CIVIL SERVICE WAGE CUT

Taranaki Daily News, 14 February 1931, Page 7

CIVIL SERVICE WAGE CUT

INCREASE IN INCOME TAXATION postage Charges to be raised NON-POLITICAL RAILWAY CONTROL GOVERNMENT PLAN FOR ECONOMY Drastic proposals to meet an estimated soothe Budget for the present financial Sneial year, W. ForbeS- : The chief proposals aie:

Ten per cent, cut in all Civil Service salaries. Increase in postage rates. , Increase in income tax and possib y . ... c our t to reProvide legislation empowering the, Arbitration uourr view wages awards. . _ • view to providing relief. Mr Forbes makes an appeal for co-operation with the Governstability by balancing the Budgets.

ANALYSIS OF AMOUNTS DECREASE IN THE REVENUE CUSTOMS SERIOUSLY AFFECTED. MR. FORBES EXPLAINS POLICY. (Government'Memo.) Wellington, Last Night. The accounts show that the revenue of 4 the Consolidated Fund for the first nine months of this financial year amounted to £14,868,276, compared with £16,338,212 for the corresponding period of last year, a decrease of £1,469,936. The main contributory cause of this decrease in revenue is the comparative decrease of £1,220,000 in the interest on the railways capital liability. A falling-off for the financial year of approximately £750,000 was allowed for in the Budget, based on the fact that the accumulated losses of the past, having exhausted the railway reserves, the interest that could be paid this financial year would have to be decreased by the amount of the loss for the year. As explained in last year’s Budget, the prospective decrease in the interest item was much greater than £750,000, bpt was reduced to this figure after allowance had been made for th ? possibilities of increasing the railway-revenue and decreasing the expenditure. In recent months, however, notwithstanding certain increases in freight and f-res, the railway revenue has shown a considerable falling off and it is now clear that the amount of interest that can be paid to the Consolidated I und this financial year will fall some hundreds of thousands - short of the Budget estimate. THE CUSTOMS REVENUE., The Customs revenue for the nine months was approximately £713,000 less than for the corresponding period of last year, but the position is not as bad as this figure would indicate, as a decrease of £367,000 was allowed for in the i Budget. . C. Still, on a proportionate basis the receipts are nearly £350,000 short, and as imports continue to show a heavy falling off, particularly in luxury items, where the duty is highest, it is not anticipated that the shortage will be made good before March 31.. The large decreases referred to were partly offset by a comparative increase of £llO,OOO under the heading of stamp and death-duties, but this was anticipated and allowed for in the Budget. The revenue from petrol tax, tire tax and duties and licenses on motor vehicles shows a comparative increase of £265,000, but at present this revenue passes automatically to the Main Highways Account and the local authorities, and thus will not affect tne result in the Consolidated Fund on the expenditure side. The nine months’ figures show tne following comparative results:— PERMANENT APPROPRIATIONS. 1030 1929 Decrease £12,854,477 £13,205,860 £351,383 annual appropriations. £5,526,088 £5,652,760 £126,672 TOTALS. £18380,585 £18,858,620 £478,055 The published accounts in the new form show clearly the position in re- ■. spect to the various items . concerned under permanent appropriations. There was a comparative increase of £130,000 for debt charges, but this was expected and was allowed for in the ' estimates under special Acts. DECREASE IN EXPENDITURE. Th? expenditure showed a net decrease of £480,000, due mainly to the of the charge for subsidies to local authorities to the main highways account and the cancellation of the subsidies on Sanch lines of railway Pensions show an increase of £72,000. The annual depart: ental .. vote f f ecr^S e ' whole show a net comparative of £127,000 for the n>ne hrin’* defence chief contributing votes bem b d and naval defence. Increases a « l ’ ho *“ for education and some other ’ } generally the returns indicate that tee 'v,,lc expenditure is being kept vitmi ihe curtailed e«tim«tes for this }? To sum up the position, the resuits A ,’or the nine W a te Wat >f;he revenue for the financia y

