Insurance Surtax

Lake Wakatip Mail, Issue 3996, 21 April 1931, Page 7

Insurance Surtax

WELLINGTON, April 8. In the past (remarked the Prime Minister when moving the second read ing of the Earthquake/ Relief Bill in the Mouse) New Zealanders believed that visitations of the kind were lew and far between, and that there was no need to make special provision against them; but with two serious earthquakes within a short space of time it had to be admitted that the country was subject to earthquakes, and some provision should be made against losses Jikely to be sustained. The clauses in the measure providing for an insurable property tax of Is (kl per cent, and a surtax on insurance policies of the same amount was, suggested the Prime Minister, justified. By: general agreement there should be some form of taxation to provide against earthquake contingencies. One of the first things to be done with ifie proceeds woulu be to reimburse the Reserve Fund, from which was to be taken a sum of £1,500,000, which would be loaned to the Hawke’s Bay residents to assist in rehabilitation. Then this fund would be in a position to meet similar contingencies if they occurred again. The insurable property tax was subject, to deductions, so that small owners of. uninsured property would not be touched by the tax, though the small owner who was insured would pay his percentage through his policy It was a new departure, but he thought members would agree that some tax was necessary. CALL FOR HEAVIER TAX, Some suggestion had been made, ixiitinued the Prime Minister, that the ta\ should be is (xl per cent, to pro- ' vide enough money to meet the requirements of the district more generously, but, despite the suggestions of those in the earthquake area that a larger sum could be easily collected, iie thought a sufficient burden was imposed by the Is 6d tax. He did not think it wise to set out Je complete earthquake cover. If this was inquired lioiu the insurance companies Ley 'as.led t’> tc 10s per cent., which Wi uio meal- a very heavy load on pecple *vh.i, during die present difficulties, woulu appreciate taxation being nu.de as light as possible. Mr L> Jones; Would you classify it similarly to flood damage? iiie Prime Minister; “It stands in a totaifv different position from what hat. been done by the Government n such eases, for an earthquake icquires assistance on a much larger scale.” OPPOSITION LEADER’S DOUBTS. The Leader ol the Opposition warned tin Mouse against placing further bur dens on lit.’ rest of the country during tbit, time of depression, and he sug gested that the Government should endeavour to meet the position from day •u> day rather than attempt to build •ip a fund by making a charge on :n----smable property. While it was sound to build up a special earthquake fund, experience in the past had shown that there was an inclination for Governments to use special funds for purposes not established, tie thought the insurant clauses in the Bill would work

harshly on some people. The special tax proposed was not altogether based on the principle of ability to pay. The wider the tax was spread the more satisfactory it would be if it were not possible to raise a loan at a reasonable rate of interest. They must accept the position as they found it, but be believed it would bo preferable to obtain the money by loan. He anticipated that the small farmers and some of the bigger companies which were not insured by any means up to the full amount would experience difficulty under pie proposed tax of Is Gd in £IOO. ft would be a very big charge on them,, and it would be still harder for concerns which were already finding it difficult to meet interest payments Mr Coates said he hud been informed by a hospital board that it would have an extra liability placed on it in the matter of insurance.

“ I like the principle of an insurance tax," said Mr Barnard (Napier), the hist Labour speaker. “ There may be, however, some' question as to the wisdom of an insurable property tax.” Two other Hawke’s Bay members also expressed opinions on this feature of the Mr Jnil (Waipawa) suggested that because insurance was to be the basis of taxation it should also be the basis for assistance. Business

risks should bo charged higher than dwellings, because of the greater i-j'sk ot damage or destruction by earthquake and resultant (ires. He thought the tax would be passed on as part of overhead costs, so that people would pay their fair share, while the deductions would cut out ( JU per cent, of those who owned homes.

Mr Campbell (Hawke’s Bay) said bo did not like the proposals for insur

, ante and an insurable property surtax ; Surely the Government could have thought out something more equitable. “ Recent happenings in New Zealand appear to me to make out an unanswerable case for- the adoption of a universal insurance policy against earthquake risks, even if the State has to lead the way and take the monopoly of risk,” said Mr Savage. “ When it comes to the last analysis, the citizens of New Zealand must stand by their fellow citizens, whatever happens. (“Hear, hear.”) It is only a question of deciding as to whether we are going to do it in an organised way or wait for something to happen, and let our hearts run away with onr heads without getting satisfaction for anybody. Ninetyseven per cent, of the people of New Zealand would have us lay down something lasting that will put the people of Haw-ke’s Bay and any other area similarly affected in the future beyond the reach of charity.” (“ Hear, hear.”) Parliament should lose no time in laying the foundation of a universal scheme that will have us ever ready to meet anything of a similar nature that may happen in the future.” The Minister of Lands (Mr Ransom) referred to the insurance fund as a national obligation, and it was fortu-

Earthquake . Risks Recognised Opposition Leader Critical

nate the Government hud the reserve fund to draw upon.

