FINANCIAL STATEMENT

Waikato Times, Volume 102, Issue 17169, 3 August 1927, Page 8

FINANCIAL STATEMENT

(Special to Times). WELLINGTON, Tuesday. In Committee of Supply to-nigh; the Hon. W. Downie Stewart, Minister of Finance, introduced his Budget, of which the following is an abridgement Revenue. The revenue amounted to £24.013,107, representing an increase of £217,3 i 5 over the amount received during Hie previous year. Of the revenue received £ 16,004,087 was derived from taxation, and the balance of £8,038,720 from interest, receipts, sundry revenues and recoveries from different, Slate activities. Of the proceeds of taxation 78 per rent came from direct, taxation and the remaining 52 per cent from Customs and beer duties. The receipts from direct, taxation show relatively tittle variation, there being an increase of £10.178 in stamp and death duties, £5,3.700 in income fax, and a decrease of £.37,5!)2 in land tax. Under indirect, taxation we find a decrease in both headings—viz., Customs £131,302, beer duty £77 75. Among other items the following increases may lie noted: Postal and telegraph receipts £178,823: interest on railways capital liability, £1.30.122; and departmental receipts. £57,791. Including an amount, of £1 72.775 of tire tax credited direct lo Main Highways Account. the total Customs receipts amounted to £B,395,050. This amount was derived from duty on the following classes of imports —Spirits, £1.1td,991: tobacco. cigars and cigarettes. £1.39.3.909; apparel and textiles, .£ I. iO i ,38:) : motor vehicles, tires and parts. £1,079,070; other goods, £2,570,927; primage. £752,705. The receipts of the Ordinary Revenue Account were £070,907 in excess of the estimate. About £OOO,OOO of this excess was due io Customs, in which it, was estimated there would bo a substantial falling-off amounting to 8.8 per cent. The imports declined by 9.i per cent, but actual receipts showed a decrease of only 1.0 per cent. As to the cause of this unexpected revenue, it seems reasonably certain that it was largely due to tiic industrial disturbance in England forcing importers to buy more foreign goods, which are subject lo higher rales of duty.

Expenditure. Turning now to the other side, following the practice of the last few years, the expenditure shown in the published accounts is gross, the credits to the various items being brought into the statement on the receipts side. These credits in aid or in reduction, which represent sundry direct recoveries of expenditure, are not included in the revenue, and must accordingly be deducted from the expenditure. In this way we arrixo at the total net expenditure chargeable lo revenue. The net expenditure last vear amounted to £24,355,905, an increase of £785,882 compared with, the previous year. Permanent Appropriations. Of this increase £678,017 is under permanent appropriations. The following are the principal increases over the expenditure for the previous year:—lnterest, £320,995; debt reduction, £82,772; subsidies lo railwavs for losses on branch linos, etc., £87,238; pensions (oilier than war), £94,033: maintenance of war graves and memorials overseas. £3o,Gnu; fruit export guarantee, £82,619. Of the gross amount paid for interest, £10,594,055, the amount of £3,545,64 4 was on account of the war debt. This leaves £7,049,011 as gross interest on the ordinary debt, against which direct recoveries from inlerestearning accounts amounted to £<-,- 1 43,861. in addition lo this there should also he set ofj certain amounts included in the revenue, totalling approximately £2,634,000. Thus the interest burden on account of the ordinary debt amounts to £2,271,150, proving" that this debt is productive to the'extent of approximately 70 per cent. Under the Funded Debt Agreement and the Repayment of the Public Debt Act, 1925, part of the interest saved on loans redeemed is applied to further reductions of debt. This latter, together with the increase in the debt, covered by the Act. referred to accounts for the. increase in the expenditure under this heading. The additional expenditure on pensions is mostly on account of old-age and widows’ pensions. Annual Appropriations. The net expenditure under annual appropriations amounted to £10,091,020 an increase over the previous vear of only £107,865, or 1.08 per j c C nt. The increase in some votes i cannot he avoided, hut the tiguics for j the last financial year clearly demonI sirate that economy and close control lof expenditure were exercised throughout the year. The education vote showed an increase of £99,878, being the normal increase due to growth of population. The cost, of naval defence went up by £85,820, the reason being that the previous year’s expenditure included the cost of the second cruiser for only part of a year. These and other smaller increases are partly offset by decreases as follows: —Post and ’telegraph working expenses, £63,353; Industries and Commerce, £56,592; Electoral Department, £91,410. Summary of Year’s Operations. The transactions for the year resulted in a surplus, viz.:— Revenue. —Revenue (proper), £24,313,982; departmental receipts, £576,201; recoveries on account of expenditure of previous years, £t>2,924; income for year, £24,943,107. Expenditure. —Permanent appropriations (£10,488,004 less credits in reduction £2,223,059), £14,264,94 5; annual appropriations (£ll 885,368 less credits in aid £1,794,348), tiO,091,020. Net expenditure _ chargeable to year’s income, £24,355,905; surplus, £587,142. The following shows the result in the funds of the Ordinary Revenue ‘.Arum uni ;■ —

