MR DOWNIE STEWART

Otago Witness, Issue 3860, 6 March 1928, Page 14

MR DOWNIE STEWART

ADDRESS TO CONSTITUENTS. TAXATION AND UNEMPLOYMENT. COST OF ADMINISTRATION. Tn the Early Settlers’ Hall on Wednesday, February 29., Mr W. Downie.Stewart '(Minister of Finance and Customs) addressed a meeting of his constituents in Dunedin West. The attendance filled about three parts of the hall. The chair was occupied by Mr V. . B. Taverner (Mayor of Dunedin). In his opening remarks, the Mayor said Mr Stewart was there to give a presessional address. Personally, and no doubt speaking for many of his audience, he liked pre-sessional addresses, because it permitted members to represent more adequately the ideals and views of his party than was sometimes the case in the heat of an election campaign. “On behalf of the citizens generally,” said the Mayor, *’ I am pleased to see Mr Stewart on this occasion, well and able to undertake his duties.—(Applause.) It is always a pleasure to listen to a Minister of the Crown. It is a pleasure to listen to Mr Stewart at any time; we have pleasant recollections of his former speeches, and I have no doubt to-night’s audience will be delighted to listen to him.”—(Applause.) Mr W. Downie Stewart, who was received with warm applause, thanked the Mayor for his friendly introduction and the electors of Dunedin West for turning out in such large numbers to hear a speech, which, on the whole, it was extremely difficult to make interesting, consisting as it did principally of finance and similar problems. Before proceeding to deal with the specific questions’ he had undertaken to speak on, he would refer to one or two LOCAL to which his attention had been drawn. He had seen in the papers, and he had heard from numbers of citizens, there was a feeling in Dunedin that the interests of the city were being overlooked and neglected. If that charge were true he must accept a large share of the blame, because naturally a member of the Government ought to have opportunities of preventing injustices being done. It was asked, Were Dunedin and Otago and the South Island receiving fair treatment at the hands of the Government? He

would not go into the details of the question at that time. The chief complaint was that, so far as tourists were con- - eerned, there was neglect on the part of the Tourist Department of the interests of the South Island and of Otago. This was a statement it was difficult to disprove, but he had made inquiries as to the real position. The shortest answer he could make was that the chief motor tourist agencies of the South Island— Wrigley’s tourist agency and the Newman service on the West Coast —said they had no complaint to make, and that so far as they could see the tourist traffic was doing justice to both islands. That statement ought to carry weight, coming from those directly interested in the tourist traffic. Last week comment was made on a statement credited to Mr Alanson, New Zealand representative in Melbourne, and it was alleged that he was advocating purely the interests of the North Island. But if one looked up the North Island papers it would be seen that Mr Alanson had specifically denied such a thing and that the Auckland papers had taken out of his peech only the part that suited their own pin poses. As a matter of fact, i . 7. N an f on v -’ ae a keen advocate of the .South Island traffic. It was also known that the Minister in charge of Tourist Resorts was a South Island man and he (Air Stewart) was aware that the Minister - "/ ls P ar tieularly keen on the development 3. South Island resources, and was at present building an extensive accommodation house to replace the one burnt down at Milford Sound. It was also said that sufficient distinguished visitors did not come to Dunedin. So far as his memory went, all the distinguished visitors it had been possible to send to Dunedin had come here. Of course, many distinguished people who came to New Zealand did not go near the Government or the Tourist Department or the Publicity Department, and it was only when these people came to the Government that the 'Government could bring pressure to bear on them to come south. It had been said that he (Air Stewart) did not get Dr Hill, superintendent of the Kew Gardens, to come to Dunedin. As a matter of fact, he did not know that Dr Hill was about to visit the Dominion. He had since been told that Dr Hill, who was in Australia, decided to come over to New Zealand to see an old friend. Dr Cockayne, in Wellington, and when it came under his notice that Dr Hill was in New Zealand he at once arranged with him to visit Dunedin. The Government could not be held responsible for visitors unless they were the guests of the Government and over whose itinerary it had some control. It was also asked, Had Dunedin received a fair fehare of the public expenditure? He would not detain the audience by discussing the question, .but if the Otago Expansion League, the Chamber of Commerce, or any' - 'other body cared to meet him he thought he could satisfy them, by facts and figures, that there was no foundation for such a statement. The late Air Massey’ used to say that he (Air Stewart) was determined to have the whole of Dunedin rebuilt at the Government expense. — (Laughter.) There were other questions, such as the allocation of the petrol tax. There was a complete answer to the suggestion that an injustice was being done to the South Island in that respect, but he might have- an opportunity of meeting Air Ansell and other members Of the Motor Association, unless they waited until next week, when ‘ the Minister in charge of the motor regulations would be in Dunedin. There was no Minister in the South Island who had not been able to satisfy his constituents that the non-allocation of the petrol tax was the right thing, and if the opportunity were given he believed he could - Satisfy the electors of Dunedin West in

that o.nnection. The allegation that Dunedin v as being overlooked by the Government periodically cropped up. Fast Governments had been taken to task in the same way, and on one occasion the representatives of the city were met at the Railway Station and marched through the streets to the tune of “ The Rogues’ March” —(laughter)—on the ground that they had not received sufficient money from, the Government for Dunedin. .So far as his opportunities went, he bad done his best to protect the interests of Otago and the South Island to see that they received justice aj the.hands of the central Government. — (Applause.) Proceeding with his remarks, Air Stewart said: —

