INCOME TAX.

Dominion, Volume 6, Issue 1851, 10 September 1913, Page 4

INCOME TAX.

NEW SCALE EXPLAINED. ANOMALIES REMOVED. THE INCREASE IN REVENUE. Tho Hon. JAS. ALLEN (Minister for Finance) moved tho second reading of tho Land Tax and Incomo Tax Bill. It was tho annual taxing Bill somowhat amended. It amended the incomo tax and increased the'amount payablo under tho graduatod incomo tax. Amendments which had been introduced were intended to removo anomalies in tho existing law. To-day a net taxable incomo of £401 was taxed £1 13s. lid. moro than an income of £400. The proposal in tho Bill was that the increase in this oaso should bo ninepence, instead of'£l 13s. lid. Tho graduation would increase gradually from pound to pound until a break in tho scalo was reached, which ho would explain later. An income of £601 under tho present law was taxed £2 10s. Bd. moro than one of £600. Tho increaso in the Bill, instead of being £2 10s. Bd., would bo Is. On ail incom'o of £901 tho taxation was at present £3 15s. Ild. moro than on an inoome of 1 £900. It was proposed to mako the increase in this caso Is. 4d. On £1251 the amount payable was £5 os. 3d. more than upon £1250. Tho proposal in the Bill was that the increase should be Is. lOd. On £2001, £8 7s. 10, d. moro was paid than upon £2000. : Under the proposal in the Bill the taxation increaso upon the additional £1 would bo Is. Bd. Thoso anomalies showed how unscientifio tho law was at present. It was absolutely unfair that a man should pay £8 moro because of an increase'of £1 in his income. The prosent scalo was unsatisfactory for another reason —that those who had an incomo of a littlo more than > £1000 would be likely to mako out their incomo at something less, because if they did not, it meant a very unfair increase in their incomo tax. Under the present law incomes of £300 wero exempt from taxation. Incomes up to £400 paid at tho rate of sixpcnco in the pound. It was not proposed to alter that in tho Bill. Under tho law as it stood incomes up to . £700 paid at the rato of eightpenco in tho pound, incomes up to £800 paid ninepence, incomes up to £900, tonpence, up to £1000, elevenpence, and incomes up to £1250, one shilling. From £1300 to £2000 the rato stood at Is. Id. all tho way through. Then an increaso of a penny took placo and that was tho maximum tax. He need not alliido again to anomalies. The now proposal was that, with regard to firms and persons, there should be a gradual rise. Under tho original proposals there had been one rise all the way through, but this had been altered. It was now proposed that tliero should bo ono break at £1400. There would be a gradual rise of three farthings from £400 up to £1400. Incomes of £1400 would pay Is. lid., one half-penny moro than under tho existing law. Tho tax on £1500 would be Is. lid., three farthings more than the presont tax. On incomes of £2400 or moro ( tho maximum tax of Is. 4d. would be levied. This was twopence moro than tho presont maximum tax. Upon incomes of £400 tho .tax was sixpence in both cases. Upon incomes of £800 the tax was ninepence'' in both cases. The present tax upon incomes of £1000 was lid. and tho proposed tax was IOJd-i . one half-penny less, owing to tho graduation. Tho tax upon £1400 was jd. moro under tho now proposal, upon £1500 the new tax was 3d. more, upon £1600 it was Id. more, upon £1700 it was Jd. more; upon £1800 it was l}d. more; upon £1900 it was ljd. more; upon £2000 it was 2d. moro; upon £210p it was 1-Jd. moro; upon £2200 it was 1-Jd. moro; upon £2300 it was 15d. more, and upon £2400 it was 2d. moro. Taxation of Firms. Tlrese wero the gradations for persons and firms. Firms were not taxed in the same way under the land and income assessment as companies. Each individual member of a firm wa.s assessed on his own income, and given an exemption of. £300. There had been some slight misunderstanding about this. Mr. Brown: Is it on the dividend of a firm ? Mr. Allen: It is on tho sum derived by a person from his firm. There is no alteration in the law so far as the method of assessment is concerned. Position of Companies. Companies, under tho existing law. paid Is. up to £1250 of income, and from £1250 to £2000 paid Is. Id. Tliero was no gradation at all under tho present law, but incomes exceeding £2000 com)»nie» paid Is. 3d. It was proßosoi to adept W9 principle of erad v

