THE BUDGET

Greymouth Evening Star, 2 August 1929, Page 3

THE BUDGET

NEARLY £600,000 DEFICIT

TAXATION INCREASES

(Per Ministerial Favour)

Sir Joseph Ward, Minister of Finance, delivered the Financial Statement in the House of Representatives this evening, from which the following are the principal extracts:

WELLINGTON, August 1. “The deficit for the year was £577,252. I must emphasise that this is mainly the outcome of the Budget of my predecessor in office. The principal cause- of the trouble was overestimating the revenue from taxation, in addition to which the expenditure was unexpectedlj r increased by £156,000 for additional interest arising out of the large conversion operations I was called upon to deal with immediately upon assuming office. Fundamentally, the lessened yield from taxation arose out of the tardy recovery of the trading position. Exports from the Dominion in 1927-28 were valued at nearly fifty-five millions, and exceeded imports by ten millions, and a-half. During the last financial year the position of external trade, was better still, exports totalling over fifty-seven millions and exceeding imports by twelve millions. These results are, of course, reflected in th© banking figures, where the position shows a recovery from £4,260,000 excess advances for the June quarter, 1927, to £7,520,000 excess deposits for the June quarter, 1928, and £9,640,000 excess deposits for the same quarter of this year. This indicates that the credit position has quite recovered from the depression obtaining in 1926 and 1927, and a healthy, revival in business is the natural corollary. The revenue for the year amounted to £23,599,676, of which £17,836,234 was derived from taxation and the balance of £5,763,442 from interest earnings and sundry revenues and recoveries from various State activities. The revenue from taxation includes £1,243,577 on account of petrol tax, motor license fees, etc., which are specially earmarked for highways purposes, so that the revenue from taxation for general purposes amounted to £ 1Q,592,657. Apart from Post Office receipts and motor taxation, last year's revenue represented an increase of £496,497 over that of the previous year. There it will be seen that most of the increase was in the interest receipts, and that the taxation items showed relatively little increase over f the previous year. In fact, this lack of buoyancy in the revenue from taxation for general purposes was the principal cause of the deficit, in that the former Minister of Finance had anticipated an increase of approximately £426,000, whereas the results showed an increase of only £IOB,OOO. The mainstay of the revenue—Customs duties —showed an increase of £11,663 over the previous year, but fell short of the estimate by £306,748, mostly due, I find, to a marked decline in the duty collected on spirits. Beer duty, however, was well maintained, and slightly . exceeded the estimate for the year. Coming next to direct taxation, this also proved disappointing for the most part. The income-tax receipts for 1927-28 were exceeded last year by a relatively small margin of £37,148, but the results for 1928-29 were short of the estimate by £89,123. As regards land tax, this was not only a little short of the estimate, but £14,155 less than was received for the previous financial year, 1927-28. I find that there has been a steady shrinkage in land tax over the last few years, due to the subdivision of estates and the adjustment of country valuations consequent upon the decline in some of the inflated land values to a more economic level. Stamp and death duties were estimated to produce last year practically the same amount as was received for the previous year. The results, however, showed an increase of £71,353 over the total for 1927-28. Death duties contributed £17,457 and gift duty £27,686 towards this increase, while adhesive and impressed stamps produced £49,111 more than the previous year. These increases, however, were partly

offset by a fall of £20,711 in totalisator revenue. The revenue other than from taxation, amounting to £5,763,442, fell short of expectations by an amount of £46,808. < EXPENDITURE.

“The net expenditure out of the Ordinary Revenue Account for 1928-2.9 amounted to £24,176,928, an increase of £1,529,082 compared with the previous year after the Post and Telegraph expenditure has been deducted from the 1927-28 figure. It must be explained, however, that this increase includes £877,243 on account of the transfer to Main Highways Account and lo,cal bodies of the special taxation earmarked for highways purposes. The large increase under this heading is due to the fact that these items for 1927-28 represented only about three months’ revenue. The net increase on other items was thus £651,839, of which £487,976 was under permanent appropriations and £163,863 under annual votes. Details will be found set, out in Table No. 8 attached to this Statement. The principal items responsible for these increases are as follow: —Under permanent appropriations: Interest £278,147, debt repayment £74,992, pensions £91,307, family allowances £17,300, Samoan Military Police £27,374. Under annual appropriations: Electoral Department £80,046, Agriculture £86,316, Education £92,681. Concerning the increase in interest payments, it may ! be explained taat £156,393 of the increase is due to a change in interest dates, arising out of the recent conversion operations in London, which entailed the payment of interest for a broken period of four months. “Concerning pensions, it will be seen that the old-age and widows’ pensions together increased by £59.622. Such pensions bear fairly definite relationship to population, and increases are to be expected accordingly.. War pensions might be expected to decrease, but such is not the case, the increase for the year being £31,691.’ The reason for this is that many of the men are only now feeling the full effect of their war injuries. Family allowances have shown a substantial increase, which is due to the fact that many who were