At the 1925 elections the Government was returned to power by an overwhelming majority. It not only lost no seat of any sitting member, but gained 18 additional seats. It placed before the electors a very extensive programme of reform, and most of that programme has been placed on the Statute Books. But, although it has carried out this legislative programme, and although it has administered the affairs of the Dominion in such a way that the credit of New Zealand stands high in the financial world, it is not to be denied that the Government has incurred some unpopularity in the country as a whole.

It is well known that the political popularity of a Government rises and falls in close sympathy with the economic prosperity or adversity of the country. However good its legislation and administration may be, bad times inevitably reflect themselves in the minds of the electors, and the misfortunes of individuals or of classes, which are affected by world-wide conditions, are laid at the door of the Government. THE OPPOSITION PARTIES. But there is a curious feature about political opinion in New Zealand at the present time. The criticism which the Government has incurred is not apparently accompanied by a rise in the popularity of any other political party. Usually public opinion acts in see-saw fashion, and. as one paity loses some popularity, another party gains. But if we examine New Zealand conditions, it is. in my opinion, very difficult to see how the Nationalist Party can gain ground while it changes its leader, changes its name, and ebaflges its -programme every few months. On the other hand, the Labour Party seems to have lost all its ideals and early enthusiasm and become a mere party of opportunism, continually recasting its platform in its endeavour to capture votes at any cost. I well remember that its early leaders were filled with apostolic fervour believing that the nationalisation of land and industry would solve the problem of poverty and all the other ills of society. But the actual experience of Labour rule in State after State in Australia Las shown clearly that it can neither bring about a more equal distribution of wealth nor cure unemployment or poverty. Indeed, some of these problems are far more acute in the Labour States of Australia than in New Zealand. Moreover, experience shows that nationalised industries too often produce only deficits, which mean adding to the burdens of the taxpayer. The profits which industry earned in private hands tend to disappear under the heavy hand of the State.* Not only so, but the worker finds that um’er State ownership he has merely changed his boss, but not materially improved his status or conditions of work, whil. the capitalist who has been bought out with Gov rnment bonds enjoys a secure and guaranteed income without the risk and anxiety of managing private enterprise. It is not to be wondered at, then, that the Labour 1 movement has been disillusioned. It finds that its idol of nationalisation has feet of clay, and that it is necessary to discard its most treasured dreams quietly if it desires to make political headway and if a creeping paralysis is not to spread over all enterprise and development. I Hence the constant annual -revision of its land policy, the conflicting views of its members on national defence, its hesitancy on tariff questions, and its deplorable and successful attempt, for political reasons, to double our difficulties in Samoa. I hear from time to time of people who are inclined to try the Labour Party by way of a change. But unless it be true that each country must buy . its political experience nt first hand I find it difficult to believe that the electors of New Zealand will not profit by the lessons of Labour profligacy and extravagance with consequent high taxation and low credit where Labour rules.

Nevertheless the task of government at the present time is one of great and increasing difficulty. The manufacturers for the most part want high protection. The farmers for the most part want freetrade. The critics want loan expenditure reduced. The public wants millions more borrowed for housing advances and public works. The business men say the Government is too socialistic—the workers say the Government is not socialistic enough. The farmers want the Arbitration Court abolished. The manufacturers want its powers limited. The workers want its powers increased. The North Island complains of the South Island wheat duties. The South Island complains that its interests are subordinated to those of the North Island in the matter of tourists. trade, and public expenditure. Amid all these contending voices on these, and many other questions, such as th e licensing question, Samoa, and unemployment, the task of the Government is n .°t aas s’’ And yet it is surcl.v of some significance that almost every New Zealander who goes abroad returns to declare that this country is the best governed in the world—that its credit stands high m the financial world, and that on the whole he would rather live here than anywhere else.