ation in regard to companies. Instead of having one break, it was proposed that up to £1200 the rato of income tax should bo as at present, Is., and that thero should bo an increase of -}d. for each £100 up to £1000. Tho latter sum would pay Id. more than it did under existing law. Then at £1700 tho gradation would bo. altered. Company incomes of £1700 would pay ljd. more than at present. Tho farthing incrcaso (per £100) went on until £2000 was reached. That sum would pay Id. moro i than luider the existing ln\}', and then tho gradation would continue until tho maximum was readied, as in the case of individuals and firms at Is. 4d. in the £ for incomes of £2400. -. Mr. Witty: Why stop tho gradation thero ? Mr. Allen: I am going to tell tho lion, gentleman why. lie asks tho question with regard to companies. Mr. Witty: And individuals too, Mr. Allen: With regard to individuals we stop at £2400, bccauso I consider that Is. 4d. in the £ is, for tho present, at anyrate, quito high enough for them. It means that wo shall charge upoli tlieso incomes 6 2-3 per cent., a pretty heavy burden to (ftaco upon anybody. Then, with regard to I companies, tlioro is a very ample reason as it appears to mo, and as tho law is at present in Now Zealand, why wo should not impose a heavier burden than Is. 4d. upon companies with incomes of £2400 and over. The Burdens of Companies. "I have had many objections sent in to mo already with regard to tho , increase in taxation on companies, and tho reasons submitted are, to a certain extent, potent reasons. It is said that shareholders ill these companies very often have comparatively small amounts invested. Th<* company is treated as an ontity. and taxed as ail individual, and it would bo very luifair for that reason to make tho tax any heavier than we propose. Some of tlieso men havo £5500 or £6000 invested in companies, and get incomes of £300. Tho do not get any exemption. Thero is somo Teason, at anyrate, why incomes derived from money invested in companies should not be granted tho same exemption as in the case of individuals or firms. Any porson investing money in a company and earning incomo from that investment may bo saidi to be receiving an income which is to a ver.y largo extent unearned. They put tlhcir money into a company, sit still, and got their dividend."

