FISCAL POLICY IN N.Z.

Southland Times, Issue 24438, 19 May 1941, Page 12

FISCAL POLICY IN N.Z.

MR NASH REPLIES TO QUESTIONS

SHARING SACRIFICES Claiming that there is no conflict in the Government’s announcements that the necessary consumer goods will be produced to the maximum and a policy of absorbing redundant purchasing power by taxation, the Minister or Finance, the Hon. W. Nash, says, in reply to questions: “This, of course, may mean that the standard of living will decline. However, it is the Government’s intention that, as far as is consistent with the full and active prosecution of the war, every effort should be made to spread, in accordance with ability to share sacrifices, any diminution in such standard which possibly may have to be made.” The questions were forwarded to Mr Nash by The Press, Christchurch, after publication in The Times, London, of the following statement: “Though New Zealanders help Britain by buying British goods rather than American goods, they help still more it they can do without the goods altogether. This has recently been emphasized in a statement communicated in December by the United Kingdom Government to the New Zealand Government. This statement also includes a request that restriction of non-essen-tial imports from the United Kingdom should be accompanied by equivalent economies in New Zealand’s consumption. Economies in the consumption of imported goods are being forced upon the people of New Zealand by import restrictions and by the difficulty of obtaining supplies from the United Kingdom. It is important, however, that the demand for goods which cannot be imported should not be deflected to the home market. If this should occur, instead of the required drop in consumption the result will be an inflationary increase in prices. Fortunately it does seem to be generally recognized that this is undesirable.”

DOMINION PRODUCTION Mr Nash, in his reply, explained that the position was that the reduction in the supply of imported goods had in many cases produced gaps in New Zealand which could not be filled. ‘ln some cases, however, particularly with non-luxuries, it has been found possible for New Zealand facilities to provide part or the whole of the deficiency, or to substitute some other commodity available in New Zealand in place of that which is now no longer available,” the Minister replied. “To the extent that supplies are readily available from New Zealand sources, the policy is that these should be made available so long as it does not conflict in any way with the prosecution of the war.”

The policy of the Government was also to prevent any unsatisfied monetary demand arising for consumer goods. That meant that the Government, the Minister explained, did not want the demand for goods deflected to the domestic market where there were no means of meeting the demand. From the beginning the Government’s fiscal policy had been directed toward that end. USE OF TAXATION “The actions taken are well known,” Mr Nash continued. “They consist on the one hand of cutting down public works expenditure beyond what is necessary in the circumstances, and thus, on the supply side, so to speak, diminishing the flow of purchasing power toward consumer goods. However, taxation has been the main method of diverting demand from consumption goods. This taxation has involved a 5 per cent, national security tax on all wages and salaries, a considerable increase in income tax, the doubling of sales tax and other taxes, all directed to the same end.” The Minister said that the operation of that policy had been very successful indeed, as was proved by the fact that price increases in New Zealand had been mainly due to .higher landed costs. They had certainly not been due to any inflationary condition, for that had been prevented from developing. Attention was drawn by the Minister to the Reserve Bank returns, which “show that for many months past, Reserve Bank credit has not been expanded, but, on the other hand, the amount owing by the State to the Reserve Bank has been decreased.’’ Advances for purposes other than the Marketing Department, the Reserve Bank returns show, were £23,690,000 on February 17 and £15,500,000 on May 5.