". . . but it will win the next election."

Mr. Lake's 1965 Budget reminds me of the behaviour of a small boy in bed who thinks he has seen a bogyman. The boy hides his head under the blankets and hopes fervently that the bogyman will vanish.

So with Mr. Lake and the economic situation. He looks at it, shudders, and hopes the problems Will vanish if he does nothing.

Basically Mr. Lake was faced with an economic situation that has become all too frequent in New Zealand. Spending has been rising rapidly for some time. Labour shortages are growing. Import demand continues to rise and price inflation is becoming quite rapid.

Prices

Indeed the Budget admits quite candidly that "prices rose over 4 per cent last year." At the same time, however, export prices are falling and New Zealand is faced with a rapidly widening balance of payment deficit. This is a situation which the Minister of Finance diagnoses quite clearly in the Budget and in the Economic Survey. Having made his diagnosis he proceeds to do very little about it.

Irresponsible

The present Budget, in fact, continues an irresponsible fiscal policy which has been evident for some time. When export prices rose rapidly in 1963 Government policy should have been aimed at restraining internal spending and building up overseas exchange reserves to act as a cushion against future export price falls.

Instead, because of Government reluctance to take any really strong measures, such as increasing taxes, a policy of spending all of New Zealand's extra earnings was followed, and an internal boom allowed to develop. Quite predictably it led to the present situation.

Several main features stand out in the Budget and in the economic policy statements contained in it.

Salient Special Correspondent

Firstly, the Government has not increased taxes, despite the excessive level of internal spending. Indeed, it gave some further tax concessions, though these were relatively minor. This shows that the present Government is determined to remain known as a "low tax" Government, whether this is economically justified or not.

Secondly, Government expenditure will show another large rise in 1965-66. Total Government spending is scheduled to rise £39 million, or 7.3 per cent, to £580 million. It is true that this increase is virtually inevitable due to the rising needs of the economy. Since this is a larger rise than the revenue rise expected, it will be clearly inflationary.

Thirdly, the pattern of expenditure and increase is something of a mixed blessing. Social Services expenditure is up a satisfying £27.5 million, including £6 million more for education. Works and other capital expenditure is, however, scheduled to rise less than £2 million. Once again capital spending has borne the brunt of the Government's need to cut spending somewhere since it is determined not to increase taxes.

Fourthly, it seems that Mr. Lake is going to rely on a bank credit squeeze and controls on building activity to cut back internal demand. In the absence of tax increases these policies will, of course, have some effect. However, they mean investment rather than consumption is being cut back. To give Mr. Lake his due, though, it must be admitted that the present boom is more an investment boom than a consumption one.

Credits

Having criticised the Budget for its overall weakness a few good points may be noted.

Top of the list is the increase in bursaries and hostel subsidies for university students. Masters bursaries are up £50 to £150, boarding bursaries up £45 to £125 and cash allowance in the third year of a fees and allowance bursary up £20 to £80. Mr. Lake is apparently becoming the students' friend.

Secondly, Mr. Lake should be congratulated for abolishing the "gift" provision for no-remittance import licences. This was one of the biggest avenues for dishonesty in the country. Unfortunately, he slightly soured the high moral note by extending the eligibility date for ownership of overseas funds. The big boys will still get their cars, apparently.

Thirdly, the taxation incentives granted to farming, fishing, mining, forestry and research are welcome and should help stimulate development. So will the Development Finance Corporation being set up, and the Export Guarantee Office. These are all positive steps.

However, despite some good points, the Budget as a whole is an unsatisfactory and inadequate one. Ever since 1958 and the "black budget," New Zealand Ministers of Finance have lacked the courage to increase taxes when such an increase became necessary, Mr. Lake's 1965 Budget falls clearly into this category.

This time, though, Mr. Lake might just get away with it. Falling export income will eventually cut internal demand, and overseas funds can be shored up by borrowing from the IMF. This won't do New Zealand's long-term development any good, but it will mean that the Government will win the next election.—Special Correspondent.