Earned and Unearned. The Minister went on to state that it was a x diffioult matter to discriminate botween earned and unearned increment. Attempts made to so discriminate in Great Britain had not, he thought, boon a success. Ho was informed that in England it had been found, practically speaking, an impossibility to accurately discriminate botween earned and unearned- increment. A Select Committeo of tlho House'of Commons had reported that it was unable to provide a satisfactory distinction. Profits from companies were generally regarded as unearned increment, but there wero anomalies even here. A private trader might turn his business into a. company and devote tho same attention to its management as before., It could not be said then that ho did not earn his income. Tho House of Commons Cominitteo had suggested that.incomes exceed>ing £3000 should bo treated as.unearned and a hagher tax imposed. This conclusion was based upon an assumption that the higher tho iiicome the smaller would bo tno proportion that could in tho strict sense bo described as earned. Tho Now South Wales Income Tax Act attempted to make a distinction between incomo derived, from personal exertion and incomo derived from property. Rough-and-Ready Distinction. There was a rougli-aiid-roady' distinc-, t-ion, in tho proposals before Parliament, between) incomo tax derived from investment and income derived) from personal exertion. In one caso an exemption was allowed and in the other not. _ It was a very difficult job to draw the lino. Ho would allow the thing to rest where it was for the present, but hoped to givo a great deaf moro consideration to tho question of earned and unearned incomes. The Revenue Cain. He hoped to receive by thoso alterations an increased revonue of something over £40,000. Mtr. .Myers: What amount .under £2400? Mr. Allen: Comparatively speaking, a small sum. Inoomes of £2400 and over, ho added, would probably produco 90 per cent of the increase. Ino bulk of the increaso came from incomes exceeding £2000.. Some £10,000 or £15,000 of tho gain of £40,000 would ho absorbed by the increased exemption granted in another Bill, upon incomo taxation up to £400 in tho caso of peopfc with, children. Passing this law would be doing away with certain inequalities and vory unfair anomalies that existed under the present law. TJio Minister mentioned that the number of persons paying incomo tax was as follows: —Up to £400, 4075; £500 to £600, 1456; £600 to £700, 869: £700 . to £800, 665; £800 to £900, 419; £900 to £1000 232; £1000 to £1500/ 766; £1500 to £2000, 264; £2100 and more; 342. This referred to persons and firms, and did not include companies. The British Tax. Under tho British legislation additional taxation was imposed on incomes exceeding £3000. Up to this amount tliero was a general' rate of Is. 2d. in tho £, but many reductions wore allowed. At £5000 a super-tax of 6d. was imposed upon the amount of income in excess of £3000. Tho British taxation up to £5000 was Is. 2d., while the New Zealand taxation upon £2100 lvas Is. 4d. Tho British taxation jvas really heavier up to £5000. Upoii £5500 the British tax was ijd. more than ours. Upon £6000 . tho British tax Avas id. moro. The New Zealand tax was quite as heavy a 6 it was wise to impose. Mr. Payne: No. Mr. Allen: I do not believe in dragging tho last penny out of the people or companies. The present tax on companies was heavy enough, if it were accepted that they should bo encouraged to develop the country. He hoped to take into serious consideration tho whole question of assessing tho income tax on companies. He belioved that the increases proposed were fair, and did not think they would affect the dividend of companies. In the caso of a company with an income of £2400, tho increaso would bo only £20. This meant that a little less would bo paid into reserve, but the increaso in taxation would not affect dividends. Reduce Taxation. Mr. G. W. RUSSELL (Avon) said that there was comparatively little new matter in the Bill. It seemed to him that tho new method of assessment would be so complicated that no individual would bo able to work out for himself the amount which lie was liable to pay. His principal criticism was based upon the failure of the Government to carry out its promise of reducing taxation. Last year it had increased tho graduated land tax, and taken out of the pockets of the landowners £46,000 more than would otherwise have' been taken. Now they wero increasing the income tax. He wondered how tho Prime Minister could face the House, since he was committed "up to the eyoliiis" to reduce- taxation. He quoted statements made about reduction of taxation by Mr. Massey in a policy speech delivered at tho Town Hall, .Wellington, before, lie took ollicc. Mr. Massey had said that it was quite timo that the Government were afforded some relief in taxation. What had tlip honourable gentleman to say to that now? ' Mr. Massey: Exactly tho same. Joliv good ppsotli, wMti't it? Mr. Russell declared tie Government .

