MR COATES’ MESSAGE

Hokitika Guardian, 28 January 1933, Page 6

MR COATES’ MESSAGE

DOMINION’S POSITION REVIEWED

BALANCING NEW ZEALAND ; BUDGET. FURTHER TAXATION IS NOT ! l IMPROBABLE. ’ A review by the Rt. Hon. J. G. Coates, of the Dominion’s economic position was released yesterday,; in addition to the Premier’s Statement, and was as follows:

; j J customsv, '■ : t> ‘ h " regard to all those cgnsidera-. tions, jit’is at present anticipated' jhaty the cuiitopis revenue fortthp next, (fin-' a.neial year'will show a falling” off - eom- ' pared with, the probable receipts for this year of £'1,400,000. INCOME TAX. Income tax which will be based, on this year’s trading operations will undoubtedly be less, but- at present it is difficult 1 tr> gauge the extent ot the shrinkage. Tentatively, a comparative decrease of £750,000 is being alloyed for. , STAMP AND DEATH DUTIES.

Revenue under this heading lias been well maintained during the current year. Next year, however, decreases in valuations will adversely affect death duties,' while there is likely to be a further decline in other items, particularly duty on instruments and racing revenue. The net decrease in the revenue i s estimated at £250,000. INTEREST RECEIPTS;.;' I

interest receipts from theilraihvays wiTl be directly affected by the proposed reduction in freight charges, and with a further probable decline in the receipts from other investments the net shrinkage is estimated at £220.000.

POST AND' 'TELEGRAPH PROFIT. < The; Post Office revenues continue to reflect.-' the general slackness in business, but, on the other band, if the services are to be maintained, there is a limit to the extent of which falling revenue can be offset by savings in expenditure. Foj- these reasons on present indications, the Post Office estimates that it. will not be able to do more than make ends meet next year, so that ii 0 revenue is likely to be received under the heading of Post and Telegraph " profits. This will increase the revenue shrinkage hy the amount anticipated to come to hand this year, viz, £470,000.

OTHER. ITEAIS. The remaining items of revenue will all lie more or less affected ,by the continuance of the p-csont conditions, and a net decrease of £260,000 has been put down for such items.RESEEVES.

This year’s revenue will include to. lie derived from, tho liqt.nidation of reserves . invested in clis■chai’ged soldiers settlement mortgages. Special arra.ngefficnfsr InCvcT'hcen made for the liquidation of these mortgages by way ot .hypothecation of these securities of obtaining any fin'tneij- assistance under this heading. It willdeal shortly in reviewing possible remedial measures, but, .in the meantime, the item is being deducted t.o arrive at the net budgetary shortage. On the other side of the accounts we have to consider what additional items of expenditure will have to be provided:'for.

EXCHANGE. “Based on the anticipated results for this year, the largest expenditure increase will undoubtedly he under the heading 0 f ‘exchange’, due to the fact that a considerable amount of the funds‘required. :in London for the current financial year were remitted during the closing months of the last financial year, under the exchange pool arrangement. The expenditure on exchange for this year Will not exceed £350,000. For next financial year, even at the 10 per cent, rate, this item would have-, been doubled, involving a ’f.ilicrease of £350,000 in the sum rej’qiiired. The increase in the exchange rate adds .a' further £1,050,000 to the cost in New Zealand currency of remitting payments due on loans contracted in the (United Kingdom. In addition the Treasury estimates to allow for . a contraction of imports to such an extent that the exchange surplus in London will total £4,000,000, and I - that- the extra exchange' costs, under the indemnity arrangement, will amount to £1,000,000 (that is, 25 per cent of the exchange surplus). “It is to he. added tilt we have no precedent in.(New Zealand by which the possible accumulation of funds in London, hy reason of the altered exchange rate,.Wav be* accurately forecast, and with the general uncertainly in external conditions* it would be hazardous to attempt any precise 'estimate. Indeed, there are authorities yijVhq.jqoiisider that the accumulation of Tqudsf in London wiH.Tail -'of the iffeMjd |fig» res',-, and tiiaT any temporary, qloss will be reeovernlwff?i thit'eiv ffowover, the estimate .of £1,000,000 is taken As a working figure for the purpose of present calculations.

