OVERDRAFT RATE

New Zealand Herald, Volume LXXVIII, Issue 24011, 8 July 1941, Page 6

OVERDRAFT RATE

DEDUCTION MOVE I -

NEGOTIATIONS PROCEEDING

BANKS AND GOVERNMENT

(0.C.) > "WELLINGTON, Monday Negotiations are proceeding between the Government and the Associated Banks to reduce trading bank overdraft rates from the present minimum of 4) per cent for "best" accounts to 4 per cent.

The Government has requested the reduction in the rate, and the banks are reported to be willing to compromise if the Government will make concessions in the method of taxing the banks. It is considered that income tax should be levied on actual profits in the same manner as for companies. It is understood that an early agreement is possible.

Present overdraft rates have been unchanged since 1934. It was thought the reduction of one-half per cent in interest rates on fixed deposits, which took effect in September, 1940, might have had some influence on bank overdraft rates.

The system of taxation of banks has long been criticised, particularly by those banks whose head offices are overseas. Tho method adopted, which has been in existence for over 40 years is to assume that the bank makes 1J per cent on the total of both assets and liabilities. The bank is then arbitrarily assessed on this aggregate figure and is charged income tax at the highest rate.

The chairman of the Union Bank of Australia, Limited, has described the method of bank taxation in New Zealand as "strangling and altogether crippling, with no relation to profits earned." The inequity of the present method also has been commented upon by the chairman of the Bank of Australasia, who has pointed out that the assumed profit is much greater than the real profit.