Principles of Taxation

Dominion, Volume 29, Issue 196, 16 May 1936, Page 8

Principles of Taxation

•ffir, —We arc often told that ibe faircat tax is an income-tax, but tbe slightest consideration will show that everything depends on the meaning of ‘•income.’ .During a rather brief parenthesis in his career when he sat in the House of Commons as a Liberal, Mr. Winston Churchill participated in the campaign for the Lloyd George Budget in 1909-10, and I recollect that in defending the taxation of land values he said that the proper question for the tax-gatherer to address to the taxpayer is not “How much have you got.' but “How did you get it.'” . . If all taxes on earnings are impolitic and wrong, as 1 hold they are, then an income-tax, insofar as it falls upon earnin"S is indefensible. Obviously such taxation may lie very unjust when levied on people having fixed incomes, such as those earning salaries who have no means of augmenting their income. Any tax which reduces tlie earnings of the people is really a tax upon production, and unless there is a reasonable exemption, it becomes a tax on wages, which, the great Adam Smith tells us, is “absurd and destructive.” Our unemployment tax, for example, is really’ an income-tax, and .its obvious effect is to reduce the spending power of the people. All such taxation is wrong in principle, an impediment to pro■>rcss and therefore pernicious in its effect. ■When the land-tax proposed by the Grey Government in 1877-79, and passed, into law, was repealed by the Hall-Atkinson Government, it was replaced by a direct tax on the capital value of all property, known as the property tax. The tax was levied without regard to the fundamental difference lx tween the unimproved value of land and the value of improvements, and an attempt was made even to assess the value of the contents of houses! The tax was deservedly unpopular from tbe outset. ■ Yet it lasted for twelve years, thougl it played no email part in the defeat > f the Atkinson Government at the general election held in December, 1890. The property-tax was superseded by the Land and Income-tax /Assessment Act, IS9I, which is still in operation. It is interesting to observe, however, that the statute has been steadily tinkered with by politicians in the direction of increasing the income-tax and frittering away the land-tax. In this connection I would refer the reader to page 22 of the last Budget, where he will find a summary of the tax revenue of the country: — £ f'uslums 7,900,000 Beer duty G7;>,000 Sales tax 2,475,000 .Film-hire tax 5<>,000 Gold export duty 100,000 Highways 2.040,000 Stamp and death duties 2,710,000 Laud tax 470.000 Income tax 4,250,000 Miscellaneous 45,000 £20,720,000 In Ihe earlier stages of the land and income tax, the revenue from the laud tax preponderated, whereas now the income tax has reached the enormous total of £4,250,000, while the hind lax is a beggarly £470,000 per annum—less than the rate revenue of Wellington City ! This position is unite in keeping with the policy indicated by Mr. Massey soon after his Government came into office. 1 remember that he addressed a spcciallyselcet audience in Christchurch, to whom he made his profession of faith — that the land tax should be replaced entirely by an income tax. It is interesting to observe how steadfastly this objective has been pursued until we have reached the present alarming and inexcusable stage. The property tax was deservedly unpopular for tbe reason that the man who made tbe most of his land was the very man singled out for the highest taxation. The non-improver, who could afford to liold land unusued or only partially used, paid the least taxation. The separate value of improvements and of unimproved value, the complete exemption of improvements, and the concentration of taxation on the unimproved value were all steps in the right direction and in strict accordance with the principles inculcated Py Adam Smith, who states that a statute indemnifying the landowner for his expenditure—that is to say exempting improvements —and taxing the rental value of hind should be “a perpetual regulation or fundamental law of the commonwealth.” Now, however, we have quietly reverted to tbe evjls of the property tax without avowedly doing so. . If it is wrong to tax the capital value of propertv without, regard to tbe fundamental difference between improvements and the unimproved value, it cannot be ri'dit to tax the income of that property. Accordingly, we need not be surprised to find that the coterie who can afford the luxury of blockading the land of the country are aTI in favour of the income tax and against the laud tax! The explanation is that the income tax relieves the man who can afford to allow land to remain idle. Accordingly, if improvers were alive io their real interests, they would demand Ihe substantial reduction, with a view io the ultimate repeal, of tbe income tax an<l its replacement by a land tax pure and simple. With your permission I shall refer to Ibis matter in a subsequent letter. —.1 am, etc.. r. J. UItEGA.V Wellington, May It.