eligible for allowances did not at once take advantage of the provisions of the Act. The charge for the Samoan Military Police is an entirely new item arising out of the unrest in Samoa. The large increase in the expenditure of the Electoral Department was the result of the general elections held last year, while the increase under the heading of “Agriculture” was principally due to a new item of £25,810 for bonus on export of pork and an increase of £34,791 in the subsidy on the railage of fertilisers for farmers. “Expenditure under “Education” showed an increase of £92,681. For the most part this is the result of the normal increase in the number of children attending school, added to which there was in increased cost for conveyance of children to school and for boarding out children placed in the care of the State.

We arrive at what might be described as a taxation account, as follows: — Revenue: Customs £7,954,252: beer duty £611,484; stamp and death duties £3,575,720;. land tax £1,140,324; income tax £3,310,877; motor vehicles (petrol and tire tax, etc.) £1,243,577; non-taxation receipts (not apportionable) £7,180; deficit for year, £577,666 total £18,420,666. Expenditure: War pensions and war debt charges, £5,023,755 (27.2 per cent.); other debt charges £2,226,416 (12.1) social services, £6,292,930 (34.2) social Services, £6,292,930 (34.2); defence —land, sea and air, £1,043,622 (5.7); justice, law, and order, £544,976 (3.0); agriculture, £464,533 (2.5); roads and highways, £1,536,517 (8.3); general and other administration charges, £1,287,917 (7.0); total £18,420,666 (100 per cent.).

PUBLIC WORKS. Referring to Public Works, the Minister said that the net expenditure on capital works, for 1928-29 was £7,659,580, comprising the following main classes of outlay:—Railway construction, additions and improvements, £3,179,391; main highways and roads, £1,822,922; hydro-electric supply, £965,560; telegraphs and telephones, £624,414; public buildings, including schools, . £602,392; irrigation, land and river improvements, £282,806; other public works, £182,095; total, £7,659,580.

“It will be observed that nearly half the expenditure was incurred on account of railways. On railway construction, including a proportion of the overhead costs of the Public Works Department, the expenditure was £1,066,454. The policy of the Government in regard to railway construction, in accordance with the mandate received from the people at the election, is to accelerate the construction work and complete the trunk lines as quickly as possible. There is the completion of the South Island Main Trunk line, by bridging the gap be-

tween Wharanui and Parnassus. The Government is satisfied that the construction of this piece of line, estimated to cost about £2,350,000, is necessary to complete the South Island sys-

tern. About £43,000 has already been expended on preliminary work, and as soon as the surveys now being made can be completed the construction work will be pushed on vigorously. The remaining sections in the programme are those necessary to complete the lines from Nelson to Inangahua and Westport to Inangahua. Approximately £350,000 has been spent on the uncompleted sections to the end of the last financial year, and the estimated cost of completing them is about £2,170,000. This estimate has probably been upset by the Tecent earthquake, the full effects of which are not yet known, and the proposed route of the'se lines will have to be re-examined by the Engineers. With a view to speeding up the construction work all round, the vote for railways construction for this year will show an increase of more than 60 per cent, over the amount spent last year. In addition to railway construction, there was also expended out of the Public A'Vorks Fund last year an amount of £213,405 for additions to open lines. As to public buildings, last year’s £602,392, included £227,041 lor departmental buildings, P° s 4_ mental hospitals, etc., and £3/5,051 for schools. The erection of schools in newly settled districts and m areas where the population is increasing rapidly has been given first consideration, .and these activities absorbed a large proportion of the funds available last year. Nevertheless, a good deal was accomplished in the way of remodelling schools with a view to providing separate class rooms for each teacher, and incorporating in the building more effective lighting, ventilation, and heating. In addition, a lew buildings of different open air types have been erected with a view to discovering whether such buildings are suitable to the climatic conditions of tlie different parts of ,the country.

