THE PUBLIC FINANCES

Otago Witness, Issue 3869, 8 May 1928, Page 5

THE PUBLIC FINANCES

ADDRESS BY MR DOWNIE STEWART. A SURPLUS OF £lBO,OOO. CAMBRIDGE, April 30. ** I want on behalf of the Government to disclaim responsibility for this weather/' eaid Mr W. Downie Stewart (Minister of Finance) in addressing a public meeting in the Town Hall to-nignt. The Mayor (Mr T. F. Richards) presided. Mr Stewart confined his address to two main heads, namely, the year’s finances and a defence of the Customs tariff revision. In the course of his remarks he said: I am now in a position to announce some preliminary figures of the public finance for the financial year ended on March 31 last. All the figures have yet to be audited, but the provisional returns indicate that the year closed with a surplus of approximately £lBO,OOO. This is a smaller surplus than that , of last year, but is satisfactory when all the circumstances are taken into account. It will be remembered that the previous year closed with an adverse trade balance, fluctuating prices, and business - somewhat stagnant. These 1 conditions reflected themselves to some extent in the 1 Government finance. However, i e extraordinary power of recovery, 'which tbt Domini’on has so frequently manifested has been in evidence during the past year, and a steady improvement is still taking place. In accordance with legislation passed during last session, the petrol tax, tyre tax, etc., for highways are passed through the Consolidated Fund. Ignoring these nominal increases on both sides of the account, the year’s revenue amounted to approximately £24,760,000 which, .compared to the Budget estimate of £24,675.000 gives an excess of about £85,000. The expen di turo on the same basis amounted to ap proximately £24,580,G00, which is £95,000 less than ‘ the Budget estimate. hrom the budgeting point of view these results must be considered very satis f actor v, the variation from the esti mate "in both revenue and expenditure Lein" less than one-half per cent, this is probably as close estimating as it is possible to get in dealing with about £25,000,000 a year, and the results indicate that we are getting back to stable conditions of finance. The revenue for the year, ignoring the nominal additions already referred to, was approximately £190,000 less than for the previous year, but, as indicated above, the receipts slightly exceeded the estimate. Turning to the details of the revenue, the income tax fell short of the estimate bv £150,000. When the income tax revision was made last year the statement was widely circulated that the revision would bring in an extra £600.000 But, as I pointed out at the time, this statement was based on an erroneous series of calculations, and the result confirms the departmental estimate. The land tax also fell below the estimate to the extent of £50,000. This fall in income tax and land. tax. however, was largely counterbalanced by Customs duties, _ which exceeded the estimate of £llO,OOO. The other main item of taxation stamp and death duties —also exceeded the estimate, the excess being about £lOO.OOO. The expenditure for the year, again ignoring nominal additions, was £230,000 in excess of the previous year, but in this connection it has to be remembered that the year s expenditure includes, among other items, the first instalment of £125.000 for the Singapore base. £50.000 increased pen> sions, and £70,000 additional hospital subsidies. As you are aware, expenditure out of the Consolidated Fund falls under two main heads, namely, annua] appropriations for departmental expenditure voted by Parliament, and permanent appropriations which are payable under various Acts- The position in regard to departmental expenditure included in the annual , . appropriations is particularly gratifying. Rigid control throughout the year has resulted in the expenditure being £240,000- below the appropriations, and £25,000 below the previous year’s expenditure. . Increases in expenditure compared to the previous year were: Scientific and industrial research, £40,000; education. £20,000; agriculture, £43.000; lands and survey and prisons, both £17,000. Decreases were: Post and telegraph working expenses’ £46.000; internal. affairs, £52,000;. Snd naval defence,.,s4o,ooo. Both 1 -" the revenue and expenditure figures show that the Estimates as framed last year came closer to the actual results than fof, any year since the pre-war period. This indicates that we are now getting ' back to more normal conditions of finance, free from .the fluctuations caused by the war. The fact that we take every precaution to keep our expenditure below our. income has a very real bearing on our financial standing in London, and only last year the Financial News of London said:-“Those who have knowledge of the financial administration of the Dominion are well aware of the excellent conservative principles that have always governed the actions of the New Zealand Treasury; actually there is no Dominion who has been more scrupulously careful over her finances than New Zealand.” PUBLIC DEBT.

