Poverty Bay Herald. PUBLISHED EVERY EVENING GISBORNE, THURSDAY, MAY 5, 1938. WOOL AND POLITICS

Poverty Bay Herald, Volume LXV, Issue 19623, 5 May 1938, Page 4

Poverty Bay Herald. PUBLISHED EVERY EVENING GISBORNE, THURSDAY, MAY 5, 1938. WOOL AND POLITICS

Preliminary figures published to-day show how seriously the sheep farmers of the Dominion have been effected by the decline in the prices during the selling'season which ended last month.. According to the statistics of the Woolbrokers' Association the total value of wool sold was £8,793,873, which compares with more than £19,000,000 last year, and £13,293,000 in 1936. To some extent the decline is due to the smaller quantity sold, but the average price at the last sale of the season showed a reduction of nearly 50 per cent when compared with the corresponding sale of the previous year. The position for the individual grower is not an enviable one, while, from the national viewpoint, a drop of more than £10,000,000 in ilie receipts from exports is a development that cannot be ignored. Again it should be emphasised that, while this position is serious for the sheep farmers, it is not by any means a catastrophe for the Dominion, because the value of other exports has been comparatively well maintained. A reduction of £10,000,000 in the aggregate value of exports, however, is a factor which cannot be disregarded in any consideration of the financial and economic position of the country. It is generally recognised that the returns from exports govern the economic conditions, and consequently, the degree of prosperity, of the Dominion. The figures for the first two months of this year show that the value of exports declined by more than £1,500,000, or 10.6 per cent, the returns for February alone showing a decline of more than 26 per cent. This can be

wholly accounted for by the lower wool values, and if the estimated wool figures are realised and other prices and exports remain more or less stable the year will end with a reduction in the total value of exports of about 12J per cent. This means that last year's increase in export values will not only be wiped out, but that the returns for 1938 will be approximately £5,000,000 less than in 193(i. On the other hand,

imports continue to increase, thus refleeting the larger orders that were sent overseas during last year's period of good prices. Last year's excess of exports over imports, which provides the funds from which overseas debt payments are met, showed a reduction of 47.7 per cent. For the first two months of this year there was a decline of almost 50 per cent. In two years, the overseas funds of the banks have decreased from £41,200,000 to £25,500,000, so that overseas reserves are being rapidly depleted. The position as it exists to-day must cause some concern when considered in relation to the Budget that will be presented later in the year. In the first place, the returns of wool growers will be lower by about £10,000,00. At the same time, their costs have continued to increase, so that the net income will be reduced in even larger proportion. This means that the income tax to be collected for the current year will be considerably affected. The reduction in the spending power of the farming community must be reflected in retail trade, and particularly in the expenditure on luxury goods. Allowing for the customary time-lag, there will be a contraction of imports and the revenue from customs duties and the sales tax will be less. Nor will the repercussions end there, for a reduction in the income of the farming community must affect the earnings of other sections, and they, too will pay less in taxation, both direct and indirect. On the other side of the ledger, the Government is now planning for expenditure on a higher scale than ever before, it may have to find larger sums for the relief of unemployment, and the position will be further complicated by the pegging of costs at an artificial level. Thus it is that a drop in the price of one important export commodity can create almost unending difficulties for the Treasury. Under ordinary conditions this development would not be a serious matter; but conditions at present are far from being ordinary. Before today, New Zealand has faced a decline of £10,000,000 a year in exports for two years in succession. The experience then was not a pleasant one. The peak of Government expenditure in those days, however, was only £25,000,000; to-day, it is at least £35,000,000 and further commitments are being entered into—and there are no reserves or untapped resources to fall back upon. On the basis of last year's exceptional figures the Government was unable to finance its social security plan without imposing a wage-tax of Is in the pound. What will the position be now that the figures threaten to be materially reduced? More than that, it cannot be forgotten that at the inquiry into the new scheme both the Prime Minister and the Minister of Finance explained that the plan was based on the assumption that there would be a continued increase in production. Already this assumption has been proved to be illfounded. What, then, becomes of the scheme and what will be the effect on the national finances? Only a few months ago, the Prime Minister and the Minister of Finance assured Parliament and the people that plans had been laid for isolating the Dominion from the effect of any possible decline in world prices. World prices for wool have already declined, and it is not unfair to suggest that the time has arrived for the Government to launch its scheme of isolation from the adverse effects.