FINANCIAL STATEMENT.

Otago Witness, Issue 3830, 9 August 1927, Page 17

FINANCIAL STATEMENT.

MR DOWNIE STEWART’S BUDGET

A SURPLUS OF £587,142.

Mr W. Dovznie Stewart, the Minister of Finance, presented his Budget in the House of Representatives on Tuesday. He accompanied his statement of the finances of the Dominion with a review of the operations of the various funds during the past year and it was shown that after all the items of expenditure had been mefc that there remained in the hands of the Treasury a surplus of £587,142. The revenue of the country shows an increase of £217,345 compared with the previous year and in the same period the net expenditure was increased by £785,882. The expenditure on public works amounted to £6,667,967, the principle items being development works such as railways, hydro-electric supply and main highways and roads. The gross public debt shows an increase of £6,995,41 1 for the year, involving a gross total charge on the Dominion for the year, bringing the total to £245,850,889 and.making it necessary for the Minister to provide for a gross annual charge of over £12,000,000.

REVENUE AND EXPENDITURE. PERMANENT APPROPRIATIONS INCREASE. Dealing first with the revenue from all sources, the Minister stated that the revenue for the year amounted to £24,943,107, representing an increase of £217,345 over the amount received during the previous financial year. Of the total revenue received last year, £16,904,687 was derived from taxation, and the remaining balance of £8.038,420 from interest receipts, sundry revenues and recoveries from different State activities. Of the proceeds of taxation 48 per cent, came from direct taxation (land and incoihe tax and stamp duties) and the remaining 52 per cent, from Customs and beer duties. The receipts from direct taxation show relatively little variation, there being an increase of £19,148 in stamp and death duties, £53,700 in income tax, and a decrease of £37,592 in land tax. Under indirect taxation we find a decrease in both headings—viz., Customs £131,302, beer duty £7745. Among other items the following increases may be noted: Postal and telegraph receipts. £148,823; interest on railways capital liability. £130,122; and departmental receipts, £57.491. Including an amount of £142,475 of tyre tax credited to Main Highways Account, the total Customs receipts amounted to £8,395,050. This amount was derived ports:— Spirits £1,190,991 Tobacco, cigars, cigarettes 1.393,909 Apparel and textiles . . . . 1,707,385 Motor vehicles, tyres, and parts 1.079,076 Other goods. . . 2,570,924 Primage 452,765 . Total £8,395,050 The receipts of the Ordinary Revenue Account were £676,907 in excess of the estimate. About £600,000 of this excess was due to Customs, in which it was estimated there would be a substantial falling-off amounting to 8.8 per cent. The imports declined by 9.1 per cent., but actual receipts showed a ticcrease of only 1.6 per cent. As to the cause of this unexpected revenue, it seems reasonably certain that it was largely due to the industrial disturbance in England forcing importers to buy more foreign goods, which are subject to higher rates of duty. An expected fall of approximately £306,000 in the proceeds of direct taxation did not occur; but this was largely offset by the amount received for interest on Public Debt Redemption Fund being approximately £238,000 below expectations, due to the non-recovcry of the whole of the interest from the Discharged Soldiers’ Settlement Account.

EXPENDITURE. Turning now to the other side of the account, said the Minister, it is perhaps advisable, in the first place, to draw attention to the fact that, following the practice of the last few years, the’ expenditure shown in the published accounts is gross, the credits to the various items being brought into the statement on the receipts side. These credits in aid or in reduction. which represent sundry direct recoveries of expenditure, are not included in the revenue, and must accordingly be deducted from the expenditure In this way we arrive at the total net expenditure chargeable to the year’s revenue. The net . expenditure last year amounted to £24.355,965, an increase of £785,882 compared with that of the previous year. PERMANENT APPROPRIATIONS. Of this increase. £678,017 is under permanent appropriations, as fixed by Acts of Parliament. The following are the principal increases over the expenditure for the previous year:— Interest£32o.99s Debt reduction 82,772 Subsidies to railways for losses on branch lines, etc. 84.238 Pensions (other than war) Maintenance of war graves and memorials overseas 36,655 Fruit export guarantee .. 82.619 Of the gross amount paid for interest £10,594,655, the amount of £3,545,644 was on account of the. debt. Inis leaves £7,049,011 as gross interest on the ordinary debt, against which direct recoveries from interest-earning accounts amounted to £2,145,861. In 'addi-

