THE MINISTER'S REVIEW

Rotorua Morning Post, Volume 2, Issue 442, 28 January 1933, Page 6

THE MINISTER'S REVIEW

DRASTIC MEASURES NECESSARY STEPS MUST BE TAKEN TO REDUCE • INTEREST AND FIXED CHARGES : RAILWAY FREIGHT REDUCTION The f ollowing is the text of the detailed review of the financial position of the country made by the Minister of Finance, • the Rt. Hon. J. G, Goates in the House of Representatives yesterday. ; ■ In the course of his statement Mr. Coates outlined the steps which the Government proposes to take to reduce fixed charges. Among other things he announced a 15 per cent. reduc- . tion in railway freights and an immediate overhaul of the tariff ; schedules in conf ormity with the Ottawa Agreements. He expressed the Government's determination to reduce interest charges at the earliest possible date and to provide the greatest measure of pos.sible relief f or mortgagees and the primary producing community generally. ■ . He stated definitely that the Government does not intend to make any further wage reduction proposals.

. Wellington, Friday. Since the adjournment of the House, the Government has again taken .thorough stock of the economic position of the country and has considered ways and means of meeting the situation," said Mr. Coates. "Ip particular the Government has been concerned about the plight of the primary industry which is the basis of the whole economic structure of thia Dominion. Costs and Prices "E\uring 1932 there there was a further heavy fall in export prices and the general level of these prices as shown by the index numbers is now little more than one half of what it was in 1929. '■'A notable feature and the one calling for urgent action is the fall in export prices. This fall in prices is disastrous and it renders the financial position and outlook of a large proportion q|f farme/rs increasingly diificult. They tyave been able to carry on and to maintain production only by failing to meet their fiked charges and by living on capital, but farm maintenance is suffering and in many cases stock is being sacrificed. If some effective action is noti taken a greatly reduced volume of production must assuredly follow. "During the past year „much was done in one way and another in the direction of relieving the situation, But it all fell far short of what was required to bridge the widening gap between costs and prices. New Zealand, in common with other countries, has been looking to a recovery of world prices. Unfortunately these hopes have not been realised. On the contrary, as is well known, prices have fallen still farther. The fall has been P'articularly severe in those products which are the exports of New Zealand. Ottawa Benefits "We have not yet received the full benefit from the agreements made at Ottawa and I am confident that following the World Economic Conference, steps will! be taken by the great Powers to remove some of the principal underlying causes of the depression and to bring about a rise in world prices.

"These measures will assist the Dominion but the Government is satisfied, after a searching examination of the situation, that it cannot afford to wait any longer for assistance. from these sources. We must immediately take steps of a far reaching nature to assist our primary industries. At the outset, the general line of approach favoured by the Government in bringing costs and prices into line may be indicated. It is frequently said that an initial and fundamental choice must be made- the choice between either redueing costs or increasing prices, otherwise and less accurately, the choice is said to be between "deflation" and "inflation". Bridging the Gap "Our view, is that with the choice of redueing costs or increasing monetary receipts, the country should deliberately proceed by both methods. The gap to be bridged is a wide one. "By approaching the probjlem from both ends and by deliberately planning to increase receipts and where possible to reduce costs, we sihall bring adjustment with less dislocation than if we seek to obtain adjustment by one method alone. "Presently I shall refer to certain directions in which the reduction of costs as well as the increasing of receiptjf is to be sought but at once I may say that a further reduction in the rates of wages and salaries in the Government employment is not contemplated and this is itself a reason for our taking in hand adjustments of an alternative kind. "All suggested methods such as bounty on exports, remission of rates and land tax, exemption of farm loans from income tax and the direct issue of credit by the Government were carefully considered but the raising of the exchange rates was deemed preferable to all other methods and. as honourable members are aware action has already been taken in this direction. Arrangements have been made with the Associated Banks whereby the exchange rate for telegraphic transfers New Zealand on London has been raisfed from £110 to £125 for £100 in London and other rates' have been raised correspond- ; ingly. This action has been taken by. the banks at the request of the Government and as a method of economic adjustment. "This being so, it is reasonable that the banks should be safeguarded against loss ih giving effect to the Government's policy. Accordingly the Government has agreed to safeguard the banks against loss arising out of exchange dealings at the new rates. This, in effect, means that the Government will purchase any surplus London credits bought b'y the banks at the new rates of which they are unable to dispose at the current rates.] Effects of Bill ' "In this way, the Government may be called upon to purchase more exchange than is actually needed for. current requirements, but any such surplus arnount can be used to pay off deb.t abroad with' funds borrowed in New Zealand. The next effect, apart fronp exchange, is thus a trans•'"••".".v • • J

