ON TAXATION: AN EXPOSTULATION.

Otago Witness, Issue 3111, 29 October 1913, Page 72

ON TAXATION: AN EXPOSTULATION.

AN OPEN LETTER TO THE PRIME MINISTER.

Dear Mr Massey,— Some Opposition journals seem to be greatly concerned lest the Reform Government should get credit for the policy of using progressive taxation for the purpose of bursting up big estates. The question ot the justice and wisdom of such a policy seems to be open to some doubt, but tnc question as to whom belongs the “ credit ’ —to yourself or to Sir Joseph Ward —seems to be open to no doubt. Probably the best way of showing this is to quote a passage written by myself shortly after the session of. 1907: “ The attitude of the leaders ol the Opposition (the Reform party) on the burstmg-up proposals of the (Ward) Government Land Bill (Mr M’Nab's) is surprising, for they seem to approve of the main principle of the measure—namely, to make it impossible for anyone to continue to hold land exceeding a certain fixed value, whilst they differ from Mr M’Nab merely as to the method of attaining this end. The Government proposal is to fix a period within which owners of estates exceeding the legal maximum are to reduce their holdings, whilst the Opposition leaders advocate the application of the principle ot progressive taxation. ... In the speech

made .by him in Auck'and on the eve of his departure for London, Sir Joseph expressed himseif as open to conviction in favour ot the method advocated by Mr Massey, a fact which may well load Mr Massey to suspect that he may have made a mistake. 1 shall be very much surprised if the leaders of the Labour party do not declare their preference for the method of progressive taxation, and then Mr Massey will probably have more than a suspicion that he must have got on the wrong track.” It would, of course, be no answer to my present contention on the question as to who is entitled to the “credit” to remind us that the principle of progressive taxation had boon introduced into our system long before 1907; its application for the purpose of producing equality of sacrifice is one thing, but the use of penal taxation as an explosive for bursting up large estates is another and a very different matter.

But my purpose in writing to you on the subject of. taxation is not to settle this question, but to raise afresh the question ot the justice and the efficacy of progressive taxation As a means of bringing about equality of sacrifice, it is proving illusory, and to show this it may be sufficient to quote a few words from a speech made by the Minister of Finance (Mr Allen) on the second reading of the Land Tax and Income Tax Bill. “The honourable member for Riccarton (Mr Witty) advocated that gradatioraf should continue up to £IO,OOO. I do not think the honourable gentleman quite realised what that meant. If the gradations wore to go on (increasing) at the rate of a farthing in every £IOO, it would mean that on £IO,OOO a man would be taxed nearly 15 per cent, of his income. No country-, in the. world has done it, and I am not prepared to advocate it.” Now, it seems to me that Mr Allen’s reply is no answer to the contention of the ’ Socialist-Radical, Mr Witty, and to make this clear wo have merely to recall some of the reasons usually advanced in support of progressive taxation. The great danger of the system lies in the very fact that, to the unthinking, this device is apt to appear so perfectly just and rigid. It is so obvious that the man who pays in the form of taxation 1 l>er cent, of a small income sacrifices more than the man who pays the same percentage of a very large income. This arises from the fact that the quota of a man’s income affected by the consumption of necessaries varies inversely to the amount of his resources — that is, the margin of superfluity increases with a man’s wealth. Obviously. to the man with an income of £IOOO, a tax of 1 per cent, is much lighter than to the man whose income is only £SOO, and a tax of £2 10» per cent, may involve a greater sacrifice to the man with an income of £250 than a tax of double that amount to the man with an income of £SOO. It is to such obvious considerations as these wo owe the introduction into our system of taxation the apparently just but realiv dangerous principle of progresswo taxation. But Mr Allen’s reply to Mr Witty amounts to an admission that it is practically impossible to regulate taxation in such a way as to produce equality of eaciifice on the part of the taxpayer, and indeed this is now generally admitted. There is no answer to Mr Witty’s contention that it is unfair that under Mr Allen’s scheme the man with an income of £IO,OOO pays on.y the same ptuccntago bv way of taxation as the man whoso income is only £2500; the principle breaks down just when it becomes most necessary In abort, both in theory and in it? application progressive taxation is in reality nothing else than a of the right of property, an act of spoliation of capital. The only real justification for taxation is the social necessity to meet the general expenses. To these each should contribute according to Ins ability. If the principle of progressive taxation be once applied at all, any limit to its application is purely arbitrary, as Mr Allen has had to admit; if the burden of the rich is to be twice as heavy as that of the poor, there seems no clear reason why it should not be three times as heavy, and so on. “ Accordingly most economists hold that_ any such communistic tendency should be rigidly excluded in the adjustment of taxation; and that, whatever Government may legitimately do to remedy the inequalities of distribution resulting from natural liberty should he done otherwise than Jyy unequal imposition of financial burdens. This is the conclusion of Professor Sidgwiok, whoso views on State action are extremely “ Liberal.” . , Mr Allen’s reply to the Christchurch Radical amounts to this —that his contention carries tho principle to an extreme; but Mr Witty would be entitled to rejoin.