below the Budget estimate. In regard to Customs revenue, I may say Wat'the probability of a shortage in this • item was disclosed when the prospects were reviewed after the close or the half-year. The supplementary estimates were, therefore, restricted to the unusually low total of £123,000, against £246,000 allowed for them in the Budget. Steps were taken to augment the revenue as much as possible in other directions, and a close control of expenditure was instituted. . . It was thought at the time that these measures would meet the situation ana enable the accounts to be balanced, but since then with almost startling suddenness there has occurred an unprecedented fall in the prices obtained for our primary products, involving the loss of many millions in the national income, and the resulting sharp contraction in business, . coupled with exchange rates raised to heights ■ previously undreamt of in this Dominion, has led to a falling off in imports and Customs revenue beyond all expectatlOGlose budgeting under such abnormal conditions is very difficult, and, in fact, almost impossible. As indicated above, the sudden change in. economic conditions has also had a marked. effect on railway revenue, and must inevitably affect practically every item of revenue. Every effort , has been made, and, needless to say, will continue to be made, to reduce the net shortage to a minimum, but with the finances already strained in an endeavour to cope With an expected shortage in Customs there is no possibility of also making good the anticipated large shortage in railways interest. , Consequently, notwithstanding We sacrifices the people were called upon to make and the steps taken y 1 Government to balance the Budge , regret to say that the position as I now sum it up indicates that the financial year will close with a deficit which may possibly reach three-quarters of a million, without taking into consideration any expenditure which may be this financial year out of, the Col '® < ? ll ' dated Fund on account of the eartliit is not a matter that directly concerns the Dominion, it may be added that most other countries affected by the slump, including Great Britain, the United States and Canada, appear to be suffering from similar financial troubles, and national deficits are already announced for this year in these and many other countries. ’ ECONOMIC POSITION AND OUTLOOK ’ It is now practically certain that the value of our exports for this financial year will show a falling off of over .20 per cent, as compared with the returns received for the previous year. It would appear that prices have now reached bottom; and while apparently no one can speak with any degree qt certainty as to the future course of events, there is no indication that there will be - any marked recovery in prices, although it is hoped that Were will be some movement in that direction. In fact, economists in all countries. seem to be in agreement that prices in the world’s markets will remain permanently at a lower level than we have been accustomed to in recent years. Under these circumstancs, we canno u count on ' the value of exports being appreciably more next financial year than for this year. Imports, of course, must, also contract to the same extent, and generally it would appear that the Dominion has no option but to adjust its affairs to a permanently lower level of prices. That is the basic fact which has to be faced. It will be apparent to all that if our national income has decreased manymillions, with every indication of continuing at a WWlevel, our whole economic structure adjusted over a period of years to the former high level is now top-heavy and cannot be maintained. , . That is to say, the present level or I values, wages, prices, and copts generj ally cannot be supported on the reJduced income. Everything has to come down to the new level. There is no escape from that, and if the inevitable adjustments are not made now it will not be long before the structure will be brought down by its own weight, m which case the loss and suffering in volved would be greatly accentuated. UU the other hand, if steps are taken now to make the necessary adjustments in cc ' ■ it is hoped that it will not be long before the economic machine Will accommodate itself to the new basis, with the reductions in costs largely onset by a reduction in the cost of living. The Government accordingly proposes to deal with the situation in a comprehensive manner, but as complete unity of action throughout the Dominion ip essential to the carrying through of what in any case will prove a difficult

matter, I appeal to local authorities and public institutions and all private firms to follow the lead of the Government and so hasten the process of readjustment. PROSPECTIVE BUDGET POSITION. So far as the public finances are con< corned, the economic situation will undoubtedly mean a large shrinkage in the revenue next financial year. A comparative falling off of from 20 per cent, to 25 per cent, in the value of imports is likely to lower Customs revenue by an even greater proportion, as the falling off is likely to be heaviest in the luxury items, where, generally speaking, the rates of duty are highest. 11l view of the uncertainty as to prices and the exact effect of the slump and the high exchanges on external trade it is admittedly very difficult at this stage to forecast the amount of the Customs revenue for the next financial year, but. Laving regard to the circumstances, it is considered that a falling off of about £2,000,000 is likely in comparison with the amount budgeted for this financial y ln regard to income tax, which will be based on the trading results for the current financial year, it is obvious that a substantial decrease is to be.expected, as in the case of Customs. The extent of that decrease is a very difficult matter to gauge, but on the best information at present available it is estimated at about £500,000. _ . Then there is the item for railway interest, in respect of which ths experience of the last few months clearly indicates that the amount that can be paid will be considerably less than the £1,380,000 allowed for in the present year’s Budget In the next financial year additional benefit is to be expected from the fact that the increase in rates and fares, and from the economies recently effected, Will operate for a full year, but against that a further falling off in the volume of traffic is considered to be practically inevitable under the present economic conditions. It is anticipated that the comparative decrease will not be far short of £500,000. The totalisatqr. revenue, and to a lesser extent the amusement tax, and other items of stamp revenue are already being adversely affected by the slump, and “accordingly, having regard, to the present economic outlook, a compai atiiye decline estimated at about £300,000 is to be expected under the heading of stamp and death duties next financia. 5 111 the other items included in the revenue of the Consolidated Eund have also been carefully reviewed, and the prospects in regard to each weighed in the balance. Practically all of them are expected to be adversely affected, although the falling! off is naturally Greater in some than in others.. lhe total shortage in the meantime is set down at about £300,000.

