Surplus of £l80,000 Shown For Financial Year.

Star (Christchurch), Issue 18452, 1 May 1928, Page 14

Surplus of £lßo,ooo Shown For Financial Year.

MINISTER EXPLAINS CONDITION OF DOMINION’S FINANCES; LOAN OF £5,000,000. A SURPLUS of £IBO,OOO on the year’s operations was announced by tjie Minister of Finance, the Hon W. Downie Stewart, in a speech at Cambridge last night. Points of interest were:— There was a decrease of £190,000 in the Dominion's revenue as compared with that of the previous year. Income tax revenue was £150,000 short of the estimate. Land tax revenue was £50,000 short of the estimate. Customs duties exceeded the estimate by £170,000. Stamp and death ciuties exceeded the estimate bv £IOO,OOO. Arrangements are being made in London for a £5,000,000 loan for capital purposes.

The speech was as follows:

I am now in a position to announce some preliminary figures of the public finance for the financial year ending 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 £IBO,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 }-ear closed with an adverse trade balance, fluctuating prices, and business somewhat stagnant. These conditions reflected themselves to some extent in the Government finance. However, the extraordinary power of recovery which the Dominion 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 and tyre tax, etc., for highways is passed through 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 expenditure on the same basis amounted to approximately £24,580,000, which is £95,000 less than the Budget estimate. From the budgeting point of view these results must be considered very satisfactory, the variation from the estimate in both revenue and expenditure being 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 by £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 by £170,000. The other main item of taxation —stamp and death duties—also exceeded the estimate, the excess being about £IOO,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 pensions, and £70,000 additional hospital subsidies. As you are aware, expenditure out of the Consolidated Fund falls under two main heads, namely, annual 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, and Naval Defence £40,000. Both the revenue and expenditure figures show that the Estimates as framed last year came closer to the actual results than for 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 verv 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 scrupuloxislv 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 } r ears 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 in-

crease in borrowing will fall to such a 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 £10,000,000. 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 our hydroelectric .schemes and other public works. The new money borrowed during the year totalled £8,022,000, but against this redemptions of debt amounted to £2,476,000, leaving the net increase at £5,546,000, as already stated.

Of these redemptions £368,000 represents 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 repayments of capital 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 the statements that one constantly sees 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 £4,778,000, so that the interest burden on the taxpayer for the 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 3*ear 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 sum has been under my close consideration for some time. It is desirable to deal with as much as possible of this £29,000,000 before maturity rather than risk non-absorption and diffictilt terms for such a large sum in one redemption issue. LOCAL MATURING LOANS. The wisdom of guarding the surpluses of prosperous j'ears 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. Jt 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 oc-

casioned no great strain on our resources. But the general position was disturbed by the trading banks raising their deposit rates in May last and this had the obvious effect of drawing from the. Post Office many of the balances in its large accounts between £IOOO and £SOOO. The Treasury had therefore to liquidate investments amounting to a large sum to meet this movement 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 such 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 in the savings .bank of large sums at call and which, as was shown, are really trading balances on investment, and are not savings of the people. As soon as these balances had 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 closely 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 prevailing last year. I have had various interviews with the banks in the light of the altered conditions, and they agree that the last quarter’s figures are 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. Whefi the June quarterly figures are available, I propose to discuss the matter further with the banks. THE CUSTOMS TARIFF.