During the last few years the farming industry has been depressed not only in New Zealand, but throughout the world In a country like New Zealand, so largely devoted to agricultural and pastoral pursuits, any fall in the value of our primary products quickly reacts on the rest of the community and produces financial stringency, unemployment and slackness in trade. Although during the present season prices have improved for woo], meat and dairy produce, the farmers are still in difficulties in New Zealand as elsewhere, and the effect of this is felt throughout the whole community. UNEMPLOYMENT. Unemployment has been particularly acute during the last two winters and has even

persisted through the summer months, notwithstanding the far-reaching efforts of the Government and the local bodies to cope with it. Among ether steps taken by the Government to absorb the unemployed were, first, practically to suspend its inanition policy in order that an influx of immigrants should not be competing in a depressed labour market; secondly, to maintain and extend its public works and road policy so as to absorb as many men as possible.

A Voice: At starvation wages Mr Stewart: If wages were raised above what they are, the unemployed from Australia would come here, which would be an additional difficulty to deal with. Then, in the third place, the Government authorised by legislation local bodies to raise loans for unemployment, and, fourthly, to subsidise moneys expended by local bodies in order to assist them in coping with the pro Diem. The Dominion is at present employing far more men on public works than our norma] programme should require, and, in my view it is impossible to maintain the present high figure for any length of time without creating further difficulties. About 10 years ago we were employing on the public works about 3000 men, and this number has gradually risen year by year until last year we employed, at the ijcak. over. 12,000. This numLer is abnormally large. It is well known that unemployment relief works are not economic and do not yield full value for the money spent. Be cause of this fact we have tried as far as possible to meet the cost of unemployment out ot revenue rather than out of loan money. But it must be remembered that unemployment is a still more serious problem in Australia, and if the New Zealand Government agrees to provide employment for all who are unemployed at the present rate of wages it is only a question of time before we will have a large influx of unemployed from Australia seeking work in New Zealand. It is also quite clear that the local bodies cannot go on raisin'- large loans each year to cope with unemployment.

It is easy to say that the Government has plenty of railway, irrigation, and drainage works and afforestation schemes that need development, and therefore that the Government can absorb all the unemployed by pushing on with these schemes. It is true that. as. the unemployed have to be maintained, in any case, they may as well be employed in useful work. But these great public works involve great public loans. Public loans involve a large and growing interest bill. That interest bill must be met by the tax-payer. The Government is trustee for the taxpayer to see that he gets value for the money spent. It is also the experience, of all Gov ernments that so long as relief works are provided to an unlimited extent it is a matter of extreme difficulty to get the unemployed to seek private employment There are other remedies frequently suggested ; first, that the Government should carry out a large policy of closer land settlement. That is a sound policy in nor mal times, but at the present time om main effort is directed towards enabling the men who are at present on the land to stay there. In earlier days, when large properties were purchased and cut up and roaded, land values were steadily rising. But at the present juncture the process of deflation of land values is still going on, and even where we have purchased and cut up land at less than the Government valuation it has been difficult to induce settlers with sufficient capital to take up blocks and employ labour. Another remedy that is frequently suggested is that we should afford much higher protection to secondary industries by means of a high tariff. But in my view a high tariff is no remedy for unemployment, as can be seen in Australia and America at the present time, where unemployment is far more rampant than in New Zealand. Other critics say that if the Government reduced taxation this would stimulate industry and provide enterprise for unemployment. With this principle I agree, but reduction in taxation does not produce immediate results, and the problem of unemployment is immediate and urgent Moreover, unemployment relief should be paid for as far as possible out of revenue, and, if the Government is to cope with unemployment and pay for it out of revenue, it is difficult at the same time to give away revenue by reduction in taxation. Critics continually demand that the Government should evolve some complete scheme which will at all times absorb all who want work. They say the present methods are haphazard and piecemeal and insufficient. But our experience and the experience of all other countries shows that unless relief works are kept down, to a minimum, and the wages kept at a standard less attractive than normal wages in private employment, men leave private work to come on public works, and their numbers tend to grow and become permanent. Those who say a change of Government will solve the problem have to explain why unemployment is far more chronic and on a much larger scale under the Labour Governments in Australia than under the Reform Government in New Zealand.

PUBLIC DEBT. Speaking last year in Feilding, I dealt fully with the position of the public debt and in particular with the popular fallacy which was then being iterated and reiterated in many quarters with regard to the balance of trade, I argued then that it was quite erroneous to draw any deduction as to whether the Dominion was paving its wav or not, from the relative position of the exports and the imports without making allowance for- the fact that our loans raised abroad were coming in in the form of imports. The view I put forward then was generally approved by the press of the Dominion, and since then I have heard little of the question. I propose on this occasion to deal with three, main questions: First, whether we are borrowing too much; secondly, whether taxation is unduly burdensome in New Zealand; and, thirdly, whether there is extravagance in Government administration. Before dealing directly with the question of whether we are borrowing too much annually, let me correct one miseoneeptio. which I often see with reference to our public debt. Critics turn to our Official Year Book and say the gross public debt of Australia is £167 ICs 8d per head, and of New Zealand £l7O 19s 5d per he„d. The inference they draw from this is natural, namely, that New Zealand is more heavily indebted than i Australia. But any such comparison as this is entirely erroneous unless an ex-

