HOPES NOT REALISED

Otago Daily Times, Issue 26233, 17 August 1946, Page 8

HOPES NOT REALISED

Industry’s Reaction to Budget

“ You cannot reduce taxation and at the same time maintain expenditure. . . That was the truism which a number of members of Dunedin’s commercial community quoted in effect when an Otago Daily Times reporter inquired yesterday into reactions to the Financial Statement presented by the Minister of Finance, Mr Nash, in the House of Representatives. The opinion was unanimous that the Budget could not be appreciated without a close study, and that on analysis it did not represent the relief to taxpayers that the bulk of the community had expected. Typical opinion on the several concessions in taxation was as follows: — Redaction of income tax surcharge from 33 1-3 per cent, to 15 per cent.—Perhaps all that could have been expected, but not as much as could have been justified. Abolition of the sales tax on building materials, clothing, household furniture, and certain other items.—Expected and satisfactory as far it goes. Elimination of the excess profits tax.—A fine gesture, but a hollow one. The man-in-the-street had not sufficient opportunity yesterday to assess the full implication to him of the concessions; but it was clear that a further reduction in the social and national security tax would have had some real meaning to wage-earners and to the community generally. In fact, an announcement to this effect was confidently expected as one of the immediate benefits of a return to peace conditions. In view of the small additional concessions in income tax, the extremely limited effect in the meantime of the lessening of building costs, and the severe curtailment of reductions in sales tax, the concensus of opinion was that there will not be any appreciable improvement in the financial position of the wage-earning section of the community. War Taxes Still On Disappointment was general in commercial circles that the minister had not found it practicable to remove all, or at least a great deal more, of the special war taxation. The chairman of the Dunedin Chamber of Commerce, Mr C J. Darracott, summed up this attitude when he expressed regret that the minister had not seen fit to remove the whole of the 33 • 1-J per cent surcharge on income tax. Naturally,” Mr Darracott said, the commercial community is pleased with the relief in taxation that has been given; but it was thought that by this time the minister would have been in a position to lift all of the special war taxation. "The elimination of sales tax on a number of items, particularly on goods used in building construction and on clothing is welcomed, although here again it was hoped that a general reduction in the rate of tax would be made. Speaking generally and taking into consideration the buoyancy of the Government’s funds it is disappointing that a greater measure of relief in both direct and indirect taxation has not been given.” There was disappointment, too, Mr Darracott added, that the minister had not taken the opportunity to remove a number of taxation anomalies which had been hampering business. He mentioned the questions of graduated income tax on companies, super-tax on unearned incomes, and depreciation of leasehold assets, all of which had been the subject of correspondence between the Associated Chambers of Commerce and the Minister over a long period.

sales tax, and firms with unfinished contracts would be faced with a “nightmare” task in working out the cost. When the tax had been imposed the Government had refused builders any relief on current contracts, informing them that they would receive the benefit when the tax was removed. Now they learned that this benefit was to be denied them. That was one of the anomalies arising from the Budget announcement. Prices of Clothing

In regard to the abolition of sales tax on clothing and household furnishings, it was learned that the purchaser cannot expect any reduction in the price across the counter for some months, probably not before Christmas at the earliest. This relief was the only logical thing the Minister could do, several business men said, and there should not be any trouble in the change-over in prices provided sufficient time was given to adjust stocks. In clothing, for example, it was found that tailors have orders carrying them well into next year and that their stocks have been largely sold. It would be months before additional supplies of most articles of clothing—coats, pyjamas, shirts, to name a few—were received, so that there should be time to dispose of present stocks before the opportunity arises to sell stocks bought free of sales tax. “It Is likely that It will be the better part of six months before the purchaser benefits from this assistance,” the reporter was told. Tailors are working on a ceiling profit at present, and all prices were fixed by the Price Tribunal. Retailers, therefore, could not take advantage of the public, and the purchaser had to face the position that supplies of clothing were still extremely short and that future prospects were still vague.

The only means by which extensive confusion would be created In the retailing business would be a sudden influx of articles of ready-made clothing, but that was highly unlikely. “ We had this difficulty when prices were stepped up,” one prominent retailer said. “It was overcome then, and we hope that it will be overcome now. We cannot sell what we haven’t got, .and we cannot get adequate supplies of many articles of clothing. Therefore, there should be time for things to adjust themselves so far as stocks are concerned.”

