NOT WISE

Rotorua Morning Post, Volume 2, Issue 445, 1 February 1933, Page 5

NOT WISE

high rate wrong EX-MINISTER CONDEMNS -LATE COLLEAGUES PROPOSALS BUT REMAINS LOYAL Wellington, Tuesday. Strong opposition to tne artificial raising of the exchange was expressed by the ex-Minister of Finance, the Hon. W. Downie Stewart in the House of Representatives to-night. Referring briefly to the Leader of the . Opposition's amendment, Mr. Stewart said that he could not support it because its adoption would lead to political instability. If the amendment was adopted Mr. Holland would find himself in office, "but not in power. "The indemnity proposed by this Bill raises the whole question as to whether it is wise for the Government in the present circumstances of New Zealand to alter arbitrarily the value of currency by exchange depreciation," said Mr. Stewart. "I wish to state briefly the reasons that led me to the conclusion that the raising of the exchange to 25 per cent. is contrary to the best interests of New Zealand. "It is common knowledge that a rise in the exchange, whether natural or artificial, gives a bounty to exporting industries. The question is whether this bounty is merely temporarily stimulating or of permanent value. The former depends upon what steps are taken at the same. time to keep internal costs from rising, but whether the bounty is temporary or not, it is agreed that exporters receive it in the. first place from the rest of the community. It comes from the taxpayer and the consumer of imported goods in the first instance." Additional Cost Mr. Stewart said that the immediate additional cost to the Budget as the result of the raising of the rate would ho nearly £4,000,000, made up as follows. — Extra cost of external debt charge, £1,050,000. Cost of the exchange on certain bank funds in London, £1,000,000. Decrease of customs revenue, £1,250,000. Decrease in income tax and other items of revenue, estimated by the Treasury at £500,000. Total, £3,800,000. This was exclusive of the cost of the 10 per cent. exchange already e-x-isting, which adds to the Budget about £800,000. The total burden on the Budget, therefore, was, phts the 25 per cent. exchange, £4,600,000. The Minister of Finance, the Rt. Hon. J. G. Coates, estimated, after resort to every possible expedient in the way of economy, reserve and taxation would bring the prospective deficit of £9,850,000 down to £4,500,000. In other words, if all these remedial measures were successfully applied, and at the same tim© exchange were allowed to remain at 10 per cent. the defiit would largely disappear. "What I had assured Cabinet was that if the exchange were left at 10 per cent. and all incomes, reserves and taxations referred to were applied we would end up next year with a deficit of under £1,000,000," Mr. Stewart said. The Extra Burden "There is all the difference in the world between this deficit and the one of £4,500,000. The extra burden thrown on the Budget hy higher exchange is direct, immediate, enormous and inescapable. The possible recovery from increased tax revenue from increased national income, is distant, doubtful and speculative. "But in my ouinion the whole picture is altered when we. artificially depreciate the value of our currency and in the process end up with a defict of £4,500,000." A Doubtful Result Continuing Mr. Stewart said that if the prophecy of economists proved true, namely that exchange depreeiation would produce more taxable revenue, and thus in a short time balance the budget, no one would be more pleased than himself, but he was at a loss to know how this could come about. If the gap between farmers' costs and prices were 40 per cent. and it would only propose tc close the gap to the extent of 25 pei cent. how could this do more thar lessen their losses, and how could this help the budget. To sustain the budget it required not an exchange work ing at a loss, but at a profit.

"I hold it to be dangerous to define a policy of artificial exchange. depreciation with one of an unbalanced budget, because in such circumstances deficits would not be manageable. "I could, therefore, not accept the re'sponsibility for such a policy. Discussing other methods of relief, Mr. Stewart said that an export bonus had the same effect as the higher exchange, but it at le-ast had merit that it did not involve (1) Indemnity to the banks for surplus funds, estimated to cost £1,000,000 (2) a loss of customs revenue estimated at £1,250,000; (3) an increased cost of imported goods owing to the higher exchange; (4) it did not shalce confidence by a sudden upheaval of mercantile business. It was argued that if the bonus were contiuued from year to year it would produce internal income. and thus costs would rise and the advantage of the bonus would disappear.' The same argument applied to the exchange bounty so long as it was paid for out of foreign money. . "But whether this is so or not," Mr. Stewart said, "I come back to my main contention that if the exchange is to be depreciated, the budget at all costs must be balanced if we are going to avoid disaster. To achieve this the taxpayer would have to submit to burdens far beyond anything contemplated in the statement of the Minister of Finance." ■ j