FINANCIAL STATEMENT

Hokitika Guardian, 31 July 1931, Page 2

FINANCIAL STATEMENT

! (Per favour of Government.) , j WELLINGTON. July 30. The Right Hon. G. W. Forbes, P.C. '‘fillister of Finance, in Committee ot I Supply delivered the financial statejKnent. Mr Chairman,—The honour once [ again devolves upon me of laying be- - f ore honourable members a statement |of the : Dominion’s .finances, together ( with- /an explanation of ttis. circumjfstances which have given Tti|? to the i position- thereby -disclosed, and the if proposals which the Government • in- [• tends, to submit to this' House with a I'view to providing for the existing con- • ditjons. H [Dealing first of all wi|h the external [ trade—with which the-prosperity o- « the Dominion is so intimately bound exports for the year totalled ip "£39,5000,000, a reduction of no less |, than £9,500,000 compared; with the i previous year and £17,600,000 as coin* ; pared with the year ended ended 31st } March, 1929. Imports amounted to a total of £38,- •’ 300,000, being £10,900,000 less than ! for the previous year, BANKING POSITION. , '• Turning now to the banking figUtes, wherein the general economic posit- . ion of ythe Dominion is reflected, it is found I 'that at the beginning of the v financial year hank deposits exceeded advances oy £3zt>,uoo, wliereas by the end of the year advances had exceeded deposits by approximately £3,080,000. DECREASED STATE REVENUE. Arising out of the trade conditions which I have just described, and the consequent heavy iailing-off in various •r;- kinds of revenue—Customs, . stamp and death duties, interest-recoveries, etc.—particularly during the last quarter of the year,[the financial year closed with a deficit °f £1,639,000. In this connection it will be* remembered that in preparing last year’s Budget a de- \ crease in revenue amounting to £2,830,000 was anticipated, and steps were taken to meet the position. . GENERAL ECONOMIC POSITION. Reviewing the economic position for the year/ one js forced to the conclusion thjit" prices are down to practically pre-war level; and that until coneditions improve 'overseas tve must accustom ourselves'to /£ smaller income y than has .[obtained for. a number ot years past. ;' :. • The £otal ' reyenue,: ; l 'for the .year amounted .to,. j. a net shortage oh. £2,051,069. compared with the estimate, or- : ft ; reduction of £2,280,930 • compared with the previous year. Of j;the :total.' revenue, £18,599,980 was deprived from taxation, and the balance fof £4,468,951 from interest-earnings acw pvitles. 1 Included iil the revenue from is an ainouht of £'1,840,590, •representing petrol- tax, nio'toMicehsc fees, t-te., specially, curiniU'ked for main highways, so that the revenue actually available, for general purposes decrease of no less than £2,610,730 compared with the previous year. CUSTOMS. The shortage iu Customs revenue — namely, £924,024 —is, of course, the result of the heavy decline in imports, to which I have already referred. The principal items concerned in the shortage were apparel and textiles (£465,316), and motor-vehicles arid parts (£579,132). ■ RAILWAY INTEREST. The reveniie received on account of interest. on railway capital amounted to £685,000, compared; with a Budget estimate of £1,380,000. . In spite of certain increases in fares and freights ** the railways failed to meet the estimate for the year to the extent of £695,000. Considerable savings were effect- j H 'ed in railway expenditure, but these 1 || economies, as the results indicate, i*; were much more than offset by a heavy linkage in revenue, due to the. Com kolidated Fund on railway capital ,- amounted to approximately £2,255,000, but £1,570,000, or more than twothirds of it, had to be provided out of taxation.’ ; / ; Regarding .stamp and death duties, the total; revenue under this heading for the year was £3,387,335, which amount fell short of '. the estimate bv £392,665. Of: this amount, stamp duty / bn instruments' accounted for a shortage of £104,479, as a result of the general in property transactions, while duties payable by racing clubs accounted for a further shortage of £85,857, due to n substantial reduction in the amount passing through the totalisator., Death-duty revenue is obviously a more or less unknown . quantity, and for the year under re•„view contributed a total of £1,744,697, compared with an estimate of £1,830,000—ra shortage of £85,303. As showSlging the fluctuation in the rate at ii which death-duty revenue is received §it may be . mentioned that the earlier jSghaJf of the year produced £991,785, whereas the revenue of the latter half §i fell to £752,912. |§ Land tax contributed a total reveUnue of £1,145, compared with an estimate of; £1,240,000—a shortage of j PI £94,1)83. ; This, shortage was due to the > S’non-receipt; of tax as a. result of the prevailing ■ economic conditions, toge-pkther-'with extensive revaluations of rural lands during, the year As an offset to some extent against • shortage in land-tax, the incometax for the year totalled £4,003,606. which was £43,606 in excess of the amount estimated. EXPENDITURE. Honourable members may recollect that in submitting last ; year’s Budget, attention was drawn to the fact that in order to avoid as far as possible any increases in taxation the Govern-

