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Customs and tariffs

by Tony Simpson

From the 1840s border tariffs on imported goods provided much of New Zealand’s government revenue. Tariffs protected local industries for many years – but in the 2000s most tariffs were gone, and New Zealand was pursuing free trade agreements with other countries.


Tariffs for revenue, 1840–1940

New Zealand’s 18,000-kilometre coastline and lack of land borders with other countries make it well suited to levying border tariffs on imported goods. Policy concerning tariffs was a significant part of government from 1840, and for the next 150 years.

Customs Regulation Ordinance 1841

For the first 100 years tariff policy was mostly focused on raising revenue. From January 1840 to May 1841 New Zealand was part of New South Wales, and the New South Wales customs tariff applied. One of Governor William Hobson’s first actions after New Zealand was separated from New South Wales in 1841 was a Customs Regulation Ordinance. This imposed a tariff on alcohol, tobacco, tea, sugar and grains, and 10% duties on produce from places other than Britain, New South Wales or Tasmania.

Tricky coastline 

Customs levies appeared logical to many in New Zealand – but Governor Robert Fitzroy, who abolished the tariff for six months in 1844–45, disagreed (while being misinformed about the coastline’s length). ‘Probably no other country was ever better suited than New Zealand for unrestricted commerce, or less adapted for an expensive, although unavoidably inefficient custom-house establishment. I need only allude to her three thousand miles of coast line, and numerous harbours, to explain my meaning.’1

The ordinance stated that anyone who shot at a customs officer in the course of his duty was liable to be hanged – suggesting that the government expected resistance. Some historians consider that the 1843 outbreak of hostilities between Māori and the colonial authorities was partly due to Māori resentment at duties being levied on goods arriving at ports in their tribal areas.

Revenues

In 1841 tariffs raised between £3,000 and £6,000 – far less than the income from land sales, which was £29,000. But within a decade the border tariff was contributing £50,000 annually to the government account, over two-thirds of all revenues (excluding parliamentary grants). In 1851 a tariff schedule of 10 items was replaced with one of 269 (which grew to 312 by 1856). Revenue remained the chief concern. Border tariffs remained the main source of government tax revenue until the First World War – about 30% of all income, dropping to 25% by the Second World War.

Tobacco for sheep 

Tobacco normally attracted a duty, but customs officers were allowed to issue a quantity of tobacco free of duty – if it was used for washing sheep. The owner had to declare that his sheep had scab. The tobacco was saturated with spirits of tar or turpentine for 12 hours, and only then could it leave the warehouse free of duty. 

Debate

Debate about revenues and how to raise them was almost continuous and quite fierce in Parliament in the late 19th century. Excise (a duty on domestically produced goods), customs duties and other transaction taxes were widely seen as unfair, because they taxed the rich and poor equally. But some felt that because most tax revenues came from alcohol and tobacco, people need only give up these vices to pay less tax. Alternatives were suggested and tried, including stamp duty (taxes on documents such as mortgage deeds), and taxes on mined precious metals or on the sale of land, but none could match the border excise as a source of revenue.

Illegal booze 

When the duty on spirits was raised from 9 shillings to 12 shillings a gallon (4.5 litres) in 1864, it increased the temptation to procure alcohol through illegal methods. Customs officers battled the smuggling of liquor from the Pacific Islands, and the emergence of illegal stills. From 1868 domestic stills could be licensed, and customs officers collected an excise of 6 shillings a gallon – but this didn’t stop illicit stills. 

Income tax was introduced in 1891, and people gradually accepted the progressive principle (the more you earn, the higher your rate of tax). Border taxes became a lower proportion of overall revenues – but the initial take from income and related taxes was far outstripped by land and death duties, stamp duty and customs revenues. Between 1860 and 1914, these sources together continued to contribute 60–80% of government tax revenues.

Footnotes
    • Quoted in A. H. McLintock, Crown colony government in New Zealand. Wellington: R.E. Owen, Govt. Print., 1958, p. 155. Back

Encouraging local industry

Vogel’s view

Although most tariff debates concerned revenue, some people saw tariffs as a means of encouraging domestic industrial growth. In 1869 the newly appointed colonial treasurer, Julius Vogel, suggested a protective tariff on imported goods to stimulate local industry, creating jobs and encouraging the development of the colony. Some objected that it would lead to a monotonous sameness in clothing. They were told that they could still import the latest fashions from London, but these would cost more.

