LOANS TO MEET WAR COSTS

Press, Volume LXXIX, Issue 23965, 4 June 1943, Page 6

LOANS TO MEET WAR COSTS

From Our Parliamentary Reporter WELLINGTON, June 3. Taxation will not be increased this year, though New Zealand’s war requirements for 1943-44 are estimated at £148,000,000, which is £4,000,000 more than was actually expended and £15,000,000 more than the estimated expenditure last year. Public war loans (with national savings), including a new Liberty Loan of £35,000,000, are expected to provide £40,000,000 towards offsetting the deficit of £50,000,000 left after taking into account revenue from taxation, reciprocal leasc-lend aid, transfers, and borrowing under the Memorandum of Security Agreement. The remaining £10,000,000 will be financed from departmental funds estimated to become available for investment. This was announced by the Minister of Finance (the Hon. W. Nash) in presenting the Financial Statement in the House of Representatives this evening. Estimated expenditure on the armed forces was £112,000,000 (Navy £10,000,000; Army £68,000,000; Air Force £34,000,000), Mr Nash said. A national development programme of £6,500,000, largely housing and hydro-electric development, was also announced by the Minister. Provision has also been made for increases in war pensions, widows’ pensions, family benefits, general pensioners’ benefits (to operate from July 1), and in hospital benefits.

While it was impossible to estimate thg needs of the war so far ahead, Mr Nash said, financial requirements of the War Expenses Account, based on the evidence available, to March 31 next year were estimated as follows: War Expenses Account Expenditure (in millions of pounds) Navy .. .. .. •• 10 Army .. .. • • • • 5? Air ’ .. ■ • • • ”34 Civil .. • • • • .. 16 Reciprocal aid: Reverse Lend-Lease 20 .Total 148 Revenue (in millions of pounds) War taxation (at existing rates) 40 Transfer from Consolidated Fund of 1942-43 surplus (£4,200,000) •and further £1,500,000 from 1943-44 revenues .. ..-5.7 Miscellaneous 0.3 Amount to be borrowed from the United Kingdom Government ■ under the Memorandum of ‘ v Security Agreement ..12 Reciprocal aid: Lend-Lease ... 40 'Total 98 Deficit .. .. ..50 “In regard to the Army, the estimated expenditure of £68,000,000 represents a decrease of £20,900,000 compared last year’s &id ;Mr Nash. “Tliis Is the result, in the main, of the reduced requirements for equipment, vehicles, etc., the tapering off of capital expenditure in New Zealand in the form of camps, and a reduction in personnel, while a savjinf will also be effected irv our expenditure overseas due to the fact that las* year’s expenditure included the epd of initial equipment supplied to our fbreps in the Middle East. ! “The Navy estimate represents- an Increase of £1,500,000 over last year’s expenditure. This is due principally to the purchase of additional ancillary vessels and to additional pay and allowances consequent upon increased personnel, “For the Air, this year’s estimate of £34,000,000 represents an increase of £9,700,000 over last year’s expenditure. The substantial development which has taken place in the Air Force is a matter of common knowledge. Not only has there been a large increase in tho equipment and personnel, but there has been a corresponding increase in pay and allowances. In fact, speaking generally, there has been an increase, in all headings of Air Force the main exception of aerodromes and buildings, AS the capital programme in this respect Is rapidly approaching completion.” Mr Nash said that reciprocal aid to the United States estimated at £20,000,000 represented an increase of £13,000,000. Taxation and Loans “The estimated revenue of the War Expenses Account includes taxation at the existing rates amounting to £40,000,000, together with the usual transfer of £1,500,000 from the Consolidated Fund and last year’s Budget Surplus of £4,200,000,” Mr Nash said! “Transaetions under the Memorandum of Security Agreement with the United Kingdom Government are estimated at £12,000,000, compared with last year’s gross total of £15,400,000. The reduction is due to the fact that we have now paid for the cost .of the initial equipment supplied to our forces. “The principal item under the lendleaise heading of £40,000,000 is the provision of aeroplanes, while oil fuel, equipment, and supplies for the armed services and other essential purposes account for the balance. “The war expenses programme for the current year, on the basis of the estimates I have already quoted, shows a deficit in-the provision of funds of £50,000,000. “It is proposed to finance this deficit to the extent of £10,000,000 from departmental funds estimated to become available for investment, leaving £40,000,000 to be raised by public war loans, including national savings. In view of the necessity to obtain this huge amount to finance our war effort I have to announce that a third liberty loan for an amount of £35,000,000 was opened on Tuesday, June I- It is anticipated that the' b*l#nce of £5,000,000 required can be obtained later in the financial year through over-counter sales of stock or advance subscriptions to the next loan. ‘This war loan will be on the same basis as .its predecessors—interest at 2i per cent, or the short-dated securities maturing on June 15, 1947-49. and 3 per cent, for the longer-dated securities maturing on December 15, 1953-56. The Joan v/ill be issued at par and will close on July 10, 1943, . meet the needs of all classes of investors, various methods of subscription have been provided. In the first Place payment in lull may be made with the application, and interest will accrue from that date, A second tion h °Pin S £3 ° P f r cent 011 “PPlicaP er . c ent, on August 25. and W a' i ai* ° f rp? 4o cent - on Octo- . e i.,1943. The third method, and ® n , ew feature been introuced, is for subscribers to pay £3O per cent, on application and £lO per each an^ U !r St 11 and the Seventh of each succeeding month up to and including February li, 1944 National Savings To enable persons with small means M assist, the national savings scheme incorporated fr'-tha loan

