BORROWING BY STATE

Dominion, Volume 21, Issue 130, 1 March 1928, Page 9

BORROWING BY STATE

GOVERNMENT’S POLICY DEFINED CARRYING PROGRAMMES TO COMPLETION i WHAT IS BEING AIMED AT Dominion Special Service. Dunedin, February 29. The policy of the Government with respect to borrowing was defined by the Minister of Finance (Hon. W. D. Stewart) in an address here to-night when dealing with the question whether the country was borrowing too much annually. The Minister said the aim was to borrow each year only the minimum amount necessary to carry on the heavy public works on hand and to pay off as much as possible each year of the dead-weight war debt. Thereafter, if circumstances were favourable, the net increase in borrowing should fall, until ultimately the point was reached where the amount of war or other debt paid off would equal the new money borrowed for public works. For 1927-28, the Minister said he hoped to show that the public debt would increase by only £6,000,000.

“I readily agree that our annual borrowing should be reduced, and that, is our main endeavour at the present time,” said the Minister. _ ‘‘But no heavy or immediate reduction can be made by a stroke of the pen. It must be a gradual process for several reasons. “In the first place there are large public works half completed, such :as hydro-electric schemes, railway workshop improvements, irrigation works, and so on, and to stop any of these and leave them half completed would be to do what no business man in private enterprise would do. In the second place, if I call upon the. Public Works Department to stop suddenly any of their large construction works they must immediately pay off hundreds of hands at a time when the labour market cannot absorb them, and I would immediately be called upon to find money to cope with the increased unemployment. In the third place, as I pointed,out last year, it is the established policy of New Zealand that the State should own the hydro-electric schemes, railways, and. other public works, and it is impossible' to develop or complete these without large expenditure of loan moneys. I have /frequently said that if Parliament decided that the public no longer wished these undertakings to be owned by the State, on behalf of the community as a whole, it would be an easy matter to stop borrowing. Fourthly, it must be remembered also that we fell behind in our public works during the war, and we have been compelled to make up some of the leeway since. The policy of tapering off in borrowing is often jeered at as the catch-word of every Government. What is Aimed At. “But what we are aiming at is, first, to borrow each year only the minimum amount necessary to carry on the heavy programme of public works we have in hand. Secondly, to pay off as much as possible each year of the deadweight war debt and thereby year by year lessen the annual increase in the public debt. The effect of this policy is shown in the fact that, whereas in 1925-26 the public debt increased by £11,000,000, in 1926-27 it increased by under £7,000,000. For 1927-28 I hope to show that -it will only increase by £6,000,000. Thereafter, if circumstances prove favourable, each year the net increase in borrowing should fall till we ultimately reach the point where the amount " ar debt or other debt paid off will equal the new money borrowed for public works. If any of my critics can show us a better method of dealing with the situation without leaving large schemes half finished and without intensifying unemployment or abandoning public ownership of natural monopolies, I would,like to know what they propose. Increase Analysed. “The increase in the debt for ordinary purposes, by which is meant public works, land settlement, etc., may be analysed as follows: —

“It will be noticed that whereas in 1901-1914 a large part, nearly 40 per cent., of the borrowed capital was devoted to -other objects, the loan money during the last period was concentrated on public works. Further, it will be seen that when reduced to a comparable basis the increase in the annual borrowing for these purposes is not in excess of the increase in population. This disposes of the contention that the Government has been borrowing at a rate greatly in excess of that of prewar times, but that is not the end of the matter. As I have already pointed out, we are at present paying for the war, and we have consequently less margin to cover the cost of capital expenditure that is financially unproductive. In other words, the country is not as well off as it was, and we must exercise greater prudence. Public Works Expenditure. “The expenditure on public works during the periods I am considering was as follows:—

“It will be seen that compared with pre-war years our average yearly expenditure on public works has nominally nearly trebled and actually about doubled. Tiie average expenditure of loan money has more than doubled, for of the £22,700,000 spent in the ten years ended 1914, £6,200,000, or nearly 30 per cent, oi the money came from the surpluses of the Consolidated Fund. During the war period, surpluses were held, and only £350,000 was applied to public works, and in the post-war period 19201927, £1,250,000 was so applied. In the latter periou, of course, a large part of the surplus revenue has been applied to debt reduction, a development largely arising out of war 'and the need for making an effort to get rid of some of our dead-weight debt. This partial diversion of surplus revenues means ' that a greater proportion of our capital expenditure comes from loaii moneys, and this is an added reason for care in such expenditure. Making Up of Leeway. “In considering the principal items of loan expenditure during the period of 1920-27, allowance must be made for the fact that in the first year or two it was necessary to make up some of the leeway lost during the war-time restriction of operations. Nevertheless, the economic balance of the Dominion will be upset, if too many men are employed for any length of time on capital works. In other words, it is not economically sound for more than a certain proportion of the population to be employed out of borrowed money. The annual charges on the borrowed capital have to be paid out of the production of the Dominion, either directly in the form of payment for services rendered, or indirectly through taxation. This being so, capital expenditure is clearly not economically sound unless it results in increased production.” Other portions of the Minister’s speech are reported under separate headings.

1904-1914. 1914-1920. 1920-1927. (10 years). (6 years). (7 years). Land settle- £ £ £ meat .... 5,000,000 3,225,000 550,000 Loans to local bodies Defence 1,327,000 1 (mostly naval) .... 1,850,000 50,000 P u bile 35.500.000 ■works ... 16,044.000 0,843,000 Other ... 3.099,000 1,991,000 907,000 Totals 27,320,000 15,109,000 30,957,000 yearly average Adjusted ap2,730,000 2,520,000 5,280,000 prox. to pre war values 2,730,000 1,700,000 3,500,000 Per head of average mean population .. £2 14s. £1 0s. £2 12s.

1904-1914. 1914-1920. 1920-1927. (10 years). (G years). (7 years). £ £ £ Railways . Telegraphs 12,735,OOP 5,120,000 15,872,000 and telephones .. 1,016,000 1,403,000 4,593,000 Hydro-electric sunnly .. Iloaus and — — 5,400,000 highways 3,597,000 1,909,000 5,409,000 Buildings (ineluding schools) . 2,782,000 1.939,000 5,171.000 Other .... 2,004,000 1,741,000 6,633,000 Totals ... 22,734,000 12,118,000 43,078,000 At approx. pre - war values . .. 22,734,000 S,000,000 28,500,000 Yearly average at prewar values 2,270,000 1,330,000 4,070,000