SUBSIDY SYSTEM

Dominion, Volume 37, Issue 202, 24 May 1944, Page 4

SUBSIDY SYSTEM

Stabilization Of Costs Ir Wartime

USE FOR OTHER PURPOSES INDICATED

“The uneasiness expressed by the Chancellor of the Exchequer in the latest British Budget over the excessive cost of subsidies to stabilize the cost of living, finds its counterpart in New Zealand,” says a statement by the Associate! Chambers of Commerce of New Zealand, which proceeds as follows: — Stabilization, particularly during the war. is an imperative necessity One way of achieving this is by subsidies, and these —just as in Britain —have beep freely resorted to in New Zealand during th-? war period. Subsidies to keep down the

cost of living, however, can go too far. “I am afraid,” says the Chancellor of the Exchequer, “we can no longer regard the present cost-of-living figures as sacrosanct. It. would place the stabilization policy iu an altogether false perspective, and the purpose of it would be largely stultified, if the Government continued blithely pouring out subsidies to keep the cost of living down rigidly to a pre-de-termined level without regard to the current level of wages and prices.” Fundamental Objections.

So, too, in New Zealand, stabilization is a sound objective, but it begins to lose its meaning when recourse is had too freely to such devices as subsidies. The Economic Stabilization Conference assembled b.v the New Zealand Government in 1940, and whose recommenda-

tions were unanimously subscribed to by all the participating national organizations of employers and employees, stated in regard to subsidies:— "The conference desires to stress that stabilization of prices by State subsidies is dangerous, and should be resorted to only when these cannot be avoided, and then only under stringent control. "Fundamental objections to subsidizing are:— (1) It tends to kill initiative by lessening the incentive to aim constantly at improved methods and processes in order to attain maximum efficiency and greater

output; (2) it prevents the operation of the natural cure for increasing costs of

one commodity—namely, the turning to substitutes by consumers; (3) if carried beyond very narrow limits it loses its effect and is of no benefit.” It cannot be said that subsidies paid under war conditions have been confined to very narrow limits. The Economic Stabilization Conference did recommend that, in addition to wages, salaries and rents, price stabilization should be applied to essential foodstuffs; essential standard articles of clothing, footwear and household necessities; public services. fuel and light Subsidies in sueh direction were designed as an offset to pegged wages and salaries, and to that extent could be argued as being justifi-' able measures for the duration of the war. Such devises used under the exigencies of war conditions, however, do not alter the fundamental unsounduess of the subsidy system, which needs to be kept fully in view. As the journal of the New Zealand Accountants’ Society stated three years ago: "Generally speaking, the artificial of maintaining a country’s industrial economy by means of subsidies is pernicious. Legitimate price increases, instead of being borne by those who use goods and services, become additional burdens on the community as a whole (through taxation) and the real cost to the public is hidden. Economies which would be effected normally if th? consumer had to pay the real price are not brought into being, and the added burden of the cost of accounting and checking inseparable from all subsidy systems has to be met.” Allowing subsidies on basic essentials as being justified during the war, nevertheless there is evidence not only of the lack of strict control necessary in respect to subsidies, but that subsidies are being used for purposes not confined to the stabilizing of pricep of basic goods and services. Six months after the presentation of the report of the Economic Stabilization Conference, and before the Government had acted on any of its recommendations. the annual conference of the New Zealand Labour Party carried as one of its resolutions “that where landed costs of overseas essential com modifies of raw materials advance, prices on the local market be maintained by the payment of a subsidy." This was directly contrary to the relevant recommendation of the Economic Stabilization Conference, which was that “it is not practicable to stabilize the prices of commodities or raw materials imported from overseas. ... in certain circumstances, sueh as short supply or increased prices, the consumption of some imported goods may have to be reduced by all, or other commodities used instead.” Extra Costs Concealed.

A year ago the Associated-Chambers of Commerce wrote to the Minister of Finance, Mr. Nash, stating there were reports that the War Expenses Account was being debited with all sorts of subsidies and payments that were not of a nature coining under a direct war classification, and asking that a more detailed analysis of the War Expanses Account be given than was available from published statements and returns. The Minister replied that such information could not be given in any public statement, as it would necessarily disclose up-

to-date information on current war activities which might be of some interest and advantage to the enemy. He added, however, that if instances of expenditure could be quoted, they would be investigated. The Associated Chambers complied by forwarding the following instances of charges reported as being made against the War Expenses Account: — (1) Subsidy on sugar to the extent of £700,000; (2) the cost of 40 new houses built for the miners in the Waikato; (3) subsidies toward increased costs on the waterfront.

The Minister has not yet replied, and since then other instances have arisen of the extent to which the system of subsidies is being employed, but on which no official information is given by the Government in any adequate analysis published. A broad analysis of the War Expenses Account is given in the latest Budget, showing as expenditure for 194243 “subsidies to primary producers ami for stabilization purposes, £2.300,000,” but primary production was being subsidized before the war, and all such subsidies do not appear to be a charge on the War Expenses Account. In view of the manner in which war subsidies are being viewed with a critical eye in Britain, what is needed in New Zealand is the official publication of full details of subsidies and associated payments, whether made from the War Expenses Account or other accounts, in order to gauge the extent to which the economy of the country is being made to depend on these artificial supports. The issues arc important. Subsidies conceal from the consumer the fact that he is paying additional charges in another way—through taxation. The heavy taxation rates imposed under war con ditions are hardly likely to he appreciably lightened after tpe war if the economy of the country becomes reliant to any extent on a system of subsidies. The question also arises as to how far subsidies are due to unavoidable increases in costs imposed by externa] conditions, and how much by a conscious and controllable policy of increasing costs. The subject has therefore both a current ami a postwar significance, on which it is timely that the Government should shed light.