THE LABOUR BUDGET

Otago Daily Times, Issue 22957, 12 August 1936, Page 15

THE LABOUR BUDGET

A LAND TAX SURVEY By A.P.A.N.Z., F.R.Econ.S. For the past five years owners of land, both urban and rural, have paid a land tax at the flat rate of Id in the £. Limited exemptions were allowed (a) where the unimproved value does not exceed £2500 (the ordinary exemption), and (b) where a mortgage is registered against the property up to a maximum of £7500 (the mortgage exemption). This latter exemption reduces as the property increases in value, so that no mortgage exemption applies when the value reaches £15,00*0. It is important to note that the land tax is a special tax applying to one class of property only, viz., the land. The owner pays, in addition, income tax in all respects on the same basis as any other person earning or receiving an income, and without any allowance for the land tax paid by him. It has been an additional tax. There is one qualification to make, namely, that where a farmer worked land not exceeding an unimproved value of £3OOO he has not been liable for income tax on any income from his property. Land tax has for very many years been a feature of the New Zealand tax system. For the past five years it has been imposed on the flat basis of Id in the £ because the community, both farming and urban, has obviously been unable to pay it on a higher basis. Before this period it was imposed on the graduated basis, the scale yarymg up and down over a limited swing. It was imposed in the first place as a penal measure to bring about the subdivision of large rural estates. It achieved this result in the early part of this 'century, but it became an essential part of the revenue system and also a substitute over a period for the assessment of income tax on the earnings from the land. Since the war the land tax levy has been consistently attacked. The 1922 Taxation Committee reported that “ the graduated land tax as at present imposed is not in the best interest of the Dominion, inasmuch as it restricted production and enterprise, and that a flat rate should be substituted. The 1924 Royal Commission, presided over by Mr Justice Sim, reported:— “The graduated land tax was originally designed to break up large estates. There is no evidence to show that it is required any longer for this purpose, and there is much evidence showing that it is now preventing the development of large areas of land requiring a considerable amount of capital expenditure to break in. The graduated land tax applied to business premises is a serious handicap to trade and industrial enterprise, and serves 110 Iif°1929 P Sir Joseph Ward came into power with a special tax on farm land to bring about closer settlement, as a main feature of his policy. This increased the then existing graduated land tax for farm lands over £14,000 on a percentage scale, so that at £20,000 it was about two-thirds greater and for £30,000 and higher values rt was doubled. Because of the very general objections raised throughout the country at the time he added a “hardship clause” providing for a special commission to grant reiiei where the owner was financially, unable to pay. The commission appointed comprised a magistrate and two retired commissioners of tax, and the weight of evidence brought before them was so great that out of 628 cases they remitted 400 (less one) in full, and reduced 109 by more than half, leaving only 120 cases where the tax applied. Of these 90 were withdrawn before the hearing, in many cases under a misunderstanding. It was so amply demonstrated that the farming community .could not carry or find the extra tax and that it did not m fact have the result sought that the following year it was repealed. The Minister of Finance last week announced in his Budget statement that the graduated basis for land tax is to be reimposed, and the rates are to rise very rapidly. The tax will equal the following percentage charges on the land—viz., 1 Per cent, at £16,200, li per cent, at £ 2 5 - B .°o, 2 per cent, at £35,400, 2\ per cent, at £45,000 and higher. Actually the tax proposed is very close to the rates imposed by Sir Joseph Ward in 1929, as the following table shows: —

Sir Joseph applied his penal rates of 1929 to farm lands only; now Mr Nash casts his net at similar rates oyer all land, both rural and urban, and for a different purpose. He states that the farmer’s eyes should be on the return for his products rather than the. acquisitive possibilities of profits derived from land sales.” Further, he says. “Summed up, the procedure would mean the minimum taxation for the working farmer and home owner with increasing rates on abnormally large holdings and other areas held in niany cases for speculative profit instead ol f °lf U the formers to whom the 1929 rates applied could not find the money for the tax then imposed—the Hardship Commission had to consider only financial ability and its opinion is abundantly clear from its report—it must be quite obvious that when now only emerging from the difficulties of the past years farmers and other land owners are much less, able to carry it In any case there is every reason to assert that the tax as proposed will be a heavy impost on many working farms, and business concerns for that matter, and will not deal with cases where land may be used for speculative aspects of the purpose and incidence of the tax as affecting various classes of land and land owners will be considered in succeeding articles.

1936 Unimproved value £10,000 1929 £ 57 1931/35 £ 41 New rates £ 67 £15,000 121 62 169 £20,000 251 83 240 £30,000 582 125 516 £40,000 934 141 895 £50,000 1,364 208 1,250