» Mr Endean: We want to meet it nationally, not from a section. The Minister: “While people might not appreciate the levy added to insurance, they recognise that the distribution of the tax is on a fair basis, and if there is something better which appeals to the House, then members cun bring it forward.” He considered that those insured against earthquake risk should not he levied. Mr Ransom admitted that the levy on insurance value of property raised a difficult question, and agreed that in many cases the cost of collection might be greater than would be warranted by the amount raised. It had to be remembered,' however, that some large firms were sufficiently strong financially to carry their own insurances, and it was not desirable that they be permitted to escape the tax. Such firms should be called upon to pay an equal amount with others. PROPERTY TAX REVIVED.

Mr W. Ifownie Stewart (Dunedin West) suggested that the two millions’ worth of Bank of New Zealand shares held by the Government ipight be deposited in London as a temporary reserve to meet the deficiency in the Reserve Fund. This would give time to consider the most equitable method of taxation tp replace the London reserve. “ [t really amounts to a property tax, placing the burden on people who have reinvested their savings in a particular form.” It failed to discriminate between the man who invested in houses and buildings and another getting a princely income from other sources absolutely nutaxed under the Bill. The proposal should be exhaustively discussed by a committee of the House, which could ascertain what alternatives had been considered by the Government. Mr Wilkinson (Egmont) said the tax might be eliminated because it would be found objectionable to all who had to pay it. The Government had not indicated whether the insurance companies had been consulted. He suggested that the whole £1,500,000 could be collected without cost to the Government, and that the Government should undertake the minting of its own silver and copper coins. Labour Members; Would that not be repudiation ? Mr Wilkinson : No! Mr Ansell strongly opposed the insurance tax, describing the proposal as clumsy and inequitable It was contended by Mr Armstrong that the payment of the insurance surtax should guarantee that property owners were covered against earthquake losses. Mr Jones stated that as no worker could afford to leave his dwelling uninsured, all workers’ dwellings would be subject to insurance tax. He was satisfied that the wrong method was being adopted to find the money. Why not stop unprofitable railway constructions turning the money into the useful channel of earthquake rehabilitation .

Mr Knclean described the taxation proposals as inequitable. Those who were not insured would get off scot free, and people would be discouraged from taking out insurances. The burden was being placed on those who had taken out insurances.

PROBLEM FROM ALL AHGLES SECOND READING DEBATE x WELLINGTON, April 8. In instituting the debate on the second reading the Premier paid a warm tribute to the generous manner in which the public had responded to the appeal to assist the devastated area. The first call on the funds subscribed by the public had been to meet cases ,of personal loss and distress. He wished to thank the local bodies and also those who had opened their homes to the refugees for assistance rendered in this direction. The loss involved in the disaster was, however, fai in excess of any amount which it could reasonably be expected would be raised by public subscription, and it was.to enable the re-establishment and settlement of businesses in the area that legislation was now being brought forward. Referring to the Adjustment Court, Mr Forbes said in view of the range of questions with which it would have to deal it had been thought wise for its powers to be as wide as possible. The Prime Minister then went mi to deal with the question of the re- ■ habilitation by means of payments from the Reserve Fund account. Ho said, in response to an interjection, that the sum of £1,500,000 had been regarded as a suitable amount to meet the immediate position. There would he an‘other session of Parliament before long, and in the meantime, as a result of the investigations made, it would be possible to ascertain what further payments. if any, would be necessary, In view of the present state of the loan market it had not been deemed wise to make any move in this direction, especially as such a course would indicate that New Zealand had been sailing fairly close to the wind in the matter of expenditure. He was sure the impression created abroad as a result of the decision to utilise the Reserve Fund to meet the situation in a national emergency Would be favourable. It would be necessary to reimburse the Reserve Fund as soon as possible, and provision was being made for this. Continuing, Mr Forbes said it was proposed to set up a rehabilitation committee, consisting of five persons, to consider the question regarding what payments were necessary in the various cases. It had been suggested that the payments should be made without investigation, but the Government was setting out to assist those who wore really in need of assistance. Unfortunately, the country was not in a position to place everybody on such a footing as

