“A SHOCK COMING”

Star (Christchurch), Volume XLIV, Issue 233, 1 October 1931, Page 9

“A SHOCK COMING”

Drastic Steps Needed to Balance Budget. CABINET CONCERNED. (Special to the “Star.”) WELLINGTON, October 1. The continued adverse state of the Dominion s finances is causing the new Coalition Cabinet the gravest concern. Although efforts are being made to restore the Budgetary position, the position is reported to be becoming steadily worse, as a result of external factors. Cabinet was in conference again until a late hour last night, when a further consultation took place with departmental officers. It is gathered that the latest figures furnished by the Treasury reveal that the national accounts are down to a greater extent than was previously anticipated and that the difficulty of the situation is accentuated by the uncertain exchange position created by Great Britain’s departure from the gold standard. The Budget presented to the House two months ago disclosed a prospective revenue, shortage of £6,850,000, but the indications are that the deficit will be increased considerably, possibly by another million. It is said that the steps Cabinet will be forced to take 'to balance the Budget will cause a shock when the proposals are announced by the Hon W. Downie Stewart next week. Questioned this morning as to the latest aspect of the financial position, Mr Forbes said that there was no questioning the fact that it was difficult. The uncertainty was added to because of the difficulty in foreseeing to what extent the State trading departments would be affected by the prevailing conditions. No definite pronouncement could be made at the moment as to the financial position, but it would be a subject of detailed information on Tuesday next. (A statement by the Hon R. Masters concerning finance appears on page 14.) THE COST OF IMPORTS. Exchange Rate Means Increased Duty. (Special to the "Star”). WELLINGTON, October 1. The effects of England going off the gold standard are now beginning to be iully realised by New Zealand importers of products and manufactures of other countries. The relation of the English pound to the United States dollar is such as to make the cost of imports from America anything from 25 to 30 per cent more in New Zealand to-day than they were before the standard was departed from. Imports from Canada are also affected. Practically, the exchange rate imposes a substantially increased duty on all foreign goods imported. The cancellation of orders of foreign goods (where that can be done) has been made. Great Britain may benefit and it is generally hoped that it will do so by the low value of sterling in some foreign countries where British products and manufactures already compete -with foreign in this market. Situation Obscure. The situation is still obscure and the cable lines were kept very busy to-day in the transmission of advices withdrawing previous quotations or advising revised prices to meet the altered exchange conditions. For instance, some packers of sild or sardines in Oslo, Norway, have advised that, although quotations for these goods had hitherto been made in sterling covering insurance and freight, now the basis of gold exchange would be accepted at 18.15 kroner to £l, the difference to be placed to the buying account. With regard to Belgium, arrangements show some variation. The sterling prices quoted have been converted into Belgian francs at 175 francs to the £l, and in another case new quotations are made in United States dollars. It has not been usual for any firm to quote to New Zealand in foreign currency. Other Belgian firms have withdrawn all quotations in the meantime, whereas they had b/sen quoting in sterling. Again, an intimation has been given of a willingness to accept new business at an advance of 20 per cent on the previous sterling quotations, pending further advices. Spanish and Portuguese wine prices are not expected to be affected for the present, as the wine export trade of those countries is almost entirely in the hands of English houses, but other products from Spain, Portugal, Italy and Mediterranean countries generally will be affected. Trade with U.S.A. . In regard to trade with the United .States, there is a great variety of contracts. Some business is done on the basis of 4 dollars 80 cents to the £1 conversion rate to the account of the customer, and bank exchange between New Zealand and London also to the account of the customer. It costs 10 per cent to remit New Zealand money to London at present, and on top of that is placed the cost of converting the English £1 into United States dollars. Again some American houses have been naming prices c.i.f. and exchange on the basis of 4 dollars 30 cents to the £l, the difference between 4 dollars 30 cents and the gold value of 4 dollars 86 cents being on account of bank exchange. In such cases the customer will be liable for the additional cost of converting sterling into United States dollars, and further some American exporters to New Zealand in a very big way of business, prior to altered condi tions of the exchange, had been quoting fixed sterling prices c.i.f. New Zealand main ports, bank exchange between New Zealand and London being oh account of the purchaser. In such instances the seller will lose the difference between the gold value and the present value of the £l, and those losses are expected to be heavy. Where the New Zealand purchaser had bought American goods in United'States dollar currency and had sold them in New Zealand currency to arrive the loss must also be substantial in proportion, unless the ratio of profits carried by the goods will allow a sufficient margin to cover the loss by exchange.