Salient: Victoria University Students' Paper. Vol. 26, No. 9. 1963.
Mild Inflation — Budget had to be Irresponsible
Budget had to be Irresponsible
Two points in the Budget stood out. Firstly, the Minister of Finance has largely resisted the urge to go on another election year spree. £7 million was given in concessions compared with £14 million last year. Secondly though, he has not attempted to institute a genuine counter-cyclical fiscal policy. In short Mr. Lake's budget is about half way between the usual giveaway effort and the kind of budget the economy needs.
The Budget and the Economic Survey give a fairly good summary of the current economic situation. The Economy is buoyant, export receipts are at a record high level, consumer spending and private imports are rising rapidly, and industrial production and building are starting to boom again. This sounds very inspiring, but unfortunately we were in the same sort of position in 1957 and 1960. In both cases the boom got out of hand and 12 months later we had an acute balance of payments crisis.
To Some Extent the situation now is less unstable than in previous election years. Import controls have not been relaxed much (the Import Licensing Schedule nominally remains at £250 million), and the Government has asserted that it will maintain a closer control on bank credit.
Nevertheless, even the record level of £325 million in export receipts in the year ended March 31, 1963, produced a surplus on current account of only £7 million. A moderate fall in export Income coupled with higher imports due to fuller utilisation of licences could quickly produce a large deficit.
In themselves most of the tax cuts made by Mr. Lake were reasonably justified. The only sour note is that taxes should really have been raised to prevent the present boom running away. This could have been done in combination with the cuts given by raising some of the other taxes (perhaps indirect taxes?).
The concession on farm development expenditure was welcome because of the renewed impetus it will help give to lagging investment in our main export sector. Similarly the investment allowance and special depreciation will help factory investment, though the timing of this concession should have been in a slacker period. The cut in Income Tax is of doubtful merit (hypothetical incentives apart) but the other concessions seem reasonable, especially the special treatment for the West Coast.
Two welcome features of Government expenditure proposals in the Budget were increased Government capital investment (up from £72.8 to £81.1 million), and increased spending on Education (up by over £4 million to £56 millions. These show a recognition of the development needs of the economy. An increase of nearly three million in defence spending is a necessary evil. A rise of nearly £10 million in spending on Social Services other than Education, and of nearly four million in public debt interest were other large projected rises, and perhaps inevitable ones.
Broadly speaking, the present Budget will add mildly to inflationary pressures at a time when an increase in restraints is called for. However it is doubtful that voters would have agreed to tax increases at a time when things seem so prosperous. Mr. Lake is to be complimented for being moderate in his concessions, and giving them in areas where the effects will (in the main) be best. We will probably have to wait many more years before we will get a budget which advances beyond this improvement to partial responsibility in an election year.