WELLINGTON NEWS

Hokitika Guardian, 28 October 1927, Page 4

WELLINGTON NEWS

OVERHEAD COSTS. (Special to “ Guardian ”.) WELLINGTON, Oct. 24. Prime costs mid overhead charges which are excessive are retarding the j return uf prosperity to the Dominion I j, the view expressed in Bulletin No. prepared hy the Department of Econoniics of Canterhury College, and issued hy the Canterhury Charnher ol Commerce. Brittle costs are the costs oi labour, materials, etc., which vary with and depend directly upon output: overhead costs are general charges lor land and buildings, plant, power, administration, rates, taxes, etc., which vary less and lend to run on regardless of output. The expansion of overhead costs in recent years has been verv great, and the dead weight burden of heavy and often unremunerative overhead charges is hampering centioiiiie recovery.

Tile overhead capitalisation of farming is cited as an instance, owing to the purchase ot laud at uneconomic values during the hoom years ot 1019-21. That is disclosed by the. amount of the mortgages registered on rural lands. In 1910 the amount was |million sterling. In 1920 it jumped to .‘IO.O million and in 1021 to bO.i million. It dropped to 11.5 millions in 102.4 but has risen since, the total lor 1020 being 21.* millions. On rural lands the registrations for the boo ' period have not since been approached, but in urban lands they have been exceeded both in 1025 and 102(1.

It must be remembered also that besides the increase in mortgage indebtedness there has been an increase in tile rate ol interest. The same cause which led to over-capitalisation in farming stimulated it in many other directions. A familiar example is the freezing industry where the cost of an increased number of works is borne largely bv farmers. In other industries the artificial production given by war conditions combined with high war profits and prices stimulated the establishment of new businesses, and induced them to raise new capital, and to expand their premises and plant to an extent beyond what was justified under normal conditions. Some ot the new (apital lias bad to be written off. as in the ease of over-mortgaged farms, but some remain as dead-weight debt whos.* charges help to swell the overhead costs. Taxation is a further cause ol the expansion ot overhead costs. In 191-1 the taxation per head was Co 2s ,'ld. in 1921 it was Cl 7 1 Is Id. in 1924 it was CIL 19s 3d, and in 1020 it was Cl2 7s lid. The total taxation is now more than three times as great as in 1914. Of course the war accounts for some part of the increase, hut ordinary dchi charges have grown greatly since tile war. Rates and other taxes have increased steadily year hy year. In 1914 the total was 45s lid per head, while by 1925 it bad risen to 73s 3d per head. Many other items entering into the expansion of overhead costs are not recorded, but there can be no doubt that for industry and trade as a whole the changes that have occurred since 1914 have occasioned great increases in overhead expenses. It appears that at present many producers’ prices must average less than -111 per cent above ill ’ !!■! I level, while retail prices, which determine many wage rates, and other costs of production are more than (19 per cent above that level.

Like all other costs these overhead charges must he met out of the produce of industry. In New Zealand, as la" as the statistics show, the product o' industry in general lias not expanded nearly as much as overhead costs. Tli ■ Bulletin states that in 1910-11 taxei and rates were about 121 per cent, or one-eighth of the estimated production per head; in 1924-21 they were 20 per cent or one-fifth ; and in 1924-25, a year of high prices for our products. 13.7 per cent. .Since then produce prices have fallen heavily hut taxes and rates have risen, so that they are now at least 20 per cent of the estimated production. The ollieial estimates of product inn per head 101 l heavily alter tlm war and has not leached its 1910-11 level.

J Out of a national income which .n | volume per head has not increased : there must he suhtractcd first, ovorj head charges for rates and taxes, he i burden for which has increased from j 12J pet cent to 20 per cent; second, : debt charges, which on account of in- ! creased borrowing, heavier capitalisation and higher interest rates, have expanded greatly; thirdly, other overhead costs for power, administration, etc., which, though not recorded, have probably expanded also. Prime costs have also increased and in many cases more than proportionately to the price of the product. It is mainly in those unsheltered trades that the incidence of the general increase in costs is concentrated, and the result is seen in depressed conditions in our basic industries. And the Bulletin adds; “Our most urgent present need is such a reduction of overhead and prime costs as will stimulate demand and encourage expansion of production, for expanded production is the surest means to increase employment, revise local markets, and renew prosperity and progress on a sound basis.”