BANK TAXATION

Taranaki Daily News, 9 August 1930, Page 13

BANK TAXATION

r . . WILL IT BE PASSED ON? ’ NOTES AND INCOME. TAXES. . It would appear that there has been, and still is, considerable misapprehension regarding the. effects of the Government’s proposal to levy an increased ■■ tax on the issue of notes by the banks trading in the Dominion. , A representative of the Wellington Evening Poet has been inquiring into the matter, and gathers that in banking circles it is well known that the banks, considered as companies, are already paying income tax 6| times more than on pre-war rates as compared with 3 3-8 times more paid by other companies. It was learned'that so far back as 1914, when the tax on bank notes was 3 per cent, on the average issue (as at present), the Finance Minister of rhe day, Sir James Allen, expressed the view that according to his judgment the existing arrangement was “more profitable than the issue of notes by the Government itself.” ■ He ■ put the ccet of the issue at about'b} per cent, per annum. In the Budget ’ address in September, 1915, the late Sir Joseph "Ward said if the Government were to substitute for the bank note issue by the banks of a State issue it would not be' .remunerative, as, owing to the cost of the scheme, plus the loss of revenue from bank notes, all the saving in interest that would be made would be absorbed. Again, last week in Parliament, Mr. Downie Stewart expree.-ed much the same views.' ... put it is now proposed to increase the' tax by. 1-} per cent, to make it 4$ per cent, per annum. At that rate, plus the ij per cent, for working costa aa referred to by Sir James Allen, it would cost G per cent, per annum. This .would make the issue of notes prohibitive to the banks. ... <

Moreover, it was learned that when the London exchange position becomes normal the banks will; doubtless withdraw ten shilling, one.; pound, and five pound notes from circulation, issuing gold instead. The result of ' thia reetricted circulation would’ be a considerable loss of revenue to the Government, even at the current rate of 3

per cent. Pending adjustments. of London exchange, additional note tax, it wa« understood, would certainly be passed on by the bank,? to their customers. It was further pointed out that

the balance-sheet of. the .Bank of New Zealand at March 31 last showed that the bank held £4,008,886 in New Zealand-Government securities, and it is understood that the other banks between them hold over £2,000,000 of such securities. With the reduced note circulation resulting from the penal, taxation, the banks as a whole will probably require to hold only about: a million Sand a half of New Zealand Goverhnient securities, s<r that in future, instead /of the banks being large holders of Government securities as they are at present, they will be able to realise the bulk of their present holdings and abstain from taking up new issues. The proposed taxation was described as “grossly unjust,”. and that if it is given effect to, the Government in the long run would receive less revenue than it is getting under th,e present taxation. It was recognised, that the Government required increased revenue, but already the banks are contributing more than their fare share to the revenue; and the additional 10 per cent, on income tax would hit them harder proportionately than it would other. taxpayers. Income tax paid by the banks is levied on the hypothetical basis that their assets and liabilities earn at present 30s per cent, per annum, and on that assumed income they« at present pay 4s 6d in the pound. It was explained that if they were taxed on the usual basis, that is, on actual profits, they would pay very much less. ' The banks already pay income tax bn both assets and liabilities at the rate of Os 9d per cent, on each, or 13s i(Jd per cent, on assets and liabilities ■Combined. If the Budget is passed in itfl. present form, then that income tax 'will be increased by 10 per cent. ;• The proposed bank note tax would be plus income tax. Ou Die note circulation jdf to-day, roundly £6,000,000, the current rate of note' • tax, 3 per cent, amounts to £lBO,OOO per annum, which ;the banks have to. pay additional to their income taxi ; ' The banks, it was learned, feel that they are already the biggest and the •highest rated taxpayers of any in the ijjominion, but if they are required to •pay more then the whole position of The banks’, relationship to the public will jhave to be thoroughly reconsidered.