. Nash, "ultimately there comes Nemesis." And is not. that precisely what the Government, intends to do; to issue credit against which, at the time of issue, there is

no security.' Having used up the people's savings and issued "createit money," what will the Government do when the now credit, like that already in existence, becomes frozen? Obviously, the only course will be to set the printing press '" motion again until, as Mr. Nash so eloquently say.-,, "ultimately there comes Nemesis." This dangerous procedure is being adopted, not because there is not, ample money to lie obtained in the orthodox way, but, simply to satisfy those who demand some form Of costless credit. But this credit will be anything but costless. Every pound issued without the backing of goods and services—-and the Government is starting oil' with £3,000,000 must mean a -reduction in the real value of every pound in circulation, and it will not take the country long to realise that this method of financing is infinitely more costly than The old one of borrowing real money at a moderate rate of interest.