THE PUBLIC PAYS

Evening Star, Issue 22990, 22 June 1938, Page 3

THE PUBLIC PAYS

FALLACY OF HIGH COMPANY TAXATION BIG FACTOR IK COST OF LIVING [Special to the “ Stab.’) WELLINGTON, June 21. <• One of several factors responsible for the increases which have taken place in the cost of living in New Zealand is the increased taxation which has been imposed on companies,” says a statement issued by the Associated Chambers of Commerce of New Zealand. “ Under the 1936 Budget, the rates of taxation on companies were raised to a maximum of 7s 6d in the £. This maximum rate is met by the larger trading companies. The very considerable amount of the revenue the State obtains from the graduated income lax 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. “ Herein lies one of the reasons for the increased cost of living. Briefly stated the position is that the high taxation imposed on the large 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 pn profits derived from other sources, the directors of the companies must aim at widening their margin of profit sufficiently to enable them to pay additional tax and at the same time make a reasonable return, to their shareholders. If a company fails to provide such a return the shareholders will become dissatisfied. “Company capital, however employed, must in the long run earn sufficient to Justify toe existence of the company in which it is invested. In estimating costs, therefore, the 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 exceed? the average tax on- other investments, must, as far as possible, be passed on to the general public in higher prides for goods and services. s “ That is a general statement of the case. Not every company is m a position to pass the tax on. _ Higher prices may cause a reduction in the demand, which forces a company to bear 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 the companies to give as good a net return as the average return on other investments. “Dr J. B. CondlifEe, who was professor of 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 the individual is a direct tax that can only m rare circumstances be shifted, but the taxation of profits earned by the comDairies - can in many cases be shifted either backward to the suppliers or forward to the consumers. To sum up, the incidence of the present company tax varies from industry to industry. A large part of it is borne by the farming community in the shape of higher prices for essential services; a large part of it has been passed on to the consumers in the shape of higher prices which have increased the cost of living and thereby stimulated the demands for higher wages, thus starting a vicious circle; some part ox it has been borne by the shareholders and this has been capitalised by the fail in the value of their securities. Different classes of consumers are affected in varying degrees, the worst effec. being on the farmers and receivers of fixed incomes. Wage-earners also suffer because their wages lag behind the cost of living.” “If the taxation on companies we. e lightened, the community could benefit through the lower prices that would be brought about,” the statement continues. “The 1924 Taxation Commasslon f it is recalled, recommended that the fiscal policy of the Dominion should be shaped so as to secure the abolition as soon as reeasonably practicable of the present system of company taxation.’ The Commission further expressed the view that the ideal graduated income tax was a tax upon income from all sources of eac i individual. “New Zealand’s method of taxing companies,” the statement concludes. “ has survived to the present day with increased tax rates applied in 1936. to which reference has already been made, apparently for no other reason than that the tax is easy to collect, without regard being paid to its burdensome effect on joint-stock company operations and on the general public. ’