PENAL TAX

Evening Star, Issue 21354, 7 March 1933, Page 5

PENAL TAX

33*% FOB NON-CONVERSION

FINANCE Bill PASSED

MR STEWART'S SUGGESTION MILLION LOAN TO RELIEVE SMALL INVESTORS [Fkom Our Paruamkktarv Reporter.] WELLINGTON, March 6. Part and parcel of the Internal Loan Conversion Act, a Finance Bill providing for a penal tax of 33 1-3 per cent, on those who fail to convert their holdings of national bonds and stock, a 20 per cent, reduction in interest payable on State Advances, rural intermediate credit and land settlement association securities, and a 20 per cent, interest tax on Post Office investment certificates was passed by the House to-night. The debate on ' the Bill was short. Introduced in the afternoon, it was discussed in the night, the principal speakers being Messrs Coates, Forbes, Holland, and Downie Stewart, the lastnamed being the only real critic of the measure. There was little discussion on the committee stage, or the third reading. An attempt by Mr Stallworthy to have a hardship clause included was rejected by 36 votes to 13. The introduction. of the Finance Bill (No. 2) making provision for the penal rates of interest tax on persons who fail to convert their Government securities, gave the opportunity for some caustic references to the voluntary nature of the operation, as it had been, pictured by the Minister of Finance. ' “ I wish to draw attention to this wonderful piece of voluntarism,” remarked Mr Lee (Grey Lynn). , “We have fire under the, heretic, and he has to recant or burn.” He described the measure later as a “’stand and deliver ” “ Captain Kidd ” Bill. The recipient of interest had to walk the plank with the Minister of Finance behind him with a sword, pricking a certain portion of his vitals, and telling the victim’that he would let him back on the ship if he disgorged a'little, but otherwise there was a shark underneath waiting to get the whole lot. The Minister of Finance: That is quite wrong. The shark does not get the whole lot. (Laughter.) Mr Lee suggested that the dictionary definition of voluntary would need to be rewritten in New Zealand. Mr Stall worthy (Eden) showed concern over the possibility of hardship, and hoped there was some discretion given to the Minister to deal with such cases. He had received correspondence on the compulsory aspect. One message asked if the House had’ degenerated into a den of thieves. The Chairman of Committees: Order. The hon. gentleman is not in order using such terms. Mr Stallworthy: You Wish me to withdraw?. I will;" but I was not using words of my own. The Chairman: That does not make them in order. Mr Dickie (Patea) raised the question of Post Office certificates having a term of five years. He suggested that .there would be, a good deal of hardship involved to people of small means, wiio usually invested in these certificates, if the term was prolonged, because, they relied on them for definite purposes, such as the purchase of a small business. The Minister of Finance, answering the member for Eden, stated that he also was receiving a large quantity of correspondence about the conversion operation, and one writer declared it was outrageous that his income should be reduced while members of Parliament made no cut in their own salaries. “ That is a fairly stupid view r ,” commented the Leader of the Opposition (Mr Holland). “ If the members of Parliament have bonds their interest will be reduced.” The Minister of Finance added that the great majority of holders were readily offering to convert, and the Bill meant an increase in the deduction from interest if they did not convert, though the Minister was given full powder to forego the amount where cases of hardship were proved. MINISTER’S STATEMENT. Moving the second reading of the Bill Mr Coates said ho desired once again to emphasise the necessity and desirability of securing a lower rate of interest in New Zealand. Not only "(as it desirable on account of the position of tho Budget, but because of the important part it w'ould play in rehabilitating business. Tho Government had always received a gratifying response to the appeal for conversion at a lower rate. The Leader of the Opposition: What is the total amount? Mr Coates; Over £24,000,000, He said it was only on Saturday night that the prospectuses were sent out to individual holders, of whom there were about 70,000. ’The response had been most gratifying. It was an indication that the people of the country as a whole were prepared to make a sacrifice and accept a smaller amount for their investment. Not only did they realise that it was in their own interests to do so, but they realised it w T as in the interests of the country as a whole. Tho Minister said that it was the desire of the Government that so far as Government stock was concerned there should bo two rates of interest—namely, per cent, for those who hold non-taxablo stock, and 4 per cent, for those who held taxable stock. “ New Zealand is entirely different from other countries,” he said. “As ours is not an international money market we do not handle foreign money to any great extent. It says much for the people of Britain, which is the money centre, that those people who held British Government stock have been willing to convert at the lower rate. Australia is a bigger money market than we are, and there, too, successful conversion has been carried through. I need hardly say I hope and believe ■ that the response on tho part of New Zealand holders will be wholehearted and fairly general. There may, however, bo a small minority which is not willing to convert, and it is that small minority with which this Bill deals. I have heard slighting and critical remarks that this is not conversion upon a voluntary basis. It must be remembered that tho whole oh-

