BUDGET SEARCH FOR INCREASED REVENUE

Dominion, Volume 22, Issue 263, 2 August 1929, Page 12

BUDGET SEARCH FOR INCREASED REVENUE

LANDOWNERS TO BEAR HEAVY PENAL SUPER-TAX

MORTGAGE EXEMPTION REDUCED PRIMAGE DUTY ON IMPORTS DOUBLED STATE TRADING DEPARTMENTS MUST PAY SHARE FUTURE TRANSPORT POLICY i DEBT OPERATIONS AND BORROWING PROPOSALS LAND SETTLEMENT SCHEMES Announcing a deficit of £577,252 “due to an over-estimate of taxation receipts and unexpected expenditure on account of interest,” the Minister of Finance (Rt. Hon. Sir Joseph Ward) presented his eagerly-awaited Financial Statement to a crowded House of Representatives last night. Claiming that the charges on taxation were largely rigid and that the Budget could not be balanced wholly by administrative economy, the Minister said the Government had no option but to increase taxation. It was proposed to impose a super land tax on all farming lands of an'Unimproved value in excess of £12,500; to reduce the mortgage exemption; that income from farms of an unimproved value of £12,500 or over be subject to income tax, but where the income tax exceeded the land tax the amount paid in land tax to be deducted; the primage duty on imports to be doubled and the income tax exemption for children to be adjusted. The Minister also outlined the Government’s policy in regard to railways and road transport, and land settlement. It was intended to complete trunk lines, to investigate the position of branch lines with a view to scrapping those found to be obsolescent, to write down railway capital in certain cases, and cancel the present subsidy on non-paying branch lines.

The Minister pointed out that, as the Government assumed office only in Deeember last, it was then too late in the financial year to make any. radical changes so far as the general financial position was concerned. As soon as he was able to investigate matters, however, he was seized with the fact that the year’s transactions on the basis of the arrangements made by his predecessor in office would result in a deficit, and this unfortunately proved to be the case. He took immediate steps to institute a careful control of departmental expenditure in order to minimise the deficit as much as possible. A saving of approximately £90,000 in the annual votes resulted from the Government’s efforts in this direction. The deficit for the year was £577,253. I must emphasise that this is mainly lie outcome of the Budget of my predecessor in office. The principal cause of the trouble was overestimating the revenue from taxation, in addition to which the expenditure was unexpectedly increased by £156,000 for additional interest arising out of the large conversion operations I was called upon to deal with immediately upon assuming office. Fundamentally, the lessened yield from taxation arose out of the tardy recovery of the trading position.

Exports from the Dominion in 1927-28 were valued at nearly fifty-five millions, and exceeded imports by ten millions and a half. During the last financial year jthe position of external trade was better still, exports totalling over fifty-seven millions and exceeding imports by twelve millions. These results are, of course, reflected in the banking figures, where the position shows a recovery from £4,260,000 excess advances for the June quarter, 1927, to £7,520,000 excess deposits for the June quarter, 1928, and £9,640,000 excess deposits for the same quarter of this year. This indicates that the credit position has quite recovered from the depression obtaining in 1926 and 1927, and a healthy revival in business is the natural corollary. A study of the published banking figures, however, will show that the additional funds have gone mostly into fixed deposits, while the total of advances is lower than it has been since 1925, all of which proves that at present a large part of the available banking resources is not being used to finance trade and industry. This is causing many of our troubles. There is, for instance, a close connection between idle capital and idle men. The march of science is bringing many changes into our everyday life, and the rapid developments in the post-war years have perhaps temporarily disturbed the economic equilibrium of the Dominion. Want of confidence in rural investments, now happily passing, together with high interest rates, has also contributed in no small measure to the present economic situation. The Government is endeavouring to give the country a strong lead in meeting these difficulties, but of course cannot carry the whole burden. Given a little enterprise on the part of the producers and the business community generally—and they have not been lacking in this respect in the past—l feel assured that all obstacles will be overcome; unemployment will disappear, and all will be well in this Dominion. It has certainly been slow in coming, but signs are not wanting now that we are on the eve of a big forward movement in business. REVENUE The revenue for the year amounted to £23,599,676, of which £17,836,234 was derived from taxation and the balance of £5,763,442 from interest earnings and sundry revenues and recoveries from various State activities. The revenue from taxation includes £1,243,577 on account of petrol tax, motor license fees, etc., which are specially earmarked for highways purposes, so that the revenue from taxation for general purposes amounted to £16,592,657. In total the revenue is not comparable with that received in 1927-28, as last year the total revenue and expenditure of the Post Office were not comprised in the Consolidated Fund, which included only interest on capital as an item of revenue. Another complication from the point of view of comparison arises from the fact that the petrol tax operated for only part of 1927-28. Apart from Post Office receipts and motor taxation, last year's revenue represented an increase of £496,497 over that of the previous year. Complete details will be found in Table No. 3 attached hereto. There it will be seen that most of the increase was in the interest receipts, and that the taxation items showed relatively little increase over the previous year. TAXATION RECEIPTS. In fact, this lack of buoyancy in the revenue from taxation for general purposes was the principal cause of the deficit, in that the former Minister of Finance had anticipated an Increase of approximately £423,000, whereas the results showed nn increase of only £lOB.OOO. The mainstay of the revenue —Customs duties —showed an increase of £11,663 t&a ptsrioua jeat, but tall short