tion to this there should also be set off certain amounts included in the revenue, totalling approximately £2,634,000 —viz., interest received from the railways shown as a special item (less the amount of subsidy paid on branch lines, etc.); interest chargeable against the Post Office, which is included in the excess of postal and telegraph receipts over working expenses; and interest earned on the investment of public moneys. Thus the interest burden borne by the taxpayer on account of the ordinary debt amounts to £2,271,150, proving that this debt is productive to the extent of approximately 70 per cent. Under the Funded Debt Agreement and the Repayment of the Public Debt Act, 1925, part of the interest saved on loans redeemed is applied to further reductions of debt. This latter, together with the increase in the debt, covered by the Act referred to, accounts for the increase in the expenditure under this heading. As regards the additional payment to the railways for losses on branch lines and isolated sections built to promote settlement and assist the development of the country, this is owing to the previous year’s expenditure covering only a period of 11 in addition to which the Dunedin Exhibition led to increased traffic in that year on branch lines.

The additional expenditure on pensions is mostly on account of old-age and widows’ pensions, which must bo expected to increase. The increase shown for maintenance of war graves and memorials overseas is largely nominal, as in the previous year £32,775 was provided out of vote “Internal Affairs’’ under annual appropriations for this purpose. ANNUAL APPROPRIATIONS. The net expenditure under annual appropriations amounted to £10,091,020, an increase over - that of the previous year of only £107,625, or 1.08 per cent. The increase in some votes cannot be avoided, but the figures for the last financial year clearly demonstrate that economy and close control of expenditure were exercised throughout the year. The education vote showed an increase of £99,878, being the normal increase due to growth of populai lOn hoc cosk naval defence went up bv £85,820, the reason being that the previous year’s expenditure included the cost of the second cruiser for onlv part of a year. lhese and other smaller increases arc partly offset by decreases aS follows :— Post and telegraph working expenses £53 353 Industries and commerce 56,592 Electoral Department 91,410 . DuriiTg 1925-26 the Dunedin Exhibition increased the vote for industries and commerce, while the last election accounted for the heavy expenditure for electoral purposes in the same year. SUMMARY OF YEAR’S OPERATIONS. The transactions for the year resulted in a surplus—viz.: —

Revenue. Revenyo (proper) £24,313,982 Departmental receipts 576,201 Recoveries on account of expenditure of previous years ... 52,924 Income for year £24,943,107 Expenditure. Permanent appropriations ... £16,488,004 Less crcdits-in-reduction ... 2,223,059 Total jgji 264 945 Annual appropriations ... ." £1i,’885.’368 .Less credits-in-aid 1 794 348 Total —' £10,091,020 Net expenditure chargeable to year’s income, £24,355,965. •••• V £587,142 lhe following shows the result in the funds of the Ordinary Revenue Account at the end of the year: — Balance forward, April 1, 1926 £4,428,692 Add— ’ ’Surplus, 1926-27 587,142 Certain reparation moneys received from Germany ... 39 307 Refund from Cheviot Estate Account in respect of securities redeemed in 1925-26 50,400 J £5,104,941 Transfers for debt reduction £ 588,868 Iransier of Bank of New Zealand shares to special acr r - V • • : 750,000 Instalment of purchase price of C long-term mortgage shares in Bank of New Zealand ... ... ... 58,594

Temporary transfers to other accounts 26,000 bundry charges and expenses of raising loans 13 £1,423,475 Balance at Man h 31, 1927 £3,681,466 The balance was held as follows:— 9 ash £1,807,285 Imprests outstanding ... 180,591 Investments 1,693,590 £3,681,466

Ihe transfers for debt reduction and °’her purposes shown above are not included in the year’s expenditure, but represent an appropriation out of the surplus and the balance carried forward from previous years. Ihe reparation moneys referred to above do not represent the whole amount received on account of reparations during the year, which, in fact, totalled £558,465 Of this amount, however, £100,600 was received from the Public Trustee as liquidator ot ex-cucmy property in New Zealand, which sum will later have to be set off against the total that would otherwise no received from Germany. It was decided at the outset to apply all reparations received to the repayment of war debt, and a section was accordingly enacted in the 1 üblic Revenues Act, 1926, authorising such moneys to be credited direct to Loans Redemption Account. The £39,307 referred to above is the amount which came co hand in 1926-27 prior to the coming into operation of this Act.

Ihe transler of Bank of New Zealand shares was made in terms of section 8 of the Finance Act, 1926. with the object of collecting all the shares together in one account. It is merely a Look entry transferring to the Bank of New Zealand Shares Account the preference B shares puichased in 1920 and 1925, and since held as an investment of the Ordinary Revenue Account. The further amount of £58,594 tor Bunk of Aew Zealand shares represents the first instalment on the 234,375 <X. mortgage shares allotted to the i\ew Zealand Government in terms of Of the Ba,lk of New Zealand Act, 1920.

