COST OF LIVING

Evening Post, Volume CXXV, Issue 144, 21 June 1938, Page 11

COST OF LIVING

COMPANY TAX EFFECTS

RAISING OF PRICES

' s One of the several factors responsible J for the increases which have taken !- place in the cost of living in New r. Zealand is the increased taxation y which has been imposed on companies, j; says a statement by the Associated 0 Chambers of Commerce of New Zealand. 0 Under the 1938 Budget, the rates of a taxation on companies were raised to 1 a maximum of 7s Cd in the £. This 3 maximum rate is met by the larger i- trading companies. The very considerable amount of revenue that the State obtains from graduated income 1 tax on companies is shown by the fact :, that, for the tax year 1936-37, ° £4,000,000, or 63 per cent. Of the total amount of revenue that was collected in income tax, came from companies. D Herein lies one of the reasons for the increased cost of living. 3 PASSED ON WHERE POSSIBLE. 2 Eriefly s'tated, the position is that 1 the high taxation imposed on large 1 trading companies means that the capital invested in them must contribute more to the State than does the great bulk of the capital invested in other directions. The directors of these concerns have to show their shareholders that they are receiving as good a return for their money as they could expect to obtain from other investments involving similar risks. It follows that if a much higher tax is levied on the profits made by companies than on the profits derived from other'sources, the directors of companies must aim at : widening their margin of profit suffi- . ciently tp enable them to pay the adi ditional tax and at the same time make ; a reasonable return to their share- . holders. If a company fails to pro- . vide such a return the shareholders ; will become dissatisfied. Company , capital, however employed, must in the long run earn sufficient to justify the existence of the company in which it.is 1 invested. In estimating costs, therefore, companies must take taxation as much into account as wages or rents, so that ultimately the tax, or at least that portion of it that exceeds the average tax on other investments, must as far as possible be passed on to the general public in higher prices for goods and services. That is a general statement - of the case. Not every company is in a position to pass the tax on. Higher prices may cause a reduction in demand, which forces the company to bear a part of the tax, and other similar, factors arise, but generally speaking it is obvious that the aim must be to shift the tax on to other shoulders— or enough of it to enable companies to give as good a net return as the average return on other investments. , ECONOMIST STATES CASE. Mr. J. B. Condliffe, who was Professor in Economics at Canterbury. University College, and who may be regarded as expressing a non-partisan [ view, was one who gave evidence on company taxation to the 1924 Royal Commission on land and income taxation. In the course of that evidence ; he said: "The assessment of taxation ' upon the income of an individual is a direct tax that can only under rare ■ circumstances be shifted. But the taxa- ' tion of profits earned by companies can : in many cases b! »;hifted either back- ' ward to the suppliers or forward to ; the consumers. . . .To sunv up, the ' incidence of the present company tax ' varies from industry to industry. A 1 large part of it is borne by the farming community in the shape of higher c prices for essential services. A large j part of it has been passed on to con- 1 sumers in the shape of higher prices 1 which have increased the cost of living, £ and thereby stimulated demands for 3 higher wages, thus starting a vicious circle. Some part of it has been borne ' by shareholders, and this has been e capitalised by a fall in the value of ( their securities. . . . Different classes c of consumers are afjpcted in varying c degrees, the worst Bflfect being on t farmers and receivers of fixed incomes, i Wage-earners also suffer because wages t lag behind the cost of living." If taxation on companies were t lightened, the community could benefit through the lower prices that would \ be brought about. The 1924 Taxation £ Commission, it is to be recalled, recom- e mended "that the fiscal policy of the r Dominion should be shaped so as to s Secure the abolition, as soon as reason- c ably practicable, of the present system of company taxation," the Commission t further expressing the view that the r ideal graduated income tax was a tax r upon the income from all sources of each individual. t New Zealand's method of taxing com- a panies has survived to the present day r —with the increased tax rates applied t in 1936, to which reference has al- s ready been made—apparently for no other reason than that the tax is easy a to collect, without regard being paid b to its burdensome effect on joint-stock a company operations and on the general s public. e