TAXATION PROPOSALS.

New Zealand Herald, Volume LXIV, Issue 19731, 2 September 1927, Page 13

TAXATION PROPOSALS.

BILLS BEFORE THE HOUSE. MINISTER EXPLAINS EFFECT. CHANGE IN GRADUATION. ONLY "TRIFLING INCREASES." [BY TELEGRAPH.—"PRESS ASSOCIATION.] WELLINGTON, Thursday. The second reading of the Land and Income Tax (annual) Bill was moved in the House this evening by the Minister of Finance, Hon. W. Downie Stewart. The Minister said except with respect to paragraph 3 of part 11. of the schedule the bill was in the same terms as the annual Taxing Act passed last session. The paragraph above referred to fixed the rates of income tax payable on income derived otherwise than from debentures. In last year's Act the minimum tax on such income was fixed at 7d in the £l, and the maximum tax at 4s 6d in the £l. Between these extremes a graduated scale, increased for every £1 of income, was fixed. The present bill preserved the same limits of 7d and 4s 6d respectively, but provided a series of finer graduations in the scale between those limits.

In the Budget it was pointed out that the scale of income tax was not on a proper basis, and that the increases made during the war and various subsequent decreases made since 1921 had upset seriously the fairness of the graduation. Some incomes were actually paying a less rate now than they did before the war, while other incomes paid over 200 per cent, more than before the war. The schedule had therefore been recast this year in order to put matters on a proper , basis. It had also been necessary to alter the Land and Income Tax Act as well as the annual Taxing Bill. No Extra Burden on Small Men.

As pointed out in the explanatory memorandum, the minimum rate of 7d in the £1 at £3OO and the maximum rate of 4s 6d in the £1 at £B7OO were still the same as last year. The regrading, therefore, did not impose any extra burden on the small man, nor did it, in the meantime, afford any relief to the individual or the company on higher grades, but between these two more uniform graduation had been introduced in order to provide for a more equitable scale of taxation. He had pointed out recently in connection with the land tax that oi 85.000 farmers in New Zealand more than 59*000 paid no land tax at all, and in the same way as regards income tax the graduation had become so much out of step that the position was most mequitAithough the new scale did not roak? anv alteration on incomes between £3OO and £4OO, it was interesting to note that the assessable incomes returned in this class aggregated £7,197,140. Yet when all Allowances and deductions had been made, the net taxable balance left of this £7,000,000 was only £382,432, and the income tax paid only amounts to £10,656. Comparison with England. Notwithstanding this remarkable position, the proposed regrading did not affect the man with £4OO a year, who still paid only £2 12s 6d if he had no children and no tax at all if he had two or three children. The same man in England with no children would pay £lO 17s 4d. Taking the group between £4OO and £SOO, the assessable income cauio to over £5,000,000, and yet the exemptions were such that the taxable balance was reduced to i-OdAUUU and the total tax collected amounted to £24,000. Even here under the new scale the man with £450 still paid no extra taxation. between £SOO and £6OO the assessable income was £3,500,000, and vet the taxable balance was only £1,000,000, and the actual tax paid from the whole of this £3,500,000 was only £28,000. As the scale ascended, of course, the taxable balance more closely approximated to the assessable income, until practically the whole of the assessable income was taxable. The new rates' would affect some classes of income, but still leave them far below what was paid in Australian States; in fact, in most cases the increase was very slight. For example, a man with £BOO a year and no children went up from £25 to £2B, whereas in Queensland he would be paying £sl and in England £65. If he had two children his tax only went up about £2, and if he had three children it only went up about 30s. New Rate of Graduation. The Minister said it had been suggested that whereas under the old scale the tax rose by two three-hundredths of a penny for each pound in cases of £3OO up to £6OOO, he had now made this steeper by providing that it should rise by one onehundredth of a pennv on incomes from £3OO to £ISOO, that is to say, an extra penny becomes payable on each extra £IOO of income instead of on each £l5O of income as formerly. Ihe statement had been made that this was 50 per cent, steeper than formerly. A layman might easily suppose from this that the tax had gone up by 50 per cent, on his income, which would mean that a man who formerly paid 7d would now pay Of course, that' was entirely incorrect. The only effect of the alteration was that the extra penny was reached at £IOO instead of at £l5O. The same remark applied to other percentage increases that had been quoted in connection with other parts of the scale.

"I have already shown that with the alterations proposed," said the Minister, "neither thq man with £3OO, £4OO or £450 pays any more than at present, and the man with £750 goes up only 35s il ! he has no children, and if he has three children, he goes up only 15s, so that the increases, while they are necessary to produce a proper graduation, are extremely trifling over those classes, if there is any increase at all. "It has also been suggested that the regrading is an attempt to transfer the load from one class to another, but this is not a correct statement of the position. No one is enabled to transfer his load by this means, but the new scale merely restores something that should never have come off. The £3OO Exemption Clause. "The alteration in the point at which the exemption of £3OO begins to disappear has also been criticised as if it were increasing the burden on certain classes of income. The real season for the alteration is that under the old scale, a most unjust and sudden jump occurred at one point in it. This is easily seen if you take the' case of the man with £6OO income who was entitled to deduct £3OO and on the balance of £3OO, pay the lowest rate of 7d. But the man with £7OO was entitled to deduct only £2OO and was consequently taxed on £SOO, not at 7d, but at Bid, which meant that by reason of his £IOO extra of income, he paid 100 per cent', higher tax. The man with £6OO paid a tax of £7 17s 6d and the man with £7OO paid £ls 12s 6d. It is impossible, to argue that this was a just process of graduation. "It has also been suggested that if any reduction is made in taxation at a later date, the highest incomes will obtain the relief. There is no foundation for this suggestion, as any percentage reduction would be equally beneficial to all classes and the large taxpayer would not benefit to any greater percentage than the smaller taxpayer."

Discussing the point as to whether company taxation was an added burden to the individual taxpayer, the Minister said some of his critics complained that company taxation was passed on to the consumer. The best authorities on taxation were of the opinion that income tax was not passed on, except perhaps where monopoly conditions prevailed. He finally suggested that the business community would welcome the provision that companies may free themselves from the necessity of making returns and paving tax on behalf of their debenture-holders, if they supplied the commissioner with information enabling him to make personal assessments. Criticism of Members. Mr. J. McCombs (Lyttelton) said the bill was very disappointing, seeing the Government had promised year after year that there was to be a comprehensive readjustment of taxation. The present system of company taxation resulted in largo numbers of tax-free individuals, while at the same time we ware seeking to get rid of tax-free debentures.

Mr. M. J. Savage (Auckland West) asked if the proposals squared with the Minister's idea that the burden .should be imposed on those who had the capacity to pay. The bill would throw the burden on the great number of people with moderate incomes. They were beginning at the wrong end. They were taking something from the man at the bottom ins'tead of tackling the man at the top. He advocated the setting up of a Parliamentary committee to go into the question of taxation, as they could do it better than any commission. The discussion was still in progress when the telegraph office closed at 2 a.m.