PUBLIC DEBT.

The public debt as at March 31, 1929, amounted to £264,191,983, a nett increase of £12,795,731, during the financial year. Honourable members should understand, however, that this increase included £5,379,105 on account of the £7,000,000 loan to which I have just referred. I must explain that the whole £7,000,000 was not added to the debt as at the 31st March, because the last instalment of the loans, was, in terms of the prospectus, not received until April 2. The proceeds of this loan were not drawn all for last year’s requirements, so that the loan belongs entirely to this year’s finance. The debt increase for this so that the total amount held by the amount already added to the debt on account of the loan by March 31 last. Apart from the £7,000,000. loan, the aggregate of additions to the debt for the year was, £10,650,750. To sum up the position, £17,833,996 of the 1929 Consolidated Stock has now beeen cancelled, and further parcels amounting to £382,500 were held by the Treasury, as an investment, awaiting cancella-

tion, so that the total amount held by. the public in March 31 last was £ll,274,356. This is a more manageable amount, but I,am hopeful of reducing it still further before the maturity date on November 1 next. In fact as local money is relatively plentiful at present, I am raising some of the fund in New Zealand for redemption of this stock, and, including the cancellation of the £382,500 of stock , held by the Treasury on March 31 last, have already disposed of some £860,000 of it in this - manner. The effect is to transfer so much of the debt to New Zealand, which will be a sound proposition economically. Including the £502,500 of 1929 stock just referred to, payments of debt during the year amounted to £3,234,124.

RAILWAYS AND ROADS. Dealing with Railway and Road Transport, the Minister said: “The railway revenue for last year amounted to £8,249,038, and working expenses to £6,849,383, leaving a net revenue of £1,399,655. Subsidies on branch lines and isolated sections (paid and accrued) amounted to £498,937, giving a total of £1,898,592 available for interest charges amount-

e ing to £2,331,335. The resuht of the i- year’s working was, therefore, a loss r of £432,743 as far as the Railway Dei- partment was concerned under present a arrangements. The subsidies merely !. represent losses already borne by the ” Consolidated Fund, so that the disclos- .. ed loss for the year is approximately f £930,000, as against £280,000 for f 1925-26, the first year of operations un--3 der the present system. The real loss r is even gerater than is indicated by I these figures, as there are certain j capital charges which the Railways have not be,en asked to carry. Now, that part of the loss which is at present carried by tire Railways must be , met out of their working capital and , such reserves as they have for renew- ’ als and depreciation, etc., and as soon , as these are represented only by accumulated losses, the Railways will obviously be unable to carry on without further assistance from the Con- ’ solidated Fund. This will mean that the whole of the losses will have to be borne directly by the taxpayers as the same accrue, and I am satisfied that if the present drift is allowed to go on for only a few years longer the tax- ! payers of this Dominion will have to find not less than £2,000,000 a year to meet Railway deficits. That is what I we are faced with.” I The Minister proceeded to draw at- < tention to the additional revenue and ' expenditure in connection with ad- < vertising, motor service, and other J subsidiary services omitted from the 1 1928-29 figures and said: “It will be < seen that the seat of the trouble lies in i the passenger traffic, where the re- < venue has declined, notwithstanding 1 the fact that over the period lines 1 opened for traffic increased by 281 1 miles, while passenger train-milegae - run increased by about 60. per cent. 1 Had passenger revenue increased in * the same ratio as the goods revenue 1 all would have been well. The falling- - off in the passenger traffic is undoubt-

edly due to the development of motor transport, which is becoming a rapidly increasing factor in the transport system of the Dominion. The Government has decided to write down the capital of the railways. At the same time the present subsidy out of the Consolidated Fund will be abolished. The present arrangement is unbusi-ness-like and confusing, and the proper thing to do (assuming it can be done) if the assets are not worth their costs from the point of view of earningpower, is to write down the capital. That is what any commercial concern would do.

POST AND TELEGRAPH. “The first year of the Department on the new accounting basis proved successful. Receipts for the year amounted to £3,445,545, and the expenditure, including £428,000 interest paid to the Consolidated Fund, to £2,921,736. The balance of receipts over payments was thus £523,809, and after providing for depreciation and other reserves the nett profit for the year was approximately £39,000. The savings bank business shows a considerable improvement over that of last year. The deposits totalled £27,252,381 —which is £358,685 less than the total for last year. The withdrawals over deposits for the year was £859,559 compared with £2,973,931 for the previous year. The year’s operations disclose an improvement of over £2,100,000. The interest credited to savings bank depositors for the year was £1,745,050. The nett result is that the accumulated funds at the credit of depositors have increased by £885,491, the total amount standing at £48,644,217.

