LABOUR POLICY

Wairarapa Times-Age, 2 April 1938, Page 9

LABOUR POLICY

EFFECT ON NEW ZEALAND ECONOMY HON. A. HAMILTON'S SURVEY? CONTRAST WITH BRITISH METHODS. “Now that the Labour Party has failed in its attempt to bring down its superannuation scheme, as well as its health insurance scheme, by allowing the last session of Parliament to pass without even presenting the measures for consideration, it is desirable,” said the Hon. Adam Hamilton, Leader of the Opposition, “that I should make some comment upon the effect of their policy, particularly from the financial side of the Labour Party. “Had it not been for the statements of the Prime Minister himself, as well as of other members of his party—apart altogether from the frequent pronouncements in their official organ —I should not have thought it necessary to discuss Mr Colin Clark’s statement upon the financial aspect of the Labour Party’s policy,” Mr Hamilton continued. “It is clear from the remarks that have already been made that Mr Clark has expressed as a scientist and in scientific terms, the Labour Party’s financial policy. As it is apparent that the Labour Party intends to rely strongly upon Mr Clark’s statement as corroborative of the virtues of theid financial wisdom, I propose to deal with that statement, although it has been severely criticised from one end of the country to the other There is no doubt that a decline in prosperity has begun in Britain. This is shown by slightly falling commodity prices, heavier falls in share prices, declines in production and by increases in unemployment. “Since the end of 1937, however,” said Mr Hamilton, “there have been some signs that the decline in prosperity, which was relatively slight for the country as a whole, has been checked, and it is possible that an upward movement may now occur. Speaking on recovery in Britain since the depression, Mr Clark said that the rearmament programme had not made much difference to recovery, because three-quarters of the expenditure on armaments had been financed by taxation, and he maintained that the money spent did not increase total expenditure much since it was taken from other avenues of expenditure. He might' have added that a large part of the Labour Government’s programme in New Zealand consisted in extorting larger amounts in taxation from one section of the people and paying them over to other sections. Like much rearmament in Britain, this could not possibly increase the national income, since it consisted merely of a transfer of funds from one section to another section. He might have gone on to say that since most taxation was imposed on the working and producing sections of the people, and since most of the benefits from the expenditure of tax money accrued to the unemployed, to pensioners, and to additional civil servants, the effect of that taxation would generally be .to discourage work and effort, which was penalised by taxation, and to encourage idleness and dependence on the Government, which benefited from the new policy. CONTROLLING SLUMPS.

. “Mr Clark says that, because all construction costs had increased, shipbuilding and other industries had slumped, and once a slump started it could not be controlled. Curiously enough, in the case of New Zealand he appears to think that slumps can be controlled, for his concluding remarks in a report are: —‘New Zealand deserves to succeed, and I think it will succeed, in facing the next depression by the scientific control of banking and public works policy.’ It happens, however, that rising costs, according to Mr Clark, have caused a slump in Britain. In New Zealand the major effect of the Government’s policy has been to raise costs. That policy might, therefore, be 'expected to cause a slump in New Zealand, and it almost certainly would have done so had the the remarkable increase in the prices the rmearkable increase in the picies and the values of New Zealand exported produce between 1934 and 1937. However, as Mr Clark said, the chief factor in promoting prosperity in New Zealand over recent years, was the increase in the value of the exports. This expanded income to a level sufficient to enable it to carry part at least of the increased costs imposed by government policy. Should it happen that export price and values fall again, and wool has already fallen heavily, the present level of costs is likely to prove beyond the capacity of income to bear, and a slump becomes almost certain. . LIMITS ON SUBSIDIES. “Mr Clark thinks that the loss which a decline in overseas values would cause to New Zealand could be offset by maintaining a vigorous publie works programme and by maintaining the spending power of the farmers through subsidies to the dairying industry. For the year 1937 export income, amounting to fcbb./m. was the highest in the country s history and public works expenditure was’also very high. From 1929-32 export values fell by £2om„ and practically the whole of that decline fell on farmers. Does Mr Clark suggest that if a similar situation should arise the Government should subsidise farming to the extent of £2om. per year, and in addition provide public works m excess of those at present m operation and on a scale sufficiently large to absorb the unemployment which a slump produces? At present it is hardly correct to say that the Government is subsidising th® dairying industry The subsidy paid during 1936-37 was in the neighbourhood of £300.000 say, from a tenth to a fifth per cent ot the. national income, as estimated by Mi Clark. It should be clear that the Government is unlikely to provide any much larger subsidy than this for dairying, and a subsidy of, say, onefifth per cent of the income is going to make very little difference: tw> a slump such as New Zealand had between 1929 and 1933, when the income fell by at least one-third, or 33 pci cent. The fact is that the present Government’s public works policy has been superimposed on a rapidly expanding income and has served to Accentuate a boom. If a slump were w occur now the Government would find great difficulty in securing the money either to finance public works or to subsidise those who suffer from the depression. EXTRAORDINARY REASONING, “Mr Clark said that savings ill New Zealand amounted to £2sm. a year, that private industries could take only a small fraction of this, and consequently a large public works programme was absolutely essential. He tiaid that if public works were stopped, private industry could not use this huge amount of capital, which would be thrown on the market, and a slump

