TAXING INCOMES.

Dominion, Volume 6, Issue 1859, 19 September 1913, Page 4

TAXING INCOMES.

A HOSTILE AMENDMENT.

POSITION OF COMPANIES,

Tho Hon. J. AX LBN moved, that tho amendments made in the Land) Tax and Income Tax Bill in Committee ho agreed to. SIR JOSEPH WARD intimated that •ho proposed to move an amendment. The Bill proposed to make a drastic change in the law regarding the imposition of income tax on companies. He ■ thought tho honourable! gentleman ■in charge of the Bill could hot have given the fullest consideration to what the Bill meant. He did not witfh to show hostility to the proposals in tho Bill, tho majority of which he supported, but lie woulcl movo his amendment because he feared a Very serious injury was going to be doiie to tho industries anil manufactures in our country, and to the.small shareholders and investors in public companies. Before Parliament committed itself to the change, members ought to have a full opportunity to reconsider and review what the Bill really meant. Ho believed that wealthy people should havo to pay taxes in proportion to their wealth. Ho urged that income tax should he paid by companies on distributed dividends, and not on profit earned, which might lie paid tu reserve fund. . It, might he thought by honourable members that the proposals in the Bill would be popular with a large section of the community, but when they were fully underst.ftfid, and the effect of them was felt, they would be unpopular, It would be found then that tio mcofflo tax jr.ould bo a tax

011 industry. If the tax were to bo levied 011 the profits of companies, tho result would be unsound finance, for companies would refrain from adding to their reserves, but would pay out all tlioir profits as dividends. Ho went on to contend that in the imposition of tho incomo tax there should bo somo discrimination in favour of professional men as against thoso who derived their incomo from tho appreciation of land values or similar sources. Some consideration should also be shown to married pcoplo with families. In reviewing tho incomo tax in favour of such pcoplo, however, it was necessary to avoid hampering tho development of companies which were operating in tho Dominion. If it wero intended to penalise coinpanics, a method should bo provided of discriminating between companies of small shareholders and those in which tho shares were held in largo blocks. Ho moved: "That the Bill bo recommitted for the purpose of reconsidering subclauses 5 and 6 of Clauso 2. Mr. T. H. DAVEY seconded tho amendmont. THE MINISTER IN REPLY. ATTEMPT TO ATTAIN PERFECTION. The Hon. JAMES ALLEN said that lm did not protend that this legislation was porfect, or that the principle it contained was perfect. To mako it perfect was an extremely dillicult matter. Ho had not, however, lost liopo of bringing in some m6re sciontilio method of company taxation. 'Ho thanked the lion, gentleman for giving his very hearty support to a nieasuro already introduced this session, which provided for remissions of taxation to people with families. Tho measure had been criticisod by somo of the lion, gentleman's followers. Sir Joseph Ward had stated that thero woro shareholders in somo companies at six per cent., and the companies were lending that monoy to farmers at six per cent. Ho asked tho hon. gontloman to tell tho House how much taxation a company could pay upon this incomo? ,: Sir J.' Ward: That is not tho pourt., Mr. Allen: What income would there bo? How shallow an argument! Tho company would have no incomo tax to P a J r - , • ! Sir J. Ward: That's rot tho point. Mr. Allen repeated that there could bo no tax to pay where no income fraß dorivod. Tho hon. gontloman had jinforred that somo chango had been mbde in tho principlo of tho graduation. 'As a fact, tho graduated incomo tax was on tho Statute Book now, placed thore by tho hon. gontleman. Ho (tho Minister) had mad© no alteration in tho principle; ho had altered tho scale and taken it twopence higher. What ho had done was simply to provido that m the ease of individuals and firms the income tax should go to Is. 4d. instead of Is. 2d The sane thing had been applied to companies. The wholo tiond' of tho hon. gentleman's speech had been to show that this Bill mado somo important alteration of principlo. Ho wanted t<] know whore tiu hon. gentleman was. Did he wish to tax companiej or dividends P Sir J. Ward: I want you to give a lead. _

Tho Tax. Mr. Allen: I havo giver, you a lead, and I am going to give you a lead again. The lion, gentleman had stated that tho English tax was a tax on dividends. That was incorrect. 'J'lio Minister quoted tho English Aot as stating that taxation should be levied upon the annual profits and gains of corporations before any dividend had' been made thereon. Tho English tax was not on dividends, but on profits. Tho lion, gentleman had said that tho Bill imposed a tax upon industry. So it did, but tlioro wpro varying. degrees of taxation upon industry. A man who derived his income from personal exortion was in a very different position to a company shareholder.. Sir Josopli Ward: Ho may bo a working man earning toil shillings n day. Mr. Allen: If he is a working man earning ten shillings a day that is another income altogether. Mr. Myers; It may be a widow.

