WAR FINANCING IN AUSTRALIA

Dominion, Volume 11, Issue 48, 20 November 1917, Page 8

WAR FINANCING IN AUSTRALIA

COMMONWEALTH LOANS

A BANKER'S WARNING

At the half-yearly meeting of shareholders in the National Bank of Australasia, which wus held in Melbourne Gome days ago the chairman of the directorate, Sir John Grice, raised tho question of the wisdom of exempting from income tax future war loans which 'might be issued by the Commonwealth. Sir John Grice, after referring to tli6 figures in the balance-sheet and to the bank's subscriptions in London to varioub British Government's issue? for war purposes, said it might interest them to know that the bank had, in common with other Australian banks, supported liberally the war loans issued by the Federal Government. That reference to the Australian war loans brought under consideration a very important matter, which, in the opinion of the board 01 the bank, must most seriously affect futiia-o taxation in Australia. Busine6i people had fceen discussing whether the time had not arrived for a reconsideration of the interest terms of those loans, and in view of what seemed their very far-reaching results, the directors deemed it their duty to place before shareholders their well-considered opinion. First, he desired to emphasise the'fact that his remarks would refer only to future war loans, for no responsible business men would even hint at th 6 slightest alteration in any engagement or terms* made in regard to the present or past issues, aa to which Australia's honour was at stake, and the Government was, of course, bound, not only legally, but also morally, both to the original subscribers and to those who may have purchased from them. Including the present issue of 000,000, tht Commonwealth war loans, apart from those issued in London, amouaited tc. .£100,000,000, and they were told by th 6 Treasurer that another .£40,000,000, all of which (if the present 6ystem is pursued for, the remaining ,£40,000,000) would b<> capital removed from the area of Ausj tralian taxation. They had to remember, also, the State borrowings in Australia, the interest on which had a similar immunity from tho obligation of contributing to tho expenses 01 the Commonwealth. It was, of course, known generally, though not perhaps ill dotail, that the immunity thus afforded benefited chiefly the wealthy class, whose inoomes, if derived from other investments, would be liable to be taxed on the higher scale, and that the wealthier the individual the greater tho advantage gained by investments in tho war loans or in State Government loans. There was therefore this anomaly; The Commonwealth Government declared with one voice that graduated ■ taxation (which meant the wealthier the taxpayers the higher the tax) was equitable, and most people in these days of war and high prices, even those paying taxes on the higher rate, agreed with those views, provided they were net; carried to extremes, and that the lower incomes also paid a moderate amount of taxation. The other Government voice, speaking in regard to tho war loan, virtually said, "There shall be no graduated taxation in regard to tin's form of investment." This second decision made tho war loan at per cent., with exemption from taxation, a splendid investment for tho very rich investor, for though ho would be quite willing to be patriotic and to mako sacrifices in snch times as these in order to help his country, no sacrifices were asked from him. On the other hand, the investment was not equally good for thoso with only a modest amount of capital. It would make his remarks clearer if he went a little into detail and gave the varying returns of respective incomo. From a tabulated statement the chairman showed that to persons residing in Victoria investments in the war loan, with exemption .from taxation, compared with an investment on mortgage subject to both Federal and State taxation as follows:—

To an investor with £500 per annum, the 4i per cent. War Loan waij equal to £4 Kb. 6d„ or nearly 43 per cent, receivod trom interest on mortgage. To an investor with £1000 per annum the egniva, lent of_ £4 19s. 2d., or nearly 6 per cent. 7»° a E> lnTos t or with £3000 per annum. £5 10s. sd.\ or just over 5J per cent, To an investor with £5500 per annum, £i 0s Bd. just over 6 per cent, To an investor with £10,000 per annum, £6 9s. 9d„ say 6J per cent.; and'by the time they reached a man with £30,000 per annum it was equivalent to £6 18s. 4d„ or nearly 7 per cent.

Assuming the graduated basis of taxation to he equitable, the taxpayer with ,£30,000 a year thus gained by investment in war loan an advantage of nearly 2J per cent, over the man with an income of .£SOO per annum who similarly invested. Looking at it from another aspect, and taking 6 per cent, as the ruling rate of mortgage at the present time, the small man whose investment in the war loan only equalled 4$ per cent, to him on mortgage lost about 1} per cent, by investment in the war loan, und the very rich one, with .£30,000 per annum, who leceived what is equal to £6 18s. 4d. per cent, by investment in war loan, benefited to the extent of neatly 1 per cent, over the mortgage rate. That high rate to the wealthy, with such a security as the Federal Government had to offer, must be too tempting for any wise capitalists to refuse, especially when they took into consideration a possibility that future taxation might be even heavier than the present, in which case they would receive even a greater advantage. It seemed to the board, proceeded the chairman, with all respect to those holding different views, that even should such a policy, in order to secure money promptly, have been deemed wise when no very long war was anticipated today, with hu°;e liabilities already incurred, and 6till indefinitely greater ones in front of the Government, the exemption from direct taxation of any investors in future war loans was fraught with serious danger to the general community, and would later on be much regretted. His remarks were of course not in any way taking exception to any investors placing their money patriotically and profitably, as they had been requested to do, but were for the purpose of making it quite clear to them, ind it possible of bringing under public notice, the gravity of the future position should the present policy be continued. It must mean that in time a very large portion of the wealth of Australia, being relieved from taxation by being invested in Federal and State loans, the interest load would be removed from the shoulders of those best able to cany it, and would have to be borne by tfra remainder of the community, who would stagger under it. Of course it would bo necessary, if present methods were abandoned, for the Government to follow the practice of the British Treasury and cay a higher rate of interest, subject to taxation, as an inducement to investors to subscribe, and they need not doubt the patriotism of the wealthy classes to provide their share, a patriotism which they had shown in a way far more important to them than the accepting of a somewhat lesser return for their money.