N.Z. OUTLAY £133 MILLIONS

Grey River Argus, 1 May 1942, Page 5

N.Z. OUTLAY £133 MILLIONS

DEFICIT OF £lO6 MILLIONS TO BE MET I THIS YEAR

SUPER AND SALES TAXES DOUBLED

NATIONAL SECURITY RAISED 6d IN £

Smokers and Drinkers Tapped Again

Fifteen Million Loan Issue Next Week

(Per Favour of Government). „ WELLINGTON, April 30. i\/r- •<- rir ? e Minister and ActingMinister of Finance, Rt. Hon. P. Eraser, to-night submitted to the House of Representatives in Committee, the following financial statement:— i Mr. Speaker: We: are facing today, in common witn other countries of the British Commonwealth of Nations, the most ominous threat in the history of civilisation. Crisis has succeeded crisis throughout this world-wide conflict. On no occasion .- have the British peoples failed to respond instantly, and as one man, to threats of danger, and by their own undaunted spirit and by their willingness to make supreme efforts, no disaster has succeeded in disheartening or overwhelming them. Today there is danger on every side, but the deterioration of the situation can have but one result —the calling forth of the best and most united exertions of every freedomloving man and woman. With the successive advances of

the Japanese, the threat to the security of this country has never been more critical, or near; nor have we ever before set ourselves a task of such magnitude as that which is now engaging our attention. Our entire national effort, and indeed our whole economy, must> become diverted towards placing New Zealand on a complete war footing. There is no need to stress the fact that this war will not be won by the fighting forces alone. It is in the workshops and in the industrial efforts of our people, in savings and sacrifices in the home, in short by the wholehearted effort of each and every one of us. that we can hope to survive and emerge triumphant from the dangers that now beset us. With the extension of the war into the -Pacific, infinitely greater demands have been placed upon the people of the Dominion. The huge expansion of our armed forces, combined with the diversion of so great a proportion of our productive resources to war purposes In recent months, has so altered the financial outlook that I have deemed it advisable to lay the position before the House at the earliest possible I have accordingly taken the unusual course of presenting a Financial Statement now; although neither the complete accounts for last year, nor the detailed estimates for this year, are yet available. Both will be made available as soon as possible. I am. however, in a position to inform Honourable Members that last year closed with a Budget Surplus in the Consolidated Fund of approximately £1,500,000, due, for th" most part, to the main headings ot revenue exceeding the estimates. The expenditure, in total, was closely in accord with appropriations, although there were variations in some of the items. In the case of the Social Security Fund the revenue 'slightly exceeded the estimates, while the- expenditure was approximately £1,000,000 less than was anticipated, with the result tha. the balance in the account increased by approximately £1,000,000 during the year. In so far as the finances of the Consolidated Fund for the present year are concerned, a substantial fall in revenue is anticipated front Customs, .and from Sales Tax, and for obvious reasons from the Petrol Tax. Al total reduction ot £3 000,000 is being allowed for. As regards expenditure, the estimates are be'ng compiled on the basis of balancing the Budget within thejeduced revenue available. Debt charges, however, will require an increased provision of £1,700,000 but savings in Exchange charges £BOO,000), Highways expenditure (£4OO - . 000) and annual votes (£2,000,000), * will’more than offset this increase. This is even after £700,000 has been allowed'for an increased cost-of-living bonus to the State employees Thus on a balance, the anticipated reduction of £3,000,000 in revenue is after" allowing for the 1941.-42 surnlus of £1.500,000, offset by net reductions of £1.500.000 in the expenditure The Consolidated Fund Buc.get for this year mav be summarised approximately as follows:— REVENUE, „ ■ Tax ■ 6.700,000 Cuptoms Tax 1,500,000 Beer Duty , 3.200,000 Sales Tax 1,800,000 Highways • ■ j 600 000 Stain P t2 : ••' ■ ■■■■■■■■ 1.000,000 n n%%T a Tax) nC ’ XCeSS ■ • 16,500,000 Profits lax) ■••• '2lO 000 Trading .. ■ 3,226000 Other Receipts Grand Total £38,186,000 expenditure. £ Ferm. Appropriations •• ■ • Annual Votes 260 000 Supplementary „ , mntnl £38,186,000 Th? Perm™ nt Appropriations inchide £1,500,000 transferred to the War Purposes’ Account. SOCIAL SECURITY OUTLAY TO INCREASE. reXe h & same as ODD including for total, about £l^ 5 n 0 X 09 ’ o f nC £3,600.000 SSK X? an ~ f H?sl vision ±oi ab P e Widows. InMTfcanee. An eomvah bonus wdlj Seated cost of Jt enS bonuses - which will date from is £550,000 per annum. The

