THE ECONOMIC PRINCIPLES OF LAND TAXATION.

Akaroa Mail and Banks Peninsula Advertiser, Volume LIII, Issue 5534, 4 October 1929, Page 4

THE ECONOMIC PRINCIPLES OF LAND TAXATION.

By "'Economist."

The most interesting item in the I financial proposals of the Government, as disclosed by its Budget, and the itemi that has been most extensively discussed and most hotly attacked, is the declared intention of the Government to increase the tax on rural .Kind, by an increase in the scale of taxation and a reduction in the exemption! allowed the taxpayer in respect of mortgages on. the taxed property. It will 1 be remembered that the financial operations of the financial l year showed a deficit on the aggregate revenue and expenditure totals of sorrawhat over half-a-mil- ! lion sterling, of which a part was due to anticipation of interest payment arising from loan operations, and the balance to a lack, of elasticity in Customs revenue resulting from the sluggish- revival of tradingprosperity. This deficit is nothing to be alarmed about, but it is con L sidered by the Minister of Finance, and rightly so, that a country borrowing abroad as heavily as the Dominion 1 , and. consequently dependent largely on its credit aibroad for the terms on which it can. raise its loans, should avoid the practice of deficit finance in its ordinary revenue and expenditure, as that is liable to produce on lenders and their advisers a bad impression, that may or may not be 1 warranted by the facts, but that certainly would impair the te-ni.T on which it could raise its oans. We are of opinion that the intention cf the Government to avoid 1 a farther deficit is a wise one.

It lias bsen stated in opposition to the view of the Prime Minister that the deficit was really a godsend to the Government, in that it provided x convenient excuse for its failure to cany cut some of the rather expansive pre-election promises' it made in the realm of finance prior to the last alection, when it did' not seem l probable that it would be called on to implement' its bond. It has been further, objected that the taxation proposals of the Government go much '.'archer than is .necessary to cover my probable deficit that would be •'rccurred if the proposed taxation A'cre not levied, and that such taxation, in part at least, is unnecessary, >n that taxation is already so high '.hat relief from, the existing 1 burden, "•r, at all events, no increase in it, is urgently necessary in the economic and financial interests of the Dominon. It is also recalled in this connection that the United Pai'ty undertook, more or less specifically, not to increase taxation if it were returned to power. USE OF A SURPLUS. There is, of course, some force in this criticism, but it may quite fair-' ly be contended on t'h,e other hand that it is wise to make assurance Tioubly sure against a repetition of last year's deficit, that the present Government .cannot be held to bl'ame the late deficit, which' is not, as i matter of fact, attributable to the blame of anybody, but is due to am unexpectedly slow picking up of the :;r;,port trade, and that even if the Prime Minister is raising- by way of 'fixation more than is actually needed- to balance the Budget, and will .:ava a surplus to apply to' public 'A'or ks, it is quite a sound, policy to .ipply some revenue at least to public works construction, and not construct solely out of borrowings. By '.his means the amount of debt and (h? subsequent interest bill can be

kept down, with benefit to future revenue and relief of future expenditure, and it might induce the semblance of a spirit of caution and n>: deration into demands for public works expenditure, if some ! of it were; met out of revenue and not from loans. 'It- is the persistent drawing on the future by way of loans that swells our bill for wo.rks of an un-economic nature, by allowing the people to believe that imposing and costly works' can' be constructed without any present burden, and that the burden can be pushed be pushed on to posterity. Even if, this were possible, and it is so only in part, it is not a proper policy, since posterity will presumably have its own burdens to bear in addition to the cost of ours, and it does not seem altogether fair to saddle future generations with burdens for works which they have not asked for, and have no power to refuse.

"~At~the same time the pressure of taxation is such that it is undesirable 1 that the 1 Government should make any attempt at a spectacular tour de force to produce an abnormal surplus for the p'ur-pose of political advertisement. There is always the temptation to budget for a large surplus in order to be able to say: "When we came into office 1 the deficit was so and so ; after a year of office we have turned this into a surplus of so and so." This may or may not be good political tactics, but it is not in the financial interests of the country. The land tax proposals- are certainly open to criticism. of this sort, and 1 indeed the Budget admi-ts- this, since it states that iit is intended "to place the added 'burden in such a. "way as to assist the Government's land policy," which is elsewhere stated as being to "vigorously foster land settlement in any and every way that is feasible." The Government is thus using the accidental occurrence of a revenue deific'it as a pretext for taxation imposed for quite another purpose, and it is open to- question whether the taxation of' land is the proper and best and most feasible way to promote land settlement 'at all. The great strength and main popular appeal of the proposed new land tax is the: general feeling" that in the past landowners,' and: especially those with larger holdings, have not been n-.eeting their fa'ir share of the tax burden; of the Dominion. Except during the period' 1915 to 1923, income derived from farming operations has been Exempt fron> income tax, and for a, considerable period, owing to a I'Qophole in the taxing laws, lessees of'small grazing runs, who are for the most part comfortably off pastoralists, paid neither land tax nor income tax, though they arc new assessed for income tax. In these circumstances 1 there is a widespread feeling that some alteration in the taxation! systenj is necessary to a more equitable distribution: of|burcleii, andithat feeling is sound. *

In our opinion, however, it would have been preferable to meet the prc.blen> by taking the advice of the 1924 Taxation Commission, aboloshing the land, tax and substituting therefor a complete' all-embracing incoma-tax, levied on the profits of all industries, farming included. As the Commission put it: "The weight of evidence was 1 against both land taix and graduated' land tax, and in favour of abandoning .both and substituting the graduated income tax." "N.Z. Dairy Produce Exporter."