TAXATION.

Lyttelton Times, Volume CXVII, Issue 17666, 19 December 1917, Page 8

TAXATION.

POSITION OF STATE BUSINESS DEPARTMENTS. The following correspondence has passed between tho president of the Canterbury Chamber of Commerce and the Alinister of Finance: — To Sir Joseph AVard, Alinister of Finance. Sir, —Following a resolution of this Chamber passed at its annual general meeting on August 31 last, “ That tho Government be recommended to forthwith appoint a Royal Commission to inquire auto the proper principles and incidence of all taxation in New’ Zealand and to make recommendations as to all the taxes, whether direct or indirect, to be levied for the financial year commencing July 1,1918,” a copy of which was forwarded to you on the 11th inst.; while my council realises that the enormous number of removable anomalies and such questions as tho taxation of municipal corporations in respect of their commercial activities can onlv be dealt with next year after thorough investigation and report to the Government by a Royal Commission. yet we would earnestly call your attention to the matter of the assessment of tho Public Trustee for land tax and income tax this year, in the hope that you will provide for such assessment either in the Finance Bill, if it has not already been passed, or ■in the AVashing-up Bill wherein matters -which have escaped notice, but require legislation, are dealt with. The profit and loss account of the Public Trustee for the year ending March 31, 1917, after making all proper deductions and allowing for depreciation of office premises and furniture, £3646. shows a net profit for the year of £58,862 2s Id. Under section 40 of the Public Trust Office Act, 1908, tliree-fourths of this would have been paid into the Consolidated Fund, but under section 34 of the Public Trust Office Amendment Act, 1913, the whole of the net profits are added t.o the assurance and reserve fund, the investment fluctuation account and to new promises and furniture. These profits made in business which, under tho Act of 1908, would have properly gone to tiie Consolidated Fund in aid of revenue, ur in the hands of a company would this year pay income tax at the rate of 7s 6d in the pound, are at present completely exempted from contribution to the revenue in any way whatever.

In the Public Trustee’s balance-sheet at Alarch 31, 1917. his office premises are entered at a value of £90,194 I Is Id. At present lie is exempted from land tax on this, but- surely this is as unfair to the revenue as- it is unfair to other taxpayers. The Government Life Insurance Department pays land tax and income ♦ ax. AAo understand that you are properly making provision to tax the State Fire Insurance Department, and we ask you whether it is possible on any principle of fairness to the taxpavers of New Zealand that, while asking them to make exceptional sacrifices, you should anv longer exempt the Public Trustee from taxation, in

respect of the business carried ou by him.

We sincerely hope, therefore, that either in the Finance Bill or the Wash-ing-up Bill provision will he made for the assessment of the Public Trustee for income tax and land tax for 191718.—I am, etc., t C. H. HEWLETT, President. September 18, 1917. To Sir Joseph Ward, Minister of Finance. Sir, —Permit m© to remind vou, as ' the matter is urgent, that I have so far not yet received fl-ny reply from you to my letter of September 18 last regarding the taxation of State trading and business departments. In addition to the case of the Public Trustee, already mentioned, I would call your attention to the State Coal Mines Department, which for the year ending March 31, 1917, declared a net profit of £18,521 5s 9d, and to the State Advances Office, which for the year ending March 31, 1917, declared the following net profits:— £ s. d. Advances toSettlers’ Branch . . . 41$ 716 9 2 Advances to Workers’ Branch . , . 8,315 3 5 Advances Office Sinking Fund Account . . 34,998 15 8 _ To the net profits of both the State Coal Mines and the Stale Advances Offico would be added large amounts of deductions charged to their trading and profit and loss accounts, which are not deductible in assessments for income tax.—l am, etc., C. H. HEWLETT. October 4, 1917, MINISTER'S REPLY. To C. H. Hewlett, Esq., President Canterbury Chamber of Commerce. Dear Sir, —1 have considered the mattiers mentioned in your letters of the 18th ultimo and 4th instant, but regret that 1 am unable to give effect to your request. Your letters deal principally with the Public Trust Office, and so far as that institution is concerned it is not unreasonable,„to my mind that its profits should be exempted from taxation. It is a State institution created for the benefit of the, public, and such benefit is now almost universally experienced. The profits so called are not to be placed in 'the same category as those arising from a trading of commercial concern They arise in reality from tile difference between the interest received from investments and that paid on moneys in the Common Fund. Th e Common Fund rate is at present! 41, per. cent up to £6900 and 4i per cent ou the excess, which ’S a low rate in comparison with current rates of interest. The aim of the office is to be no more' than self-supporting, and ‘tihis principle is_ demonstrated by Section 61 of tho Finance Act, 1916, which provides that where tho net profits in any financial year exceed £20,000, the Govcrnor-in-Oouncu may direct that the whole or part of the surplus profits shall be credited pro rata as a bonus to tho various estates interested in tho Common Fund. Taxation of 'the profits would therefore Jiavp the direct result of depriving the beneficiaries of a reasonably increased return on the trust funds hold by tho Public Trustee oil their behalf. In this connection iti must not be forgotten that the benefioiaries are liable as ordinary taxpayers in respect of tho income derived by them from the Common Fund. The strengthening of the Assurance and Reserve Fund by tho appropriation thereto for a limited period of tho net profits of the office is no more than a reasonable precaution to ensure the stability of the institution, and to avoid the possibility; of calls being made on the Consolidated Fund pursuant to Section 40 of the Act. In any event the interests of .the institution and of tho State arc: identical, and tho Assurance and Reserve Fund is uono tho less a fund belonging to 'the Stato by being identified with a particular State enterprise. _ Again, in considering the effect of diverting the net profits for a time to the Assurance ana Reserve Fund, it must not be overlooked that such profits arc liable to be utilised for new office premises (in which connection there, is every possibility of heavy demands being made, which would otherwise require to be satisfied out of tho Consolidated Fund), as well as for the bonus already referred to.

