MILLIONS MORE

Evening Post, Volume CXXVI, Issue 89, 12 October 1938, Page 9

MILLIONS MORE

SOCIAL SECURITY COST

FOOLING THE PEOPLE

WHY NO TREASURY REPORT?

A calm and dispassionate survey of the Government's social security proposals on which it is claimed, by Labour members, that the election will be fought must make it clear to all thinking people that more detailed examination of the scheme by an actuary should be undertaken in view of the many variations of the original scheme , which have been announced and written into the legislation and which even at this late stage are still being announced. But it is not on the basis of actuarial reports alone, that the scheme should be judged, for there are other considerations affecting the issue wihch do not fall within the professional scope of an actuary. TOO BIG A HURDLE. The National Party stressed this point in the House, that a scheme of this magnitude and with all its financial implications, should be thoroughly yeviewed by the financial experts of the Government—that is by the Treasury, the Reserve Bank, and the taxation authorities. The plain fact of the matter is, that although the British actuary estimated the cost of the scheme, on which he was asked to report, as being £17,850,000 in the first year, this estimate proved too big a hurdle for the Government to negotiate in the election stakes. The Minister therefore made arbitrary reductions in the estimates of cost—which reductions he has made no attempt to explain to the country —and he made equally arbitrary increases in the estimates of income and moreover he abandoned, as a major essential, the taxation proposals upon which the actuary reported. FLIGHTS OF FANCY. Let me examine these arbitrary flights of fancy. On the costs side the issue was clouded by the reduction of the soldiers' pensions from the actuarial estimates. This did not affect the real issue in the slightest degree for these charges have to be met whether or not we have a social security scheme. Nevertheless on this pretext the cost was allegedly reduced to £16,060,000. To this figure, the estimated cost of additional benefits (not reported on by the actuary) was added, 1 bringing the cost —less soldiers' pensions^-to £16,610,000 in the first year—a year in which the universal superannuation pretence does not apply. The additional benefits estimated to. cost £550,000 —another arbitrary figure which you may be sure • the Minister did not over-estimate—which may very easily reach the sum of £1.000,000 in actual practice, and I prefer to use this figure in my estimation of the cost. Or the income side of the scheme we had not only an arbitrary increase Iby the Minister in the estimated national; income, subject to tax, of no less than £24,000,000 but the Minister and the. Government have artificially departed very considerably from the taxation proposals as reported on by the actuary. The actuarial estimate Of the national income was £150,000,000 but, and this is important, he included in that figure the income of pensioners and beneficiaries under the existing and the new scheme, as it was then the evident intention that all incomes would be subject to the tax. As it is not noW the intention that the Income of beneficiaries of the social security fund should be taxed the actuary's figure should be reduced by at least £14,000,000 (this is Mr. Nash's own figure) which.would give a total of £136,000,000 subject to tax. In passing, it might here be stated that the Government Statistician's figures pf aggregate private income for 1935-36 (including pensions, etc.,) was £120,000,000 so that the actuary allowed for a reasonable expansion. REMEMBERING THE ELECTION. The Minister, with an eye on the act balance of cost which, after all, is the figure the taxpayer and elector is interested in, came to the conclusion that the actuary had the wrong outlook although he was an able and competent man. He had probably forgotten that an election was in the offing and did not let that factor influence his professional job. And so the Minister took a flight into the Stratosphere of high finance. He said the national income would assuredly reach £174,000,000 next year, although in his Budget a few weeks earlier he estimated a fall in taxation revenue for this year. Anyway the net result was an estimate by Mr. Nash of a taxable national income Of £160,000,000 or a cool £24,000,000 wore than the estimate by the able and competent actuary and no less j than £40,000,000 above the Year Book b figure for 1935-36. However, by this aaeaas the Minister was able to reach j «& estimated income for the new fund of £8300,000.

The dairy farmers have had several experiences recently as to the ability of the Minister in his many forecasts of the surplus in the Dairy Industry Account, but it is safe to say that that experience will be as nothing to the experience of the taxpayer when the social security chickens come home to roost.