ject of the Bill is to get interest rates down to two uniform figures. If the big holder fails to convert without some legitimate excuse then the provisions of this Bill will apply. In the case of the small holders who fail to convert, the penalty will amount, only to a few shillings. If . we" are going for the lower rate of interest we must make sure we get everybody in.” Mr Coates said it must, be agreed that it was possible, judging by' the nows of the last few days, that some countries had left their steps for recovery too late. New Zealand during the last eighteen months or two years had at least taken steps to give investors some security. The Minister went on to refer to the question of Post Office investment certificates. He said that in the case of these securities interest was compounded and paid at the end of the term. The securities, on issue at present were earning interest at from 51 to 4-i per cent, according to the term and time of issue. As their volume was considerable the certificates could not be left out of the scheme, but owing to their form they could not be brought into the general conversion scheme. Accordingly acturial tables had been worked out to assess 20 per cent, interest tax on the amount to accrue from April 1 until the maturity date, hut in no case would the interest yield for that period be reduced below 4 per cent. The repayments value of the securities at maturity would be reduced in accordance with the tables. ■ LABOUR’S ATTITUDE. The Leader of the Opposition said although Mr Coates had said there had been a gratifying response to the appeal for conversion his own statement showed that there was still between £45,000,000 and £50)000,000 outstanding. It seemed that the Government’s scheme had not so far been the immense success the Minister’s public utterances would lead one to believe. The Minister surely could not have been serious when he had said he did not call the scheme compulsory conversion. Mr Holland said he could not imagine anyone failing to convert in the face of the provisions of the Bill before the House. In fact he had expected, in view of the hints of penalties, that the holders would not have awaited the introduction of the Bill containing the penalties before agreeing ~to come into the scheme. He suggested that it would have been a more open method on. the part of the Government to have included the penalty provision in the first Bill. ’He wanted to say to lenders of money that; they had helped to impose this reduction upon themselves when they had’stood behind the Government in imposing its earlier phases of the deflation policy. The Prime Minister (Mr Forbes) said the Government had made it clear that the object was ,to strengthen the position of bondholders themselves. He felt sure that the holders of stock would share the opinion that the Government was foI- ; lowing the only common-sense, cpurse. Mr Holland had referred ;tQ ’ the response to the appeal, but he shoulld remember, as the Minister of. Finance had pointed out,s that it was only on Saturday that the '. prospectuses had been sent out to the individual holders. EX-MINISTER’S SUGGESTION: ! That the banks should offer to underwrite a million sterling loan, to enable, the Government, to relieve small investors of compulsory conversion of their small savings was the principal contention of Mr Downie Stewart, exMinister of Finance, in discussing the Finance Bill. v - ~ . . “I do not. disguise the fact that if prices