FINANCIAL STATEMENT

Hokitika Guardian, 2 August 1929, Page 2

FINANCIAL STATEMENT

WELLINGTON, Aug. 1. In Committeee of Supply, the Right Hon. Sir Joseph Ward, Minister of Finance, delivered the Financial Statement in the course of which he stated: The honour once-again devolves upon me of laying before honourable members and the people of New Zealand a statement of our ;najtiopal .finances, and of submitting to this House proposals for meeting the (requirements of the Government for carrying on the affairs of State and dealing resolutely with the urgent economic problems facing the country, in order that the Dominion may again be placed on the highroad to general prosperity. As yau are aware, the Government assumed office only in December last, and it was then eoo late in the financial year to make any radical changes 40 far as the general financial position was concerned. As soon as I was able to investigate matters, however, I was seised with the » fact that the year’s > transactions on the basis of the arrangements made by my predecessor in office would result' in a deficit, and, as -you are aware, this unfortunately proved. to be the case. I may say, however, that I took immediate steps to institute a careful control of de-

partmental expenditure in in order to minimize the deficit as much as possible. A saving .of approximately £90,000 in the annual votes resulted from the Government’s efforts in this direction. t

The deficit for; the year was £577,252. I must emphasise mainly that this is the outcome of the Budget of my predecessor in office. The principal cause of the trouble was overestimating the revenue from taxation, in addition to which the expenditure: was unexpectedly increased by £156,000 for additional interest arising but of the large conversion operations I was called upon to deal with immediately upon assuming office. Fundamentally, the lessened yield from taxation arose out of the tardy resoovery of the trading position. Exports from the Dominion in 1927-28 were valued at nearly fiftyfive millions, , and exceeded. imports by ten millions and' a-half.’ During the last financial year the position of external trade was better still, exports totalling over fifty-five millions and exceeding imports by twelve millions. These results .are, of- course, reflected fin the banking figures, where the position shows a recovery from £4,260,000 excess advances for the June quarter, 1927, to £7,520,000 excess deposits for the June quarter, 1928, and £9,640,000 excess deposits for the same quarter of this year. This indicates that the credit position has quite recovered from the depression obtaining in 1926 and 1927, and a healthy revival in business is the natural corollary. '•/* REVENUE. Details of the year’s accounts of the Ordinary Revenue Account of the Consolidated Fund will be found in the published accounts, and are summarised in the comparative tables attached to this statement. The revenue for the year amounted to £23,599,676, of which £17,836,234 was derived from taxation and the balance of £5,763,442 from interest earnings and sundry revenues and recoveries from various State activities. The revenue from taxation 'includes £1,243,577 on account of petroltax, motor license fees, etc. ,which are specially earmarked for highway purposes, so that the revenue from taxation for general purposes amounted to £16,592,657. In total the revenue is not comparable with that received in 1927-28 as last year 'the total revenue and expenditure of > the Post Office were not comprised in the Consolidated Fund, which included only interest < on capital as an item of revenue. Another complication from the point of view of Comparison arises from the fact that |the petrol-tax operated for only part of .1927-28. . Apart from Post Office receipts and motor taxation last year’s revenue represented an increase of £496,497 over that of the previous year. Complete details will be found'in Table No. 3 attached hereto. There it will be seen that most of,the increase was in the interest receipts, and that the taxation items showed relatively little increase over the previous year. In fact, ;this lack of buoyancy in the Revenue from taxation for general purposes was the principal cause of the deficit, in 'that the former Minister of Finance had anticipated an increase of approximately £426,000, whereas the results showed an increase of only £IOB,OOO. The mainstay of the revenue .—Customs duties—showed an increase of £11,663,0ver the previous year, but fell short of the estimate by £306,748, mostly due, I find, to a marked decline in the duty collected on spirits. Beer duty, however, was well maintained, and slightly exceeded the estimate for the year. • i Coming next to direct taxation, this also proved disappointing for the most part. The income-tax receipts for 1927-28 were exceeded last year by a relatively small margin of £37,148, but the results for 1928-29 were short of

