THE SURPLUS.

Manawatu Herald, Volume XLVI, Issue 2772, 16 August 1924, Page 4

THE SURPLUS.

DEBT REDEMPTION OR TAXATION REMISSION.

During the Budget Debate in the House, the question was raised ns to the advisability of devoting surpluses to the reduction of the Public Debt rather than returning it to the taxpayers in the form of reduction in taxation. Much can lie said both for and against, and in normal times if would appear to be sound in principle, but under existing conditions it is very doubtful whether it would bo a wise policy. In the first place, it may be argued from an academic point of view, that a careful Finance Minister ought to so frame his estimates that there should be no large surplus, or else, that he should deliberately provide for a substantial surplus of revenue over expenditure for a special object such as Public Works or Debt Reduction. In theory and under normal financial conditions such an argument would appear to be sound, but, critics of the Finance Minister should, we think, realise that under existing disfnrb-od-world-oondilions it seems to be a prudent policy to provide ample Revenue in case of unexpected contingencies, but not to aim for extracting, by taxation, a large surplus when the whole country is crying for more money to increase its productivity. [f we are correct in this opinion then it would seem only right, if no unexpected contingency has arisen, and the Treasury finds that it lias a substantial surplus caused by exit acting more from the taxpayer limn was actually necessary, that such surplus revenue should he relumed to the taxpayer by reducing his burden. EFFECT 01-' HEAVY TAXATION.

There is a point, beyond which taxation cannot go without seriously effecting expansion of industry and general productivity, and owing to the heavy calls on the country cue to war and post-war liabilities, wo in New Zealand, have for some few years gone well beyond the safety point. The general results from high taxation are realised by many but a greater number of people do not understand how seriously the community is affected. Therefore, in view of the constant and increasing demands on Government for greater expenditure, and in view of llie existence of a Socialist Party whose policy must lead to an enormous increase in taxation, we think it advisable to quote two expert opinions in the hope that those who oppose reduction may realise the evils which inevitably follow the continuances of high taxation. EXPERTS’ VIEWS. In November last Mr. Mellon, Stale Secretary of the US., Treasury, presented a memorandum to Senate ill which lie advocated drastic reduction in surtaxes. He said (inter alia) : “For a short time these surtaxes yielded much revenue, but their productivity has been constantly shrinking' and the Treasury's experience, shows that the high rates now in effect arc progressively producing less revenue. The high rates tend to destroy individual initiative and enterprise and s. iiously impede development". Mr. Mellon also points out that the c ountry is in need of a new impetus |.i industry and business of all kinds and that this can only be achieved by n policy of fax reduction.

In March I fist :i memorandum was addressed to tlio Chancellor of the Exchoipicr by a group of British Industrialists, in Ibis they point out “dull tin* rost oral ion of production 11111 1 employment transcends ovary lithar coiisidaralion and tlint a .-übslantial raduation of taxation is dir most valuable' aontrilniiion which die fiovernmenl can make (ouards dial rasloralion limy fnrlhar siata “tlmt tba sources of fresh capital are being seriously diminished by the drain of national and local expenditure and die conse(jinnee hiyh taxation. That a reduetioii in direct taxation has the most immediate and .general elleat upon industry, firs'., by directly re,liming the cost of production. Secondly, hv leaving a larger surplus of national ineonie from which savings can lie made to provide the capital for fresh development. Physiologically, also, a redneiion <o taxation would have a valuable elloci by encouraging enterprise and initiative." These two opinions prove that taxation beyond a eertam point firstly tends to dry up the sources of revenue and results in progressively less return to the State, and secondly that by taking too large a share of income here is less surplus available for capitalising, and using for extension of industry and produel ion. NEW ZEALAND’S POSITION. A careful analysis of .statistics shows that both these evils are at work iu this Dominion, and that our burden of taxation is still too heavy and retarding development. Therefore, onr position is practically the same as described by Mr. Mellon, “the country is in need of new impetus to industry and production o.f all kinds, and this can only be aehieved by a policy of tax reduction.” From the above it appears to us that however sound the argument is—that debt redemption is the proper policy- that jmlicy is only justified after taxation has reached a normal level. As soon as this has come to pass the result would be greater industrial and productive activity which would benelit the community as a whole, and so, by increasing the general wealth, produce a greater revenue to the State though the taxation rate was lower.

Once llie revenue shows increased elasticity, then there is no doubt that debt redemption will bo the proper policy. We congratulate Mr. F. .1. 11 nil - osfoil, M.P. on his ilionglil'nl contribution to the general debate, and especially opportune reminder to jhe country that debt redemption should bo taken into -minus consideration though, as indicated above, we disagree with him that this is the time to do'll. - There is too mtielt tendency now-o-days to try and avoid the due repayment of monetary obligations, mid this has been encouraged hv i|;e Moratorium Legislation. It is therefore refreshing to find a mem he,, boldly advocating reduction of cm- naiionnl obligations, and warning the fiovernment that the increase of Public find Local Body Indebtedness is reaching dangerous dimensions. t Contributed by the New Zealand Welfare League.)