balance in the account at 31st. March last was approximately 13,000,000, so this additional expenditure can be met out of the present reserves of the account. SOLDIERS’ FAMILY BONUS. ,A|s a cost-of-living bonus, it is also proposed to increase the domestic allowance payable to the wives of all men in the armed forces with one or more children. This allowance, at the rate of Is a day, was granted last year to wives who, owing to their domestic responsibilities, were unable to take advantage of present opportunities for remunerative- employment. The allowance will be increased as from Ist. May to Is 6d a day, the increase of 3s 6d a week representing approximately 5 per cent, on the income of the wife of a private soldier with two children. Tn the cases where no children are 'involved, the wife’s present allowance of £1 Is per week will be increased by Is 9d per week. The cost will ‘be about £-<OO,OOO per annum. These bonuses, and also that granted to the Public Servants, follow the 5 per cent, cost of living allowance granted by the Court of Arbitration. GRANTS FOR FARMERS. To offset the reactions from this Award, on labour costs, it has been decided to increase the basic fixed price for next season’s wheat by 2d a bushel. I may add that the Government have under consideration the question of granting a war costs' allowance to the dairy industry to offset the increased labour costs arising out of the war. The Hon. the Minister of Marketing is at present discussing the matter with representatives of the industry, and should be in a position to make a statement shortly. In the present circumstances, when the volume of goods for consumption Is decreasing, general increases in money incomes confer no lasting benefit on the people, and thev accentuate the already serious problem of avoiding inflation. The Government are already expending an amount in the vicinity of £2,250,000 per annum in subsidies with the object of assisting the public, and it is proposed to continue the policy of stabilising wages and prices to the fullest extent possible. development outlay. The national development programme submitted in last years Budget contemplated the borrowing of £13,000,000, but by reason of the demand for defence works on a large scale, combined with the callup ot men for the armed forces, the programme was curtailed, particularly after Janan entered the war. in consequence, borrowing last, year' lor these purpose:; amounted to 000. For this year, the policy_ is 'co reduce developmental works to a care-and-maintenance basis, with certain justifiable -exceptions. In view of the shortage of power, it is considered that hydro-electnc con J struction work should proceed as tar as is practicable, and £1,100,000 will be provided for this purpose. There is £300,000 required for linen flax development, the product being required for war purposes. In preparation for the rehabilitation of soldiers, it is ad visable to carry on as far as possible with land settlement, and development work and it is proposed to allow £900,000 for these purposes. Work on public buildings is now confined to completing works in an advanced stage of construction. LESS HOUSING OUTLAY. Owing to the call up of tradesmen for defence works, combined witn difficulties in getting material, it nas been necessary, in the meantime, to curtail housing activities, and it is now anticipated that more than £550,000 will be required for this purpose for this year. I may say, however, that the Government is planning for a huge expansion in housing along lines that will permit of rapid construction being undertaken as soon as circumstances permit. This will be a necessary part of the rehabilitation of men in the Armed Forces. • Altogether, it is estimated that loan moneys not exceeding £4,500,000 will be required this year for national development and housing. Full details .will be shown in the estimates. £43 MILLIONS BORROWED. Transactions affecting the public debt resulted in new borrowings totalling £43,719,000. This money was raised for the following purposes:— National Development Works (including Electric Supply Roads, State Coal Mines, State Forests, Iron and Steel Industry) £8,252,000. Housing, £3,7000,000. ■ War purposes, £31,767,000. Total, £43,719,000. The new borrowings were obtained from the following sources:—Public war loans in New Zealand £10,982,000; Advance subscriptions to future war loans. £1,684,000; National ings investments, £5,086,000; Memorandum of security agreement with United Kingdom Government, £8,243,000; Voluntary war loans (interest free) £130,000; National development loan, £5,861,000; Departmental issues and Reserve Bank, £11,733,000; Total, £43,719,000. Redemptions totalled £10,585,000, and after allowing for exchange on remittances to London to repay London debt, the net increase in public debt was £.35,907,000. I have dealt more briefly than is usual with the finances for normal activities, partly .because they are generally being held within existing resources, but mostly because, at present, everything is completly .over-shadowed by the necessity for concentrating upon an “all in” war effort. Here in the financial field, as well as in the material, we are faced with problems of a magnitude far exceeding anything this Dominion has hitherto had to contend with. Having regard to the

