A QUERY.

Dominion, Volume 2, Issue 484, 17 April 1909, Page 4

A QUERY.

THE PRIME MINISTER'S STATEMENT.

INCOME TAX V. MORTGAGE TAX,

f W«r?Pf o .V th « I'nmo Minister (Sir J. of Commerce in reference'to the suggested nosir r tho^ tax and tjfo to, ■position of an mcomo tax'in lieu thereof.■ lias caused considerable discussion in com meroml and business circle ■ > • ■ At tho Conference of Ol.ambera of' Corn. merco tho following resolution was paesed, 1 hat whereas tho mortgaeo,tax. lias been found to ; bo the cau!o E of, a largo amount of capital king withdrawn froV Ivow Zealand and to restrict.tho'influx of capital tor investment and to create ' financial stringency in obtaining loans required for tho legitimate development'. oMhe country's natural resources ■ the attention of tho Government , bo called to the position, and it is suggested that the mortgage tax be abolished, Further, that in lieu thereof all incomo derived from, tup investment of capital be made subject to ,, the incomo taxT . ; _ Commenting on the above resolution, and tho Innio Minister's reply a gentleman oc copying-.a prominent position, in businosj and financial circles, says: . "The feeling of tho delegates was not against paying a certain amount of taxau"'i l lf) wa ? a e. ainst tho method in which tho taxation is imposed—on account of tho misunderstanding it creates" in the minds of. investors both in and outside of New Zealand. ,'..■...;'.;, . x'(9j l ' t !j, e . a ! )o ' ve "solution being submitted t° vh IT? 3 l lini6t « r i '■• Sir Joseph Ward replied .-that to change the taxv from a mortgngo B tax to an income lax, would mean in. creasing the rate from 6s. 3d. per cent, to irom 7s. to Bs. per cent. Ho was,; asked to ; show, how that was arrived at. because none, of the delegates could understand how ho reached.that result if money is lent at-4-i per cent.—the same as the Govern, mont charge. It would, appear, from'hit reply, that in order to arnvo at the ahivi igures, he, would, have to bring in' legitlation,to increase tho income-tax on income derived from mortgages.; .;Otherwise,; howdoes he come to the increase of-from 9d\ to Is/ 9d.—on thocxisting basis? -..-i 'In'addition to paying tho .present-tax on mortgages, there is a graduated, tax, and, if tho mortgago happens.to he on pastoral ,or country land, and is above, a ■certain amount, there is a further penal tax of 23 )or cent. So that anyone borrowing money hore is paying a graduated tax, and a'-penal tax on .his:dobte., . \Y •,, ,• ...... "Then, again, if. a person : Bella hie'conntry land—bowing to tho 'bursting-up' poliej —he has to faco almost the samodisadvatt. cages as.soon as ho, attempts to invest the )roceeds:of the sale in,any property,except mine _or steamers. Why ' should men -of - this description be forced to .send any -surplus over £39,999,for'investment outside*the Dominion? In addition to having; senti either that portion or the, whole of. his< capital away, there are well-known cases where the individual himßelf. and his family, have left the Dominion and followed. their capital." ■•'. the averaoe rate/op intereßt. ' : ■."■ prime minister's' basis iiis- . >:■■;; : . .; ■. leading. , ; ,'..-. .■ ■ "If the Primo\Minister had had nlacefl before him the Parliamentary paper, HI2A, showing.the; amount,of mortgagee registered and discharged in the Dominion for the year eliding March. 1907, .ho would have,found " that out of the total amount of registered mortgages of. £14,802i895, £2,605,692 show no rate of,' intereet; £1,124,426 ' show arato ■■ of interest of over 6'por cent'. : The balance of £11,172,877 shows a rate of : \intoroet of from nothing up'.to 6 per cent; "In other words, over £11.000,000 out of about £14 1 802, , 895. Is borrowed at, a rate ol interest 'that /would hardly average 6 por cent. So what", is the good of putting ooforo the delegates a statement based on , » calculation' df-"7"te. 8 per , bent-? , ,.'-, . "The statement Wade by the Prime Minister that .an income tax .would bo , igreater than tho .mortgage tax, can only., be/true and. correct''providing, that' the rate.of in;terc«t' should be 7., per'cbnt. annum, and • thenalsc- providing that the inoomo tax is reckoned at; Is. in th 4£. It.isquite well known, that a proportion of tho income' tax ijs'only levied at !Cd. ;in the. £, sotiiafthe ■Trinie Minister te mako his 'statement' correct, has had figures worked'out'and placed ' before, him and used by him on a basis that is :misleadint', becauso.' tlie!. universal 'rate of interest disclosed by tho return, in quostion was not' 7 per cent.,' nbr is tho whole of-.the incomo'tax collected on the basis of a. in the £. In each caso, ; an , answer could be made in the same spirit; Ho hais stated'the position, fainy. ■; > Is There a Tax on Buildings? r " The Prime ■ Minister.- saj's tliere is' no' ■ tax on buildings.' '■: Lot mo' give >ou thie, instance., 'A' has a piece of land worth £30,000. Hβ spends 1 £40,000 on a building, total £70,000. Ho borrows on this, say, : £41,000, He has to on the £30,000; or," ; porhaps, a shade less. There is then te be paid a tax. on the £41,000 mortgage. ■-.'■' ' -.' ' : : : • :■ :■■ ( ;-No\y, what ddes that £41,000 roprcspntp' , low mUchiof it is land and how much of, it is buildingP ■ . , . ~".:.■ ~..■", ■ "Therefore, I contend, , that, put it. in nny language you like, tho result is tliat th» is:paying taxation. ,' ';■■,."'.■, -, " ■ ! . Taxed Five Tlmosi ■ [ "Take a company like tho Gas Company, First, they pay a company tax, thon they pay municipal taxes, thon tho land tax, income; -tax, and graduated tax. Tliun, as this company; has money borrowed, on debentures m London, they ,hm>, a further in« come tax to pay, calculated on the interest paid on. the uobentures. . That is what tho company pays before it can declare.a dividends When I roceivd that dividend I then have to pay a further or second graduated ta£ And if, again, my company has monoy N borrowed, I again have to pay' iuooine tax on ,BUch, .proportion of the amount of- tho interest as represents,this investment. So you-sail see how many cats of taxation the country gets out of the earnings of the GasjCompany before the residue or its original earnings ifiniilly; reach your 'pocket, v And still w.o are told by the authorities that you are. only taxed oheo on your incomo." > , THjE PROBABLE EXPLANATIONi to 'the explauatiKn of itho Primo Ministerj his contention is f that rato of.\tho mortgago tax at: Jd. ,; m -tlie £ equiilsV6s:'3d. for; every : £100. Tho' Bug. gested'income tax, supposing the interest on tho mortgage is at the rate of 7 por cent,, and thenncomo tax on that interest is Is. in tho £n that equals a tax of.7s. for every. £100. It tlio rate of interest is 8 ptsr cent.,' then'■the ,, , tax "Vohiil- bo Bs. incomo tax for' cvory £100!' * Sir Joseph AVard's contention is that -.it , .' is'.'tlio increaso in tho graduated tax—if anything—and not tho mortgago tax , that has 4ed -to tho withdrawal of capital. Tho purchaße',o'f largo estates b.v tho Government has dJso 'been a contributing factor, to the withdrawal. .. ' ■■ ,'■■■■■ , : In regard-to tho statement made by one member atv.tho. Conference of Chambers of . Commeroe,.,that .yicoino is sometimes taxed five, times'over, the contention of tJio Govern. ment is that'there is no duplication of taxa. tion' in Now :?.'.■ ■ ; .';