FARMERS AND SUPER TAX

Taranaki Daily News, 16 August 1929, Page 12

FARMERS AND SUPER TAX

AN ACCOUNTANT'S ANALYSIS X BURDEN IN PRODUCING CLASS. “AN UNSCIENTIFIC IMPOSITION.” (By T. N. Gibbs, Christchurch.) No. 11. I have undertaken in this article to explain and illustrate my statement that the proposed Super Tax imposes unequal and unscientific taxation on the largest producing class in the Dominion. It is a trite statement to make that the wealth and prosperity of this Dominion is tied up in the welfare and progress of the farmer. He is admittedly the rAainstay of the country and he it is who produces the millions per annum of exports on which the country, as a whole, is dependent. That being established it should undoubtedly be the policy and’ aim of each Government in power to develop and encourage the farmer in every direction practicable and certainly huge sums are spent annually to that end through one Government department and another. But I venture to state that in the one direction -in which the farmer comes into closest contact with the Government, namely through the tax collector, he is treated in a most unequal, unhelpful, and, therefore, unscientific way. PRESENT TAX BASIS. For many years now the one and only method thought - proper for taxing the fanner has been by means of land tax. Income tax was imposed for a few years during and after the war, hut jat the instance largely of the farmer himself was discontinued. The preparation of a return of income is looked upon by the majority of farmers as a burden. The result' 'is that we have a system which bases the tax on the land and disregards the income derived therefrom. This system treats all land of equal value the same. It does not take into account whether it is owned by a financially independent man, owing no mortgage; or by a man with email capital, and its corollary, a large mortgage. There are many of the latter class on properties above the mortgage exemption, and many who will be affected by the new super tax. Actually the Government takes more out of the earnings of this class, because it receives income tax on the interest paid to the. mortgagee, whereas the corresponding capital of the man who has been able to pay off his mortgage is not subject to equivalent tax. Again the man with small capital and large obligations has to pay these and his fixed land tax, whatever the vicissitudes of fortune he suffers from the markets of the world. I suppose the majority of farmers are in this class. They feel land tax heaviest. The man with no mortgages can of course meet fluctuations of the market without serious strain. He feels land tax least. The present system, too, places him in . a favourable position, compared with others in the community in equal circumstances, but not farmers. A COMPARISON. Take as an illustration a man with r£sooo. If he decides to acquire a email highly-improved farm, with necessary stock, he may be placed as follows: — £ i Capital value 4000 Unimproved value 2500 Stock, plant, and cash on hand .. 1000 Mortgage nil Income (say) • 500 Present tax — £lO 13s. Now if another man, perhaps having sons, but with same capital, plus plenty of courage, decides that he. will build for the future, and goes to a stock and station firm, and asks to be financed into a hill country sheep property, his position may be: — £ Capital value 18,000 Unimproved value 16,000 Mortgage 15,000 Stock 4,000 Owing to stock firm 2,000 Net income 500 Present tax —£110 16s Bd. With super-tax added, £169 18s lOd. Is this fair and reasonable taxation as between the two men? Is it designed to encourage production? In the latter case, may not the tax turn to a capital levy in time of depressed markets? And might not such levy in some circumstances be responsible for involving the latter man in the loss of bis property and capital? ADAM SMITH’S MAXIM. Again there are hundreds of farmers, earning incomes of from five hundred to eight hundred a year, who pay no tax whatever, or only a trifling amount. Their properties happen to be under, or about, the mortgage exemption limit. Does not all this clearly show that the present method of taxing farmers is unequal? It certainly in no way recognises Adam Smith's main maxim on taxation, namely, that — “The subject of every State ought to contribute towards the support of the Government as nearly as possible in proportion to his respective abilities—that is, in proportion to the revenue which he respectively enjoys under the protection of the State.” PARTNERS AND FAMILY ESTATES. There is another aspect in the case of several partners owning and working a farm jointly; this farm while not divided physical!v. in a practical way may support two. or. may he. three farmers, y.-ho d'vid? t’-e income between them. This m-Inn—lnp bns to pay ex-

actly the same tax as if the property were owned bv one man: and this tax, because of the graduated scale, is considerably more than would have been paid by the partners individually if the property had been subdivided and had been occupied separately. Super tax is to aggravate this disparity. There are many cases where the partnership is not voluntary, but arises out of a . family inheritance, which cannot be immediately partitioned. In such cases the income may be divided between many, yet the present basis of taxation in no wise recognises this division. In any other business than that of farming, they would be taxed separately, and on what they received only. In farming, tho main industry of the country, partnership. either voluntary or otherwise, is severely taxed and discouraged.

