THE OTAGO DAILY TIMES SATURDAY, JANUARY 28, 1922. PUBLIC SERVICE ECONOMY. TAXATION OF INCOMES.

Otago Daily Times, Issue 18465, 28 January 1922, Page 8

THE OTAGO DAILY TIMES SATURDAY , JANUARY 28, 1922. PUBLIC SERVICE ECONOMY.

TAXATION OF INCOMES.

Nor visibly influenced'ffiy tbo withering blasts of invective and defiance that have emanated from meetings of members of the public service throughout the dominion, the House, of Representatives has passed the Government’s proposals for reducing the expenditure on the departmental services. The saving that is to be effected is to bo obtained mainly through a gradual withdrawal of bonuses granted to public servants to enable them to meet increases in the cost of living. ' These increases affected every person in the community. It was not every person m the community, however, that enjoyed the receipt of cost-of-living bonuses. There was none of them, on the other hand,- that did hot contribute by taxation in sotn’e form or other to the fund for the payment of these bonuses to public servants. Now that the cost of living is falling more or less steadil/, the proposals of . the Government, so far as they bear oh the public servants who received cost-of-living bonuses; represent what the Bill which embodies them correctly describes as an “adjustment.” It is not a reduction of salaries that is contemplated so much as an adjustment of salaries to the level .at -which' they stood prior to -the payment of the more recent bonuses. That is a highly salient point which has to be remembered .in connection with the plan of retrenchment and* which is/ we imagine firmly fixed vin the minds of the taxpayers. ■ Around this ■■ point revolves little controversy as to whether the cost of living has fallen to a .figure which makes the application* of economy "due.” Amid the “juggling with percentages which inay be somewhat bewildering to the uninstruoted, a particular significance ', attaches to •, the* formula “52 per cent.” The Public .Service Association argues that it had been agreed .that salaries (including bonus additions) should not bo reduced until the statistical data showed that the cost of living had fallen below a figure that was 52 per cent, above the cost in July, 1914, This agreement is alleged to have been arrived at between the association' and a committee of departmental heads, known as the Uniformity Committee, acting on behalf of the/Government. The terms of the agreement upon which the Public Service Association relies have , not been published. The agreement may admit of an interpretation different from that placed upon it by the association. Whether this be so or not, it is an important consideration that the index number* of November last showed that the cost of living in the, food-groups, which had been accepted, as the guide to fluctuations in, the cost of living, had fallen to per cent, above the index number for 1914. There had already, therefore, been a drop at' that time below the crucial' figure of 52 per cent., and there was a further drop of at leasts per cent, in December. The circumstance is oUe which the community, as a whole, will not fail to appreciate when Mr Massey says that he is merely proposing to “take back by ihstalineints, as he had a perfect- right to do, the special increase made in salaries ‘in 1920 on account , of the rise in the cost of living.” :• There, are members of; Parliament, however, who have taken the ground that, the economies that are proposed should hot affect, salaries of less than a particular amount. Their ideas as to the salary below which the withdrawal of bonuses should not apply have had a liberal range—from £450/down to £2lO. The sufficient answer to them has been that, to restrict the application of the scheme of retrenchment, would he to render the whole of the proposals migatory. It is in the payment of the smaller salaries that the great bulk of the expenditure on the public service goes. Any proposals for economy from which these salaries were exempted wonld fail completely to fulfil the object which Mr Massey has in view of effecting a. saving of about £1,800,000. When, therefore, any members of Parliament, waxing virtuously indignant on the platform over the severity of the “cut” planned by the Government,, seeks approval of his action in resisting the application of the proposals to salaries below some arbitrary minimum, it will be necessary to remind him that he was, in effect, opposing any practicable scheme of retrenchment at all, and that; unembarrassed by any sense of official responsibility, he was voting in favour of a course that would involve the dominion in disaster. The plain fact of the matter is that public retrenchment on a large scale is imperative. The Government was slow to realise the need for retrenchment, but there is no room for doubt £hat when Mr Massey said in the House the other night “plainly and distinctly that be could not find the money that would be required to meet all the expenditure on the present scale,” he was not guilty of any exaggeration. It is only by a heavy reduction in the cost of the public service that the Government can count upon making ends meet. And no peculiar hardship is inflicted upon the members of the public service in withholding from them now portion of the sum of £4,600,000 a year that is being paid to them, over and above their fixed salaries, to meet the increase in the cost of living. The conditions which led to the assumption by the Government of the obligation to provide this large sum every year in order to increase the salaries and, wages of public servants are disappearing. It was plainly understood, moreover, when the system of paying cost-of-living bonuses to public servants was adopted that adjustments would he made as the prices of commodities fell. It was never contemplated that the bonuses should be treated as permanent, increases of pay. The time has come when it is necessary that the adjustments should bo effected. There is neither reason nor honesty in the attempt to represent the Government’s proposals, tempered as they, are by an arrangement that will distribute the operation of the “cut” over a period of fifteen months, as a- wicked device to “raid wages” or penalise any particular class of individual.

