LABOUR IN OFFICE

Wanganui Chronicle, Volume 80, Issue 78, 2 April 1938, Page 10

LABOUR IN OFFICE

EFFECT OF ITS POLICY IN NEW ZEALAND VIEW OF HON. ADAM HAMILTON “INCOMPETENT IN FINANCE” REPLY TO MR. COLIN CLARK (Special to "Chronicle.”) WELLINGTON. April 1. "Had it not been for the statements of the Prime Minister himself as \veL as of other members of his party—apart altogether from the frequent pronouncements in their oiucial organ—l should not have thought it necessary to discuss Mr Colin Clarkes statement upon the financial aspect ot the Labour Party’s policy,’’ said the Leader of the Opposition trlon. Adam Hamilton) to-day in a survey of the effects of the labour Party s policy. "It is clear from the remarks that have already been made that Mr Clarke has expressed, as a scientist and in scientific terms, the Labour Party’s financial policy. ... As it is apparent that the Labour Party intends to rely strongly upon Mi Clark's statement as corroborative oi the virtues of their financial wisdom, I propose to deal with that statement, although it has been severely criticised from one end of the country to the other. Prosperity Declining in Britain. “There is no doubt that a decline in prosperity has begun in Britain. This is shown by slightly falling commodity prices, heavier falls in snare prices, ueclines in production and trade, anu by increases in unemployment. Since the end of 1937, however, there have been some signs that the decline in prosperity, which was relatively slight tor the country as a whole, has been checked, and it is possible that an upward movement may now occur. “Speaking on recovery in iZ-itair since the depression, Mr Clark sale that the rearmament programme had not made much difference to recovery because three-quarters of the expenditure on armaments had been financed by taxation, and he maintained that the money spent did not increase total expenditure much since it was taken from other avenues of expenditure.

“He might have added that a large part of the Labour Government’s programme in New Zealand consisted in extorting larger amounts in taxation from one section of the people and paying them over to other sections. Like much rearmament in Britain, this could not possibly increase the national income since it consisted merely of a transfer of funds from one section to another section. He might have gone on to say that since most taxation was imposed on the working and producing sections of the people, and since most of the benefits £rom the expenditure of tax money accrued to the unemployed, to pensioners, and to additional civil servants, the euect of that taxation would generally be to discourage work anu effort, whicn was penalised by taxatim, anu to encourage idleness and dependence on the Government, which Benefited from the new policy. “Mr Clark says that, because all construction costs had increased, shipbuilding and other industries had slumpea, and once a slump started it could not be controlled.

“Curiously enough, in the case ol New Zealand, he appears to tninK that slumps can be controlled, lor his concluding remarks in the Post report are: ‘New Zealand deserves to succeed, and 1 think it will succeed, in lacing the next depression by the scientific control of banking and public works policy.’ “It happens, however, that rising costs, according to Mr Clark, have caused a slump in Britain, in New Zealand the major effect of the Government's policy has been to raise costs. That policy might, therefore, be expected to cause a slump in New Zealand, and it almost certainly would have done so, had the tendency to slump not been offset by the remarkable increase in the prices and the values of New Zealand exported produce between 1934 and 193 i. “However, as Mr Clark said, the chief factor in promoting prosperity in New Zealand over recent years, was the increase in the value of exports. This expanded income to a level sufficient to enable it to carry part at least of the increased costs imposed by Government policy. Should it nappen that export prices and values fall again ... and wool has already fallen heavily . . . the present level of costs is likely to prove beyond the capacity of income to bear, and a slump becomes almost certain.