fer of debt from abroad to New Zealand. While some surplus exchange may have to be purchased during the first year, it is considered that this is but a temporary phase as condi- | tions will soon adjust themselves to the new position. Government recognise that whatever the rate of exchange may be, stability is a most important factor in the interests of all sections of the community. This being so, it is proposed fo maintain the present rate of exchange for a reasonable period and I may say that it will not be departed from lightly. It is, of course, impossible to fix any definite period as we cannot foresee the course of events either in New Zealand or abroad. "A Bill to give effect to the arrangement with the banks will shortly be introduced. Interest Charges "With the fall in prices and the decrease in the value of business, fixed charges have become a serious problem in practically all business and as the prices of primary prodqcts have fallen most severely, the burden of fixed charges is particularly acute in the business of farming. Thus the question of lowering interest charges must be a. major item in any scheme for adjustment of costs. The Government is anxious to bring about lower market rates of interest on a sound basis. If this can be achieved, it will be of much greater and of more lasting benefit to all sections . of the community than a simple cut in existing charges in London. Interest rates in the short term loan market have fallen to a very low level and following the recent British converslon, long term rates are also coming down fairly rapidly. In New Zealand our market rates of interest continue to be relatively high and it would appear that the situation is infiuenced by the rates on the large volume of existing seeurities.

The Government consid'ers it essential that interest rates on existing securities should be brought down to a lower level and at present we are discussing ways and means of achieving this object. "I am not in a position at this stage to make any definite statement but I hope in due course, to be able to bring forward comprehensive proposals for dealing with the whole problem and as far as possible on a voluntary basis. This is a diificult matter, particularly insofar as local bodies debts are concerned, beeause there are so many local authorities with securities on the market. Any reductions brought about in the interest rates on local body debts insofar as they exceed the benefit at present derived from the 10 per cent. stamp duty would enable local authorities to 1 give further relief to ratepayers. Any such relief would, of course., be of direct assistance in lowering the fix- , ed charges of exporters and other producers. Stamp Duty If the more comprehensive proposals can be successfully arranged, the present 10 per cent. stamp duty, which is somewhat irksome to bondholders will be abolished concurrently with the reduction of interest on Government and local body securities. We have also to consider deposit rates and overdraft rates; discussions ; in regard to these matters are well in hand, and I am hopeful that arrangements can be completed to lighten the cost of these items. Mortgage Rates Finally there is the problem of mortgage rates. As hon. members are aware, legislation is already upon the statute book providing for a 20 per cent. reduction and for the review of individual cases by the Mortgagors' Adjustment Commissions and the courts. Insofar as statutory reduction is concerned, I do not think it would be in the interests of borrowers to go any further in this direction, for it must be. recognised that if industry is to be carried on the eonfidence of investors niust be retained. 'The existing powers for the review of individual cases are already very extensive and no further major amendments of the law appear to be necessary. Moreover, it should not be overlooked that if the rates of inserest on Government and local body securities and on deposits can be brought down, this, in itself, must make mortgage investments relatively more attractive than they are. at present and consequently will induce more investments in this direction. In fact, a lowering of interest rates on gilt-edged securities must benefit all borrowers as it will permeate through the whole field of investment. Railway Freights As a further step towards bringing down costs, arrangements are being made with the railway board for a reduction of about 15 per cent. in freight charges covering a fairly wide range of commodities. This will add to our budgetary difIculties, perhaps to the extent of £110,000 in the first year, although increased traffic at the lower rates ? /

may later reduce the amount of the loss involved. In any case. it is considered that the reduction is warranted frem the more important viewpoint of assisting to reduce working costs. Tariff Costs It has been the practice of New Zealand Governments during the. last few years to hold periodic inquiries into the customs tariff. Such inquiries were held in 1921 and 1927 and } the time would, in the ordinary course be ripe fo'r a further investigation. The need for such an investigation is all the more urgent owing to the existing economic and financial erisis which has had such a catastrophic effect on world .prices. In New Zealand more particularly, the tariff should be overhauled owing to the fact that our export trade depends almost wholly upon our primary products and the lower prices obtainable have made it necessary to reduce costs of production to the lowest possible level consistent with an orderly economic and' industrial development.

No one will question the fact that the incidence of customs taxation is a very important factor in connection with such costs, and with the general cost of living of the whole community. Apart from these considerations, New Zealand is committed, under the Ottawa Agreement, to conduct such an inquiry; the question having been there approached from the viewpoint of facilitating trade with the United Kingdom in return for valuable concessions given to this Dominion. Ottawa Agreements The Government has no intention of exposing to unreasonable competition, any industry which can function on an economical and efficient basis. It is intended to set up a small body which will review the whole position and make recommendations with respe'ct to tariff rates. It is proposed that the inquiry should be commenced as soon as possible. It will be remembered that under Article 8 of the Ottawa Agreement, that it was arranged that United Kingdom producers should have an opportunity of putting forward their views at the tariffs investigation. The Government is in communication with His Majesty's Government in the United Kingdom with a view to ascertaining when the producers there will be in a position to furnish the necessary information. When a reply is received, an indication will be given as to the date on which the inquiry will commence. The personnel of the investigating body will be made known at as early a date as possible after the rising of Parliament.