THE TAXATION POLICY.

New Zealand Herald, Volume LXV, Issue 19958, 29 May 1928, Page 10

THE TAXATION POLICY.

MINISTER'S EXPOSITION. .. t PRESENT PRACTICE DEFENDED LEVY ON COMPANY PROFITS. OBJECTIONS TO ALTERNATIVE. » ■ ■ [BY TELEGRAPH. —OWN CORRESPONDENT. J WELLINGTON. Monday. "For many years successive conferences have passed resolutions on the subject of taxation without eliciting any reply from the Government of the day." This was the concluding paragraph of a communication /.rout the Associated Chambers of Commerce Conference, sitting at Christchurch last October, to the Minister of Finance. The Christchurch conference passed resolutions protesting against continued ignoring by the Government of the recommendations of its taxation commission"; expressing its "great disappointment in the failure of the Government to give relief to income tax payers in its recent legislation," and urging substantial relief in the next financial bill. The conference also expressed the opinion that should the Government not accept at once the recommendation of the Royal Commission of 1924 on the subject of land tax, it would immediately give its favourable consideration to the following proposals :—That the present system of graduated land tax on urban properties should bo abolished; that the assessing of land tax against lessees and occupiers as distinct from owners, being unjust, should be abolished. A letter in reply by the Minister of Finance has been received by the Associated Chambers. "With reference to the statement that the Government continues to ignore tho recommendations of its taxation commission," the Minister wrote, "I have to point out that a large number of the recommendations had the # approval of the Government, and have been carried out. It is true that the two major recommendations of the commission have not been adopted. They were: (1)That a change should be made in the method of taxation of the income of companies, i.e., taxing the shareholders on the profits distributed as dividends and taxing the company at half rates on the undistributed profits j (2) that the land tax should be abolished. Loss of Revenue Involved. With regard to the first proposal, the Minister wrote:—"lt was found that the loss of revenue involved was such that, to meet it, the rate for individual taxpayers with taxable balances up to about 7-2000 would require to be doubled and the graduation accelerated to reach a maximum of 4s 6d at a much lower figure than at present. Ihe loss of revenue would be greater so soon as methods of legal avoidance could be put in operation. The aim of the taxpayers would be to have as much as possible assessed to the companies at half-rate, and in this connection it should be noted that about 70 per cent, of the companies are private companies, which do not necessarily distribute dividends to their shareholders. "The expedient to meet a loss of revenue suggested by the commission was a supplementary flat tax on companies on all their profits, which meant a continuation in a limited form of the present method of assessment, involving double taxation of the same income. Double taxation is indefensible in principle and an immediate agitation would arise against it. It is not considered desirable to impose double taxation even as a temporary expedient. Operation ol the Land Tax. "With regard to (2) that the land tax should be abolished, whatever the merit 3 of this proposal, I do not think it is within the range of practical politics at present. The land tax is regarded by the majority of farmers as a fair substitute for income tax. It. represents a stable source of revenue when incomes show a temporary downward and fluctuating tendency. It furnishes a partial solution to the question of the unearned increment end has the support of public opinion. "With reference to the proposal of the conference that the present system of . graduated land tax on urban properties should be abolished, so long as the owner of urban land receives the allowance of 5 per cent, on the capital value as a deduction in his income tax assessment, no inequity is likely to arise. In fact, cases have come under my notice in which, oy virtue of the deduction, the payer of income tax has actually not only paid no land tax, but has paid substantially less income tax than he would have paid had he held no land. In other words, the 5 per cent, deduction from tho capital value amounts to considerably more than his land tax. . "Regarding the resolution of the conference 'that the assessing ot land tax against lessees and occupiers as distinct from owners, being unjust, should be abolished, graduation in the case of land tax is in accordance with modern opinion and the provision for assessing lessees and occupiers as owners is an essential part of the graduated system. Without it evasion would occur. The lessee is given credit for the tax paid by the owner, so that tTiere is no double taxation. Surpluses and Debt. Concerning "the protests against the surpluses budgeted for in the last six years being used for reduction of debt, rather than reduction of taxation," the Minister wrote:—"First of all, in the period mentioned, there were very considerable reductions in taxation —in fact, between 3921 and 1925 tTie maximum rate of income-tax was reduced from 8s 9rl to 4s 6d in the pound. Secondly, the application of surplus revenue to capital purposes has not been confined to the post-war period. Large sums were regularly transferred to the Public Works Fund "in pre-war days, and thus obviated the spending of an equivalent amount of loan moneys on purposes that were necessary but financially unproductive. It must. T think, bo admitted that this is sound in principle. The steady pursuance of this policy of reduction of deadweight debt through the difficult years since the war has, I think, produced striking results in maintaining our high credit, in Yeducing our war debt by ,t10,000,000. and in establishing a capital debt redemption fund of £24,000,000. These facts have no counterpart in other Dominions." The Minister concludes as follows: — "The general question of surpluses and taxation was discussed in the last Budget and T can only emphasise that, apart from % the question of what proportion of our capital requirements should be provided out of revenue, it should be recognir.ed that in public finance 'each year's transactions must stand alone, and before taxation can be reduced on the strength of a surplus in any one year, there must, in the interests of stable finance, be a reasonable assurance that the revenues will bo maintained in future years. I shall be glad on some future occasion to meet vour executive for purposes of general discussion, as I recognise the keen interest taken by yon in these problems and their proper solution." .; - ■