Reduction of Trading Bank Advances

What has been said so far assumes that the budgetary corrective action which is called for has merely been delayed. The situation becomes much more serious il the intention is hot to use budgetary restraints at all. For this can only mean that the Minister will have to make such corrective measures as are to be taken much more severe. For example, the usual alternative to the Government's achieving a surplus is to reduce the level of trading bank advances, and a common assumption now being made is that the Minister intends to make this his main line of attack. While it is true that New Zealand's present difficulties do stem mainly from the fact that over the past twelve months trading bank advances have risen by about 25 per cent. it does not follow that appropriate policy is merely to reverse the p roc ess. For there is no guarantee that those firms who borrowed most during this period would be those whose advances would be curtailed most. Moreover, and this is more important, borrowers do not all have equal access to other sources of funds. As a result, when undue emphasis is placed on reducing bank credit, the necessary contraction tends to be concentrated upon a narrow range of smallish firms whose sole source of credit is the banks, other firms being able to escape because of their access to non-bank credit.

It is also commonly believed that a considerable surplus will be achieved by means of reduced government expenditure. I am rather sceptical of this. By and large, the present levels of expenditure cannot he substantially reduced, either because the Government is committed to maintaining them or because, relative to economic and social desirability, they are already trimmed to the bone. It is a mistake to assume that there is any considerable waste in Government expenditures, as anyone who has seen a, Treasury attack on Departmental Estimates will know.