continue as they are,” he said, “ debtor nations may be forced into default,, but I Was . hoping that New Zealand, which has not yet exhausted its resources, and still has Bank of New Zealand - shares and other items, could meet the position of small investors.” He did not wish to interrupt what was an essential part of the programme, bub he was bound to say he regretted it very much. “ I had hoped we would fight on without taking the easy course of tell--ing our creditors to take a lower rate of interest or be submitted to penal taxation.” He was, he explained, concerned over the small investor whose income of £SO from stocks was now to be reduced to £4O, which_ might mean the difference between a livelihood and semi-starvation, and he would be very grateful indeed if the Government would meet them. He had received four letters that day showing the difficulties small investors were about to face. Elderly people whose sole means of subsistence was income from Government bonds, and large concerns which had undertaken to convert. They should not overlook that compulsion involved lack of consideration for the small investor, and , that they were not helping the country if this class was overlooked. “ If they want to act on high patriotic principles they (the large concerns) would say: ‘ We will not only take 4 per cent, ourselves, but we will help you to provide for those to whom this reduction of interest is a nightmare if' the State does not keep faith on their small amounts.’ ’ The object of the Minister, concluded Mr Stewart, was a bold one, and everybody would wish him success, but he could not dismiss from his mind that into his net would be swept all the small people whose life savings were at stake. Therefore he wanted him to go out of his way to meet those cases. The Finance Minister, replying to the second reading speeches, suggested that the argument of Mr Downie Stewart was to give a clear indication that the country could pay, which raised the question with the bondholders—why should wo convert? Let’s go to wrack and ruin. Have a Roman holiday and have done with it if wo are not going to face the position. Let us see what is facing us. I was never more serious when I say the alternative to what we are doing fails the imagination. Mr Langstone (Waimarino): Why don’t you resign ? * Mr Coates, ignoring the interruption, asked members to 1 look at what was happening in other countries. New Zealand, he declared emphatically, was definitely trying to live within its income, hard and desperate as it was. The previous measure included power to the commissioner to consider cases of hardship, but to say the Government was not going to apply reduction would be wrong and misleading. His own experience was that the small holders were as ready as anyone to help, because they realised how serious was the position. FINAL STAGES. Mr H. M. Rushworth (Bay of Islands) said he was still old-fashioned enough to be obsessed with idea of the sanctity of contracts at all costs. New Zealand, be firmly believed, was still able to fulfil her contracts while she could continue to produce such a great volume of real wealth as she was producing at the present time. The Bill was read n second time. In committee Mr Stallworthy moved to insert a hardship clause. Mr Coates said that provision had already been made for hardship cases. Mr Stallworthy called for a division, but his motion was rejected by 43 votes to 20. The Bill was read a third time and passed*

