N.Z. FINANCE

Hawera & Normanby Star, Volume XLII, Issue XLII, 23 June 1923, Page 7

N.Z. FINANCE

"IN PAKLOUS PLIGHT."

EXCESSIVE COMPANY TAXATION CONDEMNED. AAIIU* jSIR J. G. WARD 'INTERVIEWED. | WHY HE RESIGNED FROM THE ' NATIONAL GOVERNMENT t | (Special to Star.) Tl P- June 21. ilio Right Hon. Sir Joseph tytrd interviewed by a Haw-era fetar repre^ sentative yesterday, saul iie was amazed at Air. Jkiassey, in his capaoic* as Minister for finance, expecting the public to accept his explanation upon the material points that have been the subject of controversy between them since he (Sir Joseph) delivered a short speech at the function to Mr. de ia ■Perelle at the Bluff on the 30th ult fcir Joseph declared at the Bluff that ; the Motherland had since the war decreased her Budget by over £500,000,----iW; but the Government here in the same period had increased our borrowing by millions, and these, with tno i surpluses they had used and spent amounted to over £100 r OO0 3 000. i "These," said Sir Joseph yesterday 'were matters of fact that, in his reply Mr. Massey did not and could not deny' Anyone who reads the British and New Zealand Budgets since the war will find that 1 have neither exaggerated nor misrepresented the position in any T y't>iThe statement that I'made at the Bluff was in essence and in fact absolutely true. "How does Mr. Massev in his last reply try to minimise this'tEuly regrettable position? He says: 'Sir Joseph Ward has, I notice, again repeated that since the war Great Britain has paid £500,000,000 off her debt and reduced income tax, while in this, country we have increased our indebtedness. From this it might be inferred that the national debt of Great Britain has been reduced, but since March 31, 1918 to March 81, 1922, the British national debt has been increased by 1,821,000,----000.'. Does Mr. Massey shut his eye's to the fact that since the war Great Britain has undertaken the control of Iraq (Mesopotamia) and Palestine; and that in the House of Commons and throughout. England the expenditure or hundreds of millions involved in this has roused fierce criticism? Does, he ignore—or expect our intelligent people to do so—the fact that the British Government has already expended scores of millions: in consequence of the unsettled position between the Greeks and Turks V Does he ask the New Zealand public to close their eyes to the enormous cost of maintaining a poition of a large standing army on. the Continent, owin.fr to the non-settlement of the peace terms between France and Germany? It is hoped to get the cost of this back from Germany, but tbat is, to say the least, problematical j ami in the meantime Great Britain bears the whole' cost. ';Can the Prime Minister in all sincerity, seriously put forward such a reason in justification or excuse for the position hero and in refutation or' the statement I made at the Bluff ? If he does, then I affirm my profound conviction that no sane man ur woman in INew Zealand will accept it. New Zealand has since the war had no.such obligations to provide for as Great Britain, and it is drawing a red herring across the. scent to suggest anything o£ the kind. I was not, when speaking at the Bluff j discussing the whole taxation of England. To do so, by wav of comparison with New Zealand, we would have at the same time to take into account the respective obligations. In addition to the above obligations, undertaken since the war, the Mother, land has not received an> interest ot repayment of over £1,000,000,000 lent to her war Allies; and she has still to maintain a great and costly navy. Yet, notwithstanding this, her * annual Budget has been reduceu since the war, and her war income tax reduced to 4s 6d. ' 'But our position is quite the reverse; and the question is—Can this country, now four years and seven months after the war, continue to stand it, even with a further two millions of

taxation taken off. which, of course, everyone will admit is in the right dii'ect'on? I say unhesitatingly we cannot go on as we are doing. COMPANY TAXATION. "An examination into company taxation, as between our system and that in operation in England, Australia, and America, is entirely against us. They have all gone tjrrough the war and the slump period. The system will, if continued here, compel numbers of our best industrial companies to go into liquidation. I have before me a, public statement issued by authority of eighteen of our farm, stock, and station companies, whose main business is trad, ing with farmers. They are all New Zealand companies, and they say publicly : 'This will bring up the question. with purely New Zealand companies' of whether business should be continued, or whether, as a reasonable return can not Lo earned on the shareholders' capital, the businesses should not be liquidated and the capital returned,- to the shareh®lders. J They give a typical case of an investment of £ICOO between two farmers if mode in a company, and show—which I have never seen contradicted or disputed—that 24 per cent, would have to be earned b> the company to pay a dividend of 8 per cent* on the £IGOO, and it all comes out of the fanners. A number of these eighteen companies have, speaking, generally, been friends of and supporters of Mr. Massey's party. "Surely it is enough to make sane men anxious "as to the future. Even with the dropping of the extra Is 3d inco.me tax, which was" put on since the war ended, a reduction of a sixth would only reduce the figure abovenamed" to 20 per cent,-; and this would still be a crusher. So it would be even if the income tax is reduced to ss. "The whole system unquestionably requires drastically altering. It OT>erates similarly to all companies as well as to those I refer to. "Let me give another illustration or the damaging effect excessive taxation in peace time is having upon the who'e country. If anyone interested will look un the Australian Banking Record of May, 1923. they will", on page 353., find the report of the National Bank of Australasia. Its gross profits are shown as £1.114.392, and its rates and taxes are £58,254. This is equal to 5.22 per cent, taxation. If you take the last balance-sheet of the Bank of New Zealand March, 1923. the gross profits are £1.546.041. and its rates and taxes are -6445,671. equal to 28.8 per cent, taxation! The gross profits of the Bank of New Zeniand are only about 50 per cent, more than tho?e of the Australian banks; yet the Bank of New Zealand pays nenrly eight times more in taxation. The last nublished balance-sheet of tfcV National'B*nfc-of New Zealand

