THE MONEY MARKET.

Dominion, Volume 2, Issue 481, 14 April 1909, Page 8

THE MONEY MARKET.

EFFECT OF MORTGAGE TAX. CAPITAL DRIVEN AWAY. STRONG REMARKS BY BUSINESS MEN. Mr. N. Kettle, one of the Napier delegates at the. Conference of Chambers of Commerce yesterday, made some remarkably telling observations on the effects of tho nnrtgage tax and the graduated land tax, especially tho former. The stringency in tho money market, said Mr. Kettle, was entirely owing to tho large amount of money that had been withdrawn from the country—tho result of low rates of interest and the mortgage tax of 6s. 3d. in tbe £, and also tho tax that had been n"d by all investing companies, that had to 4 tho withdrawal of a large number of them. In Hawko's Bay a number of companies investing money from tho Old Country had been withdrawn. Tho money had been taken away, and it had not been replaced by any foreign capital coming in. Then thero was tho question of internal borrowing'—Government debentures, and by public bodies. All this had brought about the present stringency. No money had been brought in to take the placo of the foreign capital that had been sent away. The question of tho withdrawal of the mortgage tax should be brought before Parliament next session. Banks' Advances. He wonld point out that {n tho financial state of New Zealand our banks in 1902 and up till tho end of 1906 had from two to three millions surplus, between deposits and advances. At tbo end of 1907 that surplus was reduced to £800,000, and at tho end of December, 1908, the surplus of two millions was'exhausted—that was, tho banks showed a deficiency or had advanced two millions odd more than their deposits—showing a difference in tho position of tho banks from tho end of 1906to 1908 of nearly five millions of money. Tho banks practically had paid out of surpluses, to keep things going, thoso two or thrto millions of surplus, and had actually gone to nearly two and a half millions to tbo bad. If they referred to any of tho statistics of tie banks for tho year ending 1908 thoy wonld see the figures he _ had stated. The banks had increased their advancos from--1902 to 1908 by eight millions: They_ had only received threo millions to do it with—" which gave the balance ho had mentioned. That was the position of tho banking institutions; and no wonder tho banks were calling in money. They could not help it. The wonder was that tho management of the banks had allowed such enormous advances to continue when thoy had been carried tea point of having actually exhausted what tboy, might call their reserve fund, and had to fall back on their own capital.

Internal Borrowing. Now, as to internal borrowing, he could not make out how' much the Government had borrowed locally. Our.public bodies had borrowed six niillions up to the end of 1907. He had not got the figures up to the end of 190 S. In 1904 they had only borrowed three millions, so that practically the local bodies had borrowed in four years'threo millions of money belonging to the pcoplo of the country. The harbour boards and borough councils had all been borrowing internally. 'Where had all tho money gone to? They had had' the most prosperous timos the country had ever known.. He had been in businoss sinco 1869, and during all his experience in New, Zealand ho had never known such prosperous times as during tho last six or seven years. Wool had been at phenomenal prices. But-, ter, cheese, and hemp had brought good E rices. Where had the money gone to which, ad been made? No country had made enormous sums of money during those years. They were now;face to face with the fact that there was no money for business purposes.

"No Money." _No financial institution at tho present time could lend any money. Tho A.M.P., Post Office, and Government Life Insurance all made the same reply to applications— namely, they had got no money, arid could not lend any no matter what tho security was. And the banks were in the same position—they had got no money to lend. The Advances to Settlers Department had got no money to lend. That was their reply. He thought tho time had como when the business'men of New Zealand should raise, their voice, and ask the Government to rescind the mortgage tax. No doubt some newspapers and some persons would say that he (Mr. Kettle) was voicing the views of the moneyed man. Ho was doing nothing of the kind. If they wanted cheap money they ought to take all, restrictions possible off money in order to get cheap rates.' AVhen ho was in Australia in October last'ho-made inquiries, and found that there was any quantity of money at 4£ per cent. Ho said, "We want some over in New Zealand," and they said, "We cannot'send any over there.". He asked why, and they said, "You have got b mortgage tax," The question was whether the Government could be induced to relieve the position by withdrawing the mortgage tax? It might be said that it was questionable whether even the withdrawal of the mortgage tax would mean the influx of fresh capital. But if that obstacle was removed it might help to induce the British investors to Bend their money back to this country. Graduated Tax. " There was another question that' deserved attention, and that was 'the graduated tax on capital invested in sliares in public companies. It had been brought to his notice lately that a man holding shares in a company had to pay his proportion of the value of the company's property—simply because he held a few shares. It was never intended that tho graduated tax was to get at capital invested in business premises. The object was to prevent land-owners holding large tract's of land—to burst up large estates. He proposed that the attention or tho Government be drawn to tho matter, with a request that it be altered; It was never intended that the mortgage tax should be a charge on business properties. Ho concluded by moving the following resolutions:— "That whereas the mortgage tax has been found to be the cause of a largo amount of capital being withdrawn from New Zealand and to restrict the influx of capital for investment, and to create financial stringency in Obtaining loans required for the' legitimate development of tlie country's natural resources the attention of the Government be called to the position, and it is suggested that the mortgage tax be abolished. Further, that in lieu thoreof all income derived from the investment of capital bo made subject to tho incomo tax. "That tho incidence of the graduated tax an land generally, and especially as affecting the interests of private individuals in companies, bo carefully reconsidered, with a view to such tax being wholly •or partially abolished."

