THE NEW TAXES.

Press, Volume LXV, Issue 19691, 7 August 1929, Page 11

THE NEW TAXES.

MR DOWNIE STEWART'S ANALYSIS. CAUSES OF DEFICIT, DEFENCE OF REFORM FINANCE. [THE PRESS Special Serric«.] WELLINGTON, August 6. Analysing the Government's proposals with regard to increased taxation, the Hon. Mr Downie Stewart, Minister for Finance in the Reform Government, made five salient points in opening the debate on the Financial Statement in the House this evening. Mr Downie Stewart said the deficit was being attributed entirely to the past Government, and was also said to be a source of embarrassment to the present Government. In Mr Stewart's opinion, however, the deficit had been a veritable godsend to the present Gotment, which had used the deficit as a stalking horse to show why its programme had not been fulfilled, to show why taxation, instead of being reduced, was actually to be increased. Apart from the question of deciding with whom the responsiility for the deficit lay, Mr Stewart thought he would be correct in saying that a moderate deficit was no indication of unsound finance, provided the deficit did not constantly recur. The main value of a small surplus was psychological; it created a good impression. However, if a Minister tried close budgeting to meet the objection that a large surplus would show that taxation was too high, then that Minister would find there would be a very close margin in a year when revenue fluctuated. Whenever there was a change of Government during a financial year, a controversy always arose as to who was responsible for the position at the end of the year. The Minister for Finance naturally claimed that he had no control over the estimates and expenditure, and the outgoing Minister also naturally claimed that he had no means of adjusting expenditure if the revenue showed signs of falling short. Accounts Might Have Been Balanced. Mr Stewart recalled that when the Reform Government was leaving office he said lie saw no reason to anticipate that the accounts would not balance at the end of the year. He based that statement on the figures for seven months of the year, which showed that the Customs revenue was then holding normal. The new Minister for Finance had later given figures for eight months, and had said the position showed a considerable improvement on the previous month, although the Minister had announced that ne was doubtful if the revenue would reach the estimate, and strict control would be necessary. As late as March 21st, speaking at fnvercargili, Sir Joseph Ward had held tentatively to the view that the accounts would not balance, but said it was not possible to make a statement, so close were th© estimates then to the actual figures. Both in the House on December 13th, and at Invercargill on March 21st, Sir Joseph Ward had guarded himself. It would be noticed that part of the deficit consisted of £157,000 for interest payable out of the loan conversions, and that item was not far short of a third of the deficit. Obviously that part of the deficit had nothing whatever to do with his Estimates —really only a paper entry, which should come into this year's accounts, as it represented a prepayment of interest. If it was open to the new Minister for Finance to say he could not control the estimates of revenue, it was equally open to the speaker to say he could not control expenditure. Alleged "Scandal." "It has been asserted that the fact of a circular having been sent round by the previous Prime Minister to all Departments warning them to cut down expenditure was evidence that we must have known a deficit was coming," continued Mr Stewart. "Indeed, one Government paper had gone the length of saying that the matter amounted to a scandal, as I must have known when 1 predicted a balanced Budget that this circular had gone out, and was in conflict with my statement in the House. _ The answer is that such a circular is sent out every year at the request of the Minister for Finance, when we see there is goinp to be close sailing to square the yards. There was therefore nothing unusual about the circular sent out last year. It was the normal procedure." What "are New Taxes For?

"The important point which now arises is whether the proposed increased taxation is for the purpose of making good the deficit, or whether it is being imposed to meet new liabilities that were not a charge last year at all,'' said Mr Stewart. "My contention is that the new taxation is not for the purpose of restoring the deficit of last year, and that is obvious from a study of a table in the Budget showing the estimate of revenue for the current year, with the actual revenue of last year. There it is shown that the revenue is estimated to increase by over one and a half millions. Included in that estimate Is the result of the primage duty, which is estimated to yield £300,000 for the balance of the year, and the increase in the land tax of about £350,000. If we deduct these extra items of revenue, so as to see what the estimated revenue would be without the extra taxation, we see that the Minister for Finance estimates that the revenue will increase by about one million pounds—that is to say, that the normal development of trade will yield him that amount. It is obvious, therefore, that he anticipates the normal revenue would be far more than ade quate to make up the deficit of last year ; and the new taxation can be required only for new obligations. Now those obligations cannot relate to the annual appropriations, for the Minister says he has kept down the increase over last year's expenditure to £30,000. The extra revenue must therefore be required for meeting his increased debt charges, and other permanent appropriations, amounting to £700,000. It seems to me, therefore, that the inference is clear that the deficit of last year is being made an excuse for increased taxation, while it is not the real cause of it, as the normal expansion of revenue would be itself able to restore the balance. It is therefore wrong and misleading to tell the public that he has had to increase taxation because there was a deficit last year. If he has to increase taxation it is for another purpose altogether—that is, to meet new liabilities, with which his predecessor had nothing to do. Large Surplus Again? "It is more likely that the Mini«tw ia trying to get baek to hia old practice of creating largo larplOMa, and eolof

ia lent to this by his statement in the Budget that he thinks surplus revenue should be used for publie works. If that is his policy, it xmght to be clearly stated for the House to consider it. Speaking in Auckland in November, the Minister made a statement that he was not in favour of going on the London market for public works loans, which, he said, tended to financial embarrassment. The Minister added that he would provide for those being largely made out of revenue, as he did for many years toward the construction of public works." Summing up, Mr Stewart made the following five points: (1) That a substantial part of the deficit of £577,000 was obviously due to transactions that took place after he had left office. (2) That he came through three difficult years, of which two at least were years of gruelling depression and managed to balance the Budget each time. ... j (3) That taxation was being imposed not for the purpose of restoring the balance as it existed last year, but for the purpose of meeting new obligations. (4) That having regard to the expansion of trade and imports since the beginning of this financial year, it was questionable whether the proposed increase in taxation, or any part of it, was necessary. (5) That if the object aimed at was to secure surplus revenue for public works, that ought to be stated explicitly to enable the House and tne country to pass an opinion on it.