ment had carefully reviewed the whole of the State expenditure, and as a result succeeded in reducing the estimates of expenditure to a total of £24,997,000, which was over £200,000 less than the net expenditure of the previous year, notwithstanding the fact that provision had to be made for increases in debt charges, pensions, and other fixed items amounting to £415,000. Under these circumstances it is satisfactory to record that the year’s expenditure was £289,067 less than the amount provided for in the estimates. Interest was £97,902 less than was anticipated, chiefly on account of the low rates that ruled for Treasury bills in London, while the expenditure under Repayment of the Public Debt Act was £17,441 less than the estimate. The net decrease under other permanent appropriations was £138,371 the principal items concerned being subsidies to Hospital Boards, £25,553, and disbursements of motor taxation, £73,639, while a saving ot £35,350 was effected under the annual votes. DEBT CHARGES. The largest single itc-m in the State expenditure was debt charges, amounting to £10,952,505. A .substantial part of this amount, hojyever—namely, £l,638,672—was on account of debt-re-payment, which must be regarded as an investment rather than an expense. A DEFICIT. The transactions for the year resulted iri a deficit of £1,639,111. PUBLIC WORKS. The expenditure on public Works during the year, under the relative headings, was as follows; £ Railway construction, additions, and improve. ments 3,159,813 Main Highways and roads 2,341,902 Hydro-electric supply 1,230,172 Public buildings (incl. schools) 939,110 Telegraphs and telephones 434,615 Irrigation, land and river improvements 252,585 Miscellaneous public works 123,398 £8,487,595 LONDON LOAN, 1931. To provide the necessary funds for essential public works during the current financial year, a loan of £4,000,000 was raised in London on -tht Bth June, 1931, by means of 5-per-cent, beambonds, a further £1,000,000 being added to the issue for redemption purposes. The bonds were issued at £99, and are repayable at par on the 16th July, 1934, the Government having the option, however, to redeem at par, either in whole or in part, on or after the 16. h July, 1932, on the giving of three months’ notice-. Of the proceeds of the loan, £3,000,000 was allocated to the general Public Works Fund, out of which is met the expenditure for railway-construction, •telephones and -telegraphs, roads, buildings, and £1,000,000 to the Electric Supply Account for carrying on the hydro-electric works at present under 'construction. Details’of the" proposed expenditure will be submitted in the publicworks estimates. PURL'C DEBT. The public debt as at the 31st March, 1931, amounted to £276,033,358, compared wjth £267,383,343 for the previous year, a net increase of £8,650,015. The gross additions to the debt during the year totalled £11,123,700, arid the repaymen-s amounted to £2,473,0rf5, leaving a net increase, as 1 have staled of £3,650,015. Of this total. £7.250,000 was raised in -London, £5.5)0,000 being on account of the 1930 London loan, £685,703 was derived from various supplementary issues of the same stock, w-hile the balance represents charges and expenses of raising Hie 1929 and 1930 loans and the remainder of the expenses in connection with the large conversions of 1929 consolidated stock. Local issue-s accounted for £3 873,700, of which £455,090 was derived from the sale of Post Office investment certificates and departmental investments bearing l interest at from 4 per cent, to 5i per ■ cent., while the balance of £3,418,610 was received direct from the public, and bears 'interest at 6$ per cent. UNEMPLOYED RELIEF. The principal problem which is engaging the earnest attention of most countries at the pre-sent time is that of providing suitable work for the large number of workers who, under existing conditions, are umable to obtain remunerative employment. The most recent statistics available- in this connection indicate that the proportion of unemployed to the total population is substantially lower in New Zealand -that obtains in most countries overseas, but while this is so the Government considers the matter to be oi such vital import as -to justify the adoption ~bf special measures in order to meet the position. The Government, I may add, fully recognises the necessity for a permanent solution of the unemployment problem, and is taking all steps possible in th’s direction. HAWKE'S BAY EARTHQUAKE, 1931. ‘I propose now -to r.fer to the earthquake which occurred in the Hawkes Bnv District on the 3rd February last, resulting -in loss of life and material damage to property. . As., will be readily appreciated, the 'State has been commuted to eonsfder- , able expense in connection with the re- | storation and rehabilitation of the affected lireas. Restoration of and repairs to roads, schools, and public buildings, etc., .are estimated to cost approximately £500,000, rt-surveys and restoration of land transfer titLs, etc., a further £150,000, while sundry grants, including an amount of approximately £85.000 representing ex gratia payments by the State Fit-e Insurance Office, account for a further £IIO,OOO. The Government has also made sundry grants from the Consolidated Fund for relief of immediate d stress, clearing of streets, reereotion of chimneys in p: ivate residences, etc. In addition, provision was

