EXCESS PROFITS TAX

Auckland Star, Volume LXXIII, Issue 88, 15 April 1942, Page 3

EXCESS PROFITS TAX

MODIFICATION URGED POST-WAR CREDITS SCHEME # The implementing of the Commonwealth Government's policy of limiting business profits to 4 per cent on paid capital, plus reserves used in the business, by appropriating in the form of taxation all earnings above that level, means that an excess profits tax of 100 per cent will become operative, states the weekly economic review of the Sydney Stock Exchange. Experience in Great Britain in this field led the Government there to modify its plans and allow one-fifth of the excess profits tax to be credited to the taxpaying firms for repayment after the war. The effects of this tax on business and industry will be watched with great interest. Deductions from known facts as well as experience in Great Britain suggest two dangers which it will be most difficult to avoid, namely, the unwillingness on the part of the producers and business men to increase production or expand their wealthproducing capacity, and the removal of the necessity for keeping production costs down to the lowest possible level consistent with efficiency. Assuming a continuance of private enterprise, with , the familiar arrangement by which capital, labour and equipment are linked for production by business organisation, and the existence of an incentive in the form of profits that increase with efficiency and volume of business, it will always be difficult, so long as earnings are rigidly limited, to ensure either steady expansion to meet the growing needs of the community or strict control to keep costs down to the minimum. The necessity for providing the Government with all the money required for an all-in war effort is everywhere recognised and endorsed, but it is widely felt that even under the stress of war conditions the methods of raising money should be such as to avoid exposing the industrial, business and financial structure to strains that might cause permanent damage.