The Gisborne Herald. IN WHICH IS INCORPORATED "THE TIMES.” GISBORNE, WEDNESDAY, JANUARY 29, 1947. INCOME TAX DUE AGAIN SOON

Gisborne Herald, Volume LXXIV, Issue 22241, 29 January 1947, Page 4

The Gisborne Herald. IN WHICH IS INCORPORATED "THE TIMES.” GISBORNE, WEDNESDAY, JANUARY 29, 1947. INCOME TAX DUE AGAIN SOON

X unwelcome letter in the mail sometime within the next week will be one from the Commissioner of Taxes demanding the payment of income tax. For many people, fresh from their holidays, it is usually an abrupt reminder of the sterner issues to be faced in the new year. The due date for the payment of income tax is fixed by Order-iu-Couneil and as a rule is early in February. This year’s notice, now advertised, gives people .until March 5 to pay after which the five per cent penalty automatically accrues. Companies are given until the same date, but the penalty in their ease for late payment is 10 per cent. To taxpayers next month’s commitments will bring home to them again forcibly two things—the high cost of this Dominion’s administration and taxation anomalies. To-day it is costing about £2,000,000 a week to run New Zealand; in other words, £100.000,000 a year, excluding loan expenditure, but including social security. The cost in 1936 was £26,000,000; in 1942, after social security was introduced, £48,000,000. In five years our costs have risen 100 per cent.

The bulk of this expenditure, it is reported, is being borne by about. 30.000 individuals and companies. From income tax alone in 1946-47 the Minister of Finance expects to receive £30,750,000. In 1938-39 income tax yielded £9,300,000. The effect of the existing high rates of taxation is that in the higher income groups, and to a lesser extent in the lower groups, there is an increasing reluctance to produce to the- maximum. Incentive has been weakened.

The dangers inherent in this situation have been forcibly indicated by people of ability and foresight on numerous occasions, but to all appearances entirely without effect. Experience in the next year or two, however, may compel reform. Evasion of Taxation.

The two principal factors in the evasion of taxation, which in the aggregate is probably costing Hie Treasury hundreds of thousands, if not millions, of pounds a year at present, are legislative anomalies and the exceedingly high rates. By evasion is meant the tiling of incorrect returns of income. To sonic extent this is the result of a feeling of injustice and a determination to “do the Government in the eye” at every opportunity. For those who are either too honest or arc unable to escape making complete returns evasion on the part of others increases the rate at which they have to pay. Conversely, if there was less evasion, the rate could be reduced.

An anomaly about which there have been many complaints is the payment of tax on tax. All incomes to-day are basically liable for three separate taxes, namely income tax, social security charge and national security tax which in,each case is assessed on the gross income nominally received. There is a strong case for social security payments at least being ranked as a special exemption allowance for income tax purposes just as superannuation and provident fund contributions, and life insurance premiums. For most people the social security scheme will subsequently provide their superannuation benefits. The original unemployment tax could be claimed as a special exemption allowance during the first few years of its operation. Dissatisfaction has also been expressed because no provision is made for the deduction of payments made by husband to wife, or vice versa. To protect the revenue this section of the Act was originally drawn in very wide terms, but as recent amendments have greatly reduced the scope for evasion, some authorities consider that a deduction for bona fide payments should now be permissible at the commissioner’s discretion. As it is, a man may employ his wife in his business and yet be cannot deduct her wages as an expense in the production of assessable income, ns he can with other employees.

Other taxpayers in the receipt of annuities complain about the treatment of the full amount as income for taxation purposes whereas, in fact, part of it may represent a return of capital. Extra 33 1/3 Per Cent Charge Criticised.

The special super tax of 33 1/3 per cent on unearned income, however, is an impost which has perhaps received the most criticism, and rightly. By this provision one-third is added to the tax on income oilier than that derived directly from one’s personal exertions. Pensions are classed as earned income, but if a person provides for his retirement by an investment in Government securities, property, mortgage or the purchase of an annuity he must pay tax plus 33 1/3 per cent. The origin of the discrimination between earned and unearned income is of interest. In 1923 provision was made not for a penalty on unearned incomes but for a 10 per cent concession on those classed ns earned. During the depression this concession was abolished and a surcharge of 33 .1/3 per cent was placed on unearned incomes on the ground that they had not suffered as much as wages and salaries. But the next step was a compulsory reduction of 20 per cent in interest and rent charges. Thus the justification for the 33 13 per cent surcharge was removed, and has not since reappeared.

Of equal importance to revenue is Government expenditure—where is the money going? On this subject taxpayers are entitled to information, but for a number of years there lias been criticism that it lias been difficult to obtain a clear picture from the published financial statements. Even accountants whose work concerns the study of figures state that they have this difficulty and, through their society, have called for a Royal Commission to improve the form of the public accounts. Weight lias been added to their representations by the increased complexity of financial statements of recent years. If the average citizen is to have a full understanding of the State’s activities, and that is his right as a contributor in hard cash, the presentation of the public accounts in a more simple, informative manner is necessary. The removal of taxation anomalies will dismiss another cause of widespread dissatisfaction.