WHO IS TO PAY AND HOW?

Dominion, Volume 23, Issue 256, 25 July 1930, Page 12

WHO IS TO PAY AND HOW?

Additional Burdens Placed on Land

NO FIVE PER CENT. DEDUCTION

Income Tax to Replace Special Land Tax

In its endeavour to raise additional revenue the Government proposes taxation changes which will have some drastic effects. In addition to the 10 per cent, increase in income tax and the numerous changes in the Customs tariff, it is proposed to eliminate the 5 per cent, deduction allowed, for income tax purposes, on the capital value of property used in the production of income, and to reduce the allowance to 5 per cent, on the unimproved value on the taxable balance where a mortgage exemption has been allowed. The 5 per cent, land tax concession'is also to be withdrawn. The special land tax on farms is to be abandoned and all farmers owning land of an unimproved value of £7500 or more are to be liable for income tax.

“The Government regrets very much having to bring forward proposals for fresh taxation,” said Mr. Forbes. “The small surplus for last year was only attained by close control over the expenditure, and there was very little margin to come a_nd go on. Thus, when we find ourselves faced this year with a shrinkage of £2,830,000 in revenue and added liabilities on rigid items of over £400,000, there is no possibility of bridging the gap without some additional taxtaion. Having carefully combed out the expenditure, the most the Government can do,” he continued, “is to endeavour- to place the additional burdens as equitably as possible, and in such a wav as to cause as little economic disturbance as possible, in order that a return to more prosperous times may not be hindered any more than can be helped. “The Customs tariff resolutions already passed will, it is estimated, produce about half the £1,660,000 additional revenue required. As I explained when dealing with the resolutions, while obtaining the necessary revenue the opportunity is being taken to make some desirable amendments in the tariff from the protective and preference points of view. The primage duty, which previously was imposed on practically all goods whether otherwise dutiable or not, has been abolished, and a surtax on dutiable goods substituted therefor. “The bulk of the additional revenue which is to be obtained from Customs will come from the increase in the duty on many lines of foreign goods which, at the same time, will increase the margin of preference on British goods. In addition, definite increases set out in the schedules to the resolutions have been made on other goods. In regard to cigarettes, the fluty has been increased by Id. per packet of 10 cigarettes, which is equal to about 3/3 per pound. An equivalent increase has been made on cigarette tobacco and also on the excise duties payable on these articles. An additional duty on an ad valorem basis is also to be placed on kinematograph sound films. , . . “It is proposed to obtain part of the additional revenue required from land and income tax, but at the same time the opportunity is being taken to remove certain anomalies arid place taxes on a more equitable basis. The information obtained from last year’s income tax returns of farming incomes showed clearly that previously many large incomes had been escaping their fajr share of taxation, and that the amendments made last session were in the right direction. Experience has shown, however, that the special land tax was too rigid in its incidence and was inequitable in some instances. At the same time, information received by the Tax Department shows that the incomes derived from many farms of an .unimproved value of considerably less than £14,000 (and thus not at present assessable for income tax) are not contributing a fair share toward the expenses of tne State Accordingly, tb overcome all these difficulties and inequltl .®? i"t is proposed to abandon the speciM land tax and make all farmers owning lr nd oeeupX land of an unimproved value of £7500 or over liable to assess ment for income tax on their farming as well as other income. The provision.in last year’s legislation whereby the: land tax payable was deductible from the "n come tax on farming incomes will also De repealed, and farmers will Irenceforthbe assessed for income tax on the same basis as other classes of the community. “Further, it is found that the present general provision allowing a deduction for income tax purposes of 5 per cent on the capital value of property used in production of the income has given rise to serious anomalies and inequities. In allowance is intended as a set-off for land tax paid, and also to provide for depreciation of buildings, but the method is too rough and ready to be equitable. lor instance, a taxpayer deriving income from rents is at present allowed as a deduction the interest on his mortgage, and also 5 per cent, on the full capital Y? ln ®> in which his equity may be relatively small. In many such cases the taxpayers practically escape income tax, and by reason of the mortgage exemption may also escape land tax. Again, m the eit ]es > owintr to the erection in recent years of large and valuable buildings, the 5 per cent allowance has in some cases relieved the business man not only of the amount of his land tax. but, in addition, of a considerable part of his income tax. further, the taxpayer carrying on his business in a steel-frame structure with a life possibly exceeding one hundred years is allowed the same rate of 5 per cent as the taxpayer using a wooden Dunning with a possible life, of, say, forty years. Even in the latter case 5 per centthe capital value is an excessive anoyance. Further depreciation is an actual expense, and should.be allov' Auction before arriving at the ns-essamc income. At present it is a special exemp--1 °“ Accordingly, it iB ..!’ ropo vfAin C l prior practically to the position obtaining pitot to 1923. and reduce the allowance to per cent, on the unimproved valuel or the taxable balance in cases where a .mort o£ the Commissioner of Ta xeB ; .’The pro” V7wo unimproved value i;ltiou ou buildto the Tax Department: —

