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Salient: Victoria University Students' Paper. Vol. 30, No. 8. 1967.

Muldoon's budget displayed cautious optimism says Vuw Economics Lecturer

Muldoon's budget displayed cautious optimism says Vuw Economics Lecturer

According to rumour, all Police leave was to be cancelled for the 48 hours following the reading of the Budget.

If anyone thought that this was anything other than a mischievous Kiwi rumour, the Budget itself would have dispelled any such notion.

In spite of its portentious but refreshingly honest opening ("The economic difficulties which confront us today are the most serious New Zealand has had to face at any time since before World War II") there was nothing in Mr. Muldoon's Budget to bring the rioters into the street. Even a scheduled meeting of Carp fell flat because the Budget gave the ladies nothing to talk about.

It is now being said, with the benefit of hindsight, that a tame June budget was made inevitable by the relatively severe mini-Budgets of February and May. Whether this argument is valid and the earlier measures do justify the latest non-Budget, is not clear.

It depends on how permanent one believes the present "crisis" to be and on how effectively the pre-Budget measures seem to be working. Mr. Muldoon's Budget displays a cautious optimism on both counts; an optimism for which the Budget itself gives little evidence.

The New Zealand voter is still judged capable of being wooed with: Political platitudes—

". . .. I have complete confidence that these difficulties are temporary and that they can and will be overcome. My confidence stems from the underlying strength of the New Zealand economy, based on its productive capacity built up over the years and the skills and vigour of our people."—The Budget, P.1.

"Our assessment at this stage is that no further fiscal measures appear necessary in order to restore the economy to a satisfactory state of balance, both internally and externally."—The Budget, P.21. and sheer crystal ball gazing (borrowed from Dr Sutch, perhaps?),

"While we must be prepared for any contingency, our assessment is that it is reasonable to expect a recovery in wool prices . . ."—The Budget, P.22.

To be fair to Mr. Muldoon, however, it is difficult to know how effectively ' the existing measures are working. Export earnings are notoriously difficult to forecast. His stand of guarded optimism is probably no less credible, and certainly more politically advantageous than a more pessimistic approach.

There is much to be said for the Budget's insistence on the need for flexibility to meet changes as they come, and for Mr. Muldoon's subsequent TV statement that we are going through a period when decisions must be made week by week.

We could feel more certain that this would not merely lead to more stop-go economic policy if, in spite of considerable lip-service being paid it, long term co-ordinated economic planning was making greater advances.

Of the specific measures there is little to be said. The Budget sins by omission rather than commission. Undoubtedly the most significant and positive item aspect is that Government has heeded its own call for restraint on the level of internal spending and has undertaken to reduce the rate of growth of its own expenditure (excluding debt repayment and the operating expenses of public authority trading Departments) from approximately 9% to 1.4%.

If these appropriations are adhered to they should have a significant effect on stability, both internal and external. In spite of this reduction the Budget still shows a deficit before borrowing 52.3 million, some of which will have to be met overseas (exactly how much depends—as everything else seems to these days—on wool prices).

The relaxation of building controls will help to provide jobs for New Zealand's growing (but still small) pool of temporarily unemployed. This seems a reasonable move and does not indicate that Government is beginning to panic at the effectiveness of its own policies as some commentators are suggesting.

Production incentives, for exports especially, have been continued but not significantly increased. This seems to reflect a disappointing unwillingness to institute any changes which might in any way anticipate the report of the Taxation Review Committee, due to be presented later this year.

The only other measure of note is the introduction of a dubious Development Bonds scheme.

Whether this will increase volume of savings or merely result in a transfer of existing savings is hard to tell. The latter seems more likely. Students of economics will notice in this section (Budget P.17 and 18) a bit of decidedly pre-Keynesian analysis about the implied need for prior money savings to finance current investment.

Of the changes in pattern of Government expenditures perhaps the most contentious is the 7% increase in the Education vote compared with the slight decrease in last year's (underspent) defence vote. However, this is largely a non-economic question and approval or disapproval will depend largely on one's value judgements (Do students bludge off the rest of society? Are the Committee of Vietnam a bunch of finks? etc.).

Perhaps of greatest note to students is Mr. Muldoon's intimation that he is not entirely happy about the allocation of funds within the Education vote:

". . the share of resources devoted by Government to the universities has increased at a much higher rate than the share resources expended on education generally. The upsurge in spending on university education points to the need for some re-appraisal of the allocation of scarce resources of money and personnel to ensure that they are being expended in the manner most beneficial to the New Zealand people."—The Budget, P.12.

While in this case rates of increase may not be the most relevant figures the point must be taken. In the light of competition for scarce funds, is our usual assumption that each extra pound spent on tertiary education is money well spent, a valid one?

If Mr. Muldoon and others making decisions on education expenditure are to be convinced that university education should have a high priority (in terms of benefits "to the New Zealand people") it will take more than vague phrases about education being "an investment for the future."

—Don Berriman.