THE TARIFF.

Press, Volume LXIII, Issue 18920, 8 February 1927, Page 10

THE TARIFF.

EFFECTS OF HIGH DUTIES. POSITION OF PRIMARY INDUSTRIES. THE MAIN OBJECT : REVENUE. The latest builelin prepared by the Efuiioniics O.nmnittiv "I'thc Cmitcrbury fliamlier of Commerce di.--cus»es the New Zealand Customs tariff. The text of the bulletin follows :-- With the single exception of the period 11-17-2:.', when war taxation on incomes was abnormal, the Customs tariff has always yielded more than any other ta:: in New Zealand, and usually more than half the total taxation. In the earliest years of the colony, tl.c tariff provided almost the whole of the taxation revenue; as late as 1900 ... provided three-fourths; in 1910, two-thirds; in the years 1917-22, when other taxes were exceptionally heavy, the proportion fell to about one-third; but in 192G it yielded £9,200,000, or again more than half the total taxation of the Dominion. Detailed figures, snowing the trend in representative years, arc as follows: — Total Taxation and Tariff Revenue.

The changes revealed in this tabic are duo mainly to a progressive variation in the general taxation system of the country. The movement towards a "free brea'kfast table" in the 1907 tariff, and the m-owth of sentiment favouring Imperial preference, have been chiefly responsible for lowering the percentage of (Customs duties to imports The following tables show the effect's of the general changes that have occurred in the tariff system: Percentage of Customs Ecvenuc Derived from

Customs Dnties as Percentage of Import Values.

But while the proportion of import duties to import values has fallen, from 25 per cent, in 1896 to 15.8 per cent, in 1923, other taxes have increased greatly, so that thoir total yield js now nearly equal to that of the tariff revenue. Meanwhile, imports have expanded greatly, both in volume and in price, so that the-lunouiib of Customs taxation per capita has also increased. The imports and Customs duties paid per head of population at various dates, together with the import duties exacted for each £1 worth of imports, are given in the next table: —

For 1925 the Customs taxation amounted to £5 19s 9d per head of population, or 3s 2d added on average to the cost of every £1 worth of goods imported into the Dominion. Even if allowance bo made for the rise in prices; the burden of Customs taxation is now considerably heavier than before the war, and almost certainly heavier than in any other country in the world. The Objects of tho Tariff. The foregoing analysis is sufficient to shqpr that the main objects of tho tariff have always been the raising of revenue. Customs and excise, duties afford a means of indirect taxation, which is much more popular, or less unpopular, with the public, than almost any form of direct taxation. More than half of our imports are taxed. The importer pays the tax in the first place, but passes it on in the form of higher prices. There are probably feupeople who realise that, on the 1925 nverage, the tariff adds a tax of nearly 24s to every £1 worth of alcoholic Inuor imported, 15s 5d to every £1 worth of tobacco, and nearlv 5s to every £1 worth of apparel. These aro the leading items from tho revenue point of view, and together they nrovide nearly £4 millions of taxation. . From the earliest times, therefore, tho Government's requirements for revenue have been of paramount importance in any discussion or revision of the tariff. So, though duties have been taken off most foodstuffs, they have been added elsewhere, and Imperial preference lias been introduced and increased in most cases, not by lowering the duties on Imperial imnnrts. but by increasing the duties by means of surtaxes on foreign import l :. In 1921, before the last tariff revision, 5U per cent, of all imports were free of duty. In 1025, after the revision which increased imperial preference, 47 per cent, were free of dutv. Again in 1921, 40 per cent of our imports were British goods free of duty; by 1925 this percentage was reduced to 37. The general method of our Imperial preference has been more taxation of foreign goods.

