FISCAL PROBLEMS

Wanganui Chronicle, Volume 76, Issue 108, 10 May 1933, Page 8

FISCAL PROBLEMS

CRISIS IN NEW ZEALAND A TEST FOR STATESMEN By HUGH C. JENKINS. Authority on Economic Questions in tho Antipodes. Special to The Christian Science Monitor. WANGANUI, N.Z. New Zealand sits on a four-legged ’ stool. The economic legs aro meat, wool, butter and cheese. Each of these ! is now unstable and together they are unable to sustain the Community—therefore, tho crisis. Like other primary producing countries tho period of highest prices was a period of false prosperity, loans werr easily raised, tho public debt grew em»i mously. The dead weight of the puli' ; debt was not felt until prices fell, wm panic seized tho politicians and i they are sitting among the fina.i. ruins of what should have been a perous Country. The way out, is through the ecom. valley of tears, of paying back i' money which has been borrowed an squandered, of living within the na tional income, and of finding further fields of endeavour for the people. Easy to say, but difficult to do, and especially so in a democracy. Parliamentary Skill Needed The poor quality of New Zealand’s parliamentarians was commented on by Lord Bry<je. After stating that he met men in every city who impressed him by their high intelligence and sound judgment he wrote: “But hardly any of them belonged to, or seemed to think of standing for, the Assembly, which is left to persons five-sixths of whom do not rise above the level of the town councillors of an English town. English town councillors are good citizens capable of managing the daily business of their community in an efficient way, but their functions seldom require more than practical common sense, whereas the New Zealand Assembly holds in its hands the fortunes of a young nation which will some day be a great nation, and has to deal with most of those complex problems of law-making which tax to its utmost the capacity of every European legislature.” Even as far batk as 1898 an acute and experienced observer (quoted by M. Siegfried) said: “What is more serious is the absence throughout the colony of strious economic study, of scientific investigation of those industrial and social problems which the politicians themselves attempted to solve.” These two judgments arc valid today. Price Levels and Legislation. In the year 1895 New Zealand became at first affected by the general uptrend of prices. The country was new, and the natural fertilisation of the country had been reinforced by the burning off of the bush. Farming, therefore, was profitable and increasingly so as prices continued to rise. Further, the introduction, of refrigeration enabled New Zealand to add perishable goods to its exports. Previously it was impossible to export meat, but New Zealand lamb soon found a ready sale on the London market and mutton and beef beteame equally acceptable. A further development was the introduction of co-opera-tive dairy farming. The fanners combined together to erect and operate dairy factories on co-operative lines. Distance from the market, and the suitability of the products, butter and cheese, for co-operative handling coupled with the fact that the co-opera-tive attitude was still strong among the farmers—a legacy from pioneer days—made conditions favourable for the success of the co-operative dairy factory movement while the continuous advance in prices made a fair wind for the new movement to sail down. This happy circumstance lasted down to the World War period. Then the demand for footstuffs was enlarged, prices soared, farming was an El Dorado. Land values boomed, mortgages piled one upon the other. Good experienced farmers retired to the cities there to swell by their purchases the values of properties. The Government borrowed money and lent it out on mortgage, houses were built beyond the means of the people, but prices kept up, and although the American phrase “era of permanent prosperity” was not heard, it was acted on. Politics during this period became one mad, bad scramble for tho loaves. A politician was deemed to bo a good or a poor man according to the amount of public, money which he could get spent, in his district, irrespective of its purpose, or whether it was well or ill spent. It was indeed a jazz era. in public finance. Tn the year .1921 the crisis overseas made itself felt in New Zealand. Wool slumped in price. Th© Government thereupon came to the rescue of the wool growers and guaranteed their bank overdrafts to the extent of 6d per lb. of woo] held. Meat, butter and cheese were not seriously affected, however, and New Zealand while feeling the pinch was not seriously hurt. Prices recovered in the year following and the boom movement went, on as before. In fatet, the slight shock of 1921 seemed to indicate that New Zealand could weather any probable storm. Start of the Crisis. The crisis in New Zealand affairs started almost imperceptibly in the year 1927-28, when the first unbalanced Budget was passed. The surplus as announced in the previous year was £587,000, but when the capital items which are included as income are deducted the surplus amounted to only £155,000. In the year 1927-28 the announced surplus was £179,000, but actually there was a deficit of £533,000 and from then on the actual deficits have been as follows:

The rise of the deficit for the current year to the unprecedented level of £9.000,000 needs explanation. The deficit is real enough, but it has been deliberately brought about by tampering with the rate, of exchange between New Zealand and London in an unprecedented away. The exchange stood at. 10 per cent, and tho trading position of the country was such that a move nearer to a condition of parity was merited. This was not possible of attainment. however, because the financial nexus between Australia ami New Zealand is so strong that the exchange

of the two countries must move in sympathy with each other. Controversy Over Exchange. When the Australian, exchange ou Loudon moved to 30 per cent., an advance to 10 per cent, was necessary in New Zealand to stop leakages from Australia vai New Zealand to London. The New Zealand producers found that when they sold their wool or other produce on London an addition of 10 per cent, was added to the proceeds of sale when they came to transfer their credit to New Zealand. An agitation then sprang up to have the exchange increased to 25 per cent. To this proposal the Government turned a deaf ear, and even as late as November of last year the Prime Minister, Mr. Forbes, asserted that it was the policy of the Government not to interfere with the exchange situation, but that the matter was to be left to the banks. A political crisis developed, however, Mr, McLeod challenging Mr. Coates for the leadership of the Reform Party; Mr. Coates, as senior member of the party in the Coaliation Cabinet, forced the issue with the Cabinet. Mr. W. llownio Stewart, Mr. Coates' own Finance Minister, resigned. The raising of the exchange in this manner for purely political purposes had added £4,5000,000 to the anticipated deficit of a like amount. Price Slump Continues. It was hoped that by raising the nite of the exchange a bonus would be given to exporters and to primary producers in the shape of higher prices, and that in consequence the denjand for goods and services would increase and thus unemployment would oe alleviated. None of these hopes have been realised. Prices for wool, mutton, lamb, butter and cheese have slumped still further, taxes are being increased in every direction, and unemployment is unfortunately mounting higher. The prospects are uncertain, and the main hope lies in an improvement in the marketing conditions of England. This, in turn, depends upon the capacity of the primary producing countries and more settled conditions on the continent of Europa. ■Meanwhile meat is in oversupply, butter and cheese are in a like condition, but there is a tendency on the part of wool to harden. New Zealand's wool is of the coarser varieties, the Merino clip being small. It is a feature of the wool market that the finer , and more expensive wools generally move upward or downward first, and the coarser follow in sympathy a little later in point of time. Fine wools have moved forward, but the movement has not extended teethe lower grades, as yet. The movement, is possibly imminent, nevertheless. Programme for Employment. Unemployment is. of course, the major problem of New Zealand, and

this is being tackled by a nation-wide scheme. (Special taxes ot Is in the pound arc taken from the wage earners, also £1 a year from every adult, who enjoys an income, and other special taxes aro also imposed. The total expenditure was £2,670,000, of which only 2.42 por cent, was absorbed iu administration expenses. In March. 1932, New Zealand had 64,520 unemployed, or 36 per 1000 of population. Voluntary effort also i.s forthcoming to supplement the Government’s effort and in some instances this voluntary aid promises to be of a very thoroughgoing nature. New Zealand’s inetrnal condition may get worse during the coming winter iu so far as unemployment is concerned, but apart from sea

sonal fluctuations and a possible recovery of prices, there is another problem to be faced. For two decades New Zealand has maintained a large percentage uf its people by the expenditure’ of loan moneys. The resumption of loan expenditures cannot be reckoned on, and New Zealand is faced with the permanent problem of how tu absorb this loansupported section of the population in self-sustaining industrv.

Year. Actual Deficit 1928-29 .. £1,021,000 1929-30 .. .. 1,113,000 1930-31 .. 2.417,000 1932-33 .. 4,975:000 1933-34 {estimated) .. 9,000,000