the estimate by £306.748. mostly due to a marked decline in the duty collected on spirits. Beer duty, however, was well maintained, and slightly exceeded the estimate for the year. Direct taxation also proved disappointing for the most part The income-tax receipts for 1927-28 were exceeded last year by a relatively small margin of £37,148, but the results for 1928-29 were short of the estimate by £89,123. This, of course, is a reflex of the tardy recovery of the trading position. Land tax was not onlv a little short of the estimate, but £14,155 less than was received for the previous financial year, 1927-28. There has been a steady shrinkage in land tax over the last years, due to the subdivision of estates and the adjustment of country valuations consequent upon the decline in some of the inflated land values to a more economic level. Subdivision of estates is in the true interests of the Dominion, and the Government will not. complain of loss of revenue from this cause.

Stamp and death duties were estimated to produce last year practically the same amount as was received for the previous year. The results, however, showed an increase of £71,353 over the total for 1927-28. Death duties contributed £17,457 and gift duty £27,686 towards this increase, while adhesive and impressed stamps produced £49,111 more than for the previous year. These increases, however, were partly offset by a fall of £26,711 in totalisator revenue. DEPARTMENTAL REVENUES. The revenues other than from taxation, amounting to £5,763,442, fell short of expectations by an amount of £46,808. The departmental revenues amounted in the aggregate to considerably less than was received in 1927-28, the reason being that the 1927-28 total included the whole of the Post and Telegraph revenue, amounting to £3,323,260, whereas last year only interest on Post Office capital, amounting to £428,000, was included in the revenue. These changes arise from the Post and Telegraph Amendment Act, 1927, in terms of which the Post Office accounts have been separated from the Consolidated Fund and placed on a commercial basis. The Consolidated Fund is kept purely on an annual cash basis, which is not suitable for a commercial undertaking which requires continuity of finance in order to build up depreciation and renewal funds, etc. The change in system meant that the Ordinary Revenue Account received considerably less assistance from the Post Office last year than was the case in 1927-28, but the additional receipts formerly received and used for general purposes represented the Post Office Depreciation Reserve, which of course should have been held intact until such time as the moneys were required for the renewal of telephone and telegraph lines and apparatus, all of which are comparatively short-lived assets. Capital expenditure on telephones and automatic exchanges has been very heavy in the last few years, and if the change had not been made to enable a proper Depreciation r tind to be created it would have meant I mt the excess receipts being wrongly used to relieve the taxpayer in the interim would have had to be made good within a comparatively short period when renewals became necessary. The only other way would have been renewal out of loan money, and that of course would be quite unsound. Under the circumstances the setting aside of the Post Office revenue after meeting working expenses and interest charges was the right J >ro I )ei ’ thing to do, notwithstanding the temporary inconvenience to the Consolidated Fund. EXPENDITURE The uet expenditure out of the Ordinary Revenue Account for 1928-29 amf24 ’ 176 >»28, .an increase of £1,529,082 compared with the previous year after the Post and Telegraph exL’oo- ‘«o r % has bpeu deducted from the 1921-28 figure. It must be explained, that this increase includes £817,243 on account of the transfer to Main Highways Account and local bodies of the special taxation ear-marked for highways purposes. As previously explained, the large increase under this heading is due to the fact that these items for 1927-28 represented only about three months’ revenue. The net increase on other items was thus £651,839, of which £487,976 was under permanent appropriations, and £163,863 under annual votes. The principal items responsible for these increases are as follow: Under permanent appropriations : £. Interest 278,147 Debt-repayment 74,992 Pensions 91,307 Family allowances 17,300 Samoan Military Police .... 27,374 Under annual apropriations: Electoral Department 80,046 Agriculture 86,316 Education 92*681 These last three items with certain other smaller increases are partly offset br decreases under other votes. Concerning the increase in interest payments the ‘Minister explained that £156,393 of the increase was due lo a ehaaje la intetssa dates. arising