All in the name

 

In proposing a border tariff on wheat in 1869 to protect the farming industry, Julius Vogel noted: ‘The word protection is an ugly one, and it would be better if we called it the development of local industry.’1

 

But free trade was a powerfully held ideology in Britain, and its colonial defenders, led by opposition leader Edward Stafford, leapt to defend this principle. Although taxing imports to raise revenue was legitimate, they said, doing so to assist local industry was not. Vogel’s suggestion of a tax on imported grain had raised the spectre of the English corn laws (which protected English corn against competition from imports, and had been repealed in 1849). Vogel’s attempts to encourage industry through tariffs failed, and he had to look elsewhere for ways to revive the economy.

Liberals

The idea of using tariffs for purposes other than revenue persisted. As treasurer in 1878 John Ballance had removed duties on basic foodstuffs. He campaigned on this principle as leader of a nascent Liberal party during the general election campaign of 1890. Ballance’s view, widely shared, was that items of importance to working families like sugar and tea should not have heavy duties imposed on them – the ‘free breakfast table’.

Over the next 20 years the Liberals remained committed to reviewing tariffs – but the only practical outcome was the appointment of the Seward Commission in 1895. The commission received derision for some of its conclusions (it suggested doubling the tariff on playing cards from sixpence to a shilling, on the grounds that cards were a vice). However it did draw attention to the many anomalies and curiosities in existing tariff schedules. Most were the result of special pleading by particular interests.

Fretting over saws

 

One anomaly noted by the Seward Commission was that of fret saws. Hand fret saws could be imported free, but treadle-driven fret saws attracted a tariff.

 

Perhaps for this reason, attempts to reform the tariff by Joseph Ward and then Richard Seddon came to very little. Lack of consistency in tariffs remained a problem for another century. In 1904 Seddon did initiate a preferential tariff for British goods, but the concessions were initially small.

Tariffs on imported industrial items crept upwards as the tariff was revised several times (notably in 1927) – but it generally continued to include a preference concession for British-manufactured goods.

1930s and imperial preference

The financial crisis of the 1930s stimulated rethinking on the tariff question. With the world economy in deep depression and New Zealand exports gravely affected, the coalition governments pressed for Empire free trade or, at least, imperial preference (lower duty on goods from British Empire countries).

But at the 1930 Imperial Conference and the 1932 Ottawa Conference called to deal with the consequences of recession, the UK government refused to budge. It was worried about the plight of British farmers and the effects of allowing free entry to New Zealand’s agricultural goods. The only achievement was exempting New Zealand from newly proposed British agricultural tariffs until 1937, in return for some small concessions relating to British-manufactured goods.

The pressures of returning prosperity, rather than the depression itself, turned government regulation of trade into a major instrument of economic management for the next half-century.

Footnotes
    • New Zealand parliamentary debates, vol. 6 (1869), p. 644. Back

Border controls and economic management

Light industry and the tariff

As New Zealand’s agricultural economy moved from being labour-intensive to capital-intensive in the 1920s and 1930s, light industries supporting agriculture became a logical development. The incoming Labour government of 1935 was committed to developing such a base further. One of its first actions was to pass the Industrial Efficiency Act 1936, which envisaged a major role for tariffs in future economic planning. The government was also conscious of the 1937 deadline on tariff-free access to Britain for New Zealand’s agricultural imports.

Industry or agriculture?

 

Speaking to British trade officials in London in 1937, Prime Minister Michael Joseph Savage said that New Zealand ‘must be able to earn its living, either in primary industries or in secondary industries. If New Zealand’s production of primary goods is to be restricted by levies or quotas, New Zealand must either embark upon secondary industries or find other markets for her primary goods.’1

 

Import and exchange controls

By the end of 1938 the new law had made little impact. But there was a serious balance-of-payments problem. The rapid growth of employment and the recovery of investment had created a demand for imports at the very time when New Zealand’s main export market, the United Kingdom, was weakening. The finance minister, Walter Nash, responded by imposing a strict but temporary regime of import and exchange controls.

