A Return To “Debt In Perpetuity”

Southland Times, Issue 23794, 17 April 1939, Page 6

A Return To “Debt In Perpetuity”

THE recommendations on financial policy which were adopted by the annual conference of the New Zealand Labour Party last week show even more plainly than the delegates’ expressions of confidence in the Prime Minister, that Mr J. A. Lee and the advocates of “currency creation” have suffered a signal reverse. The Minister of Finance himself was chairman of the committee which examined remits on finance and made recommendations to the conference; and the committee s opinions were in every case accepted. Most significant was the rejection by the conference, on the committee’s advice, of a remit requesting the Government to raise no further loans either externally or internally.

The committee’s opinion (according to a Press Association report) was that external loans were necessary to ensure the importation of plant and raw materials required for the expansion of secondary industries. While the provision of credit by the Reserve Bank should be utilized to the maximum extent the committee recognized that essential expansion and development could only be obtained from commodities which were conserved from 'prior production and that this would entail an internal loan in addition to the credit from the Reserve Bank.

The sanctioning of overseas borrowing marks a substantial change in Labour policy as expounded in the past by many prominent members and Ministers. But approval of internal borrowing is an even more radical departure. Mr Lee —and others in the party—are opposed to borrowing on the ground that it means perpetuating the debt system and is thus a betrayal of one of the party’s cardinal principles. Apparently Mr Savage once held the same view. “Borrowing,” he said in Invercargill in a pre-elec-tion speech in November 1935, “means debt in perpetuity, which has already reached unmanageable proportions, while the intelligent control and use of currency and credit would not involve the country in debt in perpetuity. . .” Today, however, the idea of supplying the State’s full capital requirements by “the intelligent control and use of currency and credit” has been abandoned —as have the other ideas, mentioned at the same time, that further taxation was out of the question, that the exchange rate would be reduced and the sales tax abolished, and that unemployment would be eliminated. The theory that State control of credit and currency was all that was necessary to keep the Government perpetually in funds has been found untenable. Even the measure of credit expansion that has been attempted has involved the Government in serious difficulties and brought about the present necessity for retrenchment through import restrictions. The Labour conference’s approval of borrowing, external and internal, marks a further important step in the return to realities that is being forced on the Government by the pressure of the financial and economic problems now confronting it.