The 1958 Budget
The 1958 Budget
Even with all feasible overseas borrowing and realisation of assets, it seemed, early in 1958, to be unlikely that import controls could hold imports within the country's ability to pay. In an endeavour to reinforce their action, by reducing demand, the Government raised taxation steeply in the 1958 Budget, thereby making it the most noteworthy post-war budget, and earning it page 551 the epithet, ‘The Black Budget’. The budget statement said:1
‘The Government recognises that a comprehensive import control policy, while contributing materially to a solution of our balance of payment difficulties, will not by itself correct the basic cause of those difficulties. It must be supplemented by fiscal and monetary measures designed to establish a more stable economy in which the demand for imports more closely approximates our ability to pay for them.’
It was unfortunate that this courageous fiscal measure was overdone. The extra taxation was more than was needed to secure internal stability. Demand for local production was considerably reduced, as well as demand for imports; and the rate of growth of New Zealand industry started to slow down. Considerable public resentment was aroused.
That this was unfortunate for the Government was apparent at the 1960 elections, when the 1958 Budget played an important part in putting it out of office. But this in its turn, by discouraging other governments from taking adequate corrective action in similar circumstances, may well prove unfortunate for New Zealand as a whole.
Though this cannot be taken as conclusive evidence, the effects of the 1958 Budget seem to show that if full employment and increasing levels of domestic production are to be maintained, it will be extremely difficult to restrain the level of importing by relying solely on measures to reduce internal demand. Long before the demand for imports has fallen sufficiently, the declining demand for local production will have pushed up unemployment to levels which, in the political situation now existing, would not be regarded as tolerable.
Unless measures to reduce demand are to be discriminatory, so that they restrain demand for imports before they restrain demand for local production, the attack on over-importing from the demand side will not be effective.
1 Parliamentary Paper B-6, Financial Statement, p. 10.