Y. BUDGET PROPOSALS.

Waikato Times, Volume 110, Issue 18395, 31 July 1931, Page 3

Y. BUDGET PROPOSALS.

FINANCE MINISTER SUBMITS STATEMENT. YEAR CLOSED WITH DEFICIT OF £1,639,111. INCREASES IN THE INCOME TAX. SURTAX RAISED FROM 10 TO 30 PER CENT. EXEMPTION TO BE LOWERED. The Finance Minister, the Right Hon. G. W. Forbes, submitted his Budget to the House of Representatives last evening. It showed a deficit on the year’s working of £1,639,111. To provide the estimated revenue required for the current year it is proposed to increase the surtax on incomes from 10 to 30 per cent., and to lower the exemption from £3OO to £260; to impose a stamp duty of 5 per cent, on overseas steamer tickets, and a duty of 10 per cent, on art union tickets. These combined are estimated to provide £780,000, leaving a balance of £1,020,000 to be made up by an increase on customs and excise duties, including 3d per lb on tea and id per lb on sugar. (Special to Times.)

WELLINGTON, Thursday. In submitting his Budget to the House of Representatives this evening the Finance Minister (Right Hon. G. W. Forbes) said the year had probably been the most difficult In the Dominion’s history. . Dealing with the external trade, the exports totalled £39,500,000, a reduction of £9,500,000 compared with the previous year and £17,600,000 as compared with 1929. The decline in exports was due principally to a further sharp fall in prices, the “all groups” export-prices index showing a decline of over 28 per cent. The falling-off in value, however, was not the result of a reduction in volume of butter, frozen meat, and gold. Wool was the only important Item showing a reduction in quantity; but this was due not to decreased production, but to the carry-over of stocks. Imports amounted to £38,300,000, being £10,900,000 less than the previous year. Thus, although exports fell to an unprecedented extent, imports were curtailed to an even greater amount, and the year closed with a favourable recorded balance of trade—an excess of exports over imports of approximately £1,200,000. The equilibrium in external trade has thus been largely preserved, but the general contraction in the value of this trade has seriously affected the public finances. Turning to banking figures, at the beginning of the financial year bank deposits exceeded advances by £'326,000, whereas by the end of the year advances had exceeded deposits by approximately £3,080,000. On March 31, 1930, fixed deposits represented 56 per oent of-the total, whereas by the following March the proportion had Increased to 64 per cent, indicating that In periods of economic depression investors display a preference for giltedged investments. Arising out of the trade conditions the year closed with a deficit of £1,639,111. In preparing last year’s Budget a decrease in revenue of £2,830,000 was anticipated. As soon as •it became apparent that revenue was likely to fall short of the estimate, efforts were made to meet the situation by further economies, but the sudden decline in revenue w r as so heavy that it was impossible to avoid the deficit.

tention was drawn to the fact that in order to avoid increases in taxation the Government had reviewed the State expenditure, and succeeded in reducing the estimates of expenditure to, £24,997,000, which was over £200,000 less than the net. expenditure of the previous year. It is satisfactory to record that expenditure was £289,067 less than the amount provided for. Interest was £97,902 less than anticipated, while the expenditure under Repayment of the Public Debt Act was £17,441 less than the estimate. The net' decrease under other permanent appropriations was £138,374, the principal items concerned being subsidies to Hospital Boards, £25,553, and disbursements of motor taxation, £73,639, while a saving of £35,350 was effected under the annual votes. These savings are all the more satisfactory when it is realised that a large portion of the State’s expenditure does not permit of economies being effeoted. The largest single item in the State expenditure was debt charges, amounting to £10,952,505. A substantial part (£1,638,672) was on account of debt repayment, which must be regarded as an Investment rather than an expense. . Education expenditure resulted in a total cost in excess of £4,500,000. The time has arrived when we must take stock of our educational system and endeavour to effect economies, while maintaining the standard. The Government has decided to set up a special Economy Committee to investigate the whole matter.