POSITION OF EXPENDITURE. The position in regard to expenditure is still .being reviewed in detail by the economy committee set up by the Government for this purpose as soon as the present trend of affairs in public finance became apparent. This committee is painstakingly investigating each departmental vote in turn, with a view to effecting all possible reductions consistent with °the maintenance of services considered necessary for the welfare of the community. ' In view of the fact that this financial year will end in less than two months, the work of the committee can have little effect on this year’s finances, but it will be extremely valuable when the Estimates for next financial year are being reviewed. In this connection I would like to state that, every effort was made this year to obtain the maximum of administrative economy, and if further reductions of expenditure are to be obtained—-and I think it will be generally agreed that this is essential under the present conditions—it can only be done* by eliminating or curtailing some of the services at present supplied by the State either free or below cost. That is to say, some of the monetary grants at present given on work donq by the departments below cost will have to be reduced, or perhaps entirely stopped. In private life most of us in hard times have to forego many desirable things because we cannot afford them, and. the same economic laws apply to the State, which, of course, is merely the people as a corporate body. To return to the prospective Budgetary position, next financial year’s expenditure will be increased by about £200,000 under the heading of debt charges, which is a rigid item where expenditure of capital for developmental purposes is necessary. Then prevision will have to be made for the usual automatic increases in pensions and the cost of the general election, and for a new item of about £600,000 in subsidies payable under the provisions of the Unemployment Act. Thus, on the present basis of expenditure for the departmental votes and the remainder of the items payable under special Acts of Parliament—that is, without making any allowance for any other possible increases but eliminating certain non-re-curring items—there would be a comparative increase in expenditure next year of at least £900,000. To sum up the prospective budgetary position for. the next financial year, all the information at present available indicates that the Government and the country are faced with the formidable problem of Woviding in one way or another for the following before next year’s Budget can'be balanced: — SHRINKAGE IN REVENUE. £ Cuetome "-“"2 Income tax -nn’noo Railway interest oOO.OOfI Stamp revenue wS Other items 3Q0 ’ 000 Total •••••• £3,600,000 increases IN expenditure. Debt charges . run nno Unemployment bOO,O 0 Other items .• 100,OVU Total .£900,000 Total shortage £4,500,090 That is the position as far. as it can bo estimated at this stage,, and 1 have taken the earliest opportunity of laying the facts before the country, being confindent that the people will accord the Government that measure of co-opera-tion and support which is necessary if the position is to be met and the Budget balanced by means that will assist rather than retard the general economic recovery of the Dominion. To balance next year’s Budget towards meeting the prospective Budgetary shortage of £4,500,000 the reductions in salaries and wages by 10 per cent, as , mentioned elsewhere, it is calculated, provide nearly £1,500,000. This amount includes the saving arising from the reductions in the salaries and wages of th" general public service, including teachers, directly chargeable to the Consolidated i Fund, together with the benefit to be derived front similar reductions to ’e ! made ill the railway and postal sei vices, ■ and'from the reduction in the amount of , subsidies payable to public bodies. In , addition, as a result of the work of the econoi .y committee it is anticipated that further substantial reductions can be i mad? in expenditure of the Consolidated ' Fund and the railways apart from the , proposed all-round reduction in salaries

and wages. In regard to expenditure on education I may say that the Government intends to set up a special commitee to investigate fully the financial side of this important social service which, including the debt charges on the loan expenditure on buildings, is at present costing the Dominion about £4,5000,000 per annum, which is too heavy a burden on. taxation under present economic conditions. It is hoped that this committee will be able to find ways of making large savings without in any way lowering the standard of education.

As to the railways, the Government has decided to give effect to one of the main recommendations of the Royal Commission of enquiry and place this national transport system under _ the control of a non-political board of directors as a temporary measure for one or two years.

