The Daily News. TUESDAY, JUNE 29, 1920. CAUTION NECESSARY.

Taranaki Daily News, 29 June 1920, Page 4

The Daily News. TUESDAY, JUNE 29, 1920. CAUTION NECESSARY.

"The Government is faced with demands for expenditure fa*' beyond anything which the revenue of the Consolidated Fund can meet; our only resource is to borrow within our own borders." This extract from the GovernorGeneral 's speech at the opening of' Parliament throws no new light on the financial difficulties with which Parliament and the Govern ment will have to contend during the present session. That borrowing locally would have to take place was a foregone conclusion, as recourse to the London money market is out of the question. What the public should realise is that the rate of interest on loans is bound to be higher than heretofore, so that more money will have to be raised by taxation in order to meet this interest. Mr. Beauchamp recently stated that the conditions of the money markets of the world point to the probability of scarcity of money, and consequently higher lending rates. As evidence of the upward tendency in the value of money he referred to the increase of the Bank of England rate to seven per cent as against six per cent oa April 15 last; also to the fact that the British Government was paying 64- per cent on its Treasury Bills, while its Exchequer Bonds, having, a currency of two years, were reported to be yielding over seven and a half per cent to the investors, , and flat loans for twenty-five years Avere returning £6 9s 6d per cent. Mr. Beauchamp added:

"All borrowers, both Government, publie, and private, must be prepared to pay higher rates for future accommodation. The fairly certain contingency of higher future rates should prompt a-verv careful scrutiny of the circumstances surrounding all contemplated undertakings, whatever their nature may be, involving the employment of borrowed cap'tal. in order that would-be borrowers mny first satisfy themselves that the project in hand is likely .to prove sufficiently p»o----fitable to justify the heavy handicap which the cost of the necessary capital U likely to Impose. In the case of Go-

vornment undertakings, it is imnortant, that the authorities should be on their guard to resist any political pressure designed to force them to embark in ven tures which could very well be left to private enterprise."

These arguments are thoroughly sound, and should be kept contin ually in view by Parliament and the Government, also by public bodies. It is no exaggeration to say that during the present session the Minister of Finance will be faced with abnormal financial conditions, and that he will be called upon to provide for large sums of money quite beyond the sphere of production by taxation. The surpluses accumulated during recent years vy;ere speedily swallowed up in placing returned soldiers on the land, and there are thousands of these men yet to be provided for. Besides this, there will be needed considerable sums for public works, housing, new schools, extension of post and telegraph services, hydro-electricity, and other urgent requirements that must be met by loans. The public must supply the money to pay interest and sinking funds, also for increasing the pay of public servants, besides having to bear the present heavy burden of taxation and high cost of living- Mr. Massey has on several occasions urged the necessity for economy, but the indications are that the present session will witness a participation in that wild orgy of expenditure which is one of the remarkable experiences of other countries besides New Zealand. It was stated in the Governor's Speech that the Government could not materially reduce the public debt, or the burden of the greatly increased interest and sinking fund "which drains our revenue and compels the levy of taxation at rates above anything in our experience before the war." Under such circumstances the need for drastic economy is paramount. Even when retrenchment has done its utmost,. when every department has been compelled to cut its estimates to an assigned figure, the problem of emergency taxation- and permanent revenue will remain the master issue. No one expects the Minister of Finance to be a magician, but there has never been a time in the history of the Dominion when clear-headed financial ability and caution were so essential for the task of making both ends meet without unduly pressing on the public. It is well that the abnormally prosperous years t'he country has been experiencing of late has caused money to flow in to a gratifying extent, for thereby alone is it possible to provide the departmental requirements. At the same time it is incumbent on Parliament to exercise the greatest caution in sanctioning expenditure. "What the future holds cannot be ascertained, though there are indications

that prices of produce may decline. The financial condition of the Dominion is exceptionally sound, but wholesale borrowing in the local market cannot fail to have a disturbing effect, and may retard industrial development. The position is such that it needs handling with the utmost prudence, and though the House suffers from a shortage of members possessing expert financial skill, it is to be hoped that all the members will recognise the gravity of the conditions of the money markets throughout the world; and endeavor to do the best possible in the interests of the Dominion.