FINANCIAL POLICY

Waikato Times, Volume 118, Issue 19665, 27 August 1935, Page 3

FINANCIAL POLICY

NATIONAL EXPENDITURE. ■ i A REPLY TO CRITICS. EFFECTING OF ECONOMIES. RANGIORA, Monday. “The Government has frequently been taken to task,” said Mr Forbes, because the total public expenditure, despite the fall in national income, has remained roughly about the same as before the slump, as indicated by mo following figures: 200,882° 1932-33, £22,528,379; 193334, £24,202,027; 1934-35, £24,000,000. This criticism is most unfair and shows a complete ignorance of the position. ■ , “In the first place the Government lias effected savings in ordinary expenditure to the extent of approximately £9,980,000 per annum since 1931 but this has been offset by quite new and additional expenditure, much of it due to the depression. “Secondly, it is unavoidable that some Government expenditure, which has no relation to income, should be completely rigid. For example, New Zealand’s annual debt 'charge amounts to £12,800,000. Reductions in the interest on the internal debt made by the monversion loan, of which I will speak later, 'amounted !o £930.000. The 'Charge on liie overseas debt amounts to over £7,000,000 (New Zealand currency). The payment of this item has been made immensely more difficult by the fall in the value of our products. In 1929 debt charges absorbed approximately one-sixth of the value of our exports. In 1932, owing entirely to the fall in values, they absorbed one-third of the value of the exports.

Effect on Social Services. . “Thirdly, there is the difficulty of effecting economies without doing irreparable damage to social and other Important public services which the people of the Dominion have _ been accustomed to demand. Looking at the revenue side for a moment it should be clear lo all that the collection of the moneys which any Government must acquire to carry on the affairs of the country, has presented most unusual difficulties. Customs revenue declined from £7,605,976 in 1931 to £6,185,014 in 1934, while income' tax declined from £4,003,606 In 1931 to £2,961,243 in 1934 despite the fact that in both instances it has been found necessary to increase the rate fn order to make up for the decline In revenue. Last year, however, due to the return of more prosperous times, substantial increase In revenue from taxation took place, Customs revenue yielded £7,423,597 and Income tax increased to £3,796,477. ; “Reduced revenue from tho main Items of taxation has bad to be compensated for by new forms of taxation, despite, the Government’s full realisation of the fact that the very best assistance it could render towards | complete recovery would be a substantial reduction in taxation. Such a reduction is our constant aim and I

■ hope that the time is approaching (when it will be possible to give effect to it.

Difficulty of Borrowing

“In the past, successive Governments have been able lo avoid temporary difficulties in finance by adopting the easy expedient of borrowing. This has been impossible lo us ',u practice lo any considerable extent, and we are convinced that it would, In any case, be unwise in principle. It Is worth noting that for the relief of unemployment alone no less than £14,500,00(1 tins been raised by taxation in this rmmlry wilhout borrowing. Since 193 I only £ 1,1100,000 has been borrowed overseas, while in New Zealand only £5.(555.175 has been added lo the public debt. This represents an average annual increase of £ 1,664,000--a rale which compares more than favourably with the average of £7,000.0im per annum in Iho years before the dcprcsMiin. "Though we have shown deficits ir. four of It;:- six years since 1929 we have been able In keep them within manageable limits ami la.-I veer we achieved a MibslanL.il surplus. Tho Primary Industries. “I turn n»w In |iie nm>l inipnrlanl problem which this ilovernmenl was obliged to face, namely. Hie salvation of the primary industries of the DnIllinioil. 1 do II • > I need again In refer to the vila! impnrlanre of the primary industries of this Dominion Without them the Dominion in its presen! form ceases to exist and the problem as we saw it resolved itself into the necessity, in Hie interests of all sections of the community nf New Zealand, of endeavouring In remove the huge disparity between fanning costs and farming prices. That was the gap which we had In bridge, and ii is ,di\ious that prices were almost entirely

tiers have not been in vain and it is impossible lo believe that any policy Ilia!, would have ignored the fall in national income would not have increased the difficulties of the country. The Government itself has pursued a policy of drastic economy in public expendilure in just (lie same way as Iho public lias had lo economise in ils private expendilure and it rests now largely with private enterprise in build upon the foundation that has been laid."

beyond our control. Our main efforts were, perforce, directed to a reduction of costs, and to do this we have passed a number of measures with 'the tiefinite object of enabling the farming industry to he carried on. These would, we believed, spread the burden as evenly as possible over the whole community, instead of crippling the primary industries as appeared to be certain if some such steps were not taken. We could not, at that stage foresee that the world crisis of falling prices would take a new phase —one of restricted markets. “When the prices of farm produce fell to half the level upon which land values had been based, and upon which mortgages or rental obligations had been incurred, it was obviously im*

possible for very many farmers to meet, those payments. Again, the fall had been so -sudden and the shock so severe that it became absolutely essential to provide a breathing space in order to allow for the necessary adjustment. In the early months of 1931, therefore, the Mortgagors Rolief Act was passed to impose a prohibition of foreclosures on mortgages, and this legislation was extended from time to time fo provide the means for equitable arrangements between mortgagors and mortgagees. Again, interest and rent, payable on flic old values, similarly required a much greater production at Hie new prices and consequently (by ihe National Expenditure Adjustment Act of 1932) provision was made, for a reduction of all rents and interest by 20 per cent.

Raising of Exchange Rate. "■There Is no need to traverse the lengths of the exchange 'controversy. It was designed to assist the primary producers because those industries are vitally necessary 'to the whole population of this Dominion and because assistance in some shape or form was absolutely essential if they were to be kept going. The first shock of these suddenly falling prices did not fall on the community as a whole, it fell on liie producing section only, and something Clearly had to he done cither by way oT subsidy or by alteration in exchaniae to enable that section to '.survive at all, hearing in mind always that the continuation of the primary Industries is in every sense of the word essential to any improvement in the welfare of the country as a whole.

“The 'alteration in Iho exchange rate was definitely part of the Government's policy of endeavouring to remove the disparity between farming prices and farming eosls. Wo had already grappled with ihe problem from the cost side, now we were attacking it from dial of prices. “1 would like to observe at this point also that ‘despite the raising of the exchange' and the sales tax there has been practically no increase in the cost of living,"