THE POLITICAL CRISIS

Evening Post, Volume CXV, Issue 15, 19 January 1933, Page 10

THE POLITICAL CRISIS

RESIGNATION OF FINANCE MINISTER

MR. FORBES STILL RETICENT

PARTY CAUCUS NEXT WEEK

The Prime Minister (ike Right Hon. G. W. Forbes) is maintaining a policy! of silence in regard to the political situation, arising out of the resignation of the Minister of Finance (the Hon. W. Dowriie Stewart). When interviewed by a "Post" reporter this afternoon, Mr. Forbes reiterated his. statement of yesterday that he had no comment to make. Questioned whether he would ■• make any statement as to the Government's policy before Parliament met, Mr. Forbes said that he had called a caucus of the Coalition Party for Tuesday next, and no doubt a full discussion, of the Government's policy would take place. In the meantime, he had no statement to make. It was ascertained to-day that since Monday last Mr. Stewart has not attended meetings of Cabinet, although he has been in attendance at his office at Parliament Buildings each day.

The first indication of disagreement in the Cabinet came last week, when members of the Government settled down, to consideration of a plan to assist the.primary producer to counter the effects of- the- economic difficulties with which he was confronted. Cabinet, it is believed, had before it various suggestions, 'but it was not found possible to arrive at unanimity on any one proposal. It is understood that Mr. Downie Stewart expressed opposition to the adoption of a policy of expediency, •which, while affording a temporary measure of relief to the primary producers, might have an. adverse effect on the country as a whole in the long tun. Mr. Stewart's policy did not meet with the approval of his colleagues. > FEELING IN THE HOUSE. The agitation which took place a few months ago on the exchange question revealed that there was a strong body of opinion in the House of Representatives in favour of the adoption of a high rate and it was obvious that in the'absence of some other plan to .assist the producer this agitation would be renewed, with even greater force when the session resumed. Members of Cabinet no doubt.had this in. mind •when they began their investigation of the farmor's position, and they were fortified by an interim roport they had received from a committee of economists —Dr. Hight, Professor* Tocker, and Professor Belshaw—who, it is "understood, repeated their former recommendation in favour of increasing the exchange rate to 25 per cent. Cabinet's decision to bring about an increase in the exchange rate naturally placed Mr. Stewart in a difficult' position, for it is well known the Minister of Finance has strongly opposed a manipulation of exchange and on more than one occasion he has had to bring all his influence to bear in order to avoid' what he considered ■would be a disastrous mistake. When the decision went against him, Mr. Stewart felt that he had no option but to stand by the principles he held so strongly and resign from the Ministry. He has, it is understood, made it plain to the Prime Minister and other members of Cabinet that his action in tendering his resignation was actuated in the main by a desire, not to embarrass his colleagues in any way. Cabinet having decided to pursue a certain course which he considered to be entirely wrong and not in. the best interests of the country as a whole, he felt it his duty to leave the' Ministry and thus give the Government a free hand to carry out its policy. As Minister of Finance, it would have been Mr. ■ Stewart's .duty to assume the responsibility for anything that occurred as a result of exchange inflatiou, and as he has indicated previously he was not prepared to accept that responsibility. It will be understood that Budget difficulties must be greatly increased by high exchange. This year a deficit of a million is anticipated. Originally the estimate was two millions, but the generosity of the British Government aided by Customs revenue buoyancy halved the amount.But for 1933-34 the Budget hurdle will be much higher. There will be the million shortage to make up, or valmost two millions if further postponement of funded debt payments is not obtained and in addition approximately £•2,500,000 provided this year by hypothecation of reserves in Soldier Settlement Loans. An industrious Treasurer may find some small reserves not yet used, but they will be very small. He may find a little reserve taxing capacity—such as the sales tax mooted but sot adopted this year—but the effort to prevent the Budget slipping 'further and further from balaifee becomes more difficult each year. There would be almost £1,700,000 added by exchange to the charge for overseas interest, and Customs revenue would be lower through the inevitable check to importing. Further, it seems improbable, in view of the recent refusal of the Bank of New Zealand to institute a higher exchange and the existence of substantial London credits, that the banks would consent to accept the risk of loss through tho accumulation of high-priced London 'credits which they could not dispose .of. One speaker at the Producers' Conference admitted that "it might be necessary for the Government to guarantee to take any surplus exchange from the banks, but it was the biggest purchaser of exchange." Such a guarantee would add a further liability— ■of unknown dimensions. "With such added burdens the deficit could not fail to be very heavy. On the credit side would be only the slow-coming and problematical improvement in taxable capacity. A PREVIOUS DIVERGENCE. It is understood that Mr. Stewart's resignation was placed in the hands of the Prime Minister several days ago. This is not the first occasion on which JVIr. Stewart has found himself in disagreement with his colleagues in the Government. When the Government last year was contemplating a statutory reduction in interest rates he opposed iliis 'course, and explained his attitude to the House in a statement on 7th April last. "As to private interest," said Mr. Stewart, "I have on a previous occasion expressed the view that a flat, cut all round would be unnecessary in gome eases, and insufficient in others. It would make no discrimination between those who had invested wisely and those who had invested unwisely. My

view was and is that voluntary private adjustments, aided where neqessary by the provisions of the Mortgagors Belief Act, would provide more equitable results for the great variety of cases that exist than any flat-rate reduction would do." Mr. Stewart went on to refer to the recommendations of the National Expenditure Adjustment Commission, and concluded: "Although I am still of opinion that a fixed reduction by legislation is not the best course, I have subordinated my personal view to that of my colleagues, and what appdars to be the general view." MEMBERS CONCERNED. The report of Mr. Stewart's resignation has naturally caused considerable interest and not a little alarm in Parliamentary circles. Special interest will attach fo the meeting of the Coalition caucus which has been called for next week. The Government, it is stated, intended to reserve any statement of its policy rfntil that meeting took place, but the latest developments may precipitate matters. It is known, that the Coalition Party is by no means in agreement on the exchange question, practically all the city members and several semi-rural representatives having made it plain that they would oppose any manipulation of the exchange. It is understood that Cabinet has already had a "count of heads," and that members have been placed in two ..divisions—high and normal bnt what the result of the count was is not known. During the last agitation, however, it was asserted that those favouring a normal exchange rate constituted close on half the House,'and that any division on the subject would be extremely' interesting.