Budget Notes

Press, Volume LXXIX, Issue 23968, 8 June 1943, Page 4

Budget Notes

Credit.—Mr Nash expressed in the Financial Statement his firm objection to financing the war by credit creation. There is “ ample “ money in circulation ” : Consequently harm and not good would result in the further increase in the supply of money, as would arise from the use of Reserve Bank credit except in extreme emergency —and for which even then the price would have to be paid.

Though Mr Nash’s attitude has’not been in doubt, his affirmation is welcome. Nevertheless, it must be read in its relation to the facts. Elsewhere in the Financial Statement Mr Nash shows that, of the gross addition of £83,465,000 to the public debt during the year, £80,000,000 of it for war, £64,563,000 was raised in New Zealand and £35,124,000 from “ departmental issues and Reserve “ Bank.” The bank’s share of this Treasury Bill flotation, necessitated by “ the substantial increase ... of “ expenditure in New Zealand for “ both the Army and the Air “ Force,” was £ 13,960,000. The transaction is exceptional, however, if at all, in scope and not in character. Since the war began, Reserve Bank advances to the State (other than to

1 the Marketing Department) have increased by about £ 18,000,000.

Now the Reserve Bank, a year ago, related the expansion of the money supply to (a) net oversea income receipts (£22,000,000) and (b) credit expansion in New Zealand (£20,000,000). Since then the factors involved in (b), Reserve Bank advances and the margin of trading banks’ holdings of Government securities over the decline of ordinary advances, have again increased, probably by about £8,000,000. In other words, the Government is steadily expanding its creation of credit, and doing so just as significantly as if, in the common phrase, it were turning the handle of the printing press. (The active note issue increased by £6,000,000 between the March quarters of 1912 and 1943.) This process is not out of control. It is indeed safe to say that it is not being abused. But it seems desirable that the Minister of Finance should set the facts more explicitly before the people. Inflation - is not a danger to be warded off; it is a danger that is being grappled with, here and now. Lease-lend.—Reciprocal aid was surveyed in the Financial Statement in greater detail than on any previous occasion. A year ago the accounts showed neither record nor estimate; and it is a remarkable evidence of the speed with which the economic demands of a changing war situation are met that, in less than a year, aid supplied (at cost) has run up to £7,000,000 and aid received, in rather more than a year, to £27,000,000. The received figure in the current year will mount to £40,000,000, mainly for aeroplanes, oil and petrol, and military equipment. The public will see here a clear assurance that the Dominion’s state of defence is being .steadily improved. The figure for aid provided will rise to £ 20,000,000, chiefly in the form of foodstuffs and buildings. The quantity figures given by Mr Nash, including (in millions of pounds weight) potatoes 48, apples 22, beef and corned beef 55, bacon and ham 23, pork 15, mutton 14, and butter 14, are impressive, the more so since exports to Britain must be maintained and rationing (not yet so “ comprehensive ” as Mr Nash suggested) cannot reserve great quantities from civil consumption. The question therefore arises whether policy measures now in force, and as they are now administered, give the farmer a fair chance to fulfil his huge contract. He does not think so. The Government’s attitude is disturbing.

Exchange.—The Financial Statement continues the fallacious device of using two different monetary units indifferently. For instance, the estimated receipts in the War Expenses Account include £46,000,000 (N.Z.) from tax sources, £40,000,000 in received lease-lend, and £12,000,000 advanced by Great Britain under the memorandum of security: total, £98,000,000; estimated expenditure, £148,000,000; deficit, £50,000,000. The lease-lend item may be in New Zealand currency; the item of £12,000,000 is certainly in sterling, The same fallacy recurs in several other places. Neither the misleading items and totals nor the practice which regularises them can be justified by the argument that the differences are made up in the exchange account, where they are all now to be separately itemised. Obviously, if £12,000,000 sterling is borrowed in Britain for oversea war costs, the sense of the War Expenses Account is distorted by entering up the amount as £12,000,000 (N.Z.). Nor is the distortion corrected by finding £3,000,000 for exchange outside the account, when repayment is made. The best that can be said, if this step in the transaction is made clear, is that it will be possible to trace war costs on their way into the civil budget. But if the distinction was worth drawing, it was worth preserving—and much more so than the Treasury artifice of treating all pounds alike.