The Pamphlet Collection of Sir Robert Stout: Volume 11
A Rejoinder on the Debts of New Zealand
A Rejoinder on the Debts of New Zealand.
Mr. Vogel further admits what I affirmed as to there being no prospect of the public works in progress yielding a return in any way approaching interest on their cost. Eight million pounds will soon have been applied to this purpose, involving a yearly charge or interest of four hundred thousand pounds, and the best Mr. Vogel ventures to hope for is their making some contribution towards that enormous liability.
My two main points are therefore conclusively established.
With reference to the chronic excess of disbursements over receipts, Mr. Vogel enters into explanations with the view of showing that the native difficulty renders it impracticable for New Zealand to meet her entire expenditure out of revenue. That, however, I submit, is hardly the question. It is needless to discuss whether exceptional circumstances may not sometimes compel a State to exceed its income. What I urged, and what I still hold, is—that in such cases the excess of expenditure over receipts should be acknowledged. Deficits, where really existing, should be admitted, not kept out of sight by the process I have described.
On reference to the alleged surplus, I read Mr. Vogel's letter with much interest. After admitting that during the last financial year no less than 258,121l. had been paid out of loan for native and defence purposes, I was anxious to observe whether he would reiterate his statement with reference to the 'surplus.' I hardly know whether to construe his observations on pages 265 and 266 as affirming its existence. I observe, however, that he calls in as a witness 'the Colonial Treasurer,' and gives a long extract from a speech delivered by that officer, in which the alleged surplus is set forth in all its glory, as if the Colonial Treasurer were a person offering independent evidence. Naturally, therefore, it would not be supposed that Mr. Vogel and 'the Colonial Treasurer' were one and the same person. Such, however, is the case.
and farther on he affirmed the existence of a surplus of 10,562l.2
. . . I have a more agreeable task this year than I had on the last occasion, for I have not to speak of deficiencies of or impaired revenue;
In contrast to this, however, Mr. Vogel now admits 'there can be no doubt that, until the last two years, the finance of New Zealand was exceedingly embarrassed' (p. 255). How the existence of a 'surplus' page 385 can be maintained in the face of this embarrassment I leave your readers to judge.
to provide for a payment to be made by the province of Otago to the New Zealand Government, on account of the late province of Southland, and for other debts duo by that province.
Taking the whole revenue and expenditure of the province since its separation from Otago, we find that
While the expenditure for the same period.
|On Departments is||164,105||15||2|
|On Public Works||45,156||4||4|
It will thus be seen that the expenditure on Departments exceeded the ordinary revenue by 73,883l. 10s. 6d., and the outlay on public works, roads, and railways exceeded the Land Fund receipts, after deducting the cost of surveys, by no less a sum than 427,205l. 10s. 7d.3
In regard to the railway which figures for 367,168l., I would merely observe that it is the one I have spoken of as yielding a net revenue of 1,200l. a year. I note that Mr. Vogel disputes my accuracy in calling it the 'first' railway constructed in New Zealand. I believe I am perfectly correct in so terming it, but shall not waste time in discussing the point.
|Native £||Defence £||Total £|
The progressive increase of these figures cannot fail to strike the reader, and they become still more instructive when viewed in connection with Mr. Vogel's statement that, during the recess of 1869-70, his ministry was 'at no loss to understand that war expenditure must be discouraged.' Further, if amounts like these are to be paid out of loan, and ignored as affecting the balance, the origin of Mr. Vogel's 'surplus' is at once made manifest; and indeed, with such a system in page 386 operation, the wonder is not that we are now told of a 'surplus,' but that we have ever heard of a deficit.
The statement that borrowed money is used to pay interest, on the public debt is a scandalous perversion of fact;
The only ground for it is that authority was given by the Legislature to charge to borrowed money interest on the cost of railways during the course of construction.