It is often assumed that a large balance at the beginning of a year constitutes a case for reducing taxation, but this balance has been decreasing steadily since , an< * tke balance carried forward on April 1, i9~7, £3.681,465. after the further depletions which will take place this yeai tor unemployment and other purposes, wih leave available only the normal amount required to finance the year’s transactions without borrowing on the security of Treasury bills In view of the fact that the large bulk of the revenue comes in during the last months of the year it was at one time necessary to borrow in anticipation ot revenue at an increased cost to the taxpayer. The existence of a liquid balance, so long as it can be maintained, avoids such charges and is undoubtedly ’’lore satisfactory finance. When any of this cash is not required in the Ordinary Revenue Account it can always be profitably employed in temporarily financin'*loan accounts, which postpones borrowing and effects a further saving. SURPLUS AND TAXATION.

Sundry statements have appeared in the Piess ot late to the effect that surpluses should not bo used for public works and debt reduction purposes, but be applied to relief of taxation. The application of the surpluses of good years to public works and debt reduction purposes has the effect of keeping down the debt charges, and at tunes obviates the necessity of increasing taxation.

In regard to transfers to the Public works bund, the grand total of which to date amounts to £14,300,000, the fact is wlJn be r"5 P . Of good - vcars had not been applied to this purpose the annual interest burden to be carried bv the taxpayer in bad as well as good years would have been about £700,000 heavier than it is at present. Similarly, if further surplus revenues had not been applied to debt reduction, this burden would have been further increased by about £250 000 making nearly £1.000,000 in all. Even so it must not be forgotten that direct tax-i--io°9n ln S ?? C I 1 niatcria »y reduced since 1920, the total annual value of reductions £3 400,^ niSS1 ° nS behlg CStinialcd at

As fully demonstrated in the last Budget, nar debt charges and war pensions now absorb approximately 30 per cent, of the total receipts from taxation, which is more than the whole of the current receipts from both land tax and income tax. when this fact is fully appreciated it will be clear to all that any further substantial reductions in taxation are out of the question until progress ha*. been made in reducing this dead-weight portion of the debt. It i s for this reason that the Government is devoting all available resources to this purpose. The policy of using surpluses for debt reduction is approved by eminent financial authorities, and i s adopted by the. British Government whoso taxpayers have a much heavier Dominion 0 Cally t>an th ° poople of this Finally, it has already been explained that last year s. surplus was much greater than was anticipated and largely fortuitous, and to reduce taxation on that account would b e tantamount to budgeting „ a d ® fl ? lt - 13 axiomatic in public finance that each year s transactions must stand alone, and a surplus in one year has no bearing on the results of the next unless, such surplus comes from a permaS« n L”A Cr * aSe i »- r , e ' en «o. There is no doubt that our high credit in London, of which our last loan is solid proof is in a large measure due to our constantly recurring surpluses and the appropriation oi such moneys to debt reduction and capital expenditure, the effect of which, as shown above, relieves the general taxpayer probably much more than reductions in rates oi taxation.

ECONOMY IN EXPENDITURE. The policy of economy was strictly pursued throughout the year, and all depart mental expenditure was kept under close control, with the result that the ctual « hdor , annual votes was less than the appropriations. The major portion of th e expenditure consists ot payments under permanent appropriations, governed almost solely by the authorising Acts of Parliament. The Goveirnment recently set up another committee of departmental officers, who have gono through the estimates for the current year, item by item, and reduced them to a bare minimum consistent with the maintenance of the present services. The committee, after reviewing expenditure over

back years, adopted as a guiding principle an average of the expenditure for the last three years and endeavoured to reduce the estimates for this year to that basis. the tollowing shows in round figures tho main services on account of which a net expenditure of £24,356,000 was incurred during 1926-27

It must be clearly understood, however, that the percentages of the expenditure do not represent the relative burden on the taxpayer, for, as already indicated, nearly one-third of the revenue consists of earnings or other receipts, which, for this purpose, can be set off against one or other of the various items mentioned above. For instance, the Post and Telegraph working expenses are more than covered by the earnings of the department. The actual charges on the taxpayer for 1925-26 were set out in the last Budget, and the relative position has not materially altered since then. The expenditure on war charges and on social services (pensions, education, and health and hospitals) accounts for nearly half of the year’s expenditure, while external defence and internal law and order are necessaries which account for a further 6.6 per cent, of the expenditure. Tho Ordinary Debt charges referred to elsewhere account for a further 23 per cent, of the expenditure. The subsidy to the railways is part of cost of development, but as an item of expenditure it is due to accountancy changes. TREASURY BILLS.

