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Salient: Victoria University Students' Paper. Vol. 27, No. 11. 1964.

Government's Do-Nothing Budget

page 6

Government's Do-Nothing Budget

Once Again the Budget has come and gone, and hardly been noticed. Once again Mr. Lake has steered an unadventurous middle course between a budget that would meet the country's real needs and a budget that would please the voter. A few changes have been made, a few minor concessions given away, but nothing either very constructive or very vote-catching done. The end result of Mr. Lake's efforts was a colourless document which changes the economic scene very little.

Basically, Mr. Lake was faced with three serious problems, none of which he can be said to have done much to solve:

(a.) Currently the rate of spending in the economy is running ahead of the level of production, with ominous possibilities of inflation or a balance of payments crisis within the next 12 months.

(b.) Over the long term. New Zealand's economic growth has only been proceeding at a mediocre rate.

(c.) Both the Government and the private sector have been relying on heavy overseas borrowing to keep up the present level of consumption and investment.

To deal with the first problem, the Budget has done virtually nothing, except perhaps in restraining increases in some forms of Government spending. That the Government recognised the need for short-term restraints was evidenced by the tightening of hire purchase controls and the wool retention scheme in the pre-budget period. The logical follow through for this should have been a temporary increase in taxes. Instead some minor cuts were made.

We presumably conclude from this that the Government is content to rely on high overseas prices for our exports to keep us out of trouble. This springs from the present record level of imports. One is not quite sure whether to call this policy "steady does it" or "do nothing."

In dealing with the second problem, that of stepping up the economy's rate of growth, the Minister of Finance has tried to be a little more constructive. Special incentives to increase investment in plant and equipment via increased depreciation allowances and tax concessions on export promotion have been continued, and farm development concessions extended. These are to be welcomed.

However, the Budget has not attempted to deal with the basic fact that the only real way to get increased investment in an economy already running at capacity is to cut back consumption. This has notably not been done.

A move which might be interpreted as an attempt to deal with the overseas borrowing problem was the imposition of a withholding tax on income from overseas investment in New Zealand. In itself this was a welcome move, since it shifts some of the burden of taxation from the shoulders of New Zealanders to those of overseas investors. However, in the absence of any move to cut back the level of internal spending and importing, it is difficult to see how New Zealand is to become any less dependent on overseas borrowing.

The possible consequence of this move is that there may be less private overseas borrowing and a corresponding increase in Government borrowing. This is a variation in the method of borrowing rather than an attempt to make the economy less dependent on borrowing.

Two other features of the Budget deserve comment. Firstly, the increase in spending on development and defence; secondly, the cuts made in death duties.

The increased spending on development, particularly on Education (up £6 million), is to be welcomed with open arms. The writer does not feel the same enthusiasm about the increase in defence spending. It is difficult to see that increased defence spending by New Zealand makes any real difference to the world situation.

Cutting death duties was a purely political move. There is no evidence that lower death duties act as an incentive to extra effort in the farm community. In fact, the reverse could easily be argued since there is nothing like a heavy mortgage to make a young farmer sweat to work it off. The cut in death duties was apparently the Government's bid to show that it was doing something for its supporters.

Overall, the Budget disappoints. Very little of great significance was done. However, perhaps by New Zealand standards it was reasonably restrained. Can it be that the era of giveaways is over?