WAR AND FINANCE

Dominion, Volume 11, Issue 64, 8 December 1917, Page 7

WAR AND FINANCE

OUTLOOK FOR THE FUTURE STRENGTH OF AMERICA NO PRICE TOO HIGH FOR FREEDOM CHAIRMAN OF BANK OF NEW.ZEALAND SPEAKS ■ The half-yearly meeting of proprietors of the Bank of New Zealand was held yesterday morning. Mr. H. Beauchamp (the chairman of direotors) presided, and othor directors present were: Messrs. It. W. Kane., D. J. Nathan, W. Reeco, and J. H. Upton. The chairman apologised for the absence of Mr. W. Watson, who! is ■unwell. The general manager of the bank (Mr. W. Callender) and the chief auditor (Mr. B. M. Litehfield) were also present. Following his tisual custom, the chairman addressed the assembled shareholders on tho present flnaiioial situation, and on the outlook for the future.. Chairman's Address. The chairman said: There are, as you are awaro, no accounts to submit at thie our half-year general meeting. The business is limited to the election of ono of your representatives on the. hoard, and to tho declaration of an interim dividend. Before proceeding to deal'with these formal matters, I will, in accordance with my usual custom, take a brief review of, the general situation _ and outlook,-and of tho financial position in particular. 'The war situation of courso claims first attention. Wo havo been in a state of war'for three years and four months, and still the end is not definitely in sight. Germany, with practically the whole civilised world arrayed against her, ■, with her import and export trade crippled through her shipping being either destroyed, interned or bottled up; in her'own'ports, with the pressure of internal ; distresseß an n consequence of, scarcity of fond and clothing resulting .from the rigorous blockade' of her . ports, by the. Allied fleets, would long ioro'this have been forced to capitulate/ had her organisation arid preparations for war been-" less complete and hnd she not been. able to add enormously to her own_ resources by drawing supplies from neighbouring neutral countries, from _ her confederates, .ind from the territory conquered and now occupied by \r~ From Belgium and northeastern France havo been taken inyaluablo raw material, from Galicia oil and food products, from Turkey cotton, and from Rumania grain and meat. Not- , withstanding her disabilities, she continues still as a mighty fighting force, taxing the military powers and financial resources of' Great Britain and her 'Allies to the uttermost. • > Russia and Italy. , The discipline and organisation of' her people have indeed stood Germany in good stead in this great conflict. In marked contrast is Kussia, from which, ■ with , her vast population, so much was.expected by the Allies in the early and later stages of the war. Since the revolution that occurred in March last, we have witnessed a series of kaleidoscopic social and political • changes almost unparalleled in history. Without discipline or organisation, and with internecine war raging in some parts of the Empire, her value torday, as a fighting force, is practically a negligible quantity. It looks as if nothing short'of.'a miracle will-sucoeed in evolving order of. the.chaos now existing in that unhappy country. Had Russia; been able to prosecute a vigorous campaign on tho Eastern frontier during the past nine months, I think it probable that the war might have been brought to a satisfactory conclusion this year. At a time when the British' and French offensives were being conducted .with great, success, our Ally, Italy, has' been brought very near to dieaster. A powerful and unexpected blow by the enemy has robbed Italy of the whole fruits of her two years' arduous and gallant efforts. The set-back is aserious one. It has imposed a heavy trial on jhe Italian people, and has been a keen disappointment to their Allies. The failure of Russia is, to a lafge extent, responsible for the Italian I reverse. Fortunately, Russian impotence will be more than compensated by tho assistance and co-operation of the United States, which is now actively ■■ mobilising all its forces in men, money and munitions. America's Effort. It has pleased the , German Government to attempt to belittle the significance of tho United States accession to the Allied side. ;;I doubt the honesty of the effort, and am disposed to credit it to the yapourings of a leader who is at heart apprehensive concerning the American action, and seeks to. encourage himself and the German .: nation ': ,hy; _ disparaging references, to the capabilities of their adversaries.' A writer' in a leadinc: English financial journal has_ expressed the opinion that "the Americans, like the English, will greatly '.n.stonish -thq Germans before they have finished with them," and with that view of the American influence on the future of hostilities I am in entire, agreement.

