SPENDING THE WAGE TAX

Evening Post, Volume CXVI, Issue 2, 3 July 1933, Page 8

SPENDING THE WAGE TAX

Two issues of great importance in unemployment relief were raised in the proposals made by a combined meeting of representatives of local bodies of Hawke's Bay. These were that all essential and approved major construction works should be undertaken at standard rates of pay, subsidised from the Unemployment Fund, and that a part of the fund should be capitalised to finance programmes of approved works undertaken by local bodies. At present local bodies undertaking essential construction works must carry them | out in the ordinary way—at standard j wages and without a subsidy. This provision is made, not because the prosecution of essential works is discouraged, but to prevent everything being done as relief work. If the work is "essential" it must be done, but, as time enters into the definition; works which may be essential, say, five years hence, may not be required now. Such work's as these—useful but not immediately necessary—have been carried out under the No. 5 scheme. The Hawke's Bay proposal would extend the subsidy to immediately essential capital works. The merit of the proposal depends largely upon how it is interpreted. If it means that all urgent capital works will be subsidised it involves a drain on the Unemployment Fund, and a saving of local body funds without creating a greater demand for labour. If on the other hand it is applied to encourage local bodies to spend usefully where they would not otherwise do so, it may be beneficial. The second part of the proposal, lo capitalise part of the Unemployment Fund, calls for even more careful examination. If the Unemployment Fund is capitalised it means spending now the wages tax of several years ahead. This is so even if the capitalising takes the form suggested of an "expansion of currency" (otherwise Treasury notes, or a loan without interest) , an unsound and dangerous method. The expanded currency must be redeemed over a period by pledging the wages tax yet to be collected. This must result in: (1) a diminution of the spending power lof the Unemployment Board in the future; (2) the necessity of maintaining the wages tax at its present level ,for many years ahead. . To illustrate: The board has now an income of approximately £4,000,000. If £500,000 of this is pledged for the repayment of loans the board will have only £3,500,000. With this diminished income the board, if unemployment continues at about ,the present' level, will be driven either to attempt to collect more wages tax ' (and perhaps bring the law of diminishing returns into operation) or j undertake more "capitalisation" or 'cut heavily into its allowances. In i any circumstances, it will be unable Ito reduce the tax. A reduction of the ta^, as soon as this is possible, is highly desirable to relieve the small wage-earner and to release private spending power. But if we borrow to meet present liabilities we increase the liabilities of the future and thus impose, a check, upon recovery. . No matter, how it may be disguised as "currency expansion" a loan policy for such purposes must be viewed! with suspicion. Have we not a hard enough lesson in the proportion of our present incomes which is absorbed in fixed charges—the service of past loans—in spite of reduction of such charges by "conversions"?