$50m COMPULSORY SAVINGS

Press, Volume CXIV, Issue 33673, 24 October 1974, Page 2

$50m COMPULSORY SAVINGS

Land profits tax; expenses checks

(A'«w Zealand Press Association} WELLINGTON, October 23. A compulsory savings scheme for all New Zealanders earning $6O a week or more, or the annual equivalent, is the main feature of economic measures announced today by the Prime Minister (Mr Rowling).

It will apply from December 1 to March 31, and will take ssom out of circulation.

The money will be repaid as a tax refund next year. The other main feature will be a renegotiation between, the Government and unions of the cost-of-living order due in January. Other moves announced by; Mr Rowling included:— The Reserve Bank will make interest-bearing deposits; with the trading banks to | to make supplementary; funds available to meet; the most urgent needs of; clients. Profits made on the sale of land within 10 years of purchase which derive to a significant degree from such factors as rezoning or change of use will be taxable. The Inland Revenue Department will survey present non-taxable fringe benefits to make the tax system more fair. The cost for depreciation purposes of business motor-cars bought from today will be limited to $6OOO.

Mr Rowling told more than 100 businessmen, trade union leaders, employers, manufacturers and others that if economic stabilisation could not be achieved through cooperation, the Government would have to take "fiscal action.” Alternatives He regarded this as a “remote situation,” but listed alternatives being considered by the Government. These would include:— A non-refundable tax surcharge with an adjustment to tax rebates to ease the burden at the lower end of the income scale. Increases in sales tax and other indirect taxes. Increasing Government charges for postal, rail and electricity services. Elimination of some subsidies. Mr Rowling had a thread of economic confidence running throughout his speech. “Future bright” “Fortunately our economy i is basically sound and our ■ longer-term future is bright,”! he said, “so it would be foolish to over-react to what is likely to be a passing phase in international economic events. “But we must adapt our policies to the immediate situation, and this will require co-operation—even an element of sacrifice—from the whole community,” said Mr Rowling. “The Government’s longterm objective is to bring the economy back to a stable and sustainable real rate of growth which will provide a reasonable rate of increase in our standard of living, and will ensure continued full employment. “Unlike many other advanced nations, we are not prepared to sacrifice these primary goals through stringent deflationary policies which would generate economic stagnation and largescale unemployment.” Spending curbs Announcing the “stabilisation savings scheme,” Mr Rowling said that while continued credit restraint was still necessary, more needed to be done to restrain consumer spending. The scheme would apply to all persons earning $6O or more a week or its annual equivalent. The savings will be at the rate of 9 per cent of the tax deductions payable I in the four months from: December 1, 1974, to March; 31, 1975, or 3 per cent of the; provisional tax payable fori the 1975 income year.

The retention money would be credited against annual tax, which itself would not be increased, Mr Rowling said. “For most people this will increase the refunds they will get when they file their 1974-75 tax returns,” he added. Modest lift “By then it is expected that the slowing down of the economy and the commencement of the 1 per cent conI tribution to the New Zealand superannuation scheme will allow the re-injection of this purchasing power without any problems. "In fact, it could well be desirable to have a modest stimulation of demand during the mid-months of 1975.”

Mr Rowling said the cost-of-living wage increase due in January would inevitably give a further boost to inflation. On present indications it would be about 7 or 8 per cent. “Such a situation is economically untenable," he said. “The wage increase in July of this year allowed for a considerable rise in productivity. But as this has now been cancelled out by the fall in the terms of trade the Government will, therefore, reopen negotiations with the unions on the cost-of-living order to make allowance for the terms of trade factor. Care for benefits “We will ensure, however, that all social security beneficiaries are fully compensated for the full cost-of-living increases and that recognition is given to family needs.” Mr Rowling said that means must be found to bring more stability into farm incomes and prices if New Zealand were to avoid fully the large swings in economic growth which exerted such a “destabilising” influence on <the economy. “Although the Government took some measures last year to introduce an element of stabilisation through the use of the farm income equalisation scheme, this was not enough. | “Such a policy must give 'recognition to consumers as iwell as producers. The sharp increase in export meat prices had a considerable effect in accelerating domestic inflation last year.” Farming credit Mr Rowling said the Reserve Bank’s deposits with trading banks would not be a general easing of credit but were designed to ensure that adequate funds were available for essential fanning and business needs. In his opening remarks, Mr Rowling said that New Zealand was spending far more than it was earning. “Our standard of living is being maintained by largescale overseas borrowing which can only be a temporary recourse,” he said. “Until our overseas earnings increase substantially we will have to tighten our belts. “If we don’t, we won’t be able to afford the minimum level of essential imports to maintain full employment." In the last two years production increased about 5 to 6 per cent a year, but spending increased even more rapidly. The country could afford this because of a strong improvement in trade terms. Double loss “Now the terms of trade have moved quickly and drastically against us,” Mr Rowlling added. “At the moment we are losing both ways—jour export prices are weakening while our import prices are still rising rapidly. We i cannot see any immediate (reversal of these trends.” There was a limit on overseas borrowing — s6oom of I capital this year — and in the final analysis New Zealand must reduce its spending on imports. Discussing a prices and incomes policy, Mr Rowling said that first the country must get on top of domestic inflation and ensure that gains from growth were shared fairly. “Too often in the past, the rewards have gone to the strong union on one hand, or to the owner of property on the other, at the expense of those who have little or no bargaining power,” he said. “The real income of the community certainly can’t be raised merely by increasing local money incomes. Controls must guard against excess profits, but adequate capital investment based on reasonable profits is vital to future growth.”

Everybody must accept some element of sacrifice in the move to restraint, said Mr Rowling. The Government would play its part in holding the line in the public sector but the State unions could only be expected to accept their share of the load in the context of a package deal embracing all sections of the work-force.

"Our policy has therefore been to avoid the sudden effects of a credit squeeze such as has happened elsewhere but to tighten up credit gradually and selectively to bring the economy back to a more moderate pace of growth and development.” A “delicate balance” must be maintained between a gradual slow-down and a “slide into recession.” The Government was confident that the Organisation of Economic Co-operation and Development forecast that growth in O.E.C.D. economies would begin to rise again in 1975-76 would be borne out, and that the terms of trade would run more in New Zealand’s favour again. “From outside” Mr Rowling concluded by saying: “The economic problems we face result to a large extent from world events outside our control. They are problems with which most other countries are struggling with varying degrees of success.

“Whether we succeed where others have failed is up to us. . . . The Government is confident that the whole community will see and respond to the need for unity in the interests of our common welfare.”