DELIVERED LAST NIGHT SIR JOSEPH WARD’S PROPOSALS POLICY OUTLINED (. ' - (Per Favour of Government)

the estimate by £89,123. This, of course, is a reflex of the tardy recovery of the trading position, to which 1 have already made passing reference. As regards land-tax, this was not only a little short of the estimate, but £14,155 less than was received for the previous financial year, 1927-28. I find that there has been a steady shrinkage in land-tax over the last few years, due to the sub-division of estates and the adjustment of country valuations consequent upon the decline in some of the inflated land-values to a more economic level. Sub-division of estates is in the true interests of the Dominion, and the Government will not co.niplain of loss of revenue from this cause.

/ Stamp and death duties were estimated to produce last year practically the same amount as was received for the previous yeari The results, however, showed an increase of £71,353 over the. total for 1927-28. Death duties .contributed £17,457 and gift duty £27,686 towards this increase, while adhesive and impressed stamps produced £49,111 more than for the previous year. These increases, however, were partly offset by a fall of £26,711 in totalisator revenue. The revenues other than from taxation, amounting, to £5,763,442 fell sjiort of expectations by an amount of £46,808. EXPENDITURE. The net expenditure of the Ordinary Revenue Account for 1928-28 amounted to £24,176,928, an increase of £l,529,082 compared with the previous year after the Post and Telegraph expenditure has been deducted from the 1927-28 figure. It must' be explained, however, that this increase includes £877,243 on account of the transfer to Main Highways Account and local bodies of the special taxation ear-marked for highways purposes. Concerning pensions, it will be seen that old-age and widows’ pensions together increased by £59,622. Such pensions hear a fairly definite relationship to population, and increases are to be expected accordingly. War pensions might he expected to decrease, but such is not the case, the increase for the year being £31,691. The reason for this is that many of the men are only now feeling the full effect of their war injuries. Family allowances have shown a substantial increase, which is due to the fact that many who were eligible for allowances did not at once take advantage of the provisions of the Act. The charge for the Samoan Military Police is an entirely new item arising out of the unrest in Samoa. The large increase in the expenditure of the Electoral Department was the result of the general elections held last year, -toddle the increase under the heading of “Agriculture” was principally due to a new item of £25,810 for bonus on export of pork and an increase of £34,791 in the subsidy on the railage of fertilizers for farmers. Expenditure under vote “Education” showed an increase of £92,681. For the most part this is the result of the normal increase in the number of children attending school, added to which there was an increased cost for conveyance of children to school, and for boarding out children placed in the care of the State.

The payment to the Bank of New Zealand is the final instalment of the purchase price of 234,375 C long-term mortgage shares allotted to the New Zealand Government in terms of section 6 of the Bank of New Zealand Act, 1926. Concerning the . subsidies to local authorities for relief of unemployment, I have to say that in addition to the amount of £68,567 paid oyer there were also subsidies to the amount of £36,794 to which the State is committed but which had not been claimed by the local authorities up to 31st. March last. These, unclaimed subsidies will come to charge this year. NELSON TO INANGAHUA AND AVESTPORT TO INANGAHUA. Returning to railway construction, the remaining sections in the programme are those necessary to complete the lines from Nelson to Inangahua and AVestport to Inangahua. Approximately £350,000 has been spent on the uncompleted sections to the end of the last financial year, and the estimated cost of completing them is about £2,170,000. This estimate has probably been upset by the recent earthquake, the full effects of which are not yet known, and the proposed route of these lines will have to he re-examined by the Engineers. With a view to speeding up the construction work all round, the vote for railways-construction for this year will show an increase of more than 60 per cent over the amount spent last year. . UNEMPLOYNENT RELIEF. To cure unemployment some far-

reaching changes in our economic conditions must bo brought about, and I luvto already outlined the Government’s proposals in this connection. In the meantime, recognising the. urgency of the need of many of our unfortunate citizens, the Government, on assuming office, gave their immediate attention to the question of unemployment relief. The Act passed during the first short session of the new Parliament increased some of the votes granted in the last Appropriation Act in order that additional relief works could be put in hand without delay. At the same time authority was obtained for the payment of £IOO,OOO additional subsidies to local authorities for relief works in the cities and towns.