PUBLIC TRUST. “This useful State institution reports another very successful year in 1928-29, during which the value of estates and funds under administration rose from £44,155,548' to £48,334,790, a record increase of over £4,000,000. The investments made during the year amounted to £3,190,642, consisting largely of loans to local bodies and farmers, and to town dwellers for housing purposes.

STATE INSURANCE. “The Government Insurance Department issued new policies assuring £1.915,465, the largest amount ever written by the Department in any one year, and bringing the total insurances in force up to £22,084,471, including bonuses. The- annual valuation of liability disclosed a surplus of £212,519, excluding interim profits paid during the year. A total of £20,087 has been divided in the form of reversionary bonuses totalling £324,871. This Department already pays both land and income tax. As to the State Fire Insurance Office, the total income received, £252,093, was a record for the Office. _ Claims were substantially less than in the previous year, and working expenses the lowest for the last 15 years. The surplus of £75,600, after allowing for a, rebate of 12J- per cent, to policy holders, was greater than in any previous year in the history of the Office. The State Fire Office has been for some years now the largest fire insurance income tax payer in the Dominion. In future the Office will also be called upon to 'pay land tax.

TAXATION PROPOSALS. “As to this all-important question, honourable members will have gathered from my remarks earlier in this Statement that, in view of the deficit last year, and the general position of the country’s finances when the Government assumed office, there is no practicable option but to face the facts and obtain additional revenue from taxation if the Budget for this year is to

be balanced —and that, of course, is essential. Attention was first given to the large farming incomes, which I consider have not borne their fair share of taxation in recent years. Accordingly, to adjust this inequity and assist in bringing about the cutting up of large estates, it i& proposed, in the case of farming lands of an unimproved value in excess of £12,500, that the amount of land tax, assessed on the present graduated scale, shall be increased by a supertax calculated on a graduated percentage basis, rising 1 per cent, for each £SO of unimproved value above £12,500 on which such land tax is assessed, until for an unimproved value of £15,000 the supertax will be 50 per cent, of the land tax on the present basis. Thereafter, the

percentage rate of supertax will continue- to increase 1 per cent, for every £3OO of unimproved value on which

land-tax is based, until for an unimproved value of £30,000 the super tax will be 100 per cent. Above an unimproved value of £30,000 the super tax will be at a flat rate of 100 per cent, of the land tax as assessed under the present scale. It is further proposed that the mortgage exemption allowed in assessing land tax shall be reduced to £SOOO, disappearing £1 for every £1 of unimproved value in excess of £SOOO. The present exemption is £IO,OOO, disappearing £2 for every £1 of unimproved value in excess of £IO,OOO. It is a fact that at present, owing to exemptions, many farmers' with an unimproved value up to £IO,OOO, pay neither land nor income

tax. In addition it is intended to amend the law to make all farmers, including farming partnerships, with holdings (whether owner or leased) of an unimproved value of £12,500 and over at any time during the year ended March 31, 1929, assessable with income tax on their farming income, but subject to a set-off of the actual amount paid in land tax on the land used for farming. As Ido not anticipate that these land and income tax proposals will produce enough additional revenue to ensure a balanced Budget for this financial year, it is proposed to move a resolution to-night increasing the primage duty on imports from 1 per cent, to 2 per cent. The duty is so small and so universal in its application that the proposed increase will be the least felt of any possible increase in indirect taxation. Further, as soon as the Budget balance is stabilised, this additional duty can be taken off without disturbing the tariff in any way. To remedy a cause of hardship under the present income tax provisions relating to children’s exemption, it is proposed that the present age limit of 18 years shall not apply in cases where the Commissioner of Taxes is satisfied that a child, owing to mental or physical incapacity of a permanent nature, is unable to earn his, or her, own living. Further, it is proposed to provide that the exemption on account of children under 18 years of age shall be apportioned over the twelve months in cases where a child is born or attains the age limit for exemption during the income tax year.

STATE SUPERANNUATION.

