THE New Zealand Herald AND DAILY SOUTHERN CROSS MONDAY, SEPTEMBER 5, 1938 FOOTING THE SECURITY BILL

New Zealand Herald, Volume LXXV, Issue 23134, 5 September 1938, Page 8

THE New Zealand Herald AND DAILY SOUTHERN CROSS MONDAY, SEPTEMBER 5, 1938 FOOTING THE SECURITY BILL

Mr. Nash's proposal to impose an additional tax of Is in the pound on company incomes in order to assist the finances of the social security scheme has aroused widespread concern. While this is justified and criticisms of the incidence and effect are well founded, the people should remember that the new tax is but a small foretaste of the added . tax burdens they will have to carry to support social security. It is the companies' turn now and it will be the people's turn next. A great deal more money than is at present in sight has yet to be found. By adding 4d in the pound to the wages tax, by making all women liable for levy, and their earnings and income subject to the full tax, by assessing even the "keep" of domestic servants, by taxing and levying all children of 16 years and over —by these and other shifts Mr. Nash hopes to raise an additional £3,000,000 in revenue. But he is still short by £7,000,000 of the annual sum he must find. The special company tax represents a first instalment toward making up the huge deficit, but only a small one, because the source of new revenue is limited, residing in undistributed profits only. It may yield a few hundred - thousands, whereas Mr. Nash needs a few millions. The people may not relish the prospect of the temporary wages tax being raised and made permanent, and they are certainly aghast that a toll should be laid on children, but they can be assured that they do not know the half of it yet. The Government'has more tax rods in pickle for them, although these are likely to remain in pickle until after the election, when they can be produced, well cured, seasoned and toughened for a lifetime of use.

Unless the Minister of Finance were hard-pressed, he would hardly have had recourse at this stage to a revenue device such as the added company tax, whose inequities are notorious and whose effect on production, industry and business is bound to be depressing. He is proposing to tax income earned this year, and even before this year, for a scheme that does not begin to operate until next year. Would a Minister who believed in his own rainbow picture of abounding and increasing prosperity to support the scheme in the future raid past income in the manner Mr. Nash proposes to do? Companies are loaded with a fresh item of cost when the financial year is already five months gone, and companies must find the tax as best they can in what is left of the financial year. Some may be able to pass the tax on, and then it will fall on many who will not be well able to bear it. Freezing companies, for instance, may feel compelled to raise their charges, thus collecting the tax from the farmers. Many other firms will seek to recoup themselves by fixing higher prices for goods and services, passing on the tax to workers, producers, pensioners—everybody, in fact. So indirect taxation, with its unsuspected and unjust incidence, will be increased, contrary to the Prime Minister's undertakings to reduce the weight of this form of taxation. Companies are already heavily taxed, of course, and the effect of the present impost, up to 7s 6d in the pound, adds considerably to the cost of living as it is. With the added shilling, a company earning £IO,OOO will have to pay £4250 as income and social security taxes, apart from land tax. Whether companies manage to pass the tax on or not, it is bound to add to production costs, to check enterprise, to restrict expansion, to affect employment, and add to the cost of living. Perhaps the most serious immediate effect will be felt by those who must compete in overseas markets or in local markets against overseas competition—the farmers and the manufacturers. The farmer cannot make the British consumer pay more for his produce and so must meet the extra costs himself. The manufacturer cannot collect the tax in higher prices lest he be under-sold by importers. In the latter case, of course, his staffs would suffer with him. But whoever else evades this tax, it must strike primary and secondary production and, in doing so, cut at the financial root of social security, for Mr. Nash relies on increasing production. With company taxation raised to new high levels —over twice as high as the highest in Australia—no emphasis need be laid on the fact that new enterprise will be discouraged. Apart from that, established companies have relied largely in the past on accumulated undistributed profits for the means of expansion and to provide reserves against slack times. Now these funds for development and stability are to be further taxed. The effect on the worker hardly needs stressing. Stringency will cause companies to watch existing payrolls strictly and to avoid adding to them except the return be reasonably assured. Companies now contributing to staff superannuation funds will also be compelled to reconsider a policy which would in future involve a double subsidy. These various considerations suggest that a tax designed to minister to social security may have the opposite effect by diminishing the main sources from which benefits are drawn—employment and production. That Mr. Nash should at this preliminary stage bo reduced to such a revenue device is merely a hint of what is in store, a plain hint that benefits must be paid for and must be derived in the final analysis by taxing wages and production*