EASY MONEY

Manawatu Standard, Volume LVII, Issue 7, 7 December 1936, Page 2

EASY MONEY

TAX ON PERSONAL THRIFT. Aucut the recent remarks of the Prime Minister on the subject of universal superannuation, it is comforting to he reassured in a subsequent statement that “the Labour Party is not opposed to individual saving.” “The savings of the people,” continues Mr Savage, “are in no danger at all under the Labour Government, whose policy is to build, not to destroy.” The greater part of the savings of the .average individual in the Dominion to-day is represented by life assurances and Savings Bank deposits. it may bo asked where are the largo funds for Government or local body loans to be. found, in the absence of private saving through the medium of life assurance offices and similar institutions? An analysis of the contributors to the recent Government loan by conversion and otherwise will demonstrate the part played by these institutions in the national welfare. Unfortunately, life assurance companies havo in the past been looked upon as fair game by politicians for purposes of taxation. This_is no doubt due to the fact that the life companies are backed by vast funds ao eumulating each year, but our legislators in tho past appear to have overlooked the all important fact that these funds arc not reserves as in the sense of ordinary trading concerns built up from profits, but arc tho aggregate of many small interests of individual policyholders —the totals of the minimum amounts which will, with future premiums and interest, be sufficient to pay future claims when they arise. These funds are therefore principal sums which are to be returned to tho policyholders or their dependents —in other words, their savings. There is no denying that the taxation of life assurance companies, especially tho mutual offices, is an indirect tax on tho policyholders —-a tax on the thrifty. A large proportion oi policies is effected for the purpose of providing for dependent wives and children, and as every additional expense incurred by the company must necessarily restrict its bonus-paying powers the tax on insurance companies has not unjustly been referred to as a tax on widows and orphans. The bonuses paid to policyholders certainly often receive the designation of profits, but strictly speaking this is an incorrect use of the word as they are in reality excess contributions which are returned cither in the form of cash or increased assurance. The payment of a life assprance bonus has been described as analagous to the case of a buyer receiving os change out of a pound note which he has tendered for goods costing 15s. If a life as/urance company knew in advance what rate of mortality it was going to experience, what rate of interest it would secure on its investments, and what expenses would be incurred in the future, there would be smaller premiums chargeable and no surplus for any bonus payments. There is no justification, therefore, for taxation on this score.

In 1934 tho taxes paid by life-as-surance companies totalled £141,500, whilst the total corresponding premium income amounted to £4,201,993. A little over 8d in every £ or 3.4 per cent of all savings by way of life assurance premiums was therefore paid to tho Government in tax. Looked at from another angle, there were 589,609 policy contracts in force in the Dominion at the end of the year which means that, including small industrial policies, an average tax of 5s per policy was paid for tho year. In view of the service rendered to the community by the individual savers, an effort might well be made by ' the State for the lessening of the tax on life assurance companies, so that the prudent man who is anxious to care personally for his family and old age is not, as he is at present, penalised for his thriftiness by having his savings taxed, while the improvident, who is not unlikely to become a burden on the State, escapes altogether. When overhauling the taxation system and adjusting its finance to cover the enormous expense attached to the launching, on a sound basis, of tho proposed national insurance scheme, the Government, it is hoped, will first seriously consider correcting the anomaly which now exists in regard to private savings through life offices.