Mr. Allen: Nevertheless it is unearned. Spccial provision is made for widows. The hon. gentleman had said tliat the new taxation would destroy companies. The position was that £83' of extra taxation had been imposed upon a oompany earning £10,000 a! profit. Ho readily admitted that whero thoro was appreciation of land a fairly heavy tax should bo put on, but tho State also had a right to recover some taxation upon tho goodwill of companies and tho valuo that accumulated in that way. The principle was exactly tho samo. Ho hoped tho House would refuse to go back into Committee. Tho Bill matlo no alteration in principle whatever. Tho principle of taxing tho company as an entity had been upon tlio Statute-book for many years. _ It was difficult to dovise any alternative plan. He had tried to do so; ho had tried to deviso a schemo of taxing tho total income derived by an individual frcm all sources, but thero wero great difficulties. Mr. Myers: That is the position now. Mr. Allen: That is not so. Tho individual is taxed upon tho income he .personally earns. On what ho receives as a shareholder of a oompany ho is taxed through tho company, Thero were insuperable difficulties in tlio way of trying to follow out a man's income from whatever sources derived, put them all togothor as the individual's income, and apply ' tho graduation thereto. Mr. Myers: That is done now. Small Shareholders. Mr. AllenNo, indeed it is not. He added that one difficulty encountered was that somo shareholders in companies did not live in the Dominion. In somo cases tho law was hard upon companies of small shareholders. Cases of tho kind had been brought under his noticc, notably cases of co-operative companies' with a large numuer _ of shareholders whose individual holdings wero small. Ho was not going to forget these cases. Mr. 'Davey: You hit them very hard in this Bill.

Mr. Allen said that the tax would not affect dividends.

Sir J. Ward: It is fifteon por cent. Mr. Allen: Novor mind tho fifteen per cent. On a company earning £2400 tho extra taxation wiil bo £20. Is that going to affect dividends? No! Dairy companies, ho stated, were exempt. Ho did not think the taxation would a fleet tho dividends of co-opera-tivo societies, even when tlioy had q largo number of small shareholders. Ho did not see his way at present to remove tho weaknesses of the incoino taw legislation, nor had tho honourable gentleman scon his way, during bis 21 years of office, to remove them. Finally the Minister expressed a liopo that tho amendment would not bo agreod to.

Tho Shilling Tax. Mr. D. BUDDO (Kaiapoi) entered a protest against tho departure from the principle of a shilling tax on companies. Ho contended tTiat the Minister's scientific scalo would do away wit*.! justifiable exemptions under tho existing law. Mr. Buddo quoted the Prime Minister as saying at Win ton that, all taxation was ultimately passed bad; to the rank and file of the people. Mr. Massey: Very good speech! Mr Buddo: Very good speech, but how far has ho been able to impress those ideas on his colleagues? The Minister for Finance had omitted to mention t'jat under the English Act persons with incomes of less than £700 could secure exemptions to tho amount of about- 2o per cent.' of tho tax. In bis opinion there would be all outcry as soon as the tax was imposed.

"Mr. J. VIGOR BROWN" (Napier) extended that the Bill would inflict hardship upoii company investors of limited means, He asserted tint thoro was ao

initiativo upon the otner siae or xno House. Mr. Nosworthy: Oil, .you are a jokol Mr. ISrowu: You are a parson—(laughter)—and a vc-ry poor parson too. Amen! (Laughter.) Poor and Thrifty People. Mr. Brown said that this Bill would not at tho wealthy pooplo at all; it would get at the l»oi and thrifty people. Mr. Allen: It will get at the twenty per conturn. Mr. G. W. RUSSELL (Avon) also upheld the contention that tho proposals in the Bill would penalise aggregations of small shareholders rather than wealthy individuals or companies composed of wealthy individuals. He cited tho case of a big Canterbury company which had an enormous list of small shareholders each holding two or three shares. Mr. Herries: How much will this affect tho man who has two shareß? Mr. Russell said tliat they were considering mainly a question of principle. To a very largo extent the companies operating in New Zealand were aggregations of people of moderate means rather than of people of moans. _ Tho Prime Minister: You will find both classes in every company. Mr. Russell next referred to what the Minister had said about tho principlo of tho Land and luoomo Assessment Bill being approved by tho Leader of tho Opposition, although it had been derided by his (Sir Joseph Ward's) followers. Mr. Russell said that tho contention of tho Opposition had been that tho Government was affording relief to peoplo with comfortable incomes and doing nothing for peoplo in poor circumstances. THE PRIME MINISTER'S OPINIONS. AN INSTALMENT OF REFORM. The PRIME MINISTER said that . the speech of tho member for Avon and those of other members had shown how difficult tho whole position was. Ho admitted freely that people of small incomes who invested in companios should not bo taxed as tlifey wero at present. It was a good thing that the Bill had provoked so much discussion, because it had enabled lion, members to Bee for themselves what the position was. The English system he believed was better than tho Now Zealand system, but it was impossible to romodol tho whole system this year. Ho hoped that next year's taxing Bill would introduco a much more satisfactory system. It was ' 110 secret to him that tliero had boon organised opposition by .companies to tho present taxing proposals. Ho did not blame tho companies for their opposition. ' Mr. Brown: If you wero a small investor, what would you do? Mr. Massey: I would oppose it then. Ho added that tho increases imposed wero so small that tho small investor wojild not bo materially affocted. He hoped that eventually a system of rebates on tho lines of tho English legislation would bo adopted. To an Oppo; sition interjecter, Mr. MasßOy repliec that he was one of those who beliovec that Customs taxation should be re> duced as far as possiblo. An Oppositionist: Why don't you reduce it? ... .. .. .

