THE BUDGET

Nelson Evening Mail, Volume LXI, 8 August 1928, Page 2

THE BUDGET

The Statement was as follows: It will be remembered that in the last Financial Statement the opinion was expressed that the year would prove a difficult one in public finance. The year had opened with an adverse trade balartee; industry was still depressed) and there was unemployment. In May the overdraft was increased, the withdrawals from the Post Office Savings-bank exceeded deposits, and generally difficult economic conditions temporarily prevailed. These factors were reflected in falling revenues and added financial burdens for the, State, and a decrease in the two principal sources of Avenue, Customs and Income-tax, was inevitable. But the extent of the falling-off, complicated us it, was .bv changes in the rates, was difficult to estimate, and very doubtful until well on -an the financial year. That part of the expenditure which is within the scope of administrative control had to be very carefully supervised throughout the year.

As a result of a rigid control the expenditure for the year under annual appropriations was £240,000 below the amount appropriated. This must be regarded ns satisfactory when it is remembered that the estimates had previously been drastically overhauled first by an expert departmental committee, and later by the Public Accounts Committee.

The total expenditure under both permanent and annual appropriations fell short of the Budget estimate by about £OO,OOO (after excluding certain changes arising out of legislation passed last session), while the revenue for the year slightly exceeded tlie estimate. The' deviation from the Budget estimate, howevw, was loss than J per cent, either way, and the result was a surplus of approximately £IBO,OOO, which is ns close to a balance as could be hoped for, considering the magnitude of the figures dealt with and the many uncertain factors involved.

It is contended in some quarters that the Government deliberately and consistently budgets for a large surplus by underestimating revenue and overestimating expenditure. I can assure honourable members that such is not the case, and last year’s results bear out my statement.

REVENUE

The revenue for the amounted to £25,123,980, but this total includes a new item—-viz., “motor vehicles — duties, licenses, etc., £309,118.” Excluding this for comparative purposes, the revenue totalled £24,754,862, as against ’ £24,943,107 received in the previous year, a decrease of £188,245. MOTOR VEHICLES—DUTIES AND LICENSES The new item “motor vehicles—duties, licenses, etc.,” includes a portion of the year’s receipts for tire-tax, license fees, and fines, together with the amount received from the tax on motor-spirits for the three months during which the tax was collectable. Though brought into tlie Consolidated Fund in tlie first instance, the revenues collected from these items are not available for general purposes, but, less costs of collection, must bo transferred to the Main Highways Account, or distributed among local bodies in accordance with tlie Acts of Parliament governing the same. Although-applic-able for a special purpose, the aforesaid revenues are, nevertheless, part of' tlie proceeds of taxation. The taxation receipts available for general purposes amounted to £10,484,788. a decrease of J 0419,899 in comparison with receipts for the previous year. • The net doorcase in the yield from direct taxation was £97,724. Incometax receipts, notwithstanding the anticipated additional revenue incidental to the adjustment, in rates made last session, fell short of the previous year’s figure by £148,487, but for reasons already stated this was expected and was allowed for in the estimates.

Land-tax showed a comparative doer ease of £74,588. This decrease is attributable mainly to the annual shrinkage due to subdivision of holdings, to the reduced amount of arrears to be collected, and to the fall in values of country lands on revision. Due to lliese reasons there Jins been a. steady fall in land-tax over the last few years. • :

The decreases in land and income.tax were largely offset by a comparative' increase of £125,35] in the revenue from stamp and death duties. The greater part of the decrease in the revenue from taxation was on account of Indirect taxation, Customs revenue showing a comparative decrease of £309,980 and beer duty of £12,189. Tin* decrease in'the former case arises out of the falling-off of approximately £3,750,000 in imports which followed the adverse trade balance of 1920-27.

Tn addition to the receipts from taxation, there is also included in the year's revenue the receipts derivedfrom interest-earnings, sundry revenues, and recoveries from different State activities, amounting to £8,270,-

074, and representing a net increase of £231,054 over the previous year. This result arose mainly out of an increase in the following items: Rost and Telegraph receipts, £90,702; interest earned on investment of i public moneys, £90,837; interest on railway capital liability, £87,434: which increases were, however, partly offset, by decreases in other items.

