TAXATION PROBLEM

Gisborne Times, Volume LXX, Issue 11128, 11 February 1930, Page 3

TAXATION PROBLEM

• INTKRJCHTLS’G ADDRESS- AT „ rotary c:i>ub. a,. AN.D nW&TJAItSTr'*. 1 1ES : . .OF. '■ BOTA.iU.AiS;,. 6. H. buiAas ' I' ' '• V VU’AV>s: •• > I*' ‘ ’ ,; S “7~ m ’ . ..' ,• ;Tbd -absorbing tvnd 1 timeJy q'ues'tioh of- t he: dominion's - tuXatvonA. system-wasyt-liey-subject.- of san -interest#!'© aikl ■ instructive., address •to members of. the- 'dietary ,Chil>, yesterdayby Kotririah C. 3;t. Bull. Rotarian 0." Nicholls' being in-the chair. ’ ; * • “The ‘ Government of -a country,’.' said .Rotarian Jiullj . “.requires funds to function, and the loans raised-for administration',' protection 'and development" form ' Hie 1 ' public debt of which 1 a large ’portion must :necessarily be financially unproductive.:To; meet .-the interest,; and. ‘..sinking, fimd. charges on that portion of the debt the State levies taxation.'. At the 31st of March last over 92 nul--1 ions—a -third , r Qt our -gross' - public indebtedness 'wars..Classified;- as • -‘-‘fox: firmn’cially . unpioduetiye . purposes. ’• i This sum was eqifal to our total national debt 'prior 'to tlie' Great War. The' State now requires -about- T 8 millions - annually by.- wii'y of 4 taxalion; to meet, .its obligations; and much controversy ’takes place from, time to ' time—especially ’ when an increase in taxation is proposedns to the operation and ’ effect' of the various means of raising the required'revenue. ; ‘ . .. • “As (Tie Dominion i.v now, ana, will conTinue for some -tune"a pastoral and agricultural country, practically all our exports consist, of products of the land, and it. is from these products that vve' have To pay i iie interest and sinking fund On our public debt- and also lor'dur imports. Our income, from farming products, therefore, must be our guide as to-•the - expenditure both public and . private;' until . such ' time as ah export, trade .in'manufactured goods may be developed; and in considering the prosperity of this coujiiry the relative values of our produce must ho borne in mind,' as the whole’ community must- in the end adjust itself to these values. '‘The taxable capacity . /of the country is governed hv the income from our products which, .if only stabilised from year to year, wouie have a more clearly defined limitfor private expenditure. As it is we have the Government working behind .iri collecting its revenue, and to a very , large extent, the individual spending ahead of lfis realised income. If the (taxable capacity of the country could be first estimated on . the prevailing conditions for the year, and public expenditure determined accordingly the Stake's and the individual’s positions would be much easier than under existing conditions, which do not permit the country’s ability to respond to taxation to bo first considered. “For the last fiscal year the total taxation receipts, for the Dominion which amounted to approximately IS million were raised from the following sources: —

Customs and excise : 4S per cent. Land tax: 6 per cent. Lncome .tax: 19 per cent. Death duties: IT per cent. Totalisator tax: 3 per cent. Miscellaneous; 13 per cent. “The outstanding feature of this table will probably be, to .the person who has not previously studied it, the large, proportion .of; indirect taxation as' compared with direct taxation; customs, totalisator and miscellaneous Go per cent.; death duties 1L ner cent, and land and income tax only 25 per cent. Certain taxes are designed to have a twofold effect, e.g.. _ some items in .the customs tariff, in addition to yielding revenue, are affording protection to our secondary industries and manufactures and also to certain products of the land Higher graduated land tax is also intended to lessen ami prevent land aggregation. “In pre-v ar days, with ot I\ a third of our pie-ent State in v.-etorl-uess, taxation was light and could cause ito ha in: to pr.vate uctivities. Hut ami that taxation has become a mm I b ft lon "O the cp.nmunity the effect of our various taxes require most careful com mi ration. High rites of taxation in its various forms can dry up sources of revenue, stop progress and enterprise and impede production and industry. Rotarian Hull pointed out that dual taxation was having a dire effect -on various industres in Australia. Particularly had this become noticeable in connection v,th the theatrical business. Sir Geo. Tallis had shown in that regard that double taxation had become a crippling factor. J. O’. Williamsons Ltd. had had to close down some theatres, because the public could not afford to pay the charges (plus tax) that had to be made for the higlier-priced seats. Now further retrenchment had been found to be required in an effort to enable the remaining theatres to pay their way. . “While the taxation required annually per head of the population in New Zealand may not now be as great as in Australia, we have reached a point when the most careful consideration is required iron; year io year for the revenue of the country. “Adam Smith has laid down tour maxims which must lie acknowledged as a sound basis of taxation. These are:

