THE LAND TAX

Te Awamutu Courier, Volume 53, Issue 3800, 26 August 1936, Page 5

THE LAND TAX

IMPOSTS DURING GREAT WAR. CHANGES IN GRADUATED SCALE. The graduated land tax, which the present Government intends to reintroduce, was abolished by the National Government in 1931. In a supplementary financial statement presented to the House of Representatives on 6th October of that year the then Minister of Finance, the Hon. W. Downie Stewart, said the tax was operating with extreme harshness both on rural and urban lands, that it was not based on any principle of ability to pay, and that it had been condemned for many years. The first system of land_tax in New Zealand was enacted under the Ministry of Sir George Grey, who came into power as Premier in 1877. He lost no time in bringing forward the measure, which sought to impose a Hate rate of a half-penny in the pound on all land exceeding £5OO in value, but it was destined not to become effective. In 1879 Sir George Grey was out of office, and one of the first measure of his opponents was to repeal the Act and substitute for it a property tax.

The property' tax consisted of a levy at a flat rate of a penny in the pound on all assessed real and personal property, with an exemption of £5OO, and until 1891 it constituted an important source of revenue. In 1891 the Liberal-Labour Party, elected the previous year, passed the Land and Income Assessment Act, which had many claims to popular favour, chief among them being that it opened the way for graduated direct taxation, broadened the basis of revenue, and rendered possible the repeal of the property tax. In conjunction with the land tax was a tax on incomes in excess of £3OO a year.

THE PROGRESSIVE PRINCIPLE. Under this Act the rates of land tax and income tax were low and the graduation was not steep. A landowner who paid upon the unimproved value of his land did not pay income tax upon the receipts from working it. The real significance of the Act was its introduction of the progressive principle, and it was based on a system of self-assessment, with the device of making Government purchase at the tax value an effective check on the owner’s assessment. This Act was amended in 1893 to allow for the exemption from tax of the value o f all improvements, as compared with the previous limit of £3OOO. The graduated tax, however, which operated with the unimproved value of property was £5OOO or over, was increased. For the purposes of the “ ordinary ” tax owners were allowed to deduct from the total unimproved value the amount of any registered mortgage on the land, and the mortgagee was carged with the amount so deducted. Mortgages were not chargeable with the graduated tax, but no deduction was allowed in an assessment for graduated tax in respect of any mortgage owing on the land.

The rate of “ ordinary ” land tax, after certain exemptions, was one penny in the pound, the scale of the graduated tax being one-eighth of a penny in the pound on valuations from £5OOO to £lO,OOO, rising by further steps of an eighth of a penny until the maximum of twopence in the pound was reached.

VALUATION OF LAND. In 1896 the Government Valuation of Land Act was passed, providing for the periodical valuation of all landed propertines in the colony. Various amendments were made to the Land and Income Assessment Act from time to time, and in 1900 the law was consolidated in one measure. Again, in 1903, the Act was amended, reducing the rate of tax in respect of mortgages from one penny in the pound to three farthings in the pound, and a new scale of graduated tax was introduced, rising by sixteenths of a penny to a maximum of threepence. Further changes were made subsequently in the graduated scale, which then rose in sixteenths of a penny to a valuation of £40,000, at which figure the rate was 8s per cent, and for every additional £lOOO the rate was increased by one-fifth of a shilling. Estates over £200,000 in value paid at the rate of £2 per cent on the total unimproved value. Then, for and after the year ended March, 1910, the graduated scale over £40,000 was increased by 25 per cent,in the case of all land other than business premises.

DOUBLE SYSTEM ABOLISHED. In the year 1914-15, as part of the war taxation, the land tax on mortgages was raised again to one penny in the pound, the ordinary land tax remaining at the former rate of one penny in the pound. The graduated land tax was raised by 50. per cent, and in 1915-16 an additional 33 1-3 •ier cent was added to the former rates of income tax. The war taxation also involved an important change of principle as income tax became payable on incomes derived from land. In the case of mortgages, however, the income tax was reduced by such amount as had been paid for land tax. The excess profits tax, a war measure, was not re-imposed in 1917, and.in its place was substituted a system of progressive land and income tax, with a special war tax on incomes. The double system of land tax was thus abolished, and the new system ranged from one penny to seven pence in the pound. The penny rate applied where the unimproved value did not exteed £lOOO, and increased by 132.000ths of a penny for every pound in excess of £lOOO up to seven pence in the pound. In the year 1917-18 these rates were increased by a super tax of 50 per cent, and this augmented scale obtained until 1920-21, covering four financial years. A new scale became effective in 1921. It provided for a rate of one penny in the pound on land of an unimproved value not in excess of £lOOO but the rate thereafter was increased by 1-20,000 th of a penny for every pound in excess of £lOOO to a mini-

mum of 7 and 17-20ths of a penny in the pound. For the year 1921-22 the super-tax was reduced to 33 1-3 per cent, and on the whole of the tax a rebate of 10 per cent was allowed for prompt payment. The super-tax was continued for the year 1922-23 at the rate of 10 per cent only, without any rebate, and in 1923- was removed altogether. In 1924- a deduction of 5 per cent from the computed tax was provided. In 1929 the maximum mortgage exemption for which full allowance was made in the computation of land tax was reduced from £lO,OOO to £7500, and special land tax, in addition to ordinary tax, was imposed on farm lands exceeding £14,000 in unimproved value. Between £14,000 and £16,500 the special tax was at the rate of 1 per cent of ordinary land tax for every £5O or part thereof in excess of £14,000. In excess of £16,500 it was 50 per cent of ordinary tax, plus 1 per cent for every £270 or part thereof in excess of £16,500. Special tax was not to exceed, ordinary tax, and a commission was appointed to inquire into cases or hardship. At the same time income tax was provided for in the case of farm hands in excess of .£14,000. From the income tax assessed in such land tax was deductible. In 1930 the special land tax was discontinued, but income tax was imposed on profits from farm lands of an improved value of £7500 or over. Income tax rates were increased by 10 per cent, and in place of the income exemption of 5 per cent of capital value of land used in the derivation of income a 5 per cent unimproved value exemption, with allowance for depreciation of premises, was substituted. An increase in the land tax rates was made also through the deduction of 5 per cent from the computed tax being discontinued. Under the scale in operation an owner of land the unimproved value of which did not exceed £l5OO. wa; allowed an exemption of £5OO, and where the unimproved value lay between £l5OO and £2500 there was a similar exemption, diminished, however, by £1 for every £2 o rover the £l5OO mark, so that no exemptior was allowed when £2500 was reacheu.