amination is made of the nature of the public debt, and how far-it is dead weight debt -and how far there are assets held against it. For example, New Zealand’s debt includes over £30,000,000 raised for the purposes of State advances, which has no counterpart in the total fer Australia, where Savings Bank funds and other resources are used for advances. This item of over £30,000,000 is a genuine investment, which not only pays interest and sinking fund, but has earned a profit at

present amounting to nearly £1,500,000. This profit is arrived at after allowing for all losses on realisation and for income tax and management expenses, including the superannuation subsidy to its own employees. Since the commencement of operations in the year 1895 the total losses on realisation were £54,000, being a loss of 0.095 percent., or Is lid per £IOO of the total sum advanced on mortgage. When it is remembered that there has been advanced a total of £56,200,000

since the inception of the scheme, £22,000,000 of which has been repaid, it will be seen that this is a very remarkable record. In fact, this one item of over £30,000,000 is not only not a burden on the taxpayer, but it is a source of profit. Then, again, we have over £18,000,000 of investments, including reserve funds, Bank of New Zealand shares, and other items, the chief of which is the accumulated surplus in the Public Debt Redemption Fund of over £13,500,000. lam not speaking of railways, telegraphs, and other public works, which amount to over £72,000,000, because critics say. with some justice, that the value of these must be discounted owing to the growing competition of motor traffic, etc. My point is that where we have actual investments of many millions, such as the State advances - and other items which have no counterpart in Australia, it is fallacious and misleading to compare gross public debt without any examination of whether these debts are a burden on the taxpayer or not. ARE WE BORROWING TOO MUCH? I am now coming to the question of whether the Government is borrowing too much. I readily agree that our annual borrowing should be reduced, and that is our main endeavour at the present time. But no heavy or immediate reduction can be made by a stroke of the pen. It must be a gradual process for several reasons. In the first place, there are large pub. works half completed, such as hydroelectric schemes, railway workshop improvements, irrigation works, and so on, and to stop any of these and leave them half completed would be to do what no business man in private enterprise would do. In the second place, if I call upon the Public Works Department to stop suddenly any of its large construction works it must immediately pay oil hundreds of hands at a time when the labour market Cannot absorb them, and I would immediately be called upon to find money to cope with the increased unemployment. In the third place, as I pointed out last year, it is the established policy of New Zealand that the State should own the hydro-electric schemes, railways, and other public works, and it is impossible to develop or complete these without large expenditure of loan moneys. I have frequently said that if Parliament decided that the public no longer wished these undertakings to be owned by the State, on behalf of the community as a whole, it would be an easy matter to stop borrowing. Fourthly, it must be remembered also that we fell behind in out public works during the war, and we have been compelled to make up some of the leeway since. The policy of tapering off in borrowing is often jeered at as the catchword of every Government. But what w e are aiming at is, first, to borrow each year only the minimum amount necessary io carry on the heavy programme of public works we have in hand; secondly, to pay off as much as possible each year of the deadweight war debt, and thereby year by year lessen the annual increase in the public debt. The effect of this policy is shown in the fact that, whereas in 1925-26 the public debt increased by £11.000,000, in 1926-27 it increased by under £7.000,000. For 1927-28 I hope to show that it will increased by only £6,000,000. 3 hereafter, if circumstances prove favourable, each year the net increase in borrowing should fall till we ultimately reach the point where the amount of war debt or other debt paid off will equal the new money borrowed for public works. If any of my critics cam show iis a better method of dealin" with the situation without leaving lar"e schemes half finished and without intensifying unemployment or abandoning public ownership of natural monopolies, I would nn. to - * inow w ‘ la t they propose. The increase in the debt for ordinary pur poses, by which is meant public works' land settlement, etc., mav be analysed as fol lo ws: —

ISO 1-1914 1914-1920 1920-1927 (10 years). (G years). (7 years). _ £ £ £ land settlement 5,000,000 3,225,000 550 000 Loans to local bodies 1,327,000 — — Defence (mostly naval) 1,830,0uU 50,000 Public works ... 1R,014,000 9.843,000 35,500,000 3,099,000 1,991,00-0 9U7.000 Totals 27,320,000 15.109.000 3G.957.000 Yearly average 2,730,000 2,520,000 5,280,000 Adjusted approx. to pre-war values 2,730,030 1,700,000 3,500,000 Per head of average mean population £2 14 0 £l9 0 £2 12 0 It will be noticed that,'whereas in 19041914 a large part, nearly 40 per cent, of the borrowed capital, was devoted to other objects, the loan money during the last period was concentrated on public works. Further, it will be seen that when reduced to a comparable basis the incren r n the annual borrowing for these purposes is not in excess of the increase in population. This disposes of the contention that the Government has been borrowing at a rate greatly in excess of that of pre war times, but that is not the end of the matter. As I have already pointed out, we are at paying for the war, and we have less margin to cover the cost y®f capital expenditure that is financially unproductive. In other words, the country is not so well off as it was. and we must, exercise greater prudence.

