WAR FINANCE

Dominion, Volume 11, Issue 150, 14 March 1918, Page 8

WAR FINANCE

SIR JOSEPH WARP REPLIES TO CRITICISM When in Christchurch, Sir Joseph Ward, Minister of Finance, was asked by a "Press" representative to comment on tho statement of the Hon. G. Fowlds at the Congregational Union in reference to the obtaining of war , loans in New Zealand free of incomo tax, Mr. Fowlds having stated lie considered it the greatest financial crime .of all the ages. Sir Joseph Ward said he had noticed the criticism of Mr. Fowlds, who was fully entitled to his own opinion. Tho fact remained, however, that during this unparalleled war, which had already produced financial revolutions ia the -whole of the countries fighting oni our side, including New Zealand, cri? ticism of that kind, indulging in generalities, was not of any practical use toany Minister of Finance, in whom was vested the unprecedented responsibility of financing the portion of the Empire to which he belonged in order to provide the wherewithal to carry on the war. It would bo admitted by the greatest neophyte that failure on the part of any portion of the Empire that was doing its part in connection wit-K tho war would mean its standing out and letting the other portions of the. Empire that faced the new and unexampled position carry on the war without its assistance, it was a fact which could not be contradicted that Great Britain, the United States of America, Canada, and Australia had all obtained largo portions of their war moneys by offering a rate of interest to investors free of income tax. "This is well known," said Sir Joseph, "but I give one illustration as a case in point. Canada- not long ago> brought on the market a war loan at. 5} per cent, free of income tax. The United States of America, England, and Australia have all raised enormous; sums, many millions—l have not the figures by me at tlio moment—free of income tax. In. some instances the option of a rate plus income tax was offered, but in every instance so far as I know the free of income tax issuewas put upon the market. In tho'caso of Australia all her loans, excepting the present one, were put upon tha market at 4J per cent, froo of income, tax, and the present loan of forty millions now being floated in the Commonwealth gives the option of 5 per cent, plus income tax, or 4J- per cent, free of income tax. The result will show this to be in reality a 4£ per cent, free of income tax loan. Position Illustrated. "My responsibility, however, as Minister of Finance, applies to New Zealand only, and I will just show what it would mean to this country it 1 were to follow the advice of well-in-tentioned critics who in general terms uso strong language to emphasise their views without in any way showing what the effect of their proposals if put into operation, would be, *or this purpose I put the war loans that this country will require at one hundred millions. It may, of course, let us all hope that such will be the case -not amount to that sum, but in viewing a positon of great uncertainty, without any knowledge of when the war will terminate, that amount will suit the purpose I have m hand. It it should happily turn out to be less then the results, in proportion to the smaller amount, will bo. so much loss for this country, but-it will aftect my argument only to the extent of what that proportion may turn out to be. '■Now, £100,000,000 at 41 nor cent, free of income tax will cost this country £4,500,000 per annum. If we borrowed at the equivalent.rate plus income tax, wo would pay approximatel°6t per'cent, on That would amount to £6,500,000 per annum; that is, the country wnM W £2 000,000 per year more for inteiest than under the system of free or income' tax, which has been followed within the Dominion up to now. The income taxpayers on the £6,800,000 would pay, on the present graduated scale, at an average of 4s. lucent£l 300,000 per annum, that is, i|UU,IW per" annum less than wo would be paySi them for interest. If the incometaxpayers averaged 5 per cent, they would pay £1,625,000 per annum, fo. income tax. That would be £3/o,OUU less per annum than we now gam under the free-of-income-tax system. "In my opinion an increased graduation of income tax of 25 per centwould not produce more than age of 4 per cent, income tax, as even when the war is over if our war oana reach £100,000,000, the combined ordinary and war income tax would not S more than that, and wkmoa the higher incomes it would be a m> heavy tax. Quite irrespective of the ouestion of freedom of income tax from war loans, our taxation to provide for the increased responsibilities in the future must come largely from the class of people who are being exempted from income tax upon the moneys provided for war purposes. Another Aspect. "That is one aspect of the question. Here is' another, tho importance or. which cannot, 1 assert emphatically, bo overestimated by any wclUivishcr ot this country. The largo Government lending institutions were given dennito instructions by me that tney were not to increase their lending rates during the war period to over 51 per cent. The advances to settlers and the advances to workers for the providing of homos for them have been kept, and rill be kept, throughout the war at 41 per cent, for prompt payment, and if the time for * prompt payment 'is .exceeded, then the rate has not exceeded, and will not exceed, 5 per cent. If we were to'raise our rate to that at which Canada has produced its loan, namely, 5i per cent, l'ree of- income tax, upon the same line of argument adduced by the adverse critics of the policy, it would bo tho equivalent of an investment at 7J per cent. Does any sane man believe it would be possible for the banking institutions'that agreed upon the notation of the last loan to help subscribers to obtain overdrafts to invest in the war loans, to keep the rates down to what they are now? I have no hesitation in saying that if as a matter of policy wo wero to follow the advice of the critics who have no responsibility, the rates of interest upon mortgages, to business firms for their usual banking accommodation, to workers for the erection of their homes, and to settlers could not be honestly or legitimately prevented from going up. Rentals would increase in every town iii Now Zealand, and we would lay the foundations for financial restrictions, and, indeed, panic, tho effect of which upon tlio country generally no one can estimate, but that it would bo disastrous in its course the history of every financial crisis that hae taken place in any country warrants one in predicting with no uncertainty.