STATE TRADING.

Hokitika Guardian, 16 May 1924, Page 4

STATE TRADING.

PRINCIPLE AND PRACTICE. UNFA 1R CO.MPETITION. (From Our Correspondent.!. Wellington; May io. Before the Taxation Commission today Mr Gerald Fitzgerald, one of Wellington's leading business men, made a statement in regard to Municipal and State trading which covers the whole subject in a very comprehensive and capable manner. The full text of the statement is now available by the courtesy of All* J.'itzgeralil hiiuselt . lc is alleged by private trailing concerns that, it is unnecessary and unfair to allow Municipalities to trade in competition with them, ami it is alleged tluiL the further special unfairness is seen in the freedom from tax cuji.ived by the Municipalities. This ■■l iovaiu o has lately tended to become more acute us the activities of -Municipalities have extended beyond the usual public utilities and invaded the legicii ol direct trade. I bus the Christchurch City Council is the exclusive agent lor a certain motor vehicle that is being sold in competition with others, and the Electrical Department there and also in other eases undertakes the supply of electrical fittings and machines in competition with private traders. Municipalities of course are not called upon to pay rates nor usually rent upon any of their premises, which is nil initial advantage of great consequence, and the freedom from Income Tax anil Land Tax is Mich a tin then advantage us to make the complaint ol the private trader in competition with such iniquities a grievance of the first'

importance. Moreover the loss to the Stale in not exacting tax from these illegitimate trading adventures is so great as to merit tlie closest scrutiny. It has been stated that Municipalities it' assessed for Income Tax would so triune their Profits and Loss Accounts as to show little or no income and so evade assessment. This possibility is admitted; hut it is also plain that such evasions coulit easily he met by a special method ol assessment under which no escape would be possible. A special form ol assessment would in any event he required if the ('ompitnv Tax were abolished in lavnur of •in individual tax; and in such e\ent Municipalities would probably have to be regarded as individuals since they lime no distributable profits as in the case of companies, and are the direct recipients of the income accruing from the result of their activities. There is a generally accepted beiiel that it is a mistake for the State to enter into trading enterprise especially in competition with private uiidertal.iiigs of a similar character, but comparatively few people have taken the trouble to examine the foundations of this theory, and the slackness of I lie Public Aliiul in Ibis regard has made it easy for successive Governments to submerge the principle at •several different times under the pressure of some superficially attractive limim-ial expedient. Ii i- usual when discussing ibis subject to meet with the pr-limimiry on li-ce"-'.-ion that a few special Depart mollis such as Postal and llailwavs are proI perlv State monopolies which it L implied are beyond criticism, the discussion tin'll being carried iorward to tile consideration of other utilities. It is not here admitted that ibis view is correct or that it can he siippuled by material facts. Indeed l here has been from time to time a good deal ol controversy upon the subject of State management ol the llailwavs which are now stated ant hoi ita lively to find great dilliculiy in earning 3.J per cent —a very poor result for a monopoly—and there are other more •eiimis aspects ot the ease InoeiiiaftiT appearing. Tile Postal Depart lliein has never had competition of any kind, so that there is a dearth of evidence affecting it., management ; hut if tile competition in i.tiier directions is any guide to tlie lorinaiion of a correct, judgment it is by no mean-, certain that private management could not produce a h-t----t.n result. I •(. .-.-ever, for the purpose ol tins

siiLnii.' cion it will l.e sufficient to coni- the application of the principle '<• tlie concerns in which private trading i, usually adventured. The' greatest-tliliiciiliv in the way il all State trading is that large Department:. x.’niier or later have to adopt a clav.ificnlinli scheme for their * : n p’nyecs. .Ml such >cheiues lotitein pi, -lie nroMotion in a particular nrinimr, and practically eliminate dismes--a!s except for grave misconduct. The result of this is that good man find the rate of promotion too slow and are easily • tempted to accept other employment, while upon tli" other hand the rate of promotion exceeds the merit of inefficient men fur whom no other employment is olleted. This inevitably leads to the Minimi of mediocrities a.ml ittcapahles, uni reflects upon the administrative ab 1ity of the whole staff. Such lowering of the adminisirati.o capacity together with the apparent impassibility of freedom * from political inlerferetme probably accounts in some measure for the trading losses that appear to lie inseparable from all Government trading adventures.

There is. however, a more sen )t;s menace.in the creation of large bodies of Civil servants who have anpexntly discovered the advantage of bun 1 • • g th'-msedves together in associations of various kinds which fur all pr.n-i-.al purposes are teally indistinguishable from trade unions, and these several as;neiations are not blind to the advantages to he obtained from mutual

support for the purpose of furthering some common objects such as the uitos of pay or tlie hours of work. It is easy to imagine an extension ot uch services that would practically enable the employees to dictate their own terms particularly tit times when there might happen to ho a slender balancing of political factious. There have been several instances where such attempts have been made, and there can ho small doubt mat with a greatly increased Public Service such instances v.oulil tend to multiply. If it could be shown that notwithstanding the above-mentioned difficulties in the way of State trading the outcome in Public benefits justified the acceptance of risk, then the question would perhaps he determined by the measure of practical result. Ibis, however, is very far from being the case, since the contrary is now being published in several countries. England, Camilla, Australia, F.S. America, anil even New Zealand have all had to admit more or less losses in State trading. Some running into many many millions—and against this there are no instances recorded where gains have been made or where superior effi-rieiu-v has been achieved.

Statements are now being published that one country after another is abandoning State trading as fast- as possible, and frank recantations of such heresies are being bracketed with admissions that trading adventures are most successful and most useful to the Public when they are left in private hands. The essential vice of all State xratling seems to be the fallacious doctrine that profits may be disregarded In favour of a service giving certain con-

veniences £• tlie public, and in pursuit of this entirely unsound principle tlie safeguards usually required in the establishment of sound business arc seldom erected.

Tlii# method of conducting a business sooner or later results in losses that have to be passed on to the taxpayers —wholly unjustifiable proceedings. For many years it was contended that State Trading should not he subject to taxation, but the palpable injustice of competition with private traders upon such terms gradually forced itself upon the public- notice, and now the principle that State Trading should he taxed upon the same terms as private undertakings is generally recognised, and in most of our State Trading Departments Income Tax is not payable. There are still some exceptions which it is submitted should he eliminated if Ihe system of State Trading is to be maintained. The Statu, however, still refuses to pay local body rates even in cases where it has compulsorily acquired large blocks of land for housing purposes, upon which rates were paid by the previous owners. It is submitted that this manifest injustice*should receive consideration.