MUNICIPAL TRADING

Evening Post, Volume CIV, Issue 2, 3 July 1922, Page 3

MUNICIPAL TRADING

TO THK EDITOR!

Sir, —Yonr correspondent, ."Equality 4>f Sacrifice," has made a timely reference to the mistaken pronouncement by - the Wellington City Council, which proclaimed that municipalities should not bo taxed upon the income of their trading ventures, because, unlike companies, they did not trade for profit. , May I add a few observations, not to assist "Equality of Sacrifice," who seems well able to take care of himself, but in extension of his criticism and seemingly worth tho attention of those who are interested in the subject. The City Council's resolution jb, of course, entirely wrong, due, of course, to misapprehension, of fact. Municipalities trade for profit just as companies do, the^ profit in their case being distributed by way of interest to the persons who have advanced the capital fund being used in their trade. Companies pursue precisely the same course, distributing the profit by way of dividends to their: shareholders, who have supplied the capital fund. The incidental difference is that municipalities are usually able to raise money upon more favourable terms than is possible for companies, because they aro in a position to offer security in the shape of a rate which in case of default tho lender can collect for himself ; and a sinking fund is also provided to replace the capital. • The lender is thus amply secured against loss. ■ Com-., panics, upon the other hand, can give no. security, and the shareholders must shoulder the risk of loss which has only too often manifested itself as a material consideration. ■■This, difference in quality is usually shown in the dividend paid to the shareholders being rather larger than the rate of interest paid upon municipal loans. It is an invariable rule in finance lhat risks must be covered by enhanced rates. : ■■„,■■■ Notwithstanding these favourable conditions under which municipalities are enabled to operate, their administration has not yet risen to . the same economic level as that of companies. If there are any instances to the contrary, the public would be glad to know of them.—l am, etc., • ■ ■ REVENUE. Ist July, 1522. , :