EFFECT OF TAX ON BUSINESS

Press, Volume LXXII, Issue 21861, 14 August 1936, Page 10

EFFECT OF TAX ON BUSINESS

COMMERCIAL HOUSES AND BRANCHES (SPECIALLY WRITTEN ROB THE PBESS.) [By T. N. Gibbs.] (II.) The incidence of a graduated land tax falls very heavily on business and commercial concerns which, because of the nature of the service they render, require to establish branches in the cities and towns throughout the Dominion. It is net from choice they require so many sites—the scattered centres of population in the Dominion lay this necessity upon them. For most of them it is essential that their places of business should be in the central positions, where their customers and the public can make easy contact with them. Again, most find it necessary to acquire freehold land, and to build the type of premises suitable for their business. For many reasons they cannot afford to rely on leased premises. In any .case, if and where they occupy leaseholds, they were previously assessed on the aggregate value of premises occupied deducting any tax which the actual owner of any individual premises may Have paid. It is an extremely onerous and unequal system. Some concerns, because they are engaged mainly in manufacturing, can occupy low value ■ lands in the suburbs or on the outskirts of the city or town. They escape the heavy part of the tax. Other concerns, because of the nature of their service, must occupy the central or high-price land. Neither type of concern is interested in any speculative profit or the selling value of the land. Once the land is acquired and large sums spent on buildings and plant, they wish to remain in the same property indefinitely. They rather prefer to keep values from growing too high, since, apart from other considerations, it brings to them additional and growing demands for rates. Maximum Use Made of Land Again, it should be emphasised that these concerns utilise the land to its fullest extent, invariably putting up premises to the limit of <■ economic value in the particular centre in which they are located. The nature of graduated land tax and especially of the rates of graduation now proposed is that of a penal tax. It is designed to discourage, limit, or break up big units. Is it the desire of New Zealanders then to *be a nation of small units, small properties, small manufacturers, one town stores and small stores at that? Is it not rather a fact that the big units are essential in many parts of our economic life? They render a real service to the community providing employment for large numbers and passing on the benefits of large scale operation to the public. Is it not constantly explained 4hat prices are high in New Zealand because we are not organised in a bigger way and thus unable to use mass production methods. Again, the statistics show that the large units provide the greater portion of the income tax levied. Persons and companies with incomes of £SOOO and greater provided in 1930/31 64 per cent, and in 1931/32 50 per cent, of the total income tax raised. - Where will the tax revenues come from if we are to turn our faces towards smaller units? Income tax is much more important to the revenues than land tax, is. Are we not in grave danger of wreck- : ing the big units and killing the geese which lay golden eggs? A Typical Example* Large manufacturing company with branches in cities and towns for distribution of its goods—say:

In the main New Zealand companies are only the aggregation of capital of small shareholders. Average holdings vary from 100 to 500 shares. Is it reasonable that 'these small owners should bear a levy as high as 10/7 d in the £ on their earnings because combined? The Government in this case takes more than half the profits but it carries no risks ami shares no losses. Should there be a loss, the land tax is nevertheless payable and increases the loss. The Increased Tax Burden It will be noted that the combined increase in land and income taxes shown in the above example is equal to 66 per cent. Is it not /an excessive increase? Can the business of the country carry it with all the other adjustments and increased costs placed upon it all at the same time? Must not taxation at these rates be an additional factor in raising prices?- And are the firms which cannot raise their prices to be crippled? Possibly the Minister for Finance will allow the deduction of 5 per cent, on capital value, as in force from 1923 to 1928. This would, of course, ease the position, but the heavy graduated land tax is nevertheless a fixed and unequal load. It bears no relation to ability to pay.. It has to be paid in a year in which a loss is made. The allowance mentioned would help the concern making fair profits, but even with it graduated land tax becomes a millstone around the concern which is on a low profit basis. It is a capital levy on any concern which incurs a loss.

(To be Continued.)

£ £ Capital 200,000 Unimproved value of say eight sites occupied 100,000 Mortgages on land .. 60,000 Net Earnings or taxable income—8 per cent, on capital 16,000 * 1935. 1936. Income tax 4,680 6,000 Land tax 416 2,500 Total tax 5.096 8.500 Surplus for shareholders 10,904 7,500 Percentage of surplus to capital 3i% Division of earnings— To Government: per £ 6/56 10/7d To Company: per £ .. 13/7d 9/5d