FINANCIAL POLICY.

Hawera & Normanby Star, Volume LXXIV, Issue LXXIV, 28 August 1917, Page 5

FINANCIAL POLICY.

SIR JOSEPH WARD'S REPLY TO CRITICS.

Sir Joseph Ward, in his speech in reply on the Budget, said very few members had found fault with-the proposals tor special taxation to compel certain people to subscribe to the War Loan* He could assure these honorable gentlemen that in spite of their airy talk about the ease of raising money in NewZealand that something of the kind was absolutely necessary if we were to get the money required. . . THE TEA TAX. Some members had shown remarkable lack of courage regarding the tea tax— a tax of 2d per head of the population, a tax of 3d a week, amounting to 12s bd a year, for a family of five. It was too paltry an affair to justify all the outcry. Does the honorable gentleman forget that w,e have another year ahead of us? • Does he imagine that the Government was unaware of these other avenues? He went on*to say that there would be more taxes next year, and if the war went on every available source would be tapped. THE EXCESS PROFITS TAX. There was a regrettable lack of understanding on the part of some people as to the seriousness of our present position, and he regretted to say that some of the people whose pet schemes were not adopted by the Government were sending circulars round the country practically advising the people not to subscribe to the War Loan. He read to th© House a report by the Commissioner of Taxes on the excess profits tax:—"The collection of land and income tax and excess profits duty for the year ended March 31 last yielded £4,975,243, | made up as follows:— £ Land tax 713,118 Ordinary income tax 1,636,704 Special tax under Section 5 762,475 Excess profits tax 1,862,946 . £4,975,243 "F*om this it will be seen that the excess profits duty, in spite of the sanguine predictions that were made by j many persons as to its yield some ! reaching £7,000,000, fell short of the estimate by £140,000. It is true that with amounts paid since March 31 and those still to be. paid we shall just about reach, the two million, but then there is always a certain amount of tax uncol-lect-ed at the end of a financial year. "If the tax ig to be continued this year I would not venture to estimate [ the yield at more than £1,250,000, while if the modifications and concessions that are sure to be demanded when it comes before the House again are granted an estimate of £1,000,000 would hot be safe. "That modification is required to re- i move the present inequity cannot be de>nied. In this country there is naturally a. far larger proportion of undertakings in the course of development than m the older countries, and these by reason of the absence of a normal standard income are taxed out of all proportion to the actual income, earned when compared with established undertakings with a normal standard. In many of the former cases the tax paid amounted ! to upwards of 33 l-3rd per cent, of the | assessable income, while in many of the I latter cases the taxpayer was quite willing to pay more.. Many of them told me that they did not consider that they were taxed heavily enough, and two or three actually paid in amounts up to £200 which they considered they should pay, but which under the law I was not j entitled to collect. } "I cc© no way out of the difficulty. ' Thinking of this brings to mind another 1 objectionable feature in connection with this tax and that is the discretionary power vested in the Commissioner. Yon will remember that I objected on principle to this last year. My experience 6ince then has certainly not . weakened ray objection. It is not right I that an individual or even a body of individuals should have the power that I (have under the present Act to fix in ! camera assessment of tax. "The underlying idea of the Act, viz., to appropriate a portion of the profits due %o war conditions, is admittedly a good one, but this the Act has failed in many cases to do. To assess actual war profits would require a procedure and machinery so elaborate that in normal times would be slow and difficult to operate, and under present conditions impossible. Even the present method of assessment, simple as it is compared with what it would be if we had to assess actual "war profits," imposed a very severe strain on the dej>leted staff, "To summarise, my objections to the excess 'prefabs tax are: — ' 'That I do not think it will yield the revenune obtained last year. "That its incidence is too erratic and inequitable. "That no reliable estimate of the revenue to be obtained from it can be made. And that more especially in view of the modifications that might be made. ' That too much discretionary power is required to deal with the large number of cases to which, no fixed rules will apply. "That a graduated land and income tax can be mwo accurately estimated, and is more equitable in its incidence." WHAT ARE PROFITS? It was not- possible in this country, eaid Sir Joseph", to have a land tax, a progressive iaiid tax. an income tax, and a progressive income tax, and in addition an exctss profits tax. It was foolish to draw comparisons with England, '.vhere me land tax was infinitesimal as «nroDared with ours He cordially endorsed the high enu.miums showered on the Commissioner of Taxes for his ability and tact. This oFicer, whom members valued so highly, had reported that *49 excess profits tax would not suffice to" provide the amount of money required. There was much talk about the millions and millions of war profits supposed to be earned in this country. Did the honorable members who spoke at large of these millions of war profits suppose that no attempt had been made to discover these profits? The Taxing Department could not find them. He had therefore decided that he must not depend on taxing these millions, and he had decided to get money from the same persons by way of income tax. It was said that because we had increased our exports enormously we were making a profit of the amount of the increase. But some of our exports wese of sheep and cattle, and this heavy export of stock had been achieved at the expense of depicting the flocks. Some of the increase, in export was not a profit, but a realisation of capital. Mr Okey: They would not have ma-Jo so much this year. Sir Joseph Ward said that it was fallacious to calculate that all the thirty millions realised for our produce was profit. He ventured to suggest that tho profit on the thirty millions of export would be no more than 10 per cent If it wer<? 20 pfsr cent, it would be a marvel. To those people who spoke of tho enormously increasing wealth of tho community he would point out that tlm value of mortprnfro'; in Zealand had increased by'3l millions since the year before the war. He kuew of one firm, that had increased its profit rate by only 1 per cent, since the .war period,