Mr. Nathan's Remarks. Mr. D. J. Nathan (Wellington)' said ho had much pleasure in seconding the resolution, but ho would like to see tho motion somewhat differently worded. The. law, as he understood it, was that.any person, corporation, or company holding property to tho extent of £40,000 paid tho ordinary tax; and as soon as anyone had property, shares, or land over. £40,000 in Value they at once camo-under tho graduated tax. And in tho case of country lands they had to pay 25 per cent, further taxation. The 25 per cent, extra tax only camo -into forco this year, as a result of legislation -passed last session. That law was hurriedly passed last year. Tho proposed alteration in tho law was not' understood by tho bulk of members of Parliament. Disastrous Results; Ho know from conversations with a great many members that very few of them understood what tho effect ni the altered legislation would bo; thoy did not know the disastrous effect that would follow that legislation. He bad been told repeatedly that it was never intended that tho graduated tax should affect town property or shares. The wording of tho Act was very clear, and he could not understand how any member couM allow such a chango to ho made in the

law without first consulting his constituents. The result of that legislation bad been disastrous to many industries in tho Dominion. What guarantee had capital or tho people of the country that tho £40,000 limit would not be reduced to £20,000 or even to £5000, and the penal tax increased by 50 or even 100 per cent, until everything was lost? Naturally those who had money to invest were not likely to send capital to Now Zealand when they had this and tho mortgage tax befofo them. Taxed Threo Times. Tho present position was this: that tho Government wero at present collecting taxation on somo capital threo or four times over. . Examination would show that incomo or dividends was often taxed up to amounts ranging from os. to 6s. Bd. in tho £. He quite agreed with Mr. Kettle's remarks with respect to tho withdrawal of capital from Now Zealand. Not only had they seen English capital withdrawn, but mauy houses having investments of money had, during tho last three or four years, had to remit Homo half a million of money. Two largo ostates in Wellington city wcro sold lately, and instructions had been sent out that the wholo of the money was to bo sent Home. It had boon decided at Homo that it would be better to havo tho money sent back or transmitted to Canada or even to tho Argentino. Instructions had also been received that two other largo estates were to be realised, and tbo capital transmitted Home. Tho basio industries of Now Zealand wcro in a satisfactory state. Wo had energy as a business community, and wo had labour. What we wero crying for was more capital. Where was that .to come from? Wo could not provido capital quickly enough' ourselves. As soon as any person or company accumulated £40,000, tho capital was, iii many cases, sent away for investment, bccauso of the penal taxation that had to bo paid here. He would not be at all surprised to seo ,an alteration mado in tho law during tho next session. But they were not likely to get any alteration mado in tho law unless they agitated for it. Ho did not know what was tho position in other towns, but thero was much apathy in Wellington in these matters, and it appeared to him that commercial men had themselves to take a great deal of blame for tho present state of affairs. j\lr. Nathan mentioned a striking instance of tho injurious ofi'ect of the mortgage tax, which would probably cause tho withdrawal of tho capital of' a very old and good colonist. People would, as a result of the present position of affairs, havo to be more economical, and the Government had found it necessary also to bo more economical. Ho thought the conforouco should send a deputation to .the Government asking for tho abolition of the graduated tax so far as it affected shares and town property. With regard to pastoral property—that question more deeply affected the policy of tho Government, and it was not the intention that party politics should be introduced in that room. Ho had not the least, doubt that the mortgage tax would have to go.. Ho was confident that the Government would have the facts forced upon them, because the Advancos to Settlers Department could not at present supply the necessary funds, and foreign capital could not be induced to como here. Ho felt sure that a deputation to the Government would answer all that tho Chamber of Commerce desired. Mr. J. Maitland Jones (Oamarn) said it was constantly stated that British capital was scared away, and British investors obliged to withdraw their capital from New Zealand owing to tho existence of" the mortga'go tax. How wero they to stop capital being withdrawn, and how could capital be brought back tliat had already boon withdrawn? Ho suggested that tho Government should make it known that the Public Trustee would bo prepared to accept sums of money from British investors, and guarantee 4 per cent, for the money; and that such money should be reinvested hero at from i to 1 per cent. more. Mr. Kettle said thero would no doubt bo some difficulty in getting the companies which had ceased.business diero to return; but they should tr? to prevent more money going away. He understood that only a montb or two ago £250.000 was seht away from Otago to the Argentine. Ho also mentioned tho case of trust money hitherto invested in Hawko's Bay that had to be sent Home—a result of our taxation. What wo ought to do was to prevent moro monoy going away. , Thero was no doubt the mortgage tax operated against the investment of money in this country. Our local bodies had borrowed in tho Dominion up to 1908 £7,246,000. Thirteen millions had been borrowed altogether. Local bodies borrowed four millions internally during tho last few years. As very littlo fresh money was coming. in, it was. no wonder there was a financial stringency.

Mr. 0. S. Frasor (Timaru) alluded to tlio borrowing by local bodies, and quoted from the post office savings bank returns the amounts so borrowed during recent years. Tho moneys so borrowed had been borrowed at an average of from 3 to 3J pot cent., yet the Post Office Savings Bank was paving' i) per cent, on, itsmoney—exclusive of tho'cost of carrying on its business. , The resolutions were agreed to.