PUBLIC DEBT.

Press, Volume LXI, Issue 18481, 8 September 1925, Page 11

PUBLIC DEBT.

A GROWING BURDEN.

CONTROL OF EXPENDITURE

ECONOMY URGED. ''A new policy is needed in our public affairs, a policy of the strictest economy in administration, combined with greatly reduced borrowing, effective control over expenditure, and no expenditure unless for full value received."

This is the conclusion come to by the Department of Economics of Canterbury College in collaboration with the Canterbury Chamber of Commerce in a bulletin, tho third of a series, on the subject of the public debt of New Zealand, which was presented at the annual meeting of the Chamber last night. Official figures, states tho bulletin, which deals with control of expenditure, show that the gross State debt, which was 57 millions sterling in 1904 and 95 millions in 1914, has been increased during the last five financial years from 201 millions sterling to nearly 228 millions. Since tho end of the la3t financial year a further seven millions sterling has been borrowed, making the present total almost 235 millions. Local body debt, which was 10 millions sterling in 1904 and 24 millions in 1914, increased from 30 millions in 1920 to nearly 44 millions in 1923, and to this about three millions sterling had been added Ay the end of March, 1925. SJjata Debt Charges. The' latest Budget shows that the gTOSs charges on account of State debt amounted in the last financial year to more than 11 millions sterling, of which 2} millions was recovered from trading and other accounts, and the remainder, nearly nine millions, had to be met from the Consolidated Fund. For the financial year 1922-23 the charges on local body debt were almost 2i millions. Together, these annual charges, met from the current revenue of the State and local bodies, amount to nearly £9 per head of population, and the greater part of this impost is collected through rates and taxes. The present debt of the State is equal to £172 per head, and that of the local bodies, excluding advances from the State, is approximately £29 per head. These figures show an increase since 1920 of £l7 per head, and make a total burden now of £2Ol for every man, woman, and child in the Dominion.

Such is the liability that has already been accumulated, and the rate of accumulation is increasing rather than diminishing. The increase of State debt averaged five millions sterling a year for the four years 1920-24; it was sir millions in 1924-25; and a further seven millions has already been added for 1925-26. Growfjh Cannot Continue. This alarming rate of growth cannot continue. Drastic checks must be applied if real danger is to be averted. At the present time the Dominion enjoys a high level of prosperity which is itself a stimulus to extravagant finance. But our prosperity has always depended, and must continue to depend, mainly on a high level of prices for our principal exports. In Britain, .our chief export market, social and industrial conditions are at present causing grave concern, and while higher prices cannot be looked for, a fall in prices appears. probable. Falling prices for our produce must reduce both our national income and our taxable capacity.. But the amounts to be paid in interest on public debt do not diminish; they increase both with the growth of debt and with the necessity of renewing expiring loans at higher rates of interest. The unavoidable increase in the amount to be paid in interest, combined with both a decrease in the revenue from public enterprises and a reduction in our income and our capacity to pay taxes, might well make the burden of the debt charges, heavy as tt is even in times of exceptional prosperity, a load which could not be supported in time of adversity. .. Wise financial policy will always conserve both the taxable capacity of the people and the national credit, and hold a safe margin of these as insurance against periods of difficulty; in Now Zealand there is at present little margin of taxable capacity, and the rate of public borrowing is beginning to threaten the national credit. Basis of Sound Finance. It is a trite axiom that all sound finance must be based upon effective control over expenditure. There is reason for believing that a progressive loosening of control over public expenditure in the Dominion has been developing for many years past, mainly on account of popular pressure brought to bear upon the authorities concerned, and it is to a much more effective control of expenditure that attention must be directed if the present remarkable rate of public borrowing is to bo checked.

The effective control of expenditure depends largely upon the administrative machinery of government. There is evidence that the financial control exercised by Parliament, both over the Departmental Estimates and over the actual spending of money, is not as strict as might be desired. It is probable that improved machinery for scrutinising estimates and criticising expenditure might result in substantial economies, and attention might well be directed to this aspect of the problem of public finance. The more pressing problem at the present time, however, is the broad policy question of the scale of expenditure from loan money.

"Spotlight of Public Attention."

To control this expenditure effectively it i 3 first necessary not only to see clearly the nature and amount of tie expenditure as a whole, but also to focus the spotlight of public attention on each individual item. In this way alone is it possible to reveal plainly every opening for the application of economy. The public accounts, as presented now, do not enable this to be done. They tend, in most cases, rather to obscure than to reveal tne true position. The National Budget has grown, like an oyster, by a process of accretion designed to shelter what lies within. The very mi xe( j statement of facts which it customarily contains is usually screened by an enveloping mass of political propaganda and irrelevance. It i 3 perhaps desirable as well as customary that the Budget should contain, besides the year's figures, a review of the past and a forecast of future policy. But the figures are the important matter, and it is very necessary to achieve most greater claritv in their presentation. Clarifying the, Accotmts. Present practice, in this respect, might be greatly improved by summarthe whole of the accounts, including capital as well as current revenue land expenditure, in one balance-sheet,

classified and itemised on each sido. Revenue might then ba divided into: (1) Eevenue from taxation; (8) revenue from State enterprises; (3) revenue from loans.

