Salient. An Organ of Student Opinion at Victoria College, Wellington, N.Z. Vol. 13, No. 11. June 8th, 1950
Under Holland But Not In Dutch
Under Holland But Not In Dutch
This Article is an attempt to reply to Jonh Blunt's article, "The Economic Consequences of Mr. Holland," of June 1. I argue that the abolition of subsidies is a necessary step to stability and that the consequences will, on balance, prove beneficial.
First, I join issue with JB on the way he has treated the £12m saved by the abolition of subsidies. The original system made this sum a transfer from taxpayer to consumer. By eliminating the payment, without reducing taxation, Mr. Holland has made £12m available for military training and to meet the deficit in Social Security. John Blunt failed to explain that, while no cash saving is evident to the taxpayer, the money used in this way avoids the call for an additional £12m elsewhere. Had it not been available, it would have meant other economies, higher tax[unclear: es], loan, money, or Reserve Bank credit.
The question we must [unclear: ask] is—does the citizen gain or lose in his dual role as taxpayer and consumer. If we assume that Mr. Nash had carried his "soak the rich". taxation as far "as possible, and had explored every other avenue, it would have been necessary for Mr. Holland to have increased taxes all round to secure an extra £12m. Therefore by losing subsidies and avoiding extra taxes, the average consumer is little affected. It is conceded that basic wage workers with large families will be worse off, and Mr. Holland has promised a review of wages and Social Security to compensate.
Secondly I assert that the consequent readjustment of wages and prices [unclear: will] not seriously disturb our economy. If the subsidy [unclear: scheme] avoids increases in the cost of living multiplied to a far greater extent than the [unclear: subsidies as] JB argues, why did Mr. Nash and Sir Stafford [unclear: Cripps attempt to keep—subsidies.] down? Surely an increased expenditure on subsidies would reduce by a far greater extent the Inflation now existing? No—an additional £12m, less than 2/6 per head per week, will not have the effects (in my view) that JB suggests.
Thirdly, a point of agreement between us. "To make the New Zealand economy stable, costs and profits must be lowered" he says. JB is afraid that our new internal cost structure will be too high, that this will make our primary produce too dear to sell to overseas customers at its cost of production, and that our local industries will be unable to produce goods at a price to compete with imports. That is the danger we face, and I assent, that the abolition of imports is a step to meet it. This is I believe, because:
1. "Costs" viewed from a national (small "n") point of view are not increased. The wage earner who maintains his standard of living with a wage increase to compensate for subsidy removal consumes no different proportion of the national income than before.
2. The employer must then base his prices on these full and real costs. It is at present impossible for, say, a woollen mill to sell at spuriously competitive prices because of the wool, coal, freight and wage subsidies. (By wage, subsidies I mean that part [unclear: of] the worker's cost of living at present met by [unclear: subsidies.)]
3. Some industries might find it [unclear: impossible] to recover the full extra coats, either because of cheaper imports (where permitted) or consumer resistance, e.g., (the radio industry. This will mean reduction of profits and/or payments to workers. I regard the payment of wages and bonuses in excess of award wages as part and parcel of the high profits accruing to the employers in many businesses. As long as the product sells, employers will, pay the high wages. I am not attacking the wage structure (I want to make that clear) but I am protesting at spuriously high payments in excess of wages in comparable fields.
In conclusion, I quote the "Economist" of 5/11/49 (a significant date) on similar questions in Britain:
"It is not claimed that such a policy of cutting expenditure and taxation would be popular-only a strong [unclear: government fresh] from the, polls could contemplate it. But it is claimed that it would have a most powerfully stimulating effect upon the national economy."
The abolition of subsidies is in my view a necessary part of the stimulation process which is essential, to a stable economy. -Four Square.