(1) “The subjects of every State ought to contribute towards the support; of the Government .as nearly as possible in proportion to their respective abilities, that is, in proportion to the revenue which they respectively on;oy under the protection ot the State. (2) “The tax which each individual is bound to nay ought to be certain and not arbitrary. Tlie time of payment, the manner of payment, tlie quantity to be paid, ought all to be clear and plain'.to- the contributor, and to every other person. ;.3) “Every tax ought to be so levied, at. the time or in the manner in which it is most likely to he convenient for the contributor to pay it,” (4) “Every tax ought to be so contrived as both to take out and keep out of the pockets of the people as little as possible over and above what it brings into the Public Treasury of the State. ’

“Let us compare our own taxation with these rules. We may claim that 75 per cent, that is, all except land and income taxation reasonab'v conform to them. lnSmitb’s first maximum is departed in anv taxing system, but when taxation becomes heavy, especially through graduation, such inequalities and anomalies may become serous. Furthermore if Adam equalities and anomalies will exist from groups* of undertaxed and overtaxed will very soon arise. Have we not many instances of this in our present land and income taxes, and it is desirable that such should exist in a yery marked degree when we consider that receipts from these sources represent only 25 per idgfli, ,of pur total taxation,

“Take 'oiir present • land, tax,. the receipts lrdm. which for last year arqoujitejl VfcqfLj.ujjj' .. o.ver, £1 ,GQG,CCd or! bidy /one-si xjeentfi Alt The, total taxation receipts, ot: - which twothirds'! wks derived l from rural lands. The tax' is’ levied- 1 on 'the unimproved' -value with -a i,]iltiited’i. mortgage exemption, (the same pr.b.visiotjsr, an-' piling ’•tp l’iiral, and urban' labels (with the - - exception of - -certain amendments to rural laud taxation effected ' last",'year’ hyhidh, however does hot 'Hea'i* ’on* thffke/ ’dbs’ervatioiis). i • ‘“ln connection with; rural property the earning . value depends largely on the improvements, effect-: ed, 'and an oivner "of farming “property ' does not consider' ihe Government’s imimprbved yjflue, he regards the' y.alne of ms - ian-1 from a producing-'basis. Now, if. the proportion. of \mhn proved , value wa,s the same', on ,alj .developed , rural property, - uniformity of, valuation existed j and a full exempeioh of ;all - mortgages raised for the acouisitibn ' or iihproveinehfc' cf tlio '• land: it: might be' claimed iKat our land tax. ,operated substantially in proportion’ to’ the revenue r- joyed; However, we' find that firstly, a great variation in’the jVropoition of unimproved to capital value exists. “Take the percentages Hi counties 'lionr • ftp-hand,."Gooff' 44 f“r cent, TJawa 65 per cent., and Hawke’s Bay 74 per cent and the variation extelruts from about 20 per. eon't to BQ-’per cent, f.brdugliout rbe Dominion. .In Gantorbhrv ' eduiUies the averages 1 - arb in - most; cases i.yer 80 per cent.,- vvhich accounts tor so many--of the -elaims tor r.vb.et on hardship grounds, arising out of lash year’s .super land tax.', Secondly, anyone, ''associated .iviih laqd values knows that the, recent revaluation's in -our ■ own -.landgdistrict shows a rl: sc rep a i icy in uniformity, (if valiiation as between, lhe various counties. Thirdly, and i:i addition, a; limited mortgage allowance dependent on a value widen may vary to a large extent when compared to tlie earning value, Ims .-mated a large army; of .tax free, and at the same time hardship has ia eri caiisod through over Taxation. (“With rhe, exception of owners ol land exceeding £10,001) or ovi r, .who are now subject to income tax or land tax, whichever is the' greater, •and ceftaiii' leftsebpiders, owners ot rural litiiils 'iji'H not liab'e tor income tax. ' The; own vs ot all otiier lands, with a tew m-nor excc;uions, are, jn a-dditiqn. to being liable tor land tax are al.-,n assessed tor income tax with no allowance for hind tax paid: IT nan prate ty owners are liab'e to heavy graduated land tax, and thev are in a position to pass on this tax in rent, co.-f ol goods, and* services to Mho ; onsiunoi, who has to snare m i!:e payment