The expenditure on publie works during the periods I am considering was as fol lows: — 1914-1920 1920-1927 (10 years.' (6 years). (7 years). £ £ £ Railways 12,735,000 5,126,000 15,872,000 Telegraphs and telephones ... 1,G1G,000 1,403,000 4,593,000 Hydro-electric supply — — 5,400,000 Roads and high 2 ways 3,597,000 1,009,000 5,409,000 Buildings (including schools ... 2,782,000 1,939,000 5,171,000 Other 2,001,000 1,741,000 6,633,000 Totals 32,734,000 12,118,000 43,078,000 At apnrox. prewar values ... 22,734,000 8,000,000 28,500,000 Yearly average at pre-war values 2,270,000 1,330,000 4,070,000 It will be seen that, compared with preWar, our average yearly expenditure on public works has nominally nearly trebled' and actually about doubled. The average expenditure of loan monqy has more than doubled, for, of the £22.700,000 spent in the 10 years ended 1914, £6,200,000, or

nearly 30 per cent, of the money, came from the surpluses of the Consolidated Fund. During the war period surpluses were held, and only £350,000 was applied to public works, and in the post-war period 1920-1927, £4,250,000 was so applied. In the latter period, of course, a large part of the surplus revenue has been applied to debt reduction, a development largely arising out of war and the need for making an effort to get rid of some of our dead-weight debt. This partial diversion of surplus revenues means that a greater proportion of our capital expenditure comes from loan moneys, and this is an added reason for care in such expenditure.

In considering the principal items of loan expenditure during the period 19201927, allowance must be made for the fact that in the first year or two it was necessary to make up some of the leeway lost during the. war-time restrictioi of operations. Nevertheless, the economic balance of the Dominion will be upset if too many men are employed for any length of time o.i capital works. In other words, it is not economically sound for more than a certain proportion of the population to be employed out of borrowed money. The annual charges on the borrowed capital have to be paid out of the production of the Dominion, either directly, in the form of payment for services rendered, or indirectly through taxation. This being so. capital expenditure is clearly not economically sound unless it results in increased production. IS TAXATION HIGH? Secondly : Is New Zealand heavily taxed in comparison with other countries? Critics in the press persistently allege that New Zealand is one of the most highly taxed countries in the world, and I saw an article recently purporting to show that only Great Britain and the North of Ireland had a higher burden of taxation per head. The Canterbury Chamber of Commerce, in a recent economic bulletin, quoted an elaborate scries of tables to show the heavy growth of taxation in New Zealand. But to say that taxation in New Zealand is £l2 5s 7d per head is no indication of whether taxation is high in New Zealand or not. The real burden of taxation can only be measured by the actual rates of taxation and not by the aggregate yield of taxation divided by the population. A few illust: litmus will make this abundantly clear. The Year Book shows that in the last ten years the Customs revenue rose from £5,500,000 to over £9,000,000. But it also shows that in the same period the value of imports rose from about £25,000,000 to £49,000,CC0, i.e., in a far greater rafo than the population. This does not mean, however, that Customs ' duties have been trebled. We know, as a matter of fact, that the actual rates of taxation have bee.i reduced. The Customs revenue goes up because the imports have risen. These imports have risen their because the purchasing power of the people has risen or they have become more extravagant. But if tho critics, who base their attack on the principle of the rate per head of taxation and rely on the increased revenue from Customs tariff are correct, the easiest way to show a lower rate of taxation per head in New Zealand would be to double the rates of duty under tho Customs tariff and thereby shorten up tiie imports.

So far from the high revenue per head from Customs being an evidence of increasing burdens it is only an evidence of increased wealth and spending power on the part of the public. If, therefore, we wish to see whether the people of New Zealand are highly taxed through the Customs the only sound way is to compare the actual rates of duty imposed on articles imported into New Zealand with the actual rates of duty charged on articles imported into, say, Australia. We know, in fact, that our - rates of duty are substantially lower in New Zealand, and yet the yield per head of population is equal to, if not greater than, that in Australia. It certainly seems a paradox to allege that under these circumstances Customs taxation is high in New Zealand, whereas, as tariffs go, New Zealand has a low tariff. Nevertheless, economists and others base their charge that New Zealand is heavily taxed upon the fact that imports are high, and therefore the yield per head of the tax is high, although the actual rates of duty are low. I have dealt with Customs revenue because it makes up over 50 per cent, of the tax revenue. But there are other items that are incorporated in order to arrive at the taxation per head in New Zealand, such as land tax, income tax. death duties, totalisator taxes, and other taxes. Taking each of these in turn, how can it be argued that the land tax in New Zealand is high when out of about 80,000 farmers over 55,000 .pay no land tax at all. nor do they pay income tax. If the land tax is high it all falls on the shoulders of a very limited number of large land owners. There, it may be high, but even this is in dispute, and if it is high it was apparently made so to prevent aggregation of land. If, then, the Customs rates of taxation are low and the. land tax is so framed that* over two-thirds of the farmers escape payment of it, we have not yet found the grievous burden of taxation that is continually being denounced.