made in the Hawkes Bay Earthquake Act, 1931, authorizing the Government to make use of reserve funds to the extent of £1,500,000 to enable loans ami grants to be made both to local authorities and to private persons, with a view to enabling rehabilitation to be speedily effected in the earthquake areas. Thus the total expenditure irom public funds will amount to over £2,250,000. LAND-SETTLEMENT. The Government fully recognises the necessity, especially in a primary producing country such as -New Zealand, for the prosecution of a vigorous policy of land development and settlement, and since assuming office has taken all steps possible both to bring imo product o'n all idle lands and to foster closer settlement. The matter is of particular importance at the present time owing to the necessity for increasing ihc Dominion’s exports to oil's.t the reduction in prices received in the overseas markets, and also with a view to assisting in tinrelief of unemployed. -Successtul landdevelopment is one of the hist possible means in which the financial position generally may be improved, tor primary production is the basic industry ot the Dominion, and increased pimhas.ugpower for the- farmers means better tim s for the rest of the community. ; , 1931-1932 The current fihunciai year is likely to be remembered as a duficiilt one oi economic readjustment, although a great deal has already been accomplish d in this direction; Further, it would appear that we now know the worst, and that is half tile battle, for there is no doubt that uncertainty as to what is going to happen is a powerful psychological i actor in retarding trade and industry. It appears reasonably certain now that prices , have reached bottom and there is evidence j of some movement in an upward direct- ’ ion. Economists in all countries, however, seem to be :n agreement that ' prices will stabilize on a lower level than we have been accustomed to in recent ! years ; but stability is the tsseiit.-al factor, for without that th re can be . no confidence in business. Given the foundation of stability, we have but to complete the task, onerous though it is, of adjusting our economic structure by bringing it into al’gmnont with the j new price-level, and then the way is clear for a revival of business and a general return to prosperity, which alone I can provide a permanent remedy for the distressing probLm of unemployment. ADJUSTMENT OF -SALARIES. As honourable members are aware, the ’ Finance Act, 1931, made provision for , an all-round 10-per-cent, reduction in the salaries and wages of the Public i Service, and provided authority for the Arbitration Court to review award rates j of wages, taking into account the economic and financial conditions affecting , trade and industry in New Zealand, and all other considerations which it deemed ’ to be relevant. This authority was exercised by the Court, which, after hear- , Lug all sides of the question, came to the conclusion that a 10-per-cent. reduction in award Yates wasuieeissary to enable trade and industry to carry on and provide employment for the workers. FARMERS’ FINANCE. As practically the whole prosperity ' of New Zealand is based on primary 5 produce—which fact is only too evident at a time like the present—the . Government is much concerned about I th position of the farmers, many of whom have been placed in a serious l financial position, through no fault of their own, as a result of the sudden 1 unprecedented fall in world prices. . which fall, as I have already indicated’ i has been particularly severe in the case of primary products. These prices, in - fact, are hack to the pre-war level, and, as farm lands are worth only 1 the capitalized value of what they wi 1 produce -at current prices, the hard fact must be faced that unless overseas markets rapidly recover —and the best informed opinion holds out little hope elf that—many of our unfortunate farmers will have lost the equity in their farms, representing perhaps the I hard-won saving of a lifetime, and, in addition, some mortgagees will have lost part of the capital invested by them. TRANSPORT. Another field that presents great scope for national economy is trans- , port. References have been made in previous Budgets to the huge economicwaste that arises from the lack c'f any form of co-ordination between rail and transport, and a Transport Law Amend ment Bill designed to cope to some extent- with the problem, was introduced in 1929. This Bill was not proceeded ; with, but a Short measure was passed constituting a Ministry of Transport and a Department. The economic position of the country is now such, however, that the Dominion can no longer afford the economic waste involved, and it is essential in the public welfare that action should be taken without further delay to cope with the whole problem. REDUCTION IN INTEREST RATES. Another matter in which the Government has endeavoured to assist primary producers, and indeed the whole Dominion, is in connection with a reduction in interest rates. It is realised that interest charges form a considerable proportion of the overhead expenses in connection with most business activities and with this in mind, and as part of the policy for encouraging a rrduct'on in internal costs generalily, the Gov- ! eminent has for some time p"st been negotiating with various financial authorities throughout- the Dominion, and as a result a voluntarv arra" r 'cmcut has been agreed upon which will have , the effect of cheapening the price of - money by at least ) per cent. , The associated banks have also agreed to participate in the arrnngement, and have made public announee- - ments regarding reduction in deposit rates of one half per cent for two year deposits, aiul one quarter per cent for