which has been considerably reduced in recent years. In 1921 it was provided that the income should be assessed at half, the ordinary rate, and the companies have been able to increase greatly the bonuses paid. It is found, however, that the Government Life Insurance Department, the assessable income of which is determined by the actual profits, is paying 32 per cent, of the total income-tax paid by life insurance companies while its. income represents less than 22 per cent of the total income of life-insurance companies. This is a result of the peculiar method of arriving at the assessable income of foreign life-insurance companies. Such companies are assessed on income derived from investments in New Zealand and investments out of New Zealand held by or on behalf of the New Zealand branch. It is not necessary for companies to make investments on behalf of any particular branch, consequently they may to a large extent determine their own taxation. It is proposed, therefore, to provide that in the case of foreign lifeinsurance companies the taxable income from life-insurance business shall equal 25 per cent, of the premium income and consideration received for annuities. This is approximately the rate shown on an actuarial basis by the Government Life Insurance Department. “It is estimated that the yield from land and income tax after these adjustments have been made would be practically the same ns under the existing legislation, the only difference being that the burden would be more equitably distributed. New Taxes Enumerated. “In order to obtain part of the additional revenue required to balance the Budget, it is proposed to withdraw the land-tax concession granted in 1924, whereby a deduction of 5 per cent, has been allowed on the amount of land-tax otherwise payable. “In addition, it Is proposed to increase the income-tax rates by 10 per cent. “Under the Stamp Duties Act it is proposed to make the following alterations :—

(a) Increase the bank-note duty from the present rate of 15/- to 22/6 per cent, on the average amount of notes circulating during each quarter. This increase, which will operate as from July 1, means an Increase from 3 per cent, to 4} per cent, in the banknote duty, (b) Increase the totalisator duty from 2| per cent, to 5 per cent., the State to receive the whole of the increase. At present the State receives 2} per cent, and the racing clubs 7J per cent, of the amount deducted by racing clubs from investments on the totalisator. The proposal Is to double the revenue received by the State without interfering with that received by the clubs. (c) Require insurance companies to pay the usual 2d. duty on receipts. At present they enjoy an exemption from this tax. (d) Increase by 10 per cent, the stamp duty on all instruments presented for stamping. Instruments which the parties thereto are permitted or required to affix adhesive stamps or write on stamped paper will not, however, be affected. (e) Companies annual license duty: Minimum to be £1 and maximum to be increased from £2OO to £3OO. (f) The exemption from conveyance duty of transfers of land from the Crown to be limited to lands within the meaning of the Land Act, 1324, or Land for Settlement Act, 1925, or Education Reserves Aet, W2B. This amendment would still leave free of duty transfers of land from the Crown for land-settle-ment and suchlike purposes, but will require purchasers of land from Government trading departments to pay the usual duties thereon. (g) Impose duty at the same rate as is payable on the transfer of shares in New Zealand companies upon transfers of shares In foreign companies, Including foreign mining companies, executed in New Zealand. At present such transfers escape duty in New Zealand. (It) Increase the flat rate of duty on registration of mortgages and discharges thereof from 2/6 to 5/-. (i) Amend the definition of “public authority” so as to exclude the Public Trust Office from benefits in favour of the Crown, and otherwise narrow the definition of the Crown for purposes of stamp duty. (j) Require the Government Life Insurance and State Fire Insurance Departments to pay an annual license fee and receipt and cheque duties at the usual rates. This* proposal means placing these departments on the same footing in regard to taxation as other insurance companies.

“These proposed amendments to the Stamp Duties Act, apart from the increases in the totalisator duty and the banknote duty, are individually relatively small from a revenue point of view, but in the aggregate they will be of some assistance in meeting the Budget short1 B “Under the heading of ‘Death Duties? it is proposed to impose an additional 10 per cent, estate duty on the amount by which the final balance of an estate exceeds £IOO,OOO. This additional duty will bring in a considerable amount of revenue without imposing hardship on anybody. , ... , . . . , • “The exemption from gift duty is to be reduced from £IOOO to £SOO per person per year, and a duty of 24 per cent, imposed on dutiable gifts of from £SOO to £IOOO in value. “The annual license fee for a sharebroker’s license is to be increased from £2 to £5. , Amusement Tax. “To further assist in providing the additional revenue necessary to balance the Budget, it is proposed to reimpose the amusement tax on payments of 1/- or more for admission to any, entertainmeats. This was the nosition prior to 1924. when the exemption was raised to the present amount, 2/-. On 1/- admission price the. tax will be Id., from 1/- to 1/6, a tax of 2d., and on higher charges Id. for every shilling or part ot a shilling, plus an additional penny as at present. Allowing for these increases in. taxation, and also for the increase in the petrol tax for the benefit of the main highways account. Mr. Forbes e.af'V’ates that the revenue for the year will be as follows: — £ „ , ' 8,530,000 Motor’ vehicles-^Duties, Hceu’sbs- IMSOOO Stamp'and'death’ duties iw'ooo Land tax lirconio tax •••; _ can non Interest on public moneys ■ Interest on capital liability— -..j5.,/™ Bailways ‘ Bost Office aIO.OOU Interest on public debt redemplion fund Other receipts C 25.120.000

c3 "S p e. <D cj o 03 a <V £ S S • o , £ Q <y P .2 > ° & M Class. S - v> H $ 8 X '‘S cj . C PS.cP I-3P-I £ £ £ £ Commercial 6,200 4,220 75 24 Farming .. 10,150 2,925 98 97 Commercial 18,425 33,656 207 136 Farming .. 24.2S7' 4,121 283 237 Commercial 35,812 35,119 402 44 S Farming .. 38,927 5,875 499 446 “It is also proposed to make some changes in regard to the taxation ot hieInsurance companies, the taxa non on