REVIEW OF THE .YEAR. SURPLUS AT MARCH 31, £587,142. CUSTOMS REVENUE ESTIMATE EXCEEDED. NO REDUCTION IN TAXATION. The Minister of Financo, Hon. W. Downie Stewart, delivered his Budget in the House of Representatives last evening. As already announced, it showed a surplus for the year of £587,142. The policy for the future is outlined as one of careful economy. Every item on the estimates has been carefully scrutinised by a special committee of departmental officers, with the idea of getting the best service at the lowest possible cost. The Customs duties are to be adjusted during the session. There will be no reduction in taxation.

Balance forward. April i. 1 02G. £7,728.092: odd, surplus. 1920-27. £587,1 72; certain reparation moneys received from Germany, £39,307: refund from Cheviot Estate Account in respect of securities redeemed ii 925-20, £50,700 —total. £5.107.97 1 p oKS —Transfers for debt, reduction. £588,808; transfer of Rank of New Zealand shares to special account. £750,000: instalment of purchase price of G long term mortgage shares in Bank of New Zealand, £58,59 i : temporary transfers lo oilier accounts, £20.000: sundry charges and expenses of raising loans. £13 —total, £1,72,3,-

The balance at March 31, 1927. was £.7.081,3 00. held as follows:—Gash. £1.807,285: imprests outstanding. £180,59 1 : investments. £1.093.590. 'Pile transfers lor debt reduction arid oilier purposes are not. included in (he year’s expenditure, but represent an appropriation out. of the surplus and liie balance carried forward from previous years.

The reparation moneys rio not represent, the. whole amount, received on account of reparations, which totalled £558.3 00. Of this amount, however, £J 00.000 was received from the Public Trustee as liquidator of ex-enemy property in New Zealand, which sum will laier have, to be set off against the total that would otherwise be received from Germany.

| The transfer of I lank of New Zeai land shares was made in terms of ! section 8 of the Finance Act, .102«*. ! with the object of collecting: nil the ! shares together in one account. It ; is merely a hook entry. The its<S,ao j I for Rank of New Zealand shares ro- | presents the first instalment on the I 234,375 0 Jons term mortgage shares j allotted to the New Zealand Govern- ! incut in terms of section f> of the [Bank of Now Zealand Act, J 920. | It is often assumed that a large i balance at the beginning of a year | constitutes a case for reducing taxai lion. but this balance lias been dcj creasing steadily since, 1920, and the I balance carried forward on April 1. | 1927, £3,081 ,4GO, after the further \ depletions whirl! will take place this i year for unemployment and other purj poses, will leave available only the j normal amount required to finance the J year's transactions without borrowing on the security of Treasury bills. The existence of a liquid balance is undoubtedly satisfactory finance. If can always be profitably emplovcrt in temporarily financing loan accounts, which postpones borrowing and effects a further saving. Surplus and Taxation. Sundry statements have appeared of late lo the effect (hat surpluses should not be used for public works and debt reduction purposes, hut he applied to relief of laxalion. The appiicalion of tiie surpluses of good years lo public, works and debt reduelion purposes lias the effect of keeping down the debt charges, and at limes obviates increasing taxation. In regard to transfers lo iho Public Works Fund, Hie grand Fdai of which to date amounts to £.14,300,000. the fact is that if Hie surpluses of good years had not been applied to this purpose the annual interest burden to be carried by I lie taxpayer hi bad as well as good years would have been about £700,000 heavier than it is. Similarly, if further surplus revenues had not been applied to debt reduction, ibis burden would have been further increased by about £‘250.000, making nearly £1,000,000 in all. Fven so it must not be forgotten that direct taxation lias been materially reduced since J 920, the remissions being estimated at £3, 4 00,000. War debt charges and war pensions absorb approximately 30 per cent of the total receipts from taxation, which is more than the whole of the current receipts from both land tax and income tax. When this fact is fully appreciated it will bo clear lo all that any further substantial reductions in taxation are out of the question until good progress has been made in reducing this dead-weight portion of the debt. The policy of using surpluses for debt reduction is approved by eminent financial authorities. Last year's surplus was much greater Ilian was anticipated and largely fortuitous, and to reduce taxation on that account would he tantamount to budgeting for a deficit. It is axiomatic in public finance that cacti year's transactions must stand alone. There is no doubt that our high credit in London is in a large measure due to our constantly recurring surpluses and the appropriation of such moneys to debt reduction and capital expenditure, the effect of which, as shown above, relieves the general taxpayer probably much more than reductions in rates of taxation. Economy In Public Expenditure. The policy of economy was strictly pursued. Alt departmental expenditure was kept under close control, with the result Unit the actual expenditure under annual votes was £-i37,007 less than llio appropriations. The Government recently set up a committee of departmental officers, who have gone through the estimates and reduced them to a bare minimum consistent with the maintenance of services. The committee adopted as a guiding principle an average of the expenditure l'or the last three years, and endeavoured to reduce the estimate's to that basis. Details of last year's expenditure have been published in the annual accounts, but honourable members will perhaps obtain a better perspective of the position if the expenditure-is summarised in a more concise form. The following shows the main services on account "of which a net expenditure of £2 ..'1,350.000 was incurred during J 926-27: —War pensions and debt charges, £5/1J 8.000 (per rentage 22.2) : ordinary debt charges, £5,593,000 (23.0) : Post and Telegraph working expenses, £2,343,000 (9.6); pensions and superannuation funds, £t,~ 603,000 (6.6) ; education, £3,095,000 (I2A); health and hospitals. £1,137,000 (4.7); defence., £1,020,000 (4.2); law and order, £597.000 (2.4) ; railways, subsidy on branch lines, etc., £429,000 (1.8); all other purposes*

