THIRD EDITION SUPER-TAX ON LAND

Poverty Bay Herald, Volume LV, Issue 17029, 14 August 1929, Page 11

THIRD EDITION SUPER-TAX ON LAND

PAR-REACHING EFFECTS AN ACCOUNTANT’S ANALYSIS (Specially written by T. N. Gibbs, of Christchurch.) Much that is involved in the Prime Minister’s new .taxation prqposals as against farmers has not yet been grasped by the community. The new super land-tax hits directly at the large farmer, but it will not confine its hitting to such class. It will affect that necessary contribution to most, fanning operations, namely the mortgagee. We have heard a great deal in recent years of the drift of mortgage moneys away from the land. Mortgagees have been driven to other investment, fields because of moratoriums, inflation, ' deflation, and other causes. Now the Prime Minister has deliberately (taking his own statement that he has thoroughly the incidence of his proposals) brought into being a new factor which is bound to have far-reach-ing effects on mortgage funds. Landtax is by statute a first charge on the ’ land assessed, coming before all mortgages. The super land-tax now to be imposed is tlierefovo equivalent to a prior Government mortgage over all property assessed, until they are sub- - divided. On a 6 per cent, basis (the current mortgage rate) the capital amount of such prior charge worss out

The super-tax stated in each case reduces the value of the property to the mortgagee (»» also to any buyer) by the percentage shown in the last column. As mortgagees usually loan up to 66 2-3 per cent, .of values, consider the effect of the above reductions on their margin of 55 1-5 pa* cmt. Valii» of improvements, of «o«rse, affect these figures, but not materially. Will lendeis be content to leave their funds on. such properties-; Their security has been seriously affected. The mortgagees directly concerned Hicrede the large Government ami public lending bodies—the Public Trustee, the Government Life Office, the Superannuation Fund', as well as, of course, trust estates and others. These l»ve all legal (responsibilities and must protect their funds. I suggest that there wilT be a widespread reviewing of securities and calling iu of moneys FARMS WITH HEAVY MORTGAGES. Of course, where the promptest reaction will arise is in cases of farmers who for one cause and another lean 'heavily on the stock and station firms. In case after case this additional charge wipes out the borrower's equity, as well as making it impossible for ends to be met. The firms concerned will have no option but to ask some of these clients to sell «w walk oat. All this is going to briiigj a lot of properties on the market for immediate sale, and the property market will be depressed, first for the laggejc jplacaa, aud-Bltimately f or smaller. In cases Vlfhete s«Mivi«ion is practical the throwiag of these on to the market for quick sale brings down the realisable value of all similar property. Say 50 to ICO extra properties come on to the market in this province, in this way before next March .31, will they not depress !the market considerably? I venture to say that large values will be wiped out through repercussions from this super-tax. < And I would emphasise that it not only hits the large landowner but affects indirectly, but none the less materially, the moderate-size mortgagee. Where is the basis of confidence in farm securities under these conditions? ABILITY TO MEET BURDEN. Now consider the circumstances of farmers affected. They, of course, cover a wide field. A few have estates free from mortgage and are also otherwise financially strong; others we overloaded with mortgages and liabilities and are struggling hard to win through. Some of each of these classes own' properties which it would be practical to subdivide; and the properties of others do Sot lend themselves to subdivision. Per- j haps the financial farmer predominates in the class having properties capable of subdivision. But will tins taxation cosh him into sale or subdivision? I think not. He is financially able to pay and will probably do so, arguing that this is extravagant and unsound taxation and bound to be removed on a change of Government. He is able to wait, and probably will. Of course, the fanner who is heavily encumbered with mortgages, even if he did try to pay, for the reason stated earlier, would eventually find himself pushed out—to become another member of that large body of farmers who have ,lost their capital, and whoso farming ability and experience are lost to the country's ' ranks of producers. A CLUMSY METHOD. Has this Dominion yet got over the far-reaching effects of the boom and the subsequent slump created by the earlier Government methods to bring about soldier settlementf Is not the present attempt to force cutting-up of large estates for settlement purposes equally clumsy, but this time destined to work in widiaing circles to depress values. Does it not hit hardest the man whom the Government and country should help, namely, the man struggling to win out from under a load of liabilities ? He at least is a practical farmer with a lifeJong experience. Is he not to be encouraged equally with the new man to »be attracted to the land? If super land tax is to be imposed for bursting up of lane estates, should it not aim ab suitable estates for subdivision separately, instead of a general spread over all properties. Would it not be possible to classify lands (through the Valuation Department) into those suitable for close settlement, and those unsuitable? I know of a property in North Center bwy which was offered to the Government for subdivision, and turned down as unsuitable for such. Should such cases carry this new taxation? If the impost' of heavy land to is a sound method to force subdivision, would it not bf more reasonable to legislate for a grMßaliy-iiicreftsiflg tax on tiro properties classified as suitable? At least the OW»er and his present or future .mortgagee would have notice, and the results would not be so disturbing a ' factor'aa the method now proposed. Ibe new tax is assessed on all property held at March 31 last, and is payable within three months from now. It gives no waraingj" ;, «lfd"«v«n' assess**' individual who has already sold his property aince March 31 last, EFFECTS SUMMARISED. I vikM summarise tho new imposition as feflojs:-- , ~ ~. . : ''l—lt is ft clumsy method of bringing «bout close settlement. J—lt imposes unequal and unscientific

taxation on the largest producing class in the Dominion—a class dependent on world markets for its revenue. 3 it will cause undue interference with property values, and will be productive of depressed conditions and uncertainty. , , , 4—lt will drive mortgage funds to other investment fietds-probably less productive for the community. I propose to explain and illustrate the second conclusion above in a following Mticle.

■ as follows : _ UnimNew ent to ent to reproved value. super tax. mortgage of duction in value of. £ & £ p.c. s 15,000 50 834 5.5 20,000 105 1,7178.6 25,000 181 3,017 12 j,, 30^000 290 4,833 16.2 IT' 36*000 374 6,233 17.8 40 000 467 7,783 19.5 45,000 570 9,500 21 50^000 662 11,366 ! 22.7 SECURITIES WILL BE AFFECTED.