DEBT CHARGES. “As indicated in the budget, a verydrastic reduction was made in the borrowing for capital works for the current financial"'year. For next financial year it would appear that the amount that can be provided will he still less, although a small amount will bo neocsS!U;y, for carrying 011 essential works.

The debt charges, however, will be considerably increased, owing to the necessity for relying upon the Treasury Bill finance to cover past deficits, and financing general requirements during the year?, and the prospective shortage for. next-ybabr: The estimated increase iI).,exnenditurb; under this heading is £350,00-9. This estimate makes no allowance for a resumption of the funded

debt payments to tlie British Government. Payments under this item have been suspended during the current financial year, pursuant to the arrangements made with the British Government, but, it no further action is taken, file half yearly payment-will fall due on December 1, next. It appears likely however, that some action in regard to war debts will be taken before then, so that, to some extent, this item may be regarded as a contingent one. If the instalment is paid the net cost to the budget will be about £825,000.

BENEFITS FROM HIGHWAYS REVENUE. ..“It will bp remembered that, as 'part of thefbudget for the current financial veari ;P?ovision was made fo retain in the.:, consolidated fund up to £500,000 oLj'|veiiue that would otherwise have been transferred automatically to the main highways account. This provision was for the current year only, and, if it is not extended, the result will be a comparative increase of that amount in the expenditure of the consolidated fund. PENSION?.

. “Nominally there is a progressive increase in the cost of 'pensions, but, owing to the depression, the increase for old age pensions and family allowances will inevitably lie larger than is usual. Accordingly, provision will have to he made for a further £500.060 for the cost of pensions. NEARLY TEN MILLIONS DEFICIT.

“To sum up the prospective budgetary position,, it would appear that we are faced with a gap in the finances of £9,850,000, made lip as follows: The equivalent of the current year’s shortage £700,000; revenue decreases, customs, £1,400,090; income tax, £750,000; stamp and death duties, £250,000; interest receipts, £220,000; post and telegraph profits, £470,000; other items £260,000; reserves, £2,500,000; making a total of £5,850,000. Expenditure increases: Exchange, extra cost of externa] debt charges on account of full year at £llO, £350,000, extra cost of external debt charges by reason of exchange increase to £125, £1.050,000; allowed for cost of exchange on surplus bank fluids, London, £1.000,000 ;. a , total of £2,400,000. Other items: Additional interest and other debt charges,. £350,000'; motor taxation payable to main highways fund, £509 000; pensions, £SO 0oO; total £3,30Q,000, giving an aggregate £9,850,000. REMEDIAL AIEASURES. ■*“ln the past two years large gaps in the public finances live had to he bridged in one way or another, and as