EXPENDITURE

The not'expenditure of the Ordinary Revenue Account for the year amounted in the aggregate to £24,944,904, as against £24,355,905 for the previous year. The year’s total, however, included £357,773 for the petrol-tax, tiretax, licenses, etc., which was offset by the now revenue item referred to above. The true comparative net increase was thus £231)166, made up of an increase of £250,000 under permanent appropriations, and a decrease of £25,494 under annual appropriations. PERMANENT APPROPRIATION S The expenditure under this heading, which covers debt charges and payments made in pursuance of various Acts of Parliament, amounted last year to £14,879,378. This total includes £9,757,002 for debt charges, as follows: £ Interest' , 8,397,074 Debt .repayment 1,300,528 Total £9,757,002 The new loans raised during the year led to an increase in the gross amount of interest paid, but this wasmore than met by increased recoveries from interest-earning accounts, with the result that the net expenditure on this item showed a comparative decrease of £53,720. This satisfactory result demonstrates the soundness of the Government’s policy of restricting the use of borrowed capital as far as possible to expenditure on productive assets. ■ i \ DEBT-REPAYMENT SYSTEM The expenditure on debt-repayment showed an increase of £05,390. I would like to emphasise the fact that though the statutory repayment scheme provides for a steadily increasing annual repayment of debt, the increases are not an additional burden on taxation, but represent part of the saving of interest on the debt redeemed. The same remark applies to the funded-debt agreement with the British Government. Thus the steadily increasing amount for debt-repayment is provided without increasing the annual burden on the taxpayer. Moreover, the greater part of the original annual charge under the Repayment of the Public Debt Act, 1925, does not come from taxation, but from interest on the Public Debt Redemption Fund. That fund consists of the old Sinking Fund accumulations and the amount of the accumulated surpluses invested in the Discharged Soldiers Settlement Account. The balance of the expenditure under permanent appropriations, amounting to £5,121,770, consists of payments, mostly recurring, made in terms of various Acts of Parliament, the chief items being pensions, subsidies to local bodies and Hospital Boards, and losses on isolated sections and braitch lines of the railways. In total this is an increase of £002,703 in comparison with the expenditure for 1920-27, but it includes the £357,773 petrol-tax, tire-tax, etc., mentioned above, and also another new item of £125,000 for the first instalment of the Dominion’s contribution to the Singapore Base. COMPARATIVE INCREASES Apart from these two new items, the comparative net increase is £119,990. Principal increases are:— £ Subsidies to Hospital Boards 72,051 Pensions 90,520 Railways (losses on isolated sections and branch lines) ... 55,591 Against these increases there are sundry decreases, among which might be mentioned fruit guarantee claims, £82,042. There was no expenditure under'this item last year. Concerning pensions, at.steady - increase each year is to be: expected in the ease of old-age and other pensions governed largely by population. Of the increase for last year, however, £24,214 was on account of war pensions, which up till then had been steadily declining at the rate of over £50,000 a year. The'main reason for the change is that many of the ex-soldiers are only now feeling the full effect of their war injuries, and this liability is likely to increase. Other countries have bail a similar experience. ANNUAL APPROPRIATIONS The net expenditure under annual appropriations amounted to £10,005,520, a decrease of £25,494 in comparison with the previous year. There was relatively little variation

. COUNTRY’S FINANCIAL MM SURPLUS OF, £IBO,OOO. SLIGHTLY LESS THAN DECREASE IN REVENUE. ■ I ANNUAL EXPENDITURE INCREASED BRIGHTER PROSPECTS FOR COMING YEAR (By Telegraph.—From “The Mail’s” Parliamentary Reporter.) WELLINGTON, 7th August. The Financial Statement for the year ended 31st March, 1928, was brought down in the House of Representatives to-night by the Minister of Finance (the Hon. W. Downie Stewart). A surplus of £IBO,OOO was shown on top of a decrease in revenue of about £190,000. . There are to be rip further reduction's of direct taxation at present, and the Minister makes no promise of great econolnies. He concludes as follows: “Taking a general survey of the position, it seems io me that when the present heavy programme of capital expenditure is completed in the next few years the then Minister of Finance should find himself in the happy-position of being able to more rapidly reduce pur weri dfebt, arid also’ taxation, provide rhore’ funds for land settlement, and view with a less reluctant eye reasonable demands for improved social services/*

