Story: Customs and tariffs
Page 1 – 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.
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.
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 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.
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.