FOR AND AGAINST.

Auckland Star, Volume LXXI, Issue 230, 27 September 1940, Page 8

FOR AND AGAINST.

COMPULSORY LOAN.

KEEPING PRICES DOWN.

Amplification of his opinions in connection with the issue of the war loan announced by the Government was made by Professor H. Belshaw, professor of economics at the Auckland University College, to-day, when he dealt in greater detail with the issues at stake. "The case for compulsion rests on three main considerations," he said. "The first is that taxation and voluntary loans may not be sufficient to finance war expenditure, in which case resort to credit creation will be inevitable. This has inflationary tendencies which are injurious, especially to wage-earners and others on small incomes. Since voluntary loans have not been seriously attempted, it cannot yet be said that compulsion is justifiable on these grounds alone, although I believe the time would come when it would be required. "Secondly, the amount needed may be obtained on cheajier terms than would be necessary to meet total requirements out of voluntary loans. Thirdly, under compulsion the amounts required of the individual may be more closely related to capacity to contribute. My main j criticism of the proposals is that requiring subscription of the total amount over a short period may prove seriously embarrassing, and force resort to bank credit, which has an inflationary effect. As a. means of partially meeting this difficulty,. I should have preferred to see contributions spread over a longer period liy, say, monthly payments." Should be Extended. Considering the requirements of an "all in" policy, he went on. his view was that the compulsory loan provisions should be further extended. He saw no justification for exempting those individuals from any contribution whose income tax did not exceed £.">O. Dealing further with the adaptation of the Keynes proposal, which had been suggested as an alternative, Professor Belshaw supported it on the jrrounds that a reduction of consumption was essential to an "all in" war policy and that it would occur whatever the technical methods adopted. In the case of the lower incomes especially it was preferable that such reduction should 'be temporary and take the form of deferred consumption rather than permanent loss of consumption. If the money incomes available for consumption were not reduced, for example, by taxation or saving, reduced consumption occurred by increases in prices.

"If wages increase -with the cost of living this does not maintain the purchasing power of the workers, hut the so-called 'vicious spiral' operates and prices are further pushed up. It is in order to reduce the effects of this tendency that I would hold the view that the payment of 'cost of livinjr' bonuses in the form of compulsory saving, representing deferred expenditure, is to be preferred to straight-out cash increases."

Based on Dependents.

He said the method proposed would 'be, firstly, to exempt a certain minimum income from the scheme, such l>einp related to the number of dependents; and, secondly, above this sum there should be assessed an amount to foe taken from each income, the amount to be graduated with income. This amount would include taxation, plus savings; thirdly, the balance of the : amount in excess of the taxation requirements would be taken from weekly or monthly incomes—not in a lump sum as under the present proposal, unless the individual preferred to pay the lump sum; fourthly, the weekly or monthly payments would be collected through the savings banks or in other ways, but could not be drawn upon until within stated periods after the termination of the war; fifthly, the liberation of these savings could be arranged in such a way as to come into purchasing power during the period when added purchasing power was required to facilitate adjustment from a war to peace economy. "The general effect of such a proposal is to bring aibout the neoessarv reduction in consumption without involving a permanent loss—that is, it is deferred consumption rather than permanent reduction of consumption," Professor Belshaw concluded.