TERMS OF BILL

THE SECURITIES AFFECTED -The- imposition of a penal interest tax of 33 1-3 per cent, on Government securities which are not converted under the National Debt Conversion scheme is provided for as under in the Finance Bill. The taxation applies to securities affected which bear a rate of interest in: 1 excess of 4 per cent., if the place fixed, \ either for the payment of interest or j the repayment of principal as at April, ] 1933, is in New Zealand, or is at anyj time after that date changed to afplace’in New Zealand; also tosecuri-. ties issued-by the State Advances, the] superintenlent .of the Rural Inter- j mediate Credit Board, or any land ■ settlement association, if the place fixed; for payment of interest or repayment’ of principal, as at April, 1933, is in. | New Zealand, or is at any time after i that date changed te a plaee in New,] Zealand; and to existing Post Office in-; vestment certificates and existing Government securities. Post Office investment certificates and other forms of ( securities are affected by the provisions' of the measure. It is provided that securities issued: in replacement of any securities shall; not be subject to the provisions of the j Act, the term “replacement” being! defined to cover certain transactions! where securities are issued in lieu of; any existing securities without, alteration of the terms on which the original; securities were issued. This is merely • to provide for the issue of one form of] security in' place of another, and to', cover the position in respect of securi-1 ties which may have been, lost or destroyed. ' ■ The penal tax will also be payable in respect of any securitieswhere the holder exercises an option to have the interest paid in New Zealand at any time after April 1, 1933;' in respect of interest that accrues on or after the date bn which the change is made. This tax does not apply to any new securities issued under the New Zealand Debt Conversion Bill, which has’just been passed; so that effect is that: holders who convert their securities will be immune from this additional tax. • The interest tax in respect of securities issued by the State Advances Superintendent under the Rural Advances Act, 1926;’: the' Rural- Intermediate Credit, Board, or any land settlement association is to be, at the rate of 20 per cent., and’shall apply in the case of such securities in respect of which the placed for, payment of interest . or repayment of principal, as at April 1 ; 1933, is in, New Zealand, or is at any time after that 1 date .changed to;a : place in New Zealand. • . . The net amount received by Way of interest tax in respect of securities issued by the State Advances Superintendent, or : the Rural Intermediate Credit Board, or any land settlement association, shall be returned to the superintendent, of the board or association (as the case may be) after allowing for the deduction of an amount not exceeding; 5 per cent, in respect of administrative expenses. The imposition of interest -tax on the. amount repayable at maturity in respect of existing Post Office investment ’ certificates is 1 provided for. The amount payable on : each class of certificate is based on a reduction of .20. per cent, in respect of interest accruing from April 1, 1933, to ; tho date of maturity of the .certi-ficates.,-The amount-paid by any person as interest tax in any year in respect of interest included in his assessable income will be deductible by way; of special exemption from the assess-* able income of such person for that l year. • A clause also. provides that the, amount ■ paid by ■ any banking company| as .interest-tax in any .year, in respect] of interest that is not exempt from in-| come tax, will be deductible from th«] taxable income of that company-fop: that year. The present stamp duty of TO percent, shall not be payable in respect of] any interest on which interest tax under this Act will he payable.

NATIONAL NECESSITY

THE PROSPECTUS APPEAL The broad grounds of national new cessity form the basis of the appeal made to-day to the 70,000 holders of the New Zealand Government stock andl debentures to convert their securities! f to a lower rate of interest. Accompanied by the prospectus and conver-, sion application form, the appeal, which 1 is above. the signatures of the Prime Minister (Mr. Forbes) and the Minis-; ter of Finance (Mr Coates) is couched in the following terms:— “ With every confidence we make this personal appeal to you to take part in assisting the Government to convert to a lower rate of interest the .whole of internal public debt. This transaction, involving as'- it does £115,000,090, represents a financial undertaking of a magnitude never before contemplated in the dominion. Its success will depend upon the response' made by every holder of New Zealand} Government securities. The Govern.* ment bad hoped that the present world-] wide depression would lift, and make’ unnecessary this further demand fori sacrifice. As you are well aware. far«i reaching measures have already been.’] taken to restore the dominion’s financial stability, but in themselves they] have not been sufficient to counteract the tremendous shrinkage of the-na-tional income, and enable,trade and in-' dustry to bo carried on with any de-: greo of success at the prices ruling to- : day. Accordingly, it has become necessary for ns to adopt measures which’ 1 have a- wider purpose than merely the] immediate balancing of the national! Budget. That, indeed, is a consideration. The first and primary. 1 purpose of the conversion is to induce’ a new low level of interest ratesthroughout the whole field of invest-l ment._ ' Interest is The major item of cost in all industry, and incalculable benefit must result from the stabilisation of interest charges at rates more in. keeping _ with present-day prices. Our. appeal is made on the broad grounds ,of national necessity. We as a people are justifiably proud of] our prestige abroad. This pres-j tige, so essential to a young, grow-} mg nation, will be vastly enhanced by the successful conversion of our inter-! rial debt, which, we emphasise again,-; can be brought about only with vonr cooperation.” ■" The letter concludes with a request to bondholders to fill in the application form, and forward it without delay to the Secretary of the : Treasury. Wellington. Applications close oh March 24.