Principles of Taxation

Dominion, Volume 29, Issue 185, 4 May 1936, Page 13

Principles of Taxation

Sir, —Discussion of the principles of taxation is much obscured by the use ot mere hot-air terms such as “capitalism, "the capitalistic system,” etc., most or them derived from the redundant vocabulary of old-world demagogy. All wealth is the product of labour and land, and capital is that part of the wea.th ot the community which is employed, not in the imffi'editite satisfaction ot desire, but in the production.of more.wealth. ‘Capital,” says Adam Smith, “is that part of a man’s stock by which he hopes to increase Ins revenue,” a very concise and correct! definition. Karl Marx, who has written a book on Capital, never attempts to define the term, but he tells us that capital is dead labour that, vampire-like, sucks the blood of living labour. 1 hat is neither a definition nor a correct statement. Capital, like many other things is good or evil according to the use U which it is put, and there is a fundamental difference between capital applied to tbe production of wealth —its real function —and capital used in merely blockading land. lu tlm latter case Marx’s statement is perfectly correct, but such a perversion is not a necessary attribute of capital, and it can be corrected by proper taxation. The increase in tbe aggregate wealth of t|ie community is one of the characteristics of modern civilisation, and the formation of joint stock companies, by means of which men arc able to pool their capital for common purposes, has been well described as one of the greatest triumphs of ■ civilisation. Companies were unknown to the ancient world for several reasons, namely (1) / the institution of slavery made labour unproductive, and hence the accumulation of wealth in the modern sense was impossible; (2) even the so-culled free citi-. zens in ancient times were really unfree, because of the patria potestas, and (3) inost important of all, the frequency of wars; with the consequential insecurity, interdicted the production of wealth and made industrial enterprise almost impossible. We associate imperial splendour and progress with the reign of Justinian, for example, but, as we learn from Gibbon, during his reign of 32 years the city of Rome was beleaguered and stormed five times! We live, the pessimists.notwithstanding, in more propitious times, and the joint stock company is one uf the incidental consequences. We need not go beyond our own country to find illustrations of the great public benefits conferred by the activities of companies. Doubtless your readers have noticed that from five to six hundred ounces of gold are being produced weekly in this country by sluicing and dredging operations, mostly on the West Const of the South Island. Most of these companies have been promoted by New Zealanders of comparatively small means, and the benefit conferred by their activities in reality goes beyond the payment of dividends to tbe investors, in that mucn capital is expended in boring and other methods of prospecting, involving the employment of labour. In the gold-mining industry the wages are liberal, the occupation healthy, and so the shareholders are not the only people who participate in the resultant benefits. Of course, the people-who invest their capital m the industry know well tbe risk they, run, not merely of getting no return, but of losing their capital altogether. It remains a truth, however, that every man is the best judge of his own interests, and that the public welfare is best served by allowing every man to pursue what is properlv his own business in his own way. Having regard to the foregoing facts, then, what are we to say to such levies and the income-tax and the gold export tnx? My reply is that the greatest encouragement the Government could give the mining industry would be merely to untnx it. Certainly proper safeguards should be enforced against the holding of mining areas for mere speculation, but in view of the far-reaching benefits of gold production, we should allow the men engaged therein to retain everything thev earn. I agree (1) that till the defects of our taxation system cannot be put right in one Budget; (2) that no tax should be abolished without replacement by another, but (3) that taxation io the most important function of Government, and that it should not be the medium of perpetuating injustice. Hence the coming Budget of our new Government far transcends iu Importance, anything heretofore discussed in Parliament. —I am, ' ’ P. J. O’REGAN. Wellington, May 1.