in the expenditure under the various votes. An increase of £41,770 is shown for “Scientific and . Industrial Research,” but the bulk of this is nominal, being the cost of activities previously charged to other votes. An increase of £43,540 for vote “Agriculture” is mainly due to the increased amount of the subsidy on the carriage' of fertilisers for farmers. The expenses of the Lands and Survey Department increased by £17,159, chiefly on account of activities in connection with deteriorated lands. The principal decreases in votes are as-follows: £ Post and Telegraph Department 46,389 Naval Defence 40,193 Maintenance of Public Buildings / 28,534 Internal AfTajrs 53,137 The last named was partly nominal, being offset by the increase under “Scientific and Industrial Research,” but otherwise was due to the fact that last year’s expenditure included the cost of the census awl the expenses of the visit of T.R.H. the Duke and Duchess of York. An analysis of the total expenditure under annual appropriations shows that, compared with the previous year, there was a decrease of approximately £90,000 in administrative expenses. Against this there was an. increase of £05,000 in grants, subsidies, and oilier miscellaneous payments, leaving a net decrease of ' £25,000 in the total expenditure, as stated above.

SUMMARY OF YEAR’S OPERATIONS

Transactions for the year resulted in "a surplus, viz.:— £ Revenue (proper) 24,549,413 Departmental receipts .... 500,803 Recoveries on account of expenditure of previous ’ years 13,764 Revenue for year £25,123,980 EXPENDITURE ' £ Permanent appropriations 17,508,985 Less Tredits in reduction 2,029,007 . £14,879,378 * £ Annual appropriations 11,883,900 Less credit's in aid 1,818,374 i £10,005,528 £ Net expenditure chargeable to year’s revenue 24,944,904 Surplus £lfa),o7o ORDINARY REVENUE ACCOUNT The following shows the result in the funds of the Ordinary Revenue Account at the end of the year:— £ Balance forward, Ist April, 1927 3,081,400 Add—. Surplus, 1927-28 179,070 Temporary transfers to other accounts repaid 26,000 £3,880,542 LesS £ Used for reduction of debt 95,979 Instalments of purchase price of C long-term mortgage shares in Rank of New Zealand 117,188 Transfer to Public Works Fund — General Purposes Account 250,000 Advance to State Forests Account , 45,000 (Sundry Charges i(nd expenses of renewing loans 1,037 Subsidies to local bodies for relief of unemployment .... 75,100 £584,310 Balance, 31st March, 1928 £3,302,232 The balance was held as.follows: — £ Cash; ; 1,729,392 Imprests ; outstanding 255,039 Investments 1,317,801 £3,302,232 The amounts of £177,188 shown above as a payment to the Bank of New Zealand represents a further instalment of the purchase price of the 234,375 C long-term mortgage shares allotted to the New Zealand Government in terms of section 0 of the Bank of New Zealand Act, 1920. A total of £175,781 had been paid up on these shares up to 31st March. Regarding the transfer of £250,000 to the Public Works Fund, the use of surplus revenue for this purpose, and also for debt-repayment, has resulted in the debt charges being £1,000,000 per annum less than they would have 1

been bad this policy not been adopted. In particular the transfer was required last year to offset the additional work provided by the Public Works Department for relief of unemployment. The balance of the 'Ordinary Revenue Account is now down to approximately £3,300,000, and there lias yet to be paid out a sum of £400,000 to the Rural Intermediate Credit Board in terms of the’ Act passed last session. ft is often urged that this balance should be used for reducing taxation;' but tliis would mean that a normal year’s expenditure would lie in excess of that year’s revenue, or, in other words, we would be budgeting for a deficit. Such n course would undermine our reputation for sound and safe finance, which to a borrowing country means savings of a permanent nature in cheaper money that far outweigh any temporary respite that might be obtained by disregarding this principle. This is especially so at present when we are faced with the task of refinancing a considerable portion of the public debt. TREASURY BILLS Treasury bills in anticipation of revenue, amounting to £250,000, were sold in New Zealand during December at 51 per cent, discount, and were duly redeemed out of revenue at tlie beginning of February, 1928. Tn consequence of the heavy excess, of withdrawals from the Post Office Savings-bank which was one of the results of the temporary financial stringency of last year, it was found necessary to sell £1,050,000 worth of redemption Treasury bills in London during November last. Bills to this amount were outstanding at the end of the financial year, but have since been redeemed at maturity out of the proceeds of. an issue of debentures, in New .The; transactions, of dour.se, Lad no effect on thej'anlaiuit'.of tlie Public Debt. ' • , V,

