GOVT ATTACKS INFLATION

Press, Volume CX, Issue 32439, 28 October 1970, Page 1

GOVT ATTACKS INFLATION

Income tax, cigarettes, postal charges up

(New Zealand Press Association) WELLINGTON, October 27. A 3 1-3 per cent surcharge on income tax this year is part of a miniBudget package of gloomy news for New Zealanders announced in Parliament tonight by the Minister of Finance (Mr Muldoon).

The surcharge will be collected by adding 10 per cent to the P.A.Y.E. tax tables for the last four months of die year.

Other disinflationary moves announced by the Minister tonight include: The surcharge, described by the Minister as “temporary,” will extend to dividend income and to tax on farming, businesses, professional and investment income. The duty on cigarettes and tobacco will rise—on cigarettes by 6c a packet of 20, and on tobacco by 9c a 2oz packet. Post Office charges will be increased from December 1 “or as soon after that date as is practicable,” to yield 20 per cent additional revenue.

The Minister announced, as a Government proposal “subject to final agreement,” the preparation of legislation allowing local bodies to levy a 3c a gallon tax on motor spirits.

Building programming, he said, would be extended “on a national basis. Restraint will be exercised where necessary over a wider area of classes of construction than under the present policy.” Penal borrowing rates from the Reserve Bank will be set on a sliding. scale so that trading banks would have to borrow at up to 10 per cent, depending on the extent to which they exceeded the ceiling on non-export sector advances. Interest rates which banks will be able to offer on longer-term deposits will be increased to 4.8 per eent for a two-year period, with no restrictions on possible interest rates for longer periods. A tightening of hire purchase and finance company regulations was also announced by the Minister.

The Minister said the 3 1-3 per cent surcharge on income tax was expected to bring in an additional ssom “of which slsm would be received this financial year.” He said the 10 per cent surcharge on P.A.Y.E. tax tables for the last four months of the financial year (December, January, February, March) would also be added to the tax tables for the first four months of the 1971-72 financial year. The surcharge would not apply to tax on company income. The tax on cigarettes and tobacco would bring in an additional s6m in this financial year, said the Minister, and slsm in a full year. Measures justified Mr Muldoon justified his measures on two fronts—the need to raise further revenue to cover rising Government expenditure and the wish “to give a clear indication that recent increases in money income have been excessive.” While an increase in income tax was the most direct way of raising the additional finance, at the same time, the Government was anxious to avoid a serious or possibly permanent check to the process of shifting the emphasis away from direct taxes on income to taxes on consumption, he said. Post Office charges might have to be increased even beyond the new charges an-

nounced by the PostmasterGeneral (Mr McCready). Any “over or under payments” arising from the 10 per cent increase on the P.A.Y.E. tax tables would be adjusted by the over-all income tax assessment (to include 3 1-3 per cent surcharge) at the end of the income year. All forms of P.A.Y.E. tax deduction made at flat rates —as, for instance, on secondary employment income or lump-sum bonuses—would be increased by 10 per cent from December 1 until July 31 next year, “subject to minor variations.”

Of those who paid provisional tax, the Minister said, many would already have paid their tax in full. "Unless these taxpayers receive further assessments from the Inland Revenue Department, they will not be required to pay the additional surcharge at this stage but will, of course, have to pay it when their terminal tax assessments are made after the end of the present income year.” Mr Muldoon said the maximum rate of dividend tax for this year would increase from 32.5 per cent to 33.6 per cent. The dividend rebate, he said, would be increased to ensure that the surcharge would amount to 3 1-3 per cent of the net tax payable.” Measures to reduce the rate of the growth of the money supply would provide for more effective control over credit creation by the banks and ensure that such restraint was not offset by an acceleration in the rate of growth of lending by other financial institutions, he said. Request to banks

Trading banks would be asked to give greater scrutiny to advances in the form of lending to ensure that they are “really essential” for the export effort.

The Reserve Bank penal borrowing rate, increased from 7 per cent to 8.5 per cent before the Budget, would be replaced by a sliding scale of penal interest rates which yrould require a trading bank to borrow from the Reserve Bank at rates up to 10 per cent, linked to the extent to which it exceeded its limit for lending, he said. No changes would be made to existing ceilings for non-export sector advances set to January, 1971, a ceiling for March, 1971, would be set to prevent undue reliance on bank credit to finance tax payments. Bank borrowing Trading banks had, in the past, been able to borrow from the Reserve Bank at an interest rate of 7 per cent to maintain the ratio of cash to deposits, he said. In future this automatic right to borrow would cease after 21 days in each case. The minimum period for borrowing would be reduced from 10 to 3 days. Thereafter, any borrowing

by a bank would be at the discretion of the Reserve Bank, which might decline to lend, or lend at whatever terms it considered appropriate.

The ratio of Government stock which finance companies must hold, which was increased in the last Budget from 10 per cent to 12.5 per cent from September 30, would be further raised to 15 per cent as from next March 31, he said.

Shorter term Government stock and Treasury bills would be increased to make these more attractive, he said.

The long-term rate of 5.5 per cent remains unchanged, but the medium-term rate will rise to 5.2 per cent and the short-term rate to 4.9 per cent.

Three-month and six-month Treasury bills would now be issued to yield 4.2 per cent and 4.35 per cent respectively. Mr Muldoon said the new rates would apply to the next Government cash loan, opening soon. “Suitable adjustments” would be made to shorter term local authority borrowing rates. Money market To improve the competitive position of the shortterm market the terms of maturity of Government and local authority securities held by dealers would be extended from three years to five years, he said. The proportion of total assets they might hold in local authority securities would be increased from 5 per cent to 10 per cent.

The minimum deposit on hire purchase for consumer goods other than furniture and furnishings would increase from 10 per cent to 15 per cent as from tonight, but the maximum term of hire purchase agreements would remain unchanged at 24 months. Mr Muldoon said the new terms would apply to items such as household appliances, electrical goods and television sets.