Mr. Massey: My dear follow, it is leading up to it 1 Ho wont on to state that thero wero demands not only for Customs remissions, but for increased salaries in tho Publio Scrvico. lhoro was a surplus, but the country had to meet hoavy liabilities in tho near future, and members should not object to the slight taxation increase under this Bill. He stood by every word of his spoech at Winton. If it wcro possible to discriminate betwppn earned [ari^,unearned, ;ingpjnes. i lip yEss.iWilling to so discriminate.. Tlio increased revenuo obtained under this Bill would be utilised in making things easier for tho man at the bottom of tho ladder—for the payor of incomo tax, who bod a family.

sovoral Protests. Mr. J. PAYNE (Grey Lynn) support-1 ed the amendment. Mr. W. A. yEITCH (Wanganui) said it seemed to him hard for a company to have to pay income tax on profit ,on ono yearj notwithstanding tlio circumstance that it may have lost a lnrgor amount in the proviouß year. Mr. Allon: .A private individual is m exactly tho\same position. Mr. Voitch said ho was not sure that this taxation" of industries. was sound, and he urged that the Government would bo on safer ground if they raised tlio graduated taxation on land, and on tho larger individual incomes, especially unearned incomes, from whatever source derived. . Mr. A. M. MYERS (Auckland East) Said ho had received a communication from tho Auckland Chamber of Commerce, protesting against the proposed tax on companies' profits. Personally, he supported tho protest. Mr. J. A. HANAN > (Invercargill) declared that by tho Bill tho 1 rime Minister showed his desire to tax tue workers of New Zealand. As •'frooi of this ho quoted from a> speech of tho Prime Minister, a passage in which Sir. Massey had said that\all taxation must recoil back on the rank and file of tlio people. The Prime Minister had been guilty of "glaring, inconsiste H. J. OKEY disputed tlio statement that tho taxation proposed under the Bill was taxation on tho workers. 'Mr. J. A. YOUNG (Waikato) expressed tho opinion that much of\ tho opposition to tho Bill was basod cn a misunderstanding. Those who wore opposing fuo Bill in the country were under tho misapprehension that tho law proposed to differentiate between tho incomes of companies and private ISITT (Ohristohurch North) said ho had received letters of protest against the Bill from both big men and smull men. Tho Government wore going on tfo tax tno small men instead of' facing their duty and taxing the big men. , ... ■ Mr Allen: That's an incorrect stateMr. Isitt repeated his statement, whereupon ho was advised by Mr. Herries—"Voto against the Bill, then.

Tho Amendment Lost. A division was taken at 0.20 ji.m. Tile amendment was lost by 35 votes to 27, and tlio motion that tho amendments made in Committee bo agroed to was carriod. Ths Division List. Following is tho division list:— Ayes (against tlio amendment), 35: Allen, Anderson Bell, R. P. Bollard, liradiicy, Campbell, Escott, Fisher, Frasor, Guthrio, Harris, Herdman, Hcrries, Hiuo, Hunter, Malcolm, Mandor, Massey, K Newmaii, No 6wortliy, Olcoy, Pearco, l'omare, Reed, R? 11. Rhodes' T. W. Rhodes, Scott, F. 11. Smith, Statham, Sykes, G. M. Thomson, Wilkinson, Wilson, .Young. Noes (for the amendment), 27: Atmore, Brown, Buddo, Buxton, Davey, F.ll Forbes, Glover, Halian, leitt, Lauroiis'on, M'Callum, Macdonald, Miliar, livers Nsata. I'ayno, Poland, Robertson Russell. 'Seddon Sidey R. W. Smith, Veitcii, Ward, Wilford, Witty. Against tho amendment: J. Bollard, Lee, Buchanan, A. K. Newman. For tlio amendment: Colvin, J. C. Thomson, Paratn, R. M'KciiJsio. It was.after 12.30, and Mr. Speaker ruled that tlio third reading of tlio Bill, being "hew business," could ( not be taken. The House rose at O.do a.m.