The resources of the Ordinary Revenue Account proved sufficient to finance the year’s transactions, and it was not necessary to issue any Treasury bills in anticipation of revenue. Treasury bills in anticipation of the 1926 loan, amounting to £250,000, were sold in London at 4 5-16 per cent, discount at the beginning of Slay, 1926, and were duly redeemed out of the loan receipts. The £1,400,000 redemption Treasury bills outstanding on March 31, 1926, have been paid off with funds derived from a local issue of debentures. There were thus no Treasury bills of any kind outstar ing on March 31, 1927. SURPLUS CASH BALANCES. The amendment of the Public Revenues Act last session enabled the cash balance of the Public Account to be kept much more closely invested than had hitherto been possible, with the result that the interest received from such investments for periods ranging from a few weeks to three months amounted to £81,282, or £53,213 in excess of that received in thb previous year. PUBLIC WORKS EXPENDITURE. The amount expended on capital works during the last financial year out of the Public Works Fund and other accounts concerned totalled £6,667,967, made up as follows:— Railway construction—additions and improvements £2.369,912 Telegraphs and telephon, s 558,041 Hydro-electric supply . . 1.130,013 Main highways and roads 1,154,967 Irrigation, land and river improvements 278,015 Public buildings, including schools 892,.768 Other public works .. .. 284,251 £6,667,967

In total the expenditure is approximately £510,000 less than the previous year. The requirements for railways showed a comparative decrease of £4<7,000, and telegraphs and telephones a decrease of £374,000, while the exOn > electri 9 supply increased by -.184,000, and on main highways and roads by £l/0,000. The last-mentioned increase was largely due to additional vorks undertaken to give relief to unemployed.

More than half the expenditure was on account of railways and hydro-electric supply, in which the work is proceeding laigel.v in accordance with definite programmes. Large sums of money have already been sunk in these ■works, and, as *i seated previously, it is desirable that the construction should be completed as soon as posible in order that the works may become revenue-earning. The current financial year, and the next one or two years, are the peak years of expenditure after which it should be possible to effect reductions. Although authority for the purpose was contained in the Appropriation Act. 1926, it was found impracticable to transfer any amount from the Consolidated Fund to the Public Works Fund last year. THE BURDEN OF DEBT. A TOTAL OF £245,850,889. ’ Pl '° gross p . ublic d ekt on March 31. 1927 amounted to £245,850,889. as compared with £238,855,478 12 months previSmTi. ,ncreaso for lbe ycar of The net increase for 1925-26 amounted to approximately £11,000,006, so that the borrowing for last year represented a decrease of £4,090,000 in comparison with the previous year. New loans borrowed durin** the vear totalled £9,627,381. " of which £0.4-1,176 was raised in London, while the balance represents the proceeds of local issues taken up by the public and the Post Office. A total of £6.3/8,2<0 was allocated to tho Public Works Fund, the Railways Improvement Authorisation Act, 1914, Account, the Electric Supply Account and certain other accounts, which together financed the capital expenditure on public works previously referred to in this Statement. In addition, £2.400,935 was raised to augment the capital of the State Advances Department, £21,000 was lent to Samoa a

h«-her £lOO,OOO was made available for pi>.' .basing land for settlement, while tho rent,J rung £227.176 went in charges and of raising loans. DEBT REDUCTIONS. As n set-oil against the new loans raised debt to the amount of £2.631,970 was re,d T\ fed d 'inng t ho vear - ]t is sometimes askt»,l what is tne use of redeeming debt while we are borrowing more, but the roply is that insofar as reduction of war debt is concerned, the result is tho substitution of productive for dead-weight deot, which is a very real gain. A largo public debt can only be repaid by steady ettort over a long period, in which our national Revenue Account and taxation is gradually adjusted to carry the charges, ihere is no immediate prospect of a cessation of borrowing, and it would bo imprudent finance, damaging to our hi<dx credit in London, and therefore prejudicial to future borrowing, if debt repayment were not a constant feature of our financial policy.

