Dominion's Finances in Sound Position

Manawatu Times, Volume LV, Issue 7201, 26 April 1930, Page 9

Dominion's Finances in Sound Position

Estimated Surplus of £ 150,000

. f Sir Joseph Ward’s Review of Position

Pef Press Association. ROTORUA, April 21 The financial operations of the Government during the year ended on March 31 last have yielded a surplus of about £150,000 according to an official announcement made to-day by the Prime Minister (the Right Hon. Sir Joseph Ward). The' revenue for tho year amounted to about £2u,050,000 £IBO,OOO in excess of the Budget estimate—and expenditure was about £25,200,000. The Customs, income tax, land tax, and petrol tax sources of revenue produced in the aggregate about £210,000 more than was estimated, but tile estimates of stamp and death duties fell short of the estimate by a similar amount. New loan commitments have resulted in an addition of £3,190,000 to the Public Debt. Holders of securities in respect of loans falling due this year arc to he offered renewals until 1937 at 5i per cent, interest. The special land tax imposed last session yielded a, quartet of a million in extra revenue. Sir Joseph Ward remarks that the present high rates ol exchange are not a true indication of the real financial position of the Dominion, which is quite sound.

“I am now in a position,” said Siri Joseph Ward, “to announce some preliminary figures of the results for tho last financial year. The returns are not yet absolutely complete, and the accounts are all subject to audit, but the preliminary figures I have indicate that the year ended March 31 last closed with a surplus of approximately £150,000. Taking all the circumstances into account, I think it will be agreed that the position disclosed is a satisfactory one. It will be remembered that on taking office the Government were unfortunate in falling heir to a deficit. The Government, however, did not hesitate to do their duty, and notwithstanding strenuous- opposition in the House of representatives, prompt steps were taken to remedy matters. In this connection, when the Government's taxation proposals were under discussion, it was maintained by the Opposition that they were entirely unnecessary, and a surplus of £1,000,000 or more was freely predicted in and out of Parliament. Now that the year ia over it will bo seen that the additional taxation was in fact absolutely necessary. A State with its large resources can bolster up an unhealthy position for a much longer period than is. possible in the case of a private business, but the ultimate result must be the same in either case. A Government's term of office depends in the long run on its management of the public finances, and solid progress cannot be made unless the State pays its way. In any case, we as a country cannot afford to have a deficit very often while wo are dependent upon overseas investors to provide a large part of tho capital for development purposes. Putting on additional taxation is never a popular thing to do, but tho facts have proved that tho Government was acting in the true interests of the Dominion in advancing proposals last year to ensure a balanced Budget. Eevenue and Expenditure. “Tho revenue received during the vear amounted to approximately £20,350,000, which is about £IBO,OOO in cess of the Budget estimate. The bustoms revenue, exceeded expectations, and was nearly £500,000 in exesss of the estimate. A substantial falling off in the last few months of the financial year was anticipated, but it did not eventuate. Incoino tax exceeded the estimate by £130,000, and land tax by about £IO,OOO. Against these increases, the estimates of stamp and death duties failed to materialise to the extent of approximately £210,000. Petrol tax and other revenue earmarked for highways showed an increase of nearly £70,000 over the estimate, but this item, Of course, in offset By an equivalent additional amount transferred to the highways account or distributed to local authorities. Then the writing off of £8,100,000 of Railway capital, effected by legislation passed last session resulted in the interest receipts from the Railways being £310,000 below the amount allowed for in the estimates. In round figures the expenditure amounted to £25,200,000, including £17,230,000 under permanent appropriations, and £7,970,000 under annual votes. Under permanent appropriations is included the expenditure on interest and debt repayment, pensions, subsidies to hospital boards and to local bodies, and other permanent items payable under various acts of Parliament. Debt charges all told absorbed £10,695,000, and other payments under Acts amounted to £6,535,000. Details of these payments are not available at present, but the expenditure will, of course, be fully analysed in the Budget. “The position in regard to departmental expenditure included in the annual votes is very satisfactory. As stated in the Budget, the estimates for last year were most carefully overhauled before being finalised. Even so, a rigorous control over expenditure during the year resulted in savings under most of the votes, and these savings in the aggregate amounted to about £220,000. Trade and Banking. “Having such a relatively large external trade, this Dominion is very much concerned with' the state of trade in other countries, particularly in Great Britain, whore the greater part of our exports are sold. Happenings in the realm of international finance and' general economic conditions operating abroad have in .the last few

