FINANCIAL STATEMENT.

Otago Witness, Issue 3774, 13 July 1926, Page 75

FINANCIAL STATEMENT.

SURPLUS OF £1,150,000. SUMMARY OF YEAR’S OPERATIONS. The Minister of Finance (the Hon. W. Downie Stewart) brought down the Financial Statement in the House of Representatives on Thursday. Dealing with the past year’s financial operations, the Minister said: It is gratifying to find that as a result of last year’s operations the Dominion finances nave been maintained in a sound and satisfactory state. The surplus revenue of £1,150,000 shown in the Ordinary Revenue Account of the t Consolidated Fund is largely due to increased Customs receipts, while the expenditure, although showing an increase on the previous year, is not more than was anticipated. The principle of enforcing economy and effecting savings has been sustained and in this respect I will adhere to the established policy. # For tho current year it will be inadvisable to expect any increase in the gross revenue, in fact, the preparation of this Statement is based on the expectation of a possible reduction. It is imprudent to expand services m reliance on increased revenue mainly derived from Customs duties, a source in herently liable to fluctuations. Inflated revenue due to increased imports cannot • be regarded as stable, and surpluses from such a source should, when available be applied as far as possible to debt-reduc-tion purposes, and not be regarded as a basis for reducing taxation. In this connection, and apart from our statutory obligations to reduce debt, the year’s surplus has enabled about £414,000 out of the Ordinary Revenue Account to be utilised for debt-reduction, besides ensuring the transfer of £500.000 to Public Works Fund. EFFECT OF RECENT LEGISLATION. Before making the usual comparisons of revenue and expenditure with the figures for the preceding year I will explain briefly the effect on the accounts of the Consolidated Fund to certain enactments of last session. Consequent on the passing of the Government Railways Amendment Act, 1925, the railway receipts and payments no longer form part of the Ordinary Revenue Account. but are to be found under a separate Working Railways Account. In place of these there is a new item of revenue, “interest on railway capital liability,” that is practically an equivalent of the difference between the railway receipts and payments formerly appearing on either side of the Ordinary Revenue Account. The net result of this change so far as , the Ordinary Revenue Account for 1925-26 is concerned is as follows: £ Interest received on capital liability .. 1,913,311 Excess of railway receipts over payments for the previous year (1924-25) deducted for comparative purposes 1,468,523 Leaves an increase of 44,788 Deduct new item of payment for branch lines and isolated sections 344,830 Leaving a gain to the Consolidated Fund of £99,958 Against this latter siim, however, there is a further set-off of the additional interest on that part of the Public Debt allocated to railways during the financial year, with the result that the net effect on the Consolidated Fund is approximately the same for both financial years. The second change I refer to was brought about by the passing of the Repayment of the Public Debt Act, 1925. . This Act has led to the appearance of another new item of receipt in the Ordinary Revenue Account under the heading of “Interest on the Public Debt Redemption Fund”—£B97,7s6. Now, a large part of this £897,756 was in 1924-25 included in the total of “Interest on public moneys,” under which heading was the interest received from Discharged Soldiers’ Settlement Account and other interest earned on investments of Government moneys. This year the interest receipts are divided, some £550,000 going to “Interest on the Public Debt Redemption Fund” and the balance remaining under “Interest on public moneys” The Public Debt Redemption Fund item, in terms of the Repayment of Public Debt Act, 1925, also received the interest on tKe capitalised sinking funds, so that the additional revenue from this source is £314,697, arrived at as follows: £ Interest on public moneys, 192526 605,061 Interest on Public Debt Redemption Fund „ 897,756 Total 1,502,817 Interest on public moneys, 192425 1,188,120 Additional recepits, 1925-26 .. £314,697 There is, however, against this about £190.000, being that part of the increase in the sinking fund and statutory debtreduction payments consequent on the