This leads me to speak of the income tax. Here, again, a comparison of the rates of taxation oh individuals in New Zealand with those 6f other countries demonstrates beyond doubt that the individual income taxpayer in New Zealand gets off much more lightly than in any State in Australia, and much more lightly than the English taxpayer. One example will suffice.' A man with £6OO a year in .New Zealand, and no children, would pay £lO 18s, as against:

£2O 9s 2d in New South Wales, £lB 7s 6d in Victoria, £25 9s 4d in Queensland, £22 Ils 10d in South Australia, and £52 8s 8d in England. That is to say, he pays from twice to three times as much in any Australian State, and three times as much in Great Britain. Anyone who takes the trouble to compare income tax in New Zealand with that of other countries will see how extremely fortunate the New Zealand taxpayer is. The'real fact is that an examination of the rates of taxation, as apart from the yield of the tax, whether it be Customs, land tax, or income tax, will show that taxation in New Zealand is low as compared with other countries. There are two exceptions I make to this:—The first is death duties, which I think are high, but which form only a small part

of the. total revenue—less than 10 per cent. The other and very serious burden of taxation in many districts is that ot the local rates. These are often lumped together with the general State taxation to show the burden of the New Zealand taxpayer. They undoubtedly form part of his burden, but they are not imposed at the hands of the Government. But so onerous have the local, special, and general rates become in some districts that farmers are in danger of being called upon to pay by way of rates more than the full economic rent of the land. One of the most serious problems the Government has to face is how to help these farmers where the special rates are so burdensome that it is impossible for them to carry on. It is of no assistance for the Government to write down the value of their land, as the special rates must be made to yield enough to pay the interest and sinking funds on the loans, whatever the land may be valued at. INCOME TAX REVISION. While I am dealing with income tax, let me refer to the revision of the income tax schedules last year. This revision provoked a storm of criticism. But I have not met any fair-minded critic who, when the matter is fully explained, docs not agree that the proper thing was done. The fact is that when revenue was needed during the war the income tax was raised from time to time, but not on any uniform plan. When, after the war, reductions were made, these reductions took the form of a general percentage reduction irrespective of how much each class had been raised when increases were made. the result was that sonic classes of taxpayers were actually paying a less rate of income tax than they did before the war. This meant that those classes of taxpayers were making no contribution whatever towards the cost of the war, whereas other classes were paying up to 250 per cent, more than prewar. Such a position was obviously unjust and inequitable, and sooner or later some Government had to straighten out the schedule and see that everyone paid on a fair basis in proportion to the size of his income. ’I he fact is that cur income tax scale had been so ragged and the various exemptions so far reaching that the whole burden of income tax was gradually concentrating itself on a few classes of taxpayers Any attempt to reduce income tax on the existing schedules would have meant still further anomalies, and where the great mass of the income is. no commensurate taxation would have been collected at all. The Tax Department estimated that the extra revenue might amount to £150.000, but to make clear that the main object of tho revision was to put taxation on a fair basis, and not to - gain' additional revenue, in the revision of the Customs tariff we estimated for reductions which involved an immediate loss of revenue of more than wc would gain by the income tax revision and which may result jn a loss cf revenue of more than twice asVnuch when the fil'd effect of the- tariff revision makes itself felt.