A corresponding position was reported in the retail furniture business. All firms had been acquiring stocks wherever possible in an attempt to meet the demand, retailers said, and it had not been easy to keep supplies up. It would be some time before articles free of the sales tax charge were available. It was hoped that all of these factors would be appreciated by purchasers. "The Minimum Reductions?"

While the assistance given in these various respects was welcomed by all sections of the community, there was a general realisation that the wageearner would not reap any appreciable benefit immediately. The opinion was unavoidable that the reductions scarcely realised expectations, and this feeling was concisely expressed by the chairman of the Dunedin Stock Exchange, Mr W. S. Dawson. “The reductions are a move in the right direction,” he said; “but they are the minimum that could have been made. The Government has-not curtailed its expenditure to any extent. In fact, it is increasing expenditure on many items, and somebody has got to meet that expenditure. Obviously that 'somebody’ can be none other than the taxpayer.”

“A Bagatelle”

Manufacturers had received the Budget with much the same qualifications. In the main, he said, there was a feeling that the relief in taxatidn as it affected industry would be of some benefit but that it did not go very far towards the full re-establishment of industry. Frotn the figures quoted by Mr Nash, it was obvious that the abolition of the excess profits tax constituted very little in. the wav of relief. The £500,000 a year which the Government would lose in this way v had been contributed by a total of anything up to 10,000 'business interests —companies and individuals —so that clearly the return of this slim over such a large number of interests was “a bagatelle so far as taxation relief is concerned.” This decision was fully • expected, it was added. It was' a fine gesture by the Minister, but in reality a hollow one. The reduction in the surcharge on income tax from 33 1-3 per cent, to 15 per cent, was regarded as the major form of relief to industry, although it was emphasised that the benefit to individuals was by no means pronounced. Only Real Relief to Industry Industrialists were still discussing with the Government several aspects of taxation in which it was hoped to receive consideration, it was stated. The special depreciation allowance of 30 per cent, on ordinary depreciation rates which was allowed some time ago was effective until April 30, 1948; but it was pointed out that buildings could not be erected and that machinery could not be imported in time to take advantage of this assistance. Efforts were being made to have the time extended until 1950, and it might be that Mr Nash would have mpre to say on this and other questions at a future date. “ The only real relief to industry contained in Mr Nash’s statement," this informant concluded, “is in the reduction of the surcharge. That should have some value, as time will show. It was hoped that it would be eliminated altogether, because after all it was a war tax. There' may be some justification. in Mr Nash’s mind for retaining so much of it; but disappointment that the reduction was riot greater will be general.” The elimination of sales tax on building materials was accepted by representatives of the building industry as a welcome gesture but as a step having little more effect at the moment than that of a gesture. “In the existing circumstances," several master builders agreed, “it cannot achieve anything towards helping to get houses built.

“ It may decide more people to build, but the position simply is that building materials cannot be got, and therefore houses cannot be built. This concession gets us nowhere as far as progress in building is concerned. It is welcome from the price point of view, of course, and the Minister would have done the community a great service if he had provided more opportunity for this country to obtain whatever building materials could be imported. There are difficulties there, it is fully realised; but builders think that the easing of import restrictions would give a fillip to the tremendously important task of getting houses built.” Disposal of Stocks

Another builder, who agreed that up to the present nev homes had been far too costly and that any move which tended to bring down the price was desirable, pointed out that builders who carried large stocks of materials were faced with a problem as a result of the removal of the sales tax. Some builders in Dunedin, and a number throughout the country, followed a policy of assembling large stocks of timber, some of which would not be used for 12 months, and, under existing conditions, they had also purchased other materials as they became available and had placed them in store. On all this material sales tax had been paid. Mr Nash had indicated that the tax in such cases could be charged against clients, but the difficulty facing the builders to whom he had referred was that they were in competition with other builders who purchased direct from merchants and could proceed immediately to use materials free of sales tax The builder added that, as a result of Mr Nash’s ruling clients must receive the benefit on current contracts of the use of materials now freed from