and that firm did purely an export business. Other businesses had had similar experiences. ABOUT UNNECESSARY TAXATION. He did not hold the view of some honorable gentlemen that taxes should be taken from the people unless they were necessary. Mr Webb: But they are necessary. Sir Joseph Ward said that if the honorable member were to levy the heavy taxes he urged for the purposes he had in mind he would rain hundreds of peovple without knowing that he was doing it. The taxes already proposed would be equivalent to 40 .per cent, of the income of those paying the taxes, and he would seriously ask honorable members how much farther we should go. Surely we should not go on to increase taxation when it was not required. His opinion was that we should levy taxation now only sufficient to provide for war emergencies, and that after the war it would be the duty of the Government to reduce taxation to the lowest possible le%rel. Tba land taxation imposed under the Budget would amount in cases to a ground rent of £4 7s 6d per cent. Some critics in the Hoase had asked for increased taxes on land which would have been more than biie unimproved value of the land.

THE MORTGAGE TAX

Objectionable as the mortgage tax miglit be on sentimental grounds, if exemption of mortgages were allowed ;the whole of the land revenue would slip away. He hoped, however, to be |able to give some relief to the men who ?had given smaill mortgages. Exemption of mortgages allowed unscrupulous people to increase their mortgages to such an extent that they had to pay no land tax at all. It was astounding how many people, acting within the law, did contrive to increase their mortgages during the period of last year when mortgaged interests were exempt from taxation. Mr Payne: You should make the penalty imprisonment. Sir Joseph Ward: "The difficulty is that you have to prove it. You can't prevent a man from mortgaging his land. In doing that he would not be committing a breach of the Act." It had been urged that the Government should increase the death duties tax. His answer to the suggestion was, "Let us wait and see whether we require it." We were imposing an additional £6,000,000 in taxes on the people of New Zealand—a colossal sum —and if we had any luck during the year wo should have sufficient money to add materially to our reserve in London. He was strongly of opinion that nothing would have a greater effect in strengthening- our position after the war than the possession of reserve funds to meet the extraordinary calls likely to be .made on the country when the war was over. THE LOAN. A splendid response* was being made to the War Loan, he was happy to say. It was supposed by some people that every investor in the War Loan had money ready waiting to put it into the loan. The great majority of the people in this country who contributed to the last War Loan borrowed part of the money—some1 as much as 90 per cent of the money —to put into the loan. But while many people had done this., others with means had not contributed to the loan. This was the reason why he proposed to introduce proposals to ensure equality of sacrifice by com- i pelling; these people to bear their burden.

