THE New Zealand Herald AND DAILY SOUTHERN CROSS THURSDAY, SEPTEMBER 8, 1927. THE TAXATION PROPOSALS.

New Zealand Herald, Volume LXIV, Issue 19736, 8 September 1927, Page 10

THE New Zealand Herald AND DAILY SOUTHERN CROSS THURSDAY, SEPTEMBER 8, 1927. THE TAXATION PROPOSALS.

Three times during the session—once in the Budget and > twice since his taxation measures appeared—the Minister of Finance has said that the graduation of income tax must be amended because, under the present schedule, some incomes actually pay less than they did before the war. Those who compared the rates ruling in 1914 with the corresponding rates to-day were naturally incredulous. The Minister seems to have appreciated the need to back his words with figures. He has produced a table purporting to show that what he asserted was correct. On a cursory glance he seems to have .proved his case; in the list he quotes there are incomes on which the impost under the existing schedule appears to be less than it was in 1914. A. very little analysis shows that the whole calculation has been made on an absolutely erroneous basis. The table has no reference to income as it accrues to the taxpayer; it is concerned wholly with the taxable residue after all possible deductions hav© been made. There have been many alterations in the scale of exemptions since 1914, the result being that a taxable income—as distinct from gross or assessable income—is a very different thing now from what it was in 1914. Examples will be given presently to show how this happens. Meantime it may be said that it is not correct in its results, and not fair to the taxpayer, to draw deductions from what is levied on the taxable residue. To the taxpayer the vital thing is what must be paid in direct taxation on his total income. To arrive at that approximately, the only reasonable |hing is to quote the effect, on assessable mcome, of the various scales of taxation. To assume that everyone receives every possible exemption is disingenuous. This has been done in the table the Minister has issued. It gives a wrong impression of the relative positions', and in one special particular introduces a blunder vitiating almost the whole calculation. Mr. Downie Stewart, in presenting the table to the House of Representatives, indicated doubts, at the eleventh hour, about its value. He said it was not possible to bring down figures which would be absolutely accurate in every case, for there were so many exemptions to be taken into consideration. This is a very necessary disclaimer, since the most vital part of his table is not accurate in any case. The whole point of its production is to show that a taxable income of £llOO paid £sl lis 3d in taxation under the 1914. and £SO 17s 6d under the present schedule, and similarly for several other taxable incomes up to £I6OO. Here is where the flaw in his calculations can best be demonstrated. In 1914 individual taxpayers received a general exemption of £3OO, which ran right through thp scale and assessable income of <£4oo yielded a taxable income of £IOO. An assessable income of £9OP yielded a taxable income of £6OO. aU other exemptions being ignored for the moment Under the nresent law the £3OO exemption apnlies whollv only on incomes up to £OOO. After that figure it begins to disappear bv £l for every £l of income over £6OO so that when £OOO is reached it ' c eliminated. Tn other words, where as an assessable income of £OOO in 1014 was reduced to a taxable income of £6OO by this exemption, the present law makes an assessable in come of £OOO also a taxable income of £OOO unless other exemptions apply This change affects all in comes of £9OO and higher. Therefore turning to the case of £llOO. which begins the section on which thp Minister relies, a taxable income of £llOO under present conditions con tains £3OO which in 1914 would not have been taxed at all. To put it another way, a taxable income of £llOO was, in 1914, the taxable bal ance of a gross income of £I4OO counting only this one exemption, whereas, by the same test it is to i day not only the taxable but the gross income. The result is that while the table seems to be compar ing what £llOO paid in 1914 with what it pays under the existent law it is, in effect, comparing pays now with what £I4OO paid in [ 1914. Viewed that way, £llOO now

pays about £5 more than £I4OO did in 1914, a conclusion rather different from that which the Minister reached.

The Minister's table is equally misleading for all the incomes to which ho draws special attention, declaring them to be paying less than in 1914. Viewed purely as taxable balances and operated upon by the two schedules they do, but, as already stated, they fail to represent the position because the operation of the £3OO exemption has been ignored, and because there is no proper allowance made for the varying gross or assessable incomes from which they are derived. The same error creeps into the third column of his table, affecting the lower figures. For instance, the tax under his proposed schedule on a taxable income of £3OO is given as the same as under the present schedule. That is correct, but if the second bill now on the stocks becomes law, £3OO will be the taxable balance on an income of £550, as against £6OO under existent law, such factors as children's exemptions, insurance exemptions and the like being left out of account. This happens because the £3OO exemption is to begin reducing at £450 instead of at £6OO. The third column has been compiled as though only the schedule were to be amended, and no alteration were being made to the assessment of income. Since the Minister produced the table when moving the second reading of the very bill which proposes this change in the method of assessment, the position becomes fuller of irony than ever. The earlier items in the table are just as valueless, for purposes of comparison, as those the Minister relies on most to prove his case in defence of his taxation proposals. This compilation is apparently the strongest argument he can advance to support increase of taxation under the name of revision. His proposals to remove inequities have been proved more inequitable than the scale they are to supplant. Even if his assertion about those incomes from £llOO to £ISOO were sustainable, in order to meet the position he is proposing to impose increases on all incomes ranging from £450 to £B7OO. With the case for his legislative proposals as full of holes as this, the best thing the Minister could do would be to withdraw his two bills and to reconsider the whole position very seriously before venturing on any move in taxation except the reduction demanded by the present state of affairs in New Zealand.