CABINET CRISIS.

Waikato Times, Volume 113, Issue 18849, 20 January 1933, Page 7

CABINET CRISIS.

MINISTER’S WITHDRAWAL

DISAGREEMENT WITH POLICY. HIGH EXCHANGE OPPOSED. (Special to Times.) WELLINGTON, Th u rs day. The first indication of disagreement in the Cabinet came last week when members of the Government settled down to consideration of a plan to assist the primary producer to counter the effects of llie economic difficulties with which lie was confronted (says to-night’s Post). Cabinet, it is believed, had before it various suggestions, hut it was not found possible to arrive at uanaminity on any one proposal. It is understood that Mr. Downie Stewart expressed -opposition to the adoption of a policy of expediency, which, while affording a temporary measure of relief to the primary producers, might have an adverse effect on the country as a whole in the long run. Mr. Stewart’s policy did not meet with the approval of his colleagues. The agitation which took place a few months ago on the exchange question revealed that there was a strong body of opinion in -the 'House of Representatives in favour of the adoption of a high rate and it was obvious that In the absence of some other plan to assist the producer this agitation would be renewed with even greater force when the session resumed. Members of Cabinet no doubt had this in mind when they began their investigation of the farmers’ position, and they were fortified by an interim report they had received from a committee of economists—Dr. Might, Professor Toeker and Professor Belshaw —who, it is understood, repeated their former recommendation in favour of increasing the exchange rate to 25 per cent.

A Certified Position. Cabinet's decision to bring about an increase in the exchange rate placed Mr. Stewart in a difficult position, for it is well known the Minister of 'Finance has strongly opposed a manipulation of exchange ana on more than one occasion he lias had to bring 'all his influence to bear in order to avoid what lie considered would be a disastrous mistake. When the decision went against him, Mr. Stewart felt that ho had no option but to stand by the principles he held so strongly and resign from the Ministry.

Me has, it is understood, made it plain to the Prime Minister and other members of Cabinet that his action in tendering his resignation was actuated in the main by a desire not to embarrass his colleagues in any way. Cabinet •having decided to pursue a certain course which lie considered to be entirely wrong and not in the best interests of the country as a whole, he felt jt ills’ duly to leave the Ministry and thus give -the Government a free hand to carry out its policy. As Minister of Finance, it would have been Mr. Stewart’s duty to assume the responsibility for anything that occurred as a result of exchange inflation, and as he has indicated previously he was not prepared to accept that responsibility.

It will be understood 'that Budget difficulties must be greatly Increased by high exchange. This year a deficit of a £1,000,000 is anticipated. Originally the estimate was £2,000,000, but the generosity of the British Government aided by Customs revenue buoyancy halved the amount. But for 1933-34 the Budget hurdle will be much higher. There will he the million shortage to make up, or almost £2,000,000 if further postponement of funded debt payments is not obtained and in addition approximately £2,500,000 provided this year by hypothecation of reserves jn Soldier Settlement Loans. An industrious Treasurer may find some small reserves not yet used, but they will be very small. He may find a little reserve taxing capacity—such as the sales tax mooted but not adopted this year—but the effort to prevent the Budget slipping further from balance becomes more difficult each year. There would he almost £1,700,000 added by exchange lo the charge for overseas Interest, and Cus'toms revenue would he lower through the inevitable check to importing. Further, it seems improbable, In view of the recent refusal of the Bank of New Zealand to institute a higher exchange and the existence of substantial London credits, that the banks would consent to accept the risk of loss through the accumulation which they could not dispose of.

Guarantee to tho Banks. One speaker at the Producers’ Conference admitted that "it might be necessary for the Government to guarantee to take any surplus exchange from the banks, but it was the biggest purchaser of exchange.” Such a guarantee would add a furllier liability-—of unknown dimensions. With such added burdens the deficit could not fail to ho very heavy. On the credit side would be only tho slow-coming and problematical improvement in taxable capacity. Members Concerned. The report of Mr. Stewart’s resignation has naturally caused considerable interest and not a little alarm in Parliamentary circles. Special interest will attach to the meeting of the Coalition caucus which has been called for next. week. The Government, it is stated, intended to reserve any statement, of is policy mild that meeting look place, but the latest developments may precipitate matters, it. is known dial the Coalition Party is by no means in agreement on tho exchange question, practically all the city members and several semi-rural represonlalives having made it plain that they would oppose any manipulation of Iho exchange, it is understood that Cabinet, lias already had a “count of heads," and that members have been placed in two divisions high and normal —hut. what tho result of the count was is not known. During the last agitation, however, it was asserted that those favouring a normal exchange, rale constituted close on half the House, and that any qjvilson on the subject would lie extreme].' interesting. (Continued in next column.)