The expenditure under the heading of “Pensions and family allowances” consisted of £1,245,499 war pensions, £1,118,286 old age pensions, £325,998 widows’ pensions, £63,608 in family allowances,.and the balance of £271,815 in respect of miscellaneous pensions and administration expenses. The health and hospitals expenditure consisted of grants and subsidies totalling £670,847 to public hospitals; maintenance of mental hospitals, £303,667; and £244,670 in respect of public health administration. Roads and highways accounted for a total allocation from revenue of £l,875,609. Including loan moneys, the total expenditure on roads and highways for the year amounted to approximately £3,700,000. The defence expenditure involved £229,051 In respect of land defence, £543,845 for naval defence, and £48,748 for air defence. Expenditure on agriculture accounted for £418,913, approximately half of which was in respect of subsidies and grants of various descriptions. Summary of the Year's Operations. The transactions for the year resulted in a deficit, as follows: Expenditure.—Permanent appropriations, £17,035,863; annual appropriations, £7,672,179; total, £24,708,042. Revenue.—Taxation, direct £8,972,111, indirect £9,627,869; other receipts, £4,468,951; total, £23,068,931. Deficit, £1,639,111. Advances totalling £127,900 were made to the Rural Intermediate Credit Board to provide capital moneys for advances to farmers. Expenditure during the year in connection with earthquakes totalled £29,710, of which the Hawke’s Bay district accountod for £29,536 and the West Coast of the South Island for the balance.. Prospective Budgetary Position. The economio situation will undoubtedly mean a large shrinkage In practically all State revenues during the current financial year. The results during the closing months of last financial year and also the experience of this financial year up to date are evidence of that. Although imports for last financial year showed a decline of 20 per cent, the total for this year is likely to, be several million less, as, in times -dike the present, the falling-off in imports Is always heaviest in luxury lines where the rates of duty are highest. Forecasting this item of revenue is always a difficult matter, but, having regard to all the ciroumstances, it is considered that on the present tariff the receipts would be £1,100,000 less than for last year, or a falling-off of approximately £'2,030,000 compared to the amount budgeted for 'last year. In regard to income tax, a substantial decrease is to be expected; such decrease is estimated at £460,000. Land tax will probably show a further decline. The estimate has accordingly been set down at £1,100,000. Stamp and death duties will also be considerably affected by the economic conditions. The revenue from stamp and death duties for last financial year fell short of the estimate by approximately £390,000, and a further falling-j off of about £300,000 is expected this year. Beer duty fell short of last year’s estimate by £40,000, and it is estimated that this year will show a further falling-off amounting to about £75,000.

Prices are down to practically prewar level, and until conditions Improve overseas we must accustom ourselves to a smaller Income than for years past. Signs are not wanting that the level of world prices has reached its lowest point, and there has been a slight recovery in some lines. It is anticipated that, slowly but with increasing momentum, conditions will improve in our principal markets overseas, and this will assist in again placing this Dominion on the high road to prosperity. It appears likely, however, that prices will stabilise at a lower level than we have been accustomed to in recent years, Rovonus. The revenue amounted to £23,068,931, a net shortage of £2,051,069 compared with the estimate. Of the total, £18,599,980 was derived from taxation, and £4,468,951 from interestearnings and sundry revenues from State activities. Included in the revenue from taxation is £1,840,590, representing petrol tax, motor license fees, etc., specially earmarked for main highways, so that the revenue available for general purposes was £21,228,341, which represents a decrease of £2,610,730 compared with the previous year. The items chiefly concerned in the revenue shortage are: Customs, £'924,024; interest on railway capital, £695,000; stamp and doath duties, £392,665; interest on ■public debt redemption fund, £126,107; land tax, £94,383. The shortage in Customs revenue, £924,024, is the result of the heavy decline in imports. The revenue received on account of Interest on railway capital amounted to £685,000, compared with a Budget estimate of £1,380,000. In spite of certain Increases in fares and freights, the railways failed to meet the estimate for the year to the extont of £695,000. The interest due to the consolidated fund on railway capital amounted to approximately £2,255,000 but £1,570,000, or more than twothirds of It, had to be provided out of taxation. Stamp and death duties revenue was £'3,387,335, which fell short of the estimate by £392,665. Stamp duty or instruments accounted for a shortage of £104,479, as a result of the general falling-off in property transactions, while duties payable by racing clubs accounted for a further shortage of £85,857, due to a substantial reduction in the amount passing through the totalisator. Death duly revenue contributed £1,744,697 (estimate £l,830,000), a shortage of £55,303. Band tax contributed £1,145,617 (estimate £1,240,000), a shortage of £94,383. The income tax totalled £4,003,606, £'43,606 in excess of the estimate. The public debt redemption fund deficiency was £126,107. A large portion of ttiis fund is invested in discharged soldier settlement mortgages, and on account of the prevailing conditions It has not been possible to collect the whole of the interest' due. Expenditure. In submitting last year’s Budget, at-