Mr. Vogel, as already mentioned, abstains from noticing the 52,000l. for interest, omitted from the accounts in the manner I explained. However, suppose we pass by that, and take Mr. Vogel on his own ground. Now, I do not question that where there is a prospect of a railway or public work remunerating to the extent of interest on its cost, the interest during construction may justifiably be capitalised. But where there is no such expectation, where the undertaking is never expected to return interest, or anything like it, I fail to see that the interest may be more properly paid out of capital during construction than at any subsequent period.
To show that this consideration fairly applies to the case in point, I will quote Mr. Vogel's own speech made in proposing the initiation of the railway scheme.
Is it unreasonable to suppose that at the end of the third year a sum of 10,000l. will be the result, over and above working expenses, from the railways opened up to that time by the expenditure of two millions und a half?4
|Total Interest £||Receipts over and above Working Expenses on Railways £|
With such a result in anticipation I am certainly unable to consider that the interest can properly be capitalised, and must accordingly adhere to my opinion that the payment of such interest out of loan can be made with no more propriety during construction than after the works are completed.
I note that Mr. Vogel says that a sum of 300,000l. is all that has been, authorised by the Legislature to be paid out of loan for interest on works under construction; but I may be allowed to remark that, if the scheme is carried out, much larger amounts will have to be provided.
The charge that borrowed money 'is applied to maintain the regular establishment of Government' is quite untrue, unless by it is meant a reference to the fact that the cost of a considerable portion of the staff engaged in the Public Works Department is defrayed out of loan.
In like manner with the capitalised interest he contends that this payment is legitimate; and in each ease I find myself totally unable to page 387 agree with him. The former Premier of New Zealand calls these works 'political railways, and not railways intended to serve any useful purpose.' What are Mr. Vogel's anticipations I have already premised. It is incontestable that the result of his railway schemes will be to throw on the revenue a burden of some hundreds of thousands a year. When, therefore, a staff of officials is employed in bringing about such a result, I confess that I do regard their salaries as an uncompensated loss.
Does not the Native Department, I would ask, form part of the regular establishment of Government? Then look at the amounts of borrowed money applied to defence, which Mr. Vogel allows have averaged, during the last four years, 160,000l. per annum. Is not providing for defence one of the ordinary functions of Government? On what ground, therefore, can Mr. Vogel deny the application of borrowed money to maintaining the regular establishment of Government, when simultaneously admit-ting that during the last year more than a quarter of a million pounds has been so devoted?
In reference to the unfortunate results that have attended so many public works thus far constructed, Mr. Vogel deprecates the idea of anything similar happening in future. The extravagance of the past was the work of Provincial Governments, whereas now the public works policy is being con-ducted by the General Government. But, if those works yield no better result than Mr. Vogel's anticipations lead us to expect, it is not easy to see that they promise much improvement. He speaks approvingly of railways being undertaken 'without a thought of their yielding interest on their cost,' and that only promise 'to relieve to some extent the charge for interest on their cost.' If they are only to pay something 'in excess of working expenses,' as much might be said of the dock which cost 55,000l. and returned 400l. a year, or of the railway which cost 367,168l, and was leased for 1,200l.
Generally speaking, I think I might characterise Mr. Vogel's arguments as being not to the purpose; but it would be unjust to apply that designation to the whole, as there are some points he adduces which tell heavily against himself. For instance, Mr. Vogel complained of the period I took in comparing the relative growths of debt and population, and solicited attention to more recent statistics, which he gave as follows :page 388
Mr. Vogel mentions that of the 12,500,000l. one million was unexpended, though it is possible there may have been liabilities to set against it. However, we will call the debt 11,500,000l. This shows an increase of fifty-six per cent, on what it stood at three and a half years before, but the population increased simultaneously from 248,400 to 308,000, or at the rate of only twenty-four per cent. That is, debt increased at nearly two and a half times the rate of population. I do not fail to notice that the amount of revenue per head shows an increase, but I think I may take exception at the year selected for comparison. That ending December 1870 was one of unprecedented depression, probably the very worst that New Zealand ever experienced. Wool, the staple of the colony, had suddenly fallen in price to something like half its former figure, and the effect was a most serious and exceptional falling off in the revenue. If, however, we go back only two years, and take 1868, we find the revenue per head was then 5l. 5s. 9½d., or fifteen per cent, more than at present, and the year before that it was 5l. 12s. 1d., or twenty-two per cent, more than at present. I subjoin a table giving the particulars; thus :
The net result of the comparison is, that whilst the amount of debt chargeable per head increased from 25l. 1s. 5d. to 43l. 10s. 103/4d., the revenue simultaneously declined from 5l. 12s. 1d. per head to 4l. 12s. 2½d. In other words, the proportion of debt increased seventy-four per cent., whilst that of revenue declined eighteen per cent.
