THE TAXPAYER'S TRIBUTE

Evening Post, Volume CXVIII, Issue 60, 8 September 1934, Page 8

THE TAXPAYER'S TRIBUTE

It is profitable at intervals to review taxation to see how,much it has been increased. In directing the attention of the House of Representatives to this subject Mr. Downie Stewart performed a valuable service. It is correct to admit'that "this immense increase in the burden of taxation was imperative and unavoidable if New Zealand was to remain solvent." Yet we may urge that it is imperative also that relief shall' be soon granted if important, classes of taxpayers are to remain solvent. As we; showed in our first comment upon the Budget the country cannot rejoice over a true balance while over a million pounds is drawn from reserves and special funds, It may even be questioned whether it is desirable to add to expenditure, except under pressure of great urgency, while'this special Budget aid is needed. On this point, however, Mr. Stewart took a broad view and considered the Minister of Finance justified in making some concessions. The psychological effect should encourage further confidence and expansion. *While taking this view, however, Mr. Stewart pointed out that the measure of Budget improvement shown last year was principally. due to the heavier taxation imposed. How much more of this "improvement" can taxpayers stand? The treatment so far seems to be doing more good to the doctor than the patient. J If this year's revenue estimates prove accurate or are exceeded as the Minister of Lands has predicted, there is hope of a true balance and of a beginning being made with an adjustment of taxation so that the Government demands will not hinder the recovery of prosperity for the people. There is, however, the contingent liability to the Reserve Bank for London credits. Mr. Stewart assumed that the Minister of Finance had provided a reserve for this-con-tingency. We may hope that the assumption is correct, but optimistic Ministerial suggestions that there may be no loss raise a doubt as to

Avhether this prudent course has been taken. Of course there is always the gold profit, and it is significant that the Budget did not disclose any Government plan for dealing with this. There is also some ground for suggesting, as Mr. Stewart did, that the Minister of Finance calculates that soon the artificial rate will become the natural rate. In other words, the high exchange will be permanent.

But when that occurs, said Mr. Stewart, the exporters will cease to get the benefit that the depreciation was designed to confer on them except in respect of their fixed charges.

The process of adjustment will necessarily take some time, especially while unemployment checks any tendency for labour costs to rise in compensation for depreciation of the currency. That is why it is imprudent to count upon the high rate quickly settling into the natural rate and thus hastening the absorption of London credits.If the Minister is really calculating on this, moreover, he desires something which will be injurious to New Zealand and unjust to a considerable body of citizens. It will be injurious, to mention only one point, because if we accept permanent depreciation we increase our London debt of £160,908,105 by approximately £40,000,000. It will remain the same in sterling but to redeem each million we must pay almost a quarter of a 1 million more in New Zealand currency. Even if there is no redemption, only renewal, the effect is the same in the payment of interest. Permanent depreciation would also be unjust for the reason indicated by Mr. Stewart's comment that only the fixed charges of exporters would be reduced. The other side to this Avould be that only the recipients of these fixed charges would suffer. If this were the whole of .the load placed on this class it might be considered nearly equitable. But it is only part. In addition there have been compulsory reductions of interest and special charges on investment income. That is a strong and pressing reason for the.overhaul of taxation which Mr. Stewart thought would soon be necessary. Taxation was originally' made heavier on the investor class because it was incorrectly assumed that this class alone had suffered no losses. Surely someone suffered by the inability (often proclaimed) of mortgagors to "pay interest, of tenants to pay rent, and of capital to pay dividends. Nevertheless the taxation was increased- on this assumption. Then came direct reduction, and now it is suggested (not without foundation) that permanent depreciation is hoped for, and for this depreciation the recipient of fixed charges alone will have no hope of compensation. Mr. Stewart is stating the case moderately when he says "before long a complete overhaul of our direct tax- ! ation will be necessary in order to determine whether the burden is being justly distributed, whether it is arbitrary and capricious, and whether it is not in danger of discouraging the expansion of enterprise and thereby defeating itself." The taxpayer is between the upper and the nether millstones with a third millstone on top.