“It may be an evil to aggregate country lands, but, At is surely in the interests and !< r the benefit of the whole’ commiinitv Hint- the merchant and banker extend th.oir activities tibm city to city, town to town, acquire property and erect substantial b uhl'ngs. J hey have a heavy graduated income ?ax to pay on profits, and must- necessarily pass on land, tax as an c \ erheail charge. It. does not seem cqii'tablc that a tax designed to burst up largo rural estates should also apply to city property. It would appear that the substitution of a reasonably low fiat rate c f land tax would tend to reduce the cost of living and ease the financial position A>f many large firms v hieh are now feeling the competition of the small trader who, through not being burdened with a heavy land tax, can make tfie same protit with induced selling prices. _ • . “’There are over 85,000 holdings of agricultural, dairying and pastoral lands in the Dominion and only 29,003 rural land fax pavers who are only liable for one tax. it would appear that in view of the small amount land tax represents of our total taxation receipts that a complete revision of our land taxation receipts that a complete revision of our land taxation might he carried out to advantage. The IC-22 taxation eonnn'ssiou expressed the opinion that the present system of land tax should intimately lie abolished in favor of a flat rate, with a reduction on the smaller holdings, together with safeguards to ensure that that land is properly worked and not held For speculation.

“Income tax receipts for the last vear amounted to three and onethird millions—three times land tax receipts. Over 52,000 taxpayers contributed, and 'almost halt this number derived their incomes from salaries or wages. Probably of all our .sources of taxation, income tax may be regarded as the most equitabe The maximum rate is now 4s 6d in the £ less 10 per cent. <n earned income. It is an appropriation of part of the income of pro. fits. Its operation cannot by itself cause hardsir-p or curtail development. A rise in the rate of income tax could not cause 503 out af 1500 people effected to claim relief on the grounds of hardship as is the case through the increase in land tax iinnosd by last year’s legislation, nor'would-J. C. William son Ltd. have had to' curtail activities in Australia through an increase in income tax, alone. “The chief anomolies. in our income tax system are briefly: Exemption of 1 profits derived from land from' liability ' where the land is freehold and the owner's total LAI. value does not exceed Cl: (which has already been • referred to).. Tax, free debentures not only relieve the holder from tax on the income, derived thereform, but Jesuit in the- holder's rate of .tax on the balance of his income being of a lower graduation, than thal ap-plicable-to his total income received Through '.joint stock companies’ profits being" assessed collectively, the rate of tax payable out- of the profits before distribution is,-in the case of the small investor, usually much higher than his individual rate, and in the case ol large investors often lower than the individual rate, and as with tax free 1 debentures in many eases lowers the graduated. tax on other income. A taxpayer drawing profit from lurid as well as from other ' sources enjoys a low rate of tax ore assessable income.

