MONEY AND BUSINESS AFFAIRS.

Manawatu Standard, Volume LX, Issue 267, 9 October 1940, Page 12

MONEY AND BUSINESS AFFAIRS.

WAR LOAN TERMS. (By ‘TLJ.E:.”) The terms of tho war loan as set out in the prospectus have been received with dissatisfaction by practically all sections of the community, and particularly by the various classes of income taxpayers. Somu profess to see totalitarian finance techr nique embodied —that is control, compulsion and a certain measure of confiscation. Be this as it may, there is no doubt that tho terms are unnecessarily harsh, and fall with great severity on companies which are already very heavily taxed. Income taxpayer must subscribe an amount equal to the sum paid in income-tax for the year ended March 31, 1939, individuals being allowed an exemption of £SC and companies £7O. This is equivalent to' an additional income tax, and it is very probable that many companies will not be able to pay out of their current revenue, and must therefore realise on such securities as they are able to sell, or borrow the amount, from the banks, in which oatte interest would have to be paid and that cannot be loss than 4 per cent. —it is more likely to be 5 per cent. The Government pays no interest for three years, and after that per cent., so that the company borrowing the money to take up the loan will be paying an additional tax.

This muEt disturb the economics of the country, for it puts business people to now shifts, the extent of which cannot at present be forecast. Is it worth while to penalise business in this way ? It is like killing the goose that lays the golden egg. We have in our midst a great many people who dislike seeing companies doing well or even individuals. A company that pays a big dividend is regarded as having exploited the public. This of course is a. wrong view. A company cannot pay big dividends without big earnings, and a company cannot have big earnings without serving the public to their satisfaction, for after all profits are obtained from serving the public And dividends represent the surplus profits of the company for the year, and one has yet to learn that it is inimical to the interests of the people for a company to distribute its surplus profits. Moreover, what a company calls its dividend becomes income to the shareholders, and as such it is spent in the country. Joint stock companies are necessary in our present advanced state of civilisation. They make business and employ labour, which is what the community wants, and it seems a little silly that some should condemn what is really wanted. To penalise the companies with restrictions, heavy taxation, and high costs is not tho way to encourage business and so improve the economy of the country. The compulsory features of the war loan will go hard with most companies. Some people question tho necessity of compulsion. The people have shown no hesitation in subscribing to the various war funds that have been set up, and it is held that a loan floated in tho orthodox way, as is the case in Britain, would be heartily supported. And the insistence upon lending to the Government for three years free of interest is much resented, more especially as no precedent is to be found for this in any part of the British Empire, or in any foreign country except the totalitarian States. The British Government lias to find about £9,000,000 per day, and yet whatever money is borrowed from the people carries interest, although it may be a small rate. It is believed that the object of the interest-free clause is to squeeze from the income-tax-payers a suru sufficient to carry on somo services, such as national superannuation, which could very well be cut out. The terms of the war loan are calculated to have an adverse effect on the credit standing of the epuntry coming as they do on the heels of import restrictions and exchange control. If the war lasts for three years or more, another loan would have to be raised, and with the precedent now established the next loan may be for five years without interest. A good many peculiar things are being done in the name of tho war effort.

The list of hardships and losses to those compelled to subscribe to the war loan would not be complete without reference to the value of the stock. If the war ends by September of next year, which is by no means a remote possibility, then the loan would have two years to run free of interest. One outstanding feature of the post-war period is likely to be a keen demand for money and crodit for repairing and restoring the enormous damage caused by the war. This keep demand would force up the rates of money, and if inva«tors in gilt-edged stocks look for a return of, say, 3i por cent., then the market value of the war loan stock now being issued would be about £7B, so that the holder would lose £22 on sale; but there would be no sale for the stock until after the end of September, 1943, when the 2i per cent, per annum interest becomes payable. EXCESS PROFITS TAX.

It is quite in order that profits made in war-time in excess of the peace-time average level should be taxed, and 50 per cent, is not too high a tax. It is, however, doubtful whether the State will receive much revenue from this source, for there are few industries in the country engaged in war work, and even those companies are not making big profits. Costs and wages absorb a good doal of the profits, especially when overtime (above 40 hours) has to be worked. With-producing and manufacturing companies the recent experience has been that while gross profits may be large, the net profits are small because of the high costs on the one hand, and fixed prices on the other. Many companies are not making their peace-time net profits. RESERVE BANK. The outstanding feature of the Reserve Bank return for the week ended September 30 is the advance of the huge sum of £1,000,000 to the State, bringing its indebtedness to the bank on that date to £25,000,000, whilo a year ago these advances amounted to £16,800,000. The demands on the Government at the end of the quarter are generally large, and this year besides the -war expenditure there is the nationul superannuation to be provided for. As revenue comes this should be very much reduced. The note issue has reached the new record high level of £20,108,913, and the limit has not yet been reached. Sterling exchange is down to £9,987,894, a drop of £113,960 during the week. So recently as July 18, these funds stood at £13,253,712. It is probable that these funds will show further shrinkages until we get into the swing of the export season.