programme. Under this scheme anybody may buy £lO and £1 bonds, which will return £ll 7s 6d and £1 2s 9d respectively in five years. Contributions to existing national savings accounts or to new accounts opened for the purpose will materially assist the loan, especially if contributions are made weekly or monthly over the next few months according to the means of the contributor. “I cannot stress too strongly the necessity for all to contribute to these loans to the fullest extent possible. All will agree that we owe it to our armed forces in the several theatres of war in which, they are engaged to see to it that they are supplied with the sinews, of war to the limit of our rejources. This objective can be achieved only by either taxation or investment in war loans. The war activities themselves have necessarily resulted in additional spending power in the Dominion, and if an attempt were made now to apply such extra spending power to a declining supply of goods and services availablte for civilian consumption, it is clear that serious economic difficulties would result. To inves in war loans and sayings is not only directly assisting in bringing the war to a victorious conclusion, but is providing the investor with funds which will be : available to him when the peace is won and adequate supplies of goods and services are again available. . . "The ' comparatively small number of investors in past war loans points to the generally-accepted idea that such loans are applicable only to the large institutions or to individuals with substantial sums to invest. The demands of war, however, alter these conditions very materially. As the free capital at the outbreak of war becomes absorbed in war purposes it becomes increasingly necessary for war loans thereafter to be financed from current savings. In other words, support to war loans is essentially-part of the people’s war- effort. A portion of the amount required still comes from the financial institutions in the form of current accumulations of the people’s savings in life insurance premiums, mortgage repayments, etc., but the private individual must carry directly a much greater portion of the responsibility for filling a war loan. And it is not only surplus income that is required, but that each individual will go without those luxuries and things which are not absolutely necessary, and divert the savings so made to the war effort. Public Debt Operations "The whole of the State activities are now geared to the prosecution of the war, and borrowings last year were therefore almost entirely for war purposes. A sum of £3,465,000‘was raised for national development purposes, mainly for housing and hydro-electric supply, and to cover exchange on remittances to repay portion of the 193945 London loan, while the balance of gross borrowings amounting to £80,000,000 were for war purposes. "Public debt operations last year resulted in a gross increase in the debt of £83,465,000," said Mr Nash, "which sum was obtained from the following sources:— £ Public loans in New Zealand (including advance subscriptions) .. .. 28,901,000 National savings investments .. .. 3,972,000 Voluntary interest-free loans 31,000 Memorandum of Security Agreement with United Kingdom Government .. 15,437,000 Departmental issues and Reserve Bank ~ 35,124,000 Total .. ~ 83,465,000 "Against this gross increase must be offset repayments during the year ot £5,038,000. The year thus closed with a net increase of £78,427,000, of which £73,908,000 took place in the Dominion and the balance of £4,519,000 in the United Kingdom, Apart from the Memorandum of Security Agreement, debt domiciled in London was reduced by £2,918,000 during the year. "Concerning the Memorandum of Secuiity Agrement the amount of-this debt on March 31, 1942, was £2.818.000, while transactions during 1942-43 were borrowings, £15,437,000; repayments, £8,000,000; leaving the amount outstanding on March 31 last at £10,255.000. The repayment of £8,000,000 in London was financed from borrowing in New Zealand, and thus had the-effect of transferring the domi. die of the debt to New Zealand. Since the close of the financial year a further sum of £2,255,000 has been repaid, leaving £8,000,000 unpaid for goods supplied under the agreement prior to March 31 last.” Explaining the item, “departmental issues and Reserve Bank,” Mr Nash said: “Departmental issues cover the surplus funds of the Post Office Savings Bank and other State institutions, and owing to the substantial increase, compared with last year’s Budget estimate, of expenditure in New Zealand for Loth the Armv and the Air Force, it was necessary to finance the deficit by drawing on the Reserve Bank by means of Treasury bills to the extent of a net amount of. £13,960,000. “Since the present Government became responsible for the public finances, apart from war debt, the debt di miciled in London has been reduced by £10,692.000. and Australian debt by £730.000. Even including the war debt, the net decrease over the period is £1,167,000. National Development Programme “On the question of borrowing for the current financial year,” said Mr Nash, “for needs other than those of war, the Government, in conformity thffc aaistfr**