BANK TAXATION

Evening Post, Volume CX, Issue 32, 6 August 1930, Page 10

BANK TAXATION

WILL IT BE PASSED ON ?

NOTES AND INCOME TAXES

It would appear that there has boon, and still is, considerable misapprehension regarding tho effects of tho Government's proposal to levy an increased tax on the issue of notes by the banks trading in tho Dominion. A representative of the "Evening Post" has been inquiring into the matter, and gathers that in banking circles it is well known that the banks, considered as companies, are already paying income tax 6-J times more than on pro-war rates as compared with ?>'& times more paid by other companies, j It was learned that so far back as 1014, when the tax on banknotes was '6 per cent, on the average issuo (as at present), the Finance Minister of the day, Sir James Allen, expressed the view that according to ' his judgment the existing arrangement was "more profitable than tho issue of notes by the Government itself." Ho put tho cost of the issue at- about 1-J per cent., per annum. In the Budget address, in September, 1915, the lato Sir Joseph Ward said if the Government were to substituto for tho bank-note issue by tho banks a State issue it would not bo remunerative, as, owing to the cost of, the scheme, plus the loss of royenuo from bank notes, all tho saving in interest that would be made would be absorbed. Again, last week in Parliament, Mr. Downie Stewart expressed much the same views. But it is now proposed to increase the tax by 1-J per cent, to make it -1J per cent, per annum. At that rate, plus tho li per cent, for working costs as referred to by Sir James Allen, it would cost 6 per cent, per annum. This would make the issue of notes prohibitive to the banks. Moreover, it was learned that when the London exchange position becomes normal the. banks will doubtless withdraw ten shilling, one pound, and five pound notes from circulation, issuing gold instead. The result of this restricted circulation would bo a considerable loss of revenue to the Government, oven at the current rate of 3 per cent. Pending adjustments of London exchange, additional noto tax, it was understood, would certainly be passed ou by the banks to their customers. It was further pointed out that the balance-sheet of tho Bank of New Zealand at 31st March last showed that the bank held £4,008,880 in New Zealand Government securities, and it is understood that' the other banks between them hold over £2,000,000 of such securities. With the reduced note circulation resulting from the penal taxation, the banks as a whole will probably require to hold only about a million and a half of New Zealand Government securities, so that in future, instead of tho banks being largo holders of Government securities as they are at present, ,they will bo able to .realise tho bulk of their present holdings and abstain from taking up new issues. The proposed taxation was described as "grossly unjust," and that if it is given effect to, tho Government in the long run would receive less revenue than it is getting under tho present taxation. It was recognised that the Government required increased revenue, but already the banks are contributing more than their fair share to the revenue; and the additional 10 per cent, on income tax would hit them harder proportionately than it would other taxpayers. Income tax paid by the banks is levied on the hypothetical basis that their assets and liabilities earn, at present 30s per cent, per annum, and on that assumed income they at present pay 4s 6d in the pound. It was explained that if they were taxed on the usual basis, that is, on actual profits, they would pay very much less. The banks already pay income tax ou both assets and liabilities at the rate of 6s 9d per cent, on each, or -13s | 6d per cent, on assets and liabilities combined. If the Budget is passed in its present form, then that income tax •will be increased by 10 per cent. The proposed bank-note tax would be plus income tax. On the note circulation of to-day, roundly £6,000,000, the current rate of noto tax, 3 per cent, amounts to £180,000 per annum which the banks have to pay additional to their income tax. Tho banks, it was learned, feel that they are already the biggest and the highest rated taxpayers of any in the Dominion, but if they are required to pay more then the wholo position of the banks' relationship to the public will have to bo thoroughly reconsidered. ' •'■ .