had beon guilty of "hollow inconsistency," for it had not reduced taxation as tlio Primo Minister had promised. The Govornmont stood convicted of having broken this most serious of all its pledges. lUr. Fisher: Wo had to pay your debts, you know. Mr. Russell urged that tlio Government ought to consider tho fiscal system with somo earnestness. In four years tho Customs duties had increased by £754,000. Was it a fair thing f° r a Govornmont which still showed some "spasms of Liberalism," and somo feeling for tho people, to take this money out of tho pockets of tho people ? Mr. Fisher: It's all under your tariff. The "Side Issue." Mr. Russell said that tho Government had brought down two budgets and had said nothing in either of thorn about reducing taxation. • Mr. Massey: Oh yes, wo did. Mr. Russell: Where are your proposals, then? Bring down your Bills. Mr. Massdy: Oh, you'll get them all right. Mr. Russell: It's tho samo old policy of taihoa. Ho wont on to say that whilo this money was being taken out of tho pockets of tho people tho taxation value of land had increased by 24 millions, and tho taxable incomes by a very largo amount also. A fair proportion of taxation was not paid by tho owners of landed property and receivers of largo incomes. Property was escaping very lightly, and the Customs duties wero grinding tho faces of tho poorer classes m,tho community. Ho regretted that tho Primo Minister had not so overhauled tho Customs tariff as to relievo the poorer peoplo of taxation. On tho othor hand tho Liberal party had taken off Customs taxation which, if it had been paid last year, would havo returned no less a sum than £850,000. All hon. member: Took it all off motor-cars, didn't they? Mr. Russell: Oil. that's a mero sido issno. (Laughter) Yes it is, a mero matter of sido issue. Ho was not prepared, lie continued, to say whether tho Government wore right in refraining from imposing ( duty on motor-cars. Ho accused tho Government of merely following in tho footsteps of their predecossors, and- failing fo give effect to their promises of reform in taxation. Ho emphasised again tho fact that whilo last year tho masses of tho peoplo paid £3,407,000 through tho Customs, tho land tax on land of a' taxablo value of £130,675,000 was only £728,000,' and tho income tax was only £462,000. Land values were being created by tho community all tho time. Ho belioved that tho bulk of our taxation in future should bo levied on accumulated wealth .either by direct taxation or by heavy death duties. Tlio party in power stood for tho wealthy classes. As a Liberal he would support tlio increaso in tho taxation which tho Bill proposed, as he had supported it last year, Nothing to Complain About. Mr. W. H. D. BELL (Wellington Suburbs) said he was at a loss to know what tho honourable gentleman found in tho Bill to complain about. Ho thought tho p;esont Government had gone a long way towards making tho proportion of taxation from land and incomes to that from tho Customs a great deal more equitable than it had been. Tlioy had not yet dealt with tho tariff, but they did not propose to increase Customs duties. It would bo impossiblo to deal with tho tarilf comprehensively until politics in Australia sottlod to such an extent that the reciprocal agreement with Now Zealand could bo completed. And could I any .Govornmont reduce Customs taxa-j tion -without providing first for tho deficiency in revenue by increasing other taxation?. All.taxes increased the. cost of living, but. it might be possiblo to compensate this by reducing Customs duties. It was all very woll to say ''tax wealth," but it was impossiblo to go on taxing wealth without increasing tho cost of living. A wealthy man was not necessarily a philanthropist, and ho passed on tho tax.

It was said that the Government party stood for wealth, but a man was not necossarily. dishonest because ho was rich. The brewers, ho believed, were anxious to incrcaso the land tax. That did not hit them, but the income tax did. Mr. Myers: And the brewers can't pass it on. (Laughter.) Mr. Boll: I hope when tho honourable gentleman does speak, ho will tell us what the profit is on a pint of beer. Mr. Myers: I don't sell pints of beer. Mr. Bell went on to say that ho did not consider graduated taxes could bo justified except on tho ground that they woro necessary for revenuo. He would , like to seo established for land, along with the present graduated tax, a penal gradation, to bo applied to all lands whose owners would not givo tho Government an undertaking that thoy would be, willing to sell at an arbitration valuation. Tho eft'cct of this would be to force nearly all the estates in tho country into tho markot, and ho believed it would Jie a basis for a settlement policy in this country which would satisfy tho increasing land hunger. If any owner choso to hold his land ho would have to faco tho alternative of paying a penalty tax. If necessary, it could bo made so high that the owner could not afford' to pay" it. Mr. Bell concluded by saying that lie was a freetrader, believing that a tariff should bo for revenue purposes only, or for fighting a nation putting a tariff wall against us, or for protecting industries which.would 0110 day bo able to go on without protection. Ho challenged any momber of tho other side to disagree with any of his opinions, on taxation, and ho challenged anyone to say that thoy were not liberal.

Oppositionists, Mr. G. WITTY (liiccarton) said ho was not a, Free-trader, because Freetrade would rob very many eity workers of employment.' Nor did ho think the income tax liberal, for tho reason that tho gradation stopped at £2400 a year. Till) Government had not mado one move to reduce taxation. Ho would like to see the Government fulfil their pledge to reduce or abolish tho mortgage tax. Mr. Massey: Are you in favour of abolishing the mortgage tax ?