It is quite true that the people who got I the reduction in Customs duties may not coincide exactly with those who paid more income tax. But I refuse to believe that any taxpayer would willingly escape paying his share of the war costs. Some papers have declared that the effect of the revision is to double and treble the income tax of certain taxpayers. But that statement is grossly exaggerated, and the increase in the rate in no case amounted to anything like double what was paid before. In most cases where a taxpayer shows a n>n'W incr""s" in tax. it will be found that some of the exemptions, particularly ,„i iu.iu.eu, Have disappeared. I am told in some quarters that the rt . vision of the income tax will mean my political crucifixion. In ancient days Queen Esther was told that if she approached the King without being invited to touch his sceptre, her life was in jeopardy, and she replied, “If I perish, I perish,” So 1, in these modern days, who know the danger of touching the taxpayer’s pocket, can only reply, “If I perish, I, perish.” But I haxe placed the income tax schedules on a fair and equitable basis so that future Ministers of Finance can reduce o.- raise the income fax as circumstances warrant on a basis more fair to all classes than was previously the case. It is true - that the company tax may discourage enterprise where the maximum tax absorbs 4s 6d in the £. But many of those who are most insistent on the need for changing over to individual taxation of shareholders are. the sama people who denounced with unrestrained violenc" the modest revision of the income tax made last year. What, then, would these critics say if the company tax is done away with and each taxpayer, whether a company shareholder or not, has to submit to double his present tax up to at least incomes of £2OOO a year? Such a proposal is politically impossible and would involve the immediate downfall of any government that proposed it. Even if a halfway change over was made, as one commissioner suggested, the same result would ensue. As a matter of fact, we did afford valuable relief to companies last year by allowing the debenture tax to be collected from individuals direct instead of from , the companies. I have evidence that this change has been much appreciated. It may be possible at a later date to extend the same rule to future issues of preferential shares, which would still further assist the companies. But the change over to , the individual tax must be a gradual one. whoever attempts it. I was astounded lately to see one critic declare that there had been no reduction in taxation since the war. The fact is that between 1922 and 1926 we have made reductions in taxation which amount to over £4,000.000 annually. This includes reductions in land and income tax, amusement tax, Customs duties, and postal reductions. At the same time, between 1922 and 1927, we reduced the war debt by no less than £8,280,000. But on the general question of taxation I am satisfied that no fair critic can come to any other conclusion but that taxation in New Zealand is light. In- this conclusion I am supported by an eminent economist, Dr E. P. Neale, the secretary of the Auckland Chamber of Commerce, who says that the statement that New Zealand is one of the most heavily taxed countries in the world cannot be substantiated, and his analysis of the situation leads to much the same conclusions as my own. COST OF GOVERNMENT. Thirdly, is the cost of government in New Zealand extravagant? This charge is freely made in a general way by critics

who rarely condescend to quote any definite items of expenditure, although the information is fully recorded in the annual Estimates presented to Parliament. However, iir-a recent article. Sir Robert Stout quoted actual figures on the cost of government in some departments, and in this respect his criticise is a welcome improvement. Moreover, Sir Robert's long experience as an administrator leads him to recognise that there is often good reason for what may appear heavy increases in expenditure, and he is prepared to make allowance for various factors which may warrant the increase in expenditure, I propose, therefore, to offer some reply to the figures quoted by him. Dealing with the High Commissioner's Office, Sir Robert points out that salaries of clerks and messengers rose from £6259 in J 914 to £12,573 in 1919-20 and to £25,287 in 1927 —“so that notwithstanding the cessation of the war the cost of the clerks and messengers was more than four times what it was in 1914-15 and double of that at the conclusion of the war.” These figures certainly show a large increase, but it ought to be pointed out that the vast amount of work arising out of the war did not cease when the war ceased. In the first place, when the military stalls were demobilised the High Commissioner's Office had heavy extra burdens imposed upon it in connection with war graves, soldiers’ pensions and gratuites. and a multiplicity of inquiries on matters arising out of the war. Secondly, in addition to this, the work of the League of Nations has imposed new duties on the High Commissioner's Office, and the development of the New Zealand Navy involves a great deal of detail work concerning pay and allotment of crews, etc. Thirdly, immigration has also led to increases in staff. This activity had ceased during the war, and it was not only revived on a larger scale after the war, but much more care was taken in the selection of suitable immigrants and the general organisation had to be much more elaborate. I'ourthly, organised publicity in Britain was also a practically new post-war ac tivity, while the development of Imperial affairs provided a great deal of additional work. Fifthly, the trade and produce section had to be entirely remodelled after tho war to meet the changed conditions apply hig to our export trade and marketing of meat, dairy produce, fruit, and honey, through the newly established Control Boards. The Stores Board set up in New Zealand to systematise the purchases of all Government Departments involved further staff to manage the London end, where a large and increasing volume of material had to be handled. To sum up, the increase of £12.000 in salaries of clerks and messengers between 1919 and 1327 is made up as follows:— Immigration section £5.000 Trade and produce 3,500 Publicity 322 Finance — General W Total £l2,oo'o' A special examination of the work of the High Commissioner's Office was made in IS2O bv Colonel Campbell, who was then Secetarv to the Treasury, and is now Auditor ’ and' Controller-general, and Mr I). Robertson Public Service Commissioner. In the course of their report they say:- “ Our examination of the office has shown us that the work of the department during the war must have been very heavy, and while this is now much less it docs not--.noear that the department will be clear of work arising out of the war for a long time. At the same time other work is developing rapidly.” Dealing with the same point, Sir James Allen in one of his reports as High Commissioner, stated: “The increase has been more than collateral with the "i-owth of the Dominion due to the constant succession and ever-increasing volume of important work entrusted the department by all branches of the Government service and a greater shaie taken by the Dominion since the war in Empire and international affairs. Only last year a special investigation of the staff and its duties by the Secretary of the Treasury. Mr Hayes, who was then in London, reached the same conclusion. Re"arding the Treasury, which was also criticised by Sir Robert Stout much the same considerations apply to this as to the High Commissioner s Office. During recent years a great deal of extra work has been involved in establishing closer control over expenditure and systematising the trading departments’ accounts on a business basis, but in addition to this the large increase in the public debt owing to the war and Public Works expenditure which was postponed during the war has more than doubled the work of the Loan Department in this office. In fact, the local domiciling of a large proportion of the debt practically established a new branch for this business. Sir Robert Stout’s query whether Treasury work is doubled can be answered in the affirmative There is one general consideration, however, which applies to all departments and which must be taken into account when comparisons of pre-war and postwar expenditure are made, i.e., the depreciation in the value of the £. The 1926-27 figures must be reduced by at least one-third for comparative purposes, so that to compare the pre-war costs of clerks and messengers in the High Commissioner’s Office at £6269 in 1914 with £25,287 in 1927, the latter figure should be reduced to about £16,800. So, in the Treasury appropriations for salaries the figure of £12,374 in 1914-15 should not be compared with £26.789 in 1927-28, because if we allow for the fall in the value of money the latter figure should read £17.860.