rapidy of the current expansion, the uncertainty as to how much material can be obtained from overseas, and when it will arrive, and, generally, the impracticability of adhering to any fixed programme, honourable members will appreciate the difficulty of compiling accurate estimates of what will be required to finance our war effort. For last financial year the expenditure for all services amounted to approximately £53,000 - 000. As far as can be seen at present we will require the enormous amount of z £133,000,000 to be spent this year or more than double what was spent last year. That is the measure of the problem we have now to consider. The amount required this year alone is substantially more than the whole cost to this Dominion of the last war. A summary of requirements is as follows:—’ 1942-43 WAR EXPENDITURE. The War Expenses Account, 194243 expenditure will be:— Army 97,000,000 Navy 10,000,000 Air 19,000,000 Civil 7,000,000 Total 133,000,000 1942-43 REVENUE. £ War Taxation (at existing rated) 20,000,000' Transfer from Consolidated Fund of 1941-42 surplus 1,500,000 Transfer from 1942-43 revenues 1,500,000 Miscellaneous 4,000,000 Total ' 27,000,000 Deficit 106,000,000 Less amount to be borrowed from U.K. Govt, under Memorandum of Security Agreement .. 46,000,000 Expenditure under Lease Lend 10,000,000 Total 56,000,000 Net Deficit 50,000,000 This heavy expenditure, representing the diversion of a large proportion of the Dominion’s current resources to war purposes, inevitably involves substantial sacrifices by all sections of the community. That sacrifices must be made is an inescapable fact, for the obvious reason that less goods and services are available for civilian consumption than was previously the case. Goods available for civilian consumption have been substantially reduced, estimated at over 30 per cent.; and while many incomes have been reduced, particularly as the result of war mobilisation, these reductions have been more than offset by increases in other directions, such as the employment of women not previously engaged in industry, and overtime payments, with the result that during the same period the spending power of the community has actually increased by over ten per cent. Thus, on the one hand, we have increased spending power in the hands of the communitv, while, at the same time, less goods’ and services are availabl e to be purchased. As more men are mobilised, as more industries are transferred to war purposes, and as supplies (from oversells tend more and more to be of a warlike nature, it is clear that, apart from essentials, less and less goods will be available for civilian consumption. This ever-widening gap between supplies and spending power is a problem which must be faced immediately. Money is useful only for the goods and services which it will buy, and if such goods and services are not available then the surplus spending power must be withdrawn in one way or another. Otherwise we must drift into serious inflation with all its attendant evils and hardships. Moreover, to postpone the required adjustment would only aggravate the position, and render necessary more drastic measures later. As the costs of war to the extent that they are not met from funds borrowed overseas must be financed from current revenue income, it follows that the most equitable way of reducing the excess spending power in the hands of the community, and, at the same time, bridging the gap in the War Expenses Account would be by increased taxation. This, however, would involve nearly doubling the present amount derived from all headings of taxation. It is not practicable to do this, as, with existing taxation, it would mean taking, on the average, about half Of everybody’s income, whether it was great or small. That would have a crippling effect on both industry and personal effort, and generally produce a chaotic state of affairs. On the other hand, it is in the best interests of the people generally both now and after the wav, to proceed on the principle of “pay as we go’’ as far as we can, and obtain as much as is reasonably possible from taxation. With this in mind, the various headings of State revenues have been carefully reviewed. SUPER TAX DOUBLED. “As it is the most equitable form of taxation, income tax was considered first. Income tax rates in New Zealand are by no means low at present, but, before having recourse to the lower incomes, it was felt that the maximum amount practicable should be obtained from the higher incomes. It is, accordingly, proposed to increase the present super tax from 15 per cent, to 33 1-3 per cent. It is estimated that this income tax adjustment, which will apply to last year’s incomes, will provide an additional £3,000,000 this year. SECURITY TAX UP 6d. Nearly 70 per cent, of the aggregate of private incomes is beyond the effective scope of income tax. A married man with two dependent children contributes little, if anything, in income tax, unless his income exceeds £4OO per annum. In the existing circumstances, it is obvious that this large proportion of the national income must be drawn upon and it may be pointed out that most of the additional spending power being released goes into the hands ol such persons. Accordingly, .it is proposed to increase the National Secruity Tax by 6d in the £l, and this amount will be payable on ■ incomes, including Company profits. For the balance o tf nnafishietaoiet' For the balance of this financial year, it is estimated that the additional revenue from this tax will amount to £4,900,000. The result of these proposed adjustments will be that direct taxes will reach 18s in the £1 at £2,500 in the case of unearned income, and at £3,700 in the case of earned income. Companies at tne maximum rate will pay 14s 0 2-3 d in the £l, as compared with 12s 0“d at present. • To overcome certain anomalies and difficulties in assessment that would arise on account of this increase in

