Mr Walsh Predicts Rising Prices And Unemployment

Press, Volume C, Issue 29503, 3 May 1961, Page 12

Mr Walsh Predicts Rising Prices And Unemployment

(N.Z Press Association)

WELLINGTON, May 2. The president of the Federation of Labour (Mr F. P. Walsh) told the federation’s annual conference today that there was nee I for State control of all banking activities. u The most effective system, having regard to the public interest, seems to me to be State control of both Reserve Bank and trading bank activities, under the direction of three members representing primary producers, secondary industry and the consumers,” he said.

This proposal ins less revolutionfer »«• Mem, Mr Walsh said, because afreedy the State-con-trolled Bank of >few Zealand did 40 per cent, of the tanking business in the country. No-one would suggest the Bank of New Zealand was not run efficiently, and by reducing banking to the Bank of New Zealand, the Government would free itself from bank pressures, which were considerable. Mr Walsh: said the present government had shown itself unwilling or unable, to act promptly and effectively with the result that the balance of payments crisis which developed at the end of last year had grown more and more serious. “New Zealand has for some time been living well beyond its income,’’ he said. “Our earnings overseas have fallen, but spending has • remained high, so that opr savings held in overseas reserve accounts have dwindled to a dangerously low figure. It was usually possible to save during the first half of , the year, but, this year, New Zealand had been overspending at the time when it should have been saving. Fall In Reserves “In the first half of 1959. our overseas reserves rose by £34 million and, in 1960, January to June, they rose by £34.2 million. Between the end of 1960 and the middle of April, 1961. they fell by £l6 million,” he said. The Government could do nothing about the fall in export receipt* but ft could, and should, have done something about the high level of importing to stop the drain of reserve funds, Mr Walsh said. Because of its inaction the reserves had fallen from £66 million in December to £50.7 million in April This fall had been encouraged by trading tanks advances which had increased from £lB7 milin December to £238 million in April, providing local finiaee for importers. “There can be no doubt that theta will be a delay before the full effect of the recession overseas is felt here because of the excessive importing, ihfcsch is being done at the expose of our overseas funds," he said. “This will soften the blow for the time beitlg, but it Will tend to make the eventual result even worse, unless there is an upturn in export prices, which, on present trends, does not appear likely.” The Government had. by promising reduced taxation, the removs of capital issues control, and the removal of

import control, put itself in an awkward position and was stalling in the hope that something would turn up, Mr Walsh said. “The Prime Minister started to hedge on election night and now, five months later, these election promises have not been kept,” he said. In fact, the Government had been compelled to take action directly contrary to its election promises. “The price index has remained comparatively stable since the end of 1959 because the additional amount of money in circulation has been matched by a considerable increase in the amount of finished goods imported, and also in the quantity of materials imported for use in our factories where they are turned into consumer goods. "We could not afford to import all these goods, and now that we have run out of funds will be compelled to cut down considerably on future supplies. When the flow of imports is reduced we will begin to see the effect of the increase in the amount of rnonev in circulation. Prices will inevitably go up " World Bulk The present situation was chaotic, Mr Walsh said. The Prime Minister would not take immediate action to check the deterioration in overseas exchange. He urged the community to spend less and produce more. The banks continued to put money into circulation, and the Minister of Trade announced new restrictions. Manufacturers found it hard to produce more while using less material, so the Prime Minister said he would borrow overseas to pay for imports.

Then it waa announced that New Zealand would join the International Monetary Fund and World Bank, which, in itself, could be a good thing, but the Government was putting up the proposal at the wrong time and for the wrong reasons. It could have been right and proper to join the World Bank in order to help finance and develop more backward countries, and then New Zealand could have taken advantage of the facilities of the bank when overseas exchange was adverse. There was little, however, to commend joining for the purpose of borrowing because fire Government was obliged to go cap in hand to ask for accommodation. The World Bank, as a prudent banking institution, would find it necessary to attach the loan and terms would be stringent. What of the future? Mr Walsh asked. The level of our overseas funds gave grounds for anxiety, the labour position in other countries was easting a shadow over New Zealand, Australians were coming to New Zealand seeking work that was not available across the Tasman, and New Zealand would be extremely fortunate if unemployment and rising prices were to be avoided later this year. Common Market New Zealand not only had to overcome her present balance of payments position, but also to meet the threat of the European Common Market taking over preferences in the United Kingdom. For reasons of trade alone it seemed certain Britain would have to go in with other European countries, and for economic and political reasons she was being urged by the United States to do so. “The principal market for our meat and dairy produce is the United Kingdom,” Mr Walsh said. “If these exports are limited, or a tariff is put on the produce, the effects on our overseas trade can be very serious. We cannot have the balance of trade upset without repercussions throughout the whole economy, for we are committed to a fixed level of internal costs and charges which must be met “A serious check to overseas receipts could make it impossible to maintain these costs and charges, which would mean the end of our social security structure with a fall in employment, wages and living standards. We need to find alternative markets now, before this situation develops.”