INDUSTRIAL EXPANSION

Evening Star, Issue 23743, 26 November 1940, Page 5

INDUSTRIAL EXPANSION

TAXATION THE SOLE CHECK MANUFACTURERS' OUTLOOK CRITICISM AND SUGGESTIONS At the annual conference of the New Zealand Manufacturers' Federation, which commenced at Hanmer Springs to-day, the retiring (president, .Mr C. V. Smith, delivered an interesting address on New Zealand’s industrial expansion and the check it is 'likely to receive through excessive taxation, advancing also possible remedial measures, one of which was that taxation of the individual would be more effective than taxation of the company. SUMMARY OF SITUATION. The general position of industry was summarised by him as under: (1) New Zealand industries were never so essential as they are to-day, and must continue to he so in the future. (2) Thanks to the initiative of those engaged in industry, and despite the handicap under which they were working, the retailers and the public have been saved the losses and inconveniences that would have resulted when the sterling position necessitated impart control. (3) Despite criticism and lack of encouragement spreading over many years, out factories in 12 months have equipped all our armed forces with food, clothing, blankets, and whatever other equipment could he made in New Zealand. (4) No one ' knows how long the war will last, how it will develop, and to what extent we may he cut off from supplies. (5) No one knows whether the butter and meat and wool being produced to-day will ever leave our shores. (6) No 1 one knows, after the war, whether an impoverished world will be able to pay us a reasonable price for our. products, or how far science will have improved the already good substitutes for wool and butter. (7). The prospect of obtaining increased revenue from the farming community, as a result of higher prices, is, to say the least of it, uncertain.

(8) Industry, on the other hand, provides the Dominion with a source from which increasing quantities of necessary commodities can be obtained, a source from which employment can be found for thousands, a source from whiah some, at least, of the problems of rehabilitation can be solved, a source from which a constant flow of revenue • can be obtained. (9) That revenue can only be found if profitable to produce, if there is some degree of certainty about the future, if there is incentive to overcome difficulties, and provided that source is not dried up by excessive taxation. THE THUNDERCLOUD. *• I would view the future with considerable confidence,” said Mr Smith, “ were it not for the appearance on the horizon of a thundercloud which presages a setback greater than any we have-, yet experienced.. I refer to the question of taxation. I want to make it clear that it is not the amount of taxation that I am criticising. It is very difficult in war time to talk about taxation without being accused of trying to evade a responsibility. Nothing is further from my mind, but we must face the possibility of a long war, and we should look to our future source of revenue. Let me take the case of expanding industries, and as 1 have already indicated, as a result of import restrictions, it has become practically a national duty for New Zealand industry to expand.

“ In these cases taxation after one year of war is already reaching as high as 70 per cent., and in some cases 80 per cent, of the final profit—a position we might have expected to reach after at least three or four years of war, when our effort would be nearly spent. From inquiries I have made I do not think that these percentages apply to merely exceptional cases. The important- point to note is that while the maximum rate of tax is just over 12s in the pound, and would seem to leave a reasonable margin for further taxation in case of a vital emergency, large companies find that there is a substantial difference, sometimes running ■ into several thousands of pounds, between what the Commissioner of Taxes regards as assessable income and the actual net profit of the company. “ The margin Jeft to-day, however, is only 20 per cent, to 30 per cent, of the net profit in the cases of the large taxpayers, making a substantial contribution to the revenue of the country, and it is conceivable that when we get to a stage when money is vital, this margin will not be sufficient to cover our needs, even if the whole amount is taken. I would not be doing my duty as president, therefore, if I failed to point out the very serious effect that the application of the present taxation is bound to have on the development of industry and on future revenue. In order to forestall criticism of this statement, 1 am going to admit that similar remarks to mine were made in New Zealand 50 or 60 years ago. I admit that ever since then the expression ‘ crushing burden oi taxation ’ has been used freely. I admit that despite the successive increases in taxation we have managed to survive. I admit that we should pay for the war, as far as possible, through taxation. I admit that no one, employer or employee, should make one penny out of the war. HOMELY ILLUSTRATION. “ Having admitted all these points, I want to state a simple truth with which most of you are familiar and that is that after yon have finished a glass of beer you get no more unless someone fills up your glass. Now that glass is only going to be filled under two conditions, it can be filled Irora stock or from fresh beer. To fill it from stock is a temporary measure, admittedly satisfying at the "time, but it does not help a thirst later. That later can only be assuaged by fresh beer, and that beer will only be brewed if there is the necessary plant and the incentive for the brewer to brew it. Now if you substitute the word ‘ revenue ’ for ‘ beer ’ you have the position in New Zealand to-day. . COMPULSORY LOAN DRAG. “ A few fortunate firms may be able to pay the compulsory loan out of ■cash reserves or investments. Most firms, however, have their money tied up in stock, plant, and equipment. Firms have been encouraged to expand, and profits that might have been paid in dividends have gone instead into that expansion. Many firms are already relying on the banks for

financial assistance. If a firm has no cash reserves, it can only meet the compulsory loan bv borrowing more from the bank, reducing its stock, or effecting economies. If it adopts the former, the interest is a further charge on profits. If it effects economies, someone is going to suffer. EXCESS PROFITS TAX. “ We now have an excess profits tax. No one can quibble with the principle of an excess profits tax in war time, for nobody should make a penny piece out of the war, but dividends will be produced during this conference to show that the tax goes very much further than that. POSSIBLE REMEDIES. “As regards taxation itself, it seems to me that in the long run the taxation of the individual would be more effective and less disastrous than taxation of the company. Such a method ensures two things—firstly, that the individual will be paying according to his income, and, secondly, that he will be assured of an income of some sort on which to pay. The present method has reached a point when there is a grave danger that the present rate of revenue may not be obtainable from the company, and if it is not obtainable from the company, It certainly will not be obtainable from the individual deriving his income from the company. “ If the Government cannot alter the present basis, I suggest that it evolve a scheme whereby a certain amount of exemption would be granted-in proportion to a manufacturer’s efforts. . If such a scheme- could bo evolved, it would provide an incentive to the manufacturer to increase production and improve his plant. ” Finally, I would suggest that considerable revenue could be obtained by a small war-time tax on a number of everyday articles. Although the total sum collected would amount to a substantial amount, the effect on the standard of living and on individual incomes would be negligible. I realise the political objections to such a step, but when one considers the money that has been raised voluntarily from all classes for Red Cross and other appeals, I am sure that such a tax or taxes would be accepted willingly as a small contribution to the war effort. “ 1 know that all my remarks on taxation may be interpreted as a sectional protest from manufacturers, because they have to pay more. It is quite true —it is a protest, but it is also more than that—it is a note of warning to those who are not manufacturers, but who will have to foot the whole bill, defence, social services, unemployment, and later, rehabilitation, if this potential source of revenue is drained dry.”