passing of the Repayment of the Public Debt Act, 1925. As the payments under this Act will incerase every year, this net gain to fhe Consolidated Fund will thus automatically disappear, and in view of the writing-down of the discharged soldier settlement capital it may be largely wiped out during the present financial year. In this connection it will be remembered that the amount advanced out of the acumuluted surplus for settlement of discharged soldiers now forms part of the Public Debt Redemption Fund. REVENUE. The amount of revenue received in 192526 for. interest on railway capital liability is compared with the excess of railway receipts over payments for 1924-25. 1% be observed that the net increase In fie total '•evenue is shown as £1,719,345, but, as 1 have just explained, 1444,788

on account of “Interest on railway capital liability” and £314,697 for “Interest on Public Debt Redemption Fund," may be set aside as being only nominal increases. Deducting these two amounts totalling £759,485, there is left a real increase in revenue compared with that of the previous financial year of £959,860. The principal inoreasoa in the regular items of revenue are as follows: £ Customs .. 814,488 Stamp and death duties 119,536 Post and telegraph reoeipts 370,853 Against these increases there are the following decreases:— £ Land and income tax 86,128 Miscellaneous revenue ... 182,536 Recoveries on account of previous years 60,019 Of the decrease in land and income tax, £68,592 is on account of land . and is attributable to the i ortgape exemption and to the annual shrinkage due to normal subdivision and succession of holding*. There were also less arrears to be collected. Reductions were made in the rates of income tax last year of an estimated value of £150,000, but it is gratifying to note that this was largely compensated for by an increase in the income of taxpayers generally, the net decrease in the amount of tax collected being only £17,536. It will be seen, therefore, that by far the gicater part of the real increase in revenue is due to increased '’ustoms receipts resulting from a greater volume of imports. EXPENDITURE. In a detailed comparison of the year’s expenditure with that of the previous vear, for the purpose of comparison the railway payments nave been omitted from the figures for 1924-25. The * f increase shown amounts to £1,807,466, of which £948,417 is on account of permanent appropriations, and is due principally to the following:— £ Interest charges ... 264,537 Sinking fund and debt reduction charges _ 214,984 Railways, on account of isolated sections and branch lines . . 344,830 Increased benefits under old age, widows, and blind pensions ... 150,000 War pensions, however, show a decrease of £62,000. The expenditure on non-paying lines is a new item, which, as already indicated, is offset by increased from railways. Similarly, the increased debt "eduction charges are covered by the additional receipts for interest on the Public Debt Redemption Fund. The net increase in permanent appropriations is thus only about £388,000. The increase in expenditure under department votes amount to £859,049. The principal increases were:— £ Maintenance and repairs to roads 52.679 Pensions Department 88,409 Internal Affairs ... 68,796 Naval defence 157.847 Defence 88,387 Electoral 94,375 Education 102,448 The increases for Pensions and Internal Affairs Departments are largely due to taking over new liabilities on account of soldiers’ treatment and war graves, etc., consequent on the closing of war expenses account. The 1 crease fer naval defence is owing to the fact that a cruiser joined the station during the rear; while increased provision for militnrv camps and trainees accounted for much of the increase in vote defence. The increased expenditure under vote electoral represents the cost o. the general election, while that for education is due to the usual expansion. Tt is satisfactory to note that, in reviewing the differences between appropriations and actual expenditure over the last few years, the estimating by departments, considering their more extended operations, is showing closer results. SUMMARY OF YEAR’S OPERATIONS. A surplus of revenue over expenditure is again shown on the operations for the year—viz., £ Revenue .. 24,725,762 Net expenditure 23,570,083 Leaving a surplus of .. .. 1.155.679 The following shows the result in the funds of the Ordinary Revenue Account at the end of the year:— £ Balance forward, April 1, 1925 4,150,806 Add— Surplus. 