TAXATION RESPITE

Evening Star, Issue 21090, 30 April 1932, Page 12

TAXATION RESPITE

NO FURTHER BURDEN MINISTER'S WELCOME ANNOUNCEMENT RECOURSE TO RESERVES [Per United Press Association.] WELLINGTON, April 29. Tho Minister of Finance (the Hon. Downio Stewart) made the following statement in the House of Representatives this afternoon:—

“ It was pointed out in the Financial Statement recently issued that in present circumstances the bridging of the gap in the State’s finances must - be largely accomplished by means of reductions in expenditure. “ In view of the various statements that have been made suggesting that adequate steps have not been taken to reduce the expenditure, I wish to review briefly the economies effected since the depression began to grow acute. “ During the financial year 1929-30, at ■ the commencement of the trouble, economies were made in departmental votes to the extent of £260,000. During the following two years economies were made as follow:

Thus, in three years to March 31 last, the economies and adjustments effected amounted to £5,940,000 per annum. THIS YEAR’S SAVINGS. In regard to the current financial year the Government has now dealt with most of the recommendations contained in the interim report of the National Expenditure Commission. The savings recommended by the commission totalled £2,976,262; the savings effected for 1932-33 totalled £2,040,290; further savings approved for 1933-34 totalled £246,100, leaving £99,662 held over. I may mention that some of the savings held over have not yet been finally dealt with. It will be seen that of the £2,976,262 savings recommended by the Royal Commission no less than £2,286,390 has been effected or approved by the Government. These economies and adjustments do not complete the list, for, in addition, relief to the Consolidated Fund will accrue from the following items;— Abolition of subsidy on unemployment funds ... £1,450,000 Relief to hospital subsidies from unemployment funds 200,000 Hoover moratorium (if extended) 600,000 Further reductions by railways... 100,000 Total ... £2,350,000 Add savings in accordance with tho commission’s recommendations £2,040,000 Total savings and adjustments at present in sight for 1932-33 £4,390,000 The grand total of the relief to the Consolidated Fund over the period under review is no less a sum than £10,330,000, of which approximately £2,500,000 has been obtained by various adjustments and the balance of £7,830,000 from economies. These figures indicate the strenuous efforts made to cope with the position. However, notwithstanding tho economy measures adopted or contemplated—and savings of the magnitude of these are not obtainable without drastic action—the summary of the position set out in the Financial Statement indicates that there would still remain a substantial prospective deficit for this financial year. It will be remembered that the committee of economists considered that if we could end the year with a deficit of about £2,000,000 it could be regarded as a manageable deficit. In the Financial Statement of April 7, 1932, it was estimated that to confine the deficit to not more than £2,000,000 it would he necessary to effect savings and adjustments of £4,100,000, and to impose extra taxation to yield £2,200,000.

Since that statement was made I have reviewed efully the available sources of taxation which might yield the amount of £2,200,000 indicated as necessary. It is clear that the remaining taxable capacity of the dominion is limited, and it is difficult to devise ways and means of obtaining additional revenue without adding to the formidable burden of private businesses, both primary and secondary. In the area of direct taxation it would only be feasible to obtain any substantial amount by a series of minor impositions of an irritating nature by way of various stamp duties and reductions of the exemptions in regard to income tax, and so on. In the area of indirect taxation it would be necessary to resort to a sales tax and to taxation on various items of consumption in dail” use. These various expedients could be made to yield by way of taxation the amount of £2,200,000 indicated

in the Financial Statement, but in the process of doing so the items of indirect taxation, such as a sales tax* etc., would inevitably tend to increase the cost of living at the very moment when by various reductions in wages and fixed charges we are seeking to reduce the cost of living. The one process would be to some extent negatived by the other. Moreover, further taxation cannot but have a depressing influence at a time when the whole community is fighting a hard battle to hold its own against an unprecedented depression. Having all these factors in mind I have considered it wise to make a special effort to afford the community some breathing space from further tax burdens. / I propose, therefore, to withhold our remaining taxable capacity in the meantime, and to fill up the gap by a further recourse to our reserves, amounting to £10,500,000 invested' in the Discharged Soldiers’ Settlement mortgages. As I have previously stated, these reserves were built up out of surplus • revenue in prosperous years. In order to get over the difficulty that it would be unwise to sell them at a' heavy discount on present-day market values, I took power l in last year’s legislation to draw against them.by, hypothecation of the securities pending the time arriving when they can be sold at their real value or the receipts from them can be made available. This authority was not used last financial year, but it wae hoped that some use could be made of it this financial year. Since then I. have bean negotiating with the Bank of New Zealand, and have now to announce that I have concluded a satisfactory arrangement to obtain £2,500,000 by hypothecation of the securities. I understand that the National Bank of New Zealand proposes to take a proportion of this amount. The amount will be paid off out of funds provided by the repayment of loans by the discharged soldier settlers. About £200,000 from this source was allowed for in the Financial Statement, so that the additional amount thus made available is £2,300,000. This procedure will enable us to keep in reserve for a later date whatever taxable capacity the community still possesses and still reach the result already laid down as desirable—viz., that we should end the year with a manageable deficit of £2,000,000.

It is true that by imposing the taxation of £2,200,000 and at the same time throwing into the firing line the reserves now being called on we could actually balance the Budget this year, but I do not think it , wise or desirable to exhaust both our taxable capacity and our reserves in this year when we do not know what yet lies in front of us. It should be noted, however, that this proposal, combined with the deficit for last financial year and the amount up to £2,000,000 that may eventually be carried forward this year, will practically absorb the effective value of our remaining discharged soldier settlement reserves after allowing a safe margin for the investment losses that may be suffered on account of the depression. This means that any further decline in revenue must he met by economies in expenditure or increased taxation. This valuable assistance to the Government afforded by the Bank of New; Zealand and the National Bank of New Zealand will he additional to their; share of the extensive Treasury bill programme necessary to finance remittances to London, maturing loans* and general requirements during the year. Arrangements in regard to this general finance are being made with the Associated Banks, which are in this way affording great assistance to the Government in meeting its difficult financial problems.

. — Economics.— 1930-31. 1931-32. Total. £ £ £ Reductions in . salaries and wages - 1,390,000 1,390,000 Hoover moratorium _ 870,000 870,000 Grants and subsidies ... 130,000 135,000 265,000 Departmental votes 425,000 865,000 1,290,000 Railways and Post Office reductions 475,000 1,060,000 1,535,000 Grand totals 1,030,000 4,320,000 5,350,000 —Adjustments— 1930-31.' 1931-32. Total. £ £ £ Subsidy on rates transferred to Highways Account 220,000 220,000 Interest charges on capital transfers to Highways Account ■ 60,000 — 60,000 Transfers to discharged soldiers’ Settlement Depreciation Fund stopped 50,000 — 50,000 Grand totals 1,360,000 4,320,000 5,680,000