Tile reduction of debt during the year was eflected as follows: y Under Repayment of Public Debt

r<i L ’ \ S - 25 r,‘V; £939,231 Under bunded Debt Agreement with Imperial Government 350,074Sin plus mo no j’s from Ordinary Revenue Account ' 515 igg German reparation moneys ... ”, 592J33 Miscellaneous war credits 143 027 brom Nauru and Ocean Island Sinking- Fund 3 3(X) From Discharged Soldiers’ Settlement Account 5Q SQQ From Discharged Soldiers’” Settlement Loans Act, 1920, Depreciation Fund Account 1,950 From Land for Settlements Account 19,500 F rom miscellaneous accounts of State Advances Department ... 18 Cancellation of debenture presented to Government by anonymous donor 100 Discount on securities redeemed below par 11.379 Total redemptions for year £2,631,970

The first two items represent the annual statutory debt repayment, the money for which is provided out of ordinary revenue account as a charge against each year’s revenue. Apart from the statutory payments, an amount of £588,863 out of ordinary revenue account was applied in reduction of debt, but this included £13,710 of reparation moneys credited to that account partly last year and partly towards the close of tho previous one, prior to an amendment of the law enabling all such receipts to be thereafter credited direct to loans redemption account. The amount of surplus money used for this purpose was thus £515,158. Of this latter amount £315,000 was part of last year’s surplus applied to debt reduction as soon as it became evident that there was going to be an excess of revenue, while the balance represents part of the previous years’ surpluses. Of the total reductions for the year £1,770,467 represented war debt. It is noteworthy that since 1922 the war debt has been reduced bv £8,280,362, or approximately 10 per cent.‘in five years. Discharged soldiers settlement securities purchased -and cancelled during 1926-27 amount to £83,210, while redemption of ordinary debt totalled £718.293, being for the most part redemption of loans at maturity, though advantage was taken of sundry good offers from the public to purchase securities below par.

SUMMARY OF DEBT OPERATIONS. Debt at April 1, 1926 £238,855,478 Add new loans raised— Ordinary £7,226,446 Slate advances ... 2.400.935 — 9,627,381 , , , . 243,482,859 i-ess debt reductions— War debt 1.770,467 Ordinary 778,293 Discharged soldiers 83,210 2.631,970 Debt as at March 31, 1927 £245,850,889 As a result of an investigation into the history of the public debt and the earlier conversion operations, the miscellaneous consolidated stock previously shown a t the end of the debt table has now been allocated to the appropriate accounts. Consequent on this allocation, an amount of £19,007 has been transferred from tbo ordinary debt to the State Advances debt. Allowing for this transfer, the debt stands as follows:— Ordinary £132.421,885 , • 73,563,181 State advances 30,191,097 Discharged soldiers’ settlement 9,6'74,726 fT „ £245.850,889 the gross debt at March 31, 1927, was held as under:— Where held. Amount. New Zealand £109,295,634 Australia 4.042,450 London 132,512,805 £245,850,889 Gross Annual Charge. Interest £10.780.931 Annual sinking funds 7,000 Repayment of' funded debt 367,705 Public Debt Repayment Account '.. 998,839 . Total gross charge £12,154,475 The amount of old sinking funds capitalised under the Public Debt Redemption bund amounts to £11,225,645. The principal of the fund cannot be drawn upon, but the interest is paid annually to the Consolidated Fund as a contribution towards the payments to be made under th<» new Act. The Redemption Fund also includes £13,500,000 of surplus moneys on loan to the Discharged Soldiers’ Settlement Account, while the special sinking funds, which are separate—viz., for Westport Harbour, electric supply, and State advances, etc.—totalled £2,443,540 as at March 31 last. There is thus a total capital set-off of £27,169,185 against the debt, subject, however, to reduction on account of losses to be written off in terms of tbo Discharged Soldiers Settlement Acts. Apart from new loans and reductions affecting the total of the debt, securities to the amount of £900,950 were renewed, £180,980 debentures converted to inscribed stock, £118,900 inscribed stock converted to debentures, while other conversions amounted to £80,230. Further debentures ami inscribed stor k to the value of £1.436.66.1 were redeemed, in each ca-e by the issue of new securities of an cipiaV

face value. Redcmntion Treasury bills amounting to £1,400,000 fell due and were re-issued from time to time, and finally were redeemed by an issue of debentures as previously indicated. Various loans fall due in London, Aus tralia and New Zealand respectively during the next seven years; but practically } the whole of the loans maturing during | the current year are held in New Zealand. A £6,001X000 LOAN. PUBLIC WORKS PROGRAMME. To provide the necessary funds to enable the public works programme to be proceeded with during the current year, a £6,000,000 loan, issued on May 2. at £99 10s, and bearing interest at 5 per cent., was successfully floated in London. The loan was oversubscribed, and this, in conjunction with the terms of issue, which were better than those of any other similar issue this year, is a striking proof of our high credit in London. The yield to investors, including redemption of the discount over the period of the loan, is £5 0s lOd, while the cost, including redemption of discount and expenses, is £5 4s id per cent, per annum. In terms of the prospectus, the proceeds of the loan will be expended on the following purposes: — Construction of and additions to railways and rolling stock £3,000,000 Development of hydro-electric power works 900,00 G Telephones and telegraph extensions 750,000 Other public works 1,350,000 £6,000,000 STATE ADVANCES OFFICE. NEW LOANS GRANTED. New loans granted during the year amounted to £3,665,175, and the amount paid over in respect of these and other loans previously granted totalled £6.185,970. Since the inception of the department £57,159,209 has been advanced to borrowers. £22,324,608 of which has been repaid, leaving a balance of £34,834,601 outstanding at the close of the last financial year. During the four years ended March 31, 1927, the total advances paid over by the department amounted to £23,899,939. The loans were fairly evenly