1925-26 1,155,679 Reparation moneys received from Germany 186,227 Balance of New Zealand Consols Account transferred 475,992 Special receipts 858 £5,009,562 Less— £ Special payments .. 1,917 Transfers during the year, to— Public Works Fund .. .. 500,000 Working Railways Account .. 566,161 Loans Redemption Account .. 566,161 Balance. March 31, 1926 .. £4,428,092 The balance was held as follows: £ Cash £2,343,168 Imprests outstanding .. .. 226,350 Investments 1,858,574 £4,428,092 The transfer of £473,392 to the Working Railways Account, in terms of the Government Railways Amendment Act, 1925, to provide funds for working capital represents the balance of the excess of railway revenue paid to the Consolidated Fund from April 1, 1896, to March 31, 1925, after allowing the interest on capital at the policy rates. The total excess was £1,327,649, from which were deducted moneys paid out of the Consolidated Fund for railway stores and other charges outstanding at the latter date, totalling £854,257, leaving a balance of £473,302. The year’s revenue has not been charged with this non-recurring expenditure, as the excess railway revenue in past years has helped to build up the accumulated surpluses of the Consolidated Fund, and the payment has been regarded as a refund therefrom. Of the £186,227 reparation moneys received from Germany, £151,824 was included in the £666,161 transferred to Loans Redemption Account; and has been applied in reduction of the war debt ✓ The New Zealand Consols Act was repealed by section 11 of the Fiat Ml Act

1925, and the £475,992 shown as transferred to Ordinary Revenue Acc<*int above represents the balance of cash and investments of that account, to which 1 will return later. Consols to the value of £475,492 were redeemed out of the Consolidated Fund during the preceding financial year, and the balance of £SOO in 1925-26. The result of the year’s operations is better than was anticipated, as, although last year the indications were for an increase in Customs revenue oyer the previous year, it was not' expected to reach the excess of £584,000 over the estimate. While it is a matter for satisfaction that the year’s working shows a substantial surplus, it has to be recognised that the bulk of it comes from sources that cannot be counted upon to persist. NET CHARGES ON THE TAXPAYER. In order to illustrate our present position in regard to taxation as compared with that of 1914, I have prepared a statement showing the comparative charges on taxation for the various services provided for out of the consolidated fund. In making this comparison it is necessary to allow for the fact that the receipts and payments for 1913-14 are fiot comparable with those for 1925-26 without considerable adjustment, because within the period covered there was a fall in the purchasing-power of the pound. To obtain a true comparison between these two years the figures for 191314 should be increased by about one-half. This table will enable members to gauge the w'eight of the war charges and social services.

In order to facilitate tne comparison ot costs I have had the amount per head of mean population assessed in each case and the respective amounts for 1913-14 increased as mentioned above. That is to say, the total taxation receipts for 1913-14 averaged out at £5 8s 4d per head, but in the table above have been increased by one-half—to j>B 2s 6d—which figure approximately represents the average receipts in 1913-14 in the values of to-day. On this basis the increase in the per capita receipts during the period is £4 Is lOd. The first striking fact to be noted is that the cost of the charges directly due to the Great War averages £3 13s 3d, and this accounts for nearly the whole of the increase in the taxation receipts per head. The other noteworthy increase is in the total amount levoted to social services, under which heading I group health and hospitals, pensions (excluding war pensions), and education. The actual charge on taxation for these three items amounted in 1913-14 to £2,120,000, which is, roughly, about one-third of the total collections for the year. During the last financial year no less than £5,735,000, or nearly one-half of the total collections less war charges, was expended on social services. On a comparable basis the expenditure on social services per head of population rose from £2 16s 6d in 1914 to £4 2s 