is up to March, 1922. Their groa» profits are shown as £595,904 and rate* and taxes £206,080. That is equal ta» 34.7 per cent, taxation. If jou exelta4e»their British taxation, their New Zealand taxation amounted to £143,967 «r 24 1 per cent, on {heir gross preitfe lhey did about half the business m New Zealand the Australian bank dtfi * yet their taxation, excluding their British taxation, was nearly two and a half times more than that of the AustraKaa i bank. "If anyone takes the trouble toanalyse these results they will find tfcafe in taxation the two New* Zealand baafe* are handicapped to the extent of between three-quarters and one per cent on the rates they charge to th«ir client* for advances, as compared with whatis payable by the' Australian bank cite* What a relief a reduction in rates aa& taxes to the Australian level would heto this country no one can deny. TB» beneficial effects on all classes, in botk town and country, would be incat culable. I have given the case of tw» New Zealand hanks. I will add U* ifr the position of one of the Australian; banks. One-eighth of jts total business is done in New Zealand; but, of it» total taxation, 52 per cent, is paid tothe New Zealand Government I»r----other words, 12* per cent, of that banks whole business is done in ibis country, yet 52 per cent, of its v^bofe taxation is payable in this country!' THE FLOATING DEBT. "Referring to the floating debt. Me. Massey says: 'The statement made by Sir Joseph Ward to the effect that b*iad made provision for meeting tb» war advances received from the Imperial Government by including them-in-the loans falling due in future years is fax from being correct. A reference to my Budget of 1920 clearly reveal* the position. The sum of £4,131,31$ iiad been provided for by the issue of debentures, but £22,208,931 wa» covered by a memorandum of agreement.- This, in effect, left that larg». sum as a "floating debt," with no fixe* date of matnritv, and as such ifc »»- mained until 1921, when, at the reqn«fc of the Imperial Government, the memorandum was replaced by debentures, "which were included in my fnndmg: agreement concluded last year, wheiifey definite arrangements were then made for the annual reduction of the debt. No action was taken in connection witlL funding this debt until March, 1921. when I received a report from tfret secretary to the Treasury, and I theninstructed him to take the initial sten»_ There is no previous reference on tfi». official files which would indicate tnat such a course was contemplated prior . to the date mentioned.' ' "This," declared Sir Joseph War^ "is one of the most remarkable a«J absolutely extraordinary statements that has probably ever been made By any man holding the responsible position of Minister of Finance. It is contrary to fact. For nfoof I refer anyone to Mr. Massey's own budget ofr 1922 in which he says, under the heacEing 'Funding Imperial Government A«L yanoes': 'It will'be remembered that in the war years the Imperial Government met a portion of our liability in Europe by advances on account of war expenditure and loan redemptions. The gross amount so advanced was £29,623.073, made up of £26.340,241^ for war purposes and £3,282,828 tarn. loans redemption. " 'The following are the particulars^ 3£ per cent. £1,000,UU0, due March. V 1928, or March 1, 1925, -or after o* giving six montns' notice; 4j per cent.,, £7,414,141. due December 1, ,1945 or* December 1, 1925, or after oh giving six months' notice; 5 per cent., £ML--100,000, due June 1, 1947, or June 1, 1929, or after on.'giving six months.' notice; 5$ per^^t., £9,900,000 do* September 1, 1928; 3i per cent., £168,421, memorandum of security; 5 per cent., £40,511, memorandum: o£ security—total, £29,623,073. " 'The question t q,i placing the dcCC on an .iniprpyed b^isi's has engaged mjc attention' for some time past, and I aut now, pieased to announce tnat an arrangement satisfactory to New Zealamir has been made. It has been decided to? fund £27,532,164 on a 6 per cent, annuity basis, which will have the effeefc of automatically discharging this sum from the public debt oi iNew ZealnatL in about tiiirty-seven years; this leav«» aside £2,090,5^09 btate Advances debtredemption, as that office has its ovn. provision for sinking fund. The provisions include the concession that the whole or part of the funded debt may be redeemed at any time, thus enablingadvantage to be taken gf any future reduction in intprAfit. ratao.'