Instructions were also issued to the various labour employing Departments, such as the Public Works, Post, and Telegraph, and Forestry, to provide work for as many men as possible, and I am pleased to say that these y efforts have done much to' relieve the position.

Although it meant considerable increase in the cost to the State, the Government had no hesitation in increasing the standard rates ol pay for relief workers from 9s and 12s per day to 14s per day. The lower rates fixed by the last Administration were considered to be inadequate under present-day conditions, and I feel sure that it is not the wish of the taxpayers that the troubles of those people, on whom has fallen the brunt of our economic misfortunes, should bo increased by niggardly rates of pay on relief works put in hand by the State. The special relief works are mostly on roads, highways upd forestry. The expenditure h fit jea? on such works totalled £729,034. in addition to which there remained commitments as at the 31st March last amounting to £45;223, Subsidies to local authorities paid over amounted to £68,567, and at the end of the year there were also commitments amounting to £36,794. The total cost to the State of unemployment relief last year was thus £879,618, which is an indication of the Government’s efforts to assist in alleviating distress through unemployment. The local authorities, particularly in the cities, are also alive to llieir responsibilities in the matter, and during last year unemployment loins amounting to £102,533 were sanctioned by the Local Government Loans Board. ' The expenditure on wages and transport in connection with approved works put in hand by local authorities is subsidised by the State, firstly to encourage the undertaking of relief works, and secondly to reimburse the local authorities for the additional expense incurred in employing labour unaccustomed, in many cases, to manual work. The money, however, is in all cases expended on useful works, which when completed become assets of the local authority 'concerned. Admittedly some local authorities find difficulty in providing useful works on which a relatively high proportion of the cost is for labour, hut, dven so, it is clearly inequitable that-’ the State should be called upon to subsidise the cost of materials used on such works in cities and boroughs, as has been suggested in some quarters. I may add that I have arranged for the question of unemployment insurance to be fully investigated, and I hope the outcome will enable me to present next session a matured scheme to solve the problem. EARTHQUAKE DISASTER. I would like next to refer to the serious earthquake that occurred on 17th June last, resulting, I regret to say, in loss of life and heavy material damage. As soon as the extent of the distress and damage was realised, the Government at once got into t.uich with the authorities at the centres affected with a view to providing transport and other facilities for refugees. Immediate steps were taken to restore telegraphio communications, and wireless operators were despatched to AVestport, with which telegraphic communication was impossible, and communication was thus maintained by radio through ships ill port thefle. Similar action was later taken iq the case of Karamea, where it was necessary to establish a transmitting station. Tents and other equipment were supplied by the Government from the Defence Department stores, and refugees were conveyed free of charge by ordinary and special trains where necessary. I also made arrangements for a steamer to proceed to Westport to take away any one desirous of leaving the affected districts, and those who were not in a position to pay were not required to find the passage-money. This service is being continued as long as circumstances warrant. A steamer service was also inaugurated between AVestport and Karamea.

It will be realised that the restoration of the districts in roads, bridges, railways, public buildings, etc., will be a work of great magnitude, involving heavy expense to the Government. Attention will first be given to making tracks as temporary means of access to the settlements at present cut off as a result of the calamity. The Main Highways Board is arranging to reopen main rqads where possible ■without delay, and where this cannot be done steps are being taken to open or explore new routes to the main centres in the area affected. The restoration of public buildings will also fbo carried out as quickly as possible. As a desire has been expressed by

local authorities to contribute towards the relief funds, legislation will be introduced to validate such grants bj local authorities, including Harbour Boards. Grants by other public" institutions, such as savings banks, etc., will be similarly provided for. TAXATION. As to this all-important question, honourable members will have gathered from my remarks earlier in this Statement that, in view of the deficit last year and the general position of the country’s finances when the Government assumed office, there is no practicable option but to face the facts and. obtain additional revenue from taxation if the Budget for this year is to be balanced-—and that, of course, is essential. .

