TERMS OF WAR LOAN

New Zealand Herald, Volume LV, Issue 16796, 12 March 1918, Page 5

TERMS OF WAR LOAN

NO CHANGE IN CONDITIONS.

4} PER CENT. FREE OF TAX.

LIMITED ISSUE AT 5 PER CENT.

[BY TKLEGRAPH.— association-.

CHRISTCHURCH. Monday. A lengthy statement concerning the £.000.000 war loan, the prospectus of "Inch is to be issued on March 16, was '"ado by Sir Joseph Ward, Minister for ! finance, day. Dealing with the prou- [ Sinus of the loan, he said there would be ! provision for small investors up to £500 ' receiving 5 per cent., tr its equivalent, bv ! investment in war certificates or war I bonds through tlio Post Office. There i »ould be provision made for inscribed , stock at 5 per cent, up to £500, upon I which income tax would be payable. It ' would bo strictly limited to the investors : of £500 in this branch, in order to pre vent an inflation of the values of money ' "i New Zealand. Provision would be I also made for 4 per cent, stock free of income tax. In addition to that, the compulsory clauses under the law as it now stood would ho p„t into operation wherever it was found to be necessary. ANSWER TO CRITICS. j PRESENT SYSTEM THE SAFEST. [BY TELEGRAPH.—OWN correspondent.] CHRISTCHDRCH, Monday. I Dealing with the contention of the ' Hon. Geo. Fowlds that the raising of war loans in New Zealand free of income tax was the greatest financial crime of all the ages, Sir Joseph Ward said ho (Mr. Fowlds) was fully entitled to his own I opinion. Tho fact remained, however, that, | during this unparalleled war, which had | already produced financial revolutions in

the whole of the countries fighting on our side, criticism of that kind, indulging in generalities, was not of any practical use to any Minister for Finance It was a fact which could not be contradicted that Great Britain, the United States of America, Canada, and Australia had all obtained large portions of their war roney by offering a rate of interest to investors free of income tax. "This is well known," said Sir Joseph Ward, "but I give one illustration as a case in point. Canada not long ago brought on the market a war loan at 5£ per cent, free of income tax. The United States of America, England, and Australia have all raised enormous sum?, many millions, in fact, free of income tax. In some instances the option of a rate plus income tax was offered, but in every instance, so far as I know, the free of income tax issue was put upon the market. In the case of Australia all her loans excepting the present one were put upon the market at 4£ per cent, free of income tax, and tho present loan of £40,000,000 now being floated in the Commonwealth gives the option 01 5 per cent, plus income tax, or 4i per cent, free of income tax. The result will show this to be in reality a 4i per cent., free of income tax loan.

The Systems Contrasted. " My responsibility, however, as Mirister for Finance, applies to New Zealand only, and I will just show what it would mean to this country if I were to follow the advice of well-intentioned critics, who, in general terms, use strong language to emphasise their views without in any way showing what the effect of their proposals would be. For this purpose I put the war loans that this country will require at £100,000,000. It, may not amount to that sum, but in viewing a position of great uncertainty, that amount will suit the pur- 1 poso I have in hand. Now, £100,000,000 i at 4i per cent., free- of income tax, will I cost this country £4,500,000 per annum. If wo borrowed at the equivalent rate, plus income tax, we would pay approximately 6i per cent, on £100,000,000, which would amount to £6,500,000 per annum; that is, the country would pay £2,000,000 per year more for interest than under tho system of free of income- tax, which has been followed within the Dominion up to now. The income tax payers on tho £6,500,000 would pay on the present graduated scale of an average of 4s per i), £1,300,000 per annum; that is, £700,000 per annum less than we would be paying them for interest. If the income tax payers averaged 5s per £, they would pay £1,625,000 per annum for in- : come tax, which would bo £375,000 less per I annum than we now gain under the free 1 of income tax system. Seeping Interest Down. Irrespective of the question of freedom of income tax from war- loans, our taxation to provide for tho increased responsibilities in the future must come largely from the class of people who are being exempted from income tax upon the moneys provided for war purposes. That is one aspect of tho question. Here is another, tho importance of which cannot be over-estimated by any well-wisher of this country. The large Government lending institutions were given definito instructions by me that they were not to increase- their lending rates during the war period to over 5j per cent. The advances to settlers and tho advances to | workers for the providing of homes have been kept, and will bo kept throughout tho war, at 4J per cent, for prompt payment, and if tho time for prompt pay ment is exceeded, then tho rate has not exceeded, and will not exceed, 5 per cent. If wo wero to raise our rate to that at which Canada has produced its loan, namely, 5} per cent, freo of income tax, j it would bo equivalent to an investment I at Iji per cent. Does any sane man be- I lieve it would bo possible in such circumstances for tho banking institutions to keep the rates down to what they are now ? I have no hesitation in saying that : if, as a matter of policy, wo were to fuLlow the advice of critics who havo no responsi bility, the rates uf interest upon moil- I gages to business linns, for their usual I banking accommodation, to workers fot I the erection of their homes, and to settlers \ could not be honestly or legitimately pre- I vented from going up. Rentals would in- , crease in every town in New Zealand, ami '. ' wo would lay tho foundations for financial I restrictions, and, indeed, panic. j

REASON FOR PRESENT METHOD. AN INCENTIVE NECESSARY. [BY TIiI.Er.KAPU.— PRESS ASSOCIATION.] CHRISTCIIURCH. Monday. Speaking further, in reply to criticisms, Sir Joseph Ward .slid:-" Why are the various portion* of the British Empire, including New Zealand, appealing for subscriptions for war loans free of income tax? It is because the amounts required are excessive, and at all events, in th.case of New Zealand, beyond anything ever dreamt of as being likely to be asked for. The money is tied up in the war loans in the first instance for a period of twenty years or more. There are com paratively few people in the country who can afford to withdraw money individually or from their businesses without obtaining financial assistance to enable them to do so. If thcro were not .some incentive held out, many who have loyally and magnificently responded would not in any of the countries have undertaken, in many cases beyond their means, a heavy additional responsibility. There is no country beyond Now Zealand to which we could at present go.and obtain money under 6J per cent., and then with a heavy discount off our loans." »