he would have enjoyed if the earthquake had not occurred. It had been said that one committee would not Ipe able to deal with the situation, but he explained that the committee itself would be empowered to set up sub-com-mittees to gather information in the various districts. Dealing with tlffi question of loans to local bodies, Mr Forbes said the view had been expressed that when at the end of five years they were called upon to meet the interest payments they would find themselves in difficulties. He hoped the present depression would not continue' that long, and that local bodies would then lie in a better position to meet the payments, but if they were not able to do so there was nothing to prevent the question being reconsidered at the end of the period. The Prime Minister stated there seemed to he a consensus of opinion that there should be some form of taxation to provide the money required in connection with the earthquake losses. He thought it only wise to make provision for future disasters, and the Government’s proposals included the reimbursement of the Reserve Fund and increasing it so that it would be in a position to meet any further emergency. This was to he achieved by means of an insurance tax and a tax on insurable property.. There had been suggestions that the taxes should be larger to enable the requirements to lie met more generously, but he did not th : nk it would he wise to place an undue burden on the people at the present time. Mr Forbes briefly outlined the remaining provisions of the Bill. He said the postponement of the local body elections in Napier and Hastings was advisable at a time when everything was dislocated and so many people away from their homes. CAUTION URGED. The Leader of the Opposition (Mr J. G. Coates) said that everyone regretted the serious consequences of the earthquake, and he felt sure all parties would be prepared to co-operate in dealing with the situation. It was considered by many people that the proposals relating to the Adjustment Court would not be expeditious enough. There would be a great many cases for the court to consider, and it might be better to leave the work to the Supreme Court. Was there any necessity for the compulsory settlement of disputes? he asked. If the parties would not agree on a settlement, would it not be better to leave them alone altogether and let them agree later? The amount suggested for the rehabilitation of the earthquake area was, in his opinion, totally inadequate. How was the assistance to be apportioned, he asked? It had been suggested that all who had suffered loss should be assisted, but if a man was in a position to re-establish himself without assistance he should be left to do so. A great many people could be helped with loans, and not by gifts. He agreed that the Reserve Fund should he repaid but business was in a bad way at the present time, and it might be better to meet the position from day

to day rather than to place a heavy burden on the property owners of the dominion at the present time. The dominion’s experiences of special funds in the past had not been happy ones. Governments had built up funds and later Governments had used them for ends other than that for which they had been built up. The disaster in Hawke’s Bay concerned the whole country, and not only those who had insurable property. If it were possible and convenient to borrow money it would be the better policy to follow. It might not be the sounder policy, but it would be easier under the existing circumstances. A great number. of business houses was not nearly fully insured, and 18d on the uninsured balance would make a very heavy burden in many casdfe. As the matter was an important one he suggested that the Prime Minister should set up a select committee to take evidence on the Bill. He considered the Bill was of sufficient moment to justify that, and it should be approached with the utmost caution. • s • LOAN OF £4,000,000 SUGGESTED. Mr W. K. Barnard (Napier) joined the Prime Minister in expressing gratitude for the large-hearted response to the appeal for funds for the distressed residents in the earthquake area. The funds, although very liberal, had proved inadequate, and in his opinion the £1,500,000 non offered was also totally inadequate. He did not agree that the Bill should go before a select committee because the need for relief was very urgent. The Bill had been before members and the public for nearly two weeks, and any objections to the measure should have been aired. He wished to move as an amendment to the motion before the House—

That it be a recommendation to the Government to take into immediate consideration (1) the urgent "necessity for obtaining and publishing an estimate of the total loss suffered in the earthquake area; (2) taking authority this session to borrow the sum of £4,000,000 for the purpose of completing the rehabilitation of the earthquake area ; (3) the question of reopening negotiations with the council of the Fire Underwriters’ Associa* ti'on with a view to obtaining the cooperation of the fire insurance companies in the work of ascertaining the losses and making financial assistance available, and thereby facilitating help which is so urgently required ; (4) the immediate completion by the Public Works Department of the work of demolishing the ruins and removing the debris in Napier, the cost of such work to be a charge upon moneys to lie provided under Part 11. of the Bill; (5) the acceptance of the general rule that homes and household goods which have been destroyed or damaged shall be restored by way of a free grant to the full extent of the loss suffered; (6) the question of assisting the local authorities in the earthquake area by way of a grant as well as by loans; (7) the question of making recommendations to the" Hawke’s Bay Rivers Board and the Napier Harbour Board and/or directing or controlling the activities of either body with a view to the securing of the fullest possible co-ordination in the task of restoring the earthquake area and Napier and Hastings in particular.

