DISASTROUS FINANCE

New Zealand Times, Volume XLVII, Issue 10884, 26 April 1921, Page 7

DISASTROUS FINANCE

A CANDID CRITICISM OOStMEH.CE AND INDUSTRY CRUSHED. EXCESSIVE TAXATION. (By “Economist.”) I nm glad to observe, from Mr Massoy's speech at tho AueklaiM Commercial Travellers’ Club, that the 1 rime Minister is at last awakening to the tact that the tax of 8s 3d in the £ imposed upon the dnoome of companies excelling sfc!lo,Goo, irrespective of the amount or capital employed in their business, is an intolerable burden, which must cruen all industrial 4*a<l commercial enterprise and lead to widespread unemployment, lnere is no such tax in. the British Dominions. I doubt if a parellel to it could be found in the civilised world. The income tax on companies in .England is os in the J3> and that is generally recognised as nn impost which Operates injuriously upon co-operative enterprise carried out under company law. The company tax in Australia is only 2s 6d in the <£, and yet the position of the Commonwealth Government and banking finance was infinitely worse at the close of the year than that which prevailed in New Zealand. which had «£15,000,000 surplus from accumulated taxation when peace ~"'as declared. Federal taxation in Australia is levied on the individual. COMPANIES AS TAX COLLECTORS. The Treasury officials of New Zealand, or whoever is responsible for the distribution of taxation, seems to have seized upon the crude idea that in the organisation of joint-stock companies they possessed ready-made machinery for performing the work of the Income Tax Department. No doubt, it appeared auite an easy method of raising revenue to seize 8s 9d, together with various other taxes, out of the total earnings of the leading commercial and industrial companies in New Zealand, leaving the directors to distribute these exorbitant imposts upon the public by raising the g rices of the articles in which they trade. tut an elementary knowledge of the principles of political economy should i nave warned the authors of such a system of taxation that it must result in extorting from the people a much larger sum than such taxes yield bo the Treasury, because every business concern necessarily bases its percentage of profit upon ithe whole of the expenditure involved in conducting its operations. NEW ZEALAND ALONE IN FORCING LOANS. The same result inevitably follows from the system of forced loans, an expedient which found special favour with the Tudor kings, but which has not gained in respectability because ©t its antiquity. It i-s a form of finance which only a dire necessity like war can gustily, and throughout the Great England, notwithstanding dte enormous demands on the money market, avoided compulsion, preferring as a lesser evil _ to issue short-dated Treasury bonds at high rates of interest. , _ • In New Zealand, however, the Treasury maintained a system of finance the defects and evils of which were perceived and avoided even by the Labour Governments of Australia. One section of 1 New Zealand taxpayers was coerced into paying to the Government _ for debentures that were sold almost immediately, under financial stress, at from J£3i to «£9O. The resultant loss to the lender was not gained by the State, but in tho care of joint stock companies it will inevitably, and quite justly, lie debited to business expenses, and collected in some form from the masses of the people. It is not -difficult to understand why, under such a crude system of finance, tho cost of living is still soaring, and wageearners find their pound of constantly shrinking value, a process accentuated bv the authorisation of practically unlimited issues of paper, made legal tender within the country, but heavily depreciated by exchanges abroad. LEGAL AGREEMENTS SUMMARILY CANCELLED. The final act of folly in this reckless Government finance was the reprehensible invalidation of commercial agreements effected under the statute hastily passed last session preventing depositors of money at call, with firms and companies, from enforcing repayment of their loans. The far-reaching and disastrous'character of this hasty legislation is already making itself widely felt, in the destruction of credit and the inability of persons who lent money upon these terms to meet obligations for which they were making provision. The dishonesty sanctioned by this law is becoming more and more apparent. While banks which have made similar loans at high rate® of interest are not debarred from calling in their money, even by the compulsory sacrifice of good assets, and trade creditors get Jffieir bills and promissory notes paid at due date, persons who ha ve given what were clearly understood to be temporarary loans at low rates of interest, are prohibited from obtaining a settlement of their claims in the terms of legal agreements. It is qnite possible that every realisable asset of a commercial undertaking which received money op deposit at call may be sacrificed to meet demands of banks rntl trade creditors, while these depositors are prevented by law from claiming their money. No such iniquitious discrimination is created by the moratorium applied to mortgages. In common justice, if the financial condition of the country demanded a cancellation of commercial agreements the law should have been made operative all round. There is no essential difference between advances at call by banks and advances at call by private persons, and no reason why a trader who sells goods on credit should receive payment at the date when hie bill is due when a person who has given credit for monetary advances is being deprived of his legal rights of recovejy. But there was really no need whatever for this frenzied legislation. . A large amount of money is always being accumulated, pending permanent investment or for some specific purpose, such as the payment of income. tax or a future trading liability, and' so long as banks refuse to follow the English practice of paying a moderate rate of interest on current accounts and 5 per cent, on deposits fixed for two months, such moneys would have always been freely offered at call to reliable firms and companies. if the custom had not been subjected to penal legislation. Now, however, the law of last session has given such a shock to credit that temporary loans are no longer forthcoming, and tho source from which these advance* were automatically being liquidated has been cut off. At the expiration of the period for whidh the legislature has extended the date of payment, the companies and firms holding cash deposits will find themselves without the means to settle them, and there will lie a clamour from end to end of the country for n further extension of the moratorium. The only alternative open, to oommeroial organisations holding deposits i« to ia<ue preferential shares or debentures at high Tates of interest, which will he again represented in a further increase in orice and the cost of living. The plain fact is that the oountry must face an inevitable readjustment of values necessitated bv tho financial dislocation caused by the war. Australia has already faced it without any disastrous results. In New Zealand, if the moratorium on mortgages had been abolished two years ago. when , prices were high and money abundant, the effect would have been beneficial. The soaring of land values, bolstered up by the piling of mortgage on mortgnge, would have been checked. Now. with the fell of writes, when ell restrictions am removed, as they must be, many of these «e/vi~l. w

mortgages, fostered by the moratorium, will represent no value whatever. SUBSIDIES TO REDUCE PRICES. The same principles apply to the system of subsidies for the purpose yol keeping down prices. The money os taken out of the pockets of one set of taxpayers in OTder to cheapen some article to another set. The gafl _comtpanies, for example, are compelled to contribute towards the cheapening ol flour and butter, but they can only meet these payments by raising the price of gas; and so the mischief works round in a vicious circle. . The commercial and industrial community are now realising this. Even dealers in primary products, like some of the co-operative butter companies, perceive that it is almost impossible to carry on business under such conditions, and certainly impossible to extend their operations. X hope that Mr Massey e remarks indicate that these stem tacts have been brought borne to himself wad the Government of which he ie uhe head. Much of the financial stringency which is prognosticated in the Premier's speech is the result of governmental extravagance and a pornicioue system of national finance. bubsidies in. reduction of prices aro mischievous by preventing the operation of those economies in the -use of high-priced articles which alone- can supply a permanent and safe remedy. The next session of Parliament might be very profitably spent by devoting its entire time to the repeal of the disastrous legislation pass-y e<l last session, the abolition of subsidies, the enforcement -of administrative economies, a reduction of taxation and it« redistribution upon a broader and more equitable basis.