8.—6

XXII

argument does not seem to* be sound, because we are at the same time saving interest by issuing the loans at a low rate. There is again a very strong departmental difficulty in regard to the taxation of loan interest in cases where the sxibscribers purchase bearer bonds. Bonds pass on delivery, and it would be impossible for the Treasury or the Commissioner of Taxes to trace them. There would thus be no check on income returns of owners. The conscientious taxpayer would include his interest, and the taxpayer who desired to evade payment could with perfect safety omit the interest on bearer bonds from his income-tax returns. On the other hand, investors in inscribed stock can always be traced, as the transfers of this stock are registered in the Treasury, and the stock does not pass on delivery. The tax could therefore be enforced against holders of inscribed stock, but not against holders of bearer bonds, and the incidence would therefore be inequitable. It cannot be questioned by the veriest novice in finance that if I had authorized loans, even at the rate of 5| per cent., with income-tax the cost of money to all classes of the community requiring to borrow would have gone up considerably, and the annual loss to those using borrowed money, and indirectly to the country, would have been very great. By the course followed the rate of interest for money has been kept down throughout the war period, and money required in New Zealand to-day can be obtained at a much lower rate than is the case in most other countries. There can be no question that the free-of-income-tax condition proved a very great incentive to investors and has greatly contributed to the success of our war loans. I trust, however, that it will not now be necessary to raise very much more war-money in the Dominion. Great Britain, Australia, the United States of America, and Canada have all found it necessary to raise a large portion of their war loans free of income-tax. The last Canadian war loan of £100,000,000 was raised at per cent, interest free of income-tax, it should be recognized there must be some good reason for this. In our own case we required money of an unprecedented amount, and it was necessary to hold out inducements in o*rd.or to obtain such huge sums. Many of those subscribing found it necessary to borrow money themselves at not less than 5|- per cent, interest, and i am of the opinion that the best and safest course has been adopted. It will not, in my opinion, be possible for the public of the Dominion to readily absorb the large amount of war-loan securities issued in New Zealand, and when conditions again return to the normal after the war I anticipate that the Imperial Government will not raise any objection to the quotation of our war securities on '■"" the London Stock Exchange. lam of opinion that all of our war securities should bear the same rate, and be issued under the same conditions as regards freedom from New Zealand income-tax, and I do not therefore propose to alter the conditions when the next loan is offered. LOAN FOR PUBLIC WORKS. Under the administration of the Public Works Department the expenditure on public works has, owing to the war conditions, been confined to pressing requirements only, and the Treasury has been able to supply the necessary funds from local sources to meet this expenditure. During the financial year 1917—18 £870,100 was borrowed, mainly from the Post Office, and at the 31st March last the unexhausted authority for borrowing stood at £725,000. In order that the expenditure on necessary works may be continued it will be necessary to ask the House for additional authority for £2,500,000. Of this amount £280,000 will be required for telegraph extension, £300,000 for school buildings, and £150,000 for hydro-electric schemes. SCHOOL BUILDINGS. The greatly increased cost of constructing new buildings and of maintaining and improving existing buildings, referred to last year, has been accentuated, and the policy of confining the expenditure to works that are essential to meet pressing requirements has as a matter of necessity been continued. In this connection it should be mentioned that the postponement of a number of applications for building grants will necessitate provision being made for larger expenditure in the future.