4d in 1926, an increase of 45 per cent. The cost of defence for 1925-26 includes the expense of the second cruiser which recently joined the New Zealand station, for only part of a year, so this item will show an increase for this financial year. The net expenditure on naval defence for last year amounted to £441,203, an increase of £157,847 over that of the previous year. Setting aside the amount required to cover war charges and social services, which in 1925-26 absorbed £8 19s 4d out of ■ a total of £l2 4s 4d per head of revenue collected, the remaining revenue for other services does not represent in 1925-26 any real increase over that required in 1913-14. The results demonstrate that economy and control have been consistently applied to administrative expenditure, and that there has been no undue inflation of departmental services. In regard to existing social services there will, of course, be a steady rise due to increases in population, but this should be met by increased revenue receipts due to the same cause. Any new departures or extensions, however, can obviously only be made at the expense

of increased taxation per capita, unless reductions can be made in the relative amounts required for other services. As regards last years actueJ expenditure as compared with that of the previous year, I wish to remark is follows: Including £37,505 from national endowments on account of old-age pensions and £2499 from gold duty in respect to miners' pensions, the total net payments on account of pensions for the last financial year amounted to £2,480,155, as against £2,403.614 for the previous year, an increase of £76,541, notwithstanding i the fact that the war pensions showed a reduction of £62,630. Turning to expenditure on health, it will be seen from the accounts and particulars supplied that the subsidies under the permanent appropriations for hospital and charitable subsidies in 1925-26 totalled £600,000, the actual amount paid being £575,777, in addition to which a special subsidy of £IB,OOO was pkid to the Nelson Hospital Board. It is estimated that an appropriation of £600,000. the same as last year, will be required for the current year. Subsidies on capital levies increased from £72,000 in 192324 to £115,000 in 1925-26, but it is not anticipated that the amount will further increase this year. The net expenditure of the department from the Consolidated Fund other than subsidy was £34,968 more than that of the previous year. For education the net expenditure under the vote amounted to £2,879,719, to which must be added £157,341 received under special Acts, making a total provision out of the Consolidated Fund of £3,037,060 for 1925-26 as against £2.949,115 for 1924-25 In addition, there is also expenditure out of reserves and endowments, full particulars of which will be found in Table No. 19 attached to this Statement. TREASURY BILLS. Treasury bills in anticipation of the 1925 loan amounting to £500,000 were sold m London at 4jj per cent, discount at the beginning of April, 1925, and were duly redeemed out of the loan receipts. Further Treasury bills issued in anticipation of revenue were sold in New Zealand as follows: £250,000 in April, 1925; £500,000 in May, 1925; £500.000 in June, 1925; total, £1,250,000: the rate of interest being 5j per cent, in each case. The whole of these revenue bills were redeemed later in the year when the bulk of the revenue was received, so that there were no bills of this description outstanding at the close of the year. The redemption bills outstanding at March 31. 1926, amounted to £1,400.000, for which a corresponding amount of debt was redeemed on the issue of the bills. TEMPORARY INVESTMENT OF SURPLUS CASH BALANCES. Advantage wa3 taken of the short money market in London to invest Public Account cash balances which were not immediately required. The total interest earned on these investments during the year for periods ranging from a few weeks to three months was £28,069. With increasing interest charges it is desirable *o make the fullest possible use of investing cash balances more closely, and I am taking steps to enable our facilities in this respect to be improved. CUSTOMS AND EXCISE. Including the tyre-tax credited direct to the Main Highways Account, the Customs revenue for the financial year 192526 amounted to £8,573,388, while that for =the preceding financial year was £7.689,192, an increase of £884,196. The principal classes of imports from a revenue-producing point of view give the following results:— 1925-26. 