The Press WEDNESDAY, MARCH 9, 1966. Reserve Bank Money For State Works

Press, Volume CV, Issue 31004, 9 March 1966, Page 12

The Press WEDNESDAY, MARCH 9, 1966. Reserve Bank Money For State Works

The Labour Party policy on the use of Reserve Bank credit to finance State expenditure, as announced by the Leader of the Opposition (Mr Kirk) this week, is essentially the same as that followed by previous Labour Governments. A Labour Government, said Mr Kirk, “would use Reserve Bank credit at low “ interest rates for certain approved capital develop- “ ment Previous Labour Governments have used Reserve Bank credit to a greater or lesser extent to help finance capital development The 1957-60 administration had a comparatively modest record in this respect: net Government indebtedness to the Reserve Bank was £2B million higher in November, 1960, than it was three years earlier. In the next three years, under National, indebtedness to the bank was reduced by £lO million, and in the last three years it has been reduced by a further £6 million.

The reduction of State debt to the Reserve Bank over the last six years has been achieved mainly by the growth of new financial institutions: the shortterm money market and the trustee and private savings banks. The Government has, in effect, borrowed from these sources both to finance some of its capital development and to reduce its borrowings from the Reserve Bank. To the unsophisticated, the idea of a State-owned bank providing cheap money for use by the State has always been an attractive “ alternative ” to taxation or borrowing from the “ moneylenders ”, In practice it is no alternative, except in times of recession. When employment is over-full and business confidence is high, resort to borrowing from the central bank merely puts more money in circulation, drives up prices, and contributes to inflation. Only by reducing the spending power of the private sector, either by increased taxation or by borrowing, can the Government finance its expenditure without adding to inflation. In other words, development of the country’s resources involves some sacrifices by today’s taxpayers, in just the same way as saving by the private individual reduces his present consumption. This harsh fact of economic life is well understood by politicians—and by an increasing proportion of today’s educated electorate.