PROBLEM OF FALLING REVENUE

Timaru Herald, Volume CXXV, Issue 18629, 26 July 1930, Page 6

PROBLEM OF FALLING REVENUE

, DIFFICULT POSITION REVIEWED. BALANCING THE BUDGET. (Special to the "Herald.”) V7ELLINGTON. July 24. In the House of Representatives this evening, the Prime Minister (the Hon. ;G. W. Forbes) pointed out that a combination of two factors. —a contraction in the national income, and an exchange rate of at least £5 per cent., resulted in a considerable falling-off in imports, and this, of course, means a corresponding decline in Customs revenue. This, our largest j item of revenue, is always difficult to gauge in advance, but it is estimated I that the Customs revenue for this year, apart from any changes made in the tariff, will be £1,150,000 less than was received last financial year. The Customs revenue for the first three months of the financial year amounted to £2.006,243, as compared with £1,917,667 for the same period of last year; but an examination of the receipts for this year clearly indicates that the total has been considerably inflated by excessive clearances from bond due to fear of tariff increases. This is clearly shown by the fact that while the Customs revenue is higher, imports have declined. Imports last year showed a comparative increase of £4,000,000 over those of the previous year. This year a comparative decrease of at least £5,000,000 is likely. Furthermore, the falling-off will assuredly be greatest in the luxury items, on which the duties are highest. The fall in export prices and the difficult times that have resulted therefrom will also affect the yield from land and income tax, although not to anything like the same extent. So far as in-come-tax is concerned, the full effect will probabfy not be felt in the revenue until next financial year. Land-tax, under the present legislation, would be affected by the provision for remissions in the case of hardship, while land-tax outstanding usually increases in times like the present. For the current financial year it is estimated that land and income tax, apart from any changes in the law, will be adversely affected to the extent of about £300,000. A loss of £1,300,000 in the Railway accounts, coupled with the exhaustion of the liquid , reserves would mean that only about £900,000 could have been paid to the Consolidated Fund on account of interest, a decrease of £1,230,000 compared with the amount received last year. In ad- | dition, it is expected that the revenue j item, “Interest on public moneys,” ( would in the ordinary course have shown this year a comparative decrease of about £60,000, due to there being less money available for investment and to the low rates of interest offering on the London market for short-term investments. “On the expenditure side.” said Mr Forbes, “under permanent appropriations there will be unavoidable increases in debt charges, amounting, it is estimated, to £315,000, comprising £225,000 additional interest arising out of the increases in the public debt, and approximately £90,000 for debt-repayment charges. A further rigid item is found in pensions, where automatic increases are to be expected. The estimated increase for this year compared with last year’s expenditure amounts to ;Ut)2,000. which increase is chiefly under tr.e headings of old-age and war pensions. I: addition, increases are normally tj be expected in hospital subsidies and various other items based bn fixed rates. In reviewing the prospective budgetary position no allowance was made for any increase in departmental votes which normally increase a L'ttle each year as a result of expanding services. For instance, the Education v.t.e has increased bv an average of -E90.000 per annum during the last five years. Smaller increases and some decreases probably largely offsetting one another, were to be expected under I other items; but, to sum up the posj ition, the Government was called upon I to deal with, the anticipated principal ! variations from last year’s revenue and I expenditure, if operations had been j carried out in the ordinary way on the same basis, are as follows: j Decreases in revenue—

Prospective Budget shortage for 1930-31 £3,095,000 An estimated Budget shortage of over £3,000,000, quite apart from any increase under departmental votes—that is what the Government, this House, and the country generally have to face. Still, given the co-operation and spport of honourable members and the people, the Government is satisfied that the position can be met and the Budget balanced, as, of course, it must be, without, imposing undue hardship on any section of the community, for there is no doubt that the general financial position of the Dominion as a whole is quite sound. Reductions in expenditure are the only alternative to heavy increases in taxation. Steps were taken to obtain the greatest possible economy in administration, but, as this is a matter that has already received considerable attention, there is no possibility of making very large savings in that way. Accordingly, the Government made a careful review of the services being supplied by the State. It is proposed to curtail or even suspend services where such action is possible without upsetting the basic organisation of the Departments. In other words, we have to determine what is essential and what is not, and for this financial year, at any rate, eliminate or at least severely curtail the non-essentials. “The net expenditure last year amounted, in round figures, to ? ut the total includes £10,697,000 for debt charges and -2,750,000 for pensions and family allowances, in which items increases are to be expected. Then there was 11,509,000 for the transfer of the petrol tax and other revenues earmarked for Highways, in connection with which I have already announced the Government’s proposals to relieve the Consolidated Fund of the charges of £220,000 for subsidies on rates to local authorities, £35,000 annual grant to Highways Revenue Fund, and £61,000 of interest on loan capital for Highways. Apart from these adjustments, however, the amount of Highways revenue paid out is the amount received, so the balance of the Consolidated Fund is not affected by this item. The four items account for £15.176,000 of the £17,228,000 of expenditure under the permanent appropriations. Of the remaining £2,052,000, apfoximately £690,000 went in subsidies to Hospital

