EXTRA COMPANY TAX.

Auckland Star, Volume LXIX, Issue 208, 3 September 1938, Page 8

EXTRA COMPANY TAX.

In Mr. Nash's amendment to the Social Security Bill every company in New Zealand is unexpectedly faced with a new and heavy tax on its profits in the current year, and one which in certain respects is apparently to be made retrospective. Moreover, it is a permanent tax, unlikely ever to be reduced if this Government remains in power, and more likely to be increased if the revenue of the Social Security Fund proves insufficient to meet the extremely heavy demands which will be made on it in its early years. Such a tax, added to the existing high rates of income tax, will have short-term and long-term effects not easily to be calculated. To the extent that it is passed on, it will add to the cost of living; to the extent that it is not passed on, it will be felt by the shareholders of companies in lower dividends. But its most serious effcct will be au a deterrent to business expansion. Between 1935-36 and 1936-37 the assessable income of companies increased by £1,992,308, and of this sum £1,288,85.1, or nearly 65 per cent, was taken in taxation. Now, with a flat tax of 1/ added, every company will be left with an even smaller proportion of its earnings. This —and the point should be clearly understood —does not mean merely that there wiH be less for the shareholders. Not dividends, but earnings, are to be taxed at a higher rate, and there be less left for the reserves which every company needs. All this is to be done in the name of social security, but its long-term effect can hardly be other than to weaken one of the greatest sources of social security, the companies which give employment and pay such a large proportion of all direct taxation. In that sense the new tax is not only a blow struck at private enterprise—which fact in itself would commend the tax to some members of the