“I do not wish to appear to be advocating an increase in taxation from those, .already..hffhvily taxed. A highly graduated income[tax, while temporarily-swelling the country’s revenue, may react to the detriment of the State and community. In this - connection the following views expressed by the secretary of ,the British re deration ot Trade Unions .ire interesting:

life most unhappy or p.-cvad-ng assumptions is • that taxing ctipi; ftal relieves- labor. , To }the 'extent that the Government needlessly takes, capital by way of taxes, it is responsible for unemployment. ' Income tax is said to bo the most equitable of all taxes because it ■ places the bin den where the money is. . Up 1o n, point when, the tax absorbs too large a proportion of the income, the" incentive to effort is reduced, and men fail to maintain , their muximmnfi. • Thatpoint has ,b?ni reached to-day. . Thousands of capable men are disheartened, and they ' are resenting the attempt to place too large a. proportion of their earnings at..the disposal pf bureaucracy,,■■ This is bad -■ ‘ ' .... ,- ,i

for.(everybody, but particularly is i t .bad, for the jlionSands of ■ unemployed. They, together with those who claim' '.to -V- represent Uiem, ’should'insist upon l tlie,! i.AX .being reductKl, l- mild 1 .upon* the money remaining where it can be jised ;tp promote the• ’good ; ol industry'. 1 ,• -

“On the other -hand, 'I: make no apologies iu expressing ’ an opinion that it js‘ time the operation, and elf'ecfc of o'Ur land arid '.'income taxes were fully considered with a, view feo’r. complete revision on a basis ' of “contributions in proportion 'to revenue .'enjoyed.'live' result , might well be reduced in the general rate of tax. ' •:

“Land tax," while, not sound in theory, is not likely to lie .dropped in; New Zealand while we are dependent . almost solely on , tlie products of the land for revenue. Could wo not; . regard it as an annual etiiarge of rent duo to the Government in return for that part ot the country’s! debt, expended in providing the "privileges and protection every land owner enjoys ? No land owner . seriously 'objects to local body Tates and pays them , as . a matter of .-course., Tlie total land tax, now received amounts to only. 3d in the £ on unimproved value of all lands in the Dominion, or £3 p4r -CVCtCK) U.I. value. Substitute a tint rate tax of-about this amount foT. our. present tax, arid it -woivlf* be very difficult to advance any sound reason against such a change of - : the principle of every-kind owner—farmer, merchant and. resident'/ 1 owner alike—contributing on a common' basis! Some allowance conk ne 'made- fur mortgages.

'.“Supporters of the dual purpose of tin? present-.-tax ma.v not, lavor ill as such a change would not pro. vide v any -“bursting-up - ’ effect on laTgc areas. Why .'penjalise thousands for a - hundred offenders; Surely such areas could tie classified and a special tax imposed thereon ii" necessary. While it is not in Hie best interests of the .country that agricultural and dairying land should be used for pastoral pui-

poses. it must tic . remembered tb"C much of oiir hill country can he more -.economically broken in and tlcvelopcd in large areas aiut, il projverly farmed, will [iroduce no more by close: settlement : jn fact, through lack 'Of 'capital it often dfiees less, at an mereased cost Jc the country for reading etc. and at the same time is the .means . t reducing taxation revenue under our present system. “Unless direct taxation ho based on revenue earned, how can one section of the community substantiate a claim of being overtaxed as compared bath' another section. £lO-30 net -profit; .earned from farming has the same, spending power as £IOOO earned from a business oi salary, and providing that in all cases allowance is made tor depreciation of all improvements and assets of a wasting nature used ir producing income aiid the pay. on 1 of annual land tax, the resulting income, howsoever earned, v list surely be a. sound and common sense basis on which to assess income' taxation. On this basis a tuxlower than the present one would produce a sum equal to the pjesenf total receipts.

“The fluctuating prices obuiirod for our products would cause a large variation m the told taxation received each year, but the prudent individual does not :q end his whole income in an exceptionally good year, he reserves some if or the lean year, a policy tlie Government might also adopt. “Although the ideas I 'have expressed may sound well, many reasons could no doubt be advanced against their being -applied, on the other hand it will be admitted by anyone familiar with the operation of our present taxation that t* tre are inequalities requiring adjustment. The farmer is entitled to a more certain tax based on anility to pay. and commerce and industry requ'Te some relief from the two heavy taxes they are now subject to.

“lu conclusion, some such ievasion of taxation would tend pc case the burden on production aim industry, maintain confidence for development and progress, and relieve unemp'oyment. which are our main national problems to-day.”

(Loud applause.) On the motion of .Rotarian Nicholls. Rotarian Bull was heartily thanked for his interesting address.