The Dominion’s Finances

Hawke's Bay Tribune, Volume XVIII, Issue 201, 8 August 1928, Page 3

The Dominion’s Finances

Minister’s Statement of Position

Surplus for the Year £179,076 No Reduction In Taxation at Present The Minister of Finance, the Hon. W. Downie Stewart, delivered his Financial Statement in the House of Representatives last evening. The Minister stated:— It will be remembered that in the last Financial Statement the opinion was expressed that the year would prove a difficult one in public finance. The year had opened with an adverse trade balance; industry was still depressed, and there was unemployment. In May the overdraft rate was increased, the withdrawals from the Post Office Savings Band exceeded deposits, and generally difficult economic conditions temporarily prevailed. These factors were reflected in falling revenues and added financial ’ b’ 'ms for the State, and a decrease in the two principal .ounces of r<- .me, Customs and Income-tax, was inevitable. But the extent of the falling-off, complicated as it was by changes in the rates, was difficult to estimate, and very doubtful until well on in the financial year. That part of the expenditure which is within the scope of administrative control had to be very carefully supervised throughout the year. As a result of a rigid control the expenditure for the year under annual appropriations was £240,000 below the amount appropriated. This must be regarded as satisfactory when it is remembered that the estimates had previously been drastically overhauled, first by an expert departmental committee, and later by the Public Accounts Committee. The total expenditure under both permanent and annual appropriations fell short of the Budget estimate by about £90,000 (after excluding certain changes arising out of legislation passed last session), while the revenue for the year slightly exceeded the estimate. The deviation from the Budget estimate, however, was less than j per cent, either way, and the result was a surplus of approximately £lBO,OOO, which is as close to a balance as could be hoped for, considering the magnitude of the figures dealt with and the many uncertain factors involved. It is contended in some quarters that the Government deliberately and consistently budgets for a largo surplus by underestimating revenue and over-estimating expenditure. I can assure honourable members that such is not the case, and last year’s results bear out my statement, REVENUE. The revenue for the year amounted to £25,123,980, but this total includes a new item—viz., “Motor-vehicles—duties, licenses, etc., £369,118.’’ Excluding this for comparative purposes, the revenue totalled £24,754,862, as against £24,943,107 received the previous year, a decrease of £188,245. The taxation receipts available for general purposes amounted to £16,484,788, a decrease of £419,899 in comparison with receipts from the previous year. The net decrease in the yield from direct taxation was £97,724. ' Income-tax receipts, notwithstanding the anticipated additional revenue incidental to the adjustment in rates made last session, fell short of the previous year’s figure by £148,487, but for reasons already stated this was expected and was allowed for in the estimate. Land-tax showed a comparative decrease of £74,588. This decrease is attributed mainly to the annual shrinkage due to subdivision of holdings, to the reduced amount of arrears to be collected, and to the fall in values of country lands on revision. Due to these reasons there has been a steady fall in land-tax over the last few years. The decreases in land and income-tax were largely offset by a comparative increase of £125,351 in the revenue from stamp and death duties.

The greater part of the revenue from taxation was on account of indirect taxation, Customs revenue showing a comparative decrease of £309,986 and beer duty of £12,189. The decrease in the former case arises out of the falling off of approximately £3,750,000 in imports which followed the adverse trade balance of 1926-27. In addition to the receipts from taxation, there is also included in the year’s revenue the receipts derived from interest-earnings, sundry revenues and recoveries from different State activities, amounting to £8,270,074, and representing a net increase of £231,654 over the previous year. The result arose mainly out of an increase in the following items: Post and Telegraph receipts, £96,702; interest earned on investment of public moneys, £96,837; interest on railway capital liability, £87,434; which increases were, however, partly offset by decreases in other items. EXPENDITURE. The net expenditure of the Ordinary Revenue Account for the year amounted in the aggregate to as against £24,355,965 for the previous year. The year’s total, however, included £357,773 for the petrol-tax, tire-tax, licenses, etc., whoch was offset by the new revenue item referred to above. The true comparative net increase was thus £231.166, made up of an increase of £256,660 under permanent appropriations, and a decrease of £25,494 under annual appropriations. PERMANENT APPROPRIATIONS, The expenditure under this heading, which covers debt charges and payments made in pursuance of various Acts of Parliament, amounted last year to £14,879,378. This total includes £9,757,602 for debt charges, as follows:— Interest £8,397,074 Debt repayment £1,360,528 Total £9,757,602 The new loans raised during the year led to an increase in the gross amount of interest paid, but this was more than met by increased recoveries from interest-earning accounts, with the result that the net expenditure on this item showed a comparative decrease of £53,720. This satisfactory result demonstrates the soundness of the Government’s policy of restricting the use of borrowed capital as far as possible to expenditure on productive assets. The expenditure on debt-repayment showed an increase of £65,390. I would like to emphasise the fact that though the statutory repayment scheme provides for a steadily increasing annua] repayment of debt, the increases are not an additional burden on taxation, but represent part of the saving of interest on the debt redeemed Tho some remark applies to the funded-debt agreement with the British Government. Thus the steadily increasing amount for debt-repayment is provided without increasing the annual burder on the taxxpayer. This debt-repayment system, and also the funded-debt agreement with the British Government, operate bn the same principle as a table mortgage; and it is interesting to note that the Chancellor of the Exchequer in Great Britain proposed in his last Budget to introduce a somewhat similar scheme in connection with the repayment of the British public debt. The balance of the expenditure under permanent appropriations, amounting to £5.121,776, consists of payments, mostly recurring, made in terms of various Acts of Parliament, the chief items being pensions. * subsidies to local bodies and Hospital Boards, and losses on isolated sections and branch lines of the railways. In total this is an increase of £602,763 in comparison with the expenditure ef 1026-27. but it includes the £357,773 pet.rol-tax, tire-tax, etc., mentioned above, and also another new item of £125.000 for the first instalm'”’t of the Dominion’s contribution to the Singapore Base. Apart from these two new items, the comparative net increase is £119,990. Concerning pensions, a steady increase each year is to be expected in the case of old-age and other pensions governed largely b v population Of the increase for last year, however. £24214 was on account of war pensions, which up till then had been steadily declining at the rate of over £50,000 a year. The main reason for the change is that many of the ex-soldiers are only now feeling the full effect of their war injuries, and this liability is likely to increase. Other countries have had a similar experience. ANNUAL APPROPRIATIONS. The net expenditure under annual appropriations amounted to £10.065,526, a decrease of £25,494 in comparison with the n'-e' inus year. An increase of £41,776 is shown for “Scientific and Industrial Research,” but the bulk of this is nominal, being the cost of activities previously charged to other votes. An increase of £43,540 for vote “Agriculture’’ is mainly due to the increased amount of the subsidy on the carriage of for farmers. An analysis of the total expenditure under annual appropriations shows that, compared with the previous year, there was a decrease of appro: Anately £90,000 in administrative expenses. Against this there was an increase of £65,000 in grants, subsidies, and other miscellaneous payments, leaving a net decrease of £25,000 in the total exxpenditure, as state) above.