divided between town and country, advances on urban and suburban securities amounting to £12,096,502, and on rural securities to £11,803,437. These advances include £10,621,491 for erection and purchase of houses, of which £7,961,698 were advanced to workers, and £197,245 'dvanced to local authorities for erection of workers’ dwellings. This indicates the extent of the State’s assistance towards overcoming the housing shortage. A Rural Advances Act was passed last session, and it is hoped that this Act will provide the machinery for directing the flow of private investment back to farm mortgages. The investor, however, will not be asked to invest directly in a mortgage, but to buy bonds secured on all mortgages for the time being held by the rural advances branch of the State Advances Department, which is charged with the administration of the new Act, subject to the supervision of the Treasury insofar as the bond issues are concerned. In this way the investor . will obtain liquid stock exchange securities which can be readily sold at any time. | Further, as the mortgagor repays the | advance on a table mortgage the margin of security behind the collective mortgages on which the bonds are si ired will steadily increase. The farmer borrower, moreover, has the right to pay off his mortgage at any time at par by presenting for cancellation bonds purchased on the market. The new rural advances branch commenced operations on April 1 last. The special features of this branch are that it allows advances up to £5500 instead of £3500 as in the case of the settlers’ branch, and, as the bonds are secured on the first mortgages and not on the State revenues, it avoids increasing the public debt for a purpose that is really purely commercial. Up to July 18 last, 157 loans, amounting to £387,965, have been authorised. SOLIDERS’ SETTLEMENTS. WORK VIRTUALLY COMPLETED. The great work of settling discharged soldiers is now virtually completed, and the extension of operations during the last financial year was relatively small, and, apart from badly wounded or T.B. men who have previously not been able to take advantage of the facilities offered, the new business has been /confined to advances on Current Account for the de-

vclopmcnt of farms and the stocking of them.

The balance outstanding on Current Account at the close of the year was £2,801,152, additional loans approved during the period amounting to £92,367. Progress is now being made in the direction of converting advances on Current Account to table mortgages. Owing to the losses which have been incurred the revenue receipts for the year were insufficient to provide for the payment of the full amount of interest due to the Consolidated Fund. There has been some criticism as to the non-payment of this interest, in view of the fact that the Discharged Soldiers Settlement Account appeared to be in credit. Of the total sum due the Consolidated Fund received £362,721, but further payments could not be made as the balance of the account consists of capital repayments not available for interest purposes.

Legislation will be introduced this session to provide for writing off accumulated losses and also reductions in values recommended by the Revaluation Board under the provisions of the Discharged Soldiers Settlement Amendment Acts. 1923 and 1924. LOCAL GOVERNMENT LOANS. INVESTIGATION OF PROPOSALS. Since 1921 the loan indebtedness of local authorities has nearly doubled, and at March 31, 1926, amounted to £60,194,911, which is equal to £42 15s per head of the population. Some measure of control was deemed necessary, and accordingly i the Local Government Loans Board Act was passed last year, coming into operation on April 1 last. In pursuance of the Act a representative board has been appointed, and has taken up the duty of investigating the loan proposals brought forward by the’ local authorities. It is the function of the board in the first instance to determine whether the work for which a loan is proposed will justify recourse to borrowing. The question of adequate sinking funds has also to be arranged. Generally speaking, the sinking fund should ne fixed at a rate sufficient to pay off the loan within the estimated “life” of the asset created. Finally, the board must take into consideration the capacity of tho ratepayers to meet the additional loan I charge*,

STATE ENTERPRISES. FIRE AND LIFE INSURANCE. It is satisfactory to report that the State Departments run on commercial lines have in the main experienced a successful year in 1926-27. The steady progress of the Government Life Insurance Department was well maintained cjuring the year, and the total business now in force comprises 65,396 policies, assuring £20,218,404, including bonuses. The triennial investigation of the department’s liabilities as at December 31 last resulted in a surplus which allowed reversionary bonuses to be alloted to the extent of £664,400. being the largest division of profits in the history of the department.

