OUR WAR EXPENDITURE.

Taranaki Daily News, 28 November 1918, Page 7

OUR WAR EXPENDITURE.

f NOW OVER £51,400,000.

AUTHORITY FOR £lo,ooo,ooft ASKED

MM AN Cl] MINISTER REPLIES TO

CRITICISM.

e. Wellington, Monday. £ir Joseph Ward, ia tho Budget, says: Tho war expenditure of the Dominion <iad, up to September 30, reached the sum of £51,400,000. The bulk of the money required has been raised in New Zealand, principally through the Treasury. The Post Office epartraent lias also materially assisted and has -boon able to provide tlie Treasury with sufficient funds for carryio-' on the ordinary State requirements up to t.-e present time.

Tho current expenditure in connectioi with the war may be now estimated at approximate!}' £1,800,000 per month, and it ;s again a matter of congratulation that the country continues to be able to bear the heavy strain placed upon it without difficulty, and that the people of the Dominion have so loyally responded to the demands which have been made upon them from lime to timd.

By arrargemcr.'j with the Imperial Government, the War Office advances the money for tha maintenance of the troops in the field, aarl subsequently claims the cost from the Dominion Government. 'Up to the end of September the claims from the Imperial Government under this heading amounted to £12.G30,000. It will 1)3 remembered that during the short session of Parliament in April the House was asked to grant authority to the Government for raising a further loan of £2O 000,000 fop war purposes. A considerable proportion of this authorisation has been raised, and there is at present an unexhausted authority remaining amounting to approximately £13,000,000- I propone to ask the House this session for further authority to raise £10,000,000 for war purposes. I sincerely hope that it will not be necessary, in view of the present improved state of affairs in Europe, for tlie Government to raise fresh loans to the full extent of this amount.

ISSUE OF WAP, LOANS FREE OF

INCOME TAX.

-4? a considerable nmount of comment has been offered by the pwblic and in the press of the Dominion regarding the wisdom of issuing war loans at 41 per cent, free of income tax, I will explain the reasons which actuated the determining of this question-

Objection has been tiken to the present practice on the ground that persons who now pay the highsest rate of income tax—7s 6d in the pound—provide for themselves an investment which produces a rate oT interest amounting to 7% per cent, by investing in the war loan. This position, liowei'er, applies onlv to 254 investors, as that is the number of individuals who pay the highest rate of income tax. A considerable number of these taxpayers are the largest employers of labor. I Ipavo out from these calculations the public companies, as it is impossible to estimate the individual interests of the shareholder?. The average Tat" of income tax nmounts to 3s Id in the pound, and. to a person paying the average rate nf tax, an investment free of income tax in a '4!4 per cent, loan would be equivalent to an investment at the rate of £5 7s per cent, subject, to income tax.

There are 35,000 taxpayers who pay the average income tax or loss, not ineluding public companies, and there are only 941 persons who pnv income tax in excess of ihe average, of whom 264 pay the highest rate, as I have said. It will be seen, therefore, that as far as individual taxpayers are concerned, there is not a great number who profit to !>ny extent 'by investing in a loan at 4 1 /. per cent, free of income tax - .

If we issued a loan at, say, 5<A per cent, subject to income-tax, every person w'ho subscribed, whether liable to in-come-tax or not, would be entitled to the higher rate. If a person who is subject to income-tax l at the average rate of 3s Id in the pound were to invest £IOO in a war loan at 5} per cent, subject to income-tax, ho would pay tax amounting to 17s in respect of his investment The Government would, however, pay him 20s per cent, interest in excess of Che present rate of 4J per cent. The country would thus lose 3s per cent, which would mean a total loss of £OO,OOO annually upon the amount of war loan borrowed in the Dominion tip to the present time. This, however, is by no means the full measure of the loss that would result, as many millions of the war loans have been subscribed by pt-iT.ons who are not subject to incomc- | tax at all, and the Treasury would have no means of recovering any portion of tho 1 per cent, from them. It must also bo remembered that the present incometax rate is a war rate, and may not continue for the full term of the war loans, and the investment may not prove in future years such a profitable one to the comparatively few persons who pay the highest rate of tax as it appears at the present time. The issue of a loan at a lusher rate subject to income-tax would not, therefore, prove an advantage from an economical point of view, but, on the contrary, it would prove a considerable disadvantage.

Another, argument used against the present practice is that .'\ve shall "be largely reducing our income:tax revenue for a, considerable :»iinibcr" pf year's a'liead. . This argujnept doeg .not seem to be sound, because v/e are at the s a trie time saving interest at a.low rate. '

There is again, a very, .strong departmental difficulty in' regard to the' taxitioa of loan interest in cases whfere the subscriljep purchase bearer 'bonds. Bonds pass on .delivery, and. it would be impossible for the Treasury or the Commissioner of Taxes to trace them. There would thus be- no cheek on income returns of owners. The conscientious taxpayer would include his interest, and the taxpayer who desired to evade payment could with perfect 3afety omit the interest on bearer bonds from his in-come-tax returns. On the other hand, investors in inscribed stock can always be traced, as the transfers of t'lis stock are registered in the Treasury, and the stock does not pass on delivery. The tax could therefore be enforced against holders of inscribed stock, but not against holders of bearer bonds, and the incidence would therefore be inequitale.

FINANCIAL STATEMENT.

It cannot he questioned by the veriest novice in finance that if I had authorised loadi. even at the rate of 5J per cent.,

with income-tax the coat of money to all classes of the community requiring to borrow would have gone up considerably, and the annual loss to those using ■borrowed money, and indirectly to the country, would have been very great. £y the course followed the rate of terest for mopey lias been kept down throughout the war period, and money required in New Zealand to-day can be 1 obtained at a much lower rate than is the case m most other countries.

Thero can be no question that t'lie free-of-income-itax condition proved a very gTeat incentive to investors, and has greatly contributed to the success of our war loans. I trust, however, that it will not now be necessary to raise very much more war-money in the Dominion, Great Britain, Australia, the United States of America, and Canada have all found it necesasry to raise a large portion of their war loans free of income-tax. The last Canadian war loan of £100,000,000 was raised at 5J per cent, interest free of income-tax. It shoijSd foe recognised there must be some good reason for this. In our own case we required money of an unprecedented amount, and it was necessary to hold out inducements in order to obtain such huge sums. Many of those subscribing found it necessary to borrow money themselves at not less than 5J per cent interest, and I am of the opinion that tfhe best ajid safest course has been adopted. It will not, in my opinion, be possible for the public of the Dominion to readily absorb tlie large amount of war-loan securities issued in New Zealand, and when conditions again return to the normal after the war I anticipate that | the Imperial Government will not raise any objection to the quotation of our wm securities on the London Stock Exchange. lam of opinion that all of our war securities should bear the same rate, and be issued under the same conditions as regards freedom from New Zealand income tax, and I do not therefore propose to alter the conditions when the next loan is offered.