Brokers see silver lining

Press, 2 December 1978, Page 17

Brokers see silver lining

Although the current market situation can give the equity investor no cause for jubilation, some comfort can be taken that the marker is steady, and may be ready for an over-all improvement, the outgoing chairman of the Christchurch Invercargill Stock Exchange, Ltd. (Mr W. J. McKie) told the first annual meeting of the com- ( bined exchange yesterday. “The following Reserve , Bank Share Index Figures are I encouraging:—January, 1977, 11417, December, 1977. 1189, (November, 1978, 1336,” Mr McKie said. I “New Zealanders are [slowly learning that the ( world does not owe us a (living and we must learn to live within our means. The downturn in the economy we have experienced over recent years is a challenge which we have accepted and we could find ourselves ultimately in a stronger trading position than what we were in the pre-E.E.C. days. “Despite what some of the i 'experts on the economy’ [have been telling us on the (news media lately satisfaction must come from figures from the Reserve Bank’s] statistics which show that our; surplus of exports over im-I ports for the year ended June ! 30. was 5422.2 M whereas for! the previous year this was I i5183.7M. For the previous! j three years we had deficits in I (our balances on trade trans-j ; actions. I “It cannot be denied that] i Government borrowing has j (reached a record high but Ithese are figures made worse by inflation. When it is considered that some of this borrowing has been necessary for such projects as Maui the end result will more than justify the action. It is not so many years ago that we were fully resigned to depending on overseas fuels. Maui has opened up a completely new field with regard to our energy demands. “Despite the competitive markets .our exporters are facing it is also interesting to note that in New Zealand dollars our receipts from exports have been increasing I each year. For the year ended June 30, our total income from exports was $3,418.7M,: which was almost double the i ; figure of $1,747.9M for the I 'year ended June 30. 1974.1 inflation, especially at the ; rate we have experienced in I ■ recent years, is a curse to I The stability of the economy but there is at least some encouragement to know that though we ate importing other countries’ inflation we are making substantial recovery on our exports. “The gap between invisible receipts and payments is however adverse and to the layman it would appear that some drastic action is needed, especially under the heading of ‘overseas travel.’ It is unrealistic that New Zealand investors cannot obtain funds through the Reserve Bank to take up share issues outside New Zealand whereas their fellow citizens travelling abroad can deplete our overseas funds,” Mr McKie said. “We have a situation in this country today which! could be compared with ai.

" three-legged stool. The three , legs are (1) the Civil Service ’> and Government Capital Ex- , penditure, (2) the salary and ( wage earners, and (3) Capital . Investment in industry to- ! gether with the farming sec.(tor. Seated on this stool we . i have the ever growing bur>'den of running our welfare /(state. There is no way that Jany two legs can carry the /load without the support of /the other one. The Civil Ser- . vice is an essential service (group which is not always t;worried with cost cutting and i profit incentives. Salary and wage earners through the i good services of their unions are guaranteed a slice of the , cake to compensate for their services. The capital investment sector meets all its costs and out of its profit pays 45c in the dollar taxa- > tion. The net balance must I provide for ploughback and a dividend for the shareholder • who again is taxed. The private sector is the area where risks are taken and therefore the rewards should be reasonable,” he said. “Regard must be given to this in the future, because with the inflation we are now experiencing and the guarantee of a superannuation at! (the age of 60 there could be( (less incentive than ever for (people to save. This will be (reflected not only in indivi(dual savings and investments; (but also through institutional! (investment. If funds for in-, (vestment decline, from where; does industry receive its capi-1 tai for expansion? “Many company boards, with concern for their share ; holders and the tax they are! paying, are distributing funds! of capital origin as a substitute for dividends. Such( action cannot go on indefinitely. Do we wait until the . well runs dry? Those companies with export outlets can take advantage of tax incentives, but what of those who service the community and who probably provide the greater bulk of employment opportunities. Last year the one-time stock allowance met favourable comment when introduced and just as much adverse comment when discontinued. Such one-legged accounting represents poor Imakeshift tax legislation. It Jis time that the Government

allowed not only stocks but book debts to be discounted annually before assessing profit. The Inland Revenue Department would not be the loser as tax would be assessed when these assets are realised. “Stock and book debts, while classed as current assets, still represent locked-in capital as much as; machinery which can be depreciated quickly for taxation; purposes. No satisfactory! answer has been formulated for taxation in inflation accounting, but at least a few steps in this direction would' assist those companies who, are forced to carry large' stocks and book debts. If; ; stocks are allowed to run; down and demand grows) ; then, the check on prices pro-; vided by competition is lost.! 1 If this competitive method is I eliminated there is the risk of price controls being reintroduced. ' “As this report is written : the current 11 per cent Gov- : eminent Savings Stock Loan * is meeting very favouriable 1 response. The interest rate, ’ while being realistic, must ('however have an adverse ’(effect on those seeking mortjgages for houses. For those; ' young people who are genuine purchasers of their own, I homes a strong case could be established for allowing in-! ( terest on mortgages, within , reasonable limits, to be fully ! deductible for tax purposes. ( “This year we have seen! two issues of Bearer Deben-; tures. It is surprising to see; 1 this type of investment com;ing back as there are considerable security risks. This type of investment does re- ' fleet the anomoly in our stamp duty system in so ! much that normal debentures, where a register is ; kept, are subject to stamp duty whereas the ‘bearer’ (type debenture being a ne- ' gotiable instrument has no ' stamp duty payable on transfer,” Mr McKie said. Mr J. M. T. Greene was elected chairman of the exchange. The new vicechairman is Mr D. S. Dott, and the committee consists of ! Messrs T. D. Lawrence, G. D. (McCrostie, L. J. Lamb (repre-| senting Southland members), and J. L. Sturge (represent-; ing Canterbury members).; Mr P. F. Maples remains' (secretary.