NEED FOR RESERVES POST-WAR RECONSTRUCTION

Nelson Evening Mail, Volume 79, 11 January 1944, Page 2

NEED FOR RESERVES

POST-WAR RECONSTRUCTION

TAXATION RELIEF ADVOCATED In view of the representations made to the Government last year by the New Zealand Manufacturers’ Federation for a change in the operation of income tax to enable provision to be made for

certain aspects of post-war reconstruction, a plan presented in New York recently has features of special interest. New Zealand manufacturers share with those of other countries the concern that industry’s change-over from wartime to peacetime activity is liable to be handicapped seriously through the wartime drain on reserves and through

circumstances which prevent anything like adequate provision being made for maintenance of plant and buildings for reconstructioning or replacement of machinery, for extensions of existing factories and for purchases of necessary materials. A strong plea for the building up of reserves, through taxation adjustments, was made by the federation to the Government some time ago.

Reports from overseas also indicab that wartime taxes are stripping business concerns of their prospects of be

coming up-to-date again after the war. The danger of some units of industry

‘'being bled white” has been stressed by the Associated Chambers of Manufacturers in Australia in pressing the Federal Treasurer for an adjustment. The need is stressed there for a taxation formula that will protect the revenue without sapping industry. Canada and Britain have made certain provisions which serve to guard against the danger felt here and in other countries.

Appreciation of the immediate postwar difficulties was also shown in an address given recently by Mr Walter A. Cooper, a company accountant, to the Controller’s Institute in New York. “We need post-war reserves in order to place industry in a financial position to swing immediately into a war against unemployment and to meet and overcome all the problems which will develop when war activities cease,” he said. “The crying need now is for a formula with necessary safeguards and controls that will accomplish substantial justice without permitting abuse of the privilege or improper loss of revenue to the Treasury. One narrow formula is always open to the objection that, under the circumstances of certain taxpayers, improper tax avoidance will be possible, and, in other cases, that adequate relief will be afforded. We must have a very broad, flexible formula in the form of a recapture clause.”

The six basic features of a plan which would meet that requirement were stated as follows:

1. The deduction should be elective. 2. It should not exceed a percentage, says 15 per cent., of net income.

3. The entire funds should be required to be invested in Government bonds.

4. The fund should be expended within a period of three years after the war ends.

5. It should be expended for any one of specified post-war requirements, such as: severance and relocation costs or wages: costs of reconverting, moving or adjusting plant facilities; deferred maintenance not otherwise covered; inventory losses; deferred research expenses; losses due to contract cancellations, re-employment of servicemen, etc. 6. If not so expended, the fund or unexpended portion should be subject to recapture by the Treasury by taxing it at the rates in effect when the fund was created.

“Many of the post-war expenditures will be the outgrowth of all-out activities for war production,” the speaker pointed out. “They may be made in later years when it may be expected that somewhat lower tax rates wili be in force, and if there is no loss of unused credit the post-war expenses will save taxes at such lower rater; yet, the profit growing out of the activities which necessitated the expenditures will have been subjected to the highest tax rates in our history.” In supplying the above information Mr D. I. Macdonald, secretary of the New Zealand Manufacturers’ Federation stated that his Federation had been in consultation with the Government for several months regarding this issue and would continue negotiations early in the New Year.