Expenditure, likewise, might be divided into: (1) Expenditure oa permanent and annual appropriations; (2) expenditure on State enterprises; (9) expenditure on capital account. The Consolidated Fund should then contain only r.qvenue from taxation and expenditure on appropriations, including charges on debt that is not -self-support-ing: State . enterprises would be separated effectively from the Consolidated Fund, each being debited -with its own debt charges, and it would be possible. to see how far they are seif-supporting and how far subsidised from taxation: and the actual revenue and expenditure from loans each year might also be separately and readily examined. Railway Figures. The railway figures may be used to illustrate the obscurity of tho present returns. Tho Consolidated Fund figures in the 1925 Budget snow a railway revenue of £7,105,106, and an expenditure of £ 5,636,553,-leaving an excess of revenue of £1,465,523. The capital cost, of the railways is given as Probably the officials alone know the exact debt chargo on this amount, but if it averages the samo as that on the whole of the debt, it is 4.55 per cent., or £2,465,250.

The excess revenue falls shoTt of meeting this chargo by £997,000, which is therefore approximately the' year's net loss on the railways, a loss that has to be met by a subsidy from taxation. If the actual rate of interest is the policv rate suggested by the Minister, U per cent., the loss is £879,000. And the Sailway Department's figures would 4ve a different result. If such information as this were set out clearly in th 3 public accounts of both State and local" bodies, then public opinion would be solidly with the Administrations in their efforts to promjote economy. Where Loan Money Goes. Analysis of tho expenditure of loan money, as distinct from current revenue, shows that the greater part of it goes to Public Works and to State Advances. During the last financial year over five millions sterling was spent on Public Works, including 3.5 millions sterling of borrowed money, while 5.2 millions sterling was advanced by the State Advances Office, including 4.6 millions of new money. It would manifestly be futile to discuss tho prospects of reduced borrowing without facing frankly the necessity for reduced outlay by these two great spending Departments. Concerning public works, it would probably be a misfake to stop much of the developmental work now in progress, and it is not possible to make any rigid definition that would distinguish between works that are advisable and works that are not. Each must stand on its own merits. But in considering future projects, it would be wise always to remember the urgent need for economy in the expenditure of loan money, to examine very critically all projects involving unproductive expenditure, and, as a general rule, to limit expenditure intended as reproductive to projects which on the most conservative business estimates-will prove directly or indirectly reproductive of all related expenses within a period of a very fewyears. Past experience shows that it is only by some policy such ' as: this, firmly adhered to, that expenditure can bo kept within bounds. State Advances. Concerning State advances, the need for limitation of expenditure is beyond question. But the maimer of that limiLation involves issues which can be determined only by public policy, and here suggestions alone are offered. The difficulties of the past few years have undoubtedly fallen heavily upon mortgagors, and a case* can be made out for State assistance. But surely that assistance, if given, might be better applied to the improved organisation of the mortgage market within the country than to the application of costly and artificial stimulants from outside.

Some part of the present high land values in New Zealand is due to the amount of cheap State money that has been made available in the past, and land speculation is encouraged by the expectation of a constant flow of such easy money in the future. Again the State Advances Department is well known to be chronically congested with the applications for loans.

Would it not be wise to limit these applications by lowering the upper limit of the amount of the loans made, so as to confine business to the more needy applicants! Or to insist on more conservative valuations, so as to securo an ampler margin of real security? Or to raise the rate of interest charged on advances! Is it the policy of the Department to charge the lucky recipients of loans, whether for settlers, workers, or local bodies, less than cost, and_ thereby to subsidise them at the expense of the rest of the community? If so, what is "the extent and what the cost of this policy? Questions such as these must be met, and a method of limitation applied if advances are not to get beyond control. Dangerous Growth of Debt. But sufficient has been said to show how dangerously rapid is the present rate of accumulation of both public debt and debt charges. It is time that the Dominion faced resolutely, the urgent need for a severe restriction of its public borrowing. To restrict borrowing it is firgt necessary to control expenditure, and it is the aim of these bulletins to secure recognition of the present drift of our public finances, and to suggest methods by which that drift might be checked. The facts are plain; they must be faced if reform is to be achieved; and financial reform is essential to that sound finance without which no Bound government is possible.