THEORY AND PRACTICE

Dominion, Volume 35, Issue 263, 5 August 1942, Page 4

THEORY AND PRACTICE

Last February the Federal Prime Minister announced that the War Cabinet had endorsed proposals effecting “fundamental changes in the Australian economic system.” They were to come into operation immediately and the Government would develop any additional machinery, which was found necessary, as rapidly as possible. It was a very far-reaching plan, involving the pegging of wages and the price of all goods and services, the limitation of profits of 4 per cent, of capital used, prohibition of the sale or investment of capital, except with Government permission, and a ban on the. sale of house property. Gradually these drastic proposals have been amended 01 dropped, and the latest development reported is. the abandonment of the proposal to limit profits to 4 per cent. Hie official spokesman of the Government, when announcing this decision, said that “it was now certain that the scheme was administratively impossible. Some months ago Mr. Curtin explained that the machinery that would be used to restrict profits to 4 per cent, was that of the Prices Commissioner, and any profits in excess of that limit would be payable in taxation. That was the theory, but in practice it has been found, according to the official spokesman, that there is no way in which we can establish a profit limit that will give just tieatment to all parties involved.” He added that even if the electors approved of the plan “it would still be impossible to devise legislation that could be regarded as equitable.” In theory the thing seemed all right, but its application would have caused serious injustice. In this respect the critics have been justified. They held that the scheme lacked the basic element of true taxation by its disregard of the principle of ability to pay. The proposal would have hit hardest the thrifty people who had invested their savings in various companies. One instance was quoted of a leading utility company in Melbourne in which more than 72 per cent, of the shares were held in parcels o 50 or less, and in which 56 per cent, of the shareholders were women. The announcement of the scheme had an adverse effect on share prices and the loss was sustained by these small people. Their return would have been restricted to 4 per cent, of the capital used, but the professional man, the person with a large salary and others, would have been exempt from its operations. The withdrawal of the proposal now will not recompense the small holders who felt impelled to sell their shares when the market sagged. They have been forced to pass through a period of much uncertainty, and in many cases have sold out their interests in fear of the ultimate outcome. From time to time regulations have been issued embodying amendments, but Mr- Curtin expressed surprise at reports that the 4 per cent, limit might not be retained. At first businesses were required to hold out of profits, assets' to the extent of the amount in excess of 4 per cent, on the capital employed. 1 hen it was stated that the plan would apply only to profits earned after Tune 30, 1942. Quite recently there were further regulations, and now the plan is to be jettisoned. The search for a practical way to ffive effect to the .theory had been without result, but in the meantime there has been serious disturbance of investments and losses by those least able to bear them. The short and troubled history of the plan will be of interest and value .as illustrating the gulf between abstract political theory and sound financial practice.