In railway interest last year’s receipts amounted to only half the estimate of £1,380.000, and there is likely to be a further decline estimated at £235,000, due to shrinkage in the railway revenue.

Of the public debt redemption fund, about. £10,850,000 is invested in advances to soldier settlers, and it is

anticipated there will be a considerable shrinkage, set down at £165,000, in the amount of interest that can be collected. i U Many smaller items will be adversely affected by prevailing conditions, the net decrease being estimated at £280,000. Economy Committee. In regard to expenditure, the Economy Committee set up was continuously engaged for about four months; lr. painstakingly investigating every item of expenditure, with a view to effecting all possible reductions consistent with the maintenance of services considered necessary for the welfare of the community. Cutting down expenditure Is not a popular or an agreeable task. Economy in expenditure is generally approved, but, unfortunately, there is not the same unanimity of opinion in regard to what Items should be reduced. However, In carrying out their somewhat Invidious task, the Economy Committee and the Government have been actuated solely by a desire to promote the public welfare. The largest additional item to be provided for this year Is subsidies under the Unemployment Act. It Is estimated that these will amount to £1,100,000. .

The economies under annual votes, apart from salaries and wages, amount to approximately £470,000. In regard . to education, I may say that some of I the proposed economies were held I over pending the investigation by the | special Economy Committee which the Government is setting up to overhaul , thoroughly the financial side of this social service. As has previously been pointed out, Including the deut j charges on the loan expenditure on buildings, education is at present costing the Dominion about £4,500,- ) 000 per annum, which is too heavy a burden under present economic conditions. There Is no doubt that we shall have to concentrate more on essentials and see that we obtain the greatest possible value for the money expended. An agreement has been made with the Royal Mint for the Dominion to receive half the profits on the future supplies of silver and bronze coin ordered for this Dominion, less worn coin returned. The agreement is based on the average over a period, and we have already received on account of the present year an amount of £13,820. The abolition of the Land Assurance Deposit Account will benefit the revenue to the extent of £22,000. Provision was also made last session for the profits of the Post Office to be paid to the Consolidated Fund, so that this fund will receive the benefit from the reduction in salaries and other economies that have been effected. Utilisation of Reserve Fund. The state of the public finances during the current year is probably more serious than at any time during the past fifty years, if not during the whole history of the Dominion. Further, the economic position generally Is such that it is imperative that increases in taxation be kept down to an absolute minimum. Under these circumstances the Government considers that this is a time when any reserves that can legitimately bo drawn upon should be used. Accordingly it is proposed that the balance of the Reserve Fund held in London, over and above the £1,500,000 earmarked for earthquake restoration, shall be realised and paid into the Consolidated Fund, which will benefit to the extent of about £550,000. I may add that it is proposed to obtain legislative authority to utilise any surplus there may be >n the Consoidated Fund from time to time towards the restoration of this Reserve Fund.