The Minister devoted a considerable portion of his speech to matters connected with the Customs tariff. The revision of the tariff last year had aroused widespread criticism, he said. Some of the manufacturers who wanted high protection complained that they were being butchered to make a farmers’ holiday. On the other hand in some districts farmers protested against any increased protection; indeed, in Auckland province the Farmers’ Union not only declared against any increase in duties, but urged the gradual abolition of all protective

duties. In his view, to abandon even gradually our system of moderate protection, which has long been the established policy of New Zealand, would produce serious and even chaotic results for a long time in both primary and secondary industries. Fruitgrowers, poultrymen, maize and graingrowers, dairymen, pig raisers and many others had demanded and obtained protection and the duties were substantial in relation to the value of the goods. Even if a free trade Parliament were returned the Minister of Customs would find almost insuperable practical difficulties in gradually reverting to a free trade policy. Nearly all the Dominion tariffs began in the early days as purely revenue tariffs, but even under a low revenue tariff industries sprang up in the most unexpected manner. Once these industries developed and employed a large number of hands and a large amount of capital their existence became part of the national life. If the Customs protective duties were abolished some millions of pounds of revenue would have to be made up out of increased land or income tax. Many people took up the view that a protects ; system of duties did not protect if importations took place, but in New Zealand they had always taken the view that the object of protective duties was not to exempt the manufacturer from competition but merely to compensate him for the disadvantages he was under as to higher wages, restricted market and so on. To advocate duties so high that they excluded all competition was to mistake protection for prohibition. There was another aspect of the Customs tariff that had proved most valuable, both to farmers and manufacturers, and that was the power it gave the Government to negotiate with other countries. This the Minister illustrated by reference to the treaty made with Australia in 1922, by which many of our chief exports, including butter, cheese and bacon, entered Australia under a reciprocal tariff at rates lower than British preferential rates. The speaker quoted figures to show how beneficial these reduced rates were to New Zealand. For instance, the average total annual export from New Zealand to Australia for the four years before the treaty was only £55.232, whereas in 1926 it was £479,330, and in 1927 £984,516. These figures demonstrated the advantages that could be secured from the proper use of a tariff in negotiating a better export trade for both our primary and secondary industries.

As another illustration the Minister quoted trade relations between New Zealand and Canada. Australia had negotiated a treaty with Canada, getting substantial reductions on various kinds of farm produce entering Canada, and the speaker said he had only to ask the Canadian Government for a similar concession to New Zealand, and it was granted. Reverting to the Australian reciprocal tariff, the Minister quoted figures showing how it had affected the balance of trade. For the calendar year 1921 the adverse balance of trade to New Zealand was £392,000. while for the financial year 1928 it was only approximately a quarter of a million. As they were aware, Australia had recently increased the duty on New Zealand butter and cheese sixpence a pound. On his recent visit to New Zealand Mr Pratten had discussed this matter with the speaker, but no agreement had been arrived at in the meantime.

Few people realised that nearly half the imports came into New Zealand free, except for primage duty. It had been the Government’s constant endeavour to reduce the cost of living and the cost of production in both primary and secondary industries. As instances they had in 1921 taken off the duty on children's boots and other necessities, later on reduced the tax on tea and on tobacco, and in 1927 took off the duty on many articles of household use, such as ehinaware, linoleum, floor cloths, mats, rugs, certain drugs, medicines, rilk piece goods, etc. In order to assist local industry wherever possible the Government had reduced or abolished the duty on raw materials used in industry, and mvich machinery of British origin was admitted free. Where this machinery could be made in New Zealand the exemption did not apply'. In the 1927 revision the duty had been taken off corrugated iron, asbestos and cement

sheets, while dairying machinery was free except a few items that were made in the Dominion. There were only a few agricultural implements on which duty still existed. In his opinion the general effect of the tariff was greatly exaggerated. The essential question was not the existence of a tariff but the efficiency of production. He believed that the New Zealand tariff was properly designed to meet the stage of economic development the country had reached. POLITICAL PARTIES. The Minister referred to the organisation of the United Political Association saying it would be time to debate its policy when brought down. He remarked that all these bodies with long names seemed to have short lives. With regard to the Country Party, he thought it would have difficulty in doing more for the farmers than Reform was doing to-day. Farmers felt the depression more than others. Still the depression was passing away, and if farmers examined Reform’s record they would hesitate before deserting it in favour of another party. The meeting unanimously accorded a hearty vote of thanks to the Minister, and the proceedings closed with hearty cheers for him.