THE New Zealand Herald AND DAILY SOUTHERN CROSS FRIDAY, AUGUST 2, 1929. FINANCIAL STATEMENT.

New Zealand Herald, Volume LXVI, Issue 20323, 2 August 1929, Page 12

THE New Zealand Herald AND DAILY SOUTHERN CROSS FRIDAY, AUGUST 2, 1929. FINANCIAL STATEMENT.

The Financial Statement which appeared yesterday marks an important stago in the history of the session. indeed, of the present Government. It is the first concrete comprehensive statement of policy the country has seen since the events of last December. Many subjects which have been discussed in general terms, sometimes even in cryptic terms, before, are now set forth in much closer relation to the realities of the country and its immediate condition. The premises and conclusions show vigour and grasp, and the whole document is based on a complete appreciation of the national finances. It is necessary to disagree with a number of the proposals or claims made in it, but that does not alter the fact that it is what a financial statement should be in essence, a real financial review. The Prime Minister begins with the position as at the close of the last financial year. His predecessor had budgeted for a small surplus, actually there was a deficit of £577,000. This result ho attributes to three factors, decreases in the yield of land and income tax, and failure of the customs revenue to reach the estimated figure. Of the three, the last mentioned is the most important. To meet the position he makes certain proposals, the chief of which are increases in taxation, which he hopes are to be temporary. As to the prospect of relief many taxpayers will recall that the primage duty, now to be doubled, was first introduced as a war measure. Altogether the estimates anticipate a taxation yield higher by £914,000 than that of last year, motor taxes excluded. On a balance, a surplus of £262,000 to cover supplementary estimates and contingencies appears. This is how Sir Joseph Ward handles the position he outlines. No Minister ever proposes an increase in taxation without endeavouring to show there is no other way of making income meet the demands for expenditure. Sir Joseph Ward bases his case on the rigidity of many of the calls on the Consolidated Fund, He declares that avenues of economy have been carefully explored, and are still being explored, but there are so many fixed charges that the prosyects of curtailing expenditure in this way are strictly limited. Without recapitulating the instances he quotes, it may be remarked that the figures include the costs of administration in each instance. These, surely, are not fixed charges. In current criticism of public finance, frequent complaint is made about administrative costs. It is usually expressed by reference to the high total of State employees, but it really amounts to a charge that administration costs are mounting unduly. The inclusion of administration among what are claimed to be fixed charges implies that no economy can be made here. This should not be so, and if the suggestion that this year's increase of taxation may presently give way to a reduction this is one of the points requiring to be watched very carefully. The estimates of the Public Works Department, which is concerned primarily with capital expenditure, are to be subjected henceforth to periodical examination to discover how far expenditure is being kept within the estimated limits. This proposal, which was announced some time ago, is an admirable one, so sound in principle that it might well be applied in some form to all departments, whether their appropriations come from revenue or loan money. The system for the Public Works Department would not, perhaps, he applicable in other cases, but the principle should be adopted* throughout. Then there might be reductions in charges at present classed as fixed. Proceeding from his assumption that many calls on the revenue are not capable of variation, the Prime Minister suggests that Government services have now reached such a state of development that they ought to pause until population, and, presumably, income, increase sufficiently to justify further advances. In that there is recognition of the present condition of the country. It is a pity there is not I more practical expression of it in the j Statement. '

The crucial point in the whole review lies in what it has to say about railways. The deficit the department produces is not a fixed but a growing charge on public revenue, and on what is proposed to meet this the acceptability of the Budget stands or falls. On this point it is more than disappointing, it ih completely ineffective. The Prime Minister remarks that if present conditions arc allowed to continue there will presently be an annual railway deficit of £2,000,000 to be charged to public revenue. He proposes to write off £8,100,000 of capital, as having been provided out <■« revenue and not loan money, to relieve the department of the interest on it, amounting to £3 34,000, and to abolish the present subsidy on nonpaying branch lines* With a full interest bill and a subsidy of £499,000 last year, the railways showed a loss of £433,000, Relieved of interest on £8,100,000 and deprived of the subsidy, they would have produced a loss of £508,000. That indicates that the move Sir Joseph Ward proposes will leave the department further than ever from paying its way, and there is no source from which its losses may be made good but the ordinary revenue of the State. Both the writing off of capital arid the abolition of the subsidy are sound in themselves, as a move toward administering the railways as a commercial concern, but by themselves they lead nowhere. The Prime Minister proposes to spend another £10,000,000 on capital railway works which nobody, except himself, says will pay, and talks of referring to the Transport Advisory Council the question of stopping operations on unprofit-

able branch lines. If the railways are to bo made to pny as a commercial concern, let them stand on their own feet. Write off dead capital, abolish subsidies, leave it to the department to abandon services it cannot possibly make payable, and refrain from loading on to its already burdened shoulders new lines calculated only to weigh it down more heavily than ever. At least let the department be consulted about new capital expenditure, and let its verdict be accepted. Then it can be called to account if it returns a loss, as it cannot equitably be if the present proposals go forward. Because of its unsoundness on this crucial issue, the Financial Statement fails lamentably to meet the financial conditions of the day, which in other sections it recognises so clearly. It is a fatal flaw.