"It will be at bnce seen from Mr_ Massey's own Budget that, as 1 ha>« already publicly stated, I put all tbt* • debts due to the British. Government into war loans when I was in England. This Mr. Massey clearly shows jn kir own 1922 Budget, which I quote above They were not left 'as a floating deb* with no fixed term for maturity.' Tip* first (for £1,000,000 at 3£ pet cenJLj was due in 1928 or earlier (frith caeh. loan at our option). The seeonctl £7,414,141 at 4* ncr cent., in 1945^. the third, for £11,100,000 at o per cent.,, in 1947; and the fourth, for ,£9,900,08© at 5$ per cent,, in 1928; a total rf~ £29,414,141. There are only two comparatively small items, amounting fc»-------£208,932, under 'memorandum of s«k' eurity,' and these, in all probability^ are for amounts that have arisen afterI left the Government. I do not ree»t lect any such items-; but ,1 think ifc will be agreed that it is immaterial, a» it does not materially affect the point at issue. I contemplated, when money a<rain became cheap, converting tli«i whole of these loans into 4 or 4| pee cent, inscribed stock. "The loans above mentioned w«i4 all arranged by me in London, as I ha.?.©already stated, for a. period of yeass to cover our whole indebtedness (iiw. currecl by the Brit^h Government Wfe behalf of New Zealand) for war purposes, and no portion of the indebtedness to the British Government wastleft as a floating liability by Isfew Zealand to be paid to the British Govern-, ment. Therefore no form of embarrassment or difficulty in connection wifclfc our indebtedness to the British Government for war purposes was left bjt me while Minister for Finance in that National Government. I instructed* Mr. Copus; the capable officer at .tin* head of the Finance Branch in th«*High Commissioner's office, to caray theni out, and he did so with his customary efficiency. Since then the Nctß" Zealand Government has funded those, loans. I make no comment on the» operation, or on their rio;ht to do so. It neither alters nor weakens my statement that the whole of the war debts incurred by the British Government on behalf of New 7"i!nnd during th* war were arranged by me in the way I have stated. "I felt at the time rather proud of havino; carried out the matter, and dot. so still, as I was the only War Finance Minister in the Empire who had cleared off the whole of the war loans and other liabilities incurred on out behalf bS T the -British Government. Instead of carping and inaccurate criticism over four years afterwards, Mf. Massev should have been big enough: to acknowledge that it was a good" piece of work. "Does Mr. Massey seriously ask anjr intelligent person to swallow the statfr-.

ment that taxation per head of the European population has during the past three years been reduced from £18 9s to £12 7s 9d per capita? I>oe3 he not know that the people's inability to pay income tax alone has notoriously fallen by some millions more than the Is 3d reduction accounts for ? According to Mr. Massey's view the fall in income tax represents a reduction, of taxation. It won't stand examination. If it were possible for no income tax to be collected, then, according to' sucha, theory, the taxation per capita would further fall!

"It is no use arguing on such a basis. The figures per capita cited by Mr. Massey have little or no bearing on the point. It would be just as ludicrous to say that if the total revenue of the railways fell by lass of trade, that it represented a saving of so much per head to railway users. But that only has to be mentioned to be flouted.

"Having dealt with our liabilities to the British Government, I now deal with those in New Zealand. Mr. Massey quotes from Sir James Allen's Budget of 1919 in a most disingenuous way to show that he had to provide for 'new' requirements totalling £30,----325,000, and he asks. 'How can Sir Joseph Ward take credit for fully providing for all war liabilities in New Zealand?' In doing this he suggests, most unfairly, that I am to be held responsible for the policy for new requirements of a Government of which I was not a member. It has no bearing whatever on my statement that I had provided for the war liabilities before I left the National Government, because I had.

"I was strongly opposed to the important new proposals in Sir James Allen's budget involving .an expenditure of millions. In proof of this I quote from my speech in the House of Representatives on September 30, 1919: 'I appeal to the lion, gentleman not to try to drive two years' land settlement into one, and by that means cause the value of land to go up in this country to an amount that is going to prove disastrous to soldiers and to civilians who go upon the land. Such a policy is not to the future welfare of the country.' I have never at any time said or suggested there would not arise further liabilities in New Zealaaid after I left tbe National Cabm»t ? because of course there would, until the final payment was made. The total amount of new war loans raised under the loan authorities, except Sir James Allen's loan obtained from the British Government, were obtained by me. The total amount of war loans raised was £81,530,857, of which £51,733,405 was raised in New Zealand, and the balance, £29,797,452, in England. In Sir James Allen's budget two items of new proposals alont amounted to £14.500.000 for soldiers' settlement and land. How can Mr. Massey or anyone else say that it is a liability left by me? On the face of it it would be an absurdity to suggest it.