Liko Imperial ■ preference, the question of protection appears to Lave been treated as subsidiary to that of revenue. For protective duties, high enough to be really effective, would keep out Imports and bo reduce tho Customs revenue. It is usual to distinguish between protective and revenue duties, but the distinction, though valuable in theory, is in many cases unreal in practice." Before the war, Britain, with a purely revenuo tariff, collected annually just about as much in Customs duties, from lOs to los per head of population, a3 did France, Germany, and the United States, all of whom had highly protective tariffs and a relatively smaller import trade. New Zealand, with a revenue tariff and a heavy import trade, collected at that time more than £3 per head. The amount collected, and the burden of taxation imposed by the tariff, depends on the volume of trade as well as on the height of the tariff, and a high tariff barrier reacts in lessening the volume of trade, and may therefore bring a reduction of revenue. The present high Customs taxation in New Zealand is due to our exceptionally large volume'of overseas trade, and. though the tariff is undoubtedly devised mainly for the production of revenue, it rot scire* oon-

siderable protection to some local industries. Effects of the Tariff. At the prosent time high Custom.* taxation is undoubtedly one of the most important of several causes hindering the restoration of economic balance and of prosperity in New Zealand. In our last bulletin (No. 2-1) an attempt was made to divide the directly productive industries of the Dominion into three groups, the first group being entirely unsheltered in that its produce is sold" in the open competition of oversens markets, the second being entirely sheltered in the local market because its produce is of such n nature that overseas competition is impossible, and tlie third consisting of those local industries which have to meet seme overseas competition in the local market. Out of a total production of £101? millions in an average year, l!>-3--4, it was estimated that Group 1, the unsheltered pastoral and dairying industries exporting primary products, account for "m per cent, of the total; Group 11., mainly sheltered local industries which includes wheat - growing, the only protected farm industry, for 37 per cent.; and Group 111., the local secondary industries meeting overseas competition in the local market, for ,8 per rent. Though these figures cannot be calculated exactly, they arc reasonably approximate, and it is unquestionable that the major part of our production is unsheltered in its overseas market, a large part completely sheltered in the local market, and a comparatively small residue not completely sheltered in the local market.

The importance of the distinction between these groups lies in the fact, that the sheltered Group 11. can, as a general rule, fix its prices to cover its costs, and can pass on its share of taxation in higher prices. Group 111., with a partially sheltered local market, can do this only" in so far ns it is sheltered by Customs duties and transport costs from overseas competition, and most protective policies aim to provide for such industries as are classed in Group 111. the sheltered market conditions enjoyed by those in Group 11. But our basic primary industries, providing more than half our total production, have their prices fixed under competitive conditions in overseas markets; they can pass nothing on in higher priccr, but. must somehow make their costs meet the prices they get for their produce. Their costs are "determined largely by the prices charged by the other industrial groups, and there'is no doubt that a considerable part of the Customs taxation paid immediately by these other groups is passed on in higher prices and higher costs to the primary industries group.

The Export Industries. But the big export industries, securing their incomes from the salo of their produco overseas, provide the purchasing power which governs the market for the goods and services produced by the rest of the country. However complex and interwoven our industrial and commercial relations, and however indirect our dependence, our vholo superstructure of commercial, political, and professional, as well as of industrial life, rests at bottom on the wealth extracted from the soil by our primary products. Consequently the general welfare of all our business and Industry is sooner o later determined by the prosperity 01 depression of the primary tries At the present time those industries are depressed; they have scarcely been really prosperous biiico_ too slump 1921 j and their depression is reflected in some general depression throughout the- community. Their depression is undoubtedly duo to the difficulty of making prices meet their costs and ot adjusting costs to meet their prices. Compared with pro-war lewis, the prices of farm produce have risen much less than the prices of other goods and services, and much less than the costs of farm production. This unfavourable position of the primary ptcducers is the outstanding economic problem in the Dominion to-day, for it affects a I other' sections of tho peoplo as well. For this position tho- high Customs taxation is partly responsible. It is tnio that some concession is mado to farmers in that agricultural implements pay relatively littlo Customs taxation, but the tariff adds on average more than 3s in the £1 to the cost of all imports; it increases the cost of living, and thereby the wage .level; it increases the cost of services in general and of a wide range of goods whoso prices enter into tho costs of production. These increased costs in wages, general services, and goods are passed on to the ultimate consumers of goods, and n largo proportion are passed on to tho primary producers who, being unable to pass them farther, must needs bear them, however ill-fitted ito shoulder tho Imrdon. The Revision of the Tariff. In the future, as in the past, tho Government of New Zealand is likely to lean heavily on the tariff for its taxation revenue. Without reduction in Government expenditure it is difficult to sec how Customs taxation is likely to be appreciably reduced. But there aro certain broad features of tho situation wnVh should be taken into account when revision is considered.

