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The Pamphlet Collection of Sir Robert Stout: Volume 29

[The Finances of New Zealand]

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For years past our ordinary expenditure has exceeded income, and of late the annual deficit has increased so rapidly that it now amounts to hundreds of thousands of pounds. The causes of this are so apparent, that hardly anyone who is not wilfully blind can fail to recognise them. With a total population not exceeding that of some of the principal towns in England, we have been cursed with the most complicated and costly series of Governments in the whole world. To gain an approximate idea of the extravagance we have been supporting let any unprejudiced man pay a visit to our Provincial Council of Otago; let him run over in his mind the list of officers and salaries that institution implies, with its Superintendent, Executive, Speaker, Clerks, Messengers, Sergeant-at-arms, and the whole paraphernalia. Let him reflect that the same deplorable exhibition of incapacity, and the same outrageous waste, go on in half-a-dozen similar assemblies; let him pass in review the limitless series of jobs that have been perpetrated here; let him look at the Post Office, costing from £35,000 to .£40,000, when a building as well suited for that or any other purpose could have been erected for a tenth part of the money; let him look at the Exhibition Buildings costing £20,000 or more, and presenting the ridiculous spectacle of a permanent building put up for a temporary purpose; let him then cast his eye to the South and observe a railway constructed at a cost of £367,168, for the ordinary requirements of which a few donkey-carts might suffice; let him remark the jetty costing £40,000 at which the only ship that ever discharged was the one conveying the timber to make the approaches to it. When he has thus, perhaps, in some measure realised the folly displayed by our own Provincial Governments, let him imagine the same sort of thing' going in the other Provincial Councils, whilst over all there has been a General Government outstripping every one of its subordinates in the dignified magnitude of its extravagance. When he has done this, it will cease to be a matter of surprise that our debt, as compared with population, exceeds that of every nation under heaven, and that our current expenditure should exceed income by nearly 50 per cent.

Why the people of this Colony should have allowed so pernicious a system to grow up, why they should acquiesce in a state of things so fraught with destruction, may prove hereafter an interesting question to the student of political philosophy. And it will probably be found that the true cause of this strange apathy is, that instead of additional taxes being imposed to supply the amounts wasted by Government, the annual deficits have been made good out of borrowed money. When bad or wasteful Government is brought home to the people, as it eventually page 2 must be in the shape of grinding taxation, an outcry is raised and measures adopted for enforcing economy. But in our case, instead of extravagance being associated with a vision of the stern tax collector, the systematic borrowing enables Government to present itself for a time in the shape of a beneficent fairy, with work for the unemployed, billets for the obedient, and lucrative contracts for those who may best deserve them. The strongest incentive to exercise a vigilant supervision over its proceedings is removed, and so long as the people can be persuaded that the pleasant system of artificial prosperity can be maintained, it is vain to expect them to interest themselves; for the majority of mankind care little about abstract ideas, and rarely resent bad government until it manifests itself in some tangible present grievance.

It is related of Hudson, the great railway king, that when elected chairman of directors of the Eastern Counties Railway, he issued instructions to the head of the financial department to "make things pleasant." This making things pleasant consisted simply in paying dividends out of capital, and for a time, no doubt, answered its purpose. Indeed the only objection to such a system was that it would not last forever—otherwise it would have been perfect. But a time inexorably came, when the process, pleasant as it was, could no longer be continued, when the unlucky shareholders deprived of the customary dividend, were forced to recognise the existence of an enormous deficit.

The system adopted by the great railway king, is much the same as our Colonial politicians seem bent on following. Year after year things are made pleasant to the supporters of the Government, to our huge army of officials, to constituencies returning pliant members of Assembly, and the deficit is replaced by borrowing, Public works are started involving the expenditure of thousands, or tens of thousands, not on the ground of their being legitimately wanted, or likely to remunerate, but simply for the advantage to local traders of the expenditure of money in their immediate neighbourhood. The entire community with one voice cries out to the Government "Give, give, give. Spend money amongst us, no matter how, or for what purpose. Distribute billets, silence remonstrance, and buy off opposition as you will. All we ask is—spend, but do not tax us."

The results of adopting this system may be readily conceived. It gives possession of power to those who will use it with the least scruple. Instead of the Government being held accountable for enforcing economy or proper administration, it's very tenure of office is made to depend upon the extent of its extravagance. Our practice of supplying deficits in revenue out of borrowed capital, and of incurring further debt for the reckless construction of public works, reverses the proper condition of things, and makes a government that is dragging the country to ruin, seem to the ignorant to be conducting it along the very path to prosperity.

When persons engaged in commercial avocations find themselves in a position of unexpected difficulty, when trade falls off and there is a simultaneous decline in the rate of profit, there are generally two alternatives, and the style of man may be fairly estimated by that which he selects. The page 3 one is to countermand orders, cease adding to his liabilities; and, above all, cut down expenses to the lowest possible figure. The other is to put on a bold face, launch out, order freely, and affect the appearance of doing well by disregarding every suggestion of prudence or economy. The results of the latter course are not difficult to foresee; and this is the policy to which in the crisis of our fate the Government has committed us.