time goes on the possibilities of further remedial measures become more limited. ECONOMIES AND EXPENDITURE. “With tho sources of revenue seriously depleted, there is the clearest need for rigid economy in public expenditure, and, to this, the Government-, are giving constant attention. During the past two years drastic cuts have been made in the expenditure, and during the present year the Government have had the detailed report of the national expenditure commission to work upon. Of the recommendations that- have al ready been given effect to. a further net saving, estimated at. £IOO,OOO will be obtained next year, arising out. of the fact that the economies will be operative for the full year. Of the total recommendations of the commission the items not yet given effect to amount to £1,150,000, but £BOO,OOO of this is bound up in three items, viz., naval defence reduction to one cruiser standard, £200.000; re-organisation of hospital system, £800,000; reduction in expenditure, on agriculture, cancellation of subsidies on lime and fertiliser, etc., £300,000. As a matter of policy it is not considered advisable to adopt the first item, and the position of the primary producers precludes any possibility of adopting the last item. As for the re-organisation of the hospital system, tips is a matter that has not been overlooked, hut i-s obviously a proposition that would take some time to obtain any relief in the expenditure. The remaining recommenda- , tions of the commission are now being gone into hut the most that can he hoped to he obtained from them is £200,000. MEET ING THE S 1 TIT A T 1 ON. “While on the question of economies r would like to recall the efforts that have been made since the depression developed to meet the situation by economies and adjustments in the expenditure of the consolidated fund. Towards the close of the finneia] year of 1929-30, right at the commencement of tho trouble, efforts were made to beep down departmental expenditure, and for that year a. saving of £260,000 was made in the votes. In the following year savings and adjustments totalled £1,300,000. As the depression deepened in 1931-32 efforts in this direction were redoubled, and, as the result ot drastic action in various direct-ion^,-savings aggregating £4,320,000' effected. As for the current financial year the economies and .adjustments to lie effected are summarised in the budget ; and amount in the aggregate to £3.550,000. The grand total of the relief to the consolidated fund from these savings and adjustments since tile depression developed amount to no less than £9,490,000, briefly made up as follows:—Savings, reductions in salaries and wages £2.310,000; suspension of war debts (net saving), £1.370,000; reduction in grants and subsidies, £440,000; general reductions in departmental votes, £1,760,000; reductions io railways and post and teleerrapli expenditure, £1,530 000; reductions in pensions £303,000; a total of £7,710.000. Adjustments :—‘Abolition of unemployment subsidy (£950,000 : benefit' from motor taxation, £500,000; other adjustments, £330,000; a total

of £1.780,000,' giving an aggregate ot £9,490,000. Some of the adjustments admittedly represent only a transfer of the burden to other accounts, but they do provide additonal relief to the general budget. It will, 1 think, be generally recognised that huge savings ctfTmot be obtained without drastic action and the figures I have mentioned give some indication of the efforts made by the Government to nice’, the situation by effecting economies in public expenditures. HIGHWAYS REVENUE.

“From the general position I have outlined, 1 think it will be clear to all that the assistance being received this year from main highways revenue will have to be continued next year, for the position is such that the best possible use must be made , of all revenues to the state. SAVINGS IN INTEREST.

“As I have already indicated, arrangements for dealing with interest on Government and local body securities have not vet been finalised, but, if our proposals can be successfully carried through, a net saving of about £400,0n0 will accrue to the budget. LIQUIDATION OF RESERVES.

“The present book value of past surpluses invested in the discharged soldiers’ settlement mortgages is £10,500,000, of which £2,500,000 will be drawn

upon for the current financial year, and .we will doubtless eventually have to write off substantial losses. Even so, an ample margin will remain, and I hope to arrange to liquidate up to a further £2,000,000 to augment the revenues for next financial year.

TAXATION. “For the rest, to bring the pros- | peetive deficit down to, say, what may be regarded as a sale amount, I am afraid there will be no alternative but to have further recourse to additional taxation. Details of this cannot be given at present as the proposals have not yet been finalised, but I think it will be necessary to find ways and means of raising up to £2,400,000, which, with, the other items 1 have mentioned, will be sufficient to bring the deficit down to about to £4,500,000. “This will mean increasing our floating debt by that amount, but, against that, it should not he overlooked that the expenditure will include provision for £1,400,000 under the statutory debt repayment scheme. This will mean that the net increase in debt, as a result of the prospective shortage, will not bo much in excess of £3,000,000, which amount may be considered ns safe. That is to say, it will not be large enough in any way t () endanger the financial stability of the country, which must be safeguarded at all costs.

The Government have felt obliged, in the general interets of the Dominion, to take a course of action of an unprecedented character, and this has been done with a clear realisation of the implications, and of the difficulties in the way. * "We are confident that tlie country will recognise, as the clays pass, that the decision made .is amply justified.”