the recent conversion operations in London, which entailed the payment of interest for a broken period of four months. In the ordinary course this interest would not have beep payable until this financial year. The balance of the increase in interest charges came from the increase in the public debt. The increase in debt-repayment charges is consequent upon the operation of the Funded Debt Agreement with the British Government and the general debt-repay-ment system. Apart from the effect of the increase in the aggregate of the public debt, the increasing charges are offset by the saving in interest on the debt redeemed, and therefore impose no additional burdens on the taxpayers. PENSIONS INCREASE. Old-age and widows’ pensions together increased by £50,622. Such pensions bear a fairly definite relationship to population, and increases are to be expected accordingly. War pensions might be expected to decrease, but such is not the case, the increase for the year being £31,691. The reason for this is that many of the men are only now feeling the full effect of their war injuries. Family allowances have shown a substantial increase, which is due to the fact that many who were eligible for allowances did not at once take advantage of the provisions of the Act The large increase in the expenditure of the Electoral Department was the result of the general elections held last year, while the increase under the heading of agriculture was principally due to a new item of £25,810 for bonus on export of pork and an increase of £34,791 in the subsidy on the railage of fertilisers for Expenditure under vote “Education” showed an increase of £92,681. For the most part this was the result of the normal increase in the number of children attending school, added to which there was an increased cost for conveyance of children to school and for boarding out children placed in the care of the State. A TAXATION ACCOUNT. Reviewing the position now reached in regard to expenditure out of the Consolidated Fund and the effect on taxation, the Minister pointed out that, “the revenue as shown in the accounts includes £5,763,442 derived from interestearning assets and sundry departmental receipts apart from taxation, and in order to demonstrate to honourable members where the taxpayers’ money goes I have had this revenue other than from taxation deducted from the relative items of expenditure as far as is possible, and I propose now to deal with the net cost figures thus obtained. Further, although over £16,000,000 out of a total expenditure of £24,000,000 is practically fixed by contract —e.g., interest, or by Act of Parliament, such as pensions, for instance, all of which are paid under what are known as permanent appropriations, I propose for tin’s purpose to ignore such distinctions and deal solely with services as such. Proceeding on these lines, we arrive at what might be described as taxation account, as follows:—• Revenue. £ Customs 7,054,252 Beer duty 611,484 Stamp and death duties 3,575j720 Land tax 1,140,324 Income tax 3,310,877 Motor vehicles ( petrol and tire tax, etc.) ..... 1,243,577 Non-taxation receipts (not apportionable ... 7,180 Deficit for year 577,252 £18,420,666 “Dealing with the expenditure, the first item, which exceeds the total receipts from both laud and income tax, contains no administrative charges, but represents the dead-weight costs of the war, which costs are practically rigid in the meantime, and will only be reduced with the effluxion of time and the repayment of the war debt. There can be no question of economy under this heading. “The item. 'Other debt charges,’ is also fixed. The total debt charges apart from war debt amounted last year to £8,724,742, but the greater part of this is recovered from interest-earning assets, leaving £2,226,416 to be defrayed out of taxation, representing the charges on that proportion of the ordinary debt which is not directly or fully productive. SOCIAL SERVICES. “Social services, the largest item of all, includes £3,224,968 on account of education, £1,209,571 for health, and £1,858,391 for pensions and superannuation. I do not suppose that anyone advocates a reduction of expenditure on education, about 90 per cent, of the

Notice of his intention to introduce the Manawatu-Oroua River Board Amendment Bill was given by Mr. J. Linklater (Manawatu) in the House of itepreaasitaLjvefl yesterday

