Overseas Returns BANK HAS PROBLEM OF ENFORCEMENT

Press, Volume CIII, Issue 30575, 19 October 1964, Page 14

Overseas Returns BANK HAS PROBLEM OF ENFORCEMENT

(From Our Own Reporter) WELLINGTON, October 18. The Reserve Bank faces formidable difficulties in enforcing the requirement from midnight on Thursday that payments overseas for work or services by citizens or companies in New Zealand be returned through the official banking system.

Basically, the bank is expected to rely on honest compliance with the law, as it did until 1950, when all sterling area currencies and securities held abroad had to be offered to the bank.

“We could never tell precisely what proportion of the total holdings were offered to us,” a high bank official admitted last night. He would, however, not disclose all checking methods which are available.

Regulations covering the new restriction have yet to be prepared and are unlikely to be promulgated for some weeks. No effective policing system is at present available to cover the case of a New Zealander who, say, has money due to him from a foreign firm credited to an account at an overseas bank not conducting business in New Zealand or even to a numbered account. Access Not Sought There is no intention, a bank spokesman emphasised last night, of seeking access to tax return information filed bv companies or individuals abroad. Since payments credited abroad to New Zealanders would normally be the subject of a tax claim by the payer, this could be one method. But it could breach the confidential status generally accorded such information, even in New Zealand, where one recent racket is reported to have involved the deliberate overpayment of royalties and commissions to principals abroad with the difference banked abroad on account of a New Zealand firm. Tax authorities in different countries do, nevertheless, consult with each other and exchange information. Some similar arrangement between banks seems likely if there is no regular cooperation between tax authorities and banks. A major deterrent to evasion will be that funds covered by the new regulations will no longer qualify for either private or commercial no-remittance licences, although this will not prevent their use by travellers. Car Cut The scheme will clearly cut the number of no-remittance ears imported. But the Government has never really relied heavily on no-remittance car imports to keep total car imports up—as the one-year. originally two-year,, covenant on resales has demonstrated. Indeed, more than half of the 7000-odd no-remittance cars imported last year came in as a result of “gifts” of overseas funds. Fewer than one in 20 of all new cars is therefore acouired with funds now disqualified. The sale of securities bought before the qualifying date and current and continuing interest and dividends earned abroad remain eligible. Although the Government has yet made no plans to boost the level of conventional car importing, official sources have been quick to suggest that ability to issue more import licences will be one product of the extra funds now channelled into official overseas reserves.

Many of the gift funds continuing to qualify are widely believed to be phoney but coming from sources such as the lending of funds by New Zealanders abroad and transactions in securities abroad — quite different from the current earnings covered by the latest restriction.

The legislation is aimed primarily not at curtailing noremittance rackets but at netting the growing amount

of payments, principally commissions on private imports, which deliberately sidetrack the banking system. The main official anxiety has been to halt yearly understatements of national earnings abroad. One significant side-effect of the scheme will probably be to lower the premium on sterling funds, freely available in New Zealand from sharebrokers through share transactions overseas. Lower Premium As much as 15 per cent some years ago, the premium has recently been down to about 3 per cent and may now fall lower. Those who, say, secure insufficient funds from the Reserve Bank for travel abroad have been able to purchase extra foreign currency in this way.

For the same reasons that the Reserve Bank will find thorough policing a problem, the total of free funds has never been recorded.

In 1962, when the Government introduced the commercial no-remittance imports scheme utilising these funds, official estimates put it at between £5O million and £BO million.

Because of the requirement that for every £4 this used for extra imports, £1 be returned through the banking system, response was lack-lustre and disappointed the Government.

Some £8 million worth of extra imports had come in under the scheme at last report, adding only about £2 miildion to net overseas assets of the banking system. The scheme is still in effect, on a modified basis. This was the first Government attempt to gain control of free funds. At ats inception, it was stated that there was no intention of attempting to require all free funds to be added to New Zealand’s official reserves.

Existing Finance Emergency Regulations, 1940, do empower the Government to do this—as the British Government dad during World War 11. Although that full authority has never been exercised by the New Zealand Government it is expected to be continued in the new regulations being prepared, in case it is ever needed. Remain Free Existing free funds balances are now probably back to between £5O million and £BO million. They will remain free but future current earnings—except for interest and dividends—must be sold for New Zealand currency. The Opposition is expected to endorse the broad general banking currency and exchange controls in the Reserve Bank Bill.

They go far further than the vague amending legislation passed shortly before the 1960 general election by the second Labour Government. The bill on that occasion passed to affirm the sovereign right of the Crown to control currency and credit in the public interest and to define more fully the powers and duties of the Reserve Bank, was the last tinkering of substance with the act.

It was dismissed by the then National Opposition as mere window-dressing. The Opposition may now be wishing it had then had the courage to go as far as the latest measure does.

Rough reckoning by officials suggests official overseas reserves may benefit by up to £lO million in a full year as a result of the overseas payments provision.