“PAY AS YOU EARN” SYSTEM OF INCOME TAX URGED

Wanganui Chronicle, 6 September 1950, Page 6

“PAY AS YOU EARN” SYSTEM OF INCOME TAX URGED

PARLIAMENT BLDGS., Last Night (PA).—ln the House of Representatives today, during the iebato on the Budget, Mr. Halstead (Govt., Tamaki) urged that the “pay-as-you-earn” system of income tax be introduced, in New Zealand and said that the Prime Minister was in favour of it. Mr. Halstead said hiyh taxation was inevitable in a modern State, especially in a welfare State, and no spectacular tax reduction could be hoped for. The burden could, however, be eased by readjustments. Income tax was regarded as the most flexible and equitable form of taxation, and any tax reform should consider placing the payment of it on a "pay-as-you-earn” basis, which would benefit most people. That system had been under consideration in this country for some years, especially since 1942, when it was adopted in the United Kingdom, Canada and Australia. “I know for a fact that the Prime Minister is very interested in this scheme .and has investigated it thoras have several other members 'on this side of the house,” said Mr. Halstead. The basis of the system was that the tax was paid from

the current year’s income instead of income from one year being used to pay tax for the previous year. For convenience, taxpayers could be divided into employees and non-em-ployees. Th£ former would pay a weekly sum based on their income, and non-employees would pay weekly instalments, calculated on a basis of their actual income in the previous year. In each case, returns of actual income would be made at the end of the year, and any necessary adjustment made. Already in this country, the vast majority of wage and salary earners paid more tax on that “pay-as-you-earn.” basis in the form of Social Security tax than they did in income tax, and the system could be adopted to income-tax payment. There were some difficulties in the introduction of such a scheme, but they could be overcome. If, for instance, the new system were introduced this year, weekly instalments would be paid by the taxpayer as from April 1, 1951. The usual income return for the year ending March 31, 1951, would be made by the taxpayer by June 1, leaving two months overlap between the beginning of “paye” weekly payments and the putting in of the return. The taxpayer would receive his assessment notice (based on his return of income) late in 1951, but would actually have to pay no more than one-sixth of the assessment to make an adjustment for the two months' overlap. In future years the financial year would begin on June 1. instead of April 1, and that would contribute to a smooth change over. Mr. Halstead said the “pay-as-you earn” system had many advantages. It would remove the inflationary effect of lump payments of income-tax, for which many people now drew on overdrafts. Evasion and non-pay-ment of tax would dimmish. One frequent objection was that the adoption of the “paye” scheme would involve remission of one year’s tax, but actually that applied only at the time of death, when an estate would have no further income-tax liability and any loss in this direction would be offset by earlier payments from new taxpayers. Citizens would still be aware of their tax responsibilities through) the.annual return they would furnish.