"TAXING THE POOR.”

Otago Witness, Issue 3610, 22 May 1923, Page 8

" TAXING THE POOR.”

Kll W. D. HUNT ON COMPANY TAXATION. A REPLY TO THE PRIME MINISTER. Mr W. D. Hunt has sent to the Dominion * reply to the Prime Minister’s criticisms of the assertions he made at the meeting of the Dominion Executive of the Farmers’ Union last week. Mr Hunt claims that the present system results in the taxation of the poor and the relief of the rich. New Zealand, he points out, is the only British country that taxes companies on the graduated system. “It is unnecessary to follow the Prime Minister through the whole course of the statement he communicated to the newspapers the other day, traversing some comments upon company taxation I made at ft meeting of the Dominion Executive of the Farmers’ Union,” says Mr Hunt. “There are one or two points, however, on which I should like to put Mr Massey right. I was present at a meeting of the executive of the farmers’ Union by invitation, and I did not deliver a set speech The proceedings were of an informal and conversational character, and I am not surprised that the reporters found some difficulty in following what was going on. I certainly did not say fhat New Zealand was the only country that taxed companies. Every person taking any interest at all in the subject knows better than that. What X did say was that New Zealand was the

only British country that taxed companies on the graduated system. I stand positively by that statement. “I am sorry that Mr Massey should have implied that my desire was to bolster up the strong combines with large capital at their command, and make them still stronger, and to shut out the individual trader completely, so in the end exploiting both the producer and the consumer. Talk of this kind, it seems to me, is akin to that of the rabid Socialist, which we all are so ready to condemn, and it will not help us in any way towards the solution of the problems we are discussing. Taxation is essentially a national question, which ought to stand altogether apart from class and sectional wrangles, and be settled on the high principle expressed in the phrase, ‘equality of sacrifice.’ The differences between Mr Massey and myself are not party differences: indeed, we both incline towards the same side of politics, and I should be sorry to embarrass in any way the head of the Government, who has done very excellent work for the country during his long term of office. I hope we shall not misunderstand one another on that point. NhW ZEALAND SYSTEM EXCEPTIONAL. “Mr Massey talks of ‘Mr Hunt’s scheme of taxation’ as if I were responsible for the existence of the individual system as against the company system. Here he credits me with a bit too much. The individual system, of which I am a very earnest advocate, is adopted in every part of the British Empire, with the single exception of New Zealand. The system in operation in New Zealand is Mr Massey’s system, and that I am not over presumptuous in suggesting that it is not the best in the world may bo judged, I think, from the following facts:—(a.) That Great Britain, which had had a longer experience of in-

come tax than had any other cnmitrv, adheres to the individual system; (b) that tile Royal Oormrpe- v --• or ■ recently sat in Australia, after considering a proposal to adopt a inaui.natu«i u. Massey’s system of company taxation, turned it down unanimously; and (c) that the majority report of the Commission on Taxation, which sat in New Zealand last year, condemned tne presnt system cl company taxation. The terms in which the Australian Commission rejected Mr Massey’s system of taxation are worth quoting : there is no need to traverse the arguments advanced in support of the method under discussion, beyond saying- that its comparative simplicity and greater productiveness are ourchased at the cost of so great a degree of inequity that we have no hesitation in unanimously deciding that it is a method which cannot be recommended for inclusion in a svstem of taxation which it is intended should rest upon a sound and equitable basis. “We all would like to think our own Prime Minister knows better than any commission or committee ever constituted, but in the present case the weight o-f expert evidence is overwhelmingly against him. “The corporation tax. which, Mr Massey would have the public believe, amounts to a very considerable sum in other countries, is comparatively a very trivial im-post. In England, for instance, it is Is in the pound, and it must not exceed 2s in the pound on undivided profits. In most oases it works out at not more than 6d or 8d per pound. This is a very different matter from the graduated system in New Zealand, under which all large companies pay 7s 4d in the pound. “Mr Massey questions my statement that a company cannot borrow' money and lend it to farmers at a lower rate of interest

than £8 12s 6d, and show a profit that would justify it in remaining iu business. I set out the figures proving my contention during my discussion of this question with Mr Shirtcliffe quite recently, and there is no" need to repeat them. But I say again that my figures are correct, and that I shall be surprised to hear of any company lending money borrowed at present-day rates and after paying tax making a profit that would warrant its continuance in business. TIIE COMPANY’S CONTRIBUTION. “Mr Massey declares that I was guilty of an exaggeration in stating to tho executive of the Farmers’ Union that the company taxation collected last year was in the neighbourhood of £5,000,000. He says the actual amount was only £2,250,000. 1 was speaking in round figures and entirely from memory when addressing the members of the executive, and of necessity referred to the latest information available to the public I have since looked up the latest official returns, however, and find that the total amount of income tax raised during the year 1921-22 was £6,266,677, and that of this amount £4,515,561, or'72 per cent, of the total, was collected from companies. These are the latest published figures, and the only ones available to ordinary mortals like myself. Doubtless Mr Massey has access to the figures for the financial year 1922-23, and I take his word lor it that the income tax collected from companies during the 12 months ended on March 31 last was only £2,250,000. But he surely cannot have expected me to quote figures I had had no opportunity to see. In any case the amount collected from companies during the year ended March 31 last is not a fair indication of the true position. The year on which the tax was assessed was an abnormal one, being the year of the “slump.” arid the figures go to snow how much companies suffered

from that unfortunate visitation. It certainly does not, show their ability to bear their present burden of taxation. The latest figures available to the public, those for 1921-22, reveal the following position;—

