Flight of Capital

Manawatu Times, Volume 63, Issue 153, 1 July 1938, Page 6

Flight of Capital

Investors Turn to Australian Issues BANK RESTRICTIONS Reference to the flight of New Zealand capital overseas was agam made by Hon. Adam Hamilton, leader of the Opposition, in the House of Representatives on Wednesday during the preliminary stages of the debate on the Imprest Supply Bill. The Dominion’s overseas credits, he said, had fallen by £17,500,000 in the last two years. Of this sum he claimed that £12,000,000 was unaccounted for and this presumably is capital that has been transferred from the Dominion by various people.

When the matter was referred to a Palmerston North businessman who has made a close study of the position he readily confirmed tho statement that New Zealand money was being sent abroad in considerable quantities, udding that the trend had beon more marked of recent weeks than at any time previously. In his opinion only about 10 per cent, of the money coming forward for investment went into New Zealand enterprises, the remainder mostly finding its way across the Tas-

Two main reasons could be advanced fo- this diversion of urplus money to Australia: Low’er company taxation and lack of confidence in the financial future of the Dominion. In Now Zealand any concern that made over £8950 profit was faced with taxation at the fate of 7s 6d in the pc nd, which meant that a correspondingly larger sum must be earned to ensure a satisfactory return on the ccpital. The position in Australia was that the company tax wqs roughly at a flat rate of 3s Gd in the pound ar with less provision to be made for taxation purposes businessmen could show far better returns than similar institutions here. Any decently conducted undertaking with a large amount of share capital and a greater number of shareholders was expected to make profits iu excess of £3950 so it could be readily appreciated that the handicap thus imposed on New' Zealand industry compared with that in Australia caused in vestors to avoid Dominion issues in favour of Commonwealth ones.

Tho attention which Air. Hamilton drew to the umavourablo state of the sterling balance in London during his broadcast address at Hamilton only accentuated what had already been going on for a long time. Tho policy of the Labour Administration in spend ing large sums of money from one end of the Dominion to the other had been an unsettling influence in the minds of people who had money on deposit or available for investment.

The possibility of increased taxation to finance the Government’s Social Security proposals also added to the general nervousness that was already apparent following repeated announcements that Alinisters would keep on im-" proving conditions of living in the Dominion. Frequently when reviewing what the Government had done the Prime Alinister himself had added that that was only a beginning. Hints that the end of increased costs was not m sight could hardly be calculated to reassure prudent investors. When Mr. Hamilton stated in the House that he thought tho Government was heading in such a direction that when a timo of emergency arose it would have to step iu and control all overseas crodit, he very probably spoke with the knowledge that certain restrictions were already in force fls far as the Government-controlled Bank of New Zealand was concerned. Since the beginning of the week a limit of £250 had been imposed on transfers to Sydney and a request to the Palmerston North branch of the bank on Wednesday to send £SOO to Sydney was mel with the reply that they could not do so. The inquirer was recommended to approach an Australian bank with a branch in the town. If accommodation could not be secured there, it was pro posed to write to the head office to see what could be done.

It would be a disastrous state o: affairs if a general prohibition of th< export of money had to be imposed ii New Zealand, but the reporter’s infor mant was not at all happy about th< prospects a 3 there appeared to be m sound reason why the confidence thal was lacking would bo restored unlesthere was a very definite change ol front by the Government on financia