In determining how the additional revenue required may host be obtained, I have endeavoured to make a virtue of necessity, and, while adjus'.ing taxation on ail equitable basis, place the added burden in such a way as to assist the Government s lai d-settlcment which I have already outlined. At the same time 1 have had regard to the desirability of creating as little disturbance as possible in business and trade, in order that the economic progress of the Dominion may not be hindered. Attention was first given to the large fanning incomes, which 1 consider have not borne their fair share nf taxation in recent years. Accordingly, to adjust this inequity and assist in bringing about the cutting-up of large estates, it is proposed, in the case of farming-lands of an unimproved value in excess of £12,500, that the amount of land-tax assessed on the .resent graduated scale shall be in-r-reosni] bv a supertax calculated on a graduated percentage basis rising 1 per cent for each £SO of unimproved value above £12,500 on'which such land-tax is assessed, until for an unin proved value of £15,(00 the supertax will be 50 per cent of the landtax on tile present basis. Thereafter the percentage rate of supertax will continue to increase 1 per cent for every £3OO of unimproved value on which land-tax is based, until for an unimproved value of £39,000 the supertax will be 100 per cent. Above an unimproved value of £30,000 the supertax will be at a flat rate of 100 per cent of the land-tax as assessed under the present scale.

It is further proposed that the mortgage exemption allowed in assessing land-tax shall be reduced to £5,000, disappearing £1 for every £1 of unimproved value in excess of £5,000. The present exemption Ms £IO,OOO. disappearing £2 for every £1 of finimproved value in excess of £10,009. It is a fact that at present owing to exemptions many farmers with an unimproved value up to £IO,COO pay neither land nor income tax.

In addition it is. iritelided to amend the law to /make all farmers,' including farming partnerships, with holdings (whether owned or leased) of an unimproved value of £12,500. and over at any time during the year ended 31st March, 1929, assessable with in-come-tax on their farming income, but subject to a set-off of the actual amount paid in land-tax oh the land used for farming. In effect, this means the payment of land-tax or income-tax, whichever is the greater. In such cases, however, the 5 per cent of the. capital value of land otherwise deductible from assessable income derived from s'ich land will not be allowed, as normally this is intended to cover land-tax paid. This proposal is intended to ensure that the large farming incomes will contribute to the national revenue in the same ratio as the incomes from other occupations, which is only just and equitable. As I do not anticipate. that these land and income-tax proposals will produce enough additional revenue to ensure a /balanced Budget for this financial year, it is proposed to move a resolution to-night increasing the primage duty on imports from 1 per cent to 2 per cent. Primage is purely a revenue duty imposed upon practically all imports whether dutiable or not, and to obtain the additional revenue required in the manner indicated will not affect any particular industry or class of goods. The duty is so small and so universal in its application that the proposed increase will be the least felt of any possible increase in indirect taxation. Further, as soon as the Budget balance is stabilised, this additional duty can be taken off without disturbing the tariff in any way.

To remedy a cause of hardship under the present income-tax provisions relating to children’s exemption, it is proposed that the present age-limit of eighteen years shall not apply in cases where the Commissioner of Taxes is satisfied that a child, owing to mental or physical incapacity of a permanent nature, is unable to earn his or her own living. Further, it is proposed to provide that the exemption on account of children under eighteen years of age shall be apportionabld over the twelve months in cases where a child is born or attains the age-limit for exemption during the income-tax year. At present, if a child is /born on the 31st March, the full exemption is allowed, and if a child dies or attains the ago of eighteen on 30tli March the exemption for that year is lost. 1929-30. Before having recourse to additional taxation, I can assure honourable members that the estimates of expenditure for the current year have been most carefully overhauled with a view to reducing them to a minimum consistent

