READJUSTMENT OF TAXATION

Dominion, Volume 20, Issue 297, 14 September 1927, Page 5

READJUSTMENT OF TAXATION

ALTERATIONS REQUIRED MR. W. D. HUNT'S VIEWS In the course of an interview yesterday Mr. W. D. Hunt, the head of the well-known tirni of Wright, Stephenson and Co., supplied some very interesting information in regard to the land and’ i income taxation, and its operation over a series of years. Mr. Hunt was chairman of the committee appointed by the Government in 1922 to inquire into the taxation of the Dominion, and also a member of the commission, under the nresidencv of Mr. Justice Sim. set up under warrant from His Excellency the Governor-Generai in 1924 to inquire into the present system of land and income taxation in all it* aspects. “I do not wish to add unnecessarily to the. flood of criticism that has been directed against the Government's proposals in connection with the income tax.” Mr. Hunt emphasised, when reminded that the public expected him to say something about this matter. ‘‘But it is true, as my friends have put it to me before, that as a member of the committee of 1922, and of the commission of 192-1, 1 enjoyed opportunities—-at the expense of the country, by the way —td obtain information concerning the Dominion's taxation system which is not available to the community at large. If I may give as much as I can of this information to the public, without burdening it with technicalities or betraying necessary confidences, 1 shall be glad to do so.” Thd War and After.

“At the outbreak of war in 1914,” Mr. Hunt recalled “the income tax commenced at Gd. in the pound for individuals and at Ip. in the pound for companies on the first <£4oo of taxable income—the exception then being £3OO as it is now—and it gradually increased until the maximum rate was reached at £2400. when the tax stood at Is. 4d. in the pound for both individuals and companies. In order to carry the ‘war burden’ successive increases were made, partly by an all round increase in the rate but chiefly by an increase of the graduated rate beyond £2400 for both individuals and companies. The highest point was reached in 1920, when the rate stood at a minimum of Is. 2 2-sd. in the pound on taxable incomes below .£-100, and gradually increased until the maximum was reached at 8s 9jd. in the pound on incomes of £lO,OOO and upwards. Compared with the 1914 rate, the increases amounted to 8 2-sths pence in the pound, or 140 per cent, on the smaller incomes, and gradually increased to an addition of 7s, sd. 3-5<1., or 560 per cent., on the larger incomes After 1920 successive reductions in the income tax rate were made, but these reductions were not determined in the same way »b the increases had been. They merely took tho form of an all round percentage reduction, the same rate applying to incomes that had been paying only 140 per cent extra as to those that had been paying SGO per cent, extra. Certain . alterations were made in exemptions, some being increased and some being decreased, the deciding factors, being the individual’s circumstances in regard to dependants, life insurance, whether his income was earned or unearned, and so forth. Speaking. broadly. it can be said that as a result of these adjustments incomes below £2OOO a year are to-day paying _ the average not more than / they did in 1914. and therefore are carrying none of tho war burden. Large incomes, on the other hand still are paying Bs. 2d. in the pound more, or 237 per .cent, more than they ■ were in 1914.” ' Some Anomalies. “A peculiar feature of the New Zealand income tax system, one in which it differs from that of all other countries, is that it requires the incomes of companies to be taxed in the same way as are the incomes of individuals, the tax is paid by a company on the graduated rate that applies to its whole income, and its dividends are distributed on the tax paid basis. All its share’ holders, large and small, receive their dividends, at the same net rate, the great bulk of the large incomes returned in this country como from companies, not from individuals, and it is through companies that the bulk of the war buiden is being carried. Of the incomes returned to the Income Tax Department, more than 80 per cent, of the total are from individuals, and less than -0 per cent, from companies, but of the amount of tax collected more than GO per cent, comes from companies and under 40 per cent, from individuals. Ln other words, less than 20 per cent of the income is paying more - than bo per cent, of the tax. while over 80 per cent of the income is paying less than 40 per cent, of the tax. It is important then to ascertain who is paying ’he company income tax. Companies are not individuals; they are generally ..owned by a multitude of small investors. An analysis of the share lists of almost all large companies and banks will show that the great bulk of their apital issupplied by small people, the large shareholder being quite an exception. A company has only two sources from which to cot money to pay its moome tax. It cither deducts the tax from its profit, and pays its shareholders '• correspondingly smaller dividend, or e,se it adds the amount of the increased tax to its working costs and collects it in higher charges to its customers. Most of the economists who have Titten on this subject state that income tax cannot be passed on to customers, but rirst be paid out of the resources of t-ie individual upon whom it is levied. J t-ese economists for the most part, n owover. found .their .theories upon heir observations in countries where income tax ■s paid by individuals and not by companies, and write from that fflOint ot view Where a special tax is levied on capital invested in comnames, as is the . case in New Zealand, it is obvious that the whole or at all events a very large part of it, must in the end be ,passed on to the companies’ customers.”

Distributing the Burden “Of th® total volume of individual income, apart from that of companies, returned by the Income r lax Depart-

ment, approximately 90 per cent, is returned by individuals with incomes of .£2OOO a year and less, ano only 10 per cent, by individuals with incomes over .£2OOO a year. This being tho case, is it right that all this mass of income and all these people should be free from contributing to the burden imposed by the war? Has an individual with £lOOO a year, with 4:1500 a year, with 412000 a year, tho right to say that, he is not well enough off to pay anything towards the cost of the war? The Government's proposals would put a very small proportion of the war load on to such people. It is suggested that a man with £5OO a year should pay on the average about 10s. a year more than he did in 1911. that a man with £lOOO a year should pay on the average about £6 a year more, that a man with £l5OO a year should pay on the average say <£ls a year more, and that a man with £2OOO a vear should on tho average pay roughly £25 a year mole. These incieases represent the total direct contribution of people with these incomes to the burden of the war Can anyone conscientiously say they are asked for more than their share? The proposals of tho Government will bring in an increased revenue from income tax; It must be an increase, because there are no deductions from their schedule. All the alterations are increases. There may be no reason why there should be an increase in taxation, but there is every reason why there should >e i readjustment in the scale of taxation. In my opinion the Government is right in attempting to rearrange the scale, but it has not gone far enough. Its proposals stop very much short of the recommendations of the Taxation Commission Where the Government has gone wrong is in using the "ear rangement of the scale to bring in an increase of revenue. The Income Tax Department las the data to -alculate almost exactly what increase in revenue tho proposed new scale will bring. The whole schedule should now bo reduced on a percentage basis in <order that the revenue should be approximately the same as last year. It would be better if a reduction could be made. But if this is not possible, the country will not stand for an increase. Every pound taken by taxation is a pound withdrawn from industry and enterprise, and to this extent reduces the capacity of the communitv fo increase production and "■-■lovment."