SPENDING BY STATE.

New Zealand Herald, Volume LXVII, Issue 20626, 26 July 1930, Page 15

SPENDING BY STATE.

"ENTIRELY OUT OF HAND.*

ECONOMY THE REAL NEED.

LOSSES ON THE RAILWAYS.

BUSINESS CONTROL URGED.

" It appears to be very panicky legislation for wliirli tliero is no adequate justi« fication," said a financial authority when questioned regarding the Budget. It was only the other day that this same Government announced a surplus for the year ended March of about £.150,000. 'limes do not look very well and revenue must necessarily bo affected, but to suggest this drastic remedy seems to lie hopelessly amateurish. I believe that the example of Australia is having a strong influence on our politician. He is blindiy following Australia, where the circumstances are not comparable with those of New Zealand. " The real trouble in thus country is that public expenditure, which is the factor that really matters, has got entirely out of hand. The enormous rise in governmental expenditure during the last 15 years is alarming. The Government could quite easily have tried the method of reducing its expenditure. Even if there had been a deficit that would not have been vital. It could have beexi adjusted the following year. Among the items where substantial reductions could have been made are the South Island railway works. But the Government continues this doubtful expenditure, at the same time practising some economy by closing existing lines.

Industry Penalis 6 d

" As to railways in general, there is little likelihood that they will ever be run on a paying basis until they are lifted out of political control. I believe that under the control of three good business men they could be run more efficiently at a saving of £1.000.000 a year. But such means of economy have not been explored. Instead, the Government issues a panic Budget to further burden industry. Evc.-y increase in taxation reduces the value of the asset that is ta.xed, and the tendency is to limit and reduce individual effort. Every farthing added to income tax helps to kill 'enterprise and initiative and every extra farthing on land tax reduces the capital value of the land. How is the country to progress without private initiative ? " To avoid, if possible, a deficit, the Government has penalised every industry, and as 1 have said a deficit would not ba fatal. Much better would it be to have a deficit, with time and experience to effect adjustments later, than to take tha measures now proposed. The Habit to Squander.

" There is a very noticeable tendency in this country to criticise any individaul, company or corporation that makes money. There are cases of New Zealand companies earning the bulk of their profits outsida the country, and so their operations ara doubly beneficial, but they are often pilloried inside Parliament as well as out, and the effect of this criticism appears to have an influence at times like these.

" However, the real need of the Dominion to-day is economy in public expenditure," he concluded. " During the war money was necessarily squandered and the politician has not got out of the habit*. Something of the same thing affects departments. Departments grow and grow and it seems to be a most difficult thing to carry out any reduction at all."

INCOME ASSESSMENT.

CITY PROPERTY OWNERS.

NEW EXEMPTION PROVISION.

The opinion that_the changes proposed by the Minister of Finance in the method of assessing taxable income would react unfavourably on the finances of owners of city property was expressed yesterday by a chartered accountant. He said the effect of the change made in 1925, allowing a deduction of 5 per cent, of the capital value of property used in the production of the income, had proved si benefit to holders of substantial city property, and the proposed variation would be to their detriment.

The question to be applied in individual cases was: "Which represents the largei; sum, 5 per cent, of the capital value, on 5 per cent, of the unimproved value plus depreciation at whatever rate the Commissioner of Taxes decides to allow Actual figures relating to a city property, were quoted. The capital value of the property was £12,640, the unimproved value £7140, and the value of the improvements, a brick building, £6500. Tha exemption of 5 per cent, of the capital value amounted to £632, which would be deducted before arriving at the taxable income.

Under the method now proposed the exemption of 5 per cent, of the unimproved value would be £357. Depreciation allowed on the building would be £llO, if the rate adopted for that class of building was 2 per cent., as seemed probable. This would make a total allowance of £467, and result in an increase of £165 in the taxable income.

On the assumption that this particular taxpayer liad a taxable income of £2OOO under the method of assessment ruling during the past few years, he would ba liable to pay £lB9 in tax. The addition of £165 to the taxable income, making it £2165, would result in the tax rising to £216, an increase of £27 through the alteration in the method of assessments This did not take into account the increase of 10 per cent, in the rate of tax, which would presumably add £2l in this instance.

Tho fact that the mortgage exemption from land tax disappeared at £15,000 had a bearing on the Prime Minister's contention that taxpayers deriving income from rent might escape land tax and also practically escape income tax. Because of the £15,000 limit, the full land tax was payable on all the larger city blocks, no matter how heavily they were mortgaged, although in the case of properties* which were leased to tenants the 5 per cent, of the capital value might greatly reduce the liability to income tax. It should not bo overlooked, said tne accountant, that one of the objects intended to be served in the fixing of the a por cent, exemption on the capital value had been to help equalise the position between persons carrying on business in premises which they owned and rented respectively. The man who leased a building would bo allowed to deduct his rent from profits in arriving at taxable income. The man who owned the building ho was using had to forgo interest on tho capital involved in its ownership, and it was only fair that he should be allowed corresponding exemptions. Owners of large modern premises of a good type were liable to find themselves in dispute with the Commissioner of Taxes as to the rate of depreciation to be allowed on their buildings. Possibly in some cases as low a percentage as would be fixed by the commissioner, placing the owner in a much less favourable position than he was under the system of 5 per cent, exemption on capital value*