EXCESS PROFITS

Evening Star, Issue 23702, 9 October 1940, Page 3

EXCESS PROFITS

TAX MEASURE DEBATED ANOTHER TRAP FOR ENERGY AND BRAINS [From Our Pakuamextarv Reporter.] WELLINGTON, October 8. Admitting that the excess profits taxation is a most difficult problem for the Government, Mr Nash, explaining the measure to the House to-night, strongly stressed the provisions for appeal, which will enable the peculiar individual circumstances of every taxpayer to be taken into consideration if as appeal is made against excess tax assessment. The Minister considered that 99 per cent; of the cases could be determined automatically by the Commissioner of Taxes, but there would be other cases where the taxpayer would consider the assessment unfair or. unjust. He would then appeal to a committee of three, which would probably have a set of principles' or rules to work upon. “ But this will be only a guide,” continued Mr Nash, “ because the committee will take into account the peculiar circumstances of each taxpayer before determining what are his excess profits. They must work on the principle though, using their judgment, that no one ought to make excess profit during the war period, and each case Will be.determincd on the facts of that case, and no other.” Explaining the measure clause by clause, Mr Nash ’ said be could show members 40 pages of examples how the provisions would work. The tax would be assessed On income of the current year and be payable in the normal way in February of 1942.

The various alternatives which the taxpayer can select for defining normal income were detailed, and the Minister traced an example of a single man with income of £1,400. From that, he said, was deducted £2OO as exemption, leaving taxable income of £1,200. Assuming that his .standard income was £l,lOO, from that was deducted £2OO. making if £9OO, which meant that his excess income was £3OO. His taxes were £407 .7s Gd, while the income tax on standard income was £291 2s Cd; which meant that the tax paid on excess profit of £3OO was £IIG os. _ Deduction of the last sum left a residue of los. which was split 40 per cent, to the taxpayer (who would get £73 10s) and CO per cent, to the State.

Mr Holland:; What makes you think he would not have that extra money if there had not been a war?

Mr Nash: Nobody can tell, but anyone who thinks properly considers that nobody should be better off because of the war. .

Mr Coates: What happens if the taxpayer makes a wrong return!' Mr Nash replied that the commissioner would make a correct assessment which could be the subject of appeal. Answering a question, the Minister stated that it was unlikely - that the commissioner would be'-on the committee, as he was a party to the appeals. Though its constitution had not been considered, it would be as independent as possible. No excess profit was leviable on incomes up to £SOO, and incomes from rights to cut standing timber, extract gravel, etc., were' exempt, because they covered wasting assets. Gold and scheelite ’ companies were exempt, as the Government took 76 per cent, of the-additional value of the gold compared with the price at August, 1939. , ■ 1 “Why tax professional incomes?” asked Opposition members. . The Minister’s answer was that there was a difference between salaries and wages and professional income, but the Bill gave the right to a professional man to deduct between £SOO and £I,OOO for personal exertion, and get 6 per cent, on tho value of the assets used to earn it. Mr DoidgeCannot you exempt the farmer? He cannot profit from war. FAIR DEAL FOR FARMERS. “ The farmers are getting a fair deal,” retorted Mr Nash, who asked members to closely, examine the Bill for proof of that statement. First of all, incomes below £SOO were exempt, so that most working farmers were excluded. He proceeded to give examples of how the principle of selecting alternatives for assessing standard income would work, concluding with the hope that the House would understand it. Mr Lee: I would rather look at the result, “ If there is any unfairness in the Bill, declared Mr Nash at a later stage. “ wo will alter it.” OPENING COMMENT. Tho Leader of the Opposition (Mr Hamilton): “ Won’t it be rather difficult to get up any enthusiasm to start a new business?” Under existing conditions people with money to invest would, he considered, fear there were too many restrictions. While ordinary income tax was as high as in an,y country, together with compulsory war loan and excess profits tax, they might prefer to seek a safe investment instead of using money to employ labour to make a profit.

