WAR FINANCE.

Press, Volume LIV, Issue 16158, 12 March 1918, Page 7

WAR FINANCE.

QUESTION OF TAX-FREE LOANS. 1 SIP. JOSEPH WARD REPLIES 'JO CRITICS. .Joj-eph Ward '/Mini.-tpr of Fir.rirtf"! hy r representative v«>terJ."y whether he dev.red to mni.e any <tatemont u",".on the con> ineU of flip I lon. C;. Few id:-, at ihe ( Union on Wednesday lust i;i r"'i': er.pp lo the obtaining rf war loans in New Zealand free of income tax. Mr Fmvlds having stated hp fon'-ifl-rpd :t tho greatest financial crime of nil t'.ie ape?. Sir Joseph L;:iid lip had noticed 'be criticism fii' Mr Fowlds, who was fully «>jitith:d t'j his own opinion. The fact remained. however, that during this unparalleled v ::r which bad already |:rod'.i'.ed liiiuncmi revolutions in the •.'.hole of the countries fighting on <rr s:d'>. including New Zealand, criticism cf ihat. kind, indulging in genera!itie->, vr.,' not, of any practical use to miy Minister of Finance in whom was vested the; nnrri %-dented resnonsibilitv >i financing ilie portion of ihe Empire to which he belonged in order to provide the wherewithal to carry on the war. ft would he admitted by the greatest neophyte that failure on the part of any portion of the Empire that was doing it-; tart in connexion with the war wouid mean its standing out . nd letting the other portions of the Ftnpii e that faced the new and unexampled ;iosit:on carry on the war without its assistance. It was a fact which could not be contradicted that Great Britain, the United States < t America. Canada, and Australia had rll obtained large, portions of their •■ar moneys hy offering a rate of interest to investor?: free of income tax. "This is well known.'' said Sir Joseph, ''but I give one illustration as a case in point. Canada not long ago brought on the market a war 'oa.u at 5j per cent, free of income 'ax. The United States of America, England, and Australia have all raised enormous sums, manv millions —I have not the figures bv me at the moment— fro 3of income tax. In some instances the option of a rate plus income tax was offered, but in every instance so far as I know the free cf income tax issue was put upon die market. In the case of Australia tdl her loans, excepting the present one, were put upon the market at 4J per cent, free of income tax. and the present loan of forty millions now being floated in the Commonwealth gives tho option of 5 pei' cent, plus income tax, or 4-3 per cent, free of income tav. The result will show this to be in reality a 4i per cent, free of incomo tax loan.

POSITION ILLUSTRATED. "My responsibility, however, :-s Minister of Finance, applies to New Zealand only, and I will just show whdt it would mean to this country if I were to follow the advice of wellintentioned critics who in general terms use strong language to emphasise tauu views without in any way showing what the effect of their proposals, if put into operation, woiiM be. For this purpose I put the war loans that tins country will require at one hundred million. It mav, of course —let us all hope that such will be the case—not amount to that sum, but in vieiving a position of great uncertainty. without any knowledge of when the war will terminal-:, that amount will suit the purpose I have in hand. If it should happily turn out to be less, then the results, in proportion to the smaller amount, will be so much less for this country, but it will affect my argument only to the extent of what that oropurtion may turn out to be. "Now. £100,000,000 at 4} per cent, free of income-tax will cost tnis country £4,500,000 per annum. If we borrowed at the equivalent rate plus in-come-tax, we would pay approximately 6J uer cent, on £100,000,000. That would amount to £6,50(1000 per annum ; that is, the country would pay £2,000,000 per year moflp for interest than under the system of free of in-come-tax, which has been followed within 'the Dominion up to now. The income-taxpayers on the £6,500,000 would pay, on the present graduated scale, at an average of 4s per cent., £1,300,000 per annum, that is. £700,000 per annum less than we would be paying them for interest. If the incometaxpayers averaged 5 per cent, they would pay £1,625,000 • per annum for income-tax. That would bo £375,000 1 less per annum than we now gain Tinder tho free of income-tax system. "In my opinion an increased graduation of income-tax of 25 per ceht. would not produce more than an average of -i per cent, income-tax, as even when the war is over, if our war loans reach £100,000,000, the combined ordinary and war income-tax would not average more than that, and then on the higher incomos it would be a vory heavy tax. Quite irrespective of the question of freedom of income-tax from war loans, our taxation to provide for the increased responsibilities in the futuro must come largely from the class of peopks who are being exempted from incometax upon the moneys provided for war purposes.