“As I have previously indicated, the question of investigating the financial position of the State Superannuation Funds —i.e., the Public Service, Railways, and Teachers’ Fund—has occupied a great deal of my attention. My investigation showed that the financial position of these funds is even worse than I had thought. The cash shortage on account of current pensions alone, which should have been covered by State subsidies in the past, is over £2,000,000. This huge shortage has arisen from the neglect in the past to pay the subsidies which the Actuary has certified from time to time, in terms of the Superannuation Act, as necessary to make up the amount required to pay the pensions of the public servants who have already retired. The pensions, of course, have been paid, but partly out of the contributions of the officers at present in the service, which contributions should be accumulating against their own pensions. Through the loss of interest thus entailed, tlie failure to pay the subsidies required in the past has been cumulative in effect, with the result that a large and permanent increase in the subsidies, with a corresponding additional charge on taxation, is now required to rehabilitate and maintain the funds on the present basis. The position has been further accentuated by a mistaken policy of early retirements and other concessions granted. As a matter of'fact, tho position of these funds is such that it is a question whether a radical change in the whole basis will not be necessary. In addition to these matters affecting Government employees, I have also under consideration requests regarding salary adjustments involving heavy liabilities.”

HIGHER DUTY OPPOSED. (Special to “Star.”) WELLINGTON, August 1. Following the reading of the Budget to-night, Sir J. Ward moved a resolution to give effect to the increase from 1 to 2 per cent, in primage duty, which had to be passed before midnight, . and become operative immediately. The proposal evoked strong Reform and Labour opposition and an indication was given that further resentment would be expressed when legislation bearing on the subject comes down later in the session. SOME OF THE NEW VOTES.

As may be expected in a year during which the Government is seeking to wipe off a deficit of the past financial year, the new votes on the Estimates are few in number, while most of the recurring votes remain at the same or similar figure as last year.

i The expenditure on family allowances for the past year was £54,816, a little more than £SOOO below the estimate. This year £65,000 is allocated for the purpose. j The sum of £542,000 is made payable to the Main Highways revenue fund as against £397,000 provided last year, overspent to £441,346. • A vote of £SOO is made in respect of the expenses of the commission set up to inquire into the leases in the Waikkto, Maniapoto Native Land Court District, and a further £IOO is allocated as a new item in connection with the economic survey of the Maori race. A kindred item is £l5O, as the preliminary cost of preparation of the scheme for a model native village at Whakarewarewa, Rotorua. Incidental charges in connection with the Elsie Walker police inquiry amounted to £BOO.

It is proposed to survey and map the Reefton coalfields as a preliminary to boring to ascertain definitely the coal seams existing there, and

to this end, a vote of £750 is allocated. Most of the new votes occur in the Naval Defence estimates. The. necessity for replenishing stocks in oil tanks at Auckland for fuelling ships of the New Zealand Navy accounts for a rise to £29,000. In the vote for the purpose last year £21,172 was spent. Other new items are as fob low: —Motor boat for harbour service at Auckland £800; hot water supply for ships in dock £180; mine sweeping paravane and inflammable stove £700; additional wash places and latrines at Devonport Naval Base, £1150; rebuilding and enlarging Gunmounting Store £1840; Garage £l6O. Attendances at Territorial camps last year under the restricted training scheme, show that £29,000 is the minimum requirement. Last year’s vote was over-expended by about £SOOO. Defence Department transport, especially in rail freights, costs £25,471, about £7500 more than was anticipated. Under the Aviation Account, appeal votes of £4500 for the purchase of aircraft for issue to Aero Clubs, £3OO for freight on same and £ISOO as grants to Aero Clubs in respect of pupils qualifying for private pilots’ certificates, on the basis' of 20 pupils each at Auckland, Blenheim, and Christchurch, each at a cost of £25. A greater expenditure than was recorded last year is expected on account of subdivision of estates under offer to the Government for closer settlement purposes. This accounts for another slightly increased vote in the lands and survey estimate. The cool storage experiment in connection with the fruit industry is estimated to cost £l5O. Another Agricultural Department item of interest is a new vote of £9OOO as a grant by way of assistance to the beekeeping industry. Apparently, in anticipation of increased exports of eggs, fruit, and pork, totals for the guarantees or] bonuses are increased slightly.

RUNANGA GRANTS. Local items on the Estimates, of interest are improvements to Murchison Domain (new item), £SO; grant towards erection of public library at Seddonville ’£so; grant to Runanga Crociuet Club £7l; Runanga Gymnastic Club £29; Runanga Swimming Club £SO; Runanga Tennis Club £25.