money for which goes in grants to the boards and other local governing authorities to cover the cost of teachers’ salaries and administration expenses of such iocal authorities. As to the health expenditure, this comprises hospital subsidies, £673,689; maintenance of our mental hospitals, £302,737; and £233,145 to cover the various activities of the Health Department. “The charge on taxation for old-age, widows’ and other pensions, which cost, with administration, £1,628,737, is an item that I am sure none would wish to see curtailed. Superannuation, with the subsidy and expenses of the National Provident Fund, cost the taxpayer £229,763. As to superannuation, I just wish to point out here that the expenditure on these items cannot be curtailed. “It will be noticed that the first three items of the taxation account absorbed 74 per cent., practically three-quarters, of the revenue from taxation last year, and the charges are either quite rigid or such that vr/y little, if anything, in the way o? reduction is feasible. “Following on with the charges on taxation, the next items are —Defence, absorbing 5.7 per cent., and Justice, law and order, 3 per cent The Police Force and the Courts are, of course, essential, and while there are perhaps some who will say that the expenditure of over £1,000,000 a year on defence is unnecessary, the fact remains that war has not yet been completely ruled out, and there must be some preparation for the defence of our country in case the need should arise. In other words, the 5.7 per cent, of taxation spent on defence must be regarded as an insurance against external aggression. The promotion of agriculture cost the taxpayer last year £464,533, about half of which goes in grants and direct subsidies of various kinds. ROADS AND HIGHWAYS. The cost of roads and highways has increased greatly in the last few years, and last year, including the petrol-tax specially imposed for reading purposes, absorbed 8.3 per cent, of the taxation. This is only the direct cost, and does not include the interest charges on the millions of capital expenditure out of the Public Works Fund. Altogether the item is a heavy one, but to meet the demands of modern transport the roads must be kept in good order, and there is little, if any, scope at present for curtailment. The remaining item under the heading of “General and other administration charges” covers the cost of the Legislature, the maintenance of public buildings, the expenses of the revenue departments, and of Lands, Labour, Internal Affairs, and all the other departments of State not covered in the other items mentioned. There are also included numerous small grants and subsidies, and other items of a miscellaneous nature. ECONOMY IN ADMINISTRATION. “To sum up, it will be seen that the existing charges on the taxpayer are, as I have said, largely of a rigid nature, and the scope for administrative economy is very much smaller than is popularly supposed. Every effort will be made to obtain the utmost economy in administration, but I am satisfied, after an examination of the detailed estimates for the current year, that enough cannot be saved in this way to offset the automatic increases in such Items as interest, pensions, education, etc., let alone make good the deficit for last year. So far as interest is concerned, in addition to the increases arising out of loan expenditure for such purposes as schools, public buildings, and other items that are not interest-earning wholly or in part, we must expect increases from the renewal at higher rates of some of the old loans. For instance, by the time the operations are completed it is calculated that the conversion of the £29.000,000 4per cent. 1929 Consolidated Stock will increase interest costs by about £220,000 a year. Thus it is clear that the deficit cannot be made good by administrative economy, and, as a matter of fact, the only alternative left is either to reduce the services rendered by the State (and by services I mean not only wk done by the Departments, but financial assistance given, which is the larger item), or to obtain more revenue. That is the position in a nutshell. The services rendered by the State have been greatly increased over the last decade, and, generally speaking, it would appear that we have reached a stage when it is advisable, as far as possible, to stabilise the position for a year or two, to enable the increasing population and wealth of the Dominion to lighten the relative burden on the taxpayer. EFFECT OF TRADE POSITION. Another important point that should not be overlooked is that the whole trade position of the Dominion is largely governed by the world prices for our staple exports, over which prices we have no control. For this reason our public finances should not be cut too fine when times are good. To reduce taxation in a prosperous period is easy, but tlie benefit so derived does not in any way compensate for having to increase it again when times are bad. Further, it is highly desirable that a certain amount of the money for public works should be provided from revenue, and the surpluses from the exceptional revenue of good years should be utilised for this purpose. TAXATION. All will agree on the desirability of

keeping rates of taxation as low as possible, but I am not at all sure that the reductions granted in recent years were not greater than were warranted in view of the progressive increases in expenditure on account of extended services. Anyway, the revenue from taxation Inst year proved insufficient to provide for the existing services, and the year closed with a deficit of £577.000. That is the position which the Government is called upon to deni with. Having once received all the existing services from the State the people generally do not want to lose them, so, as it is essential that the national accounts for the current year should be balanced, it appears that the Government lias no option now but to adjust the taxation tn obtain more revenue. The increased rates of taxation will, I hope, only be temporary, as 1 am sure that when the Government has had time to deal with the seat of the trouble, the resulting increase in prosperity will be permanently reflected in increased receipts and reductions in the rates of taxation on a stable basis will be possible. In the meantime immediate action is necessary to rectify the position.