Notwithstanding, therefore, Mr. Vogel's statements as to increase in the revenue per head, &c., it transpires that, as compared with 1867, the percentage of debt is now more than double the proportion which it then bore to the means of bearing it, is represented by revenue.
Mr. Vogel dwells at some length on the natural resources and happy climate possessed by New Zealand. Nether of these have I any inclination to dispute, but I submit that their consideration is foreign to the present question. The genial climate of New Zealand will not be improved by bad financial administration, nor are her resources likely to be increased by the reckless accumulation of debt, whatever show of 'prosperity' may for a time be produced by a lavish expenditure of public money.
The newspaper from which I extracted the passage concerning the immigrants is the Bruce Herald, October 28,1873. In regard, however, to the distinction which Mr. Vogel draws between Government immigrants and others, I cannot see that it is of much practical importance.
Were the article to appear in New Zealand with Mr. Fellows' signature, very little, if any, notice would be taken of it, for he is known there as a person who, under the nom de plume of Master Humphrey, wrote, for an Opposition newspaper, letters attacking the Government.
I, however, fail to see how the soundness of my views is affected by their being expressed in an Opposition newspaper. Those letters were perfectly spontaneous, and neither the writing of them nor the contents of them were in any way suggested to me by the conductors of the journal or by any other person. For the purpose, however, of showing that I was not altogether singular in my views, it may be sufficient to subjoin the following extract from a speech delivered at the time by Sir David Monro, a gentleman who, I understand, formerly occupied the post of Speaker in the New Zealand Assembly.5
The great question which overshadows every other at the present moment is the financial position of the colony, and the effect upon its finances of the policy of public works and immigration. It is a question of life and death. We owe an amount of money greater per head than that of any of the Australasian colonies, greater than that owed by the people of Great Britain, greater than the debt of any people I know of. And this amount of indebtedness increases from year to year. There can be but one end to this, gentlemen. When a man's debts constantly exceed his income, it may be a question of time and the amount of property which he has to borrow upon, but it is the high road to insolvency, and the terminus will inevitably be reached. It will be said, 'Oh, we can easily raise more money by taxation.' We are an exceedingly well-taxed people at the present time. The Customs revenue could hardly be increased without injuring the resources of the country, and local taxation—a land tax, for instance—will press upon the bond fide settler, curtail his income, and diminish the value of his property. This is not pleasant, gentlemen, but it will have to be submitted to. More money will have to be got somehow or other—either by borrowing or taxation, or both. But if we go on as we are going at present, finding at the end of each year a largo balance to our debit, it must come to this—that sooner or later our credit and our capability of taxation will both be exhausted, and we shall be in a position of unmistakable insolvency.
Where there is a large amount of goods to be carried (or passengers) the superior appliances enable the transport to be done both cheaply and quickly. But, with every possible economy, a railway is an expensive road, and, in thinly populated and poor districts, is as much out of place as a steam plough would be in a cabbage garden. The early settlers in a new country may manage to get along with their ordinary wheeled carts without a sixpence of expenditure on the surface, and, as their means increase, they will dig ditches, and cart metal, and make in time a good macadamised road. But you can't go to work in this way with a railway. The thing must be made complete from the first. A break of a single yard in any length of a railway effectually interrupts the traffic. It means a large amount of capital in hand, annual interest, and a large sum annually to keep it up. It is the best of roads, and the cheapest, when there is a large haulage business to be done; but for the poorer districts it is much too expensive, and, like the Launceston and Deloraine line, will prove a curse instead of a blessing.
