THE New Zealand Herald. AND DAILY SOUTHERN CROSS. THURSDAY, SEPTEMBER 9, 1920. THE NEW TAXES.

New Zealand Herald, Volume LVII, Issue 17571, 9 September 1920, Page 4

THE New Zealand Herald. AND DAILY SOUTHERN CROSS. THURSDAY, SEPTEMBER 9, 1920. THE NEW TAXES.

Theee will be some doubt as to the detailed effects of the Government's new taxation proposals until the full text of the Bill is available. Meantime a good deal that is of interest is to be gathered from a close examination of the telegraphed summaries of the measure. The incidence of the income tax is the most interesting phase of the scheme. Here the purpose is clear. It is to lighten the burden slightly at the lower end of the scale and increase it at the higher end. The increased exemptions to the family man and to

" earned" as against " unearned'

incomes do not complete the relief it is intended to give to those with moderate incomes. The actual rate of the minimum tax is lower by three-fifths of a penny. At present the scale of income tax ranges from Is 3d to 7s 6d the new scale will range from Is 2fd to 8s 9£d. Moreover, the graduation is slightly finer, so that there is an advantage to the taxpayer all through the scale until the present maximum tax of 7s 6d is reached., The elect of the new method of taxation is, perhaps, best illustrated at, and above, a taxable income of £6000, - where there is a break in the graduation. The present levy on £6000 is 7s Id ; the new levy will be 6s 9£d. Then the graduation is halved and the rate of tax mounts slowly, the present maximum tax of 7s 6d being reached at £7400 instead of £6400 as at present. Thus every income under £7400 is to be given a slight advantage by the new law, while every income over that figure will be called upon to make good the taxation waived to those on the lower scale. It may be that Mr. Massey will get more money under the new plan than under the old. Indeed, it seems likely that he will, for according to the last return issued the 290 taxpayers with incomes exceeding £10,000 pay more than half the total taxes. To their bills there will now be an addition of approximately one-sixth. The purpose in view— give a small measure of relief to 37,000 taxpayers — good, and the method of attaining the desired end would be wholly good if the whole of the burden was being put on wealthy individuals. Unfortunately it is not quite so. It is being put to a considerable extent on prosperous companies, and in the present condition of trade it is hardly possible to avoid the conclusion that some of these companies will be able to pass on at least a proportion of the new impost to their customers. A similar modification in respect of land tax is proposed. The graduation is to be at the rate of one penny of tax for every £20,000 of value instead of one penny for every £32,000, but the addition to the scale rate is 33j per cent, instead of 50 per cent. The exact effect of these alterations cannot be determined by casual inspection, but examination shows that they produce exactly the results described by Mr. Massey in his speech. The taxation on land within the lower categories of value is to be reduced, the concession declining as the value rises, until approximate equality is reached at £9000. On all estates beyond that value there is an increasing advance upon the present scale of taxation. The minimum rate is to be reduced from l|d to l£d, so that on a taxable value of £1000 the new taxation will be £5 lis 2d, instead of £6 ss. At £5000 the taxation will be £33 6s Bd, instead of £35 3s l^d; at £9000 it

will be £70 instead of £70 6s 3d. The increase appears at 10,000, on which the taxation will be £80 lis Id instead of £80 Is 6d. The following table shows the values at which the present and the proposed scales amount to the rates shown:

The maximum rate is one-thirtieth of a penny less than that reached by plihe present scale, but it falls upon

estates valued at £138,000 instead of £191,289. * ' Expressed in v another way, the maximum; rate is reached at a valuation on which the new taxation will be £6018, instead of £4555. Among the other features of the Bill, prominence must be given to the proposal for. the taxation of debentures issued by commercial com-r panies. This does not quite come up to Mr. Massey's explanation of it. The debenture tax is to be in-

creased from 2s 6d to 3s, but as the ordinary income tax payable by at least some of the companies concerned is also being increased, the higher debenture tax would seem to be nothing more than a roughly proportionate advance. Then it is provided that if the taxpayer who receives the debenture interest is paying personally on a higher rate than 3s, he is liable for the balance. This reads well, and has unquestionably the appearance of equity. But it may be doubted whether it will bring Mr. Massey a great deal of revenue. A taxpayer may be a very wealthy man, and yet not pay personal income tax at the rate of 3s in the £ if a large part of his

income is derived from company dividends which is to him free from tax. Mr. Massey has the information available to him, and he possibly knows approximately what the charge will mean in revenue, but so far as companies are concerned it would seem • that he has left them about as much inducement as before to divide their capita] into debentures and shares. The taxation of municipal, enterprises has already 'been mentioned, and calls for no further comment at the moment. There will, however, be a good deal iof interest in the proposal to tax

co-operative butter and cheese factories. There is in this section a provision that all payments made to suppliers are to be exempt, which means that the co-operative companies are to be taxed only on so much of the profits as they place to reserve' or as is derived from in-

vested reserves. That is exactly the i conclusion arrived at in the report of the Royal Commission which reported upon income tax in Britain, and upon which Mr. Chamberlain's new corporation tax was based. As a revenue producer it has the same weakness as the tax on municipalities, which is that so far as the companies are truly co-operative they will be able to avoid the tax by making larger returns to shareholders and placing less to reserve. On the whole, the Bill is a good one. In both income tax and land tax it relieves the small man and places the burden on the wealthy. It is,

indeed, difficult to see how the Minister could have done substantially better, short of making the income tax a more direct levy by abolishing the method of collecting St the source, and that is a change so full of complications and dangers that it cannot well be undertaken without very mature, consideration.

Rate of Tax. New Scale. Present Scale. 2d .. .. £11,000 £11.666 13 4 3d .. . . 26,000 33,000 0 0 4d .. .. 41.000 54.333 6 8 5d .. .. 66,000 72,333 6 8 6d .. .. 71,000 97,000 0 0 7<1 .. . . 86.000 115,000 0 0 8d .. .. 101,000 139,666 13 4 i 9d .. .. 116,000 161,000 0 0 lOd . . .. 131,000 182,333 6 8 10 7-15d . . 138.000 191.289 0 0 10id . . .. — 193,000 0 0