THE INCOME TAX

A great many members had urged the removal of the limit of £6400, at which graduation of income tax ceased. 1 But the result of this would be to put half the companies in New Zealand into liquidation. Mr Payne: You could get over that with a special company tax. Sir Joseph Ward said that New Zealand wanted all the money it had set out to get. Nor would it be a good thing, as some honorable members supposed, to drive out of the country all the men with big incomes. New Zealandi wanted all the men with big incomes, and wanted them to go on paying their heavy income tax. It was because there were many such men in England that Britain was able now to send the Germans on their way back to Germany. The "silver bullet" would be the most effective to end the war, and it was nonsense to speak of wealth as if it were a danger or a pest. The taxes on wealth were already very high. In a case of which he had knowledge the land tax and income tax combined would amount in all to 13s in the pound on income.

Mr Youii£: It often goes to 10s. Sir Joseph Ward said that in view of this fact honorable members who ursjed heavier taxation should put on their considering caps.

NO "SQUEAL."

'" He knew the taxes were going to be burdensome. There were many people in the country who would have to borrow money this year to pay their taxes. But he could not help it, however sorry he felt about it. If he had granted all the requests made to him for relief of alleged hardship he would have lost £1,700,000 in revenue, and that he could not agree to do. Personally he came under all the taxes except those on beer and whisky (which lie never drank), so that the taxation would hurt him as much as it would hurt anybody. If it should b© neeesj sary next year to double the taxes and take the whole of a man's income to win the war, he was willing to do it. It was one of the finest features in connection with the war that men with large incomes were not "squealing" because of the burdens they had to bear. He proposed to provide for relief being given to protect them from the levying of income tax at the maximum rate. Much had be<?n said in condemnation of the tea tax. It was a tax which would be felt by the workers, but it was the only war tax that they had :'been? asked to pay, and one of the objects of the tax was to provide funds with which to give £220,000 in concessions to the friends and relatives of -the working people—the old age pensioners and the sufferers from pneumocomosis—a concession which would be a great boon to them in these times. He did not agree that the tax would appreciably increase the cost of living. THE REVENUE FROM LIQUOR. He had a little to say. too, to the temperance people—for whom, he said, he had a most profound respect—and their demand for the abolition of liquor in war-time. This country rejected National Prohibition, but" the House was endeavoring to bring about sectional Prohibition, although the people had not authorised it. This could not be denied. Mr Malcolm-. The people are demanding it. Sir Joseph Ward said he would not discuss the ethics of the early-closing proposal. His only interest "in the question was as Minister of Finance. If this country ever declared for National Prohibition, it would have to provide for a loss of Customs revenue, to say nothing of the loss of revenue by local bodies from licenses, of at least a million sterling. He wanted to ask those people who objected to the tea duty how they thought this extra million could be raised. . . . The Government had been blamed for inserting a free-of-income-tax clause in the provisions of the War Loan. The facts of the matter were quite simple. There would hare been

no chanoe of getting the required amount of money at 4^ per cent with income tax payable. If the Government had issued the War Loan stock at 5^ per cent with income tax, an investor with an income of £5000 a year would have received a return of only £2 6s per cent on his investment. Figures that had been prepared by his officers showed that with the' present rates of income tax it would have been necessary to pay 6i per cent in order to give large investors a reasonable return on their loan stock after paying their income tax. ... In conclusion, Sir Joseph Ward reminded the House again that the Budget proposals were intended primarily to produce the revenue demanded by the necessities of the war. The new taxation must be considered in the light of that fact.

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