that what is true at all is true in the extreme. Ho is, no doubt, perfectly well aware that, as Mr Allen hinted, if the progression of the tax is not arrested as some point, it may go. on until it absorbs the whole fortune of the individual taxpayer. The Minister recoils in horror from a suggestion of confiscation. The fact is, however, that all such schemes involve an attack upon that right of property which lies at the foundation of our social system, and are therefore, unjustifiable, except from an avowedly socialist point of view; for Socialists and most Radicals this is rather a recommendation. You will find them not only willing, but eager to support all such schemes. We find Mr Ell, for example, declaring that “we should so levy our taxation as to remedy as far as possible the inequalities in the distribution of wealth!” It is but a short step from the bursting-up of large estates by moans of progressive taxation to the bursting-up or limitation of large fortunes, by the same means. Mr Allen has had to confess that his progressive tax fails just when, on his own principles, it becomes most necessary, because to carry it further would mean confiscation ; but there are other members besides Mr Webb and Mr Witty, some even who call themselves Liberals, who would get over Mr Allen’s difficulty by applying to fortunes exceeding, say, £2500 (or even less) the exp'osive which ho is using in the case of large estates. There are a good many people in this community and some oven in Parliament who are just as firmly convinced of the evil of largo fortunes as you are of the evil of big estates, and it is as impossible to fix a limit in the one case as in the other. It is not at all unlikely that a day may come when an estate worth £SOOO will be considered enough for any single individual, and then a good many farmers who want to see the big estates burst up will find themselves under the screw-press. There is no doubt that the big estates are a great evil, and there is as little doubt that the community is determined to mitigate the evil, or that your Government has received a mandate to give effect to its will. The only question is as to how it should be done, and, personally, I consider the use of progressive taxation the worst means that could bo devieed, for the simple reason that it is not only ineffective but dangerous—it familiarises the community with the use of Socialist bombs.

So perverted have our notions of taxation become by the infusion of Socialistic ideas that taxation has come to be regarded as a weapon of class war, and as a means of removing or mitigating inequalities of fortune by producing a redistribution of property. In every age attempts to transfer pubperty from one class to another by legislation and taxation have been the stock-in-trade of the party politician. “We are sure to go wrong,” Turgot said once, when pressed to confer some advantage on the poor at the expense of the rich, “ the moment we forget that justice alone can keep the balance true among all rights and interests.” To use taxation as an instrument for effecting a transference of property from one class to another is gross injustice. “To the Socialist,” (Jays Professor J. G. Brooks, one of the most sympathetic of the critics of Socialism, “ taxation is the chief means by which ho may recover from the propertied classes some portion of the plunder which their economic strength and social position have enabled them to extract from the workers. . . . To the Socialist, the best of governments is that which spends the most.” I cannot help thinking, (hen, that I have shown good grounds for dreading the consequences of the use of the legislative power of taxation by fanatical Socialists and predatory majorities. I have throughout this letter referred to the kind of taxation under consideration as “progressive” rather than as “graduated,” and that, for the simple reason that, prior to the improvements introduced by Mr Allen, it would not have been correct to describe it as graduated, although it certainly was progressive. No one who reads his speeches on the subject can help being struck with the obvious signs of meticulous care and anxious thought, in marked contrast with the lighthearted slap-dash manner to which we have become accustomed. These signs are specially obvious in his remarks on the subject of differentiating between earned and unearned incomes—that fad of the ruthless Radical —and the taxation of companies. The company shareholder will bo disposed to give Mr Allen credit for sincerity and to accept his assurances when he says that, if ho remains in office, he will take into very serious consideration the whole question of the taxation of companies. Perhaps he will forgive me' if I venture to suggest that he should endeavour to do this before next session, because it is a question that concerns many small shareholders, and also because, in New Zealand, joint-stock enterprise is, practically, the only form of co-operation we have; and co-operation and profit-sharing deserve and require all the encouragement that can be given to them, cither by the Government or by employers, for there are powerful forces in operation . against them. If there is any form of private enterprise that the Socialist hates and dreads more than another it is co-operation, and as for profit-sharing, it is simply anathema to him. Probably the Minister of Finance is fully alive to the importance of this aspect of the subject, and one cannot help feeling that groat indeed must be the necessity laid upon him when ho finds himself constrained to increase such taxation without having given the question all that consideration which it admittedly deserves. There remains, however, the faet that taxpayers generally have now this consolation, that they feel that not one penny is being taken from them thoughtlessly or unnecessarily, and that none of their money will bo squandered in buying or paying—for political support—and that is no small matter. —Yours truly, J. MacGregor. Dunedin, September 50.