Psotessoe Stephen Leacock isperhaps not less widely known as' a humorist ' than as an economist, hut, although political economy has been described as “the dismal science,” a man is not disqualified as an economist merely be* 'cause he deservedly possesses a high reputation as a humorist. .As the head : of the Department of Political Economy in M'Gili University, Professor Leaco6k has credentials as as authority on economics that are indeed undeniable, and when he devotes hia attention in all seriousness, as he has done in an article in the Morning Post, ■ to the “fallacy and failure of the income tax,” he is sure of a host of appreciative readers. For the unpopularity of the income tax is great in these days. In New Zealand 1 : the tax sits more heavily than ever before upon its accustomed pedestal. It has, for some years past, been the most fruitful source of the country’s revenue. It is to be acknowledged, as' Professor Leacock ao' knowledges, that it has generally. % been considered an equitable form of impost. To suggest otherwise savours a little of heresy. Professor Leacock, however, ■stepping in where angels/ so to speak, might, fear to tre'ad, boldly attacks a great national institution at a time ' when, if it is really assailable, it is particularly ripe for attack, as everybody who groans beneath its weight will agree. Professor Leacock realises that it requires no little audacity to . denounce the income tax asunsound in theory and disastrous in practice. Aa he puts it: , The income tax’haa for ao many genera- . tions v been lauded by theorists as the ‘ ideal tax; it has occupied for several ■ generations a position so unique in the BritiSh budgot; ao intimately connected in its history with the removaJj '• of the protective tariff and' the. of Free Trade; and it has. been since the ■ war era began so widely adopted through. ' out: the' world, that all adverse criticism must ,find the onus of proof heavily in the • scald against it. Yet I. am. convinced that at the present, moment the inooma- ‘ tax, in Groat Britain especially, ii proving itself the worst of taxes. I sincerely believe that it is exercising a destructive influence on the productive powers of the ... nation jl that it is striking at the very root® of energy, and thrift, . and indi- . viduid enterprise from which British industrial greatness has grown.’ In a word instead oftapping intxjme at the source it is tapping industry at the,.source. .. ■ Professor. Leacock points ■ tothe ; havoa which war-finance has played with the arguments in favour of the income tax. Before the war the tax stood at a rata low enough to render, it tolerable, and. its destructive influences on capital was concealed.. Bat with ..the high rate the situation has entirely altered. It ia Professor- Leacock’s main ■ contention ■ that in any case income is not the properbasis of taxation. The true>basifl,he - holds, on which taxation should rest is - expenditure—the. amount of money which a man expends in consumption, and which thus represents • the amount of goods and services, which he actually : draws from the year’s productive labour. .An instructive analysis is directed to < support the argument that a tax upon income is, and must be actually, a. tax,, upon capital. If the money now exacted " by the State were left at the disposal of the individual it wpuld either bo spent or invested, or partially spent and partially invested.. In any case, it would go towards paying wages, and therefore would increase employment,, and by so doing would increase the production in which alone the' true wealth of -the cbbntry consists.' . When the State takes a part of income the . capital or wage-fund of the community is thereby reduced and permanently reduced. For the State is' not a productive organisation. When the income tax rises above a low figure the injury to prosperity; becomes manifest, and becomes excessive it ceases to be an income tax and becomes State confiscation of capitaL For this reason the taxpayer is obliged—as Has happened in New sell his investments in order to pay, the tax. It is one way. of pouring the capital of the country into a bottomless pit. ■ It may be well, however, to quote one of Professor Leacock’s destructive examples t— ’ The case is best seen by taking an . extreme. A-mffiti-milhooaire has/ let us • say, .fan/income of a million storting a ; . year, I bat, lives with, the simplicity of a peasant upon about a hundred pounds. Left to himself bo would automatically re-invest £999,900 a year: in other words, ho wouldn’t call for it at all. But the - State steps in and taxes him to the extent of at least one half of hia income. What would have been part of the aootumv- . lated productive surplus of the community, its industrial Capital, is diminished to that; extent. Those who suffer by it directly are , the wago-earnero and those , - , dependent for employment ,on the industry, , concerned/ It may be or it may not be, that the use made by the State of the £500.000 that it takes in taxes will be eo beneficial to the workers ooqpemed as more than to compensate them for their % loss. But the immediate an‘d obvious effect of the tax on the multi-millionaire’s , . savings, ia a curtailing of the productive process with unemployment and trade •' stagnation as the rasuly Although the details of the process of producing unemployment are complicated the principle of the operation, as Professor Leacock explains, is. sinjple. When there is no money—because it has been absorbed by the Government—there is nothing wherewith to pay wages; and "the stoppage of wages cuts out a whole group of purchasers and effects a new stoppage elsewhere. It ia like a block in the street traffic when no. ■ vehicle can move because the others ala stationary.” In this situation. Professor Leacock contends, the application of the drastic income tax acts with brutal force. By taking away savings it breaks down capital, and helps to create unem* , ployment and to bring the machine to a full stop. As manifestly the income tax could not be abolished without some , substitute being devised, Professor Leacock develops the constructive portion of his article to urging the merits • of a tax on expenditure. This impost, which is in operation in. Canada, where the operation of it is .at the present time being investigated by committees of ■ public men from the United States, is known there as- the Sales Tax. It ia < described as that unspeakable blessing “a painless tax.” If it really merits this description, Mr Massey, who is plainly disinclined to adopt it in New Zealand, might advantageously give more serious consideration to it than ,it has yet received from him. Professor Leacock suggests that the introduction of it in Great Britain would bring the income, tax down by more than a third. , , •

