NO CHANGE IN TAXATION

Waikato Times, Volume 114, Issue 19100, 10 November 1933, Page 3

NO CHANGE IN TAXATION

DEFICIT AT END OF CURRENT YEAR. EFFECT OF REMEDIAL MEASURES. FINANCE MINISTER’S REVIEW. The Minister of Finance, Right Hon. J. G. Coates, submitted his Budget to the House of Representatives last evening. No changes in taxation are proposed and it is expected that though last year closed with a. surplus of £42,000, the current year’s operations will show a deficit of £2,094,000. The exchange rate is to stand.

TAXATION UNALTERED.

DEFICIT FORESHADOWED.

FINANCE MINISTER’S SURVEY.

POSITION AT END OF MARCH

(Special to Times). WELLINGTON, Thursday. The Minister for Finance Hon. J. G. Coates), reviewing- the present budgetry position said: —- Under the revised estimates at is anticipated that receipts from taxation will amount to £16,214,000, an increase of £609,000 over receipts for last year. Under the various headings "of taxation additional revenue oompared with last year will, It Is estimated, be obtained as follow: From Customs, £69,000; sales tax, £1,71 000; gold exp&rt duty, £124,000; and miscellaneous items, £49,000: a total of £1,954,000. Against this must be set off decreases under other headings aggregating £1,345,000. The heaviest fall is anticipated under the heading of Income tax. Recf'Pt 3 for last year exceeded expectations, but were £891,000 less than for 1931-32. For this year a further drop of £857,000 is expected, making a total decrease of £1,748,000, or over one-third of the revenue in two years. The estimate for land-tax is now down to £450,000,'a decerase of £49,000 as compared with last year’s receipts. Stamp and death duties show a comparative decrease of £399,000. The highways revenue from petroitax, tyre-tax, and fees and fines has been less affected' -by prevailing conditions than other items, but a decrease of £30,000 has been allowed for. Interest Receipts. In regard to interest receipts, the position is better than formerly anticipated, here being now an estimated net decrease of £90,000 only. The decline in railway revenue now appears to have been checked, and the estimated decrease in interest payments to the Consolidated Fund is now only £59,000. In the third revenue group, Other Receipts,” there is an estimated comparative shrinkage -of £780,000, of which £500,000 is due to the fact that assistance from reserves this year will amount to £2,000,000, as against £2 500,000 for last financial year. The balance of £280,000 represents a further shrinkage in departmental receipts, the principal item concerned being Post and Telegraph profits, where the estimated decrease is £206,000.

All told, the estimated , revenue for the year falls £263,000 short of the actual receipts for last year. On the other side we have to make provision for £555,000 additional debt charges. The largest contributing item, is an increase of £415,000 in interest charges. The gross annual saving in interest as a result of the conversion operations Is approximately £1,010,000, but-the full benefit will not be received during the current financial year. The raising of the exchange rate, while clearly necessary as a step In economic adjustment, has the effect of increasing Government expenditure, as measured in New Zealand currency, on external debt charges. The exchange cost on London requirements is estimated for the financial year at £1,790,000.

During the half year ended on September 30, London funds purchased from the banks amounted to £13,345,000, but from this must be deducted the £8,500,000’ required for use in London and Australia, leaving £4,845,000 as surplus sterling assets. This last amount is greater than it should have been owing to the cumulative effect of a number of factors, among •which I may mention the remittance of funds to New Zealand in advance of export requirements and the holding back and temporary avoidance of purchasing exchange on the part of importers and others who normally would have remitted funds from New Zealand during the period in question. In due couse these outside factors will even themselves oi\t, and there is some evidence that the reflex action is already started.

The Exchange Rate. The situation has been aggravated by unfounded rumours started from time to time to the effect that a fall in the exchange rate is about to occur. This stale of uncertainty is bad for business ,as merchants hesitate at tho risk of being caught by » sudden fall in the rate.

To remove the uncertainty In regard to the matter, tho Government has doclded that the exchange rate will be kept at the present level until at least the end of tho presont export season. This does not moan that, at tho ond of tho soason, the rate will be reduced or that It will not bo Increased. It does moan, and It moans definitely, that In the absence of abnormal world developments which cannot now be foreseen, tho rato will not bo reduced prior to that dato. This assurance has boon given to remove any doubts on tho matter. It is an assurance that concerns not only producers but all who havo financial obligations to moot In tho Unltod Kingdom.

