The Press MONDAY, NOVEMBER 21, 1960. Raids On Social Security Fund

Press, Volume XCIX, Issue 29367, 21 November 1960, Page 14

The Press MONDAY, NOVEMBER 21, 1960. Raids On Social Security Fund

Labour Party speakers, including the Prime Minister (Mr Nash), are excusing the £lOO tax rebate and all the financial troubles that it caused by suggesting that, though they gave away £l9 million, the National Party was prepared to give away almost as much in social security tax on selfemployed persons. The suggestion is, of course, untrue. The act passed by Parliament while the National Party was in power provided that the transitional year’s social security tax should be collected as if P.A.Y.E. had not been introduced, i.e., at the time when a self-employed person stopped paying his full annual tax, usually at death. Collection would thus have been, spread over, say, 25 years and no-one would have had to pay more than a year’s tax in any year. Labour, on the other hand, decided to collect this extra tax, not immediately to finance the rebate, but spread over three years instead of 25. Leaving aside the doubtful equity of requiring social security tax to be paid in advance, the Labour plan was unsound because it used a windfall resulting from a change in the taxation system as more or less current revenue. Had the Labour Party related the windfall to the capitalisation of the family benefit revenue in advance set off against payment in advance—that would at least have been logical.

Instead, the Labour Party has persisted in mixing up the extra year’s tax with the £l9 million it gave away in the tax rebate. The first point

about that is that collection before March, 1961, could do nothing to offset the inflationary effect of injecting an additional £ 19 million into circulation at Christmas, 1957 (coupled with a promise that there would be no subsequent tax increases). But even if it had been sound finance to raid the social security reserves to pay for the rebate temporarily, what has happened since? First, the social security fund was reduced from £18.7 million to £4.6 million, though Mr Nash himself had laid it down that the minimum working balance was one month’s expenditure (£7.4 million at that time) and although a larger reserve for hard times is obviously desirable. Next, Mr Nordmeyer’s savage tax policy of 1958 appeared to restore the fund by enabling him to increase the ordinary Consolidated Fund contribution from £l4 million to \£24.S million. This, with the collection of the extra social security tax, produced a surplus of £l5 million and raised the fund to £20.6 million. However, Labour was only fattening the reserve to raid it again. Last year the balance was reduced by £2.4 million, and this year Mr Nordmeyer estimates that he will take another £8.9 million. The ultimate effect is that at the end of the year the fund will have a balance of only £9.1 million,- nearly a million pounds less than a month’s outgo. At best, the early collection of the self-employed tax has not been sufficient to meet more than half the cost of the election rebate.