THE LIBERAL PROGRAMME.

New Zealand Herald, Volume LVI, Issue 17258, 6 September 1919, Page 1 (Supplement)

THE LIBERAL PROGRAMME.

TAXATION. No. n. BY H. W. SSOAB, H.A. Sir Joseph Ward assures us that a considerable reduction in the taxation , brought into existence to meet war aspen- 1 diture can be made. No one should know < better. The assurance is comforting. * It is certain another year of war would 1 have left us with permanent charges that , would have required all our taxes. The " on-y relief we could then have sought 1 would have been such as time might have < brought the gradual reduction in the < number of pensioners, and the increase of 1 the population distributing the burden over a greater number of souls. • Evan now it is certain that taxation £ must remain heavy; appalling it would 1 have appeared to us five yeans ago. If I many demands are to be met, those for 1 education for instance, it is a question whether Sir Joseph is not over sanguine, and whether a reduction of taxation fairly ' described as considerable is likely to take 1 place. Considerable reductions may even 1 then be made it is true, in certain direc- ' tions, but only to be made good in cer- , tain others. Thus Sir Joseph proposes to exempt the smaller incomes from taxation, ! and the small estates from death duties, ' but to place the amount thus lost to the Treasury upon larger incomes and larger ■ estates. Again, he proposes the removal of duties on and taxation of all commodities, including clothing and other articles ' in general use; .• but duties on luxuries, ' he adds, should be increased at the proper 1 time. , Taxation is one of the necessary evils. It should at least be justly distributed. The prevalence of even an unfounded belief that the public burdens are not fairly divided is a seriously disturbing force in the body politic. The feeling of injustice sears the conscience and encourages efforts at evasion. When taxation is light it is easy to achieve a distribution that may be generally recognised by the people as substantially just. When taxation is heavy, instances of inequitable distribution are accentuated ; those that were borne patiently when the burden was light are resented! as the weight increases. Those that were accepted during war are repudiated during peace. The Income Tax. Both on financial and equitable grounds there is a strong case for the use of the income tax as a leading source of revenue. During the war this tax afforded the readiest and surest way of increasing the revenue from taxation. It was easy to levy it and graduate it according to income, and ■. so roughly according to ability to pay. But as the rate increased the roughness became too rough, for ability to pliy depends not only on resources but also on responsibilities. Some limited allowance had to be made for these, and- each child under sixteen years of age was allowed, as it were, to claim £25 of the parent's income. Sir Joseph now proposes to include the wife. There is certainly fin overwhelming case, as far as justice is concerned, for much larger remissions of income tax than have as yet been allowed for wife and children. The present exemption is quite inadequate. Till adequate allowance is made in this respect the income tax cannot be justly maintained at the high level which would otherwise be possible. It is now recognised that the State may raise its powers of taxation for promoting such economic and social adjustments as will make for the well-being of the people at large. It has been suggested by Mr. Dampier Whetham that greatly increased remia-i sions of taxation on behalf of the family would have a greater indirect than a direct effect by " proclaiming in an unmistakable way that the nation has need of sound and able men and women, and is prepared to give all consideration .and honour—iou-tkosa. who will sUt»*>!v the want." The Case oi Companies. The taxation by income of companies is in ever greater necessity of reform in view of the nigher level of taxation. In the first place the taxation is not just, for whereas many companies have to Dear the whole of the taxation, others, in different circumstances, are able to pass part or the whole on to the consumers. When the tax is effective on the com?any there are still two serious blemishes, t ?,axes the shareholder of small income at the same rate as the richest. In other words, the principle' of a graduated system of taxation disappears; and this not by taxing the rich down to the level of the poor, but by taxing the poor up to the level of the rich. The concession made at present to certain shareholders is trivial and by no means meets the case. The second blemish is that the heavy graduated tax on companies is a tax on large-scale production. Much of the increase in the efficiency of production and distribution in modern times, conferring benefits on the whole population, is due to large-scale industry, allowing of division of labour and numerous economies. This development, so worthy of encouragement so long as it stops short of oppressive monopoly, is hindered and. handicapped. Small industry is rendered more pi stable. But is the remedy proposed w ; drawbacks? The essential reason for Levying the tax on the company is that tJ-us the tax may be collected with great*.ease and with greater certainty. Another advantage, • from a Finance Minister's point of view, is that a greater sum finds its way into the Treasury, although largely by reason of the fact that many whose incomes are actually below the taxable minimum, are thus subject to the maximum rate. To transfer the tar. to the individual shareholder's income would sacrifice a certain sum in the interests of justice; it might sacrifice another, inasmuch as many of the dividends received might not appear in the income tax returns. The disadvai't-sges of the present system, however, are so great that, in the absence of any other proposal, the question of the abolition of company taxation should be seriously entertained. The income tax is very severe on a fluctuating business, and chiefly on company business, because of their average'v larger scale. To illustrate, consider a case founded on a recent experience. In round numbers a loss one year of £3000 is followed by a profit of £4000; the whole profit for the two-year period goes in income tax. Tf the profit had been £500 each year the tax would have been small. Social Industry. The proposal to tax Government ventures is also a proposal much overdue. | To these should he added both the rating and taxing of municipal concerns. To the reasons assigned for the proposal may be 1 added others. There is no reason why a ' State or municipal venture should makeeither the Slate or the city poorer l>\ depriving it of the contributions that would come from the same concerns if . privately owned. There is no reason on the other hand why the consumer of a State or municipal commodity or service should escape the taxation which is inflicted on the con--1 sumer of the private supply. Why should 1 one town be taxed because its electricity is supplied by a company, and another escape because its electricity is supplied by the municipality? Why, in the same town, should the consumer of gas be liable through the price of his pas for taxes and rates which the consumer of electricity escapes ? i Economically, taxes are vicious which , favour one method of production, or the , production of one of a number of rival . commodities, for there is no guarantee ! they will favour the most economical. This ; was recognised long ago. The effects of i such discriminating taxes were analysed by J. S. Mill. The conclusion he came to was that they "transgress the rule that taxes should take as little as possible from the tax-payer beyond what they bring into the Treasury of the State. A discriminating duty makes the consumer [ pay two distinct taxes, only one of which i is paid to the Government, and that fre- » quently the less onerous of the two." Ihe » Git-times more onerous tax is the disadi vantage and loss arising from the fiscal - interference with the proper economic development of the rival processes.