respecting them. The inquiry has emphasised the neglect of the hospital authorities *to inform the press of the unusual occurrence—an oversight which considerably reduced the chances of disi covering the whereabouts and saving the’ life of the unfortunate woman. It excited, moreover, certain views on the ( question of press publicity which are of i importance, and to which, in the public ' interest, attention should ho directed. 1 The hospital is a public institution, maintained out of public funds, and it is impossible to apply to it all the considerations that may he fairly applicable to the conduct of a private institution. The unfortunate case which formed the ouhject of the recent inquiry illustrates our point. Until she escaped from the institution her illness was not a matter of public interest or concern, but her disappearance was distinctly a matter of public interest, not only because it was an exceptional occurrence, exposing her life to dangers the extent of which might be lessened through the circulation of the fact that she was at large, but also because it might be held to involve a reflection upon the management of the institution itself. It was only through the press that the public could he informed that the patient had escaped, and a plain responsibility lay upon the authorities in whose charge the patient was to notify the press. The fact that, as the result of an. unfortunate chain of circumstances, the police omitted to report , the disappearance of the patient does not Exonerate the hospital officials. Dr Falconer, medical superintendent, thinks that “no information should ho given to the press that any patient or any friends ,of .the patient objected to.” This view, which may or may not explain the fact that the press frequently experiences difficulty in securing information from the hospital, is not one which in practice can he fittingly applied in the case of public institutions, and Ur Falconer himself admits its hntenability when he says that “it stood to reason that Mrs Macdonald’s disappearance should have been reported to the press.” The patient in this case certainly did not desire publicity, and in the hours immediately following her disappearance some of her friends may even have objected to it. But the public interest outweighed any personal considerations. * On behalf of the press it may he claimed that reliance can be ifftced upon it to exercise discretion ih its reference to all such matters. It. possesses a sense of fairness and its judgment as to what is of public concern is at least tolerably sound. If the press is hound to he fairly critical in regard to the conduct of public institutions, that in itself is in the public interest and is distinctly helpful in so far as it contributes, to the management of those institutions upon such lines as merit the confidence of those by whom they are supported.