months brought about a marked change in tho economic position and outlook of tho Dominion. As a result of falling prices and delay in realisation, the values of our exports havo declined considerably, and during the last financial year they were hardly sufficient to pay for the year’s imports, which showed an increase of about £4,000,000. During the two previous financial years, however, there was an excess of exports amounting to approximately £22,500,000, so that over the longer period the trade balance is satisfactory. “The published banking figures for the March quarter, 1930, show an excess of deposits of £355,000, as compared with £8,985,000 for the same quarter of the previous year. . This decline in the relative position was brought about by a slight fall in the volume of deposits and a considerable increase in advances. The change in the banking figures, of course, is largely the effect of the change in the trading figures. The rise in imports and advances, however, indicates increased activity in business. The exceptional conditions ruling outside the Dominion have given rise to high rates of exchange, which rates arc by no means a true indication of the present financial position of tho Dominion. In fact, tho position is quito a sound one, and but for outside influences would have been regarded as quite normal. Special Land Tax. “As additional taxation was unavoidable last year, the Government endeavoured to place the additiona. burdeu equitably, and at the same time to create as little possible in business and trade, in order that the economic progress of the Dominion should not be hindered, as it was considered that the large farming incomes had not borne their an share of taxation. In recent years a special land tax was imposed on largo rural estates, with an unimproved value of over £14,000. Larfe farming incomes were also made assessable or income tax, but subject to a set-off of the amount paid in land tax in order to ensure that the special land tax should not impose undue hardship, in particular cases provision was made m the legislation for a special hardship commission, to which land owners wero at liberty to state their case. lS commission was given an entirely free hand by tho Government, which has accepted their decisions in all cases. As a result, the special land tax has been wholly or partly remitted in a number of cases. In matters of taxation, as in many other things governed by arbitrary rates, absolute justice can never be completely-attained, but the provision for appeal in the caso of special land tax at least prevented undue hardship being imposed on particular individuals. “After deducting remissions amounting to nearly £IOO,OOO, the special land tax brought about £250,000 additional revenue. The data obtained from the income tax returns of large fanning incomes has not yet been fully analysed, but it is clear that the contention com tained in last year’s Budget that large farming incomes have not in recent years carried their fair share of taxation was in accordance with the facts. This is proved by the fact that a considerable amount (definite figures not being available yet) was derived from income tax on farming incomes, after deducting land tax, both, ordinary and special. This means that previously some farming incomes were contributing less than half of their fair share of taxation. It will thus be seen that the Government was quite justified in placing part of the necessary additional'taxation on this the community. Additional Primage Duty.

4 4 To provide the balance of the additional revenue that was required to bridge the gap between the estimated revenue and expenditure for last year," said tho Prime Minister, “the primage duty on imports was increased from 1 to 2 per cent. Primago, of course, is purely a revenue duty imposed ' upon practically .; all imports, whether dutiable or not, -so obtaining the additional revenue: through this channel meant spreading the burden equally over the whole community. The additional impost on individual classes of goods from - a • retail point of view is practically but even so

tho Government did not desiro tho tax to remain upon food any longer than was absolutely necessary. . Accordingly, it was provided in the empowering legislation that the additional primage duty on foodstuffs and also on manures was to be lifted automatically on March 31, 1930. Accordingly, all such goods are now subject to tho normal 1 per cent, primage only. In regard to the additional primago duty on other classes of goods, it is prescribed in the Customs Amendment. Act, 1929, that this may be terminated at any time now by order in council. It is not usual, however, between Parliamentary sessions, to make any forocast as to what will bo done regarding Customs taxation, and I do not intend to malic any pronouncement concerning it at this juncture. Tho matter will bo dealt with when tho whole of the financial proposals for tho current year are finally under review. Defence Expenditure. “With a view to ensuring that the financial year will closo satisfactorily and in the interests of the taxpayers, it will bo necessary f6r all items of expenditure to bo overhauled with a view to possiblo curtailment. Accordingly, as already announced, it has been decided to suspend all Territorial camps pending a careful consideration by tho Government of tho wholo system of land defence. The Government’s proposals on the matter will bo submitted to Parliament in duo course, when the wholo matter will be opon for discussion. In tho meantime, no further, camps will take place.