The summing up_ of the position from the American viewpoint was elonuentlv and clearly stated bv President Wilson at the American 'Flag Dav celebration on June. 14, in ea speech which well repays full perusal. He said:—

" In the' United States, where we are accusomed to deal with facts and not with sophistries, tho rrreat fact that stands out abovo all the rest is that this is a people's war. a war for freedom and justice and self-government among all tho.na-

tions of the world, a war to make tho world safe for the peoplos who live upon it and have mado it.their own, the German people themselves included: and that with us rests the choice to break through nil these hynocrisies and patent cheats and masks nf brute force, and help set the world free, or else stand aside, and let it be dominated a

long age .through br sheer weieht of arms and tho arbitrary choices of self-constituted masters, by the nation which can maintain tho biggest armies and the mosb irresistible armaments—a power fo which the world has afforded no parallel and in tho facenf which political fredom must wither and. perish. For us there is but one choice. We have made it. Woe bft to' thfi marl .or . groun r of' men that seeks to stand in our way in this day oF hirh resolution, when every princinlp we hold dearest is to hi vindicated and made secure for the salvation of the nations. Wn are ready tn plead at thp bar of history, and our flag shall wear a now lustre. Once more we shall make good with nnr livSJ and fortunes the great, faith to which we were born and a new glory shall shine in the face of our pfopls.

These are words of strength and determination, expressing the, will nf r nation which is conscious that it possesses the. power to give to that will full force and effect. They form

a striking reply to the ( depreciatory comments.of tlio German Chancellor regarding the effect of American intervention. War Expenditure and Finance. Outlay in connection with the war continues to mount up steadily. That of the British alone is now at the rate of approximately £7,000,000. a day. Tholtotal war expenditure of the British Treasury, from August 1, 1914, to September 22, 1917, amount to £5;534,527,000, of which £4,210,38-1,000 was provided by loan and £1,324,143,000 by revenue. This expenditure includes loans to tho Allies and tlio Dominions amounting, at July 21, 1917, to £1,171,000,000. -■ ■ Before tho entry of the United States of America into the war aho had raised loans for the Allies aggregating over £470,000,000 (of which £226.300,000 was to Britain), and shortly after her declaration of war on April 6, 1917,.a War Finance Bill was passed authorising the raising of loans for 7,000,000,000 dollars (£1,400,000,000), provision being made that 3,000,000,000 (£600,000,000) of this money should be available for loans to the Allies. Subsequently a further nuthonsation for a largo amount was made, including additional loan 3 to tho Allies. Hui»e votes for tho building of aeroplanes and ships of war and merchantmen have beon passed by Congress, and the programme of wnr expenditure- so far outlined, including loans to the Allies, provides for tin agsreiate of close on 22,000,000,000 dollars '(£4.400,000,000). The first Liberty Loan for 2,000,000,000 dollars (£400,000,000) at 3i per cent, was issued in -Tune, and was largely over-subscribed. The second Liberty Loan, proposed originally for 3,000,000,000 (£600,000,000) at 4 per cent, was offered in October last. Limitation of , the amount was then removed, the Ifnited Status Treasury expressing the hope that the 5.000,000.000 dollars mark (£1,000,000,000). would be reached. According to Press telegrams, this has been nearly achieved. Whatever may have been thought or said' concerning' America's tardiness in taking up arms, there ran be no question that, since her declaration of war, she has thrown herself into the struggle in such a whole-hearted, Rystematio and well organised way that, it augurs well 'for the future of tho Allied cause, inasmuch as it a grim determination on America's part to see the war, at all costs, to a victorious conclusion without unnecessary loss of.'timo. •.. The Price of Freedom. . In tho earlv stages.of. tho conflict the ■east of it all' amazed and bewildered us. Now wo have (trown accustomed to the outlay. Wo have learnt, financially spooking, to think in millions, and we somehow view the hugely swelling figures of the national debts with feelings akin to indifference. Wo havo to win the war whatever the cost. It is tho price of freedom from German domination, and tho worth of 6uoh freedom is incalculable. In New Zealand we are pursuing a self-reliant financial polioy. Wo have largely provided for all our war and other expenditure, since hostilities commenced, out of looally-raised loans or revenue. Tho total loan authorisations during the period nave amounted to £68,185,000, viz.:— For war purposes '' 57,000,000 For other purposes ... 11,185,000 £68,185,000 These authorisations are estimated to provide for all requirements up to July, 1918. A total of ov»r £51,000.000, in all has been raised, of winch about £24,000,000 has been provided by public subscription in the Dominion, and probably £10,000,000 by loans from the Post Office Savings Bank. The net public indebtedness at March 31 1914, after allowing for sinking funds, was £91.689.835: at March 31, 1017. it was £125,572,515, an increase of £33,882,680,:t0 which must be added loans raised since the latter date. Revenue and expenditure for the same periods compare as follow:— Revenue. Exp*n. Surplus. • . • .£ £ . £

