N.Z. FINANCES

Evening Post, Volume CXIV, Issue 52, 30 August 1932, Page 10

N.Z. FINANCES

A CRITICAL REVIEW

BUDGETARY EQUILIBRIUM

BURDEN OF TAXATION

A review of New Zealand's financial position was given by Mr. L. W. Holt before the Economic Section of the Science Congress in Sydney. A summary of Mr. Holt's paper has already been cabled, but an amplified reportappeared in the "Sydney Morning Herald" which arrived by the mail today.

Mr. Holt said that it was difficult to see the grounds for anticipating budgetary equilibrium in the Dominion in two years. Ho stated that railway losses had become an important problem for the New Zealand Treasurer, amounting to £ 1,910,000 in 1930-31. The-total deficit of 1928-29 was £1,021,000, and by 1931-32 it had risen to £5,080 000 For 1932-33 the latest official forecast was for a deficit of £8,760,000, which was to be reduced to £4,200,000 by wage cuts, reductions of expenditure, the Hoover moratorium, taxation, and the use of reserves. This adjusted dencit m turn _was originally to be reduced to about £2,000,000 by additi?™Sii"'1 This was not d°ne >but £2,500,000 of bank credits were to be raised on the security., of reserves of a nominal value of £10,800,000 invested on discharged soldier settlement loans.

Regarding the remedies adopted to meet the adverse situation during the last three years, Mr. Holt said that the making of income tax more severe had increased the burden of taxation on the poorer classes. The same could be said of the increase in" Customs duties, and the wage tax, which had been increased to 5 per cent, of income, was a poor man's burden. The new taxes would all appear to operate in a direction not calculated to increase' the equity of the tax system as a whole. An important aspect' of the new measures was, that the revenue would be collected m the main from the section of the community whose reduced spending power would most directly affect production and employment. Mr. Holt added that Customs revenue was increasing, so that the final returns from this source would probably be better than anticipated, but that no great increase could be' expected until other factors were more favourable. In addition, there was reason to believe that the present wage and income levy for the special unemployment account was failing to meet the current expenditure by a considerable sum, and the question arose whether further levies for this purpose should be raised; It was likely, therefore, that further taxation iv some form would be introduced. Ho reached the general conclusion that budgetary policy in recent years had been too closely confined to the immediate problem of balancing the Budget; that in the wider sphere the State had favoured a deflationary policy, but that its measures of assistance to such a policy were not entirely.consistent with the aim. This, policy appeared to be based on an unwarranted optimism as to the future of world prices. In any case, it involved a period, of waiting, and the Tecent history of the State finances suggested that the Treasury was not in a position to wait. Mr. P. A. Bland said there were indications that New Zealand was about to follow the unwise lead of New South Wales, and remove the unemployment relief fund from Parliamentary scrutiny. _ Mr. Holt's paper was the last of the list, and after it had been discussed the section; adjourned with votes of thanks to the New South Wales executive, the clerical staff, anS the economics department and the Press. Professor Copland said the Press had given excellent reports of the proceedings. It had given the section more space than it deserved, and had even contrived to add a touch of humour to its record. EFFECTS OF. DEPRESSION. Conditions in New Zealand were discussed in a paper presented to the economies section by Mr. E. P. Neale, of Auckland. A sharp fall in commodity- prices, it stated, increased the real burdens or fixed money indebtedness and other contractual obligations, and a greater drop in the prices of exportable goods than in the prices of imports took place., From 1924 the index number of imported goods fell from 1693 to 1414 in 1932, but the figure for the exportable goods dropped to half. , • The fall in the case of New Zealand exports^ it was remarked, was not as great as the corresponding fall in Australian, in the period, the percentages of the falls in terms of, sterling being given, as .63 per cent. Australian and 45 per cent. New Zealand. The exporters in New Zealand were 95 per cent farmers, and consequently producers were thrown into difficulties. Farm costs, including wages, were, in. the index terms, 1586 in 1924 and 1490 in 1931. • ■ Among the internal obstacles to recovery" were past borrowings, notably for transport services, hydro-electric developments, and for advances: on real estate in excess of the real requirements of the Dominion; the overcapitalisation of many industries (notably farming) . on. the basis of the former high prices; virtual exhaustion of fruitful avenues of capital expenditure; the rigidity of the interest rates, rents, and other long period contractual charges; declining earning capacity of public works; renewals of debts at higher Tates; and the fall in prices, as well as rigidity of wages and working conditions. An Economic Committee and a National Expenditure Adjustment Commission had been set up, and measures of readjustment were effected. Up to the end of 1931 were included a fall in internal prices and in the cost of living of 10 per cent., a rise in the exchange rate to 10 per cent., contraction of imports from £45,000,000 to £24,000,000 under interest and exchange rates and increased tariffs, a general wage reduction of 10 per cent., a 10 per cent, cut in Public Service pay, and other economies; relief to mortgagors, taxation relief, and increased subsidies to the farming industry, reduction of rates of interest on Government and .local body loans, special taxation on giltedged income, increased land develop-: ment, unemployment relief, co-ordina-tion of* transport, utilisation of reserves, and raids on certain special funds.

Discussing unemployment, the paper states: "Most of the schemes are in the nature of palliatives rather than direct attacks on. the problem, and many of the jobs have become increasingly wasteful, as finding really economic work becomes more and more difficult."