SUMMARY OF OPERATION UNEMPLOYMENT SUBSIDIES RURAL CREDIT ADVANCES The Minister summarised the year’s operations as follow : — REVENUE. i. Taxation J1'?36,234 Other receipts £5, <63,442 Revenue for year 23,599,676 EXPENDITURE. L Permanent appropriations, £19,053,085. Less credits in reduction .••••*•• £2,838,48b 16,244,597 Annual appropriations, £9,115,347. Less credits in aid, £1,183,016. 7,932,331 Net expenditure chargeable to year's revenue 24,176,928 Deficit £577,252 In addition to this deficit there were certain ether items charged against the balance of the accumulated surpluses of past years, and the following shows the result in the funds of the Ordinary Revenue Account at the end of the year: £. Balance forward April 1,1928 3,302,232 Less— Deficit for year 1928-29, £577,252. Final instalment of purchase price of C longterm mortgage shares in Bank of New Zealand, £58,594. Amortisation of debt, £5O. Subsidies to local authorities in respect of unemployment, £68,567. Advances to Native Trustee (net), £33,000. Advances to Rural Intermediate Credit Board, £llO,lOO. Sundry charges and expenses of raising loans, £ll2B. 818,691 Balance, March 31, 1929 2,453,541 This balance was made up as follows: £. Cash 2,315,381 Imprests outstanding 135,880 Investments 2,280 ‘ 2,453,541 'Concerning the subsidies to local authorities for relief of unemployment, the Minister pointed out that in addition to the amount of £68,567 paid over there were also subsidies to the amount of £36,794 to which the State was committed, but which had not been claimed by the local authorities up to March 31 last. These unclaimed subsidies would come to charge this year. The advance to the Rural Intermediate Credit Board was a portion of the initial capital which in terms of section 16 of the Rural Intermediate Credit Act, 1927, was to be provided out of the Ordinary Revenue Account up to a total of £400,000 to be free of interest for ten years from the date of the first advance, which was made on June 30, 1928. PUBLIC WORKS CONTROL OF EXPENDITURE RAILWAY CONSTRUCTION SPEEDING UP HUGE INCREASE IN VOTE PROPOSED Dealing with the present programme of public works in which was sunk the major portion of the loan capital borrowed during the year and which was well advanced when the Government assumed office, the Minister said that the Government had lost no time in investigating the position, and as a result of their inquiries it was deemed advisable immediately to stop work on the new Taupo railway and the Palmerston North deviation. After very careful consideration of all the relevant factors the Government came to the decision that the large capital outlay involved in these works was not justified at present. As regards Taupo, this was not a trunk line, and it was quite clear that the transport needs of the district concerned, which were relatively small and likely to be so for many years, were certainly not of a magnitude to justify the building of a railway. Concerning the Palmerston North deviation. it was found that transport conditions had altered considerably since the work was placed on the schedule of improvement works, and that the expected increased volume of traffic which would have justified the deviation, had not materialised. Further, the estimate of the cost had been greatly increased since the work was originally authorised, and not only would the deviation produce no extra revenue to meet the additional interest burden, but it would actually increase the working costs of the railways. The work was clearly not justified at present. and should not have been started. Much of the expenditure, roughly £200,000. already incurred was on account of land purchases and permanent earthworks, which could be used should it be found necessary to proceed with the work at a later date. CONTROL OF LOAN EXPENDITURE. Another matter which I attended to as so.on as possibls was the institution of a better control over the expenditure of loan moneys on public works. The practice has been for the detailed stimates of the expenditure on the various works to be prepared each year in accordance with the requirements of the engineers without the various proposals being subject to any expert review from the financial aspect. Another difficulty is that often a comparatively small amount is placed on the estimates one year to start a large undertaking without any definite consideration as to the effect on the finances in. succeeding years when expenditure becomes heavier. Thus to attain effective financial control the loan budget must be considered over several years, and not merely from year to year, ns ha been largely the case in the past. To remedy these undoubted weaknesses in the system I have arranged for the Public Works estimates for this year, and in the future, to be sent to the Treasury for investigation before being finalised for submission to this House. Again, in the case of largo works the construction of which is spread over several years, the annual estimates presented to the House have not shown what the completed work is to cost, how much has been expended to date, or how the actual cost compares with the engineer’s estimates on which the work was authorised. To give members all this additional information I have arranged for the form of the public works estimates, to he amended, and the estimates for this year will appear in the new form. EXPENDITURE ON CAPITAL WORKS. Tha nut expenditure ®b capital works

