The Press FRIDAY, MAY 27, 1955. Public Accounts Surplus

Press, Volume XCI, Issue 27669, 27 May 1955, Page 12

The Press FRIDAY, MAY 27, 1955. Public Accounts Surplus

i The Public Accounts for the financial year 1953-54 show the country’s finances to be in a buoyant condij.tion. They also show the largest of the “ accidental ” surpluses which j have occurred with monotonous , regularity in recent years. The Consolidated Fund shows an excess ef £6,800,000 over expenditure. But this relatively modest surplus is arrived at only after transfers of £ 1,000,000 to the Defence Fund, £3,500,000 to the National Development Loan Account, £2,000,000 to the Public Works Account, and £5,000,000 to the Loans Redemption Account. To a true Consolidated Fund surplus of £ 18,300,000, a surplus of £3,100,000 in the Social Security Fund should be added. The two funds interlock, because the Consolidated Fund heavily subsidises the Social Security Fund. Thus, the surplus in the Public Accounts last year was £21,400,000. Disregarding the transfers, expenditure from the Consolidated Fund was £1,300,000 less than the Budget estimate; most of the £21,400,000 surplus was derived therefore from an excess of revenue. Customs duty was £4,500,000 more than the Budget estimate, and sales tax £2,300,000 more. But income tax was the chief contributor to the surplus; income tax was £7,500,000 above the Budget estimate. The Minister of Finance (Mr Watts) claims that income tax receipts of 9 per cent, in excess of the Budget estimate “were not an “indication of faulty budgeting but “ rather a more-than-expected in- “ crease in wages, salaries and “ incomes This type of excuse is altogether too familiar; the Government’s advisers invariably manage to estimate expenditure within a reasonable degree of

but never to favour the interests of the taxpayer when estimating probable revenue. The result is that a government which has exacted more than necessary to meet outgoings is driven to devious methods to dispose of yearly surpluses. The outcome does. the Government little credit, particularly when it is remembered that the Budget in New Zealand is presented when a third or more of the relevant financial year has passed. Income tax returns are in before the Budget is presented; and if it is unreasonable to expect the total sum to be taxed to be available, it is reasonable to believe that samplings would give a good indication of variations from the previous year’s incomes. Moreover, a big proportion of social security tax is on a pay-as-you-earn basis; consequently, wages tax collected in one year should be a sound indicator of income taxable in the next. Dairy company pay-outs and prices at wool auctions should be other usable indicators of variations between incomes in one year and the next. In time of inflation there is something to be said for budgeting for surpluses as an anti-inflationary measure; but when this expedient is favoured, it should always be done deliberately. Recent budgets have disclosed no such policy. Though it may be “ prudent ”, as Mr Watts says, to transfer an additional £5,000,000 to the Loans Redemption Fund to help meet sinking fund and debt redemption charges falling due in the next three years, if this is good policy it should be part of the financial policy defined in the Budget, and certainly not suddenly gain merit at the end of the financial year. In such circumstances the transfer of £5,000,000 to the Loans Redemption Account seems to be not a policy, but an afterthought contrived to dispose of a lump of an embarrassing surplus. It is to be hoped that Mr Watts will insist more firmly than his two predecessors that when his advisers give him estimates upon which he must base his taxation proposals, their estimates will be better than in the past. The huge surplus of the last financial year will be useful in the present one.- For example, according to Mr Watts there was an underexpenditure in the national works programme of £7,000,000 last year. This sum carried forward, plus £3,500,000 allocated to the National Development Loan Account, will enable the Government to keep off the loan market “for the first part “of the year _But knowledge that far too much was exacted last year to meet outgoings will lead taxpayers to expect other benefits this year. Exacting 9 per cent, more income tax than was thought necessary when the Budget was framed cannot be a satisfactory procedure to a government and party whose words proclaim that they appreciate the depressing effects of high taxation on production, initiative and enterprise.