£3,121,000 (12.8)—£24,356,000 (100 per cent).

It must be clearly understood that the percentages of the expenditure do not represent the relative burden on the taxpayer, for nearly one-third of the revenue consists of earnings or other receipts, which can lie set off against one or other of the various items.

The expenditure on war charges and social services ,accounts for nearly ' naif of the year's expenditure, while 'external defence and internal law and order are necessaries which account for a further 6.6 per cent. The Ordinary Debt charges account for a further 23 per cent. The subsidy to the railways is part of cost of development, but as an item of expenditure it is due to accountancy charges. Treasury Bills. The resources of the Ordinary Revenue Account proved sufficient to finance (he year's transactions, and it was not necessary to issue any Treasury Bills in anlicipalion of revenue. The £1,4()U.000 redemption Treasury bills oulslunding on March -'sl, 1 926, have been paid off. There wore no Treasury bills of any kind outstanding on March 31. Investment of Surplus Cash Balances. The amendment of the Public Revenues Act last session enabled the cash balance of the Public Account to ho kept much more closely invested Ilian has hilhorlo been possible, with Ihe result Hint Hie interest received Iroin such investments for periods ranging from a few weeks io three monflis amounted (o £81,282, or 653,2 13 in excess of that received in the previous year. Expenditure on Public Works. The amount, expended on capital works out of tlm Public Works Fund amt oilier accounts concerned totalled £6.667,967. made up: Baitway const met ion. additions and improvements. £2.369,912: telegraphs and telephones, £558.ni1; hydro-electric supply. £l,130,013: main highways and roads, 61.15i.967: irrigation, land and river impriivcmrnl, £278,015; oilier public works, 628 1,251. In lolal 11 i e expenditure is approximately £510,000 Jess than (lie previous year. The requirements for railways showed a comparative decrease of £ 177.000, and telegraphs and telephones a decrease of £37 i,000, while the expenditure on electric supply increased by £184,000, and on main highways and roads by £175,000. More than half the expenditure was on account-of railways and hydroelectric supply, in which the work is proceeding largely in accordance with definite programmes. The current financial year,'- and Ihe next one or two years, are the peak years of expenditure. after which it should be possible to effect reductions. Although authority was contained in the Appropriation Act. 1926, it was found impracticable to transfer any amount from the Consolidated Fund to Hie Public Works Fund last year. Public Debt. The gross public debt on March 31 amounted to £24 5,850,889, as compared with £238,855,478 twelve months previously—an increase of £6.995.41 1. The net increase for 1925-26 amounted to approximately £I i ,000.000, so that the borrowing for last year represented a decrease of £4.000,000 in comparison with the previous year. New loans borrowed during 1926-27 totalled £9,627,381, of which £6.2 27,176 was raised in London, while Hie balance represents the proceeds of local issues taken up by the public and the Post Office. j

A total of £6.878,270 was allocated to the Public Works Fund, the Railways Improvement Authorisation Act 19i4 Account, the Electric Supply Account, and certain other accounts, which together financed the capital expenditure on public works. In addition. £2,400,935 was riised to augment the capital of the Slate Advances Department, £21.000 was 'out to Samoa, a further £IOO.OOO was made available for purchasing land tor settlement, while the remaining 6227.. 176 went in charges and expenses of raising loans. Debt to the amount of £2.631,970 was i .-doomed during the year.

Practically the whole of the loans maturing during Hie current year arc held in New Zealand.