This incensed British industrial interests, who proclaimed it a breach of the agreements reached at Ottawa in 1932. The British government agreed, which led to significant difficulties in refinancing New Zealand’s outstanding loans.

War

The outbreak of the Second World War in September 1939 ended wrangles between London and Wellington. In dealing with the economic management of war the New Zealand government had an ideal instrument already to hand – Nash’s import controls. These helped New Zealand to successfully manage its wartime finances and to emerge from the war with a strong economy.

Peace

The import and exchange controls also became means by which New Zealand managed the peace-time economy, under both Labour and its National successors. These controls remained until the 1970s.

One economic historian remarked that their importance was not just economic, but ‘also symbolic. They represent a broad decision that the course of the New Zealand economy should be determined less by events overseas and more by the choice of local people, especially those holding official positions.’2

In fact this outcome was to be confounded by subsequent events. In 1973 Britain joined the European Economic Community. New Zealand lost its principal market. The country was cut adrift economically in a world that had no reason to extend sympathy to a protected economy.

Footnotes
    • Keith Sinclair, Walter Nash. Auckland: Auckland University Press; New York: Oxford University Press, 1976, p. 148. Back
    • G. R. Hawke, The making of New Zealand. Cambridge: Cambridge University Press, 1985, p. 163 Back

Tariffs and the GATT

Liberalisation of trade

In 1948 New Zealand, along with many other countries, became a member of the internationally instituted General Agreement on Tariffs and Trade (GATT). By the 1970s GATT was beginning negotiations on non-tariff barriers to international trading. In the 1980s these negotiations extended into agriculture by way of the Uruguay round.

New Zealand had a direct interest in the liberalisation of international agricultural trade, especially after Britain joined the European Economic Community in 1973. Trade had already been liberalised with the country’s most significant trading partner, Australia, by the New Zealand Australia Free Trade Agreement (NAFTA) in 1965 and Closer Economic Relations (CER) in 1983. Other countries had also successfully abandoned import licensing (which required importers to be licensed by the government).

Licensing was also criticised for rewarding cronies and limiting competition. From 1984 governments adopted policies of deregulation, both domestically and internationally. David Lange’s Labour government abolished import controls, and in December 1987 announced a programme that would reduce most tariffs to less than 20% by 1992. This was later extended to less than 10% by 1996.

Border absurdities

 

In 1988 the New Zealand border tariff listed over 13,000 discrete items. ‘Tarpaulins normally attracted a 22.5 per cent duty; they were free if they came from Australia, Canada, Pacific Forum members or from “Least Developed Countries”; but they paid 18 per cent if produced by “Less Developed Countries”. A substantial industry existed to help companies negotiate the complexities of the tariff and the complicated appeals process for concessions.’1

 

Zero tariffs

In 1994 New Zealand (and 143 other countries) ratified the creation of the World Trade Organization in a treaty which set rules and standards to reduce tariffs and encourage international trading. By the end of 1999 New Zealand had rated around 95% of its tariffs at zero, leaving the remaining residual tariffs (mainly textiles and clothing) to be phased out.

The hope was that after the Uruguay round of negotiations, New Zealand’s actual and potential trading partners would remove tariffs on agricultural goods – but this did not happen. Barriers to free agricultural trade have remained, because of domestic political considerations in many major economies, particularly the United States and Europe. New Zealand has pursued bilateral trading agreements instead, and completed the first major one in 2008, with China.

The end of a tariff policy

New Zealand had established border tariffs as a major source of revenue in 1841, and controlled imports as a central instrument of economic management – but its economic position in a globalised world compelled it to ignore the maritime border as a means of economic management.

In the 2000s, about a third of government tax revenue came from transaction taxes (mainly excise and sales taxes), but very little of this was collected at the border. The Department of Customs, one of the country’s oldest government agencies, still existed (as the New Zealand Customs Service). But the border tariff had been abandoned as an instrument of fiscal and economic purposes.

Footnotes
    • Paul Goldsmith, We won, you lost, eat that!: a political history of tax in New Zealand since 1840. Auckland: David Ling, 2008, p. 307. Back

External links and sources

More suggestions and sources


How to cite this page: Tony Simpson, 'Customs and tariffs', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/en/customs-and-tariffs/print (accessed 14 December 2019)

Story by Tony Simpson, published 11 Mar 2010