I had knowledge enough of railways to know that the Colonial Treasurer (Mr. Vogel) was talking about a matter with which he was very imperfectly acquainted. I did not in the least believe in his figures and his calculations; and, so far as we have gone yet, they have proved utter delusions.
What would be thought of the directors of a joint stock company who suddenly, and without consulting the shareholders, should create a very large mortgage upon the whole property held both individually and in common? The thing, of course, is so monstrous that it is inconceivable, and yet this, or something very like it, was done by the Fox-Vogel Government in 1870. If, in the view of that Government, the time had arrived when the interests of the colony were to be promoted by a railway system carried on by the General Government, and given effect to by borrowing some millions of money, an announcement page 390 to that effect should have been made to the country generally, in order that the probable results of the scheme might have been fully discussed at the bar of public opinion. In the neighbouring colony of Victoria, before they committed themselves to the railway system, they discussed the whole question in the press, in pamphlets, and in the Legislature for something like a couple of years. But we do things differently in New Zealand. It was deemed essential to the success of the Fox-Vogel Government in 1870 that there should be large public works and large loans. The shareholders in the joint stock company—that is, you and I, gentlemen, and the owners of property generally throughout the colony—were the last persons thought of, and were not consulted at all. It was a party move, and made in the interest of party. I know well enough what will be answered to this—that the whole thing was submitted to the Legislature, and that the Legislature approved it. But I maintain that it should have been submitted to the Legislature in a very different way, and to the country as a proposition to be deliberately discussed by it, and not suddenly thrown down as a political coup d' ètat upon the table of a moribund Parliament, with all the Bills to give it effect ready drafted, and the whole required to be passed, and actually passed, in a ridiculously short period of time. I cannot, for my part, understand how conduct of this sort can be held to be in accordance with the usual practice of constitutional government, or can be justified by any reference to prudence or common sense.
1. Because the present Bill authorises the Governor to impose on the colony liabilities on account of railways to the extent of 3,886,900l. (being 1,886,900l. in excess of the amount already authorised by law), in addition to the existing debt of 9,985,936l., and to further sums amounting to 2,800,000l., authorised to be raised under the Defence and Public Works Loan Act, so as to raise the indebtedness of the colony, actual and authorised, to upwards of fourteen millions and a half sterling—an amount disproportionate to the population, and creating, for the time, an undue strain on the revenue and resources of the colony.
2. Because no sufficient data have been supplied, such as are usually laid before Parliament, in reference to measures of this kind, to enable it to form an accurate judgment upon the various railway schemes to which effect is given by this Bill.
3. Because this Bill empowers the Government to incur liabilities so large in amount without reserving to Parliament its proper constitutional control over the expenditure.
4. Because the Bill empowers the Government to pledge the credit of the colony to a large amount without provision being made to meet its engagements.
5. Because this measure has been hurried through the Legislature without due deliberation, at the close of the session, when many members have returned to their homes, against the declared opposition of large minorities.
6. Because no opportunity has been given to the people of the colony of reconsidering the subject of the public works policy under the present altered circumstances, and having special regard to the difficulty experienced in the introduction of immigrants, the unexpected advance in the price of railway material, and the necessary increase in the cost of railways.
