The Dominion. WEDNESDAY, JANUARY 11, 1911. TAXATION AND CAPITAL.

Dominion, Volume 4, Issue 1022, 11 January 1911, Page 4

The Dominion. WEDNESDAY, JANUARY 11, 1911. TAXATION AND CAPITAL.

■ 'In the Economist of November 26 last there is a very instructive editorial upon tho effect of penal taxation' in discouraging the inflow of foreign capital. Although the supporters of penal land taxation and restrictive industrial legislation discreotly avoid every invitation .to bring forward figures to show that foreign capital is coming to New Zealand for investment in land or in industries, they become extremely indignant when they are told that they are keeping capital away. Yet we do not suppose that they will impute to 'the Economist any, greater dishonour than belief in. tho fact that capital is necessary to new development. Tho text of the Economist's a'rticle was the speech of Dr. David Murray, the eminent lawyer and ruan of business who presides over the New Zealand and Australian Land Company, at the annual meeting of the Company:' Dr. \Mujiray regretted that the Australian Government had adopted.a policy:-that aimed less at raising revenue than at ''bursting up" large estates; He pointed out that tho prosperity of Australia was very largely due to the expenditure of British capital," and addecj that, "judging by tho tone in financial circles in London,"it looks as if the class legislation and discriminating taxation of which they complain will have tho effect of drying up to a considerable extent the supply of capital for the further requirements of the Commonwealth, and will almost certainly result in the withdrawal of a considerable proportion of the .capital now invested there." ' The Economist supports this opinion, and puts the position very succinctly in these .words : "Australia is badly in need .of the large capitalist, for in a. climate so subject to rainless periods prosperity is most fluctuating, and, while small men are ruined by a protracted drought, big companies are able to givo a fresh start to tho country when brighter conditions return." After outlining tho new Australian land taxation,' tho Economist adds' that "this new system of taxation, Or rather confiscation, will eertajnly lead to withdrawals of capital from.Australia."

There is a second aspcct of penal ■taxation..jy-hich.is .too often over■lo'oUccl, and to" which I)n. Murray .directed attention iii his spcecli:

'l'o a-large extent (he said) the .Govern' nicnt proposo Vo absorb, through taxation, the margin of profit which ought to "bo retained by the owner to meet the losses anil expenses when tho days of darkness come. In fact; tho Government, through this tax, are depriving tho own- 1 crs of pastoral estates of the means of reinstating their (locks when tho next drought comes. This course would undoubtedly most 'seriously, affect the ultimato prosperity of all estates.

Dr. Muruay is here doing no more than affirm a principle which has the, subscription of all competent writers ■upon economics, and which is recognised by almost a.ll _ Governments) even those which infringe it at times in practice. The principle is, briefly stated, that taxation is an evil, and must ba kept down, since capital fructifies ill private hands, but is dissolved away in the hands of Governments. This is a truth which the people of Now Zealand will recognise with anger and regret in the course of time. The enormous borrowings of tho Seddon and Ward Administrations have relieved tho public of tho necessity for paying its way, but despite the fact that it has been obtaining, on the average, between three and four millions sterling worth, of goods (loans) annually the financial depression .of 1907-8-9 caused widespread distress. That depression .would hardly have been felt if the community's current capital had not been' so seriously ■ curtailed by the Government. ■ A pound in private circulation is constantly producing new wealth; when taken by the Xew Zealand tax-gatherer, it almost, as often as not, ceases for the time being to produce anything further : it is wasted. The prime maxim :of the Government in Britain, and in most other countries, is to levy no more taxation than is required for current expenses, in order that not a, penny more of'the community's capital than can be helped shall bo taken from the channels in which alone it can do its work of stimulating production lhost efficiently. Statesmen know that the only " wise policy is to leave'as much money as possible to the community in order that when trouble; arrives in. any shape the nation will have a reserve of strength and resources to meet it.