PUBLIC WORKS

. The programme of public works was proceeded with last year, and substantial progress was made towards completion of the large undertakings at present in band. Details of; these wbrks will be set out for honourable members in the Statement' to be brought down later by my colleague the Hon. the Minister of Public Works. I am at present only concerned with tlie finance of tlie several undertakings. The expenditure oh capital works for the last financial year may be summarised as follows: — £ Railway construction, ad- ( ditions and improvements 2,573,252 Main highways and roads .... 1,297,141 Hydro-electric supply 1,272,575 Telegraphs and telephones 625,540 Public buildings : 605,747 Irrigation, land and river improvement 273,452 Other public works 177,983 £6,825,690 The expenditure on public buildings includes £368,479 for schools. In regard to expenditure on highways and roads, it was necessary to enlarge the scope of operations in the last two years in order to provide employment for additional mem The expenditure out of loan accounts, which, as J shown above, amounted to £1,297,000 for last year, has almost exactly doubled in the period 1923 to 1928.

HYDRO-ELECTRIC SUPPLY

The capital expenditure on electric supply last year amounted to £1,272,575, which is a record for the account. It was, however, the peak year of the construction programme; and after the current financial year, -when the large works at Arapuni and Waikaremoana will be nearing completion, there should be a considerable decline in capital requirements, although a start is being made on a new scheme on the Waitaki River.

PUBLIC DEBT

The gross public debt as. at the 31st March, 1928, amounted to £251,390,252, a net increase of £5,545,363 during the last financial year. In round figures, the net increase in tlie debt for each of the last three financial years was as follows: £ll,000,000 in 1925-26; £7,000,000 in 192627; and £5,500,000 in 1927 : 28. These figures clearly demonstrate that the Government is proceeding resolutely with its declared policy.of steadily reducing tlie annual net increase in the debt, without, however, in any way hindering the progress of the large capital works at present under construction. * The new loans raised during the year totalled £8,022,499, ■ of which £6,166,749, was. raised in London, ,while the balance represents tlie proceeds of sie usual local sales. A total of £6,996,749 was allocated to the Public Works Fund—General Purposes Account, Electric Supply Account, Railways Improvement Authorisation Act 1914 Account, and other accounts from which the capital works previously referred to were financed.. A sum of £890,000 was made available for tlie State Advances Office, part of the afhount being used to start tlie new Rural Advances Branch.',. The balance was raised for afforestation and other purposes. DEBT REDEEMED As a set-off against the new loanb raised, debt to the amount of £2,477,13G was redeemed during the year. " The reduction of debt during the year included German reparation moneys, £366,370. . The gross annual debt charges are: — - £ Interest 11,070,353 Annual sinking funds 7,000 Repayment of funded debt 386,224 Public Debt Repayment .... 1,053,559 Total gross charges £12,517,136 Tlie last-mentioned amount, £12,500,000, represents tlie total gross charges payable in respect of the debt as at the 31st March last, but I would again emphasise that tlie greater part of it, about £0,750,000, will come from interest-earning accounts, leaving only .; £5,750,000 to be borne by the taxpayer as such. Of tlie latter amount approximately £3,750,000 is for war debt. As a direct set-off against tlie total debt there is the Public Debt Redemption Fund which, less tlie amount written off in connection with the settlement of discharged soldiers, now amounts to £23,125,045, and also certain special sinking funds amounting to £2,635,706 as at 31st March last. Apart from tlie investments of the special sinking funds referred to, debt securities to the value of £4,813,587 were held by Treasury accounts as at 31st March last. The £4,813,557 of investments can be directly set-off against the debt, bringing the total capital set-off as at 31st March last up to £30,574,998. In addition, there are, of course, the

assets of the Railways, Post Office, State Advances, etc., representing the investment of the productive portion of the public debt.