ANOTHER ASPECT. "That is one aspect of the question. ] Here is another, tho importance of which cannot, I assert emphatically, be overestimated by any well-wisher or this country. The largo Government lending institutions were given definite instructions by me that tncy were no to increase their lending rates during the war period to over 5$ per cent, llie advances to settlers and the advances to workers for the providing of hornet for them have beon kept, and will be kept, throughout the war at 4J per cent, for prompt payment, and if tho time for proinnt payment is exceeded, then the rato has not exceeded, and will not exceed, 5 per cent. If we were to raise our rate to that at which. Canada has produced its loan, namely, oi per cent, free of income-tax, upon the san.o line of argument adduced by the adverse critics of the policy, 1 would bo the equivalent of an investment at 1\ per cent. Docs any saiie man bolievo it w 9 uld bo possible for tho banking institutions that agreed upon the flotation of the last loan to help subscribers to obtain overdrafts to invest in the war loans, to keep the rates down to what they are now? I have no hesitation in saying that, it as a matter of policy we were to follow the advice of the critics who have no responsibility, the rates of interest upon mortgages, to business firms for their usual banking accommodation, to workers for tho erection of their homo?- and to settlers could not be honcstlv or legitimately prevented from going up. Rentals would moreosfwn erer'v town in New Zealand, and we would lay tho foundations for financial restrictions, and. indeed, panic, the effect of which unon the country generally n 0 one can (vstimato, but that it wonld be disastrous in its course the history of every financial •crisis that has taken place in any "oiintrv warrants one m predicting with no uncertainty. LOSS WOULD* IIESULT.

"Somo of the strongest critics of what is being done declare our 4} r>er cent frou 01 mcomo tax is equal to a cent, investment. Som e ot them "sav the investment is worth even more than that, but if we paid 6* par cent, with income tax payable we would lose £700,000 per annum; that is the difference between £1,300,000 per annum that the taxpayers would pav bv way of income tax and the £2,000,000 per annum which we save at -U per cent. In would result, in a loss of £14,000,000 to

this country. In thirty years—which is not an unreasonable period to oxpect the repayments of war loans, though issued for a shorter period now, to occupy—it would result in a loss of £21,000,000. Supposing the income tax levied averaged 5s per cent., we would get in incomo tax £1,025,000 per annum. That would mean a loss of C375.0G0 nor annum, as against the .€2,000.C00 per annum which we are now saving a 1 4J per cent. That would amount in thirty years to a los« to the country o? £11,250.000, but, as f have a!readr said. I do not think the incomp tax on a graduated s-n!c would bp more than 4 r 01 " cent., j»tv! ] believe th' 1 £21,000,Cr,0 loss to t!i» ecuntrv in thirty years would work oin urotfv near the mark. ••I feel"it mcessary to remind critics i'i.-it in dealing with '.he incomes of individuais and companies, thoy must not f'iri r "t. that the amounts these indiyiduals and companies subscribe to war cpi! at the be* I be only a portion nf incomes thry are earning. They pr>„M not nossiWy withdraw the whole cf i!' ir assessable income to invest in war loans, "'id a very large portion — it is i?n«jrssih!e to estimate it —has of necessity to remain in their businesses upon which both ordinary income tax an<' ,- av tn:: continue to be payable, and if anyone wem to anme thft thev on'fl invc.'t anvthirig nnproa'diing all the'' - r-'Tiinn'c in war loans it would imp'y that they were going to face (ivi|n»(iQi. in so far as the carrying; on of their was concerned. MORTGAGES IX NEW ZEALAND. "I have not got the last available figures of the amounts of mortgages existing in New Zealand, but the ligurcs on 31st March, 1016, show them to be, in round figures, £22,460,000, and the latest iiguics I have available lor advances and bills discounted by banks are £23,840.000. On these amounts the same proportionate increase in lending rates that tho Government is urged to adopt, namoly 2 per cent, extra, would mean £D2d,000 per annum. It is quite truo that tho moratorium applies under certain conditions to mortgage's, but it would be difficult for the Government of the country, if it forced up tho rates, to deny to individuals some relaxation upon a similar basis. The moratorium dr.es not apply to local public bodies. Tho cost to them for money would certainlv advance in proportion to the cost established by the Government, and the policy which I believe to bo in the truest interests of every section in this country—that cf keeping money low and ns cheap as possible throughout this war—would of necessity have to he readjusted.

FINANCIAL RESPONSIBILITY. "Finally, why are the various portions of tho British Empire, including ew Zealand, appealing for subscriptions for war leans free of income tax? 1 It is because the amounts required are excessive and, at all events in the case of New Zealand, beyond anything ever dreamt oi as being likely to be asked for. Tho money is tied up, in tho war loans in the first instance, for a period of twontv years or more. There are comparatively few people in tho country who can afford to withdraw money, individually or from their businesses, without obtaining financial resistance to enable them, to do so. If there were not some incentive lield out, many who liavo loyally and magnificently responded, would not in any of the countries liavo undertaken, in many cases beyond their ujotiis, a heavy additional responsibility. "There is no country beyond New Zealand to which we could at present go and obtain money under GJ per cant., anil then with a heavy disccunt off our loans. In the interests of _ financial safety for tho country, it is impossible for me to adopt the proposals of wellintentioned -people . who are entitled to their own" views, but whoso advice would be useless to mo as Minister of Finance if an unholy mess were made of the finimces of tho country during war time, and the confidant opinions they express would be no oxcuse from my standp-int for yieM'ng to representations of the kind. _ I should have greater confidence in their judgment if countries like the United States of America, like Canada and Australia, like Great Britain, had adopted such a policy as that they are now urging, but f am satisfied m my own mind that, for reasons very similar to those which have prompted me, tho course which they have suggested was regarded by experienced men as a dangerous , one upon which to ombark."