SUMMARY OF YEAR’S OPERATIONS. Transactions for the year resulted in a surplus, viz.:— REVENUE. £ £ Revenue (proper) 24,549,413 Departmental receipts 560,803 Recoveries on account of expenditure of previous years 13,764 Revenue for year — 25,123,980 EXPENDITURE. £ Permanent appropriations ... 17,508,985 Less credits in reduction 2,629,607 14,879,378 Annual appropriations 11,883,900 Less credits in aid 1,818,374 10,065,526 Net expenditure chargeable to year’s revenue ... 24,944,904 Surplus £179,076 The following shows the result in the funds of the Ordinary Revenue Account at the end of the year:— £ Balance forward Ist April, 1927 3,681,466 Add—- ' Surplus, 1927-28 179,076 Temporary transfers to other accounts repaid ... 26,000 3,886,542 Less— £ Used for reduction of debt 95,979 Instalments of purchase price of C longterm mortgage shares in Bank of New Zealand 117,188 Transfer to Public Works Fund— General Purposes Account 250,000 Advance to State Forests Account 45,000 Sundry charges and expenses of renewing loans 1,037 Subsidies to local bodies for relief of unemployment 75,106 584,310 Balance, 31st March, 1928 £3,302,232 The balance was held as follows:— £ Gash 1,729,392 Imprests outstanding 255,039 Investments 1,317,801 £3,302,232 The amount of £117,188 shown above as a payment to the Bank of New Zealand represents a further instalment of the purchase price of the 234,375 C long-term mortgage shares allotted to the New Zealand Government in terms of section 6 of the Bank of New Zealand Act, 1926. A total of £175,781 had been paid up on these shares up to 31st March. Regarding the transfer of £250,000 to the Public Works Fund, the use of surplus revenues for this purpose, and also for debt-repayment, has resulted in the debt charges being £1,000,000 per annum less than they would have been had this policy not been adopted. In particular the transfer was required last year to offset the additional work provided by the Public Works Department for relief of unemployment. The £75,106 paid to local bodies for relief of unemployment represents subsidies on wages and voluntary contributions paid in termy of section 4of the Imprest Supply Act, 1927. The subsidies earned for last year amounted to £113,000, bnt the balance of this amount had not been claimed up to the 31st March last, and will be included in this year’s expenditure. Unemployment usually coincides with falling revenue, and in times like the present we are fortunate in having an accumulated fund out of which such extraordinary payments can be made. Otherwise there might be no alternative but to increase taxation to meet- the increased expenditure.

The balance of the Ordinary Revenue Account is now down to approximately £3,300,000, and there has yet to be paid out a sum of £400,000 to the Rural Intermediate Credit Board in terms of the Act passed last session. ESTIMATE OF REVENUE, 1928-1929. In estimating the revenue of the current year’s operations. I cannot place any great reliance on increasing buoyancy of revenue before the year closes. I estimate the revenue receipts under the respective head ings as follows:— £ Customs 8,261.000 Beer duty 600,000 Stamp and death duties 3,500,000 Land-tax 1,150.000 Income-tax ..., 3,400.000 Interest on public moneys 747,000 Interest on capital liability— Railways 2,255.0000 Postal and Telegraph 425,000 Interest on Public Debt Redemption Fund 992,250 Motor-vehicles—Duties, licenses, etc 1,147,000 Other receipts 1,391,000 £23,868,250 This total of £23,868,250, it will be noted, includes “£1.147,000— Motor-vehicles, duties, etc.,” which is not available for general services. Income-tax is not expected to show much response to reviving business resulting from the better trade balance, but, as regards Customs, I have allowed for a small increase to be expected for the remainder of the financial year. ESTIMATED RESULTS FOR THE YEAR, £ Revenue 23,868,250 Expenditure— £ Permanent Appropriations 15,827,398 Annual Appropriations 7,780,706 23,608,104 Leaving a balance of 260,146 to meet supplementary estimates and contingencies. In arriving at these results I have had to allow for the many factors that at present make accurate estimates difficult to forecast. We are in a transition period when the chief sources of revenue are in full bud, but not yet in flower. I have therefore refrained from placing before honourable members proposals that might under the circumstances bring about at the close of the year a result inconsistent with the policy I have striven to adhere to, that of maintaining the reputation of this country for sound finance.