BURDENED, BUT RISING

Evening Post, Volume CXIX, Issue 129, 3 June 1935, Page 8

BURDENED, BUT RISING

A company that pays its current expenses out of revenue, and not out of capital, is in a much sounder position than a company which pays current expenses out of capital, even out of borrowed capital. Suppose the company is^ellirig to the public a commodity, using-two units of manufacturing plant; the company should be able to make and sell the commodity on terms allowing it to pay all incidental to the two units, spending revenue and not capital; but if the company establishes a third unit of plant, it may do so out of capital, in order that its selling charges, falling upon its customers, may be kept low. The third unit of plant may be considered as a third piece of capital creating its own profits and assets. Compare this now with the unemployment finance. In the last few years New Zealand has done what few people at the outset regarded as possible—has raised over four millions a year as revenue (by taxation) and not by borrowing. Unlike the company, which has a return from sales, the Unemployment Board has no return from its expenditure except unliquid assets worth generally much less than their cost, and in any case these assets do not belong to the Board. The Board therefore has every incentive to tax and not borrow; for if ah unprofitable business is an annual loss when working on revenue—which is bad—it is a recurring loss when working on capital —which is worse. But the Board must be careful not to charge its taxpayers too much, just as the companyshould be careful not to charge its customers too much. The people who pay are the people of most importance. The question therefore is: Have the payers of tax, levy, emergency charge, etc., paid too heavily during recent years for that great boon—a. relief scheme leaving no recurring debt charges behind it? ; If that question were put to the Board, its answer, judging by its statement published on Saturday, would be fairly clear. It would say that the tax of lOd (until recently Is) in the £ has not strangled wages, because the 1934-35 revenue, after allowing for certain factors, indicates that wages paid in New Zealand increased in 1934-35 by £3,600,000 over the preceding year; while dividend, interest, profit, rent receipts (technically described as receipts other than salary or wages) increased by. £6,388,000. The first barometer (wages tax) is claimed by the Board to be very exact and up to date, because it catches actual wages as they fly, and therefore isa better close-up view of the economic position of the p%ople than is income tax or Customs receipts. The second barometer suffers from the same disability as income tax, because dividends and profits arise from a preceding year, and in this case from a good wool year followed by a poor one. Taking a balance on these figures, the Board would say that the people have stood up to the taxation, and are recovering to the marked extent of an increase last year in Wages of over 3£ millions.

Thus we come to the question: "What next?" Are the taxpayers (cash customers who buy nothing but the community advantages of a revenue relief scheme) to be relieved of part of their burden? If so, is the resultant deficit in revenue to be met, or largely met, out of capital borrowed in the internal market? We know now that if the self-sacrifice taxpayers have accepted in the last few years had been spread, in a diluted degree, over the last fifty years, a great part of our crippling interest bill would be absent; we also know that while a company may create a new payable asset out of capital, the assets created out of borrowed capital by political public works never, in the average, pay interest. Is it wise, then, at this stage to make a big step back to the oldsystem of borrowed money works* (whether labelled "relief" or "public") as suggested in Christchurch, or to go on taking money out of the pockets of taxpayers who may be able to spend it better than the Unemployment Board spends it, but who at any rate can thank the Board jfor adding little or nothing to the I public interest burden?,