for 1928-29 was £7,659,580, comprising the following main classes of outlay:— £ Railway construction, additions. and improvements .. 3,179,391 Main highways and roads ..... 1,822,922 Hydro-electric supply 965,560 Telegraphs and telephones .... 624,414 Public buildings, including schools 602,392 Irrigation, land and river improvements 282,806 Other public works 182,095 £7,659,550 RAILWAY CONSTRUCTION POLICY. It will be observed that nearly half the expenditure was incurred on account of railways. On railway construction, including a proportion of the overhead costs of the Public Works Department, the expenditure was £1.066,454. The policy of the Government in regard to railway construction, in accordance with the mandate received from the people at the election, is to accelerate the construction work and complete the trunk. lines as quickly as possible. This is desirable from all points of view. In the first place, some £4,440,000 has already been sunk in unopened lines, and it is only good business to get lines completed and earning revbnue. In the meantime the capital sunk is a dead asset. Then, an acceleration of the construction work means additional employment, and that is very necessary at present Thirdly, the completion of the lines is going to assist materially in increasing the production and trade of the country, and generally in promoting the prosperity of the Dominion. NORTH ISLAND LINES. Of the lines in question, starting from the north, there is the completion of Okaihau-Rangiahua section, which is an extension of the North Auckland Trunk line to the Hokianga River. Over £420,000 has already been sunk in this section, and the estimated cost of completing.it is about £200,000. In the same district there is also the linking-up of the Dargaville isolated section. Considerable work has already been done on this cojineeting link, but it will cost some £265,000 to complete it. Next there is the completion of the gaps in the line from Napier to Gisborne. Over £2,000,000 is already invested in the unopened sections of this line, and it is accordingly very desirable that the construction work should be pushed on as fast as possible. There was considerable diversity of opinion as to the location of the line from Wairoa to Gisborne, and after fully investigating the position the Government decided upon the coastal route, and the matter is now definitely settled. To complete the line from Napier to Gisborne will, it is estimated, cost about £1.800,000. A large part of the line to link up Taranaki with the Main Trunk, has already been constructed, work having been carried on from both ends. The intervening gap lies through some difficult country, but the whole line should be finished in three or four years. The estimated cost to complete the work is £700,000. SOUTH ISLAND MAIN TRUNK LINE. Coming now to the South Island, there is the completion of the South Island Main Trunk line by bridging the gap between Wharanui and Parnassus. The Government is satisfied that the construction of this piece of line, estimated to cost about £2,350,000, is necessary to complete the South Island system. About £43,000 has already been expended on preliminary work, and as soon as the surveys now being made can be completed the construction work will be pushed on vigorously. There has been much discussion as to whether this section of line will pay, but the discussion has all been on the basis of treating the new piece of line as an isolated section, instead of a necessary part of the trunk railway system. One could doubtless find many sections of the existing main lines which, considered as isolated sections, could be shown to be hopeless propositions as revenue producers; yet no one would suggest that they should not have been built. From the paying point of view the trunk lines must be regarded as a complete system, and not a series of independent units. NELSON LINES. The remaining sections in the programme are those necessary to complete the lines from Nelson to Inangahua and Westport to Inangahua. Approximately £350,000 lias been spent on the uncompleted sections to the end of the last financial year, and the estimated cost of completing them is about £2,170.000. This estimate has probably been upset by the recent earthquake, the full effects of which are not yet known, and the proposed route of these lines will have to be re-examined by the engineers. With a view to speeding up the construction work all round, the vote for railways construction for this year will show an increase of more than «9 per eent. over the amount spent last year. HIGHWAYS AND ROADS. The next largest item in the schedule of public works expenditure is main highways and roads, which absorbed £l,822,922 of loan moneys. This, with the amount of £1.530,000 provided out of taxation, makes a total of approximately I £3,350,000 provided out of publie funds I for roads last financial year. Of the ex- ! penditure out of loan moneys, £936,496 was expended out of the Main Highways Construction Fund, mainly for the purposes of improving road communication between important centres and to tourist resorts. Considerable sums were also expended in laying down h'gh-clnss pavements on roads in the vicinity of the main centres, which roads carry heavy traffic. Including overhead costs, the roading expenditure out of the Public Works Fund amounted to £886,426, For the most part, the money was spent on developmental roads in the more remote districts. For this year the vote will be inerensed to about £950.000. of which £75 000 will be sneclnlly reserved for roads to outlying districts, where people are st'll labouring under hardship through lack of access. HYDRO ELECTRIC SUPPLY. Concerning hydro-electric supply, the Minister said the year's expenditure on capital works was considerably lower than in the previous period, but ..evertheless substantial progress resulted. The Waikaremoana scheme was sufficiently forward in January to enable one unit to be used for the relief of the overloaded plant at Mangahao, and as from April 1, 1929, Waikaremoana has been regarded as permanently in operation. Since the end of the year, following a vigorous programme at the Arapuni power-house, that stati-•< has also been brought into partial operation. The Waitaki River scheme has been commenced, and its construction will now be the most important work of this class, with the object of having electricity available from there in 1931. The Gov»rr.inent is gradually connecting all the main generating stations in each Island with higl tension lines to ensure more economical and reliable operation of the whole system, and it is iptended to proceed with this work. Tlie plant capacity of schemes in operation nl April 1 this year amounted to 96.740 horse-power, and works are at present in hand which, when completed, will bring the capacity up to 232.500 horse-power. The total capital invested in hydroelectric works to 'ate is £B,4t>7,xvx, of wh’eb £6.095,403 is charged to schemein onerntion, It is propose;? to provide approximately £1.000,000 for expenditure on all construction schemes this year. The exp;::.’it...e on ae< nun of telegraphs and telephones was mostly on account of automatic equipment and exten-

sion of the telephone system to meet the demands of the public for these facilities. The most important developmental works undertaken during the year were the introduction of the carrier-current system for the purpose of extending and improving long-distance telephone communications and the extension of the system of direct dialling between exchanges for the purpose of speeding-up long-dis-tance calls.