Mr. AVitty: Never mind what I'm in favour of. I'll tell you that when wo got over thoro (indicating tho Treasury benches). He declared that tho Government had not douo ahytlmig to justify its existence. Mr. L. M. ISITT (Christchurch North) said although tho Government had promised to reduco taxation nud reduco the cost of administration, thoy had increased tho cost of administration, and tiioy had failed to relievo tho poor man of a pennv of taxation. Mr. T. M. WILFOED (llutt) said ho thought somo differenco should bo mado in tin; rate of tax a man had to pay between'earned and unearned incomes. Tho man who worked for his incomo ought to receive very different treatment from the man who lived on an income derived from rents or mortgages. Defendors of tiie Bill. Mr. G. V. PEABCE (Patea) said tho small incomes woro mostly earned, and the small incomes wero exempted. Ho thought the taxation of'companies' incomes was very unfair, and he hoped the .Minister would consider tho question nf amending it. Dividends should lie taxed as part of (lie incomo of tlioso who received them, and not as tho income of the company. Ho did not think the graduated land tax was working I'airly in that it was hitting several people who held comparatively small farms in dairying districts, \\lt"ie land was valued liighlv. Mr. G. J. ANDERSON (Mataura) agreed that the mortgage tax pressed ' heavily on many poor people whoso email uicomoa pamo from thin eouroa I

Mr. J. H. BRADNEY (Auckland West) charged tho Opposition party with trying to fool tlio worker xo ii;s destruction. They should remember that they represented not a section of the people, but all the people. Mr. I'. C. WEBB (Grey) said that neither tho land tax nor tho incomo tax here wcro high enough. He did not agree that all taxes could be passed on. Mr. J. PAYNE (Grey Lynn)said ho did not agreo with tho Minister that Is. 4Jd. in the pound was the maximum clmrgo that ought to bo levied by way of income tax. Mr. J. A. YOUNG (Waikato) put upon record n letter from ono of his constituents contending that tho present system of assessing incomo tax upon companies was unfair, aud, in a now country, unwise. Mr. H. G. ELL (Christchurch South) said that tlio Bill seemed to him intended to pavo tho way for a reduction in the land tax, which would follow upon revaluations under tho now system. Ho expressed dissatisfaction at a suggestion that Customs tariff.revision would be postponed pending reciprocal trado negotiations with Australia. THE MINISTER REPLIES. "NO CRITICISM." Tlio HON. J. ALLEN roso to reply at 0.30 a.m. He remarked first of all upon tho fact that members of tho Onposition had not criticised tho Bill. They could not criticise it. It was absurd to say that tho Bill was to mako up tho loss on land tax, for thero would bo no loss on land tax. The extra revenue was needed for benefits to bo conferred upon people with children and for pensions. Customs tariff reform would come later. Tlio member for Grey Lynn had urged that tho graduation should bo carried on indefinitely. Did ho -understand tho meaning of tho word? Because to carry on taxation up to 20s. in tho pound would not bo equitable or just. IJo realised that there was much to bo said against tho mortgage tax, but at present ho needed tho rovenuo, and lie could not see his way to abolish it this session. Thero was also another side to the question, and some method would have to bo devised by which tho landholder would not bo taxed on the amount of his mortgage. If tho mortgage tax wero abolished tho wholo valuo of tho land would liavo to bo taxed, and that would not bo fair. It was also right and proper that tho income from mortgages being unearned incomo should be liable to taxation. With respect to tho criticism in tho debate it liad generally not boon directed against tho Bill, but against the land tax and tlio' incomo tax. Tlio member for Avon had been most insistent upon the point that tho increase in graduations had all been given back owing to reduction in valuation. Mr. Russoll denied having said this. Mr. Allen said that in the years tlio so-called 1 Liberal Government 'bad been in power, from 1908 to 1912, the graduated land tax had produced only £42,000. In ono year this Government had doubled' this _ increase. Now, perhaps, the Opposition would hold' their tongues about increase in the land tax. Mr. Russell 'What have you doubled? Mr. Allen: Doubled tho land tax. Mr. Fisher: Doubled you up. Mr. Allen: Yes, doubled you up, (Laughter.) He quoted figures to show that the graduated land tax was breaking up largo estates. With regard to the point raised about (relieving companies from a measure of incomo taxation on account of dividends, he would look into the business. It was too .serious a proposition to ,_deal with this session, but lie would give tho matter Ihis attention. _ • The second reading was. agreed to I pn-tho voices. ■Tho House rose at, 0.57 a.m. .