Public Works Expenditure. Mr Clark thinks that the loss Which a decline in overseas values would cause to New Zealand could be offset by maintaining a vigorous puolic worxs programme ana by maintaining the spending power ot the farmers througn subsidies to the dairying industry. For the year 1931, export income, amounting to £66.7 m, was the highest in the country s history, and public works expenditure was also very high. From 11/29-32 export values fell oy £2om., and practically the whole of that decline fell on farmers. Does Mr Clark suggest that if a similar situation snoulu arise the Government should subsidise farming to the extent of £2om. pci year, and in addition provide public works in excess of those at present in operation and on a scale suuiciently large to absorb the unemployment which a slump produces? At present it is hardly correct to say that the Government is subsidising tne dairying industry. The subsidy paid during 1936-37 was in the neigh oourhood oi £300,000, say, from a tenth to a liftn per cent, ot the national income, as estimated by Mr Clark. It should be clear that the Government is unlikely to provide any much larger subsidy than this for dairying, and a subsidy of say one-fifth per cent, of the income is going to make very little difference to a slump such as New Zealand had between 1929 and 1933, when the income fell by at least one-thira or 33 per cent. The fact is that the present Goverinment’s public works policy has been super-imposed on a rapidly expanding income and has served to accentuate a boom. If a slump were to now the Government would find great difficulty in

securing the money either to finance public works or to subsidise those who suffer from the depression. “Mr Clark said that savings in NewZealand amounted to £2sm. a year, that private industries could take only a small fraction of this, and consequently a large public works programme was absolutely essential. He said that if public works were stopped, private industry could not use this huge amount of capital, which would be thrown on the market and a slump would follow’. “This is extraordinary reasoning There are probably no figures in existence to support Mr Clark’s wila guess of £2sm. a year as the amount of savings. Post Office Savings Bank accumulation had amounted to about £sm. a year in recent good years, but a large part of this may consist of commercial money, for the Post Office offers attractive rates on money repayable at call. A few years the Post Office Savings Bank was losing deposits at the rate of £6m. a year, and probably little, if any, saving was occurring in New Zealand. More probably the Dominion was drawing on and using up its capital. Private Industry Does Not Attract. “Further, the fact that private industry does not offer at present an attractive avenue to investors is dut very largely to the Government’s policy, which has raised internal costs without raising external prices, has narrowed the profit margin, and has contracted the field over which business can be profitably conducted. 11 private enterprise were given a reasonably free field, its capacity to absorb capital and use it to the advantage of the community would be greatly increased. There is also an aspect of public works which Mr Clark neglects. New Zealand is now ver/ heavily taxed to provide interest on money borrowed to finance public works which were expected to be productive but which have proved unproductive. Further large sums are now being spent on public works which are likely to prove unproductive. *?his expenditure creates additional sabilities rather than assets, and must load additional burdens on the shoulders of taxpayers. Private enterprise docs not lay out its capital in that way. It confines itself to ventures that are expected to be self-supporting. Perhaps a chief reason for the present public works policy is the fact that the Government's policy of raising costs has contracted the field of profitable private interprise and has therefore narrowed the market for capital investment and for labour services, thus creating a surplus of available capital and of labour. In order to absorb the labour and capital thrown out of employment by its own policy, the Government has to operate an ambitious and expansive public works policy, and is borrowing money lavishly, for which interest and principal will have to be paid in the future, largely by the taxpayers. “Mr Clark feels that if the available capital were thrown on the market it would cause a slump. Most people would think that an increase in the supply of capital would cause its price, that is its rate of interest, to fall rapidly. The fall in interest would then attract borrowers and encourage the development of new enterprises.

Maintaining Low Interest in Britain. “In England the capital market has ben so controlled since 1932 as to maintain interest rates at low levels, thus encouraging borrowing, enterprise, and industrial expansion. This was the chief method adopted by England for promoting recovery, and the recovery has been- greater and sounder under this method in England than it has been in almost any othei country. Yet Mr Clark feels tiiat the very method which was a signal success in England would create a slump in New Zealand, and apparently imagines that a Government policy which denudes the market of capital here, which tends to maintain the rate of interest at a higher level than would otherwise be the case, a policy that has raised other costs to artificially high levels, which exacts intolerably heavy taxation, and which has taken away the security of longestablished customs, institutions, an-: free marketing, and has given in exchange only the security of politico, promises, is likely to promote the well fare of the Dominion. “I am confident that the people of New Zealand will be thoroughly well aware of the fallacies in Mr Clark’s remarks and will be, in consequence, still more anxious that the country return to a sound economic footing.’’