State .Superannuation Funds and Salaries. “As indicated in my last Budget,” .Sir Joseph continued, “the financial position of tho Stato superannuation funds was found to be very unsatisfactory, due to the neglect in the past to give effect to tho actuarial reports and certificates in respect to subsidies. A special committee of inquiry has been set up, and is now exploring tho position fully. In the meantime I am pleased to say that I have been abie to do something during tho past year in the direction of increased subsidy payments, which were long overdue, an additional amount of £175,000 being paid over for this purpose. I am also glad to say that in respect to the lower-paid P. and T. employees an improved scale, of salaries has been adopted and put into operation. The Public Debt.

“The Public Debt on March 31 last amounted to approximately £267,380,000, the figures again being provisional and subject to audit. This is a net increase of £3,190,000 for the year. It may be explained, however, that this unusually small increase was due to tho fact that £5,350,000 of the new loan moneys raised in the previous financial year, being part of the £7,000,000 London loan raised in January, 1929, was really part of this year’s finance. The new loan moneys received during 1929-30 totalled approximately £5,700,000, including £1,620,000 in London (the last instalment of the £7,000,000 loan of January, 1929) and £4,080,000 obtained from local issues. As a partial set-off against theso new issues there were redemptions, of debt during the year amounting to about £2,510,000, leaving the net increase at £3,190,000, as already stated. Of the redemptions, somo £406,000 represented funded debt payment to tho British Government, and £1,160,000 the operations under the statutory debt repayment scheme, while £260,000 eamo from reparations and the balance from other accounts. Stock Conversions.

“The most important debt operation during the year was the satisfactory arrangement made'for dealing with the balance of the 4. per cent. New Zealand Consolidated Stock which was due on November 1, 1929, On April 1, 1929, there was still £11,274,000 of this stock in tlic hands of the. public. A further conversion offer to convert up to £5,000,000 of tho 4 per cent, stock into 5 per cent, stock at par, to mature on July 1, 1945 (with an option to the Government to redeem on or after July 1, 1935), together with a cash payment of £2 per cent, on November 1, was made to holders of tho old stock in September, 1929. This offer was underwritten and was taken up by tho holders to tho extent of £3,625,000. In view of tho fact that tho London, money market at that time was seriously disturbed by tho reactions from the boom on the New York Stock Exchange, coupled with the Hatry affair and the outflow of gold to the European market,'’ the Dominion was fortunate in placing the stock on theso terms, which were favourably commented upou by London financial papers. The remaining £6,274,000 of 1929 stock was either purchased beforo maturity or repaid at maturity. Tho necessary funds for these operations were provided from New Zealand, £672,000 being provided out of debt repayment moneys and tho balance from tho proceeds of local issues in redemption. The conversion and redemption of the £29,490,000 of 4 per cent, consolidated stock was the largest and most important financial oporation in the Dominion’s experience, and when it is remembered that it had to be largely carried out over a period when the London money market Was adversely affected by international complications, it rvill bo realised that the Dominion is to be congratulated on tho successful termination of these large operations. It may be added that tho transaction resulted in approximately £1,170,000 of tho debt being repaid and in about £6,000,0000 of the debt being transferred from London to New Zealand, a fact which is of considerable significance economically. Rise in Local Interest Rate. “While dealing with the Public Debt,” the Prime Minister added, “I would like to refer briefly to the rise in the interest rates at which local issues -are made. The rate was increased from 5 1-8 per cent to 5$ per cent on January 9th, 1930, and I havo received many protests against the action taken in this connection. I need hardly say that'tho Government is desirous of obtaining as cheaply as possible tho necessary capital for carrying out its policy -in connection with public works, land settlement, State Advances, etc. It was found, however, that as a'result of the high rates offered in Australia and the relative scarcity 'of capital, the amount required by the Government could not be obtained at tho rates previously offer-