In this temper people are more disposed to cavil than to be contented. They ridicule the surplus as a test of solid financial prosperity, attributing it very largely to the unhealthy practice of paying last year, out of loans, the interest on works in course of construction. The surplus is thus regarded as borrowed, in reality, to that ex- page 391 tent, from the loans, and not derived from the revenue.6 The further change in financial policy of abandoning the local charging of loan expenditure, on which so much stress was laid at the initiation of the public works policy, is also regarded with disfavour as throwing further burdens on the revenue, to which Auckland is so large a contributor, and which, in the absence of a land fund, is her sole resource. The talk about relieving loans by transferring certain charges to revenue is regarded as more bunkum, and a very bold attempt to make people see the thing which is not. The Treasurer having this saving from the past year, and a very probable increase of revenue for the year to come, has two years' surplus to deal with, and only one year's interest to meet. It is, therefore, a cheap virtue to pay that one year's interest out of revenue, and not so much to crow over in the opinion of people who discuss the subject here. The reference to new loans to finish the works in hand is regarded with suspicion, but of course nothing is yet known of the amount to be asked. The large increase in savings bank deposits is not regarded with unmixed satisfaction, as it is believed that the whole—or nearly the whole—amount is put into colonial debentures to strengthen the market, and that in case of depression the case might become additionally complicated by a panic among depositors. The reference to the Australian market being exhausted has taken most men by surprise, and they think, with a shiver, of the possibility of a similar report from the London Exchange, which, though so much larger, of course has its limits for anything but consols, while even they cannot be materially added to without serious depreciation. In short, a reaction is decidedly setting in. People long for something less risky, something of which they can see the end. Their experience of the past shows them that a great public expenditure may be going on, and great public encumbrances be quietly accumulated, and that yet a general dulness may exist unless the staples of trade are in good request.
From the general tenor of Mr. Vogel's letter it would seem to be implied that I have some unworthy motive for depreciating New Zealand. Such an insinuation, however, is entirely destitute of foundation. Not to speak of the valued friendships I am so fortunate as to possess there, it will be enough to say that there is no one in England whose interest in the colony is more immediate than my own. My principal business relations are with New Zealand, and with her welfare my own is inseparably bound up. Wantonly to disparage New Zealand would therefore be an act not merely of ingratitude, but one of the most suicidal folly. Being, however, bound to the colony by strong ties of attachment and the most grateful recollections, having a distinct and immediate interest in her welfare, and being sincerely of opinion that the present financial policy does not conduce thereto, I consider myself at liberty to give expression to my views without incurring the imputation of sinister motives.
Mr. Vogel alludes to my having resided in Vancouver's Island, and then having left it. It is true that I passed more than three years in that colony, and left it, early in 1864, on account of the misgivings I entertained in regard to its future. It is true that my apprehensions were not shared by my then fellow-colonists, who generally regarded them as chimerical. I, however, very much regret to add that the event surpassed even my worst anticipations. If your readers should be acquainted with any persons conversant with what transpired in Vancouver's Island in 1865 and 1866, I would appeal to them in reference to the disasters page 392 which befell that colony, and from which it has only recently begun to recover.
Mr. Vogel concludes his letter by saying that, if he has pressed hardly upon me, it has not been from a desire to do so. I would beg to assure Mr. Vogel that any pressure which he may think he has exercised towards me is perfectly harmless, and does not excite my smallest resentment. Considering Mr. Vogel's admissions in regard to the payment of current expenditure out of loan, and the ignoring of that payment as affecting deficit or surplus, I think I may dispense with his somewhat ostentatious forbearance; and shall be perfectly content if the case I have adduced prove so fortunate as to obtain a hearing at the bar of public opinion.
I am, &c.,
[The subject having now been discussed rather fully, on both sides, in this Magazine, we cannot pursue it farther.—Ed.]
1 Page 257 of Mr. Vogel's letter to you, last column but one.
2 Financial Statement of the Hon. the Colonial Secretary, August 1872, B, No. 2, PP., 3, 8.
3 Appendix to Journals of the House of Representatives, 1866, B, No. 5, p. 23.
4 Financial Statement of the Hon. the Colonial Treasurer, June 28, 1870, B, No. 2, p. 16.
5 Sir David Monro at Waikonaiti. Otago Daily Times, March 1, 1873.
6 The writer of this, and those he writes about, are apparently unaware of the sums paid out of loan for native and defence purposes. The extract serves to show that many people in New Zealand are under the impression that the loans are incurred only for public works and the interest upon them, and have no idea that there is an additional accumulation of debt for other purposes. What will be their feelings on learning, upon Mr. Vogel's authority, that last year no less than 258,120l. was paid out of loans for the Native and Defence Departments, besides the interest on the public works in progress?