As to public buildings, last year’s expenditure of £602,392 included £227,041 for departmental buildings, post-offices, mental hospitals, etc., and £375,351 for schools. The erection of schools in newly settled districts and in areas where the population is increasing rapidly has been given first consideration, and these activities absorbed a large proportion of the funds available last year. Nevertheless, a good deal was accomplished in the way of remodelling schools with a view to providing separate class-rooms for each teacher, and incorporating in the buildings more effective lighting, ventilation, and heating. In addition, a few buildings of different open-air types have been erected with a view to discovering whether sueh buildings are suitable to the climatic conditions of the different parts of the country. Large sums have been required in recent years to provide additional accommodation in secondary and technical schools, and the past year was no exception to the rule. It is the intention of the Government to proceed with five improvement of school buildings as fast as financial considerations will permit. It is highly desirable that the children attending school should be housed in well-ventilated, well-lighted and comfortable schools. IMMIGRATION. Immigration with State assistance was restricted during the year to separated families, single women, domestic servants, and juveniles. The Government proposes to continue the restrictions on immigration until such time as our own unemployment difficulties have been overcome. The Government is being urged to undertake the construction of a bridge across the Auckland Harbour as a national work. Apart -om the debatable question of it Being a national work the undertaking is a very large one and calls for serious consideration. The Government, however, will provide £l,uui) towards the work of exploration and, if required, the advice of the technical officers of the State will also be available in this connection. LONDON LOAN “CHEAPER THAN FOR SOME YEARS” ALLOCATING THE SEVEN MILLIONS In order to provide additional capital for public works, and particularly the acceleration of railway construction in accordance with the Government’s policy, a further loan of £7,000,000 was successfully floated in London on January 8. The issue price of the Joan was £95 per cent with interest at 44 per cent. The loan matures on March 1, 1958, but the right is reserved to redeem it at par at any time after March 1, 1948, on giving three months’ notice to holders of the stock. Over the full period the yield to investors with redemption of the discount is £4 16s. sd. per cent., as compared with £4 19s" Bd. per cent, for the shorter-dated loan issued last year. The cost of the new loan to the State, allowing for the redemption of the discount and expenses over the full period, is £5 os. Id., which is cheaper than the cost of any other loan raised by the Dominion for some years. The issue, was very favourably commented upon in the London financial papers, and in the light of subsequent events in the money-market the Dominion is undoubtedly fortunate in having obtained a loan on these terms, which are better, and in most cases considerably better, than those obtained by other borrowing States. The result is further proof of the confidence that London investors have in the financial strength of New Zealand, and shows that this great financial centre has not been misled by the mistaken propaganda concerning the Government’s borrowing policy.“Normally a New Zealand issue for the then current year does not appear on the London market until about May, but, in view of the information forwarded by our financial advisers in London ns to the general financial outlook for this year,”, explained the Minister. “I deemed it advisable to make a departure from the usual practice and go on the market for our requirements early in January. Subsequent, events have amply justified this decision, and there is no doubt that with the 1 rise of the bank rate, and the general situation that developed in the money market, a higher price would have had to be paid if we had delayed going on the market until the usual time. As it is, although the capital was not required until this financial year, this fact does not involve the taxpayer in any loss. On the contrary, I have been able to invest the loan proceeds in the short-loan market at an average rate of approximately' £5 3s.' 9d. per cent, with the most satisfactory result that a profit has been made on these moneys for the, period during which they have been held.’’ In accordance with the authorities under which it was raised, the £7.000,000 loan has been allocated as follows: £. Public Works Fund, for rail- I way construction, roads, telephone extension, etc. . . 4,500.000 Hydro-electric power works 1,000,000 Railways improvement 1,500,000 £7,000,000 In conjunction with this issue a further conversion offer was made to holders of 4 per cent. 1929 New Zealand Consolidated Stock. UNEMPLOYMENT RELIEF MEASURES Dealing with the Government's unemployment relief measures, the Minister said: —“Although it meant considerable increase in tlie cost to the State, the Government had no hesitation in increasing the standard rates of pay for relief workers from 9s. and 12s. per day to 14s. per day. The lower rates fixed by the last Administration were considered to be inadequate under present-day conditions, and 1 feel sure that it is not the wish of the taxpayers that the troubles of these people, on whom has fallen the brunt of our economic misfortunes, should be increased by niggardly rates of pay on relief roads put in hand by the State. The special relief works are mostly on roads, highways, and forestry. The expenditure last year on such works totalled £729,034, in addition to which there remained commitments as at March 31 last amounting to £45.223. Subsidies to locid authorities paid over amounted to £68,567, and at the end of the year there were alsot commitments amounting to £36.794. The total cost to the State of unemployment relief last year was thus £879.618. which is an indication of the Government's efforts to assist in alleviating distress through unemployment.” The local authorities, particularly in the ities, were also alive to their responsibilities in the matter, and during last year unemployment loans amounting to £102,533 were sanctioned by the Local Government Loans Board. Admittedly, some local authorities found difficulty in providing useful works on which a relatively high proportion of the cost was for labour, but. even so, it was clearly inequitable that the State should be called upon to subsidise the cost of materials used on such works in cities and boroughs, as had been suggested in some quarters He had arranged for the question of unemployment insurance to be fully investigated, and lie hoped the outcome would enable him to present next session a matured scheme to deal with the problem,

