Call For Broader View On Purpose Of Taxation

Press, Volume CVI, Issue 31091, 21 June 1966, Page 3

Call For Broader View On Purpose Of Taxation

(New Zealand Press Association > AUCKLAND, June 20. There was an increasing awareness that New Zealand’s system of income taxes had inhibited economic growth by curbing initiative in the very fields in which it should be encouraged, Mr E. D. Wilkinson, chairman of the Monetary and Economic Council, said today.

Commenting on the Budget proposal to set up a committee to look into taxation, Mr Wilkinson said careful attention would need to be given to the choice of personnel for its membership. “In the past, the main emphasis in the field of taxation has been on securing for the Government the maximum in taxes, consistent with apparent equity for the taxpayer,” he said.

“The need now is for a better appreciation of the broader purposes which the system of taxation should serve.”

The New Zealand system and scale of taxation of company incomes had induced many companies to distribute more in dividends than prudent financial management would dictate, he said. This was more particularly in private companies through the insistence and effect of retention tax. This had compelled many companies to borrow funds for normal development purposes which should have been provided, in part at least, from internal sources.

“The effect has been to create in many companies, and particularly private companies which comprise over 90 per cent of all companies registered in New Zealand, an unsound financial structure—not as a matter of choice; but, in part, due to income tax implications.” New Zealand was one of the few countries which applied a graduated rate of taxes to company incomes.

“There does not appear to be any equitable or economic reason for retaining this principle. Rather, it has encouraged the growth of a number of small company units, the purposes of which would be more effectively served by a smaller number of larger units.” The taxation of bonus issues of shares was, from an econo-

mic standpoint, undesirable because the conversion of reserves to fixed capital was both sensible and economically desirable. “It is important that the order of reference for the proposed committee should be wide enough to include an examination of our system of indirect taxation, without which the review would lose much of the value that should accrue from its deliberations,” said Mr Wilkinson. “In general terms, Indirect taxes are so low by comparison with those of most of the advanced economies of the world that they have very little influence on the amount or direction of consumer spending while income taxes on the other hand inhibit savings.”