“Survey shows need for stock tax-rebate”

Press, 17 July 1979, Page 20

“Survey shows need for stock tax-rebate”

PA Wellington The 1979 business survey clearly demonstrates that the Government should have continued with the Stock Valuation Adjustment, or an appropriate fiscal equivalent, according to Mr Alan Simm, the executive vice-president of the New Zealand Chambers of Commerce. The business survey report prepared for New Zealand Chambers, covered the

financial year ending in 1978 of 163 companies. They represented a broad cross-sec-tion of business in terms of type of enterprise, size, form of ownership, and included both listed and unlisted public companies, and also private companies. Mr Simm said that the report- showed that the Stock Valuation Adjustment had been of limited benefit, particularly to wholesalers, retailers, and manufacturers, but it had not gone far enough to prevent a decline in profitability. What, was needed, in the light of today’s deteriorating health of business, was something much more effective, he said. “All the principal profitability ratios fell during the period under review. “Operating profit, as a percentage of total operating assets, dropped from 12.68 per cent in 1977 to 11.04 per cent in 1978, and as a percentage of sales from 7.7 per cent to 6.79 per cent. Taxpaid profit, as a percentage of shareholders funds fell to 10.45 per cent from 13.741 per cent,” he said. “The position of private companies was the most serious. Their already very alarming position had been further eroded by falls in profitability, and liquidity, which threatened their future existence.

“Without the stock valuation adjustment, the decline in profitability no doubt would have been greater,” said Mr Simm. “It provided about 5.8 per cent of tax-paid profits of the surveyed firms. However, on average, and importantly, it provided only 10.7 per cent of the cash re-

quired to meet the effects of inflation on the value of stock holdings. “One of the reasons fori its limited success is that certain activities, and types of stock, were excluded, notably of the construction industry. By contrast, the manufacturing sector achieved almost 16 per cent in savings, as a percentage of tax-paid profit, and the wholesale and retail sector improved from a position of nil savings to over 12 per cent. The stock valuation adjustment was principally responsible for this improvement,” Mr Simm said. Another disturbing trend in the report was the continuer, deterioration in liquidity. For most companies it was significantly! less than 5 per cent of total* assets, and it had become! negative for private com-J panies, wholesalers and retailers, and other service groups, said Mr Simm. “When this is coupled! . with the fall-off in growth in sales and activity demonstrated in the report, the .[signs for the medium to i longer-term future bode ill. “These two factors illequip any company to carry the financial demands of the current resurgence in the ; rate of inflation or an expansion in the volume of . activity, should the latter eventuate,” said Mr Simm.