Supporting his amendment, Mr Barnard suggested that the Government should take power to borrow up to £4,000,000 over and above the amount covered in the Bill. It was feared in Napier and Hastings that £1,500,000 would he all the assistance that would be received, and it would have a strong psychological effect if the Government took the power suggested.' He appealed

I to the Government to clear away all the ruins still in Napier, and he said he imped that the personal belongings of the sufferers would be restored 100 per cent. He agreed with Mr Coates that consideration' should be taken of the financial position of the sufferers, but where the losers were workers with mortgages on their homes he thought the losses should be fully restored. He believed there were 2,000 homes in Napier that could be restored at an average cost of £IOO each, and if that £200.000 was given as a free grant it would go a long way towards restoring Napier. Napier was faced with many big problems, and not the least of these were the river and harbour. Continuing, Mr Barnard asked that the losses caused by the loss of employment should be restored in part, and suggested that three adjustment courts should be set up to deal more expeditiously with the work. The £250,000 suggested for a I loan to local bodies would probably not cover a quarter of the loss suffered by the local bodies concerned, and the possibility of bodies being in a position to collect extra rates in future was not very bright. He suggested that £250,000 should be given as a straight-out grant. He also suggestedfthat a special commission should be set up to deal with the question of late payments of income tax or its remission altogether in the case of the earthquake sufferers. Mr A. E. .lull (Waipawa) said he was pleased the House had the Earthquake Bill before it, even, though the provisions were disappointing. He was further disappointed with the speeches of Mr Forbes and Mr Coates. He felt somewhat alarmed at the emphasis that was being placed upon the loan aspect in preference to the principle of straight-out assistance. What was required in the devastated area was capital and credit as well. The towns would be prejudiced for a generation in competition with other places if businesses were heavily burdened with loans. Referring to the adjustment court, Mr .lull complained that there was a possibility that the opinion of the Chief Justice could be overridden by the opinions of the two laymen members of the court. He would prefer to see the questions left to the well-known judgment of Chief Justice alone than to envisage the p" 'ability of his being outvoted by the other members. Mr .lull said-he understood the Prime Minister had given an undertaking to go into the question of earthquake losses in relation to the payment of income tax, and it was to be hoped that there would be a satisfactory outcome. Mr Jull drew attention to the losses involved in the farming industry and industry generally. He pointed out that duty had been paid on large stocks which had subsequently been destroyed, and he asked whether it would not be fair to remit these duties. It would not be much use bringing the people back to “the area if firms were not placed in a position to employ them. He contended that the Bill did not deal adequately with the question of rehabilitation. The Prime Minister had referred to assistance where assistance was required. Did that mean that a man who had formerly owned a business was to be recognised as being in need of assistance and to be offered a job as, for instance, a clerk? That, Mr Jull declared, was not rehabilitation. Continuing, he said he thought the tax on insurable property might well be dropped. It would involve the creation of a great deal of machinery, and would only apply to a comparatively small amount of property. Mr H. M. Campbell (Hawke’s Bay) said there was every indication that the damage in the earthquake area would exceed £4,000,000. He thought the Government should begin by making grants to sufferers, and should then supplement these by loans at a low rate of interest. Criticising the Adjustment Court, Mr Campbell expressed the opinion that there were far too many cases for one court to deal with within a reasonable period. He agreed that at least three courts would be required, otherwise the hearing of cases would extend over a period of years. He also agreed with the suggestion that the* Minister of Finance should be given power to raise a loan for the area, adding that even if the power were not used it would be available should the conditions change and a suitable opportunity present itself for raising a loan. Ho thought every possible assistance should be given the victims, and he favoured the proposal to relievo them in the direction of income tax. He did not like the proposals regarding insurance and an insurable property tax. He agreed that it was necessary to raise money for the purposes outlined, but those purposes should be charges on the Consolidated Fund, which should be enabled to meet them out of revenue raised by other means. Mr M. J. Savage (Auckland West) said he considered there should first be an accurate estimate of the damage and the clearing of the wreckage before the rebuilding was commenced, and when those preliminaries were accomplished the rebuilding should be made a definite objective. It was important to the dominion as a whole that the area should be restored. The Government should, even if the raising of the money had to he spread over a number of years, set out on a complete pro--111 amine, mi that sonic guarantee would hj .; afforded the people whom it was desired to induce to return to their homes. Parliament should lose no time in laying the foundation of a universal scheme which would place the country in a state of preparedness for any future happening of the kind. It was essential that the work of restoring the area to prosperity should bo undertaken without delay. DISTRICT NOT BANKRUPT. The Minister of Lands (Mr Ran sum) said he had no doubt that, variations to the Bill would lie nftule in committee, and he hoped they would bring the measure nearer to the objective of all the parties concerned. He did not agree with those who argued that all the losses should be made good, but he considered that the assistance given should be sufficient to enable the district to rehabilitate itself. Hawke’s Bay was a district with great possibilities, and provided it enjoyed some good seasons it would, with a reasonable measure of help, he able to re-estab-lish itself on a sound footing. He was sure the people of Hawke’s Bay did not desire to be regarded as bankrupt and helpless to share their responsibilities. Referring to the insurance tax, Mr Ransom said he thought the public would regard this as the fairest means of meeting the situation and preparing for future emergency. If any member was able to suggest a more suitable method he should do so He thought it desirable, if possible, that one court should deal with all the adjustment cases, so that uniformity coiild be expected. Another factor in favour of one court was that it would involve the least possible admin-

