THAT MORTGAGE TAX.

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

THAT MORTGAGE TAX.

The discussion which has taken place bofjween tho Prime' Minister and certain of the' delegates tq- the: Conference : of. Chambers of Conimcrco'on tho mortgage tax has served to ventilalo. a'-qucs : tion.of very 'general., interest 'and, im.portanco. .The matter does riot concern merely tho person, who.'.has "money, to invest on mortgage, but the whole community.'"Upon the free,circulation of'capital 'depends to a very large'extent the prosperity; and development of, any. • young country, and "especially ,in. such times of depression,- as'tho present is it desirable to encourage the investment of-capital, in such directions as most require its stimu-lating-influence. It is a little difficult to follow Sin Joseph Ward's explanation of the position unless something- is read into his reraarke which docs not appear on the surface. The Chambers- of Commerce Conference raised objection to tho mortgage tax on tho ground that it tended, to discourage the investment of capital in tho Dominion. The tax at the present time is at tho rate of six shillings and threepence for every £100 of capital invested on mortgage, and the Conference suggest that it would be less objectionable to investors if they had to pay on the income earned from the investment of their capital on mortgage, rather than on the amount of tho capital so invested. The. Prime Minister's reply is that the change would be, no advantage, rather the.reverse, as it wpuld mean a charge at the rateof seven or eight shillings (instead of six shillings and threepence),per £100 invested. ,-Ho also stated- the obvious fact that the Government, must have revenue, and if they lose it in one way they must make up the deficiency in another/ It is, here that Sir Joseph Ward's attitude becomes .uncertain, although an inferenco can be drawn from his expressed view that income from personal effort 'should;be taxed at a lower rato than income from capital invested. Presumably ho means that if the mortgage tax were to be abolished, and a'tax imposed instead on the income derived from investments on mortgage, the rate of taxation pn suchincome would on a higher scale than that, now' charged on ordinary income.: . ! Let us look at the position, first of all from the Prime Minister's point of view, Assuming, to suit his purpose, that it is a wise; and proper policy, to charge, a higher rato of taxation on the earnings of capital than on tho earnings from per'sonal effort; what differential rate would ho fix? From, his utterances .it seems plain that his:idea of a fair rate is to double the amount charged to individuals under tho existing income tax. ', That is'to say*,to make the amount one shilling for every pound of income /earned. Taking- an 'investment of■ £1000, the position "would- work out as : follows: '-.".- ' ''".. Present , Mortgage Tax.'. ' ■ ■ •■■■■ ■ -•■-■' ■■'■-' ■"...■: ■■"'■■ .'- - ■: £s. d. £1000 at 6a. 3d. per cent..' ... 3 2 6 ,-..-,. Suggested Income Tax.:,..,.:, ' £1000 invested at-6 per cent., £60, • ■ on which is paid Is. in. tho '£,'■'"■ ■■•■■ income tax • .„■ :.. ■ • ..'.i , 3 0 0 Gain to. taxpayer-V..].;' ;';.;■ 0 2 6: Even assuming the:average , irate of interest to.be- as high as 6 per cent., Which, according jfo the figures published: else-, where, is not the case, there is a slight saving. to the investor. But this,is on tb.6 .assumption that , the income : tax' will necessarily be doubled, and it. assumes' also, a'higher average. ; rate.of ■(interest' earned lihan is actually the: case, according to the latest figures available. The sentimental aspect of the, tax, that is the contention that the mortgage tax is objectionable mainly because it is a mortgage tax,' whereas tho payment • of an equal amount' as income tax would be less objectionable, may be deserving of consideration, but we do not propose at present to dwell oi\ that view of the case. A point which, is of much; more ■importance, and one which the Prime Minister appears to have overlooked, is the necessity for encouraging the investment of outsido'capital in New Zealand. Theoretically, Sir Joseph Ward m&j be; quite right jin hie contention that income derived from capital should be more,heavily taxed than income gained by personal exertion. But. is that a wise policy to enact, in a young, and undeveloped country, which badly.; needs capital in order to develop its. abounding natural resources^. and maintain that rate of.' progress,'.. go..' essential to the ( : well-being of tho whole com-' munity? What might be a wise, and ust apportionment of taxation in an older country might be a suicidal policy in a young >and undeveloped one: What tho Government has to consider is, not what is being- done ■in ': England 'or any other older country,'but what,is best in the interests of this.Dominion. If fresh capital can be drawn into 1 the, country by reducing; the taxation on,'investors, or even if the capital at present in; the country, and which is stated to-be drifting away to other-fields of investment, can be retained by this means, it is the duty.of Ministers to give the matter their earnest consideration. Tho loss of revenue-from, this remission,. small, cannot be ignored, but tho loss of capitalmay be still more serious. ■■ . . ~ , ... v ■