Expenditure on education has also been criticised.- But it is unfair to regard increasing cost without allowing for increasing expansion, particularly in Secondary .and university education, quite apart from the normal increase in primary education. Important functions have also been undertaken which were practically non-existent 20 years ago, such as technical education, child welfare, dental and medical clinics, and physical culture. All these developments, may be more liberal and generous than the Dominion can afford, but they have been insistenty demanded by -the electors, and it appears, as if the department furnishes economically the service required b v the people; What really concerns the peonle. is the net charges on the taxpayer. I had the expenditure analysed from this point of

view in the 1926 Budget, and reference to that publication will show that, apart from the direct burdens arising out of the war, there has practically been no real increase in the total per capita charge on the taxpayer sin-e 1913-14, even though the expenditure on pensions, health, and hospitals an. / education has increased considerably.

II we examine the annual appropriations for 1914-15 with those for 1926-27 and deduct from each the working expenses of both the railways and the post office, as these ate more than covered by their earnings and are not a charge oil the taxpayer as such, and if, in addition to this, we reduce the appropriations for 1926-27 by one-third to allow for the fall in the value of money, and adjust certain alterations in the accounting system, it will be found that the expenditure per head of mean population was £3 5s 6d in 1914-15 as against £3 7s 3d in 1926-27, which is a very slight increase over such a long period. CONCLUSION. In closing. Air Stewart said he was aware that the Customs revision last year was a disappointment to many industrialists and manufacturers, and it was his duty to balance, politically' and ecouomi* cally, the rival claims placed before him. It he could give assistance to an industry that, in bis view, was entitled to encouragement he did his best to give help. It was urged by workers that a high tariff would do away with unemployment and that secondary industries would be benefited. But in Australia, where the tariff was higher than in New Zealand, the Tariff Board had reported time and again that every increase in the tariff had been followed by an increase in wages, and before the board knew where it was the increases were up to the tariff wall, and imports were flowing in as freely as ever. Unemployment was- worse in Australia than in New Zealand, and the board had said that some of the industries were on the verge of disaster and that it could not provide any remedy if the tariff wall was to be increased year by year. For himself, he was satisfied there'was something that—required investigation in connection with our industrial organisations. Cases had been brought to his notice of manufacturers who, unable to get tariff assistance, had found that by reorganising their methods and arranging with their workers on a piece-work basis they had been able to pay 50 per cent, more wages, to increase their production, and to compete with the imported article. There was something that required examination when it could be shown that New Zealand manufacturers, with the raw material at their doors, found difficulty in competing with manufacturers from the other side of the world who had to import the raw material from New Zealand, export the finished product, pay a tariff ■ here, and yet embarrass the local manu- ; facturer. This was a matter that the ! important conference, to be held next I month, might look into. The Government, he added, had attempted to do justice i to all classes of the community, and at the end of the year the electors of the Dominion would have an opportunity of passing judgment on its work. — (Applause.) VOTE OF THANKS AND CONFIDENCE. After a number of questions had been answered, Mr T. Scott moved—“ That this meeting heartily thanks Air Downie Stewart for his able and instructive address, and affirms continued confidence in him as the representative of Dunedin West.” Air P. L. Ritchie seconded the motion. Air J. Gilchrist moved an amendment, the words of which were not heard at the reporters' table. The Chairman said the amendment was a direct negative, and those who supported it could vote against the motion. The motion was put to the meeting and carried with a few dissentients. The Chairman announced that the motion had been carried almost unanimously. Air Downie Stewart thanked the meeting for the motion, and said he would at all times attend to communications sent to him bearing on matters affecting the electorate. A y.ote of thanks was accorded the Mayor for presiding.