After all these Incursions into the regions of high finance the Minister still could not present a picture which would not frighten the electors, so he this time made an arbitrary reduction in the costs of the scheme for the first year. Not one word of explanation did he give to justify such a reduction beyond stating that he was convinced that an amount of £1,610,000 would not come to charge—Why?

SAVING ON HEALTH SERVICES?

The actuary with all the evidence of past years to guide him could reach a high degree of accuracy in estimating the cost of pensions provided under the new scheme. The incidence of pension claims over the years would provide the best possible guide. So also with sickness, disability, and sustenance pay, which could be estimated, having regard to health and hospital statistics and to unemployment statistics. One is therefore forced to the conclusion that these charges Which Mr. Nash says will not come fo charge, must be looked for elsewhere and the only remaining class of

The following survey of the financial side of the Labour Party's social security scheme has been made by a highly-qualified financier who has not, and never has had, any political party affiliation. His conclusion, supported by calculations, is that the full scheme, without any allowance for universal superannuation, will necessitate taking £8,000,000 a year from the pockets of taxpayers, in addition to the direct social security contribution of Is in the pound. The two forms of taxation will equal 2s in the pound on the national incoihe.

benefit dealt with by the Actuary was the health service and related services, namely, £ General practitioner service 1,210,000 Hospital and treatment 940,000 Medicines and appliances 560,000 Maternity services 290,000 £3,000,000 One begins to see a little light at the end of the tunnel. The Minister has just thought of the attitude of the medical profession to the general practitioner service proposed and in his optimism, or is it this time pessimism, he apparently decided that it would probably be impossible to reach an agreement with the doctors in time to introduce the scheme on April 1, 1939. Perhaps he has just remembered that the scheme could not be started without the assistance and co-operation of the doctors, and in view of the wide divergence between the opinions of the profession and the ideas of the Government, he realised that something would have to be done to gain their co-operation and to start the scheme. This is where the Minister anticipates a saving in the first year. The other costs are easily accessible in the light of past experience and even the Minister could hardly decide that the beneficiaries under the pensions and invalidity benefits would hold back in the first year. His suggestion as 'to the number of unemployed who would come in on these schemes disproves this. A TAXATION MONSTER. Now we reach the conclusion that the saving in the first year estimated by Mr. Nash at £1,610,000 will accrue from the health services provided in the Bill but sooner or later if the Act remains on the Statute Book these costs will have to be met. Mr. Nash, however, could not be persuaded to look beyond the first year; but we doubt very much whether the electors of New Zealand are prepared to follow this philosophy when considering a proposal which will certainly prove to be the greatest, taxation monster that New Zealand has ever dreamed of. But to get back to the Minister's estimates of the first year's cost and implications thereof. If the assumption that the saving of £1,610,000 will accrue from the fact that the health service will probably not operate fully is a reasonable one— and we submit that it is—then the electors should be told plainly that the service will not operate in full although the taxpayer will receive no taxation reprieve. In other words the full tax will be collected but unless' the cooperation of the medical profession can be obtained the full service cannot and will not be provided. After arbitrarily adjusting the figures of the "actuary in order to present a picture with a background which is not too menacing, the Minister presented to the House and to the country the deduction that the cost of Social Security to the Consolidated Fund—i.e., to the taxpayer's pocket which has already to provide Is in the £ on wages and income as a direct charge—would be a mere matter of £1,635,000 for which additional taxation would not be required. The necessity or otherwise for additional taxation to meet even this amount is in the light of the Minister's Budget for this year nothing more than a pious hope but what is the true position based on expert evidence? FROM TAXPAYERS' POCKETS. The costs— in the first year only may be set down as follows:— Actuary's estimate ~ 17 850 000 Additional benefit subsequently added but not reported on by Actuary ; 1,000,000 £18.850,000 Actuary's estimate of national in- ' come subject to tax of Is In the _ & . • 150.000,000 Jbftss incomes now to bo exempt .. *14,000,000 £186,000,000 *Note that Mr. Kash is even now promising still further exemptions which will increase the gap between costs and income. & Estimated yield from tax of Is in the £ on £136,000,000 6.800,000 Estimated yield from registration levy 500,000 £7,300,000 We thus arrive at the position that the first year's cost without any artificial reductions such as practised by the Minister of Finance will be £18,850,000, which does not make any provision whatever for the so-called universal superannuation. The estimated tax yield without any of the Minister's flights of fancy will be £7,300,000, so that the balance which must fall on the Consolidated Fund will be £11,550,000. We know, of course, that the cost of existing pensions provided from the Consolidated Fund may be set off against this figure. The Minister of Finance in the, House gave the present pension cost as £5,135,000, excluding soldiers' pensions, so that adding these soldiers' pensions the present charge becomes £6,735,000. Thus the net additional charge to the Consolidated Fund accruing out of the operation of the Social Security Act will be £4,815,000, and we doubt whether even this figure will be found sufficient. No wonder the Minister of Finance found it necessary to review the situation in the light of the approaching election. And so he hit upon the figure of £1,635,000 as the probable extra charge to be met from general taxation when in reality the amount required will be about £5,000.000. EMPLOYMENT FUNDS IGNORED. It is important to remember that even this amount, colossal though it may be, will make no provision whatever for the so-called universal superannuation which does not come into being until April 1, 1940, when the amount to which those who are then 65 will be entitled is £10 per year, or 3s lOd per week.