"In addition to that, while I was in favour of doing all possible to settle soldiers on the land, 1 was positive th« policy followed would establish a land boom, with all the dreadful consequences of inflated land values, and I told the House so. as the above statement made by me at the time conclusively proves. A large operator in land within a year to. spend such an enormous sum as £14,500,000 would send values up to prices that made their profitable working to settlers impossible, and were certain, as I publicly predicted, 'to prove disastrous to soldiers and to civilians who go upon the land.' Could it have been avoided? In my opinion it could. It was a positive calamity to take the accumulated surpluses for land buying.

"In my speech in the House on September 30 1 urged the Government not to do so, but without avail, and quote from Hansard of that date:

" 'Here let me say that the surplus the hon. gentleman proposes to take, of £15,000,000, will bring this country each year at least £750,000; and if fortuitous circumstances had enabled me, with the gentleman with whom I was associated in the National Cabinet, t» have got —and I would have pressed it — another £5,000,000. £20,000,000 would have brought in £1,000,000 a year or so. . . I propose that the total amount of interest from the sinking fund should be used for advances to soldiers, to settlors, to workers, and to local public bodies; every penny piece of it. Let it be earmarked for that purpose, and that purpose only. If I had my way I would have earmarked that money as I did the ordinary sinking fund, so that no Government could touch it.'

I "Could my proposal to keep £20,000,----'OOO of surplus have been accomplished? Unquestionably it could. My intention ! was to purchase all lands required for soldiers by Government stock bearing 4£ to 5 per cent, interest —taxpaying stock • —and all the land required could have : been acquired, and it would have pre- • vented a land boom. We could not ; have borrowed loans on the open market in England at that period, as the British Treasury during the war reserved the market for their own requirements, ; but I ascertained in London that we could have got advances against our . £20,000,000 surplus if we required it until such time m the bar against borrowing was removed. It was known : that bar would soon be removed, and it is a fact that it was soon after i lifted. That we could have invested ! from surpluses £20,000,000 is, of course, j beyond all question, as at March. 31, 1921, the accumulator surplus, according to the financial statement, was £23,671,209 A PREDICTION. "However., the policy 'for purchasing land for cash had actually started on a large scale before 1 returned to New Zealand on the last occasion, and as I believed it would result disastrously I called the Liberal Ministers together and told them that, in my opinion, it would result in a land boom .and financial difficulties, and that I would not accept the responsibility for it; and that the only course was for me to resign. Every one of my Liberal colleagues know that this was so, and, whether I was right or wrong I acted upon my judgment at the time, and I took the course indicated. I cannot be accused by anyone of saying now, j 'I told you so,' after the policy to which' I was opposed had been tried for nearly lour years. "I acted quite loyally to all my colleagues throughout the whole time I was in the National Government, and none of them can say to the contrary, livery one of the Ministers—Reform and Liberal alike —did their utmost to carry on the Government during a time or trial and difficulty, and, on the i whole, they succeeded uncommonly well. To be told now that I was in any way responsible for ariytHlng that accrued after I resigned from the Governmen6, and to have a doubt cast on my having put the whole of our indebtedness to the British Government into war loans, is, to say the least, unexpected and ungenerous. "A SURPLUS OF MILLIONS." "It cannot be truthfully asserted by 1 anyone that there was any failure on my part in financing the war. Our finance, when I left the Government, was strong and clear, with a surplus of millions that no part of the Empire had similarly provided; there was a sinking hmd provided for our Avhole indebtedness.

1 have spoken recently about the financial position, and I do so now solely because I am more than anxious about the future. I have, and have always had, the greatest confidence in the country, but with the present population and the extraordinarily heavy taxation, burdens bearing upon the industrial world now, four years and seven months after the war, are having a fax-reaching effect upon the whole coun. try. 'Expediency' and 'assertions' that all is well is not going to prevent further difficulties presenting themselves within the next few years hence. "And so I realise that it is my duty to the Dominion, to my former colleagues, to my supporters, to the general public, and to myself to detail the true position, and show how the reckless finance that followed my resignation from the National Government has been followed by taxation that is staggering—taxation that is retarding progress, and that the financial precautionary measures I took at the time were completely nullified by the Government of which Mr. Massey was, and is still, the head."