JOLTED CONFIDENCE

Evening Post, Volume CX, Issue 69, 18 September 1930, Page 12

JOLTED CONFIDENCE

PROPOSED TAX ON BONDS

Jfew Zealand shareholders in. companies goriiiciled in New South Wales and whose iiaines appear ou registers in that State have already received a jolt to their confidence by the deduction from their dividends of one-eighth of X per cent. This deduction was niade at its source at the behest of the Government of the State <o£ New South Wales, and the proceeds devoted' to State unemployment funds. Oh; email amounts the "nipping" off of 0d in the £ was of no moment, but with 3«rge amounts receivable in Nevr Zealand sis-dividends earned by New South Wales companies the total would be considerable. 3But' the principle of compelling shareholders to contribute to relief of •unemployment in another country is naturally 5-e^ented, for it is felt that the tax may »iot be only temporary and may not stop at 3d in. the £. The amount is small, feut the effect on New Zealand shareholders in Australian companies generally Jias been disquieting to gay the least. But another jolt has been received, in the: proposals in Australia to place a special tax on interest. Messrs. J. B. and Son, Melbourne, in commenting ijpori such a-tax, remark that while repudiation' was roundly condemned by. "our tesponsible political leaders," yet "similar proposals in.a somewhat disguised form, are now being freely discussed in certain sections of the Prors and, apparently, freely, advocated .in political circles." The firm analyses the proposal as follows:—

U) A owns £1000 of Government 5Vj per cent. Stock. The Government decides ;to repudiate % per cent, out of the interest.by reducing the rate to 3 tier cent. Everybody recognises this as robbery, and all honest people proI -test. . .

' -.(2) B owns £1000 of Government ' Stock. The Government decides to re- ' tain Ys per cent, out of the interest under the name of a special tax and so • reduces the actual interest rate to 5 per cent. Many people appear to think this is quite honest, and the protests 'are few. ' * ■

The Government-loan is defined as "a binding national contract,'' and interest received thereon is already subject to income taxation (excepting the tax free issues). But the danger to Australian Government credit of such a proceeding would be the fears it would arouse in the minds of investors of anything in the nature of confiscation.

Australia has been reminded by. Sir Otto ■Niemeyer that it has to convert in Australia, during- the next four years £209,000,000 of outstanding public debt. The financial solvency of Australia and the^ capacity of its Government to honour the Niemeyer agreement may well depend upon its ability to make those conversions at reasonable, moderate rates of interest. But can this be done if those •who hold the bonds are to be told that a special tax may- be placed upon them during the. currency of the conversion loan?. .

The holdings of Australian Commonwealth and State Government loans by banks, life assurance, insurance, and other fompanies domiciled or operating in New Zealand are substantial, and the imposition o£ a special tax on the interest they receive from such loans would certainly weaken their resources, to say nothing of Ihe*interests of private investors in such gilt edged securities.