TO DEVELOP “SMALL FARMS.” All this inequality is brought about in the name of ‘and to . encourage “closer settlement.” This policy considers the be-all and end-all the “small farm”; it does not take into account the fact that a small farm and small capital are not synonymous terms. The man with the small capital can be and, all over the Dominion is, in big properties, and instead of being helped and encouraged for hie practical farming ability and courage, he is handicapped and loaded under present taxation. In many cases, under the proposed supertax he will be driven out. Surely this is a misdirection of the professed effort to encourage men on to the land. I confidently affirm that graduated land tax has given rise to innumerable anomalies and hardships, which much outweigh any advantages in closer settlement which may have been gained. 1922 TAXATION COMMISSION. Did not the important 1922 Taxation Commission express itself unanimously and with no uncertainty on this subject. Its report says:— 1. “That land tax —particularly in the higher graduated rates —is very seriously affecting production and development.” 2. “That the burden and land tax added to the increased heavy charges that the farmers now have to pay js being severely felt by them and will probably lead to a reduction in output. A decrease in production would be a serious matter for New Zealand, especially 'with the large increase which is taking place in our annual bill for interest" and sinking funds on foreign debt and which has to be paid in farmproduce. It is clearly essential that production should increase and not decrease.”

3. “That the graduated land tax which was originally imposed from the point of view of bursting up large landed estates is now no longer required, and that it now has the effect of preventing the development of much of our land. A great deal of our hill country in New Zealand cannot produce more by close settlement; in fact it often produces less in this way, at’ increased cost to the country for roading, etc. A great deal of this hill country can be more economically broken in and developed in large blocks. It is lands that can be cultivated or that are suitable for dairying that produce more when closely settled.. Purely pastoral hill sheep-country will often give better results in fairly large blocks. The committee is therefore of opinion that the present graduated system of land tax should ultimately be abolished in favour of a flat rate with reduction on the smaller holdings together with safeguards to ensure that the land is properly worked and not merely held for speculation. The graduated income tax provides a sufficient surcharge on the large holder. The following resolution was passed unanimously: ‘That the committee is of opinion that the graduated land tax as at present imposed is not in the best interests of the country, in so much as it tends to restrict production and enterprise, and that a flat rate should bo substituted.’ ”

4. “That this committee recommends that the super-tax on land (then at 33 1-3 per cent.), which was levied as a war measure, be abolished as from April I, 1922.” A REIMPOSITION. Arising out of the commission’s report the’ last-mentioned super-tax of 33 1-3 per cent, was cancelled. Now it is to' be reimposed but in a much aggravated form, viz.:— Rising from 10% 011 £13.000 to 30% on £14.000 to 50% on £15,000 to 66 2-3% on £20.000 to 100% on £30.000 and over If the graduated land tax. as now existing is not in the best interests of this country what a destructive force the new imposition will prove? I have already shown that its effects are by no means limited to the financial and large farmer. Can this Dominion afford to have its basic industry disturbed and interfered with in this wav. particularly at a time when the outlook for our products is not as bright as it has been? Surely if any bias is to be rfiven to taxation of farmers it should be towards the development and encouragement of production, rather than to the increase in the number of “small farms,” which is sought tn be gained at any cost and whoever suffers. SUMMARY. T believe I have stated enough to demonstrate that: — 1 Land tax as at present assessed against the farmer is unequal taxation. 2 As it docs not take into account ability to pay, and as it is not designed to encourage production, it is unscientific.

3. The proposed super-tax greatly aggravates the foregoing, and can only be adequately described as “clumsy taxation,” and provocative of much harm-