The State Fire Insurance office had a most successful year. The income received, £233,545, was a record for the office; and although very much heavier losses were incurred, and tlje rate of bonus rebate was increased from 10 per cent, to 12j per cent., the year’s operations resulted in a profit of £5i,237. The Accident Department showed excellent increases in the premiums and interest received. The surplus for the year was £14,332, as against £3390 for tho previous year. PUBLIC TRUST OFFICE.

I refer next to the Public Trust Office. The value of estates and funds under the administration of this office on March 31 last totalled £41.043,523, a net increase for th© year of £3,034,043. In last 10 years the net increase has been £26,000,000. The net profits for the year were £32,650; and following upon the increase in the rates of interest granted last year on money invested in the Common Fund, and tho reductions in commission and charges, this result is very satisfactory. NATIVE TRUST OFFICE. The operations of the Native Trust Office are on a much smaller scale, and activities during the year were somewhat restricted owing to the dearth of funds, but noverthless a small profit was shown on the year’s working. COAL MINES. The output of coal from the State coal mines for 1926 was 179,147 tons, an increase of 47,982 tons compared with the previous year. The financial accounts disclose a profit for the year. These commercial departments are not run with the idea of amassing large profits, but, with the exception of the State coalmines and the Native Trust Office, whose profits must be used to build up reserves, they are all required to pay income tax in the usual way. POST OFFICE AND RAILWAYS. In addition to the departments mentioned, there are also the’big State services of the Post Office and the Railways. The Post Office closed the year with a small profit, but the Railways Department was not quite so successful, a relatively small loss being shown on the year’s working, ascribed to a decline in passenger receipts resulting from the increase in tho number of private motor cars and tho keen motor bus competition in suburban areas.

UNEMPLOYMENT. WORKS PROGRAMME ACCELERATED. Tho unemployment difficulty is a matter receiving urgent, attention, and, in order to help the situation, State departments, by accelerating their programmes, have absorbed large numbers of additional men. I Local authorities and citizens generally are also taking active steps to assist in coping with the situation. The first Act passed this session was the Local Authorities Empowering (Relief of Unemployment) Extension Act, 1927, which extended the operation of the principal Act passed last session until June 30, 1928. The object of this legislation is to enable local authorities to raise loans for relief works without taking a poll of the ratepayers. Apart from the publicity which is required by the Actto be given to tho proposal to raise any such loan, th© interests of the ratepayers are protected by the fact that all loans must be approved by the Local Government Loans Board in the usual way. To assist local authorities in this matter the Government has since decided to pay a subsidy to local bodies equal to half the expenditure on wages, based on the rates of 9s per day for single men and 12s for married men, provided the labour cost of the relief work constitutes at least 60 per cent, of the total cost of the job and the work is of a capital nature. Expenditure for this purpose up to a total amount of £150,000 is authorised by a section in the Imprest Supply Act, 1927. It is intended to pay these subsidies out of last years surplus, part of which was carried forward expressly for the purpose of meeting such contingencies. In addition to these measures, the Gov ernment has also undertaken to subsidise on a £ for £ basis all voluntary contributions for relief of the unemployed, provided tho money is expended on works which are approved and duly carried oui in accordance with any conditions laid dowi by the Public Works Department.

TAXATION COMMISSIONS. RECOMMENDATIONS REVIEWED. Tho recommendations concerning land and income tax. which were considered by a committee in 1922. and again by a Royal Commission in 1924 arc reviewed as follows by iho Minister:— "Although it is often stated that the reports of these commissions have not been considered or dealt with by th© Government, an examination of the statute books ' will show that most of their recommendations have been adopted. For instance, the 1922 committee recommended that the i maximum rate of income tax should not i exceed 5s in the £. In 1922 the maxi mum income tax was 7s 4d in the £. ] It has since been reduced to 4s 6d in the > £. They recommended that provision be j made for tho carrying forward of losses 3 and the setting off "of loss in one business against profit in another; that interest ’ from debentures bo taxed on the same basis y as other income; and that super tax on land e be abolished. Effect has been given to 3 all these recommendations. c . The committee further recommended that t all Government and public body undero takings be taxed. The purely commercial (1 departments of State are now required to pay income tax, but the principle has not

yet been extended to local body undertakings. A suggestion was made that ’tho possibilities of a sales and turnover tax should be considered in place of some of our present taxation, but such a tax would not be as equitable as . the present tax on income. In any case, such a tax being both on luxuries and necessities, must hit the poor (who have a smaller margin beyond necessary expenditure) more heavily than the rich. Another recommendation was to the effect that land tax should be levied a t a flat rate; but it is considered desirable to retain the graduated rate as being more equitable and discouraging aggregation of land.

