BURDEN OF TAXATION.

Auckland Star, Volume LVII, Issue 143, 18 June 1926, Page 12

BURDEN OF TAXATION.

BANK'S POINT OF VIEW.

COMMERCIAL FINANCE

DETERIORATED SECURITIES.

(By Telegraph.—Special to "Star.")

WELLINGTON, this day

Tn the course of his remarks at the ■annual meeting of the Bank of New Zealand to-day, the chairman (Sir George Eliot) made the following references to Government taxation and certain aspects of commercial finance: — "The burden of taxation is still very 'severe, and there does not appear to be any early prospect of a substantial reduction. Taxpayers will always grumble, hut provided prudence ana economy are exercised by the Government in its administration, we should nil accept the position with as pood a grace as possible, never forgetting that we are. still paying the price, and must for many jvars continue to pay the price of freedom from foreign domination. "We do, however, feel the competition that banks have to face from Government Departments, which pay only trifling taxation, or no taxation at all. The average amount of loans current in .the Government Advances Department for tho year ended March 31, 1025, was approximately £21,000,000. The income tax paid by the Department was £4757, ■whereas, on a similar amount of advances, any bank trading in the Dominion would require to pay income tax amounting to £70,875. P.O. Savings Bank. "The Post Office Savings Bank has deposits of over £47,000,000, on which no income tax whatever is paid. If any joint stock bank had such an amount on deposit and lent it out, less a requisite cash reserve, it would have to pay annually about £300,000 in income tax alone, lt is no -argument to say that it would merely be taking money out of one Government pocket and putting 'it into another for the Post Office Savings Bank rto pay taxes in the same, proportion as the joint stock banks. That is not the case; the real effect would he that the Savings Bank would have to pay its depositors almost -J per cent less interest •than it does at present; or. looking at the matter from another point of view, ■by reason of the non-payment of income tax, the Savings' Bank can afford to pay 3 per cent more for its deposits than a joint stock bank can afford.

"Probably nowhere else in the Eng-lish-speaking world does a Government compete with the bnnks on such lines as in this country. The function of a Government Savings Bank is 'to encourage thrift amongst the poorer classes of the coijimunity by providing undoubted security for the investment of their savings. In Great Britain no dcpositoi can pay in to the Post Office Savings Bank more than £500 in any One year, on'-which sum he is allowed interest at thfi' rate of 2>\ per cent per annum; in the United States the limit of a deposit account is 2500d01, and the rate of interest 2 per cent per annum. In New ■Zealand the limit is £5000, and interest at'ithe rate of 4 per cent is paid on the (first £500 and 3i per cent is paid on the balance. If the Post Office Savings Bank deposits were in the bands of the banks, thdy would be employed in the development of the pastoral, agricultural, and industrial interests: as it is, they are used by the Government, and are diverted frbm the channels in which they could most usefully be employed. Meat Freezing Industry. "Some of the meat freezing companies ovjijied and controlled by farmers are parsing through troubled waters, and it is 'evident that the shareholders, and in some cnse3 the creditors too, will have •to o face serious losses. ''.When, during the war, advances were made for the purpose of assisting in the erection or extension of freezing works, it looked as if there were a fair margin of security; but the unforeseen happened, for legislation, subsequently enacted, placed in the hands of the Meat Control Board the power to block sales of freezing works, and already permission .for the sale of one important works has been refused. The result of it all is that freezing works will now become of little value as a security, and will remain so, unless something is done by Parliament to rectify the present anomalous position. It seems inevitable that certain works will be shut down and the whole (freezing industry left in the hands of a few proprietary concerns. Joint: Stock Companies' Finance.

"There is a tendency on the part of many joint stock companies in New Zealand to trade on inadequate paid-up capital, to borrow extensively against uncalled capital, and to take deposits from the public without keeping any cash or other liquid reserves to meet demands for repayment of the deposits — a fruitful source of danger. "During the war, and after, we were compelled to make a number of advances partially secured on uncalled capital to order to enable farmers' concerns to round awkward corners. These advances have, in several instances, resulted in considerable losses to the bank. When some of these companies got into financial difficulties, their liquidators were obliged to take action through the Law Courts against shareholders to recover payment of the amount uncalled on their shares., The shareholders, by some peculiar process of reasoning, "resented Hieing called upon to meet their just debts to satisfy liabilities bona fide incurred by the directors in the ordinary course of their company's operations, and especially so if the bank happened to be one of the unfortunate creditors.

"The lesson of this is that, in future, uncalled capital of farmers' companies is mot likely to lie looked upon by bankers UN a reliable security."