NEW BASIS OF STABILITY

Hokitika Guardian, 7 November 1931, Page 6

NEW BASIS OF STABILITY

OBJECTIVE FOR DOMINION.

BANK REVIEWS SITUATION.

FURTHER MEASURES NEEDED

The situation of Nlew Zealand after two years of world-wide depression has been reviewed in the latest circular issued by tine Bank of New South Wales. Firom an analysis of tli!e statistics of trade and prices, the writer points out that the decline in •the early part of 193$ a was comparatively small; the fall was progressive throughout the 1930-31 export season, but itsi full force was not evident till thte season was half completed. Hencw, the delay in the price decline for her exports kept New Zealand free from the worst features of depression at a time when most other primary producing countries were exposed to its full rigours.

“The prices of exports have now fallen to an average level approximately 40 per cent, below the level of the period of prosperity that culminated in 1929,” says the review. “There has bleen no contraction of volume. On the contrary, exports of meat and dairy products have increased. The efficiency of production in the export industries has demonstrably improved.

MAINTAINING PRODUCTION. “But the'general and serious fall in world prices has completely altered the income New Zealand receives from exports. Thig income is the basis of her economic prosperity. Any sudden variation in it was bound to have important effects upon the economic condition, of the Dominion as a whole. “Export production must he maintained if worse troubles are to be avoided. In New Zealand it has not contracted and seasonal prospects are good. There is no loss of real income as measured in goods available from primary production. An immediate adjustment of economic conditions generally to the new price level of exports will therefore safeguard the whole community against any loss of real income, except in so far as it is necessary to reduce the amount of. overseas borrowing of to purchase im-ports-at prices that have not come down in conformity with world movements. ..•/''

“The -contraction of output in. domestic industry is. caused not hv a reduction in the volume of export production, but by an acute disequilibrium 'between, income and costs in the export industries. When costs have come down or income has recovered through a change in world prices of exports,, equilibrium will be restored. It will then be possible for purchase in customary •quantity the goods and services of the domestic industries, employment will expand .and the real income of the country will be restored to its.-: , old level. Money incomes will have fallen all round, but real income have fallen, except for changes in overseas loans or import prices mentioned above.” 1... - ‘ BORROWED PROSPERITY. Dealing with overseas borrowing, the writer says:—“ln the, period 1925-1930 the average net increase in the external indebtedness or. Government and local bodies of the Dominion was more than £8,500,000 v per annum. Overseas loans bad become a regular part of the national fund out of which all incomes were distributed. Thley gave employment directly ho many workers, and indirectly, through the increased demand for local goods, to many more. As long as borrowing could be sustained at a high level this volume of employment was maintained and a general prosperity was apparent. “The condition qfrthe British mo>u>y T market is suph tm#/' capital at low rntfte from abroad will not be forth-

s coming in the volume to which New' Zealand hasi Becomev.; : accustomed m ' recent years. . The . Dominion’s credit abroad is still Highjlj hut it will remain so onlyvif she ; is able to make the situation and 1 to preserve sound internal financial conditions in a period of.. acute; depression;'? > Some important steps have already ’been taken in this direction. Imports have fallen rapidly in recent months. , This has corrected the trade balance | and has permitted the use of funds | in London to meet commitments for j interest and other charges. However, | in view of the prospective curtailment I of overseas borrowing, the writer con- I ■siders it cannot be anticipated that the movement of the British exchange rate noil provide a. basis for lowering the New Zealand rate.

EXCESSIVE TAXATION,

After recording the Government’s Budget proposals the writer says expenditure on the scale proposed cannot be maintained unless there is a recovery of export prices much more spectacular than anyone anticipates. Further, it may be doubted whether the revenue from taxation can be maintained at over £18,000,000. The basis of the payment, of taxes is the national income, -' and high, rates are no remedy for a fall in income. The full effects of the fall in income are not. apparent in the early stages of de- ] pres&ion, because direct taxation is j paid on income for the previous year. Revenue will consequently he lower j in the next financial year, and the reserves used in the present year will | not be available, though others may . be used.

“For private, finance (the position of the farmer is the vital consideration,” says the review In conclusion. v< The exchange rate gives some relief, but permanent relief can only be secured by a. drastic all-round reduction in costs. The fall in wages, of 10 per cent, is little more than an I adjustment of the- wage rate to the 'cost of living, which ha® fallen. My 8.4 per cent, on the average, of the years 1924-29. A further revision of wage rates is essential. This must be 1 supplemented by a careful review of efficiency in all domestic Prices of goods and service® purchased by the farmer must 'be reduced if his costs,, are to come down in conformity with the fall in income. CREDIT FOR. FARMERS.

“Meanwhile bis own direct costs have to be adjusted and credit must be available to maintain hi® activities. The banks can he relied upon to provide such credit, and the more rapidly costs are reduced the more readily can credit he made available. “The reduction in the advances rate by l per cent, is a. contribution by the banks to the common task of reducing costs of production. It lias be£n done at a time when the obligations of the banks are increasing on account of the greater proportion of fixed deposits to free deposits. “Thie process of readjustment of both public and private finance involves merely a. further application of the measures that have already been taken. As they are applied the present acute disparity between lawn cost® and prices will he eliminated. This will restore prosperity in export production. Such prosperity is tinonly'sound basis upon which both public and private finance can be adjusted satisfactory to the new conditions,”