FINANCING FUTURE DEVELOPMENT

Timaru Herald, Volume CLVII, Issue 23181, 20 April 1945, Page 4

FINANCING FUTURE DEVELOPMENT

A Banker’s Advice Avoid Illusory Expedients (N.Z.P.A.) WELLINGTON, April 19. The realities of the financial position and prospects of New Zealand as he saw them were discussed by Mr Leslie Lefeaux, a former Governor of the Reserve Bank, in an address as guest speaker at a businessmen’s luncheon held in the Town Hall to-day. Emphasising that his sole concern was the welfare of New Zealand, Mr Lefeaux w'arned against the temptation in financing future development of the Donjinion of recourse to dangerous and illusory expedients involving inflation of the currency. He also pointed out the far-reaching consequences qf abusing a central bank by compelling it to go too far in the creation of credit, and urged that adequate reserve powers should be retained for use if and when temporary slump conditions threatened. To exhaust such powers when conditions were moderately good WPS, in his opinion, the height of financial folly. Mr Lefeaux advocated that adequate reserve powers should be retained for use if and when temporary slump conditions threatened, and they should be applied with a view to their long-term effect and to the possibility of their being required again later. To exhaust such powers when conditions were moderately good was like living on capital as well as income, w’hen the income itself was about as hig'h as could normally be expected. The total available purchasing power in the hands of the public had reached the staggering total of more than £250,009,000, said Mr Lefeaux, a figure which appeared to be out of all proportion to the supply of goods and normal services at the current level of prices. He appreciated that a large part of the savings bank deposits might represent semi-permanent investments, but a considerable portion did not, and in any case the whole amount could be drawn upon at will it so desired. Price Falls Likely Looking to the future, Mr Lefeaux spoke of the likelihood of a fall in the prices of primary produce on the world's markets, of the obligations under UNRRA and the possible effects of the dairy industry account and the financing of a national programme o! public works, State housing and rehabilitation. To what extent could these projects be financed out of current national income? he asked, for there was no other way of meeting their cost except by borrowing overseas, which might be ruled out for some

time, or by inflation; supplies of domestic capital might be assumed to have become exhausted. Current income could be tapped either by taxation or by the issue of Government loans. How long the country would agree to a high level of taxation like the present his audience was better able to gauge than he was. During the war patriotic fervour could be counted on to make the floating of war loans a comparatively easy task, but what were the prospects of being able to issue large Government loans after the war, especially if the doubtful moral expedient was then followed of offering them at less than their market value? In the first place it seemed that there might even be a considerable amount of disinvestment. He did not want to paint an unduly gloomy picture, he said, but he did think it important that the realities and possibilities of the situation should be faced without, any evasion or pretence, for he would be extremely sorry if unsound financial practices combined with any exaggerated ideas as to what living standards could be maintained should result in New Zealand’s credit being brought again to the low ebb reached just before the war, when the trading position was relatively favourable. Yet that was what might easily happen unless the Dominion learned to live within its income. Housing Scheme Dealing with the State housing scheme, Mr Lefeaux said the scheme provided another example of how the economy of a country would be upset by unsound methods of finance. As in the case of public works, there was a limit to what the country could afford. If that limit were exceeded, trouble would arise sooner or later. It was not enough merely to say we need more houses. There might be many things which we as individuals wanted, but it did not follow that we should have them unless we could pay for them properly. Financial soundness dictated that the expenditure on the building of houses should be kept within the limits of the savings of the people as a whole which were not utilised for any other purpose. If the State elected to build houses, Government loans should be raised for the purpose from the public. By that means the volume of money in circulation would be kept within bounds and an abnormal demand for consumer goods would be avoided. It was thus possible to determine the total amount which was properly available for housing purposes.