■ T Sf e i9l7 ...^ r "18,367,547 14,058,770 4,305,777 Pensions. The. increased cost of living has necessitated ail adjustment in the scale of old age, Maori war, and widows pensions. The amount paid away under this head for the year ended March 31 last was £563,918. Provision for increases estimated to absorb over £120,000 has since been made, which will bring up the total of these pensions to probably over £700,000 per annum. The liability for military pensions in connection with the present war, it is estimated, will bo over £1,000,000 per annum in twelve months' time, and allowances to soldiers' dependants (exclusive of pay) are expected to>amounfc to a further : £2,000,000. War expenses and pensions, added to the increased cost of education and other items coming' under the head of civil expenditure, are creating a heavy permanent charge on the Dominion's finances, and the inoubus of" taxation has already grown to somewhat unwieldy and staggering proportions. If Prices Hold. So far, thanks to the high prices paid for our produce, we have been able to bear these financial burdens, and will probably continue able to bear them, provided' that reasonably pood prices are maintained and that shipping facilities ard afforded to : exporters and to the Government, which has commandeered such a "large proportion of our products. 'At present, owing to the absence of shipping facilities, it it estimated that fully £6,000,000 worth of last season's produce is still held up. Of this, frozen meat and wool comprise the major portion. The shipping difficulty, both inwards an outwards, affects the trade figures of the Dominion to such a degree that the imports and exports have lost, to a great extent, their significance as an indication of the Dominion's trade position. I propose, therefore, on this occa'sioh, to omit giving the usual comparisons of these items. Practically the whole of the Dominion's products is now either directly commandeered or subject to Government control in the matter of realisation. The Money Market. Advances against unshipped produce are reflected in the bank returns for the quarter ended September 30, 1017. The total advances, as theroin shown, were at that date £28,415,450—at; September 30. 1916, they were £24,677.964. Tho 1917 figures constitute a record for tho Dominion. In spite of the high rates ruling for money in other parts of the world, the. banks in this country havo not, since the declaration, of war. increased the rates of interest charced for overdrafts or discounting of, bills. On the other hand, since the passing of the last Finance Act, _ which provides for such heavy additions,to land p.nd income tax, other lending institutions and private individuals have been compelled to substantially increase their rates for lending on mortgage. The heavy borrowings by the Government within tho Dominion have naturally absorbed a substantial proportion of tho savings of the people. Asa conseauence, tho reserves of floating capital are being depleted and a period of dearer money must bo expected. The Local Loan of £12,000,000, The Minister of .Finance is to be cordially congratulated upon the success of the 'last internal loan. In tho early stages of last session, he obtained statutory authority, to iaiso £24,000,000 for war purposes at 4} per cent, freo ;

of income tax. Of this loan, £12,000,000 was offered in September, .and the whole amount has beon subscribed by the public. There is no doubt thai the Minister of Finance, in this financial operation, was materially assisted by tho banks, which offered their customers attractiyo facilities to onablo them to stibscribb to tho loan, which facilities wore largely availed of. It is, I think, a great financial feat for a small country such as this is, to havo provided from its own resources £34,000,000 for war purposes and public works during the currency of the war, and it speaks well for the financial stability of the Dominion and for the patriotism oF its people. It is to be hoped that when the next instalment of the loan is placed on the market in, say, March next, th 6 Minister of Finance will be equally successful and that he will be able to then raise from the public, by voluntary subscription, the whole amount that-he requires, and not be compelled to adopt the alternative of enforcing tho provisions oi Section 40 of tho Finance Act, 1917, relating to compulsory subscription to the War Purposes Loan. Taxation of Companies. I havo already referred briefly to the "rowing burden of taxation. I wish now to remark upon it a little more in detail. To meet the increased war expenditure and tho heavy additional interest payable in respect to loans raised for war purposes, ft was imperative, (luring the late session of Parliament, to provide for extra- revenue, and this tvas done by substantially increasing tho laud and income tax, by disallowing deductions lor mortgages on land over aiTd above tho sum of £6000, and by slightly recasting the Customs tariff. Under the new scale, companies and individuals, with incomes of £t)'4oo and upwards, will pay 7s. 6d. in Tlic £, or 3/4 por cent. As this rate will fall heavily upon joint stock companies, strong efforts were made to induce tho Minister to alter the present method' of collecting the company tax and, in lieu of taxing the companies, make the tax payable by tho individual shareholders, who would be subject to the graduated scale. The Minister could hot see his way to accede to this request, but he* made provision for a refund to shareholders (whose dividend does not exceed 6 per cent, upon the paid-up amount of their shares) of a relative proportion of the tax paid by a company, provided that the shareholder's income from .-all sources does not exceed £400 per annum.

