TAX RELIEF UNLIKELY

Press, Volume CVI, Issue 31084, 13 June 1966, Page 1

TAX RELIEF UNLIKELY

(From Our Parliamentary Reporter) WELLINGTON, June 12. No significant remissions of taxation may be expected in the Budget, which the Minister of Finance (Mr Lake) will introduce on Thursday night.

The general expectation in informed circles is for another “hold the line”- budget, in which the money necessary for increased expenditure in several fields will be met by existing taxation, plus overseas borrowing at least on the scale of last year.

This does not preclude the possibility of small remissions which would allow the Government to claim that it had reduced taxation in each budget. The total of these remissions, however, is not expected to exceed £5 million.

Those who say that under the New Zealand system of triennial elections the election year corresponds with “give-away year” in remissions of taxation and other benefits may say that the Government is taking undue risks by not increasing the rates of P A.Y.E. taxation next Thursday. A number of minor adjustments may be made to give farmers, manufacturers and others an opportunity to spread the results of annual financial variations over several years.

The harsh fact, however, is that the Government is trying to proceed with an expanding programme while endeavouring to reduce the level of internal spending. The measure of success achieved will depend on the development of some factors which can only be guessed. It is known, for instance, that several Government departments will expect a higher allocation this year. The White Paper on defence predicted an expenditure of more than £4B million on the Armed Services—an increase of £7.2 million. This could be exceeded if the needed weapons come to

hand more quickly. Defence costs are spread over a number of years mainly because fighting ships, planes and army weapons cannot be bought “off the shelf” any more. A new frigate, soon to be ordered, will cost more than £9 million, but will not be delivered for about three years. Army equipment which will cost £2.6 million, will contain some items just coming into production. About £l2 million Is earmarked for attack aircraft, but these, as well as the lighter planes for army use, have yet to be ordered. The cost this financial year may not be as high as some defence optimists think. Another department in

which a considerable increase in expenditure is expected is education. Several unrelated factors may have already done what otherwise might have been left to Mr Lake to accomplish in his budget. The first was the cut In import licences recently administered by the Minister of Customs (Mr Shelton). The reduction in licences was earlier estimated to cost about £2l million. However, the British merchant seamen have applied a cut of their own, the full effect of which has not yet been felt. Within the next few months the volume of imports, both from the United Kingdom and from

other countries, may be reduced far below the level intended by the Government. Whatever the general effect of this will be, particularly on partly-manufactured goods or items used in manufacturing processes, it is plain that it will work towards the Government’s aim—to reduce overseas spending and bolster New Zealand’s dwindling United Kingdom balances. This should dispose of any idea the Government may have had of imposing a surcharge on the landed cost of main imports. Such a move by the United Kingdom Government shortly after its election offered tempting possibilities to some of our Ministers quite recently. A surcharge of 15 per cent on imports would raise the retail cost by that amount, and would take much “surplus” money out of circulation. Its Imposition has been advocated by the Monetary and Economic Council for five years.

The disadvantages include its effect on New Zealand’s already burdened manufacturing industry. Many imports are used to produce other goods, and price increases would mean a sharp cost rise. One source estimates that cost of living would rise 10 per cent—which would increase as wages were adjusted. This would be similar to devaluation of New Zealand currency by 10 per cent It could hardly be passed off as a “temporary measure” as in the United Kingdom. Government experts, it is understood, favour reliance instead on longer-term planning, including the use of loan money. Sources would include the World Bank