od. Tho local requirements of the Government were also affected by the largo sums it was found advisablo to provide for the redemptions of 4 per cent, consolidated, stock already referred to. Tho Government cannot control the price of money any more than it can control tho price of butter or any other commodity for which there is a world-wide market. Tho Government, in order to carry on its programme approved by Parliament, thus had no option but to increase tho rato of interest on debentures and inscribed stock issued in New Zealand. Loans F&lUng Duo. “Loans falling duo in New Zealand during the current financial year include tho following amounts held by tho public:— £1,041,680 bearing interest at 5j per cent., due on Ist July nest. £326,000 bearing interost at 5 per cent., duo on 15th July next. £4,887,840 bearing interest at 4J per cent’., due on Ist September next. “In regard to tho first two loans, I havo to announeo that holders of tho securities will bo offered renewal for a further period from tho respective maturity dates to the 15th February, 1037, with interest at 54 per cent, payablo on the 15th August and 15th February. Holders of inscribed stock will' shortly be communicated with direct from tho Treasury, and applications for renewal of this form of security, - ns well as bearer debentures on issue in respoct of theso loans, may bo made at tho offices of the Treasury at Auckland, Wellington, Christchurch, and Dunedin, or at any branch' of the Bank of Now Zealand in the Dominion. The terms to bo offered to the holders of securities in the £4,887,840 44 per cent, loan will be announced later. State Advances.

“One of the chief planks of the Government’s policy on taking office was to provido all the capital necessary to enable tho State Advances Office to cope with tho demand for loans. When tho Government took office I found that there were several thousands of applications on hand, involving an amount of about £4,000,000. In these circumstances the Government gave tho matter of State Advances its immediate attention, and in a- few months the accumulation of applications was overtaken. “Since the Government assumed office on 10th December, 1028, and up to tho 31st March last, about 11,800 applications for loans totalling £13,350,000 were received. Loans authorised in this period totalled approximately £9,540,000, including £5,195,000 to 4336 settlers and £4,345,000 to 5170 workers. Loans actually paid over amounted to £8,070,000, including £6,920,000 during last financial year. This last item constitutes a record for. the office.

“This achievement of the Government, in addition to providing capital for the purchase and devclopnwnt of rural lands, enabled many fanners to rearrange their finances and obtain the savings arising from long-term instalment mortgages with freedom from financial worry. The assistance thus rendered has undoubtedly aided in carrying out the Government policy of closor land settlement. Further, the expenditure of a large sum of money in providing comfortable homes for the people has very materially assisted in solving the housing problem through-out-the Dominion, and has, incidentally, been the means of stimulating the timber industry and of providing work for a large number of people, including builders, carpenters, painters, plumbers, and other tradesmen. In this way the activities of the State Advances Office havo indirectly been of considerable assistance to the Government in dealing with the unemployment problem. Intermediate Rural Credits.

“Complementary to tho State Advances Office there is the system of Rural Intermediate Credit which, broadly was designed and constituted to bridge the gap between the long-term instalment mortgages and tho day to day current account facilities offered by the banks. Accordingly the Rural Intermediate Credit Board is empowered and intended to assist tho man on tho land by granting advances as cheaply as possible (the present rate of interest being 64 per cent.) for clearing, fencing, draining, buildings and other farm improvements, tho purchase of implements, stock, seeds, etc. the marketing of produce, and generally tho year to year finance of farming operations. “During the last; session of Parliament an amending Act was passed to make the system moro workable, and among other things the maximum amount that could be lent to a farmer was increased from £IOOO to £2OOO. Following this amendment arrangements have been made by tho board to grant special credit facilities calculated to bo of particular benefit to sheep farmers and grain growers. Under these special arrangements the board will fix the limit of advances for individual farmers, who will then bo able to draw the money as they require it, interest being charged on the amount outstanding only.