income tax rates, the basis of assessment is being amended in some respects. Full details of these alterations will be given when the necessary legislation is introduced. CHILD BONUS. To alleviate any hardship on the family man with a low income, it is proposed to grant a bonus of 2s per child on the existing family allowance otherwise payable. The result of this would be that a man receiving £5 per week with two dependent children would receive an additional bonus of 4s, and, at the same time, be subject to an additional tax of 2s 6d per week. , “I may add that, in order not to cancel out the cost of living bonus payable to those receiving family allowances, it is proposed to increase the maximum allowable income from £5 to £5 ss. The extra cost of these proposals is estimated at £370,Q00 per annum. ; SALES TAX INCREASE. “As in the United Kingdom and in Australia, it is proposed to turn to consumptive taxes for portion of tne additional revenue required. Firstly. it is proposed to impose an aciGitional 10 per cent, sales tax on certain classes of goods which do not directly enter into the day-to-day living costs of th" people. Consequently, in imposing this additional 10 per cent, sales tax it is proposed that the increase shall not be applied to the items the prices of which the Government have already announced are to be stabilised, or to the present extensive list of free items. The additional revenue which, it is estimated, will be recovered under this heading for the balance of the current year is £3,700,000. WEAK BEER. “Secondly, it is considered that present circumstances justify obtaining additional revenue by means of increased imposts on beer, wines, spirits and tobacco. An increase of Is per gallon will be made in the price of beer, the tax being imposed on a basis which will bring about an estimated reduction in the alcoholic content of 25 per cent. This increase, together with a corresponding increase in the duty on wines and spirits, will, it is estimated, produce an additional £1,000,000 this year. SMOKERS MELCTED. As regards tobacco, an additional 2d per packet of ten in the price of cigarettes, together with an additional 5d per oz. on tobacco, should augment the war expenses account, revenue to the extent of approximately £1,800,000 this year. As a well-deserved concession to those in the fighting forces, the additional tax on tobacco and cigarettes will not apply to supplies purchased from the official canteens. These increased taxes will, it is anticipated, yield an additional total of £14,400,000, leaving a balance of £35,600,000 to be . obtained from borrowing. The existing Nat’onal Savings scheme, together with State Departmental funds, will, it is estimated, provide £8,000,000 towards this objective, leaving a total of £27,600,000 to be obtained by means of war loans. Summarised, it is proposed to meet the deficiency of £50,000,000 as follows: — t , NEW TAXATION.

Income super tax increase from 15 to 33 1-3 per cent 3,000,000 National Security Tax 6d increase in £ 4,900,0i>0 Sales Tax 10 per cent. 3,700,000 Liquor Tax 1,000,003 Tobacco Tax 1,800,000 Totals 14,400,000 LOANS. National Savings . and Dept, investments ... 8,100,000 War Loans 27,600,000 Total 36,600,000 Grand Total 50,000,000 £15,000,000 WAR LOAN. The prospectus for the first instalment of the War Loan, namely, for £15,000,000, will be available on Monday next, May 4, and will provide for- the issue of 2i per cent, short dated stock, maturing on September 15, 1947, and 3 per cent, on long-dated stock, maturing on September 15, 1952-55. The minimum subscription to the loan for the purchase of stock is £lO, but in view of the known desire of thousands whose ability to subscribe does not reacn this figure, plans are under way for a scheme which will enable any one with £1 or upwards to become a direct subscriber. The terms of the loans are similar to those of last year, and I would urge all sections of the community to support those loans to the full extent of their ability. (CUSTOMS INCREASES PASSED. After Mr. Fra'ser had tabled his financial statement, the House proceeded with consideration of the Customs resolutions. All the resolutions were passed. During the debate, the Leader oi the Opposition said the Opposition would facilitate passage of the legislation because they realised they would have an opportunity of examining the matter later. They had to see that best and most equitable means of levying this taxation had been adopted. It was also the duty of the Opposition to\ assist the Government in getting the necessary finance for the war. The present was war legislation Australian Sales Tax INCREASED TO PER CENT. (Rec 12.0). CANBERRA, April 30. The Government enacted legislation to-day increasing the Sales Tax from 10 to 12i per cent., and in the case of less essential goods from 20 to 25 per cent. The new taxes operate from to,-morrow. They are expected to bring in an additional £6,250,000.