The public debt at March 31 last amounted to £251,397,000. the figure again being provisional and subject to audit. This is an increase of £5,546,000 for the year. Although this, is a large sum. a comparison with previous years will show that the Government’s policy of tapering off in borrowing is beginning to show in a marked manner. Two years ago the net increase in the public debt was £11,000,000. Last year the net increase was approximately £7,000,000, 'so that the reduction this year to £5.546.000 is an indication of the results that may be achieved in a few years if the same policy is pursued. I hope in time that the net increase in borrowing will fall to such q figure that we will reach the point where the amount of war debt or other debt paid off will equal the new money borrowed for public works. Under our statutory debt repayment scheme the annual amount available for redemptions is steadily increasing each year, and, in the last six years, through this and other means, we have reduced

the dead weight war debt by almost £10,000,090. It is this practice of paying off an increased amount of debt each year which enables the net borrowing each year to show a decrease without any serious curtailment in the carrying to completion of our hydro-electric schemes and other public works. The new money borrowed during the yeai* totalled £8,022,0D0. but against *his reaemt-tions of debt amounted to £2,476,000, leaving tho net increase at £5,546,000. »-s already stated. Of.these redemptions £368,000 represent the funded debt payments to the British Government, £1,000,000 the normal operation of the statutory debt repayment scheme, while £366,000 came from reparations, and the balance from other accounts, chiefly from repayment of capita 1 to the Discharged Soldiers’ Settlement Account. The Balance available for the Public Works Fund was increased by an amount of £250,000 transferred from the accumulated surpluses. THE BURDEN OF TAXATION. I would again like to refer to our annual interest charges and to the statements that one constantly secs to the burden of £10,000,000 a year, which assumes that our debt is wholly unproductive. The position is set out in the 1927 Budget, which shows that of the gross amount paid for interest in 1925-26, viz., £10,595,000, an amount of £3,546,000 was on account of the war debt, leaving £7,049,000 as the gross interest on the ordinary debt. Against this latter amount, however, recoveries from interest earning assets amounted to £4,773,000, so that the interest burden on the taxpayer for tho ordinary debt amounted to only £2,271,000, proving that this debt is productive to the extent of approximately 70 per cent. * It is therefore quite wrong to state that the gross interest charge of £10,000,000 is a burden on the taxpayer. LONDON LOAN.

It is necessary to have recourse to London for capital moneys, and negotiations are almost completed for an early loan issue. In the last three years respectively we have borrowed in London £7.000,000, £6,000,000, and £6,000,000— but the issue this year for new money in that market;will be £5,000,000, that is, a reduction of £1,000,000. As is generally known, a very large amount of our overseas debt matures in November. 1929—£29,000,000 at 4 per cent. —and the best method of dealing with this large slim has been under my close consideration for some time. It is desirable to deal with as much as possible of this before maturity rather than risk non-absorption and difficult terms for such a large sum in one redemption issue.

LOCAL MATURING LOANS. - The wisdom of carefully guarding the surpluses of years to meet special circumstances was demonstrated by two important financial movements that occurred'during the year. In the first place a. local war loan of £2,560,000 fell due. This is the largest local loan that has fallen due at one date in our history. It was largely held in small amounts by people who had subscribed to assist the country in war time, but many of whom now required the money for other purposes, and consequently were not willing to renew their 'holdings. Under normal conditions this would have occa sioned no great strain on our resources. But the general position was disturbed by the trading banks raising their deposit rates in May laJt, and this had the obviou effect of drawing from the Post Office many of the balances in its large accounts between £lO9O and £5600. The Treasury had, therefore,, to liquidate investments amounting to a large sum to meet this move mont of money to the outside banks. This put a double strain on our resources—a depletion of cash to meet the Post Office Savings Bank demands and to meet sucn part of the war loan as was not renewed The course of events in this connection afforded an excellent illustration of the undesirability of continuing the holding ip the Savings Bank of large sums at call and which, as was shown, are really trading balance on investment, and are not savings of the .people. As soon as these balances had been reduced, I took the necessary steps, in accordance with the powers of last session’s'Act, to terminate the acceptance by the Savings Bank of sums exceeding £2OOO. ; BANK OVERDRAFT RATES. I have been Mosely watching the figures as to the trade balance and the banking returns, which/ : in the last few months have indicated a remarkable reverse of the conditions 1 prevailing last year. 1 have had various interviews with the banks in the light of the altered conditions, and they agree that the last quarter’s figures qre satisfactory, but they hold the view that some further time should elapse in order to be assured of the improved conditions becoming stabilised before any decisive action can- be taken. When the June quarterly' figures are available I propose to discuss, the matter further with the banks. I see no reason why the present rates should not be reduced if the June quarterly figures show that the improved Conditions now -apparent have then become stabilised. Last year when I helped to hold back the raising of the overdraft rate for six months I was told by the newspapers and other critics that if the banks had been allowed to raise the rate, the position would have been more quickly overcome. You see, then, that whichever way one moves one gets criticism.”