TAXATION

Evening Post, Volume CVII, Issue 82, 5 April 1924, Page 13

TAXATION

AN UNFAIR COMPARISON ■ ■■ ' ■ '■'■■. : ■ I-

:TO THB EDITOR. ..Sir, —The Prime/Minister at Christchurch issued a ,table:- of. comparisons iD regard to. the amounts. payable under land tax "and income tax on given sums capitalised at 5 per cent, on the income tax. payable. This, in my opinion, was not a fair comparison, as it overlooks

many important factors which are necesr sary'to take into account, and the statement is more likely to widen the eectional differences (as complained of by the Prime Minister) than to close or heal 'them.

in the first place no firm or business man would be satisfied to obtain only <5 per cent, net profib upon his investments in business. Not only- would he be dissatisfied, but no business could carry'on for any length of time on such poor return. It would be better for him' to invest his capital in mortgages at 6 per cent, or 6£ per cent., and save himself a lot of hard work and many anxious moments, and would give him a life of leisure. The business man, to be successful, must be able to develop his business. This can only be done by being in a position to carry enough profit forward each year, to build up a reserve account. . He is equally at the mercy of the markets as is the farmer, as is evidenced by the terrific loss in values which took place in 1921 and 1922, a great number of. firms hrul to use up the whole of their reserves, and in many cases a proportion of their capital, to square the losses made by the drop' in values. ...

It is quite clear that no one is likely to eiiter into business, be he a -farmer or a mercantile man, unless he'can see a-possibility of making JO per cent, on the capital employed. Even such a profit would only just enable companies or individuals to pay a fajr dividend and carry forward a reasonable sum to re serve. The tables supplied by the Prime Minister, in my opinion, do noi; correctly show the position,,and I therefore suV>mil a table that is more in conformity

with th» necessity of the case. Even a farmer would not.be satisfied-with an income from his land of 5 per cent.,, and if that applies to a farmer, how much more does it apply to business men who must build up ' reserves against loss by bad debts, depreciation . of- stock, loss by fire, all _of which., cannot •be fully guarded against by insurance or \ any. other method. I will, therefore, accept the Prime Minister's figures as to capital employed, and present, a table' in which I assume that the farmer, and business man alike make a net profit of 10 per, cent, on his capital:— '

I take it that 10 per cent, is a fair return for. capital, "as after payment of land tax the farmer would have earned an .interest of 8.532 per cent., and the business man, after payment "of income tex, would hava- earned an interest of '-.0&7 Per cent. The farmer could pay himself a 7 per cent, dividend and carry 'i per cent, to reserve; the business man would pay his shareholders -7 per cent, dividend and carry practically notlung to reserve.

* Is it then to be wondered at that there is a feeling that-one section of the. community is being given preferential treatment over the other ?. Does not • tha table presented show that the income taxpayer at the highest rate is paying double the taxation levied' upon the farmer with the same capital invested. If land tax is .unfair, then remove it; but Jf it is to remain,-then it should be upon a sounder basis than the present. Let it bo upon a statistical average of values trt primary products for the three years previous to the Annual Rating Act, then we shall get away from the cry that the farmer pays whether he makes a profit or not, or let the Prime Minister be brave and bring down a Bill to cancel the land lax, substituting an income tax upon all incomes. Let every man and woman pay their taxation upon every pound of income, . whether earned or unearned, subject fo; such exemptions as are necessary. We shall then get away from such remarks.as uttered by the Prime Minister that there was an endeavour being made to set or.c section of the community against the other,' and let us all be workers for one common good, ourselves and our Dominion.—l am, rtc , EQUITY. 4Ui April. ■ , , . .■' ■■■ -

Capital.' £ / 6,000 10,000 20,000 30,000 40,000 < ' •■• 60,000 : 100,000 Profit at • ' ' 10 per cent. Land Tax £ £ a. d. 600. • . 19 13 4 1,000 ' 37 18 4 2,000 liD6 5. 0 3,000 187 18 4 4,000 - 306 5 0 6,000 • 6C0 0 0 • 10,000 . 1468 . 0 0

' ■ Excess of Taxation Income Tai; paid by Income Tax. ■ £ s. d. , £ s. d. .28 0 0 ' 8 6 8 50' 0 0 12 1 8 -186 13 ' 4 80 8' 4 '380 0 0 192 1 8 640 0 0. '., 333 15- 0 1360 0 0 • 760 0 0' 2933 6 8 ■ 1465 68