The Gisborne Herald. WITH WHICH IS INCORPORATED “THE TIMES.” THURSDAY, DECEMBER 28, 1939. FINANCING THE WAR

Gisborne Herald, Volume LXVI, Issue 20131, 28 December 1939, Page 6

The Gisborne Herald. WITH WHICH IS INCORPORATED “THE TIMES.” THURSDAY, DECEMBER 28, 1939. FINANCING THE WAR

One of the questions which will have to receive consideration early m the new year is the steps which New Zealand proposes to take in order tomeet the heavy financial commitments occasioned by the war. Up to the present there seems to have been a tendency to leave this problem to look after itself, but sooner or later it must be faced. For the current financial year the estimated war expenditure is £9,000,000, of which' provision has been made for only about half, while next year the total will be between £20,000,000 and £30,000,000. It is true that in the past few years the people of New Zealand have been taught to disregard the money factor and that the expenditure by the State has more than doubled, but the cost of the war will be heavy and sooner or later the bill must be faced —and faced by the people themselves. The millions of pounds which have come to be spoken of so lightly have to be provided by the public; they have to come out of the pockets of the people, because they cannot be provided simply by giving a few more turns to the printing press. Next year, in the absence of economies by the State, of which there are yet few indications, the people will have to find an additional £20,000,000 or £30,000,000, and it would be absurd to suggest that this can be done without a good deal of sacrifice and not a little hardship.

The primary aim of the Dominion, in common with the rest of the Empire and its Allies, is to win the war. It is not possible to concentrate on such a task without some dislocation of the normal life of the community. There can be no maximum war effort while the country continues to live extravagantly and to maintain an artificial standard of living. In the past few years New Zealand has enjoyed a record income from exports and it has supplemented this legitimate income by utilising the reserves that have been accumulated over the years and by a policy of expanding credit and currency through the Reserve Bank. Even without the war ihis policy could not have been continued, because reserves have a habit of disappearing and continued inflation brings about its own end. The contraction of artificial income could, perhaps, be offset, to some extent at least, by an increase in production, but the unpalatable fact is that production is declining. In short, there has been a steady diminution of the

financial resources of the Dominion, but, notwithstanding this, it is now necessary for the country to find an extra £20,000,000 or £30,000.000 a year unless it is to default in the contribution to the war which has been pledged by the Government on behalf of the people. How is’ this money to be found? There is a good deal of support for the policy of “ pay as you go,” but it would obviously be impracticable for New Zealand to find such a large additional sum by way of taxation. In any case, it is questionable whether the whole burden of the war should be placed on the shoulders of the present generation, or whether it would be possible to do so without so disorganising the national economy as to interfere seriously with the war effort itself. The fact is that in recent years there has been such profligate use of both income and capital that to-day there are few sources to be tapped in order to meet the additional drain demanded by the present crisis. The logical method of approach to this problem is to divert expenditure from other purposes to the war effort, but, unfortunately, there is a good deal of evidence of a lack of logic in New Zealand’s handling of finance. The diversion of funds alone, however, would not be sufficient to meet the position and a further difficulty is created by other factors. In the first place, production has already commenced to decline, and as the war progresses and man-power is absorbed into the military forces the Dominion will have to face the problem of maintaining production. and, if possible, increasing it, with fewer workers available. The more this question is studied the more do its complexities become apparent and the better will it be realised just how serious is the position which must be faced. Consideration of the measures adopted in other countries does not give much help to New Zealand. Australia is providing her initial expenditure by calling on the trading banks for substantial loans, but in New Zealand the trading bank surpluses have long since been called up by the Reserve Bank and the margin now available is comparatively small. Great Britain has made an appeal for the small savings of the people, and in the first three weeks has secured £40,000,000 in this way. In New Zealand, unfortunately, the conditions are not propitious for any substantial loan, all the existing loans at 4 per cent" selling at a discount, while Savings Bank funds are declining every month. The lesson of the present position is that New Zealand cannot obtain money from new sources with which to finance the war; and the only alternative is to divert funds which are at present being used for other purposes. This means, inevitably, that some of the things which the people have been led to expect from a benevolent State will have to be suspended for the duration of the war. The war cannot be fought without finance and the finance can only be secured, firstly, by the production of goods, and then by calling on the earnings and the savings of the people.