FREE OF INCOME-TAX

New Zealand Times, Volume XLIX, Issue 11303, 31 August 1922, Page 4

FREE OF INCOME-TAX

Forty-nine millions of money in war bonds are not liable, through the income they yield, to income tax. In this there is no cause for reproach to anyone. The money was „ necessary; there was no chance of raising it but in New Zealand. It was necessary to tempt investors, and, in case of compulsory levies, either to make compensation for disturbance or facilitate financing. There was no other way of getting the money; the money was got; the State must observe the conditions; the State, all agree, will do so; in other words, repudiation is unthinkable. For the present the State pays for this 49 millions 4J per cent, to holders of the bonds, who axe, for the most part, living in New Zealand. The money circulates here: that is a good point. The question was raised in the House of how to get income tax from this circulating medium, without breaking faith with the holders? Mr Massey said he had a plan which he would unfold when matured. That point must wait, of course. But one cannot help wondering how the thing is to be done. One suggestion is to borrow the money to buy up tho bonds. It is too large an order for the money market. Otherwise the transaction, the bonds being quoted at below par, would be profitable on the capital side. But there would be not much change for the better, if any, on the interest side, because tho interest payable to the lenders would , be considerably above 4J per cent., and the difference would absorb the income tax paid by the bought-out bondholders on the money paid them for their bonds. Moreover, the interest would go out of the country. About two and a quarter millions would go yearly out of the country for the sake of getting between £112,000 and £120,000 of income tax. On the other hand, the return of 49 millions would be of enormous, perhaps incalculable, benefit to the country. And to the bondholders it would be a boundless delight. In the hands of a clever financier the transaction might be a success. Necessarily its operation would have to be spread over a number of years, for to apply for 49 millions in one year would be attempting the impossible. On the other hand, if the money were, by some stroke of genius or luck, raised at once and made available for buying the bonds, the holders of them would stand for the face value. On the whole, the problem bristles with difficulties. What Mr Massey’s solution is going to be we shall watch with interest, in the certainty that a successful solution would be a great advantage. This seems to be the attitude of all the financiers who raise questions in the House without offering answers, and the same may be said for the general public.