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War Economy

Improved External Reserves

Improved External Reserves

This was a truly outstanding result. An expensive war had been waged and New Zealand's resulting overseas commitments had page 390 been paid. Yet the overseas-held national debt had been reduced by £45 million1 and the overseas assets of the banking system increased by £101 million, an overall gain of £146 million in New Zealand's financial standing overseas.

The Government's firm intention to meet the costs of war from internal sources and its success in raising special war taxation and loans played a major part in achieving the improvement in New Zealand's external economic situation. Remember that overseas reserves had been dangerously low at the outbreak of war. This deficiency had now been made good, and there was a substantial cushion of extra overseas reserves to be carried into the post-war years.

Extra reserves might well be needed. The essential counterpart to the Government's financial policy had been a willingness on the part of the public generally to cut back or postpone spending and to save an increased portion of their incomes. While in many cases reduced wartime consumption would not automatically create a compensating increase in post-war demand, there was a sizeable backlog of deferred expenditure on consumer durables such as refrigerators and washing machines, on housing and commercial buildings, and on capital works generally which would have to be overtaken in the post-war decade. Moreover, there was a considerable accumulation of wartime savings which would become available to make this expenditure possible. The import content of these types of expenditure was high, a characteristic which made their postponement so important in time of war, but would increase the propensity of the economy to over-import when backlogs were being overtaken. Post-war economic events are discussed in Chapter 20.

1 Chart 56 on p. 266 shows changes in the public debt.