Provision has to be made for additional interest, £250,000, while under the funded, debt agreement and the repayment of the public debt scheme there is an automatic increase of approximately £IOO,OOO. Pensions normally show an increase, hut this year it is anticipated that the increase will be larger than usual. The total increase is set down at £200,000, while other permanent appropriations Involve an Increase of £75,000. Failing new legislation, a further increase in this year’s expenditure will arise from the return to the consolidated fund of the charges for subsidies to local authorities and other Items transferred to the highways revenue pursuant to sections 36 to 38 of the Finance Act, 1930. The intention in imposing a limitation on the transfer of the charges was that the matter should be reconsidered this year. For the balance of this financial year the charge to the consolidated fund would be about £125,000, but under present circumstances I think it will be generally agreed that the items in question must remain a charge on the main highways account, or the 2d. per gallon petrol tax imposed to cover the charges must be retained for the consolidated fund.

Further Increases in expenditure arise under the annual votes. An increase of about £130,000 in the net expenditure comes from an estimated decrease of that amount in the credits in aid.

The general election will add £75,000 to expenditure, while the normal increase in the cost of education, assuming operations were continued on the same basis as heretofore, would amount to £IOO,OOO. Then surveys in Hawke’s Bay will entail extra expenditure amounting to about £22,000, while various other items will have to he increased as a result of the earthquake. The particular items I have mentioned mean an increase in the vote expenditure of. £327,000, and numerous other items scattered through the votes bring the total additional expenditure under annual appropriations up to approximately £480,000. To sum up the position that faced the country, the effect of the economis crisis on the public finances is now found to be such that when this financial year opened the Government had to grapple with the stupendous task of providing, in one way or another, for a prospective deficit of no less than £6,850,000, made up as follows:

Shrinkage of Revenue—Customs. £2,030,000; land and income tax, •£600,000; stamp and death duties, £690,000; beer duty, £115,000; railway interest, £930,000; interest on Publio Debt Redemption Fund, £165,000; otiier items (net), £280,000. Total, £4,810,000. Expenditure Increases—Unemployment subsidies, £1,100,000; debt services, £350,000; pensions, £200,000; subsidies to local authorities, etc., £125,000; education, £100,000; general election, £75,000; decreases in credits to votes, £130,000; other items (net), £250,000. Total (less adjustment, to under-expenditure for 1930-31, £290,000), £2,040,000.

Remedial Measures. Thus £6,850,000 had to be provided for, but a great deal has been accomplished towards bridging the gap. In accordance with the provisions of the Finance Act salaries and allowances of Cabinet Ministers, members of Parliament, and the whole Public Service have been reduced by 10 per cent., while corresponding reductions have been made In the wages of all temporary men. These reductions relieve the expenditure of the Consolidated Fund to the extent of £1,390,000.

Apart from salaries, the work of the Economy Committee has enabled substantial reductions to be made in the expenditure. In the ordinary course relief from debt charges can come only from conversions at lower rates of Interest and repayments of debt, but some unexpected assistance will be obtained this year, and also next year, as a result of the proposals of President Hoover for one year's suspension of payments on account of reparations and inter-Governmcntal war debts. Allowing for the reparation moneys already received, the net saving to the Consolidated Fund for this year is approximately £870,000. Apart from the 10 per cent, reduction in economic pensions no reductions have been made in pension rates. The reductions which were made under Permanent Appropriations apart from salaries total approximately £125,000, including a reduction of £25,000 in the annual contribution to the Singapore base.

It is also proposed to utilise about £590,000 held in the Discharged Soldiers Settlement Depreciation Fund. This fund was built up by transfers from the Consolidated Fund, together with accumulated Interest on Investments, and was established for maintaining the value /if the securities issued in connection with the discharged soldiers’ settlement loans. It is no longer required for this purpose, however, and It was intended to use it for debt-redemption purposes, but the present circumstances justify transferring the money hack to the Consolidated Fund.