THE PUBLIC DEBT ADDITIONS FOR YEAR NET INCREASE NEARLY £13,000,000 GOVERNMENT’S BORROWING POLICY The Minister went on to «ay that the public debt as at March 31, 1929. amounted to £264,191,983, a net increase of £12,795,731 during the financial year. It should be understood, however, that this increase included £5,379,105 on account of the £7,000,000 loan. He explained that the whole £7,000,000 was not added to the debt as at March 31 because the last instalment of the loan, was, in terms of the prospectus, not received until April 2. The proceeds of this loan were not drawn upon at all for last year’s requirements, so that the loan belongs entirely to this year’s finance. The debt increase for this year will, of course, be less by the amount already added to the debt on account of the loan by March 31 last. Apart from the £7,000,000 loan, th® aggregate of additions to the debt foe the year was £10,650,750, made up a® follows: — £ Increase from conversion and redemption operations in connection with the 4-per-cent. 1929 Consolidated Stock 739,34 T Raised for redemption but unused on March 31 last 8,946 New loans for public works, State advances, and other developmental activities .. 9,497,910 Charges and expenses of £5,000,000 loan of 1928 .. 409,547 £10,650,750 Tlie first two items were wholly raised in London, and of tlie new loans and expenses £5,409,547 was raised in London, while the balance of £4,497,910 came from the proceeds of local issues. CONVERSION OPERATIONS. Of the new capital raised during th® year £3,067,910 was for State advances, £200,000 for State forests, and the balance of £6,230,000 for public works. Concerning the 4 per cent. Consolidated Stock, members would remember that there was £29,490,852 of it falling due in London on November 1 next Although it was obvious that renewal of this stock would have to be at a higher rate of interest, it was equally obvious that there would have been considerable risk in leaving the whole amount to be dealt with at maturity. Accordingly £5,000,000 of it was converted into 4} per cent 1947 stock in May, 1928, at the rate of £IO4J of the new stock for £lOO of the old stock. This still left over £24,000,000 of the 1929 stock outstanding, so after assuming office he deemed it advisable to make a further offer to holders in January last to convert up to £12,000,000 of the stock into 4J per cent 1948-58 stock similar to that issued for the £7,000,000 loan, with which the conversion offer was concurrent. The offer was £lo4} of the 194858 stock for £lOO of the 1929 stock, and on these terms, which returned investors £4 15s. 3d. per cent over the full period of the new stock £11,729,496 of the 1929 stock was converted. The cost to the State of the new stock, allowing for redemption of th® conversion premium and other expenses over the period of the loan, is £4 16s. lid. per cent. This important • transaction was success? fully carried out, and the terms in the light of the ruling rates of interest, were very satisfactory. In addition to the large conversions, £1,164,500 of the 1929 stock was disposed of by subsidiary operations during last financial year. These operations include repayment of £502,500 of the stock out of Public Debt Repayment Account, conversion of an odd amount of £30,000, and redemption of £572,000 out of the proceeds of further sales of 1947 stock. To sum up the position: £17,833.996 of the 1929 Consolidated Stock has now been cancelled and further parcels amounting to £382,500 were held by the Treasury as an investment, awaiting cancellation, so that the total amount held by the public on March 31 last was £11,274,356. This is a more manageable amount, but he was hopeful of reducing it still further before the maturity date on November 1 next In fact, as local money is relatively plentiful at present, the Minister said he was raising some of the funds in New Zealand for redemption of this stock, and, including the cancellation of the £382,500 of stock held by the Treasury on March 31, had already disposed of some £860,000 of it in this manner. The effect is to transfer so much of the debt to New Zealand, which will be a sound proposition economically. DEBT REDEEiMED. Including the £502,500 of 1929 stock just referred to, repayments of debt during the year amounted to £3,234,124. This debt was domiciled as follows:— £ New Zealand 2,130.293 Australia 500 London 1,103,331 £3,234,124 - These reductions in debt were effected as follow: — £ Under Repayment of Public Debt Act, 1925 1,046,000 Under Funded Debt Agreement with British Government 386,224 Out of reparations and war credits 368,550 From Discharged Soldiers Settlement Account 680.250 From sundry other accounts 733.350 Raised for redemption, 192728, and applied this year . 19,750 £3,234,124 SUMMARY OF DEBT OPERATIONS FOR YEAR. The changes in the position of the debt during 1928-29 may be summarised as follows: — £ Debt as at April 1, 1928 .. 251,396.252 AddNew loans raised for 1928-29 £ Ordinary .. 6,839.547 State Advances 3,067,910 9,907,457 Part £7,000,000 loan carried forward for 1929-30 5,379,105 Increases arising out of conversions and redemptions of 1929 stock 739.34 T Raised for redemption but not applied at March 31, 1929 3,946 267,426.107 Less redemptions—- £ Ordinary .. 803,537 War 1,059,367 Discharged Soldiers 726.350 State Advances 614.870 3,234,124 Debt as at March 31, 1929 £264,191,983 CLASSIFICATION OF DEBT. £ Ordinary 151.455.052 War 70.551.269 Discharged Soldiers .. 8287.656 State Advances 33,535.006 £264,191.983 The Minister said that £264.000,000 of (Continued on next page},

Expenditure. £ P.c. War pensions and war debt charges '5,023,755 27.2 Other debt charges 2,226,416 12.1 Social services ... 6,292,930 Defence — Land, 34.2 sea,, and air 1,043,622 Justice, law and 5.7 order 1 544,976 3.0 2.5 Agriculture .... 464,533 Roads and highways 1,536,517 General and other 8.3 administration charges 1,287.917 7.0 £18,420,666 100.0