TAXATION

On questions of taxation and its incidence I endeavour to give careful consideration to the various views and. criticisms put forward by chambers of commerce, farmers’ 'unions, and Other organisations 'Whose members are brought into close and constant contact - with the effect of taxation on business and enterprise. During the recess I discussed publicly the allegation that taxation in New Zealand is unduly heavy. I contend that, in comparison with other countries, this is not so, except in the cases I shall mention hereafter. In my opinion, it is fallacious to divide the total tax revenue by the population and draw any inference therefrom as to whether taxation per head is high or low. We have a large Customs revenue in New Zealand, but Customs - taxation is not high—in fact, our rates of Customs taxation are moderate compared with most countries. The large revenue is due to large, importations, and not to high rates of duty. Turning to direct taxation, the in-come-tax on tiie individual in New Zealand is, admittedly, one of the lowest in the world. On the other hand, the company income-tax is high, and I am of opinion that when the state of national revenue warrants a general reduction in taxation this fact should not be lost sight of. The graduated land-tax is high, but that is for the express purpose of preventing aggregation and enforcing subdivision. In other respects, however, the land-tax is by no means burdensome, as is evidenced by tiie fact that 55,000 farirters out of 80,000 pay none at all. Jn one respect the graduated land-tax • often operates harshly—namely, wlrere ' a biisiiiess has branches iiii many,'urWaji centres. All its', sites'a*re aggregated for land-tax, although there is rio real . aggregation, and in each centre .that business bad to compete . with local rivals who pay no graduated- land-tiix. But in the two chief sources of reyenue, wliieb are also the ends more frequently criticised—-namely, Customs and incoinc-tax (apart from company tax)—in my opinion, taxation in New Zealand is low, compared with most countries at a similar stage of development. - \ "" ; . ( " ’ .. ■ t CUSTOMS CONCESSIONS

The in Customs duties »y last year represented a very large sum, affecting items of household use, such as crockery, china, linen, linoleums, cotton goods, and other items. In addition to this* tiie duty on corrugated iron and British-made silks was removed. Concessions were also made on various classes of industrial machinery and hp- . plianccs. From the Customs returns during the first few months of this ypar it would appear that the effect of these concessions in depressing 'the revenue has been more marked than was antidipated; in fact, there has been a heavy fall in the revenue. It must be remembered, -moreover, tlmt, so far, not only has the revenue from Customs fallen substantially, but receipts from income-tax are estimated to show relatively little increase over last year; and, therefore, the improved conditions in trade aiid commerce will not reflect themselves to tlie extent that might be expected in this year’s - public finances. The liabilities on account of unemployment have also to be taken into account.

I agree with those who contend that taxation-reduction is one effective method of checking inordinate demands for more expenditure by the Government; but even after the utmost curtailment of departmental estimates and. refusing many urgent and reasonablepublic requests fbr further expenditure 1 can find no sufficient margin that would render a tax-veduction for this year either practicable or safe. On a review of the whole position, I am convinced that we may look forward with confidence to increasing prosperity. That prqsperity will reflect itself in the public revenues, These increased revenues should enable a reduction in taxation to be made in the near future.

RAILWAYS

The railway revenue was £8,034,970, and the working-expenses £6,685,123, leaving a net revenue of £1,349,847. Assistance to developmental lines (paid and accrued) amounted to £489,568, making £1,839,415 available to meet interest charges of £2,130,867. The result of the year’s operations was, therefore) a loss of £291,452. In comparison , with the previous year tlie revenue showed a net increase of £45,537, a decrease in passenger traffic receipts of £158,884, being more than offset by increased revenue from carriage of goods and other items. Working-expenses showed a comparative increase of £194,243, the principal contributing factors being the greater mileage of line worked, the increase in goods traffic, and the. improvements and additions to passenger services by rail and road. The net earnings of the railways, apart from the assistance to certain lines, thus decreased by £148,706, while interest charges increased by £87,434. Unless these opposite tendencies can be checked it is evident that the taxpayer will have to bear increased burdens in the future. The assistance to branch lines and isolated sections has increased from £359,540 in 1925-26 to £459,568 for 1927-2 S.