The Minister did not dwell on the cost of the whole scheme in future years. The plain fact of the matter is that he must have been afraid to do so, for the figures as to future costs, having regard to the change in population trends, are such that they do not bear critical analysis.

I believe that the cost figures for the first year are sufficiently arresting to

satisfy the electors that the whole scheme requires much more thought than the Government has given to the subject despite its pre-election promises in 1935. The picture in regard to social security is, however, not complete unless we include in the forefront the question of unemployment relief, at present financed from the wages tax of 8d in the £. The Minister of Finance, after much questioning in the House, stated that it was not proposed to borrow for unemployment relief purposes when the Social Security Act commenced to operate. He indicated that the Social Security Fund would be the milch cow for a number of those now on the relief work who were over 60 years of age or who were really unfit for work, but as for the remainder of the men whose wages are found from the Employment Promotion Fund, it has not been explained what is to happen to them. Obviously, some provision must be made, and if the funds are not to be borrowed they must come from taxation. On the basis of last year's expenditure the sum required for wages —as distinct from sustenance—would be £2,565,000. Then, again, there are a few unconsidered trifles, such as credits from the Employment Promotion Fund to other departmental votes, which will not be available next year, so that a greater sum than £2,565,000 is really... now being expended on wages of men actively working. I do not think it is safe to estimate that anything less than £3,000,000 will be sufficient for unemployment relief next year, and this amount must be added to the deficit in the Social Security Fund in order to find out exactly what the additional charge to the Consolidated Fund will be. REPORT FROM TREASURY REFUSED. We thus come to the position that the additional burden which the Consolidated Fund—taxpayers' pocketswill have to meet over and above the tax of Is in the £ will be £8,000,000, including provision for unemployment relief, but not including one penny piece for universal superannuation. „ Put in plain language, the cost to the taxpayer of social security on top of present commitments for unemployment relief, pensions, etc., in the first year alone by both direct and indirect taxation will be not less than 2s in the £ on the actuary's estimates of the national income. And the cost will rise steadily as the years go by. Think of it—2s in the £by direct and indirect taxation —and you have been promised this wonderful scheme for an extra -4d in the £. The issues are so big that the present scheme requires further expert examination. The National Party asked for a report from the Treasury, and the request was refused. In the light of the figures as they are presented now the reason for the refusal is obvious. The Government is fooling the people on the financial implications of the scheme, and in spite of past promises is not prepared to take the people into its confidence.