with the maintenance of the existing services. Increased debt-charges and other rigid items call for an increase under permanent appropriations of approximately £7OO,(XX), but under annual votes the reductions 1 have effected have kept the increase over last year’s; expenditure down to £30,000. At the same time the items of revenue apart ifrom taxation, were also scrutinized with a view to seeing that all legitimate recoveries and departmental receipts will be brought to account. In this connection 1 may say that m order to place the State trading depnrtuients, on a basis more comparable with outside organizations, I have decided that in future the State Fire Insurance Office and the Public Trust O.i.ce sh;\l 1 be called upon to pay landtax. In addition, as the Post and Telegraph accounts have been separated from the Consolidated Fund and placed upon a commercial basis, it is proposed that this Department shall, in future, be charged with Customs duty on its imports. ' In reviewing the interest recoveries rom the various separate accounts I •find that the Main Highways Account is paying no interest on a portion of the capital borrowed for construction purposes. Tin’s I propose to adjust. Then'there is due to the Consolidated Fund some accumulated interest on enemy-property moneys, which can be paid in this year, and also certain unclaimed moneys in the hands of the Public Trustee. It was the practice to pay such unclaimed moneys into the Consolidated Fund, but latterly ' the receipts hnve been held up owing to a technical defect in the Public Revenues Act, which will be remedied. The net result is that I estimate the revenue tfor the year ns follows: Customs ... 8,400,000 Beer duty ... ... ... 600.000 Motor-vehicles Duties, .licenses* etc 1,442,000 Stamp and death duties ... 3,614.000 Land-tax 1,493.000 Income-tax ... 3,400,000 Interest on public moneys 820.000 Interest on capital liability— Railways ' ... 2,450.000 Postal and Telegraph ... 480.000 Interest on Public Debt Redemption Fund 995.000 Uther receipts 1,478.000 ' £25,172.000 The above total includes £1,442.000 *o be received on account of “Motorvehicles—Duties, licenses, etc.,” but this is earmarked for specific purposes •’lid is not available to meet general expenditure.. ESTIMATED RESULTS. To sum up, 1 estimate the position for the financial year to be— Revenue 25,172,000 Expenditure (appropriations)— £ Permanent .. 16,946,000 Annual ... 7,964,000 — 24,910,090 leaving the amount of 262,000 to provide for supplementary estimates and contingencies. In conclusion, I have to thank honourable members for the attentive and patient hearing they have given to my Statement, which covers njost important policy questions. The measures proposed to ensure a stable finance for the annual Budget and the more farreaching measures dealing with milways, land-settlement, and public works will, I consider, give effect to the mandate the people of the Dominion gave to this Government. To sum it all up, the cardinal points of the Government’s policy are:— (a) To take immediate steps to obtain a balanced Budget, as this is a matter which cannot wait for the fulfilment of the more far-reach-ing proposals. (b) To provide a permanent cure for the unemployment difficulty and pave the way for decreases in the'rates df taxation, by increasing the prosperity of the Dominion on a solid basis through vigorously fostering land-settlement. (c) To provide all the capital necessary to enable the State Advances Office to cope with the demand for loans for development of farms and the building of houses for workers. M) To accelerate the completion d r the trunk railway-lines, in order that those unfinished works may be brought into operation and made interest-bearing and at the same time provide more work. (d) To deal with the present unsatisfactory financial position of the railway and institute a comprehensive scheme of co-ordination in transport,’ in order to check the present dangerous drift in economic waste, which otherwise will undoubtedly impose greatly increased burdens on the taxpayers. It will, I think, he generally recognised that there has been little delay in formulating and initiating these rcH’orms, in view of the short period 1 have had to investigate the country’s affairs since taking office in December, but the same industry and application will now he applied to the vigorous administration of the policy measures I have outlined, in order that the bene/ ficial result I confidently expect will h: realized at an early date. As regards the financial and economic position generally, 1 am glad to say that the outlook for our primary industries is good, and ample capital is available to finance trade and industry. Internally, our favourable overseas trade balance lias not yet reflected its full value, and this phrase, unfortunately, is concomitant with the unemployment difficulty, a difficulty that T. venture to predict will be cured only by a vigorous administration of the fundamental reforms the Government has in hand.