Evening Post THURSDAY, SEPTEMBER 26, 1940. THE WAR LOAN

Evening Post, Volume CXXX, Issue 76, 26 September 1940, Page 10

Evening Post THURSDAY, SEPTEMBER 26, 1940. THE WAR LOAN

The war loan prospectus issued today agrees in terras with the conditions suggested in the Budget. The loan is to he free of interest for three years and at 2i per cent, for ten years thereafter. Interest-free loans and donations for war purposes hitherto made niay be offset against the obligation of any taxpayer to contribute to this issue, but the loans must be converted to this issue. That is to say, the lender who has lent, say, for the period of the war, must agree to lend for thirteen years, three years free of interest and ten years at 2$ per cent. Subscription will be compulsory, though the Minister of Finance appears to hesitate about this. He stated in Christchurch that it was a misnomer to call the issue a compulsory loan. "It would become compulsory only when it had been found that individuals expected to contribute had failed to do so, and then only to the extent of their income." The compulsion is, however, only thinly veiled. The prospectus states plainly that "the Minister of Finance has indicated that for the purposes of the Finance Emergency Regulations, 1940 (No. 2), he will not regard any person as having subscribed in due proportion to his means" unless he has made a specified subscription. The Finance Emergency Regulations referred to empower the Minister, if he has "reason to believe that any person has not subscribed in due proportion to his means," to require him to do so and, subject to appeal, to enforce compliance. As the prospectus states the Minister's view of "due proportion" the loan is to all intents and purposes compulsory to that extent, but the taxpayer has the option of complying gracefully without waiting to be compelled. Our own objection to this procedure, as we have made clear before, is not because we question the right to compel persons with money to lend for the war, but that in the exercise of that right there is grave danger of disturbing the economy of the country. The people are willing to lend—over £2,500,000 of interest-free loans prove that — but all are not equally able to do so. The ability to lend depends not wholly on the possession of wealth (which may be in non-negotiable assets), or on the receipt of income (which does not necessarily connote control of capital), but on the possession of liquid resources. Many of the most essential businesses in the country do not possess surplus liquid resources. Just because the business is essential all available means have been put into it. Persons and companies in such a position will have to borrow to contribute, with disturbing effects upon their business. ■ There is provision in the regulations for appeal on the ground of undue hardship, but without infinite labour and inquiry the economic interests of the country cannot be safeguarded by such appeals. It would have been better, we believe, to have relied upon the patriotic impulse (of which there is ample evidence) to induce people to contribute to the utmost of their power, even though this may have allowed a few to neglect their obligations. As it is, the "due proportion" indicated by the Minister of Finance will be easily met by some persons, but for others it will be seriously embarrassing. On persons with small and moderate incomes the obligation is light. One year's income tax, with an individual exemption of £50, will put many people out of the class of obligatory contributors. As the danger of inflation lies in the extra spending by persons in these grades, the loan will not be a safeguard against inflation. At the other end of the scale, big companies which have to find an amount equal to last year's income tax, in addition to paying the heavier taxation due next February, the Social Security tax. and the National Security tax. will be up against a grave problem. The Government will probably say that the measure of conti"ibution is light over all as compared with the compulsory loans of the last war, which at first required subscriptions equal to three times thr amount of land and income tax and afterwards J were heavier still. But it must be remembered that compulsory loans were not issued until the Great War had been on for three years, that a market rate of interest was paid upon them, and that income tax, land tax, and war tax (the measure of contribution) were not nearly so

heavy as now, nor were there separate Social Security and National Security taxes, save to the extent that the war surtax served the latter purpose. The fact of the matter is that New Zealand entered the Great War with its finances sound and did not attempt to keep up civil expenditure and public works on an extravagant peacetime scale. In this war too the country could meet all its war obligations, either by taxation or loan, without serious embarrassment if the Government were not trying at the same time to maintain expenditure for ordinary purposes upon a scale which brought the country into difficulties even before the war broke out.