Totals £38,246,669 £6,266,677 100 “The real disparity is even greater than these figures show, since the total individual incomes include the incomes only of those who have assessable incomes, while, according- to the evidence given before the Taxation Committee by the Commissioner of Inland Revenue, only about half of the total assessable incomes of companies would be assessable if shareholders were taxed on their dividends. Mr Massey’s system of income tax is not graduated taxation of incomes at all. It is merely a levy on the general public, in which the companies are employed as tax collectors. “The Prime Minister tells us that the chief reason why farmers have difficulty in obtaining money for their legitimate requirements is that the loans of local bodies provide more attractive forms of investments. This is quite true. Mr Massey’s system of taxation has made local body loans extremely popular. But I never have been able to understand why interest received from farmers should be taxed up to a minimum graduated rate of 7s 4d in the pound, while interest from local bodies is taxed up to a maximum graduated rate of only 2s 6d in the pound Of course, Mr Massey realises that the borrowers pay the tax in both cases and it would be interesting, to learn wdiy he discriminates against the farmers “I. notice that % Massey thinks that an increase in public expenditure— apart from interest and sinking fund and war pensions—from £11,387,000 in 1918-19 to £18,300,000 in 1921-22, is reasonable. To put his view in other words, it is reasonable in the first three years of peace that w’o should allow our public expenditure to increase by £7,000,000 a year, or over 60 per cent., quite apart from the huge increase in interest and sinking fund and war pensions, whi C h we must carry as the result of the war. All this increase has ultimately to be paid for in our farm products, in wool, meat, and dairy produce. My opinion may not count for much, but I know a i many share with me the view that the increase is quite unreasonable, and believe thao. if a committee of business men were given an opportunity they could show ways of cutting down this huge surn very materially without impairing the efficiency of the civil service or inflicting any injustice upon its employees. “RELIEVING THE RICH.” I lie fact is that Mr Massey’s system of taxation results in the taxation of the poor and the relief of the rich. This is why his system is being strongly supported by many rich people who know that they are escaping their fair share of the burden, while the poor and those of moderate means (especially the farmers) are carrying the great bulk of the load. This is entirely opposed to the basic idea of the graduated system, which is that the individual with a large income can spare for public purposes a greater proportion of each pound than can tile individual with a small incbuie. 1 his is how it works out wherever the individual system of taxation is adopted, But in New Zealand the taxation of companies as if their profits were the income * r *dividuals, added to the other avenues that are supplied in this country for the escape of taxation by the wealthy, means that almost the whole income tax is passed on to the public, and the bulk of it ultimately borne by tile farmers who cannot pass anything on. binder the individual system of taxation, passing on is impossible. Page 7 of the report of tliq New" Zealand Taxation Committee show's clearly the manner in which its wealthy can escape income tax. Xhe evidence given before the New Zealand Taxation Committee by the New Zealand Commissioner of Inland Revenue, and also the evidence given before the Australian Royal Commission by the Commonwealth Commissioner of Inland Revenue show that both in New Zealand and Australia companies are chiefly financed by the savings of those of moderate means and the comparatively poor. The wealthy are largely in business on their own account, or have other investments. For example, take a company earning a profit of £10,0(X) a year. It pays a tax of 7s 4d in the pound. In many cases there will be very few shareholders in the company wfith mere than £3OO a year. This company will have co widen its margin of profits in order to be able to pay its shareholders a reasonable dividend and give the Government 7s 4d in the pound. Its competitor in business may be a private trader earning £3OOO a year. It is the private trader, and not the shareholder in the company, who is the wealthy individual, but on his income of £3OOO a year he pays at most 3s in the pound. Owing to the company having to widen its margin of profit to pay 7s 4d in the pound, its private competitor can do tho same. He therefore collects the 7s 4d in the pound from the public, pays 3s to the Government, and puts the remaining 4s 4d in his own pocket. He is not paying tax at all. enviously he is having the time of his life. As a matter of fact, the individual trader earning £3OIXI a year probably will not pay more than 2s 6d in the pound, because he gets allowances for personal earnings, life insurance, maintenance of children, and so forth, which a company does not receive. Under the individual system of taxation the companies do not have to widen their margin of profit in order to pass taxation on to the public. The taxes are paid by individuals, and the general public get their services at a rate which is not loaded by company taxation. Under this system the wealthy individual, no matter whether a private trader or a shareholder in a company, has to pay graduated tax according to his means, and cannot pass anything on, while the small shareholder pays little, and, in many cases, nothing. Under Mr Massey’s system the heavy end of the burden of taxation is borne by the poor and those of small means, while the rich largely escape. This is an absolute travesty of the principle of equality of sacrifice.”

Average P.C. tax on of each Assessable total £1 of income. Tax paid. tax. income. Companies £12,722,865 £4,515,561 72 7/1 Individuals 25,623,804 1,751,116 28 1/4