COMMENT FROM THE CAPITAL INDIRECT TAXATION MAY REDUCE “STING” OF BUDGET

Press, Volume CVI, Issue 31363, 8 May 1967, Page 14

COMMENT FROM THE CAPITAL INDIRECT TAXATION MAY REDUCE “STING” OF BUDGET

(From Our Own Reporter)

WELLINGTON, May 7.—The double impact of subsidy withdrawals and indirect taxation increases in the early months of this year, coupled with the threat of a firm Budget later, has suggested that the entire pattern of taxation in New Zealand is changing.

x Already it is. apparent that the Labour-imposed system of concentrating taxation measures into Budget proposals, designed also to support an intricate network of subsidised goods and services, is being broken down. Though the phrase is not often used, “Let the user pay” is a basic thought in recent Government taxation moves.

Against this background, the previous Minister of Finance (the late Mr H. R. Lake) set up a Taxation Review Committee charged with undertaking a comprehensive review of taxation. From the outset it appeared that the result would not be a mere reexamination of taxation methods. Mr Lake admitted that New Zealand was one of the most heavily-taxed countries in the world. It was also admitted that in any system evolved, the Government would wish to maintain its present level of spending. Society’s Submissions Among the first submissions to be made to the Taxation Review Committee were those of the Constitutional Society, the president and chairman of which is a former Speaker, Sir Matthew Oram. The Constitutional Society believes that the whole field of State financing should be considered along with the question of taxation. “An effort was made a few years ago to produce intelligibility in the Public Accounts,” the society says, “but they are still a quaint mixture of taxation revenue, public borrowing and Reserve Bank credit, added together to give a global total.”

The society simply submits that the Public Accounts should be presented in a form that accords with the requirements of the Department of Inland Revenue for companies and individual taxpayers. It believes that before a new taxation system ean be framed, there should be an exact understanding of the way in which money is spent. The society expressed concern at the high rate of direct taxation. Its submissions say:

“For some years the ratio was approximately two-thirds from direct taxation and onethird from indirect taxation in total revenue, which is among the highest rates of direct taxation in the world. More recently, however, the position has worsened. “In the Budget forecast for the present financial year it is estimated that 71 per cent of the revenue will be from direct taxation and only 29 per cent from indirect. ... This is a position which certainly needs correction, but it is submitted that changes in the direction desired should be made gradually, with adequate safeguards against hardship.” Income Tax The Constitutional Society

believes that the most severe hardships from taxation result from the excessively steeply-graduated income tax. “Successive Governments have let State spending get out of hand, and have worked on the principle of ‘soaking the so-called rich’,” the society says. “It has not worked out that way. The more severely hit are the middle-class professional people and executive salary earners.” A maximum tax rate of twothirds of all earnings is reached in New Zealand at £3600 a year. The same incidence of taxation is reached in the United States of America at £14,500, in Canada at £41,600, in the United Kingdom at £9500 (earned) or £6OOO (unearned), and in Australia at £12,800. The society believes that because of New Zealand’s high cost structure, its taxation is a serious disincentive to extra productive effort. It comments:

“The absurdity of the situation is indicated by the Government itself granting senior public servants salary increases of up to £750 a year (and immediately taking back two-thirds of the additional sum in extra tax) while conceding its rank-and-file employees and pensioners only shillings a week.” The society submits that the figure of £3600 a year for maximum tax-rate is unrealistic in view of the inflation of the last twenty years. It might have been reasonable when £lOOO a year meant affluence. The society also believes that Land Tax, based on rapidly-increasing land values, is an unnecessarily heavy burden on the farmer, and is without justification. Its submissions contain the statement: “About 10 years ago the then Minister of Internal Af-

fairs is reported to have given an instruction that farm valuations should be sharply increased so that county revenue for the maintenance of country roads and highways might be increased. This has resulted in a heavy burden in rates and a correspondingly higher burden in land tax.” After stressing the effect of death duties, the society concludes that: “High taxes are a significant factor in raising the internal cost structure.” Speaker Acts

Seldom in New Zealand’s political history has a newlyelected Speaker gone through such a testing time in the first week of his new office as has Mr R. E. Jack. And seldom, if ever, has a new Speaker emerged so well. Last Thursday night held all the ingredients of a nasty Parliamentary situation, similar to those in the past which have resulted in suspensions, recriminations, and enduring bitterness.

Mr Jack displayed firmness without heavy-handedness, strength without partiality. After firmly “sitting down” the Leader of the Opposition (Mr Kirk) quite early in the debate, be dia the same to the Prime Minister shortly afterwards. His decisions were made clearly and without delay.

One of the first casualties of the debate was the habit by many members of muttering and exchanging “asides” after a Speaker’s ruling. This occurred on several occasions last session, and at times was clearly audible to the listening public. Mr Jack, who has clear sight and keen hearing, served notice on Thursday night that he would not tolerate such laxity. It is obvious that the conduct of affairs in the House will Improve greatly as a result.