POST AND TELEGRAPH DEPARTMENT

This Department paid into the Consolidated Fund as revenue for the year the amount of £3,323,260, which was £96,702 more than for the previous year. Working expenses . under the vote amounted to £2,297,058, maintenance of Post Office buildings cost v£19,774, and, • after allowing for interest 'and depreci- < ation charges, the Department was able to close the year with a net. profit of approximately £20,000, , In order to give the Department continuity of finance,' and establish it upon a complete commercial basis, legislation was passed last session to separate the Post Office accounts from the Consolidated Fund. Henceforth these acqounts will, be shown in a separate account, which will enable honourable members and the public generally to obtain a better idea of the operations of this large Department. There will be brought into the Consolidated Fund: as revenue full interest on the amount of loan capital sunk in the assets of the Department. The Government’s policy in regard to the Post Office Savings-bank was outlined by me in the House last session. In pursuance of that policy steps have been taken to reduce the maximum amount of deposits on which interest is payable from £SOOO to £2OOO, while making an exception in the case, of deposits in excess of £2OOO at the time for so long as they remain on deposit.' The change operated as from the Ist April last. „ ~

TJio function of a savings-bank 'is po provide facilities for the safe investment of. the shi&ll savings of .the people. The manner in which the funds of a ,savingsbank are invested is mii|Le pnsuited for handling commercial deposits and floating balances'. Any considerable amount of floating balances practically at call is, m fact, a danger to the stability of a savingsbank. On this account the maximum amount of individual deposits in sav-ings-banks in all countries is sevci'eiy restricted. In Australia, I understand, the maximum for the Commonwealth Savings-bank is £I3OO, and for the otlfer banks , jess than that. These restrictions not only practically exclude commercial deposits, but provide an additional safeguard, in that a large number of depositors must be simultaneously seized with the desire to withdraw their money before there is any appreciable chance of straining the liquid resources of the bank concerned. At the same time, in order to provide facilities for the investment of savings' for fixed 'periods and » any amount, arrangements were made to issue Post. Office certificates on attractive terms. ' These provide for investment, of aiiy amount for. periods of one, two, and five years at rates of interest varying from approximately 4i per cent, to per cent. These certificates, lam pleased to say, arc\ proving popular, and in the six months to the end of the last financial vear investments amounted to £541,790. National saving certificates on similar lines are issued in Great Britain, where they have proved a very popular instrument of thrift, the. holdings of .the people amounting .to the sum of £360,1300,000. ■ • i

REVIEW OF FINANCIAL POSITION

The decrease of £90,000 in departmental expenses last year was .the result of a continuous and rigid supervision over practically every- item of expenditure subject to administrative control. 1

Many reforms have been introduced in the last few years. Mont and efficiency have been made the chief considerations for the promotion of officers of the Service, who have been encouraged to qualify themselves in everyway for the better performance of their duties. Modern methods of riccouhtancy have been adopted throughout the Departments of State, and commercial balance-sheets are now produced annually for all State activities.. Steps have also been, taken ‘to ensure that all stores are accounted for in the same manner as cash, and a Stores Control Board ’has been set up to arrange for the purchase of supplies in bulk. Where the nature of the 'service permits, of it, every effort is being made to make services self-supporting as far as possible, and no opportunity is lost of introducing better methods, eliminating waste, and preventing extravagance. Experience, has shown that in a- very large or-, mmisatjon like the Public Service true economy in administration is not attained by spectacular reforms, but by continual and gradual improvements, and this is the course that is being followed. ECONOMY By far the greater part of the expenditure consists of fixed paymepts in which no curtailment is possible unless some of the ; services at present rendered by the State are to be eliminated or •restricted. It is easy to indulge in rhetorical platitudes' about economy, {jut I am convinced that this virtue is practised by the heads of Departments to an extent little realised by the public. They are not. responsible for policy questions, and if they are -called upon to carry out new or more extended services ft is the Government that must meet public approval or condemnation, and not the administrative heads. The charges on taxation per head for 1927-28 were £ll 8s 5d as compared with £8 2s 6d per head in 191344. War pensions and war-debt charges absorb about a third of the present taxation receipts, and account for the whole of the increase in the taxation burden since 1914. ' Belief can only fee obtained fey repayment of the war debt, hence my anxiety to concentrate on this matter. * As already stated, we have paid off about'£lo,tiOO,ooo in six years. SOCIAL SERVICES Social services, including health and hospitals pensions, add, education, absorb at least another one-third of the State’s annual revenuej from taxation. These services must expand, automatically as the population grows, and, except in so' far a,s the nationa. wealth grows proportionately, further extensions of these services can only fee met by diving deeper into the pockets ot the taxpayers. / The remaining third of the taxation receipts is emended on ordinary debt charges, defence, and general and administrative charges. The relative burden of these items has decreased by £1 per head in comparison with 1914. T am therefore averse to making any promises of great economies, as 1 cannot see how any substantial savings can be effected while the demand for increased social services is so insistent. It is not the extravagance of the Government that is at fault, but the almost universal belief that the resources of the Treasury are bottomless. ior example, there is a widespread demand for invalidity ' and pension-insurance schemes, and these have the strong sympathy of the Government But it has often been pointed out that a wise expenditure on such social services should follow a revival, of national prosperity, and not precede it. Otherwise the ‘country is being made to spend money which does hot exist within its current resources, and this can result only in an increased burden of debt or taxation, and an aggravation of the position which such expenditure is mistakenly designed to remedy, boa’ tins reason" the Government lias been compelled to postpone consideration ot invalidity insurance this year, as the excellent recovery in Dominion trade and finance is not yet reflected in the public revenues. . , . The duty of the. Government is, in fact, to reconcile as best it may the widespread demand for reduced Government expenditure xvith the equally insistent cry for extended social services, increased pensions, and further grants and subsidies of every description. Exactly the same dilemma can be observed facing the Governments in England, Australia, and elsewhere. “PAYING OUR \VAY” ’ I regret to see in certain quarters the statement repeated that, wo are not paying onr wav. Such a statement has no I'oiindatiori 'in fact. 'lf there were any truth in it. our financial critics in London would be the first to draw attention to it, as they display a most intimate knowledge of onr public finance. _ 1 claim that New Zealand s enviable reputation for balancing her Budget has much to do with our high credit abroad. , , , T Secondly, as to the public dc-bt, i am

