TAX-FREE LOANS.

Otago Daily Times, Issue 17464, 5 November 1918, Page 4

TAX-FREE LOANS.

The Minister of Financo seems to bo clinging obstinately to tho view that tho issue of war loans free of income tax constitutes a statesmansliko act of policy. The arguments which he employs in, support of this policy are of a rather peculiar quality. One which he used last week, when he was addressing a deputation from the New Zealand Farmers' Union, was that there is a close connection between tax-free loans and a low rate of interest. The only object, he said, which the Government had in view in providing tax-free loans was to keep the rate of interest down. It would be a valid argument in favour of the issue of loans free of income tax if the effect was actually to prevent an increase in the rate of interest. The weakness of the whole position which Sir Joseph Ward assumes is demonstrated, however, by the fact that there is no first-class security in the dominion that returns a higher rate of interest than investment in war stock yields to the investors who are assessed for income tax at the highest scale. The effective rate of interest in the case of investors of this class exceeds seven per cent., and it may be as high at eight or even nine per cent, in the case of large corporations, which by a transference of their investments from other descriptions of securities to war bonds reduce the scale of graduated taxation that is applied to them. It is a transparent fiction, therefore, that the war loans hear interest at the rate of only per cent. The person of moderate means who responds to the appeal to his patriotism by investing his savings in a war loan receives the rate of interest at which the loan is nominally placed on the market; but the financial institutions with large sums of money at their command are treated much more generously by the Government. The dominion has never viewed with favour the discrimination which is thus made between those who are not in a position to invest more than small sums on the one hand and the moneyed corporations of the country on the other hand. If the Minister of Finance does not see his way clear to abandon, as the Federal Government in 'Australia has abandoned, the issue of tax-free war loans, he will certainly invite an exceedingly strong outburst of dissatisfaction when the next, and there is fortunately every reason to believe the final, war loan is announced. The injustice of issuing loans at markedly differential rates of interest is manifest. The policy, however, of creating a large block income to which the taxation of the next twenty years or so may not be applied is distinctly open to criticism. Sir Joseph Ward entertains the hope that it will be possible to reduce taxation very materially in the dominion when the war is over. The suggestion is that the investors of large sums in war bonds may then be deprived of a large measure of the advantage which they now enjoy through the immunity of the proceeds of their investments from taxation. We regret, that we are unable to perceive very clearly the grounds upon which the Minister of Finance bases his hope that the taxpayers may be able to look forward to a large reduction of taxation in the near future. It is certain, at any rate, that the charges for interest and sinking fund and the liability in respect of war pensions will in themselves necessitate the raising of revenue to an extent'greatly in excess of the amount which was required before the war to meet the ordinary requirements of the country.