The surplus London assets taken over under the guarantee arrangement will in no way embarrass the Government,. The intention is to utilise the funds through the machinery of the Reserve Rank to pay off tho Treasury bills issued to the Ranks in New Zealand In payment l'or those assets; in other words, the London funds have been acquired in exchange for Treasury bills, and as

soon as the Reserve Bank commences operations it will, in effect, be possible to reverse the process and use the London funds to pay off bills. In handing over the sterling assets to the Reserve Bank, adequate precautions will be taken to ensure that the financial position of the Bank will not bo prejudiced in any way. It would be manifestly improper to placo upon the new Bank the risk of loss through variations in the exchange rate on funds transferred to it at its commencement. Thus the net cost of the exchange indemnity arrangement cannot be known until either all the London funds in question are sold by the Reserve Bank or stabilisation of the -currenoy takes place. It would be premature at this stage to contemplate any loss arising; indeed, in certain circumstances the ultimate result might be a net gain. But the point to be emphasised is that the risk .—be it large or small—will not be borne by the Reserve Bank. That Is the Government’s responsibility. In the meantime, the outlay in purchasing surplus sterling assets must be regarded as a suspense item outside the normal budget for the year. Useful tor Reserve Bank.

I may add that the London assets in question will be very useful indeed to the Reserve Bank as it will give that institution, from its commencement, a commanding position in our banking system whioh otherwise it probably would not have acquired for some time. Under annual appropriations a net increase of £162,000 is shown. As a reflex of present eoonomio conditions applications for pensions, particularly old-age pensions and family allowances, are more numerous, and for this reason It has been necessary to Increase the '“Pensions" vote b.y £150,000. There is also an Inorease of £43,000 In the “Naval” vote, due to the fact that both cruisers will be in commission for the full year. For the “Military" vote an Increase of £21,000 Is shown on the main estimates, but it will be necessary to provide an additional £52,000 on the supplementary estimates. For purposes of economy the expenditure on; land and air defence has been severely curtailed during the last three years, the amount expended last year being only £208,000, as against £455,000 in 1929-30. The Budget estimates of expenditure may he summarised as follows: — £

The actual deficit that accrues at the end of the year will have to be carried forward in the form of floating debt, but I would point out that the estimates of expenditure include £1,366,000 for repayment of debt under the statutory debt repayment scheme. fi’lius the net increase in debt as a result of the year’s operations on the basis of the estimates will be about £750,000 only.

Budgeting for a deficit cannot be regarded as satisfactory, and in normal times would be Inexcusable. At .present, however, wo are driven to It by the adversity of circumstances over which we have no control. If It Is not to add to our troubles we must keep the budgetary position within safe limits, and as a result of tremendous efforts and heavy sacrifices manfully borne by the people this has been ac-

complished. Further than this I do not think it wise to go in present circumstances. Our intention is to reach budgetary equilibrium at the earliest possible moment; hut to have attempted to achieve a balance this year, either by increasing taxation or by further slashing expenditure, would have involved a far greater strain on the internal structure of the country than would have been advisable in present circumstances.

It is accordingly not proposed to make any further increases in taxation, hut, on illc other hand, it will he clear from the position I have outlined that reductions in taxation are out of the question at present. "When in due course we come to look hack upon these times it will ho recognised that three measures which have been taken, however contentious they may have been when initiated, stand out as landmarks along the road to recovery. These, arc—

(l) r l’hc adjustment of the exchange rate; (2) the conversion of the whole (Continued iu next column.)

Infernal debt, with related measures for stabilising interest rates at lower levels; and (3) 11m establishment of the New Zealand Reserve Rank.

In the meantime tho essential fact Is that tho depression Is passing, and, though much remains to be done to complete tho work of restoration, we can go forward with Ilghtor hearts buoyed u.p with the prospect of bettor times ahoad.

Debt services 10,445,000 Exchange on normal requlrements . . 1,790,000 Transfer of motor taxation 1,179,000 Other permanent appropriatlons • . 340,000 Social services . . 6,900,000 Other votes 3,597,000 £24,251,000 In addition, probably about £150,000 will have to be allowed for supplementary and contingencies. Estimated Revenue. The estimated revenue is as follows:— £ Customs 6,200,000 Beer duty . . 650,000 Sales Tax • . 1,750,000 Gold export duty . , 140,000 Highways 1,650,000 Stamp and death duties 2,600,000 Land-tax , , 450,000 Income-tax . . 2,700,000 Miscellaneous 74,000 Interest receipts . . 2,551,000 Other receipts . . 1,541,000 From reserves •• 2,000,000 £22,306,000 The estimated budgetary position at March 31 next Is thus: — Expenditure !• •' 24,400,000 Revenue •• 22,306,000 Shortage • • £2,094,000