of opinion Mini our loan expenditure would lie rightly regarded as unduly heavy were it not for the fact that we are at the same time making substantial repayments each year of our war debt. It'is also to be observed' that, if part of this loan expenditure is unproductive, wo have made large transfers of revenue fo capital expenditure. While in times liko the 1 present I agree that wo should be content with a. hare balancing of 'accounts, I are strongly of opinion that when ami so long as trade and conditions are normal we should, as a, matter of sound finance, aim at providing each year a certain amount of revenue for capital purposes to cover the cost of works that, while necessary, arc only very indirectly productive.' In fact, if we are to maintaint the policy of development while reducing loan expenditure, such provision must increase as the years go by. In visualising the problem of national expenditure it should also be kept in mind that over £107,000,000 of the public debt is owned in Now Zealand and the debt charge goes back to the taxpayer in the form of interest.

1928-1929 ESTIMATE OF REVENUE

In estimating the revenue of the current year’s operations, as will be gathered from my foregoing remarks, 1 cannot piece any great reliance on increasing buoyancy of revenue before the year closes. I estimate the revenue receipts under the respective headings as follows: — Customs 8,261,000 Beer duty _ 600,000 Stamp and death duties 3,50(^000 Land-tax . ......k. 1,150,000• Income-tax , '■■■■,. 3,400,000 Interest on public moneys ... 747,000; Interest' on capital liability— Railways 2,255,000 ‘.Postal‘and Telegraph ... 425,000 Interest on Public Debt Redemption Fund 992,250 Motor-vehicles —Duties, licenses, etc. ~....'1,147,000 Other receipts V 1,391,000 N £23,868,250 This total of £23,868,250, it will be noted, includes "£1,147,000 —Motorvehicles, duties, etc.,” which is not, available lor general services. Income-tax is not expected to- show much response to reviving business res*ißing from the better trade balance', hut, as regards Customs, 1 have allowed for a small increase to be expected for the remainder of the financial year.

ESTIMATED RESULTS FOR THE YEAR

£ Revejiue ......... 23,868,250 Expenditure — Permanent Appropriations 15,827,398 Annual Appropriations 7,780,706 £23,608,104 Leaving a balance of. ,£260,146 to, meet supplementary estimates and contingencies. ( la arriving at these results I have had to allow for the many factors that at present make accurate estimates difficult to forecast. We are in a transition period when the chief sources of revenue are in full bud, but not yet in flower. r ' I have therefore refrained from placing before honourable members proposals that might under the circumstances bring about at the close of the year a result inconsistent with the policy I have striven to adhere to, that of maintaining the reputation of this country , for sound finance.