You are evidently under a misapprehension as regards lands rested in the Public Trustee for office premises. Such lands are in all respects the property of the Crown though nominally and for the sake of convenience held in the name of the Public Trustee- Lands held by the Bublio Trustee in his capacity as trustee of an estate are, of course, liable to taxation in the-; ordinary manner.— Yours, etc.,

J. G. WARD. Minister of Finance. October 31, 1917. MR HEWLETT'S COMMENT. At the meeting of the Associated Chambers of Commerce at Wellington recently Mr Hewlett traversed the Minister’s reply to his letter. He said:— This letter replies only regarding the Public Trust Office, it omits any mention of the State Advances Office and the State Coal Mines Department. The Public Trust Office is ou the same lines as the Government Life Insurance Department, the. State Fire Insurance Department, tho State Advances Office and the State Coal Mines Department. All these Departments specially benefit only those individuals dealing with them, but the general public as a whole, i.e., tho State as a whole, has the right to a reasonable profit from tho management of these businesses and for the risk it runs in guaranteeing their finance. If these businesses aro run without reasonable profit they are to that extent charitable institutions for the benefit of those individuals who deal with them; charitable institutions carried on at the expense of the individuals who do not deal with them. Is it intended by tho Government that individuals who do not give their business to these departments shall bs penalised and that those individuals who carry on businesses similar to those of sucli departments shall be put out of business, not by equal competition or emulation, but by tho methods of a charitable institution carried .on at the expense of the persons and the clients and customers of tho persons who are to be put out of business? If so, we would point out to what state such a policy must inevitably lead, viz., to one in which the community would not even “ eke out a precarious existence by taking in each other’s washing,” but would be. merely beggars from each other. Has the Government, in these days when true work has been proved so essential, discovered a means whereby the State can be made self-support-ing, not by its work but by its beggary ? The State's right to carry on a business is its ability to carry it on better than an individual can, for the good of all concerned. Such ability is in each ease a question of fact to bo Hied out by practical experiment! where there, is a strong prima facie case in favour of trial. If. however, the ex- i periment is no- made under equal con- i ditions it is not a true experiment and is not only valueless but positively harmful, as it permits the iubstitu- j fion of a less efficient means for carry- j iny on a business for a more efficient means. It is submitted that each business department of the State should j therefore be), carried oil .eh business j lines; that it should bo carried -on to j

make a reasonable profit for the State and that it should, as an ordinary taxpayer, pay ail those taxes to which it would be liable if it were not a State. Department. The Government Life Insurance Department has always properly been liable for tho same taxation as any other life insurance business.' The State Fire Insurance Department lias now been placed on a looting for taxation similar to .other fire insurance businesses. The reasons tor which the Government Life Insurance Departinent and Government Fire Insurance Department are made liable to taxation applv equally to the Public frusOffice and to all other business departments of the State. The statement regarding tho Public Trust Office that ‘‘tho profits s.o called are not to be Placed in the same category as those * . •• ... trading or commercial ££« tlo (TheV arise in reality from the difference between tljfl intoiMit received from investments aud that P<>ici on moneys in the common fund inadmissible in the face - rp and 90 of the. Land ,and Income lax, 1916, under which the income derived bv similar businesses to that of urn Public Trustee is assessable for income tax The arguments as to strengthening" the Assurance and Reserve Funds of the Public Trust Office and the provision of new office premises out of profits are inadmissible in the face of Section 93 of tho Land and Income lax Act 1916. Under that section none of these arguments are admissible to avoid or limit in any way the liability to taxation. This chamber has nob made, and does not make any claim that a bonus to make up interest to tho lair cun ent rate should not be paid pi'o rata to each (••state under the provisions of ,Section 61 of the Finance Act, 1916, provided that such a bonus is not carried pas!) a fair business transaction into a cliaritablo donation at tho expense or other people. Xtl is tho income of the T white Trust! Office within the meaning of tno Land and Income Tax Act, 1916, which Ibis chamber claims should be taxed in the same way as it would be taxed if not carried on as a department of the; State. • ! As regards land tax on premises vest- j ©cl in the Public Trusteo or in any other business department of the State, j it is submitted that! (if these premises j are technically the property' of the i Crown, then the law should in all fair- j ness be altered to make such depart- ; ments liable for land tax on such pre-, mises in order that their businesses may , be carried on under normal business conditions. It is, however, further sub- J nutted that it is very doubtful if such premises can be claimed to be tech- J nieally Crown lauds in the face of the! judgment of the Court of Appeal in the case Public Trusteo v. Hutt River ( Board, heard in 1915, when th© illegal-1 ity and inequity of the Public Trustee’s claim for exemption from rates vreroj declared. ! This chamber fully understands tho Public Trustee’s .liability, as trustee,! for taxation in respect of estates ad- j ministered by him, bus this matter is entirely outside the question which lias been raised, viz., the proper liability to taxation, of nil kinds, of State business departments carried on in competition (at present most unfair and misleading competition) with similar businesses of the taxpayers of New Zealand. In tho face of the extraordinary claims which are being made, and will be made for many years to come, on taxpayers, it is now as absurd as it is unjust to refrain from making the business departments of the State contribute their fair share towards the maintenance of the country.