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War Economy

A Comprehensive Stabilisation Scheme—December 1942

A Comprehensive Stabilisation Scheme—December 1942

The continued upward movement of prices in each quarter of 1942, and the threat of a still wider gap between incomes and available goods and services, gave added urgency to the work of the Economic Stabilisation Committee. It had to evolve a stabilisation scheme which would embrace wages, costs and prices; a scheme which would stand firm in spite of inflationary influences, but which would remove many of those influences; and above all, a scheme which would help to ensure equity in the sacrifices which must necessarily be made by all sections of the community.

The scheme could not hope to be successful unless it was acceptable to workers, manufacturers, farmers, traders, and other major economic groups. The comprehensiveness of the plan not only made this wide acceptance vital, but was also a pre-requisite for it. No group of people would willingly accept stabilisation of its income if the prices it had to pay were not stabilised, or if the incomes of other groups were free to move upwards.

On 15 December 1942 the Prime Minister was able to announce the Government's decision to introduce a comprehensive plan of stabilisation, based on the recommendations of the Economic Stabilisation Committee.

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The essential features of the plan were:1


The list of stabilised commodities and services was increased from the original 38 items or groups to 110. The prices of the whole group of items taken together were to be kept stable at the levels ruling on 15 December 1942. This did not imply the absolute prohibition of a price increase in the case of any individual item, as it was conceivable that in some circumstances an increase might be difficult to prevent. But if some items rose in price, then a compensating adjustment was to be made in the prices of other items to offset the increase. In this way the purchasing power of the pound over a group of essential commodities and services would be kept constant.


Wages, salaries, and all other forms of remuneration were to be stabilised at the rates ruling on 15 December 1942. In the case of farm incomes, the prices which the farmers received for all the main farm products would not be increased, and the major items of farm costs would be correspondingly held. Internal farm prices were thus divorced from export prices.


Rents of all types of real property, other than those already covered by the Fair Rents Act 1936, and its amendments, were to be stabilised as at 1 September 1942, and rents payable as on that date were not to be increased.


Transport rates for goods and passenger services were to be stabilised at the general levels existing on 15 December 1942, and the principal items of costs were to be similarly held.


Wages and salaries were to be linked to prices through the medium of a special wartime price index, which was to be established for the purpose of recording changes in the general level of prices of a group of essential commodities and services (including rents).


In the event of a general order of the Court of Arbitration varying award rates, in accordance with changes in the index, an adjustment was also to be made in the prices paid for farm products.


The Court of Arbitration was to make general orders only where there was an increase or reduction of not less than 5 per cent in the special wartime price index, but initially an order could be made when there was an increase of not less than 2 ½ per cent. Its powers to make other wage changes were severely restricted.

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Most of the provisions of the stabilisation plan were brought into effect by the Economic Stabilisation Emergency Regulations in December 1942. These regulations provided also for a Director of Stabilisation and a Stabilisation Commission.

1 Based on a statement in Parliamentary Paper H-43, The New Zealand Wartime Prices Index, 1944, p. 2.