istration cost, and would leave more money for relief. PREJUDICIAL LOANS. I Mr \V. I). Stewart (Dunedin West; | said the Prime Minister and Mr Ran- ' soni had dealt with features of the Bill i which anyone reading it could find. : What the House wanted to hear was : other things rdating to the Bill, such I as what representation had been made ; to Cabinet and how far it was intended 1 to go in the building up of the Reserve Fund again. He agreed that the Reserve Fund should be used if it were not possible to raise a loan, and he said the reason why a loan could not be raised was because the Government had raised over £9,500,000 on the local market during the short time it had been in office. A large part ot that had been for redemption purposes, and had the advantage ot localising that amount; but the Government would have been wise to have avoided exhausting the local market. While the Government was looking into the question of the urgency of replacing the fund he suggested that the Prime Minister should consider the possible use of Bank of New Zealand shares, which the Government • had to the value of £2,U()U,O(J(). It might be a wise policy to use those shares to replace the fund for a time, and so enable the Government to consider fully the best means of replacing the fund. In effect, an insurance tax was a property tax. The Minister of Lands had said it was a tax on the people of New Zealand to meet a national disaster, but it was not a tax on the people of New Zealand. It was a tax on a class-, that had invested its savings in property .A committee of the House should be told by the Prime Minister why an insurance tax had been decided on, and if alternative proposals had been explored. Mr F. Langstone (Waimanno) said the Government should first find out the extent of the losses, and then state how much of the losses it was prepared to finance. He added that he would like to see a clause in the Bill prohibiting the insurance companies from raising their tariff. Mr H. T. Armstrong (Christchurch East) said it seemed there was no power of appeal against the decisions ot the Adjustment Court, as in the case of the decisions of other courts. Mr D. Jones (Mid-Canterbury) supported the plea that the Bill should be sent to a select committee. There was nothing to measure the liability of the State in the Bill, he said, and it was the duty of Parliament to control the purse strings of the country. So far as the Bill was concerned, control was left to the court. The House should lay down the laws and the court carry them out. Continuing, he criticised the method of levying the tax, and said that it would put many farmers in an unjust position. Even if it took a Select Committee a month to make a good Bill of the mesaure, it would be worth the loss of time, he added. Mr W. E. Barnard (Napier) : What will the people of Hawke’s Bay do in the meantime?

Mr Jones: We have the money, and we can authorise its expenditure.

Mr H. M. Rush worth (Bay of Islands) referred to the fact that a large area of land near Napier had been lifted and reclaimed, and asked if it was possible for that country to be inundated again. He believed that that was possible, and, if so, it would be useless to rebuild Napier and Hastings on the present sites. It might be better to build elsewhere. Mr Barnard : That is unnecessary. Mr Rush worth: Has the lion, gentleman any assurance of that? The debate was continued by several other members, who criticised various phases of the Bill.

The debate was continued on similar lines until the House rose at midnight until 2.30 p.m to-morrow.