IMPORTERS' CASE STATED

Evening Post, Volume CXIV, Issue 122, 19 November 1932, Page 14

IMPORTERS' CASE STATED

■ f That the immediate effect of a higher exchange rate will be an increase in the cost of living, and that this increase will be of a permanent and not merely of a temporary nature, is the principal contention of a statement issued to-day by the exchange committee of the New Zealand Importers' Federation. /The exchange rate controversy,is a question that vitally affebls the general public," declares the committee, "but in the discussions which have occurred the position of the unfortunate consumer has been ignored. No thought has been given apparently to that übiquitous individual, the man in the street. He has already contributed heavily to the general sacrifices demanded of all sections of the community. He has suffered salary and wage cuts and on a reduced income has been forced to , shoulder greatly increased taxation. • » , "What is_ his position going to he if a high exchange rate eventuates?' Surely it is time that his case was presented and that the worker, the average man in the street, received some consideration in a matter which perhaps affects him more vitally, than it does any other section of the public.

"The immediate effect of an increase I in the rate of exchange w^H be an increase in the cost of living. That is inevitable and unavoidable, the natural outcome of the adoption of an inflation expedient. A Minister of the Crown is reported in the Press to have stated that such an increase in the cost of living will result, but he maintained that that.increase would be of a temporary- nature only and would be abs6rbed in the general readjustment of all internal costs which would automatically result. Such, however, is far from being the case. Any increase in the cost of living will bo.permanent and Trill last as long as the high exchange rate lasts. 7 ' SOME EXAMPLES. "An increase in the exchange rate of .35 per cent, necessarily adds 15 per cent, to the landed cost of an article imported from overseas. The position ■which arises may be demonstrated very simply. We will say that it costs £1 to land an article in New Zealand. .That is the cost to the importer after he has. purchased the article, paid freight, insurance, exchange, cartage, larbour charges, etc. We will say that he adds 15 per cent, to cover his profit and overhead costs —a very moderate estimate—and that he sells direct to the public. The cost of the article to the public would be £1 3s. "Now what is the position with exchange, at, say, 25 per cent.?' The landed cost increases by 15 per cent., moving from £1 to £1 3s. The importer adds his 15 per cent, to cover overhead and profit, -which in this case •would work . out at 3s 5 2-sd. That article would therefore be sold probably at £1 6s 6d. \ The result would be that an article which Had previously cost the public £1 3s with exchange at 10 per cent, would cost the public £1 6s 6d with exchange at 25 per cent., a direct increase to the public of 17i per cent. ' ' "The same thing will occur in regard to many lines of locally-manufactured articles. In a great many cases local manufacturers "have to import their raw materials, and the cost of these raw materials is going to be increased by the extent pf the increase in the exchange rate. The amount of the increase will be added to the cost of the article and will be passed on to the general public. -.-.■■ "There is then'the case of primary products sold locally. It is very obvious that the price of butter, cheese, meat, and other foodstuffs which New Zealand exports will increase in price locally. The farmer does not want to get an additional 15 per cent, on his exports alone; he will want it on the whole of his products, whether sold locally, or abroad., The local price of wool, for instance, will advance slightly ■because of the additional exchange, and that willmean, of course, an increase in the price of clothing, irrespective of whether it is manufactured locally or imported from overseas. CONSUMERS 'PAY THE PIPER. . "It has been generally admitted that this increase in.the cost of living will result, but the point has not been sufficiently stressed, and the views of the consumers, who will, of course, have to pay the piper, have not been expressed; Those who advocate a higher exchange rate contend that the increase in the cost of living will be purely temporary. It is not clear on what reasoning this contention 'is based; for it :must be obvious even to the meanest intelligence that the higher cost of exchange will affect the price of goods for as long as the high exchange rate continues; How can an. : increase . come into' operation for a few months and then vanish? If exchange were to be permanently increased, the cost of living must be permanently increased. No other conclusion is possible. "Putting the position another way, the value of real wages must decrease to ■ the extent of the rise in the exchange rate. Thus, if the rate goes to 25 per cent, real wages will decrease t>y a minimum of 15 per cent. In NewZealand currency, the workers will be receiving the same amounts as they are securing to-day, but those amounts will purchase 15 per cent, less goodsj because the price of those articles will have increased by 15 per cent. "The immediate effect of a higher exchange rate, therefore, will be an increase of 15 per cent, in the cost of living, a permanent increase that will continue just as long as the high rate of exchange continues. ADDITIONAL TAXATION. "The ultimate effect on the general body of the public will be even more severe. A high exchange ■ rate will necessarily restrict imports 'to bare necessities, and that must mean a heavy decline in Customs revenue. In addition, it will add very greatly to the burden of the debt charges, both of the Government and of local bodies, and through the lower purchasing power'of the workers1' wages it must mean reductions also in>receip'ts from other forms of taxation. The result will be a larger deficit and an accentuation of the Government's budgetary difficulties, leadr jhg inevitably to additional taxation that will hit the general public. . "Furthermore, there is the question of unemployment. Wo unhesitatingly assert that a higher exchange rate must lead to a sharp increase in unemployment, more particularly in.. the cities. Many of the worke s who will, thus be thrown out of work will be unsuited for work in the country, even if the farmer, through the higher exchange rate, could absorb additional labour. ..We venture to predict that after a high exchange rate has come into operation it will be found that the total of registered unemployed will show a progressive increape,: and that the present funds of the Unemployment Board will prove quite inadequate. "That will necessitate the ."doption of one of two courses—either an increase in the wages tax or a subsidy to the Unemployment Fund from the Consolidated Bev'enue. With the prospect of a much larger deficit as a result of lower taxation charges, and increased .expenditure on debt charges and loan

repayments, a subsidy from the Consolidated Revenue will probably prove not merely impracticable but impossible, and consequently a higher wages tax seems inevitable. In addition, the present relief rates of payment will be impossible with the higher cost of living. They would have to be> increased at least by the extent of the probable increase in the cost of living. Would the funds of the Unemployment Board permit this?

To sum up, any increase- in tho exchange rate must hit the general public, the worker, very heavily, firstly, becauso it must bring about a permanent increase in the cost of livingj secondly, because it must accentuate the unemployment problem; and, thirdly, because it must inevitably lead, through ita adverse offeet on the Government's revenue and,expenditure, to increased taxation."