The Southland Times MONDAY, JULY 11, 1938. Financing Social Security

Southland Times, Issue 23557, 11 July 1938, Page 6

The Southland Times MONDAY, JULY 11, 1938. Financing Social Security

The criticism of the Govern-1 merit’s social security scheme by Mr Forbes in the Address-m-Reply debate last week deserved something better than Mr Parry s scornful comment, “The old cry ot where is the money to come from.” What Mr Forbes had said was that on its present basis the scheme would crash as certainly as day follows night. Othei critics have hesitated to express themselves as strongly as this, but a few minutes’ examination of the estimated costs of the scheme will show that there is, in fact, the gravest doubt as to whether it could survive the test of even one lean year in the national economy. According to the figures prepared by the British Government s actuary, Mr G. H. Maddex, the cost of the scheme originally proposed would be £17,850,000 for the first year, rising to about £20,400,000 after five years. No new estimates have been presented since the Prime Minister announced a substantial extension of the superannuation benefits in a graduated form, but it may be presumed that the extra cost on this account will be at least £1,000,000. Thus in its first year the scheme will cost, say, £18,850,000. On the assumption of a national income of £150,000,000 the yield from the special tax of 1/- in the £l, together with the registration levy, will produce £8,000,000. The subsidy required from the Consolidated Fund will then be £10,850,000, or £3,600,000 more than pensions would have cost in 1939-40 if pensions rates had remained as they are. Thus under the best conditions, when the national income is high and the cost of the scheme is at the minimum figure, the Government will have to find another £3,600,000 on top of its already inflated expenditure. But this excludes provision for unemployment relief (which will no longer be covered by wages tax) and for such extra items as hospital expansion. In the last financial year the cost of unemployment relief was £4,200,000; immediate expansion of hospitals will be necessary to meet the demand for accommodation under the health insurance proposals. Altogether, in the first year of the scheme, under the best of conditions, with the national income high and unemployment low, the extra cost to the country over and above the 1/- in the £1 contribution and over and above all existing State expenditure, seems likely to be not less than £6,000,000. Where is that money to be found? But even if the extra cost in this particular year were only £5,000,000 or £4,000,000 the risks of the scheme remain the same. Aggregate private income in New Zealand in the last seven years has fluctuated enormously—between £90,000,000 and £150,000,000. The figures quoted by Mr Maddex were: £ millions. 1931- 98 1932- 90 1933- 100 1934- 103 1935- 120 1936- (estimate) 135 1937- (estimate) 150 Average 1931-38 114 As the aggregate private income rises and falls, the yield from the special tax will rise and fall. In good years the tax will produce £8,000,000 and perhaps more; in lean years the yield will fall substantially below that figure. It would be contrary to all our experience to expect the national income to remain at a minimum of £150,000,000. The average over the seven years quoted is only £114,000,000. At any time, because of conditions over which neither this country nor its Government has more than slight control, the national income may fall. It may even be falling when the scheme comes into operation. No one wants that to happen, but it is an eventuality that must be considered, and provided for, by the sponsors of any superannuation scheme into which the people are to be encouraged to put their money and theii’ faith. As the national income declines the revenue from the 1/- in the £ tax will decline. To meet the annual expenditure on health and superannuation (which will tend to increase at such a time, apart from its natural increase) a greater subsidy will be required from the Consolidated Fund. For instance, if the national income declined to its 1932-33 level of £90,000,000 the subsidy required from the Consolidated Fund would be not a minimum of £10,850,000 but a minimum of £13,850,000. But a falling national income means also a reduction in Consolidated Fund revenue; the sources of taxation dry up and even increases in the tax rates are practically unavailing. Not only are there smaller earnings to tax, but many more unemployed to provide for —and the existing unemployment fund is to go out of existence. How, then, would a superannuation and health scheme of such magnitude be carried on in the years of adversity which a primary pro-

ducing country must expect — years when there will be more persons dependent on it, less money contributed to it, heavy additional demands on the State for unemployment relief, and a reduced —perhaps heavily _ reduced —taxable income? This is a question which requires answering before thousands of people are asked to abandon private thrift, and put their faith in the State; and it deserves a good deal better answer than a ministerial gibe.