To give you an idea of what the increase in New Zealand income tax means to us, I may mention that, on its assessed income of last year, this bank will contribute about £216,500 to the Exchequer, or an advance of £121,830 on the amount we paid last year. The former sum is equivalent to 12.37 per , cent, of the total paid-up capital of tho liank; in other words, if the present rato of taxation were to be continued, an amount equal to tho whole of your capital would, in eight years' time, be paid to the Government in tho 6hape of Netf Zealand income tax. Then, in addition, our land tax will amount to about £17,000, and our contribution to the revenue in the shape of noto tax will probably be sonsiderably in excess of £75,000 for the year. We fully recognise the necessity for all classes of tho community to pay in proportion to their means. At the same time, to use a platitude, there ought to be true "equality of sacrifice." At present this does not obtain, as the .banks are taxed upon a higher scale than any other trading corporations or individuals in the country, because they arc taxed noon an income larger than that they actualjy earn. It has been suggested that, if further imposts are placed on land and income, the result may he disastrous to the trade and industry of this Dominion. Judging by two of his late public utterances, on the question of taxation,.our Minister of Finance is apparently fully alive to that possibility. ■...■■■■ ' London Board. It is xny sad duty to report the death of the oldest member of tho London board—Mr. W. T. Holmes. Mr. ■Holmes was general manager, of tho bank during tho troubled years from 1890 to 1894. At the end of 1894 ho retired and accepted a seat on tho London board, which seat he held continuously until his death on June 23 last. The knowledge he had acquired of the details of the bank's colonial business, while- acting as chief executive officer in New Zealand, made him a specially qualified and useful member of tho London directorate, and his loss is greatly regretted. The selection of a suitable successor to fill the vacancy is under consideration, but no decision has yet been come to. Staff. The drain on our working staff for military service goes steadily on. At present we have 370 officers absent on duty connected with the war. Twentynino have returned and resumed duty, but as against this, twenty-one are under orders to join the colours, and 182 more are liable for service as members of the second division. The number of our killed has, I regret to say, increased to 39, and our wounded to 101. With the bereaved families and with tho injured men, we have to express our heartfelt sympathy. We have now 297 women clerks in the bank's employ, and it appears probable that our circumstances will neces : sitate a further increase. Our whole staff, male and female, aro doing good work and. acquitting themselves creditably. Election of a Director. Mr. R. W. Kane, who was elected at our last meeting to fill the vacancy caused by the death of the late Mr. Martin Kennedy, is the retiring director on this occasion, his former election being for only the unoxpired term of the lnte Mr. Kennedy's appointment. That term expires on March 31 next. Mr. Kane has given due notice of his candidature, and, as no other notices have been received, he is the only candidate, and I havo pleasure in accordingly declaring him duly elected. Interim Dividend. The earnings of the bank during the half-year have been sufficient to justify payment of, the usual interim dividend. A. dividend of 6 per cent, is accordingly now declared on both preference and ordinary shares. It will bo payable at Wellington to-morrow, Bth instant, and at branches on receipt of advice. Mr. Kane's Thanks. Mr. R. W. Knne said: The circumstances which render it' necessary that I should again submit myself for election as a director of the bank have already been referred to by tho chairman, and were also explained by mo in tho reirfarks I made at the ordinary general meeting in June last when you did me the honour of confirming tho board's choice of me 'as your representative, and it only remains for mo now to express my thanks to you for having ro-elccted me, unopposed, to the position. Tho chairman lias so fully reviewed tho present financial situation, that there is little for mo to add. The position is one calling for constant watchfulness and demanding that a cautious policy should be constantly adhered to. I take this opportunity of renewing the assuranco given you a year ago regarding the performance of tho work devolving upon me as one of your representatives. My best efforts have benn, and will continue to be, given to the discharge of the duties of the trust whicli you havo reposed in me, and to the welfare of the bank with which for over half a century I have been so closoly associated. This was all the business of the meeting.