The most alarming feature of the case is that the evil tends so rapidly to intensify itself. The bubble can only be kept from bursting by blowing it larger. Accustomed as our population has become to revel in false prosperity, any Government that awakened them to a sense of their true position might be reproached as the cause of misfortunes to which it only drew attention. And so we find that to grasp the nettle boldly, to inquire into, and avow, our real financial situation, requires more courage than any Colonial politician apparently possesses.

As illustrative of this we may refer to the action taken by the Stafford party during their recent but brief tenure of power. In making his ministerial statement Mr Stafford said—"The Government would strenuously endeavor to bring the ordinary expenditure within the ordinary revenue of the Colony, and thus avoid increasing the floating debt"—thereby admitting that expenditure exceeded income, and that great efforts would be requisite to establish an equilibrium. The Stafford party, however, were soon driven from office, and assuming that there was any real intention to carry out the program me laid down by their chief, few can be surprised at their speedy expulsion. But whilst giving them credit for a wish to do something towards reducing our preposterous expenditure, it is deeply to be regretted that a more determined stand was not made two years ago when the Financial Scheme was laid before the Assembly. By that means a fatal impulse was given alike to the reckless expenditure on public works and to the policy of supplementing deficits out of borrowed capital. Looking at the constitution of Assembly, at the pressure put on members by their constituencies, and on the ministry by members, it was a foregone conclusion that the money borrowed would be misapplied, and that no one could long retain the post of power without yielding to demands for which there was no justification. One or two individual members of the Opposition, it is true, spoke out boldly and nobly, and their conduct in doing so, when unsupported by the strength of their party, entitles them to the gratitude of every true friend of New Zealand.

It was at this meeting of the Assembly that the practice of defraying military and other expenses out of borrowed money was adopted as portion of our avowed policy. In the Financial Statement of that year the Colonial Treasurer remarked,—

"It is useless for us to attempt to disguise from ourselves that when in 1863 we incurred an enormous loan for war purposes—which loan has been from time to time increased by other expenditure of the same nature—we did that which put it utterly beyond the power of the Colony in the present generation to continue to pay interest upon those loans, and yet defray out of its revenue large war expenditure."

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"You will not be surprised, therefore, after what I have already stated upon the subject of Defence expenditure, to hear that the Government consider that the Colony is not justified, even if it were able to do so, in regarding the item of Defence Expenditure as one to be defrayed out of the ordinary revenue."

"We therefore propose to do that which we believe a large section of the public men of the Colony regret was not done four years ago—we intend to ask for a Permanent Appropriation for Defence Purposes of .£180,000 for the first year, £160,000 for the second year, and £150,000 for the three succeeding years, the money to be borrowed from time to time, if required, and as required."

This recommendation was adopted, and one of the largest items of our permanent expenditure is thus transferred from the accounts of the Consolidated Fund and charged against one maintained out of borrowed money.

In the accounts for the year ending June, 1870, the revenue appears as £1,018,360; but the expenditure, including liabilities of the preceding year amounted to over a million and a half. The actual figures were, £1,593,182; but from this it may perhaps be fair to deduct something on account of the Reserve Account and Incidental Receipts not included in the £1,018,360 of revenue. Still the deficit was very large, necessitating the issue of £365,000 worth of Treasury Bills, as against. £53,650 redeemed, besides a sum as £132,456, entered as accruing from transfers;—that is presumably, transfers from funds arising from borrowed money.

The accounts of the next year disclosed a state of things still worse. The revenue had fallen off whilst expenditure increased; and these alterations for the worse were observable in almost every item. The subjoined table shows the respective amounts of revenue for the two years:—
1869-70 1870-71
£ s. d. £ s. d.
Customs 813,025 8 6 745,473 7 3
Stamps 62,410 15 6 55,621 1 5
Post Office 47.883 12 4 43,086 15 0
Telegraph 17,473 19 10 22,545 16 4
Judicial Fines and Fees 31,160 19 3 31,099 18 8
Miscellaneous Fees 46,405 13 0 28,805 2 9
Incidental receipts 29,814 12 2 9,556 4 5
£1,048,175 0 7 £936,188 5 10

With the apparent exception of the Telegraph, therefore, we see that every individual item showed a diminution, and the entire discrepancy between the two years amounted to no less than £111,986 14s 9d. As regards the telegraph to which it will be necessary to refer more particularly by and bye, it may be here mentioned that like the Post Office it is a losing department, and that the enhanced receipts of this particular year are more than counterbalanced by increased expenses.

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After the £936,188 which is the real amount of revenue for the period we are considering, come a variety of entries by means of which the public income is apparently raised from that sum to £1,201,832, full particulars of which will be found in the detailed statement annexed hereto. I do not expect my readers to understand all these items, but some of them, I think, they will understand vary clearly. For instance, they will see that £50,000 worth of Treasury Bills are put down in the same way as if that amount was derived from actual revenue. And then they may remark £53,098 18s 4d entered as transferred from Special Fund. Now this Special Fund is the proceeds of loans, so here are two instances of borrowed money being treated like permanent income.

In regard to the other entries by means of which the receipts are swollen from £936,188 to £1,201,832, it is obvious that being mixed up with the Treasury Bills and transfers from the Special Fund we find them in very suspicious company, but if it is possible for the Government to manufacture so large an amount of money without having recourse either to borrowing or taxation, it is a pity they do not enlarge their machinery and supply the whole revenue by the same means.