Further relief for the Consolidated Fund is to be obtained by utilising the reparation moneys received from Germany for debt repayment purposes as part of the provision required Under the general repayment of the public debt system. In this connection it may be explained that at present the reparation moneys as received are applied in the reduction of the war debt in addition to the repayment of debt effected under the funded debt agreement with the British Government and the cumulative repayment of the public debt system. The proposal is that for a year or two the reparation moneys shall form part of the financial provision required for the latter instead of being additional thereto. FINANCE OF HIGHWAYS. Another matter that will have to be brought under review is the present arrangement concerning highways finance. It will be remembered that, last session, as part of the adjustments made in connection with the finances for the current financial year, portion of the reading costs previously payable out of general taxation was transferred to the highways account, and the petrol tax increased by 2d to cover the cost of the additional items in order that the amount made available for highways expenditure should not be diminished. Even so, in view of the difference of opinion about the matter and in regard to the allocation of part of the petrol tax to local authorities, the . amending legislation was made operative until August next only, and an undertaking was given that the whole question of highways finance would be investigated before that date by a Parliamentary committee. This undertaking will be "ive effect to, but it will be . apparent to all that the highways finance cannot be considered apart from public finance generally. , , At present the whole of the proceeds from Customs duties, on petrol and tyres, together' with certain license fees and fines etc., are earmarked for reading expenditure, but circumstances have changed considerably since those arrangeinents were made. In principle the earmarking of any tax for a particular purpose is unsound, and the amount which the community can afford to spe” l on roads is a matter which should be determined in relation to the relative urgency, of all the other calls on the public purse and the financial position on the country generally. As it is, the relief to general taxation through transferring the charge for subsidies to local authorities and sundry other items to the taxation earmarked for . highways will certainly have to be continued, and in addition it would appear that the selloils position of the public finances generally will render it necessary to niake other radical changes in relief of general taxation. The earmarked revenues are at present more than sufficient to cover the maintenance expenditure on highways. The reduction in expenditure apart from salaries and wages and the various adjustments that I have referred to will, it is estimated, improve the position of the Consolidated Fund to the extent of about £1,250,000. It is proposed to obtain further assistance towards the Budgetary shortage by increasing the postal rates. The additional revenue is estimated at about £900,000 per annum to come to the Consolidated Fund. INCREASED POSTAGE RATE. The Government recognises that the Id postage has been an incentive to bi ness generally, and it is with much regret that ■ this proposal is brought forward. At the same time it is felt that it is the lesser evil in that it is preferable to increase postage rates under the present circumstances than to impose heavy increases in taxation in other directions and thereby hinder a revivial of business to a much greater extent.

Some increases in general taxation will, however, be necessary to make up the balance of the anticipated shortage of 000. Part of the additional amount required the Government proposes to obtain from income tax, which is not only the most equitable form of taxation but also the one that has’ the least effect upon working costs.. Detailed proposals or an amended schedule of rates have not yet been worked out. In addition to income tax it is quite probable that some increases will have to be made in indirect taxation, but the Government is anxious to keep siich increases as low as possible in’order tf at the cost of living and working costs of the primary producers and of business generally should not be thereby increased.

The recent disastrous earthquake in Hawke’s Bay will undoubtedly mean heavy additional expenditure on the part of the State, but until more definite information is available as to the losses that have been incurred and the restoration plans are more advanced it will not be possible to even approximately estimate what the cost to the State will be. Under these circumstances it is obviously not possible for me to indicate at present in what manner the State’s share in the restoration work is to be financed. In the meantime no allowance has been made for earthquake expenditure in this survey of the Budgetary position for next financial year, and any requirements out of the Consolidated Fund on that account will increase the prospective shortage. Provision will be made accordingly. To sum up the Government’s proposals for balancing the next year’s Budget, it is proposed that'the anticipated shortage of £4,590,000 shall be provided for in the following manner;— Reductions in salaries and wages, £l,500,000. Reductions in other expenditure lind financial adjustments, £1,250,000. Increase in postage rates, £900,000. Additional taxation (direct and indirect), £850,000, i. Total, £4,500,000. GUARDING COUNTRY’S CREDIT. As indicated earlier in this statement, these measures for balancing the Biidget have been chosen with a view to assi;' - ing also as far as possible the solution of the wider economic problem oh which depends the maintenance of Budget-jy equilibrium. The proposals are admittedly drastic, but it will be agreed that nothing but drastic measures will meet the serious position that has arisen as a result of factors entirely beyond our control.

It only remains for us to face the facts resolutely and put our house in order. New Zealand has a great reputa-

tion for sound finance built up over a long period )»ith balanced Budgets, and though we are now beset with many difficulties it is our bounden duty to safeguard New Zealand's name by balancing the Budget. In any case, any temporary. advantage or relief that might be obtained by doing 'otherwise would have to be paid for with compound interest in the future, and the not very distant future at that. The experience in other countries since the war is eloquent testimony of tl -t fact. In other words, the State must make ends meet sooner or later, and anv delay in doing so only makes the. recovery increasingly difficult. Accordingly the Government gives the balancing of the Budget a paramount position in * c n policy, and while there may be a diversity of opinion as to how jt should be done, I feel sure Wat the principle at any. .rate h heartily endorsed by every section of the community.