Boards on rates. £600,000 being on account of maintenance and £90.000 on capital levies. So far as maintenance is concerned, curtailment of the subsidy, except in so far as it arises from the exercise of economy by the Hospital Boards, is not possible without upsetting the whole basis of hospital finance. With capital expenditure, however, there is more elasticity, and for this year capital expenditure by the Boards will have to be restricted to urgent essential works. In this way. it is estimated that a reduction of £30,000 will result in the subsidies payable out of the Consolidated Fund. Subsidies on voluntary contributions and bequests to hospitals and various educational institutions amounted last year to approximately £BO,OOO. Bequests. together with the subsidy normally payable thereon, are in the nature of “windfalls. Obviously, little hardship will be entailed in restricting the payment of subsidy to cases where voluntary contributions and bequests are applied to essential works. Subsidies on voluntary contributions for useful and necessary work in connection with the primary schools will be paid as heretofore, but, in general, each request for a subsidy will have to be considered on the merits of the case. It is hoped in this way to save £40,000 this year, without inflicting any great hardship on anybody. Then there are the subsidies to State Superannuation Funds and the National Provident Fund, which last year amounted to £382,000, including £43,000 maternity allowances paid through the National Provident Fund and the friendly societies. The Superannuation Funds are in a very unsatisfactory financial state, but, pending the report of the Committee which is investigating the position, only the subsidies usually paid are being budgeted for at present. This means a saving of £175.000, though probably only a temporary one. in comparison with the expenditure last year.

“The Civil List, and salaries and honoraria, mostly Legislative and Judicial, payable under Statute, accounted for a further £138,000 of the expenditure under permanent appropriations; while grants to University colleges, scholarships, and other education purposes absorbed £101,000; compensation for condemned stock, £30,000; Singapore Naval Base, under agreement with the British Government, £125,000; maintenance of war graves, £31,000; and exchanges and management charges of New Zealand stock in London, £72,000. Reductions cannot be made in these items. The remaining expenditure under permanent appropriations last year, amounting to £403,000, included £IBO,OOO on account of railway losses, which this year will be wholly reflected in decreased interest receipts. An amount of £50,000 transfer to Discharged Soldiers’ Depreciation Fund, need not be repeated this year, although the amount of the fund is not yet large enough to offset the discharged-soldier-settlement losses written off against loan capital. The balance of the expenditure consists of payments under numerous Acts of Parliament, full details of which are set out in the estimates placed before honourable members. The expenditure under annual appropriations, which comprise the departmental costs, numerous small grants and subsidies, and various miscellaneous items, amounted last year to £7,973,000, nearly half the amount—or £3,219,000 —being spent on education. In the case of Defence, the amount allowed, £275,000, will mean a general suspension of the compulsory military training and some reduction in the staff personnel. The estimates under annual appropriations prepared on the basis total £7,585,000, being a decrease of £388,000, as compared with last year’s expenditure. In addition, a reduction in the railway estimates, aided by certain increases in revenue, will aid to the extent of £450,000. In addition to these savings in expenditure, it is proposed to augment the revenue to the extent of £90,000 by bringing in the several amounts listed below. To sum up, it is proposed that the Budget shortage of £3.095,000 shall be partly met by reductions in expenditure, and adjustments as follows: Subsidies to local authorities £ on rates transferred to Highways Account .. .. 220.000 Interest on loan capital transferred to Highways Account .. 61,000 Additional Superannuation subsidies not being budgeted for 175,000 Decrease in hospital subsidies 30,000 Decrease in subsidies on voluntary contributions 40,000 Subsidies to Railways (nonrecurring) 180,000 Elimination of transfer to Discharged Soldiers’ Settlement Account Depreciation Fund .. .. 50,000 Reduction in annual votes 388,000 Railways—reduction in expenditure and increase in revenue 450,000 Transfer from Land Assurance Fund 60,000 Balance of interest on reparation moneys ~ 30,000 Total estimated savings on

last year’s expenditure £1,684,000 “Allowing, say, £250,000 for supplementary estimates and contingencies,” Mr Forbes explained, “there remains approximately £1,660,000 to be provided out of additional taxation.”

£. £. Customs Interest on railway 1,150,000 capital .. Land and income 1,230,000 tax Items other than 300,000 taxation .. .. 150,000 2,830,000 Increases In Expenditure— Debt charges .. Pensions and other 315,000 fixed items 100,000 415,000 £3,245,000 Less amount of las year’s surplus 150,000