DOMINION FINANCE.

Otago Witness, Issue 3614, 19 June 1923, Page 8

DOMINION FINANCE.

WAR EXPENDITURE. PRIME MINISTER’S STATEMENT. REPLY TO SIR JOSEPH WARD. DEBT INCREASES EXPLAINED. WELLINGTON, June 12. When in Dunedin a few days ago the Prime Minister, in replying to criticism by Sir Joseph Ward, stated that on his return to Wellington he would refer to the detailed accounts which he had not then available. Tins lie has done, and to-day made the following statement: “Respecting the financial responsibilities which remained when Sir Joseph Ward ceased' to be Minister of Finance towards the end of August, 1919, the position on September, 1919, when Sir James Alien took over Finance, is stated in the latter’s Budget for that financial year. Sir James Allen found that during the ensuing 12 months, in addition to moneys to be raised for development works and State activities in progress throughout the dominion, he had to provide for new requirements totalling £30,325,000—viz., £29,325,000 for soldiers, and £1,000,000 for public works and education buildings. Towards meeting these there were cash balances in respective loan accounts totalling £8,771,337, a considerable portion of which had already been spent. How, then, can Sir Joseph Ward take credit for fully providing for all the war liabilities incurred in New Zealand? It is important also to remember that in that particular year the prices of labour and material were still increasing. Further, that nearly £2,000,000 had to be found out of revenue for war pensions and cash provided to meet largely increased payments to public servants, teachers, annuitants, and pensioners. The statements made by Sir Joseph Ward to the effect that he had made provision for meeting the war advances received from the Imperial Government, by including them in loans •falling due in future years, is far from being correct. Reference to the Budget of 1920 clearly reveals the position. Four million one hundred and thirty-one thousand three hundred and thirteen pounds had been provided for by the issue of debentures, but £22,208,931 was covered by the memorandum of agreement. This, in effect, left that large sum as a floating debt, with no fixed date of maturity, and as such it remained until 1921, when, at the request of the Imperial Government, the memorandum was replaced by debentures which were included in the funding agreement completed last year, whereby definite arrangements were then made for the annual reduction of the debt. No attention was taken in connection with the funding of this debt until March, 1921, when I received a report from the Secretary of the Treasury, and then instructed him to take the initial steps. There is no previous reference on the official files which would indicate that such a course was contemplated prior to the date mentioned. “As regards the increased indebtedness of the dominion, the following table will show the annual movement in war debt since March 31, 1918., the year the war terminated war loans:

These figures, of course, do not include amounts borrowed for discharged soldiers’ settlement purposes. Sir Joseph Ward relinquished the portfolio of Finance on August 21, 1919. On September 30, 1919, the War Debt stood at £72.682,120. Apart from the increased liability for interest and sinking fund charges, which are met out of revenue, there was a capital liability of something like £6,000,000 on account of gratuities, as well as other heavy commitments. These liabilities were, however, unavoidable, but the point is that since March, 1918, out of £68,000,000 increase in the public debt £36,000,000 was raised for war purposes and £9,000,000 for discharged soldiers’ settlement purposes—altogether, £45,000,000 out of the £68,000,000 previously alluded to by Sir Joseph Ward. This leaves £23,000,000 raised for Public Works, hydro-electric, railways, improvements, etc., over a period of five years, which sum is by no means excessive in view of the highly increased cost of materials and labour, and the accumulation of Public Works and other commitments held over during the war years. Sir Joseph

Ward avoids the fact that the difficulties which prevailed during his occupation ol the portfolio of Finance did not disappear with his retirement from the position, but as a matter of fact on account of the serious drop in the values of exports, and increases in pensions, bonuses, and the prices of materials required for our departments, our difficulties very greatly increased. During his occupation of tile position he was not called on to finance on a rapidiy-falling market. His attempts to minimise the difficulties of meeting increased expenditure arising out of war charges and post-war depression are best answered by reference to my financial statements, which were very full and complete; also to the splendid results of the sound financial measures adopted by the present Administration, which are disclosed by the published accounts for last year. With reference to taxation it is interesting to recall that in his Budget of 1918 Sir Joseph stated: “I am pleased to be able to inform the House that there is no necessity this year to increase the burden of taxation for the purpose of meeting the immediate requirements of the country. The great increase in our national debt, the increased cost of administration in various services of the Government, the necessity for providing war pensions, etc., will, of course, make it possible for me at the present time to suggest any reduction in the existing rates of taxation, and it is, moreover, not possible to speak with any certainty as regards tlie future, aa there are many problems which will require

attention, alter the war has been finally concluded, and these can only be determined when it is known how the trade and finance of the dominion will be influenced by the after-effects of the war.” Now the ordinary surplus lor that year amounted to £5,085,924, making a total accumulated surplus of £11,560,788, the increase in land and income tax receipts being £2,030,025, due to increased rates of tax and an altered exemption, also to the war tax, which replaced tlie excess profits tax, and a tax imposed under section 5 of “The Finance Act, 1916, ’ in addition to ordinary income tax on assessable incomes in excess of £SOO at the rate of 6d in the £, where the income docs not exceed £990. and Is on all incomes above that amount. There was an alteration in 1920, when the previous rates were adjusted so as to provide one rale with a maximum o[ 7s 4d, plus 20 per cent, super tax (since taken oft); and 1 have already indicated that as a result of the improved conditions and economies effected the rate will be further reduced this year. In the same Budget Sir Joseph Ward expressed the opinion that the prosperity of the country was not likely to be affected by the war. Unfortunately, liis anticipations were not realised, for there followed a rapid fall in the price of our primary products, which had a marked effect upon our finances. I have repeatedly pointed out that after tile war the cost of labour and material continued to soar, and that the full effect of the increased charges, directly due to the war, was not felt in New Zealand, sis well as in other countries, until 1919-20 and after. Comparison with pre-war expenditure made at the end of March, 1922, disclosed that after deducting increases for which the war was directly and indirectly responsible—viz., £13,371,000. the net increase was £3,270,000, which is not out of proportion to the normal expansion of the dominion’s requirements for education, postal, railways, and other services. Adjustments have been taking place, and the taxation per head of population in New Zealand has been reduced by £6 Is 3d during the past three years, or from £lB 9s in a year of abnormal importations, to £l2 7s 9d per capita. Sir Joseph Ward has, I notice, again repeated that since the war Great Britain has paid £500,000,000 off her debt, and reduced the income tax, while in this country we have increased our indebtedness. From this it might be inferred that the National Debt of Great Britain lias been reduced, but since March 31, 1919, to March 31, 1922, tlie British National Debt has been increased bv £1,821.000,000. The war debt in all countries has increased since the Armistice to meet post-war bilities. The difference is one of degree, but I am pleased to be able to say that for the financial year 1922-23 our debt shows a net decrease. I have already referred to the fact that tax remissions were made in New Zealand last year, and that further reductions are to be made this year.”

1918 £46,185,234 1919 ... ... 68.450,040 1920 _ ... 80.089,025 1921 ... ... ... 81,538,569 1922 _ _ ... 81,843,543 1923 80,651,743