All these proposals will provide towards making good the prospective Budget shortage of £6,850,000, a total of £5,056,000, made up as follows: — Reductions In salaries and wages, £1,390,000; benefit from suspension of funded debt payments, £870,000; other economies in expenditure, £595,000; Post Office surplus and other additional revenue, £936;,000; use of reserves, £1,140,000; subsidies to local authorities, etc., to a charge on Highways Account, £125,000. This leaves approximately £1,800,000 to be provided for by additional taxation. Taxation. It is with much reluctance and regret that the Government brings down any proposals for additional taxation, but it will be clear that every effort has been made to meet the situation by other means. Let me say quite sincerely that I have well thought over the consequences that would result were the Government to budget for a deficiency, and I am satisfied that the only course to pursue, if the interests of our people are to he properly safeguarded, is to keep the ship of State on an even keel, and maintain our public finances on a sound basis. Towards the last £1,800,000 required to obtain a balanced budget it is proposed to obtain £730,000 from additional income tax. For last financial year the tax was levied at certain prescribed rates, plus 10 per cent.., but for this year the surtax will ho increased to 30 per cent. In addition, the present general exemption of £3OO, diminished £1 for every £2 of income between £450 and £750, anil £1 for £1 between £750 and £9OO, will be cancelled, and replaced by a general exemption of £260, diminished £1 for every £3 of Income between £260 and £560, and £2 for every £3 between £560 and £BOO. It is proposed to obtain a further amount, estimated at £50,000, ' from additional stamp duties. A duty of 5 per cent, will be imposed on overseas steamer tickets, and a duty of 10 per cent, on art union tickets in the case of art unions for mineral specimens of a value in excess of £IOO. The balance of the amount required will come from Customs and Excise duties. Budget Estimates. Allowing for these increases in taxation, and also for the economies and adjustments previously enumerated, 'it Is estimated that the revenue for the year will be as follows: Customs, £7,410,000; beer duty, £650,000; film-hire tax, £50,000; motor vehicles (duties and licenses), £1,760,000; stamp and death duties, £3,140,000; land tax, £1,100,000; income tax, £4,230,000; interest receipls, railway capital, £930,000; Post Office capital, £535,000; public moneys, £745,000; Public Debt Redemption Fund, £820,000 —£3,030,000; miscellaneous: Post Office surplus, £1,090,000; from reserves, £1,140,000; other £1,346,000 —£3,576,000. Grand total, £24,946,000. To sum up, the position on the basis of the Government's proposals Is estimated to be: Revenue, £24,946,000; expenditure (permanent appropriations £17,679,904, annual votes £7,083,877), £24,763,781; leaving £182,219 to provide for supplementary estimates and contingencies.

Conclusion. I have now reached the end of what I venture to predict will prove to be in years to come a document of great historic interest. The economic storm has been felt severely even in the older countries of the world, where the very foundations of leading nations have been severely shaken. Tills Dominion had to withstand the full force of the storm, for the prices of primary products fell first and most heavily. So far this Dominion has responded well to my earnest appeal to put our house in order, and I am confident that the spirit of the people Is such that a real desire exists to have the task completed as soon as possible. In this fair land we have a wonderful heritage. Our people are a vigorous and virile race, strong in resource and rich in experience and tradition.

I see no reason to doubt In even tho smallest degree either tho will of the Inhabitants to survive our troubles, as has frequently been done in the past, or their readiness to make the required effort or to accept whatever sacrifice may be needed as soon as the nature of and necessity for such Is clearly explained and understood. I referred at the outset to our heavy loss of national income, and Just let me explain that In the last analysis income depends on work, saving and management. The State has no magic purse out of which the loss of Income represented by the heavy decreased values of exports can be made up. Our objective, therefore, must be such a readjustment of the relation between costs and prices as will restore the main industries of the Dominion to a healthy stale. Some improvement In prices has already taken place, and the indications are that once confidence throughout the world Is restored a general Improvement will follow. Finally, let all sections of the community realise that the simple key to the solution of our problems lies in hard and honest toil, in the exercise of thrift, and in the fostering of a spirit of reasoned enterprise. Given these simple factors and stability in Government, it requires no great effort to prophesy that we will soon reach a road that will lead to greater prosperity and happiness. I conclude with the confidence that the Government wjll receive the assistance and support of the people to attain that goal.