would follow. This is extraordinary reasoning. There are probably no figures in existence to support Mr Clark’s wild guess of £2sm. a year as the amount of savings. Post Office Savings Bank accumulation had amounted to about £sm. a year in recent good years, but a large part of this may consist of commercial money, for the Post Office offers attractive rates on money repayable at call. A few years ago the Post Office Savings Bank was losing deposits at the rate of £6m. a year, and probably little, if any, saving was occurring in New Zealand. More probably the Dominion was drawing on and using up its capital. Further, the fact that private industry does not offer at present an attractive avenue to investors is due very largely to the Government’s policy, which has raised internal costs without raising external prices, has narrowed the profit margin, and has contracted the field over which business can be profitably conducted <

CREATING LIABILITIES. ' “If private enterprise were given a reasonably free field, its capacity to absorb capital and use it to the advantage of the community would be greatly increased. There is also an aspect of public works which Mr Clark neglects. New Zealand is now very heavily taxed to provide interest on money borrowed to finance public works which were expected to be productive but which have proved unproductive. Further ‘large sums are now being spent bn public works which are likely to prove unproductive. This expenditure creates additional burdens on the shoulders of taxpayers. Private enterprise does not lay out its capital in that way. It confines itself to ventures that are expected to be self-supporting. Perhaps a chief reason for the present public works policy is the fact that the Government’s policy of raising costs has contracted the field of profitable enterprise and has therefore narrowed the market for capital investment and for labour services, th t us creating a surplus of available capital and of labour. In order to absorb the labour and capital thrown out of employment by its own policy, the Government has to operate an ambitious and expansive Public Works policy, and is borrowing money lavishly, for which interest and principal will have to be paid in the future, largely by the taxpayers. Mr Clark feels that if the available capital were thrown on the market it would cause a slump. Most people would think that an increase in the supply of capital would cause its price, that is, its rate of interest, to fall heavily. The fall in interest would then attract borrowers and encourage the development of new enterprises.

RECOVERY IN ENGLAND. “In England the capital market has been so controlled since 1932 as to maintain interest rates at low levels, thus encouraging borrowing, enterprise and industrial expansion. This was the chief method adopted by England for promoting recovery, an<i the recovery has been greater and sounder under this method in England than it has been in almost any other country. Yet Mr Clark feels that the very method which was a signal success in England would create a slump in New Zealand, and apparently imagines that a Government policy which denudes the market of capital here, which tends to maintain the rate of interest at a higher level than would otherwise be the case, a policy '.hat has raised other costs to artificially high levels, which exacts intolerably heavy taxation, and which has ‘■aken away the security of long-estab-.’ished customs, institutions and free marketing, and has ’given in exchange inly the security of political promises, is likely to promote the welfare if this Dominion. lam confident that tie of New Zealand will be tlwc«»»ghly well aware of the fallacies ii. Mr Clark’s remarks, and will be, in ctnsequence, still more anxious that th: country vottirn to a sound economc footlPigJ*