HIGH EXCHANGE

Evening Post, Volume CXV, Issue 33, 9 February 1933, Page 10

HIGH EXCHANGE

STRONGLY CONDEMNED

SIR JAMES ALLEN OUTSPOKEN

ECONOMIC STABILITY

A" vigorous criticism of the Government's policy in artificially raising the rate of exchange was made in the Legislative; Council yesterday afternoon by tho Hon. Sir James Allen, an ex-Minister of Finance. Sir James claimed that tho Government's policy would ■ seriously jeopardise tho economic and financial stability of the Dominion, and give practically no relief to the primary producers. Sir James Allen said that he realised the difficulties being experienced by.the Government and the primary producers, but he thought that Cabinet had come to- a wrong conclusion. If - all the good the Government. alleged would accrue from the raising of the exchange'was going to materialise. why did it not put up the rate even higher? That was only logical. The fixing of the exchange rate was not a matter for the Government, but for the banks, which were guided by the law of supply and demand.' - The Government had departed from this principle, and had forced the banks to push up tho rate. Naturally tho banks wished to be indemnified against such *an unwise policy. It had been said that the economists wore in favour of a high exchange. Certainly tho three economists whom the "Government, consulted werb,; but -there —was 'another economist, whose opinion was just as valuable as tho other three, who had not been consulted. He ventured to say that the Government had consulted only those economists whom it knew would bo favourable to its plans. The-Bight Hon. Sir Francis Bell: Hear!* Hear! ' "NATIONAL DISASTER." Sir James said that the policy of the Government was liable to lead to national disaster. It had created a precedent which could be used by Governments in the future. It was doubtful under the BUI whether the banks had power to_ alter tho rate, and apparently the Government had taken the whole of the control into its own hands. The Hon. J. A. Hanan: There is no sliding scale up or down. Sir James said that he agreed with the remarks made by the ex-Minister of Finance (the Hon. W. Downie Stewart) that it was absolutely necessary that the Budget should be balanced. If they were going to have deficits year after year, they would have to face the consequences. The tim. might come wben the country could not pay its way. It was admitted by the Minister of Finance (Mr. Coates),' added Sir James, that the deficit for tho 'next financial year would be £9,800,000, and-it "was hoped to reduce this to £4,500,000. It was proposed to take £500,000 from the Highways Fund, and £400,000 would be saved asthe result of a' reduction in interest. It was also decided to liquidate reserves to the extent of £2,000,000, and it was only right that the members of the Council should realise what was being done with the savings of past years. In two years the reserves held in tho Discharged Soldiers' Settlement Account had been depleted to the extent of £4^000,000, and it was doubtful whether any, more money could be secured from this source. Extra taxation was estimated to produce another £3,400,000, and. so far the Government had not disclosed the nature of the #bw taxation. The Hon. E. McCallum: Sales tax. ' Sir James said that it was perti_nt ( to ask what was going to become of the! deficit of £4,500,000. Was it to be added to the floating debt? He also asked whether the Government had taken into, account the 15 per cent, reduction in railway freights. He had no objection- to the concessions -being made, but the reduction would have to be made up. ' . AUSTRALIA'S POSITION. Statements had been made that Australia had .benefited as the result of the high exchange, but the Commonwealth had "an astounding floating debt of £90,000,000., On 31st March next the New Zealand floating debt would be £3,750,000. . He'dia not'say the' Australian floating debt was wholly the result of the high exchange, but if the New Zealand deficit was added to the floating debt, it would make tho financial position more difficult in the future. It was estimated that, as the result of the high exchange, the Customs revenue wonld drop by £1,250,000. This did not seem to be an unreasonable estimate. The amount of the indemnity to the banks was a matter for speculation, but it was likely to reach £1,000,000. Altogether the amount added to the Budget deficit was £3,800,000. It was possible that the banks and the Government might be ablo to use the London funds, but that was not likely. On 19th July, 1934, a New Zealand loan o± £5.000,000 became due, and it had beeu suggested by Professor " Tocker that tho surpluses might bo used-for tho payment of this loan. The loan' had been raised at £99 at a rate of 5 per cent., and if it were to be ■ paid off JSew Zealand would have to find an equivalent amount within the Dominion This would mean that the exchango rate would havo to bo added. FIGURES CHALLENGED. It had been stated that as the r _ult of the raising of the exchange; the increased revenue to the country would amount to £10,000,000, but it was difficult to see how this amount was arrived at. For the year 1931-32 the exports from New Zealand, excluding speeio totalled £35,500,000. As the I.suit of a rise of 15 per cent, in the exchange --Un__ would be au increase of £5,341,000, which was a long way short Of the £10,000,000 estimated in'some quarters. Sir James Parr: That does not include internal consumption. Sir Francis Bell: You cannot set exchange on that. . ' • * ..Sir James Allen said that the primary producers had received. reductions in shipping rates, but as the result of the high exchange there would be an increase of shipping charges which the farmers would have to bear. The raising ot .?_! -S^", -ant aii in«easi of £544,500 _ freights,, which had to be paid in British sterling. The high exchange would also mean an increase in' the cost of the High Commissioner's office, and in Imperial pensions. These might be small amounts, but the list of extra charges was a long one, and would swallow up much of the benefit which it was alleged would accruo to the primary producer. Already the local retailers had placed an-extra 15 per cent on many of their, goods, including such things a 3 butter, and the local manufacturers of woollen fcoods would havo to pay an increased price for raw material. Consequently, tho price of locally-made woollen goods would rise. The high exchange would have the eflfect- of seriously curtailing the importation of goods from the United Kingdom, and was contrary to the -spirit and reality of the Ottawa agreement. Sir Francis Bell: Hear, hear. The conference had endeavoured, said Sir James, to increase trade between New Zealand and the Mother Country,

but the action of the Government was putting a bar in the way. He hoped that there would be-.sufficient members of the Council to make the Government realise the error it was making. As a result of tho high exchange, competition from Australia would be keener than in the past, and the local manufacturers would suffer. Sir James Parr: What are your proposals? Sir James Allen: I suggost" that' wo should assist the primary producers in another way,. and that we should "also balance our Budget. He '■ asked whether the Government had considered any conversion scheme in regard to tho National Debt. Sir James Parr: Internal or external? Sir James Allen said that they should consider the internal debt first, Thorc was no reason why Now Zealanders should not realise that they would improve the position of the country by converting their stocks at a low rate of interest. It had also been suggested that the farming industry could be assisted by a bounty, which would not have the disastrous effects of exchange inflation. The Government's policy was not even a palliative, and only piled up the burden on the remainder of the community while giving only partial relief to those in necessitous circumstances. -'" ' ""