Apart from the statutory payments, an amount of £588,808 out of Ordinary Levenuo Account was apphed in rc<iu>:lion of debt, but tliis mehmed f, i 0.710 of reparation moneys credited [i: tiiaf accouni'. Of lino total inductions for the year, £1,770.107 represented war debt.. It is noteworthy that since i9'22 the war debt has been reduced by £8.280,302, or approximately' J 0 per cent in live years. Discharged soldiers settlement securities purchased and cancelled during .1920-27 amount to £83.210. while redemption of ordinary debt iotailed £778.293, being for the most part redemption of loans at maiuriiy, though advantage was taken of sundry good offers from tlic public to purchase securities below par. London Loan, 1927. To provide funds to enable the public works programme to be proceeded with, a £0,000,000 loan, issued on May 2. at £99 I Os, and bearing interest at 5 per cent, was succcsslulty floated in London. The loan was over-subscribed, and ibis is a sinking proof of our high credit in London. The proceeds of the loan will bo expended on the following purposes:— Constructions of and additions to railways and ro'hng stock, £3,000,000; development of hydro-electric power works, £900.000; telephones and telegraph extensions. £750,000; oilier public works, £1.350',000. Discharged Soldiers’ Settlement. This great work is now virtually completed, and the extension of operations during the last, financial year was relatively small, and, apart f-om Pari!;,- wounded or T.IL men who have preciously not, been able, ’o lake advantage of the facilities offered., the ra’-.v business lias been road ml lo advances on current account for the. development of farms and the stocking of the same. Tiic balance outstanding on Current Account at tec close ol the year was £y 801,1 52, additional loans approve during the period amounting to £92,,Pi 7. Progress is now being made in Hi, direction of converting advances on current account lo table mortgages. Legislation will be introduce 1 lo provide for writing off accumulated losses and also reductions in values recommended by the llo v a.nulion Bourn. Local Government Loans Board. Since 1921 the loan indebtedness of local authorities has nearly doubled and at March 31. 1920, amounted io £00,197,911, which is equal lo_ £l2 15s per head of the population. Smiic measure of control was deemed necessary, and a representative Board has I liken up the duly of investigating the loan proposals brought forward by local authorities. it is ilie funclion of the Board lo determine whether the work proposed will justify recourse to borrowing. The question of adequate sinking funds lias also to be arranged. Finally, Iho Board must take into consideration the capacity of Ihe ratepayers to met the additional loan charges.

| 1927-28. I I have placed before honourable I members the position as regards the past year’s operations, and outlined the steps taken to effect economy, together with brief comments in regard to expenditure, debt, and taxation. *lf I hesitated last year to consider reductions in taxation, it will be admitted that the present conditions are . still less favourable and do not permit of reductions in the current year. The Government have already set aside large sums to assist unemployment, which I trust will diminish to a considerable extent as the year advances. It is necessary, however, to make provision to meet a situation that may not take a favourable turn when additional seasonable work becomes available. The estimates I am giving here are based on the position as it appears at present. , l have referred to’ the policy of debt-reduclion, and T regret, for reasons already given, that very little beyond Hie statutory appropriations is likely to be available for this important purpose during the current year. I propose to ask for authority to appropriate up to £500,000 for public works should circumstances towards the end of the year permit consideration of any such transfers. As honourable members are aware, the price of local money is inclined to harden; but so long as I can do so, I will not assist that movement by raising the rate for our New Zealand issues. Estimated Revenue. The difficulties of arriving at a close estimate of revenue under present circumstances will. I think, he appreciated. The imports are falling off, which means less Customs revenue. Various adverse factors make it probable that land and income tax receipts may also be affected. I estimate the revenue for Ihe year at £24,676.900, as follows: —Customs, £7.775,000; beer duty, £6l 0,000; stamp and donlh duties, £3,403,100; postal and telegraph, £3,254,000; land lax. £1.205,000; income tax, £3,425,omi; interest on public moneys, £640 - 000; interest on railway capital liability, £2,180,000; interest on public debt redemption fund, £870,000; oilier rcccipls, £1,314,800. Estimated Expenditure. The estimates of expenditure have been drastically overhauled by an expert committee. After final revision by Cabinet I estimate the ordinary expenditure at £24,258,549, being a decrease of £97,416 compared with last year. In addition to the expenditure Included m the estimates, I have also to make provision for other items, such as unemployment and further naval expenditure for Singapore base, Hie tidal of which it is estimated will require about £240,000. Estimated Results. Allowing for the additional items just referred to, I estimate the result of the present year’s transactions as follows:—Revenue, £24,616,900, expenditure, £24,498,549; leaving for supplementary estimates, £178,351. The balance thus leaves very little to work upon, and a strict watch will require to he kept on ail fresh claims for expenditure if we are to keep our finances on a satisfactory basis. The effects of the revision of the uriT and adjustment of the income tax schedule are problematical, and will not he known until the end of the year. The general indications are that Hie Dominion is gradually freeing itsc.f from temporary difficulties and steadily working towards more favourable conditions.