short periods to operate as from the Ist August. The minimum rate for advances will he reduced by one half per cent- from Ist November next. The Post Office Saving hank deposit rate, which has remained at 4 P el cent, since 1920, will lie reduced to BJ per cent, on Ist August, being the rate which operated in 1914. Similar adjustments in deposit rates have also been agreed to by the private savingbanks, the reduction in most eases being V per cent. In the ease of the Auckland Savings Bank, the deposit rate will be reduced by per cent., but the lending rate is to be reduced l>v \ per cent., the latter reduction to apply to both current- and future mortgages. BANKING AND CURRENCY. Arising out of the economic depression and the fairly general dissatisfaction at the present unprececlent d rates of exchange on London, the question of banking and currency is a ! present receiving a good deal of atention throughout the Dominion, and I received many—and in some eases dist,-nelly novel—suggestions I'nr remedying matters. In fact, many seem u) think that the quickest, way out of our present troubles lies in the direction of a reform of our banking and currency legislat ion ; hut 1 am afraid nil change in our banking sysiem could possibly compensate us for the si riiikage in the value of our exports in the oversells nlarkets or Overcome the fact that the relative weight of fixed charges for interest and debt rf-pay-ments has been proportionately ifiereas ed by the fall in world price-levels. A change in monetary polity at the other end of the world, and mere especially co-operation between the principal central banks of the world, may, however, materially benefit us in these matters. As it appears that a return to the pre-war basis was not altogether practicable, or even desirable, the Government took the opportunity of the vis : t of Sir Otto Niemeyer, of the Bank of England, to this end of the world to seek his advice on the matter. This gentleman, who is a banker of international repute, was able to visit New Zealand and investigate our prob'ems cn the spot. Following his return to London, he has forwarded to me a report and certain definite recommendations. which I propose to lav on the table for the information and consideration of honourable members and the people generally. The main recommendations are summarised in the report as follows: (1) That permanent legislation should be passed making the New Zealand note inconvertible in New Zealand but convertible into sterling at rates fixkl within certain limits. (?) That an independent Reserve Bank should be set up charged with responsibility for the stability of New Zealand currency, invested with the privilege of note-issue and charged with holding the Government account and the banking reserve of New Zealand. (3) That the note-issue should be unified and concentrated in the Reserve Dank, trie note-issue powers ot existing Danas being auiogaied. < v 4; mat the trading banks slioulu be required to tiansler .0 the Deserve Dank tile gold they now fluid m Now Zealand in exchange culler l’or Reserve Bank notes, with which they can pay oil tneir own notes, or lor crouit at the Reserve Bank. (5) 1 hat the trading banks should be required to keep with the Reserve Bank minimum reserves Af 7 percent. of their demand liabilities in New Zealand and 3 per cent, of their time liabilities in New Zealand. (6) That thereafter the existing prohibition of the export of gold coin from New Zealand should be withdrawn. It is believed these recommendations will provide the basis for the amendments required to our legislation to secure for this Dominion a sound and well organised'banking system in keeping with modern developments throughout the rest df the world. At the same time, as some far-reaching changes are involved, and the matter is a very important one, it is felt that it should not be rushed. PROSPECTIVE BUDGETARY POSITION. The economic situation will undoubtedly mean a large shrinkage in practically all State revenues during the current, financial year. The results during the closing months of last financial year and also the experience' of this financial year up to date are ample evidence of that. Although imports for last financial year showed a decline of 20 per cent, compared with the previous year, the total for this year is likely to be several million less than for last year. The Customs revenue will be lowered proportionately to an even greater extent as, in times like the present, the falling-off in imports is always heaviest in luxury lines whe.re, generally speaking, the rates of duty are highest. Forecasting this, our largest item of revenue is always a difficult matt r and the difficulties are greatly accentuated under present conditions; but, having regard to all tlm eimunstaners it is considered that on the present tariff the receipts would he £1.100.0 )0 less, than for last year, or a falling off of approximately £2,030.000 compared to the amount budgeted for last .rear. The last figure is the measure o shortage that has to be provided for to obtain a balanced budget tor tbs year, for, as previously explained the total