The 1924 Commission recommended that data be obtained relative to an important change in the basis of company taxation. This information has now been obtained and examined, and it appears that a complete change would involve a loss of revenue of about £1,000,000 per annum. For fiscal reasons, therefore, apart from other considerations, the proposal cannot bo entertained at present. Our income tax is one of the most liberal in the world in regard to the rate of tax and the exemptions granted for children, life insurance, and other deductions. But the effect of our increases during the war and various subsequent decreases since 1921 has' been to upset seriously the fairness of the graduation. Some incomes are actually paying less now than they did before the war, while other classes pay considerably more than pre-war. This anomaly was pointed out by the Tax Commission ot 1924, and they recommended that it should be remedied. It is obvious -hat before any start can be made towards reducing taxation the scale of income tax should be restored to a proper graduation, otherwise the schedule will become still more full of anomalies. I hope this year to effect some improvement in the graduation with a view to remedying the anomalies mentioned, so that when a reduction is feasible it can be made on an equitable and scientific basis.

THE FINANCIAL POSITION. MINISTER’S SUMMARY. I have now placed before honourable members the position as regards the past year’s operations, and outlined the steps "taken to effect economy together with brief comments in regard to expenditure, debt, and taxation. If I hesitated last year to consider reductions in taxation it will be admitted that the present conditions are still less favourable, and do not permit of reductions in the current year. The Government has already set aside large sums to assist unemployment, which I trust will diminish to a considerable extent as the year advances. It is necessary, however, to make provision to meet a situation that may not take a favourable turn when additional seasonal work becomes available. The estimates I am giving here are based on the position as it appears at present. I have referred to the policy of debt reduction, and I regret, for reasons already given, that very little beyond the statutory appropriations is likely to be available for this important purpose during the current year. I propose to ask for authority to appropriate up to £500,000 for public works should circumstances towards the end of the year permit consideration of any such transfers. The price of local money is inclined to harden; but so long as I can do so I will not assist that movement by raising the rate for our New Zealand issues. When we fixed the amount of our London loan I anticipated that we could rely on our local loan resources to make up the balance of the year’s requirements. But the indications arc that these resources may fall short, so that any assistance from revenue for capital purposes will be of the greatest aid. ESTIMATED REVENUE.

The difficulties of arriving at a close estimate of revenue under present circumstances will, I think, be appreciated by honourable members. The imports are falling off. which means less Customs revenue. Various adverse factors make it probable that land and income tax receipts may also be affected. I estimate the revenue for the year at £24,676,900, as follows: — Customs£7,77s,ooo Beer duty 610,000 Stamp and death duties .. 3.403,100 Postal and Telegraph 3,254,000 Land tax 1.205,000 Income tax 3,425,000 Interest on public moneys .. 640,000 Interest on railway capital liability 2,150,000 Interest on Public Debt Redemption Fund 870,000 Other receipts 1,314,800 £24,676,900 ESTIMATED EXPENDITURE. The estimates of this year's expenditure, as already mentioned, have been

drasticallj’ overhauled by an expert committee of heads of departments. After final revision by Cabinet, I estimate the ordinary expenditure at £24,258,549. being a decrease of £97,410 compared with last year's expenditure. In addition to the expenditure included in the estimates, however, I have also to make provision for other items, such as unemployment and further naval expenditure for Singapore Base, the total of which it is estimated will require about £240,000. ESTIMATED RESULTS. Allowing for the additional items just referred to, I estimate the result of the present year's transactions as follows: — Revenue £24,676,900 Expenditure 24,498.549 Leaving for Supplementary Estimates .. .. £178,351 The balance thus leaves very little to work upon, and a strict watch will require to be kept on all fresh claims for expenditure if we are to keep our finances on a satisfactory basis. The effects of the revision of the tariff and adjustment of the income tax schedule are problematical, and will not be known until the end of the year. The general indications are that the Dominion is gradually freeing itself from temporary difficulties and steadily working towards more favourable conditions.

War pensions and debt charges Ordinary debt charges 5,418,000 . 5,593,000 p.c. 22.2 23.0 Post and Telegraph working expenses Pensions and superannua- . 2,343,000 9.6 tion funds ... . 1,603,000 6.6 Education 3,095,000 12.7 Health and hospitals 1,137,000 4.7 Defence 1,020.000 4.2 Law and order 597,000 2.4 Railways — Subsidy on branch lines, etc 429,000 1.8 All other purposes 3,121,000 12.8 - » ——. — -—— £24,356,001 ) 100 0