New Zealand Finances

Sun (Auckland), Volume IV, Issue 985, 30 May 1930, Page 10

New Zealand Finances

REVIEW BY MR. FORBES

11l a review of the Dominion’s finances, issued last evening, the Prime Minister, the Hon. G. W. Forbes, said Sir Joseph Ward has handed over the portfolio of Finance after doing a great deal to enhance the public credit of New Zealand. His record of service in this important sphere is one that he may well be proud of, and I think that everyone in the country will be pleased that, though his last year as Minister of Finance was a difficult one, he was able to uphold his reputation and close the accounts with a surplus of approximately £150,000. I am sorry to say that the present financial year, which is my responsibility, is going to be a very difficult one indeed, and I desire at the outset to take the country into the confidence of the Government in regard to the Budget difficulties which have to be faced. The heavy fall in the prices obtained for our primary products in the overseas markets, particularly wool and dairy produce, has meant a lessened yield from exports. The financial year does not cover the full export season, but the figures are, nevertheless, significant. Exports for 1929-30 amounted to £49,045,817, a drop of approxiir? cely £8,100,000 compared with the previous financial year. Imports for 1929-30 amounted to £49,167,914, so that there was a small excess of imports amounting to £122,097, as against an excess of exports amounting to more than £12.000.000 for the previous year. This falling off in the trade position is reflected in the banking position, where the figures at the end of the year in comparison with the position 12 months earlier show a decline in liquid resources amounting to about £9,600,000. This contraction of the national income means that we must curtail our demands, both privately and nationally, but we have had to meet similar fluctuations in export prices previously, and there is no occasion for alarm.

FALL IN CUSTOMS REVENUE Partly on account of the trade position, but mostly due to the reaction from Australian conditions, the exchange rates are very much against the importers. There is one consolation, however, and that is that the exporters are benefiting by the position. The contraction in the national income, coupled with the exchange position, must result in a considerable falling off in imports, and this, of course, means a corresponding decline in Customs revenue, which it is estimated will probably be over £J,000,000 less than it was last year. The hard times will also have an adverse effect on the yield from income tax and also land tax, though of course not to anything like the same extent as on customs duty. LOSS ON RAILWAYS A heavy falling-off in the expected yield from taxation is, I regret to say, not the sum total of our financial troubles, for, in addition, we have to face the fact that the railways have now reached a position when, on the present basis of operations, they can no longer meet their interest bill, the estimated shortage being about £1,250,000. There is nothing to be gained by hiding the position or attempting to minimise the difficulties, for little can he done' to remedy matters unless the full significance of the position is fully realised by the people generally. The bald fact is that an additional burden of £1,250,000, less the sum total of any savings that may result from economies in expenditure, must this year be carried by the taxpayers. Many of the latter will doubtless wonder why so heavy a burden has fallen upon them like a thunderbolt from the skies. A brief review of the railway figures during the last few years will perhaps make the position clear. In 1925, with the object of placing the railways upon a commercial basis, the Government of that

time passed legislation separating the railway finances from those of the Consolidated Fund. Reserves were to be built up for renewals and depreciation and interest, at the average cost of the capital, was to be paid each year to the Consolidated Fund, which, however, was to pay back to the railways the amount of the losses on branch lines and isolated sections. An amount of £1,327,649. representing surplus earnings for former years after deducting a policy rate of interest, was handed back to the railways as working capital. Such were the arrangements made for the four years ended on March 31, 1929. After receiving annual subsidies on branch lines, etc., rising from £360,000 for 1925-26 to just on £500,000 for 1928-29. the railways showed results as follow: Profit. Loss. £ £ 1925 79,000 1926- .... - 100,000 1927- .... 1928- .... Consequently on legislation passed last session, no subsidy on branch lines and isolated sections was paid last financial year, but this loss to the railway accounts was for the most part offset by writing off £8,100,000 of capital, which lessened the interest charge on the railways. The financial result for 1929-30 was a loss of about £1,210,000, making a net accumulated' loss to date of £1,955,000. Up till now, however, these losses have been met in the railway accounts out of the working capital and reserves created. Apart from a cash advance of £150,000 to enable the railways to complete the payment for the last financial year, the interest due to the Consolidated Fund has been paid out of the cash resources of the railways, and the losses that I have referred to, apart from those on branch lines, did not fall upon the taxpayer. For the current financial year, however, from sheer lack of cash resources, the railways must fall short in their interest payments by the amount of the net loss for the year, estimated on the present basis of operations at about £1,250,000. The interest on the relative portion of the public debt will, of course, be paid in the usual way, so that the extent of the railway shortage will this year mean just so much more to be found out of taxation or savings in other directions. ROAD AND RAIL TRANSPORT It may be added that the serious position of the railway finances has already been clearly pointed out by Sir Joseph Ward in his last Budget. Therein he stated, inter alia, that he was satisfied that if the present drift is allowed to go on for only a few years longer the taxpayers of this Dominion will have to find no less than £2,000,000 a year to meet railway deficits. As pointed out by Sir Joseph the chief cause of the trouble is direct competition instead of co-ordination between road and rail transport services. Further, again to quote the last Budget, “the irony of the situation is that the heavy losses on the publiclyowned railways are being largely brought about by goo<J motor roads being built also with public money to facilitate direct competition with the railways. In other words, State capital is being provided to assist in the direct undermining of the earning power of £57,500,000 of State capital already invested in railways.” Now that the railways losses have to be met directly out of taxation it will, I think, be generally realised that the present state of affairs cannot be allowed to go on any longer and the measures that the Government will bring down to co-ordinate the road and rail construction policies and the steps to be taken to obtain coordination between road and rail transport services ■will, I feel sure, have the hearty support of the people.