1924-25. Increase. Spirits .... ... £1,255.618 £1,149,712 £105,906 Tobacco, Cigars, Cigarettes 1,385,563 1,336,182 49,386 Apparel and Textiles ... 1,815,396 1,664,170 151,226 Motor Vehicles, Tyres, and Parts ... 1,154,163 912,567 241.601 Other Goods 2,472,185 2,174,887 297,298 Primage ... 490,453 451,674 38,779 Totals ... £8,573,388 £7,689,192 £834.196 Despite the falling-of in the. value of exports for the year—due partly to lower prices and partly to lessened production—the imports did not show any contraction and the revenue has been well maintained. The following table shows the values of imports and exports for each of the past seven financial years:— Excess Excess Imports. Exports, of exports, of imports. Year. £ £ £ £ 1919- 32,162,029 50,776,650 18.614.C21 - 1920- 67,463,269 48,219,672 1921- 35,986,060 43,794,883 7,808.823 1922- 37,112,779 45,548,700 8,435,921 1923- 44,401,756 51,652,606 7,250,850 1924- 49,821,095 64,771,158 4,900,063 1925- 53,020,856 48,697,587 - 4,328,269 In view of the state of the trade balance, and keeping in mind the uncertainty of the future trend of prices of our produce, l have come to tho conclusion that the Customs reyenue for the coming year, notwithstanding the normal increase of population, will be substantially less than for last year. My estimate of the revenue for 1926-27 from this source is £7 £50.000. The excise duty collected on New Zea-land-brewed beer during the year 1925-26 was £629.558 (compared with £650,384 during tho preceding year). The revenue from this source during the current financial year is estimated at £630,000. IMMIGRATION. There has been a slight fal ,: ?g-off in the number of new arrivals in 1925-26 under the immigration policy, due to the hold-up to shipping occasioned by the striko in England. The percentage of juveniles has been well maintained, and the migration of . public-school and secondary-school boys is making good progress. The expenditure last year amounted to £107,521, compared with £136,353 for the previous year.DISCHARGED SOLDTERS SETTLEMENT ACCOUNT New loans granted during the year have as for some time past, been restricted mainly to T.B. and incapacitated discharged soldiers and to advances on cur rent account for improvements to farms and purchase of stock, the lota 1 amount authorised during the year being £282,011. Hie advances paid over during the year, which included commitments from the previous year, totalled £725,974. The repayments and recoveries of principal, amounted to £901,393k

The amount of instalments and interest in arrear and in postponement account as at March 31 was £633,130. being a reduo tion of £121,820 on the previous year. The reduction, however, is largely due to the operations of the Dominion Revaluation Board by remissions of interest granted on its recommendation. DEATH-DUTY STOCK REDEMPTIONS. Deaty-duty stock issued under tho authority of the War Loans and Discharged Soldiers Settlement Acts amounted to £1,848.200 on April 1, 1925, and was increased to £2.019,350 at March 31 last by the issue of further similar stock under the authority of the Finance Act, 1920, section 15 (Electric-power Works), and tho rState Advances Act. 1913. Up to March 31. 1926. death-duty stock amounting to £635,890 had been presented in payment of duty. Further reductions in this form of seeuritv to the amount of £237,640 have also been effected bv conversion into ordinary inscribed stock at the request of the holder nnd in cases where the whole of the death-duty stock has not been required in «ati«fnetion of tho dutv payable. FREE-OF-INCOME-TAX SECURITIES. The conversion scheme inaugurated in September, 1922. by which the public was afforded an opportunity of converting troe-of-tax securities into inscribed stock (not free of tax) has been availed of to the extent of £3.128,450. This sum together with renewals and redemptions, accounted for a reduction of £13.420,u71. the total outstanding at March 31, 1926, being £38,307,334. LOANS FALLING DUE. Loans falling due in the next seven years ending with the year 1933, excluding Imperial debt repayments and Treasury bills, are:— Year ending March 31, £ 1927 2,734,300 1928 8,334,466 1929 14,465,265 1930 41,756,398 1931 21,111.371 1932 1,525,690 1933 4,659,743 Total .. .. £94,587,233 RESERVE FUND, LONDON. The Reserve Fund iL London of £2,000,000 is invested in gilt-edged securities, the interest earred by the fund during the past year amounting to £90,550. ESTIMATED REVENUE. I have given the most thorough consideration to all the expected variations or conditions likely to arise in the next 12 months, and I estimate the total revenue receipts into the ordinary revenue account at £24,266,200. This is based on the present rates of land and income tax and the expected reduction in Customs revenue resulting from trade balance adjustments. The expanding business of the Post and Telegraph Department will provide increased receipts. ESTIMATES OF REVENUE. £ Customs 7,650,000 Beqr duty 630,000 Stamp and death duties .. .. 