HIGH EXCHANGE RATE

Taranaki Daily News, 17 October 1935, Page 11

HIGH EXCHANGE RATE

DEMOCRAT’S CRITICISM LOWERING BY SOUND METHODS. SUBSIDY TO BE SUBSTITUTED. Having condemned the high exchange rate and quoted opinions on the question, Mr. C. R. Finnerty, Democrat candidate for Stratford, told an election meeting at Ngaere last night that, should his party attain the Treasury benches, it would not make any drastic change but would reduce the rate by sound methods. Farmers would be helped by an export subsidy. “The exchange position to-day is a serious one,” Mr. . Finnerty said, “and the high rate at which it has been fixed is causing much concern to all sections of the public. Outside the Government this high rate of exchange has few supporters and as the opinions expressed by different, members seem to vary it would be as well to examine some opinions expressed in the past.”

He stated that in 1931 when the exchange, had risen to 10 per cent, as a result of purely economic causes the Prime Minister, in his Budget statement, stated: “There is no doubt that the high rate of exchange, and especially the uncertainty as to the future movements in the rates, are a considerable factor in the business stagnation that prevails. Further, the exchange rates have seriously . affected our credit abroad, increased the cost of new borrowing, added a further 10 per cent to the weight of interest payments abroad and have prevented prices and the cost of living falling as much as they would otherwise have done. It is true that exporters are receiving an exchange bonus of 10 per cent, but it is not very long before any temporary advantage is- cancelled out in the higher rates of taxes, higher cost of goods and the general reaction from slackness of trade.” The facts were no different today, commented Mr. Finnerty. The evil was the same, except that, whereas the rate in 1931 was 10 per cent, it was today 25 per cent. MR. COATES’ MEMORANDUM. The Rt. Hon. J. G. Coates in an official memorandum dated May, 1933, said: “It is fair to admit that when Australia, New Zealand and Denmark have all raised their exchange rates and when all must - pour their butter into over-supplied English markets, the buyers are able to offset one sale against the other and force down the prices. It is a buyers’ marxet and part of an export bounty in any form will tend to pass to buyers. In other words the advantage from the exchange rise is being defeated in part at least by the over-supply on the market.” Sir Alexander Young, in the course of the debate on the Banks Indemnity Exchange Act, 1932-33, said the extra money received by a farmer came from the pockets of people in New Zealand. It did not come from overseas. Taking the words only of Ministers, it was sufficient proof that an artificial rise in exchange forced up the cost of living, was a barrier to trade and gave practically no benefit to the producer. Mr. H. G. Dickie, the member for Patea, on his return from England was reported to have said that the high rate of exchange was causing much bitterness at Liverpool and the industrial centres. A short time before the Government forced up the rate of exchange, a representative meeting of business men conferred with the Prime Minister, and at that meeting the Prime, Minister gave an assurance that the Government would not use its influence to force up the rate. His assurance was definite that the matter would be left entirely with the banks to deal with in conformity with ordinary economic principles. Within a short time of that date he reversed his attitude and led the Government into a policy of artificial raising of the exchange rate. EVILS OF PRESENT POLICY. The exchange policy of the present Government, he said, had definite evils which might be summarised as under: It was a purely artificial rate, and had no economic basis; it had injured New Zealand’s good name in the British market; it was, in spirit, a breach of the Ottawa agreement; it had increased New Zealand’s overseas debt obligations, both State and local body, by millions of pounds and, if the rate was to remain, it had increased the public debt by over £40,000,000—a staggering sum—equal to an increase in income tax by 50 per cent, for the next 20 years; it had increased, through freight and kindred charges, the cost of marketing produce; it had increased the cost of every article imported into New Zealand and had created a barrier between town and country; It has created a contingent liability by » the State to the Reserve Bank, a liability ever-increasing, and amounting to at least £5,000,000; it had led to increased taxation, adding nearly £2,000,000 to the Budget charges on the community; it was directly responsible for the sales tax and the gold export duty, £100,000; it had kept up the cost of living; it was inequitable in its incidence; it did not give anything like the benefit to the producer which was intended. To give a concrete example, of one result, he quoted from the Budget this year. Mr. Coates said: “During the current year New Zealand paid off at London public debt amounting to £2,135,000.” The extra cost to the taxpayer on account of exchange on that amount was £523,000, an amount sufficient to restore the civil servants cuts in full, or to re-

duce the income tax by 10 per cent. The Government allowed its course of action to be influenced by theorists and, in face of definite advice given by practical experienced men of affairs, raised the exchange against the advice of the Treasury and against that of the then Minister of Finance, the Hon. Downie Stewart. MISDIRECTED BENEFIT.

One of . the Government’s reasons for the raising of the exchange was to attempt to assist the primary producer. Unfortunately the action, while being of very little assistance to the man in need, benefited the man who did not need it. What was wanted was a scheme to assist those really in heed and not those not requiring it. The Democrat Party’s scheme would definitely assist those in need but would not constitute a levy on the people to grant assistance to those not requiring assistance. The proposal of the Democrat Party was not to make a sudden unconsidered lowering of the exchange rate, but to consult the trading banks and the Reserve Bank and act according to their advice. The reduction of tne rate would, be made in such a way as to guard the interests of the traders and the producers. Once they rid the country of the damaging high exchange the f° u °wing benefits would accrue: They would restore New Zealand’s good name in the British markets, and stimulate the absorption of products, with consequent increase in the prices of those products, reduce taxation; reduce local body rates, revive trade; increase employment; lower costs of production; lower the cost of living- assist the farmer in a far more equitable and adequate manner. Mr. Finnerty said it would be idle to state' that no benefit came to the producer through a high rate of exchange,

but what benefit there was was a rapidly decreasing one. Sir Alfred Ransom, in a recent speech stated that the exchange last year was worth £9,000,000 to the producers, but that statement was not correct inasmuch as it had been assumed that the sum was profit, whereas it was nothing- of the sort. Although an additional £9,000,000 might have been received by the producer, against that they must set the additional cost to the farmer of everything imported into the country. The policy of the party was to assist him in his difficulty, but more effectively than had been done in the past. An export subsidy, giving the farmer rather more than the present artificial exchange, would be paid him on his produce, and paid to him directly, as an individual.

It was proposed to set up a special fund for the purpose of subsidies, which would be made up .from the resources made available from the reduction in the exchange rate, through those savings which would occur in the debt services, on the State purchases and from the increase in customs and other revenue. They would at the same time be in a position to reduce the burden of charges upon the people as a whole — charges which the people had to bear through the high exchange. The subsidy which the individual farmer would receive would be greater than the benefit at present received from the exchange. It was not proposed to pay the subsidy to the wealthy farmer with no mortgages, but to those farmers in need. The independent farmer who did not need assistance would receive none, and, the party believed, would ask for none.