LESS LOAN POWER

Evening Post, Volume CVI, Issue 41, 17 August 1923, Page 8

LESS LOAN POWER

LOCAL BODIES' TAX

GOVERNMENT APPLIES SCREW

ESPECIALLY ON SMALLER UNITS.

It is proposed that the debenture tax on local bodies' securities be increased from 2s 6d to 4s 6d, and the rate on public companies from 3s to 4s 6d.. . . . This tax will not be

retrospective.—Mr. Massey

The Prime Minister is reported as above in his speech in the House of Representatives last night, but the actual wording of his Bill is such as to exempt from the new 4s 6d debenture tax

" income due before the passing of this Act." Clearly, '- income " originating before the passing of the Act is not the same thing as debentures existing before the passing of the Act. If the Prime Minister's intention is that the tax be' Dot retrospective, the schedule quoted should be amended to exempt existing debentures and not merely the income due on them to date.

_ Provided that the Bill is brought into! line with the Prime Minister's expressed" intention, the retrospective phase of the issue is eliminated. There remains the question of policy involved in increasing' a, tax that must make it more difficult for local bodies to borrow. A TRIPLE CHOICE. Local bodies; if they are to pay more for their loans within New Zealand, on account of the increased debenture tax, find themselves faced with three courses: (1) To recoup-themselves by means of high rates and charges on the public. (2) To borrow in London instead o£ within New Zealand.

• (3)To stop the works or other expen- .". ... .'' ur. c *'lat. necessitates borrowing. It is candidly 'recognised in local body circles that the economy' measures involved: iii: the third course are an objective of Government policy, and that the principle underlying that policy is sound. The Government'must curtail local body .borrowing. But it is hardly to be expected that all local bodies can bring themselves to kiss the rod that chastens, Ihis is the more to be expected seeing •that the ourtailment falls unequally, because the .smaller local bodies have not the avenue of escape to , London—an avenue available to the bigger local bodies. .... . . ;,-. ;' _ It may be that the Government is lesii in fear of over-borrowing by the bigger units than of over-borrowing by the lesser ; units. In any case, the bigger units ..that:. \.borrow: in London will not be competing against farm^ er-borrowers in the local market. HARBOUR BOARD'S CASE. ; .Writing to the Prime Minister by direction of the president of the Harbours Association of New Zealand (Mr. G': Mitchell) the secretary of that associa-..' Uon (Mr. A. Barnett) points oiit that the increase-of debenture tax from 2s 6d to' 4s 6d will mean that, at the ruling 5^ peri cent, rate of interest, an.investor liable' to taxation .will get a.return of only £4, 5s 3d. Therefore, harbour boards will,find it more difficult to raise loans for harbour improvements. "It will mean," adds-Mr. Barnett, "that harbour boards' may have to stop authorised and necessary harbour development works on account of the higher rale of interest which will have to be paid on loans with a con-; sequent increase. in charges. As th<^* major source of the- revenue "of-harbour boards is obtained by levies on ships and goods it will follow, therefore, that charges, both on ships and goods may have to be increased. lean assure you that it is the aim of harbour boards al the present time to keep charges as low as possible alike on ships and on im-ports'-and exports."

INVESTORS' CONFIDENCE. The Prime Minister is also asked for "an assurance that no increase, at least, is to be made in, the-rate of tax on debentures already issued by harbour boards, there being not the least doubt that such investors, when taking" up these debentures thought the tax of 2s 6d a fixed one, not subject to increase from time to time." Reference is made to "the disturbing effect upon investors who are either wholly or partly exempt from income, tax," and the letter concludes: "Past experience has proved that it is not an easy matter to retain the confidence, of this class of investor when debentures held by them are made subject to either alterations in the method of collection or in the incidence of taxation. ' On behalf of the association I would therefore ask you to reconsider the position in regard to the; debentures issued by harbour boards."