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Salient: Victoria University Students' Paper. Vol. 30, No. 7. 1967.

Government too harsh ?

Government too harsh ?

"We are now in what is a very odd situation in New Zealand politics where the Government is taking rather more drastic measures to restrain domestic spending than an economist like myself." Professor Holmes told students and public in a lecture on University Day.

"In the first, Government had been reluctant to use budgetary measures to restrain inflation. For instance, in 1966-1967. Government expenditures probably rose by 11 or 12 per cent whereas the long-term growth of available resources was only about four percent."

Professor Holmes said there was "a serious political resistance" to what he saw as an important element of good budgetary policy. This was the assumption that, even if inflationary pressures were strong it was political suicide to raise taxation.

"The poor reputation of budgetary policy was the result of the tendency of govern ments to avoid using it until a crisis occurred, when measures were necessarily harsher than if more moderate action had been taken earlier." Professor Holmes predicted that if this 'political suicide' theory remained then it would be accompanied by continuing fluctuations.

"If overseas spending is to fall, this year's problem is to expand output on a reduced supply of capital. To rely entirely on internal disinflation would be a mistake."

On devaluation he said there were possible inflationary effects.

However, after inflation was chucked this could be the best remedy, he added.