Evening Post. THURSDAY, AUGUST 6, 1936. LOOKING FOR GOLDEN EGGS

Evening Post, Volume CXXII, Issue 32, 6 August 1936, Page 8

Evening Post. THURSDAY, AUGUST 6, 1936. LOOKING FOR GOLDEN EGGS

The fable of the man who wished to get his golden eggs quickly and killed the goose that laid them may yet be paralleled by the action of the Labour Government of New Zealand. To bring its social programme into quick, not to say hasty, operation, it is placing upon industry a burden which cannot fail to handicap enterprise. Restored wages and shorter hours have already been required. Now, by raising the rate of company taxation and- making the graduation higher and steeper, the Minister of Finance will take a big share of the diminished profits. The scheme cannot "work all ways with success. By its industrial legislation the Government- has said that the workers must have a greater share of the products of industry—in wages 'and leisure. Now it adds that the (Government must also have a share. What is to be the part of the entre|preneurs of industry? Are they .to I furnish enterprise and capital with' no return? They will not do so. Those now in business-will doubtless continue until they see a prospect of something better; but new capital will not come in to establish new industries. It is new capital and new industries that the Government must have if its programme is to go on; for £10,000,000 public works programmes cannot go on for ever, and even a £10,000,000 pro T gramme cannot absorb all the unemployed.

Probably the Government will deride this argument and say that a company making a profit of £8950 can afford to pay 7s 6d in the pound in taxes. • But such companies in New Zealand are usually owned by a multitude of shareholders. No one person takes the whole of the £8950. The shareholders expect a reasonable dividend on their investment. It cannot be paid to them. without making very big profits. For illustration a company paying the highest rate of tax and wishing to put, say, one and a quarter prr cent, to reserves can distribute only 10s iii dividends out of every pound of taxable profit. To declare a dividend of five per cent., therefore, the company must earn ten per cent, taxable profit. Five per cent, dividends are not an extravagant demand for investors in industrial enterprises, but what new enterprises can expect to earn ithem? If they, do earn them it will be at the expense of the consuming public. The Government thinks it is increasing direct taxation. Actually company taxa; tion is largely indirect. > It is really passed on to the public because the companies in a certain field of enterprise, though in competition with each other, must all aim at making profits big enough for taxation and dividends; They fix their charges accordingly. Either that happens (with established companies that can manage it), or the companies fail to make an adequate return on their capital and cannot obtain funds for expansion and.. 'modernisation of their business.

These arguments are not new. They were emphasised, and with good reason, when New Zealand previously imposed penal taxes upon the modern form of combined enterprise. In 1922 a representative and strong taxation committee appointed by the Government found that ■

the present high limit of 8s 9 3-5 din the pound stifles enterprise, and investors subject to such a high rate will not embark on new undertakings or the extension of old ones, with the prospect of halving all profits with 'the Government and, in the event of failure, accepting liability for the , whole ol the losses.

The committee was divided on the question of changing the system of taxation —a majority favouring abolition of company taxation except on undivided profits, and a minority opposing—but the committee unanimously declared itself

strongly ol the opinion that under the present excessive burden ol taxation the progress of the country and a return to normal conditions are being retarded, and many business undertakings necessary to the welfare of the country are. being seriously handicapped.

The committee recommended revision of taxation to provide a,maximum rate not exceeding 5s in the pound, holding that the consequent improved feeling would "so stimulate production and industry that the loss of income will quickly be made up." Stimulation of industry is one of the present Government's ; main objectives. Yet it deliberately returns to the old high scale.

The views of the Taxation Committee of 1922 were practically endorsed by the Taxation Commission of 1924 which recommended that fiscal policy "should be shaped so as to secure the abolition, as soon as reasonably practicable, of the present system of company taxation." The commission held

that it is essential in the interests of the future prosperity of the Dominion that the weight of taxation should be reduced as .rapidly as possible.

The reasons thus , expressed—the effect of heavy taxes in retarding enterprise—and not any tenderness for big business induced later Governments to modify the tax scale. The Coalition Government, for similar reasons,' refrained from making companies liable for the emergency taxes imposed during the depression

period. For individuals the maximum rate was raised, but for companies it remained at 4s 6d in the pound. The present Government, having promised to encourage enterprise embarks on the business in a peculiar way. It enforces higher wages and shoVlcr hours, which cannot be given without cost. It defers indefinitely the promised relief from sales tax and other' burdens on industry. And then it levies penal taxation on whatever.-profits-may be left. This company income taxation, it must not be forgotten, is in addition to the graduated land tax which is to be reimposed and a great part of which will be paid by town enterprises. There is thus a treble impost—higher wages and shorter hours, heavier income tax, and graduated land tax, not to .mention the threat implied in the Prevention of Profiteering Act against any attempt which may go too far in the i endeavour ■to recover lost ground. ,What is there to be set against these handicaps? So far only the.vague| prospect of assistance through a Bureau of Industries, the suggestion of a licensing system (which .would be dangerous in the public interest) and the nebulous promise of the Minister of Industries and Commerce that he will not let the industries down. The. Government's mistake, is doubtless due to its zeal : for the common good, and a desire to give quick benefits' to ' the workers. But it is a mistake, nevertheless, and a most serious one. Zeal is not enough. It must be guided by judgment— judgment which would have been content with an added revenue of £3,000,000 and would not have risked recovery so as to have £5,000,000 for distribution.