First and most important aro the relatively high costs in tho primary industries, duo in part at least to tho tariff. These can be reduced somewhat by lowering the duties on goovls which enter, not only directly into tho cost of primary production, but indirectly, by their effect on tho cost of living, or tho cost of production and distribution in other industries. Such a lowering of costs of living and of production might well provo of very great benefit to many industries other than farming ami should even reduce the cost of both central and local government. Thor»> are few who would cavil at high taxation on spirituous liquors, tobacco, and other luxury articles which yield at present perhaps 60 per cent." of tho Customs revenue, but continued heavy taxation of goods essential to life or industry cannot fail to react disadvantageously on tho country as a whole. Second is tho need for greater simplicity and stability in tho tariff. Tho earliest New Zealand tariff contained eight classes of articles; the 1921 tariff listed over 500 items under three different rating systems, general, .intermediate, and preferential. New definitions and regulations, too, add to tho complexity, and, since tho tariff always tends to accumulate additions of various sorts tli© need for codification and simplification should be kept in view whenever revision is undertaken. Third is the question of Imperial preference, to which tho Dominion seems to be committed. So far preference has been largely a cloak for increased taxation and increased protection ot certain industries; there is little evidence that Imperial preference has had an appreciable effect on the distribution of our import trade between British and foreign countries. If we are to have real preference. inter-Imperial trade should be encouraged by lowering or by gradually abolishing duties on empire goods, and not bv tbe imposition of increased dutie's on foreign goods. Lastly it should always be remembered that New Zealand's prosperity, I owing to her geographical position and tho nature of her resources, must for many years to come depend upon her I eyport trade. In the long run exports and imports, including invisible items, I must balance. Tariffs arc definite | barriers to the trade in general on which this country so greatly depends.

CusTo ital Ta: i;atoms o mtl Percent Year Knded tion 1 '2. Kxcisc (£ ago of March 111. Million: ')• Millions). Total. 13011 .. 2.9 2.2 7(i 1910 .. •1.2 2.8 00 1915 .. 5.0 .".Ti 50 1020 .. 10.2 5.2 H2 1925 .. 16.5 s.r. 50 1920 .. 17.2 y.2 5o

ClothAlcohol! c All Foods and ing nnd Prinks and Other Soft Drinks. Textiles . Tobacco. Articles Tear. V.C. P.O. P.O. V.C. 1891 20.1 17.7 41.7 20.5 M01 14.fi if." 42.2 23.3 1911 4.7 21.0 40.fi 33.1 1021 4.5 24.5 30.5 34.5 1324 4.1 23.5 35.3 37.0 1925 3.7 23.1 3-1.4 38.8

iane. 1P06. moH. 10125. P.C. r.c. P.C. P.C. Duty P.C. of imports— Of dutiable Imports 57.0 32.0 33.8 30.1 Of all imports 25.1 20.3 16.3 15.8

Customs Ciutnmft Revenue Import* Untie* Per £ Tear. Per Hesd. Ter Hend. of Imports £ r. d. £ r. d. ». d. 1890 11 13 0 2 11 R 4 R 1909 15 7 « 2 12 0 3 ft 1914 19 .1 4 2 18 10 a i 1919 35 14 4 n 15 5 n 5 1924 35 17 B 5 10 4 n l 1925 37 17 10 5 19 n 3 2