“We want to encourage the man who combines capital with his brains to start business,” continued Mr Hamilton, “ but he is being hardly treated. This is another tax to catch the energetic, industrious man who wants to use his money and ability to do something for his country—not at a loss, but something to give him an interest in life and a profit for his work. There are two classes of useful people who will bear the major burden of this tax. The first is the industrialist and the other is the farmer; and there will be a lot more others who will be caught, or at least they will be worried about making returns, seeing how they can square the yards without having to pay too much excess taxation. Both classes have been spurred to increase production.”

Mr Bosworth: The worker in the factory will make his contribution. Mr Hamilton: And pet paid something extra for his labour.

Ho added that he could not understand why the, man who got £BOO from a business was regarded as having made a profit, though someone else could get , a salary of £I,OOO. There was an attempt to stigmatise the word profit and make it objectionable, though he agreed' that there was something wrong about the profiteer who nia.de an undue profit trying to exploit society. He also agreed that extra profit resulting froth war was a reasonable subject for extra taxation. The public mind objected to war profits, but the problem was to find a just basis for this tax. It had evidently given the Minister much concern to define excess profit, and ho would remind him of the attempt in the last war to tax profits. It was so unsuccessful that they abandoned it after a year, reverting to an income tax much lower than to-day, when income and other taxes amounted to about 60 per cent. In the case of companioe much was being left to the Appeal Committee, but the British Act was more definite, and taxpayers liked to see the limit of their liability and how it was being assessed His opinion was that the farmers under commandeered prices would not make much, and the manufacturers were watched carefully by the Price Tribunal. The Minister had expressed the hope that he , would collect nothing, but it was going to mean a. mighty lot of cost to the taxpayer in making returns to ascertain the basis for taxation. He believed that the Tax Department was already overcrowded, and there was not too much paper for making returns. MONEY VALUES. The problem of money values came into the matter, continued Mr Hamilton. There might be more money made in these times, but it purchased Joss goods, Some allowance ought to bo made for that. If this Bill was needed, then the Price Tribunal had failed in its job. Turning to examples of how the measure would work, Mr Hamilton pointed out that this year should be fairly good for the farmer, but if he had a couple of bad years in the three standard ones, he would get a fairly rough time under the Act. The heavily mortgaged farmer would be punished in comparison with the farmer or business man who had his assets clear of debt. The latter was allowed G per cent, on his assets, and got a much bettor standard of income than the man heavily mortgaged. PROVISIONS REASONABLE. The Attorney-General (Mr Mason) said Mi- Hamilton had mentioned the question of interest in connection with excess profits; but this presented little difficulty. Surely, said the Minister, some interest should be allowed at a liberal rate. A rate should be fixed which gave security to the business man, and he thought the Bill reasonable in that respect. Mr Hamilton had also stressed the point covering alternative methods of computing normal income. A period of three years was a fair span to eliminate any extraordinary fluctuation. They had to guard against a system that would eliminate the chance of any excess profit altogether. What was proposed in the Bill was not unfair, and it was well thought out to bring about fair results. Every care had been taken in drafting the measure to see that there were no anomalies. ; Mr Goosman, dealing with the position of primary producers, pointed out ' that the farmers were subject to setbacks over which they had no control, ' and the three years taken as the basis | had been bad ones for some farmers. ' There was also the case of the farmer j who had heavy liabilities and was , working hard to reduce them. If lie ( made more it would be regarded as i excess profit. i

Mr' Chapman said the points raised by Mr Goosman would be dealt with by the committee to which appeals could be made, and he added that all profits in war time should be classified as war profits, because profits would be impossible if the men at the front were not making effective resistance to the enemy. Ho thought they could rely on the patriotism of New Zealanders to increase production. Tho discussion will be resumed on Wednesday evening. The Government intends to take urgency with, the object of facilitating the Bill’s passage, and giving the, opportunity of debating the war regulations on Friday, when the session is expected to end.