Wairarapa Times-Age MONDAY, JULY 10, 1939. OUR FINANCIAL DIFFICULTIES.

Wairarapa Times-Age, 10 July 1939, Page 4

Wairarapa Times-Age MONDAY, JULY 10, 1939. OUR FINANCIAL DIFFICULTIES.

1 AS all recent reports have emphasised, the present state of V the London money market is extremely unfavourable to outside borrowers and even to domestic borrowers like the London County Council, and there is no ' ate prospect of any improvement m this respect, the gilt-edged market, according to a cablegram received 01. Saturday, “suffers from an indigestion of new issues At the same time, borrowing on a substantial scale by the . Government is in prospect, particularly lor defence.

These circumstances are bound to operate to the disadvantage of New Zealand in the conversion of the London loan ot upwards of £17,000,000 she is under the necessity ot effecting before January next, And would have done so even had the finances of the Dominion been in the most flourishing condition. The London market meantime is definitely bad from the point of view of those who wish either to borrow or to renew existing loans.

That being said, it is none the less true that the present financial position of the Dominion, externally and internally, has weaknesses which call urgently for remedial treatment. Though thev have lately come to a head, these weaknesses are not wholly the outcome of the policy of the Government now in office. ' They may perhaps be regarded more fairly as the culmination and inevitable outcome of unduly heavy borrowing by the State, externally and internally, over an extended period of years.

With conditions adverse to borrowers riding on the London market, it cannot be called a matter for congratulation that within the. next six years this country will have to deal in some fashion with maturing debts amounting to some £b4,000,01)0 domiciled in-London, not to speak of further amounts totalling upwards of £28,000,000 domiciled in New Zealand. Ihe oversea debt mentioned includes the sum of £17,000,000 at pi esent under negotiation.

New Zealand is now experiencing the results, not only of the recent expansion of credit .under Labour ride, but of the heavy borrowing of preceding years. On this subject, a bulletin just, 'issued by the Canterbury Chamber of Commerce in conjunction with the Department of. Economies of Canterbuiy University College observes that: —

For the seven years 1924 to 1930, the average annual increase in New Zealand's net public debt was £7m a year. Of this average, £sm was raised abroad and £2m in New Zealand. Hence, in the pre-depression period, the Government borrowed on average £2m of local money each year. Over the past three years, 1936-39, the Government has not borrowed overseas but has made some repayments, the increase in net public debt in the two years 1936-38 was, however, about £lom and the 1938 Budget shows that about £lom more was raised by the realisation of assets. In addition, approximately £l9m has been borrowed in advances from the Reserve Bank.

The bulletin goes on to suggest thill the Government’s capital expenditure from money raised in New Zealand may have been high enough to average £l3m a year for the last three years. This estimate appears to be excessive. For example, as the figures stood at the end of May, advances obtained by the State from the Reserve Bank included £7,492,000 advanced to the Marketing Department. This is a self-liquidating trading account, save in the extent to which guaranteed prices paid out exceed the amounts derived from the sale of produce. Part of the “other” advances, amounting at the end of May to £12,025,000, has gone into the creation of earning assets in the shape of State houses.

With all proper allowances made, however, the fact stands that during the last three years the amount, of internal borrowing by Hie State for purposes that are unproductive, or at all events not directly productive, has increased heavily. The present Government has substituted internal lor external borrowing, and much of the increased purchasing power released in this way Ims been applied ultimately to the purchase of imports. The policy of heavy internal borrowing has thus had a great deal to do with the depletion of the Dominion’s sterling funds in London which is a commanding feature of the existing slate of affairs.

While the need of building up adequate sterling funds, in order to ease the trading position and, incidentally, to facilitate loan renewal operations, is well established, other aspects of the situation call urgently for attention. In particular, although interest rates, in common with working and living costs, are rising in the Dominion, Ihe relative volume of investment in productive enterprise, according to the latest particulars available, is well below the level that ruled in the pre-depression period.

The central fact indicated is that New Zealand is still relying to an undue and unwise extent on State borrowing and that under this policy a good deal is being done to check productive enterprise, both by the absorption in State loans of capital that would be better used in industry and by the direct and indirect effects of borrowing in increasing taxation ami other costs. The root remedies needed no doubt are the curtailment of borrowing and taxation and the greatest possible expansion, of production.