LIFE ASSURANCE

Taranaki Daily News, 29 August 1930, Page 10

LIFE ASSURANCE

PEOPLE’S SAVINGS. PROTEST AGAINST TAXATION. Members of Parliament have been addressed by the Life Insurance Offices’ Association of New Zealand on the taxa-’ tion of what are defined as provident or thrift institutions. It is pointed out by the association that: — “Of New Zealand’s population of 1,470,654 there are approximately 500,000 persons directly interested as policyholders in the life insurance offices operating throughout the Dominion. You, therefore, as a member of Parliament, must be vitally concerned in the new taxation proposals which affect the savings of approximately one-third of the population in your constituency. “In the first place, we should like to say that we consider that the life insurance offices should be totally exempt from taxation. All Governments have recognised that institutions of thrift should be encouraged. All other institutions of this sort, such as savings banks, friendly societies, and provident funds are exempt; mutual life societies alone are singled out for attack. Friendly societies mainly provide against the temporary loss of earnings of the breadwinner through sickness; life assurance provides for the total loss of earnings by the death of the breadwinner. Why should the members of mutual life societies be singled out? “It is mentioned in the Budget speech that the life insurance companies have been able to greatly increase the bonuses paid. The root of all taxation proposals in relation to life insurance institutions is a misconception of the nature of the surplus and of the bonuses allotted to the policies. In the administration of these institutions the object is to give the policy-holder the maximum amount of life insurance for the premiums paid. If. is not possible to fix the maximum at the outset owing to the uncertainty of the factors involved —i.e., the rates of mortality, interest, and expense. The policyholder is asked to pay a premium known to be more than sufficient to provide the initial amount of insurance. A margin of safety is thus provided. The whole administration of the institutions is directed to use as little of this margin as possible, and the pur-' pose of the periodical investigations is to ascertain how much of this margin has been preserved for the benefit of those to whom it belongs—the policyholders. The amount preserved is the socalled surplus, and the so-called bonus or addition, to the amount of the assurance simply represents the periodical adjustment in the light of experience of the amount of the assurance to the amount of premium paid—a conception far removed from that of profit. In the past our interest from investments has been taxed, a method of taxation approved by the English Royal Commission on Income Tax in 1920. This income has been diminished for taxation purposes by an amount equal to 2 per cent, of our investments in New Zealand allowed in consideration of the fact that our premiums are necessarily, based on the assumption that we will earn interest to enable us to meet our obligations under the policy contracts. The principle of taxation on investments is also recognised throughout New Zealand by the fixed rate of tax on local body debentures, some of which are taxed. 2s Gd in the £ and others 4s Gd in the £. The proposal to tax the- life in'surance companies on 25 . per cent, of their premium income announced in the Budget speech was fundamentally unsound, and as a result of our representations the Prime Minister has adopted an entirely new basis of which we have had no advice until this morning.

“The question of the amount of surplus in New - Zealand is one for our actuaries at our head offices to decide, but from a rough estimate we can say that this means a very large increase in taxation to the ‘foreign’ life companies and one which by the nature of our business cannot be passed on to our policyholders. “Although, as mentioned above, we consider that we should be totally exempt from taxation, we are prepared to pay some temporary increase in view of the present financial position of the Dominion. In this connection we would point out that if there is no change in the method of taxaion the five foreign insurance companies forming the Life Offices’ Association would, in addition to the normal increase for the year, be asked for a sum of about £6500, as the 10 per cent, super tax and the extra stamp tax and license fee, which will be more than their fair share of the would make a tax of about £31,500 this year. “A rough estimate shows that at the rate of 2s 3d in the £ the offices mentioned above will have to pay this year on the new basis a sum of £93,700. In quoting this figure we have taken into consideration our interest from tax-free 4% per cent. Government loans, which we assume will still be exempt from tax, although no mention is made of same in the Bill. This sum is made up as follows:—

“We would point out that practically all holders of Industrial Department policies (numbering about 250,000), .as well as a large proportion of Ordinary Department policyholders, are not asked for income tax at all, and should not therefore be taxed indirectly through their life policies.

“In addition to this income tax we will be called upon to pay extra land tax on our properties, which are assessed at a high graduated rate owing to the life offices’ ownership of properties throughout New Zealand. Land tax returns for four of the above mentioned companies show that an additional tax of £BOOO will be paid this year compared with the amount which should be paid if each property were assessed separately. “We have endeavoured to place the position before you as briefly as possible, but should you, as the representative of our policyholders in your district, like further information, we shall be pleased to supply you with same.” The letter is signed, by the chairman of the foreign life insurance offices forming the Life Offices’ Association of New Zealand, viz.:—Australian Mutual Provident Society, Colonial Mutual Life Assurance (Society, Ltd., Mutual Life and Citizens’ Assurance Company, Ltd., National Mutual Life Association of Australasia, Ltd., Temperance and General Mutual Life Assurance Society, LtdWellington, August 21.

£ £ Ordinary Department Tax 73,000 Industrial Department Tax 9,000 82,000 Plus 1'0 per cent. Super Tax Estimated Stamp Duty and 8200 License Fee 3500 11,700 Total 93.700 This is nearly 800 per cent. of the sum of £31,500 mentioned above. We contend that the rate of 2s 8d in the £ is a far too high rate for life insurance companics to pay with taxation on the “surplus,” and consider that it not be higher than Is in the £. should “The following is an estimate of what taxation on the • estimated ‘surplus’ would be at Is in the £:- — £ £ Ordinary Department Tax 32,500 Industrial Department Tax 4,000 £36,500 Plus 10 per cent. Super Tax Estimated Stamp Duty and 3650 7,150 License Fee 3500 Total 43>650