revenue received last year was insufficient to the extent of £1,639,000. In regard to income-tax, which will be based on the trading resu.te and incomes during last financial year, it is obvious that a substantial deco-ease is to be expected. On the best iniormation at present available, the ce.mpaiative decrease is estimated at £460,000. As for land-tax, this item tell short of last year’s estimate of £1,240.000 by £94,000. and collections this vear will probably show a. further decline. The estimate for this year has accordingly been set, down at £1,100,000. Ft-mp and death duties will also be considerably afi'-eted by the prevai'ing economic conditions. Iho dooiease in values will mean less in death duties, whi'e f-eturns from racing taxation !l”d amusement tex are also seriously affected. A decrease in the volume of business me. ns less revenue from im-m-es.sod stamps. The total revenue from stamp and dentil duties for last financial year fell short of the estimate l v apnt-oximaiolv £390.000. and-a further falling-oil' of about £300,000 is expected this financial year. Beer duty reflected the .shrinkage, in the purchasing power oi the people, by falling short of last year s estimate by £40,000, and it is estimated that this year will show a further falling off amounting th about £75,000. Railway interest Is auotiie).- item which is a considerable facto)' ill the prospective deficit for this year. Last year’s receipts amounted to only half the estimate of £1,380,000, alld apart from the benefit from the sabiry red ;c----ions which come inns part of the provision made to meet the situation, there is likely to he a further decline estimated at £235,000 due to the continued shrinkage in the railway revenue. Another interest item that is affected to a considerable extent is interest on the Public Debt Redemption Fund. About £10.850,000 of this fund .is invested in advances to soldier settlers throii'di the Discharged Soldiers Settlement Account, and it is anticipated tha under present economic condition-* there will be a considerable shrinkage set down at £165,000 in the amount of interest that can be collected. In addition to the items that I have mentioned, many of the smaller items will be adversely affected by the prevailing economic conditions, the net decrease being estimated at £280,000. In regard to expenditure, honourabb members were acquainted during the special emergency session with the work done by the Executive Committee set up by the Government as soon as the present trend of affairs in public finance became apparent. However, carrying out their somewhat invidious task, the Economy Committee and the Government have been actuated solely by a desire to promote the public welfare. The largest additional item to be provi-'dbd for this financial year is subsidies under the Unemployment Act. As honourable members are aware, the Consolidated Fund subsidizes expenditure out of the Unemployment Fund on a pound-for-pound basis, and as a result of the measure recently placed on the statute-book it is estimated that subsidies for this year will amount to £1,100,000. Then there is the increase of debt charges. Provision has to be made for additional interest amounting to £250,. 000, while under the funded-debt agreement and the repayment of the public debt scheme there is, or would have been in the ordinary course, an automatic increase amounting to approximately £IOO.OOO. Pensions normally show an increase, but this year, owing to economic stress, it is anticipated that the increase will be larger than usual. Old-age pensions is the principal item concerned, but fairly substantial increases are also expected for family allowances and war pensions. The total increase for pensions is set down at approximately £209,000, while other permanent appropiations involve a net increase of £75,000. The general election this year will add £75,000 to the expenditure, while the normal increase in the cost of education, assuming operations were continued on the same basis as heretofore, would amount to £IOO,OOO. Then surveys in Hawkes Bay will entail extra expenditure this year amounting to about £22,000, while various other items will have to be increased as a result of the earthquake. The particular items I have mentioned mean an increase in the vote expenditures of £327,000, andj numerous other items scattered through the votes bring the total additional expenditure under annual appropriations up to approximately £480,000. For last financial year, however, the expenditure as a whole was approximately £290,000 less than the amount provided for, and as the estimated revenue for this year has been compared with last year’s estimates and not receipts, to arrive at the true position this £290,000 should be deducted from the expenditure increases. To sum lip the position that faced tlie country, the effect of the economic crisis on the public finances is now found to be such that when this financial year opened the Government, as the executive bead of tire Dominion, had to grapple with the stupendous task of providing, in one way or another. for a prospective deficit of no loss than £0.850,000. REMEDIAL MEASURES. This was the total amount that had to be provided- .for but as honourable members are aware, a great deal has a 1 reach- been accomplished towards bridging the gap. Tn accordance with the provisions ol (Continued on Pace 3).