3,189,250 Postal and telegraph 3,290,000 Land tax 1,200,000 Income tax 3,300,000 Registration and other fees .. 200,000 Marine 112,000 Interest on public moneys .. 600,000 Interest on railway capital liability 2,050,000 Interest on Public Debt Redemption Fund 1,102,000 Local Bodies’ Loans Act, 1908, section 76 20,000 Rents of buildings 25,000 Tourist and health resorts .. 57,250 Miscellaneous 50,000 Territorial 205,000 Departmental and other receipts 585,700 Total £24,266,200 ESTIMATED EXPENDITURE. In submitting the estimates of expenditure, I may state that some months ago the Government appointed a Committee of Departmental Heads to investigate expenditure and scrutinise the preliminary estimates of departments. The committee’s recommendations were duly considered by the Government in framing these estimates. The estimated expenditure is £23,986,616. The sum is £416,533 in excess of the actual expenditure of last year, a good indication that the control over vote expenditure is well maintained when it is remembered that this increase covers extension of naval establishment, education expansion, and also departments whose increases are met by corresponding reverv.e receipts. The estimated expenditure un.'.^r—- ' £ Permanent charges is 13.693,759 Annual appropriations .. .. 10,292,857 Total £23,986,616 ESTIMATED RESULTS. I anticipate, therefore, that the position, provided no obligations of a substantial nature due to unemployment or to new legislation fall on the account during the present financial year, will be:— £ Revenue 24,266,200 Expenditure 23,986,616 Balance .. .. .. £279,584 This amount will, I estimate, cover supplementary estimates, but will leave very little margin; and, either way, the ultimate result will depend a great deal on the uncertain factor of imports. In view of the reference in his Excellency's Speech as to the policy proposals of the Government, I have found it unnecessary in this Statement to devote any space to these matters. There are some difficulties ahead of us, the principal one —that of our trade balanee —touches, of course, our primary industries, but the effect; I predict, will only be temporary, and matters will adjust themselves in due course. v With regard to our secondary industries, I regret to state that some of these are not in a flourishing condition. The Government is now considering how far it may be necessary' to render assistance during the present session to certain industries that are most seriously affected, but it is not proposed to make any general revision of the tariff this year.

REVENUE RECEIPTS. 1913-14. 1925-26. £ £ Custom9 3,426,745 8,383,877 Beer duty 127,041 629|558 Land and income tax 1,321,722 4,635,175 Stamps 1,221.971 3,359,867 Miscellaneous 11,567 13,910 £6,109.046 £17,022,387 Ttr Head of Mean Population. 1913-14 1025-26 (Adjusted to a (Actual). comparable £ 6. d. £ s. d. Customs 4 11 5 6 0 5 Beer duty 0 3 4 0 9 1 Land and income tax... 1 15 3 2 8 3 Stamps 1 12 6 3 6 7 Miscellaneous — £8 2 6 £12 4 4 CHARGES ON TAXATION. 1913-14. 1925-26. £ £ War pensions and debt charges — 5,101,015 Other debt charges ... 1,4)2,222 1,656,135 Social services (health and hospitals, pensions and education) 2,123,815 5,735,419 Defence (land, sea & air) 53d,373 891,099 Other charges (general and administrative) ... 1,640.839 2,483,040 Surplus for year 403,797 1,155,679 £6,109,046 £17,022,387 Allocation of Taxation Receipts per Head of Mean Population. 1913-14 1025-26 (Adjusted to a (Actual). comparable bas:s). £ s. d. £ s. d. War pensions and debt charges — 3 13 3 Other debt charges ... 1 17 3 13 9 Social services (health and hospitals, pensions and education) 2 16 6 4 2 4 Defence (land, sea, & air) 0 14 5 0 12 : Other charges (general and administrative)... 2 3 / 1 15 8 Surplus for year 0 10 9 0 16 7 £8 2 6 £12 4 4