LABOUR POLICY

Waikato Times, Volume 122, Issue 20464, 2 April 1938, Page 9

LABOUR POLICY

EFFECT IN DOMINION INCOMPETENCY IN FINANCE * MR C. CLARK'S VIEWS ANALYSED (Special to Times) WELLINGTON. Fridav "Now that the Labour Party has failed to brine down Its superannuation and health Insurance schemes, by allowing the last session to pass without presenting the measure* it is desirable said the Hon. Adam Hamilton, Leader of the Opposition. * that I should make some comment upon the effect of their policy, particularly from the financial side of the Labour Party. It Is clear that Mr Clark has expressed, at a scientist and in scientific terms, ♦the Labour Party’s financial policy. As the Labour Party intends to rely upon Mr Clark’s statement as corroborative of the virtues of their financial wisdom. I propose to deal with that statement. “There Is no doubt that a decline In prosperity had begun in Britain. Since the end of 1937. however, there have been signs that the decline has be*n cheeked, and It is possible that an upward movement may occur. , EfTect of Rearmament < “Mr Clark said that the rearmament programme had not made much difference to recovery because threequarters of such had been financed by taxation, and he maintained that the money spent did not increase total expenditure much, since it was taken from other expenditure. He might have added that a large part of the New Zealand Labour Government’s programme consisted In extorting large amounts from one section and paying them over to others. Like much rearmament in Britain, this could not possibly increase the national income, since It consisted merely of a transfer funds. He # might have gone on to say that since most taxation was Imposed on the working and producing sections, and since most of the benefits accrued to the unemployed, pensioners, and to additional civil servants, the effect generally would be to discourage work and effort, penalised by taxation, and encourage idleness and dependence on the Government. "Mr Clark says that, because all construction costs had increased, shipbuilding and other Industries had slumped, and onco a slump started It could not be controlled. “Curiously enough In the case of New Zealand he appears to think slumps can be controlled, for his concluding remarks are: ‘New Zealand deserves to succeed, and I think it will succeed, in facing 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 stump in Britain. In New Zealand the major efTect 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, had the tendency not been offset by the lnrease In the values of exported produce between 1934 and 1937. “However, as Mr Clark said, the chief factor in promoting prosperity over recent years was increase in the value of exports. This expanded Income to a level sufficient to carry part at least of the increased costs Imposed by Government policy. Should ft happen that export values fall again (and wool has already fallen heavily) the level of costs Is likely to prove beyond the capacity of income to bear, and a slump becomes almost certain. Prosperity and Publlo Work* “Mr Clark thinks that the loss which a decline in values would cause could be offset by maintaining a vigorous public works programme and by maintaining the spending power of farmers through subsidies to the dairying Industry. For 1937 export income amounting to £66.700,000 was the highest In the country's history, and public works expenditure was also very high. From 1929-32 export values fell by £20.000.000 and practically the whole of that decline fell on farmers. Does Mr Clark suggest that If a similar situation should arise the Government • should subsidise farming to the ex- * tent of £20,000,000 per year, and in addition provide public works on a scale sufficiently large to absorb the unemployment which a slump produces? “It Is hardly correct to say that the Government is subsidising the dairying Industry. The subsidy paid during 1936-37 was in the neighbourhood of £300,000, say. from a tenth to a fifth per cent, of the national Income, as estimated by Mr Clark. It should be clear that the Government is unlikely to provide any much larger subsidy for dairying, and a subsidy of. say, oneflfth per cent, of the Income is going to make very little difference to a slump were to occur the Governtween 1929 and 1933. when the income fell by at least 33 per cent. The fact Is the Government’s public works policy has been superimposed on a rapidly expanding income and has served to accentuate a boom. If a slump were to occmur the Government would find difficulty in securing money either to finance public works or to subsidise those who suffer from the depression. “Mr Clark said that savings in New Zealand amounted !o £25.000.000 a year, that private industries could take only a small fraction of this, and consequently a large public works programme was essential. If public works were stopped, private Industry could not use this capital, which would be thrown on the market and a slump would follow. “This is extraordinary reasoning. There are probably no figures to support Mr Clark’s guess of £25.000.000 a year as the amount of savlnss. Post Office Sayings Bank accumulation h*>d amounted to about £5.000,000 a year In recent good years, but a uarge part of this may consist of commercial money. A few years ago the post OBm Sai ngw Bank was losing deposits at the rate of £6.000.0nn a year, and probably little. If any. saving was occurring. More probably the Dominion was using its capital. Problem of Private Industry. “Further, the fact that private industry does not offer an attractive avenue to Investors is due largely to the Government’s policy, which has raised Internal costs without raising external prices, narrowed the profit margin, and contracted the Held over which business can be profltAbly conduded. If private enterprise were given a reasonably free field its capacity to absorb capital would he

creatly Increased. There Is an aspect of public works which Mr Clark neglects. New Zealand Is heavily taxed to provide Interest on money borrowed to finance public works' which have proved unproductive. Further, large sums are being spent on works which are likely to prove unproductive. This expenditure creates liabiltes rather than assets, and must load additional burdens on taxpayers. Private enterprise confines itself to ventures that are expected to be self-support-ing. Perhaps a reason for the public works policy Is that the Government's policy of raising costs has contracted profitable private enterprise and therefore narrowed the market for capital investment and labour services, creating a surplus of capital and of labour. In order to absorb this labour and rapital the Government has to operate an ambitious public works policy and is borrowing money lavishly, for which interest, and principal will have to be paid, largely bv the taxpayers. "Mr Clark feels that if the available capital were thrown on thn market it would cause a slump. Most people would think that an increase in the supply of capital would cause its pri"o —that its rate of interest—to fall heavily, 'rite fall in interest would then attract borrowers and encourage the development of new enterprices. Britain’s Example "In Britain the capital market has been so controlled since 1932 as to maintain interest rates at low levels, encouraging borrowing and industrial expansion. This was the chief method adopted by Britain for promoting recovery. and recovery has been greater and sounder there than in almost another country. Yet Mr Clark feels that that method would create a slump in New Zealand, and apparently imagines that a Government policy which lend- to maintain interest at a higher level than would otherwise he ——a policy that has raised other costs to artificially high levels, which exacts intolerably heavy taxation. and which has taken away the security or long-established customs institutions and free marketing, and has given in exchange only Ilic security of political promises, i- Ukelv to promote (lie welfare of this nonunion' " I am confident that the people of New Zealand will lie well aware of Ilic fallacies in Mr Clark's remarks, and will be. in consequence, still more anxious that the country return to a sound economic footing.''