THAT CAPITAL LEVY.

Hawera & Normanby Star, Volume XLII, Issue XLII, 4 January 1923, Page 3

THAT CAPITAL LEVY.

A LABOUR PANACEA DISSECTED

ILL-CONSIDERED PLANS

(By the Rt. Hon. Sir John tSimon.) "Labour recognises the urgent need of luting from tho trade and industry of the country the. deadweight burden of tlie national debt. It therefore proposes the creation of a War Debt .Redemption Fund, by a special graduated lery on fortunes exceeding £5000." — The Labour Manifesto, October 25, 1922. There* are many aspirations and ideals in the Labour Manifesto with which Liberals like myself have much sympathy, . and m the attainment of which we would gladly co-operate. The condition ol our finances and the prevalence of unemployment make any serious proposals of remedial measures a matter worthy of careful attention. The working man who is attracted by the idea of a capital levy is not going to be convinced that he is in error by being denounced as a Bolshevik. But lam convinced that, in j the situation in which we find ourselves, this proposal threatens overwhelming injury to wage-earners themselves and to all whose happiness depends upon finding or keeping employment. It is to them that I address myself; and I believe jt is possible, by setting out a simple connected argument, to convince the mass of our toiling fellow-countrymen of the fallacy and the danger. The proposal is that the State should demand and collect a special contribution, on a steeply graduated scale rising to as much as 40 per cent., from individuals and businesses according to the amount of their capital from £5000 upwards. It is argued that by this means a very large sum could be promptly collected, by means of which the national debt could be reduced and the burden of interest could be proportionately diminished. And many people think that sucn a capital levy would resemble the duties which the State charges upon property at the death of its owner, so that there already exists a working model which the Labour Party merely proposes to follow. The middle or a fiercely contested general election is not a good time for abstract and theoretic economic reasoning, but I would invite attention to the following practical points: 1. What is meant by capital m this connection ? The capital of a business does not; consist of a balance at a bank upon which a cheque can be drawn to pay the capital levy when the demand note arrives. The capital of a business is represented by its buildings and machinery, its plant and 'fittings, its j patents and trade marjks, and it may include its goodwill. In most cases an important part of its assets are in the form of debts owing to the business which have not yet been collected. It by no means follows that because a i business is solvent and flourishing it could pay over to the State on demand a substantial fraction of its capital. It follows that the imposition of a capital levy, and, indeed, any serious threat of its being imposed, is calculated to produce the gravest consequences on the ability of a business to provide employment and carry on its trading operations. A firm which was thinking of extending its works would, in the event of such a proposal, desist; an enterprise which was barely paying its way would have the strongest reason to shut down; and it follows that, apart altogether from any question of justice or any difficulties of ; machinery, the effects of such a scheme j at the present time would bt> bound to create such immense disturbances that unemployment, instead of being' cured, would be intensified. Indeed, it is not too much to say that a business which could without embarrassment pay over a substantial part of its capi- ' tal must be over-capitalised. In every other case it could only do so at the expense of reducing its activities and of diminishing its power of giving employment. 2. The suggested analogy with deatii duties is wholly fallacious, for the' simple reason that thfc capital levy I would be imposed upon everybody who was subject to it at the same time, whereas everybody does not die at once.

The graduated duties which were imposed by Sir William Harcourt's Budget in the Liberal Parliament of 1894, and have been even more steeply graduated since, can only be paid because one man's property ih not liable to tax at the same time as everybody elses. Even so, it frequently happens that death duties can only be paid by selling off a portion of the property taxed. But if it is to be sold there must he somebody -who is prepared to buy. If everybody is exposed to such a tax as this capital levy at one and the same time, it becomes impossible to raise the tax by sale, and indeed the valuation which has been made of the property is falsified by the imposition of the tax. An illustration makes this clear. If in a town containing 10G.,000 houses >.. hundred houses are for sale each of these houses may be properly valued by assuming that, while the owners may want to sell "them, there may be people who want to buy them. But if everybody with houses above a certain size in the town wants to sell at the same time, the valuation (and the capital levy can only operate after everybody's assets have been valued) is no longer a true measure of what the house is worth. 3. The real effect of a capital levy at the present time may be illustrated by assuming that the'contribution is collected in the form of additional income tax. It is not the State which determines whether taxpayers pay their tax out of capital or income; the income tax is so called not because the State compels us to pay it out of our income, but merely because the amount of the tax is measured by reference to our income. If the income tax payer has spent his income, or if he has no cash available to meet the demand notej he has to pay it by disposing of a portion of his capital. Let us, tjien, state the proposal for capital levy in terms of income tax and see what the.result would .be. If a^ man's capital is earning 5 per cent, interest, and if the capital levy in liia case is 20 per cent., the capital levy which he would be called upon to pay is the same thing as an income tax of eighty shillings in the £! I am not arguing: whether it would be just to exact so high a contribution. The question for the wage-earner to consider is—what is likely to be the eifect of such a demand upon prospects of employment? It "is surely obvious that the intricate and elaborate machinery of British commerce would be so shaken that its working would largely stop, and the probable consequences expressed in unemployment are appalling to contemplate. 4. It is quite true that the possibility of some form of capital levy on war-made wealth was thought worthy of discussion and examination by m«n who were no Socialists soon after the armistice. Many students came to the conclusion that the difficulties of machinery were in any event so great

that it was not necessary to consider either the expediency or the consequences of the proposal. But in any case the situation after the armistice was quite different from the situation to-day. Then we were still in a period of apparent "boom" of trade; values were greatly inflated ; and employment was extraordinarily good, fcmice 'then trade Itas passed through the severest trials; values have rfhrunk; unemployment is terribly prevalent. A capital^ levy is at best a serious operation for the patient, and the present condition of British industry and employment is such that the patient could never stand so serious an operation.

Th© Labour Party will no doubt retort that if their specific is, in view of these circumstances, rejected by Liberals sinh as myself, what is the remedy wliich is to be preferred?

Change the policy by cutting down the immense sums now spent on armaments and preparations for war, by promoting goodwill between all the countries of Europe, and by abandoning the spendthrift adventures into which we have been landed in the Middle East and then there is a prospect of expenditure being reduced, of national credit being restored, of relief being found for overburdened industry, of employment being encouraged, and of a reduction of tlie fearful burden which the Labour Party hopes to relieve by this ill-timed proposal for a capital levy.