BASIS OF FINANCE

Evening Star, Issue 19326, 12 August 1926, Page 9

BASIS OF FINANCE

. The Commission proposes that the financial basis of rural credit shall be bonds issued on the collective security of many mortgages. _ These land mortgage bonds are securities similar to those issued by the State, except that they are secured on first mortgages on land, with amortisation provisions. They possess very many advantages, apart from tho relief to the gross public debt of the burden of rural finance; but it cannot bo too strongly emphasised that their value will depend upon tbo correct appraisal of tbo securities and the ability with which they can be converted into cash at some figure approaching face value. Under proper administration, land mortgage bonds provide a liquid and readily accessible security, valuable as collateral to the holder, as well as satisfactory to the borrower. -The report quotes American experience of the unsatisfactory result of issuing land bonds tax free, and emphatically opposes such methods.

“The general effect of tbo wholesale issue of tax-free securities has been to provide a refuge from taxation for certain classes of taxpayers; but the rest, however, are taxed higher correspondingly to make up the revenue deficiency, and gross inequality exists. Property and unearned incomes are taxed at a lower rate than earned income, and the rich man is escaping his share of the burden, which is being borne by the poor man and those in receipt of moderate incomes. No system of graduated income tax is likely to be effective so long as practically unlimited quantities of tax-free securities are obtainable.”

The Commission also opposes the' principle of unlimited liability. The dominion farmer, like the British farmer, has a strong disinclination to allow his business to be known to others,_ and is equally disinclined to enter into any obligation to guarantee the whole or any portion of another person’s indebtedness.