EQUALITY OF SACRIFICE

Hokitika Guardian, 30 April 1924, Page 4

EQUALITY OF SACRIFICE

TAXATION AND ITS INCIDENCE,

SOME FACTS AND FIGURES

(Contributed). Speaking at Invercargill during his recent tour of tlie South Island the Prime Minister said that the ideal system of taxation would he one requiring every individual in the community to contribute in exact proportion to his ability to pay. This i,s a new rendering of the melodious phrase “ Equality of Sacrifice”, and brings Mr .Massey into line with the other financiers who have given serious thought to this subject. But if cveiv person is to contribute to the public revenue in proportion to his ability to pay, then taxation must be levied in such a way that lie will pay it actually out of his own resources, and will have no opportunity to pass it on for other people to bear. This is the very first essential of the Minister’s ideal system. If the nominal taxpayer can pass on his burden to other people, as many individuals and companies are doing under the preset system, then lie becomes merely a collector for the State. Taxation should be levied m such a way as to ensure it remaining where it is intended to be placed.

graduation. Then a precise definition ot the phrase “Equality of Sacrifice” is required. Until comparatively recent years a man was deemed to pay income tax “in prcmrtiili to his ability to pay” if lie paid a fixed percentage ot his income, no matter how large it might ho. It was not until the special circumstances created by the to oat Wur arose that the system of graduated taxation, which is now adopted by most countries in olio form or another, was brought into general operation. The idea behind the graduated income tax is that the man with a large income call spare for State purposes a larger proportion of each pound sterling than can the man with a small income. If this principle is accepted, as it has been almost universally, then it is important to ensure that taxation. shall ho so levied that every person pays in proportion to his total income from all sources. INEQUALITIES. Under the persent system a man in the enjoyment of a large income mat escape with a low rate of graduation because Iris income is derived from several sources, some of which are not taxable, while another man receiving a smaller income may he graduated at a high rate because the whole of his income is derived from one source which is taxable. A man, for instance. may he receiving £I,OOO a yeai salary, twice as much from the successful working of a farm, and twice as much again from shares in a company. £5,000 in all. and yet liis income tax would lie only £SO, while the income tax of a ii.ian recSß'ing £2,000 as a salary and having no other income at all would he £lB7 13s -Id, nearly four times as much as would he paid by the man with an income of £3,000 larger. I his is tho kind of inequality the adoption of Afr Afassev’s system would remove. HAPHAZARD METHOD*.

But there are even greater evils than this in the haphazard taxation of companies. In the financial year 1921-22. when the maximum income tax was 7s 4d in the pound the companies in the Dominion with assessable iiicomse amounting to £12,72i.\8(i.> paid taxation amounting to £4,515,501 or an average of 7s Id on each £1 <>! income; while private individuals with assessable incomes amounting to £25,023,801. paid taxation amounting to £1.751.110, or an average of only Is id on each pound of income. Ihe disparity was not quite so great in the financial year 1922-23, owing, it may be supposed. to the excessive taxation placed upon companies and to their lessened incomes; hut the following table show that the burden still was altogether disproportionately distributed ; Taxpayers. Per cent, of total tax. 1921-22 1922-23 Companies 72.07 00.13 Land-owners 3.54 2.12 Traders and manufacturers 0.45 8.93 Salaried persons ... 3.41 0-01 I’rofessional ® 4.04 3.82 Investments etc. ... 0-79 10.52 Non-resident traders .70 2.11 100.00 ioo.no The real disparity is even greater than these figures show, since the total individual incomes include the incomes only of those who have assessable incomes, while according to the evidence given before Taxation Committee by the Commissioner of Inland Revenue, only about half of the total assessable incomes of companies would he assessahlo if share-holders were taxed "ii

their own incomes. The present system is not graduated taxation at all. ft is merely a levy on the general public, in which the companies are employed as tax collectors. RELIEVING THE RICH.

The figures for the two years just quoted, taken with the other data avaih able, demonstrate dearly that in a very large measure the present system results in many wealthy people escaping their fair share of taxation, while the poor and those of moderate means (especially the farmers) carry the great bulk of the load. This is entirely opposed to the-basic idea ol the graduated system which is that the individual with a largo income can spare for public purposes a greater proportion of each pound than can the individual with a small income. This is. how it. works out wherever the individual system of taxation is adopted. But m New Zealand the taxation of companies as if their profits were the income of individuals, added to the other avenues that are supplied in this country for the escape of taxation by the wealthy, moans that almost the whole income tax is passed oil to the public, and a great part of it ultimately borne by the farmers who cannot pass anything on • Under the individual system of taxation, passing on is impossible.

PASSING ON. The great evil of the New Zealand system of levying income tax is that it departs entirely from the great principle of “Equality of Sacrifice.’’ The 28 per cent, which came from individuals in 1921-2*2, while nominally collected on the graduated principle, was not really collected in that way, many avenues being provided for individuals with largo incomes to escape the operation of the graduated system. The 72 per cent, collected from companies was merely a levy on the people the companies serve. It was in fact, sim-

ply taxation of the poor and those of moderate means, with the companies employed as tax-gatherers. It is a recognised fact that an individual tax on all individual incomes, such as that in force in Great Britain, cannot be passed on, but must he paid l>v those on whom it is levied. It is inevitable, however, that a sectional tax, such as the company tax in New Zealand, must be passed on. It would he impossible for tho companies to actually pay the tax themselves and to continue to carry on business. THE INEVITABLE.

“Companies,” a high authority has stated, “are created by individuals, are owned by individuals and remain in existence only so long as their individual .shareholders wish. It is evident. therefore, that if shareholders must pay ten and a half times as much tax on their company income as on their other income, they will put their savings into companies, or let them remain in companies, only while these companies can collect this extra tax from their customers, and thus pay to their shareholders at least as good a return as the .shareholders could got by investing their money in other directions. Any company that cannot do this will not be allowed to remain in existence very long. It will be wound up and its capital returned to the shareholders. No proposed company will come into existence if it cannot show that it can pass its tax on to those whom it is organised to serve. The public are now paying the hulk of the company tax in New Zealand through increased charges. If the present system is maintained it will not lie long before the public pay tiie whole of the income tax, because only those companies that can pass the tax on will he allowed to remain in business. The best informed opinion in the Dominion appears to incline strongly towards this view. THE REMEDY. The Royal Commission now sitting ims been appointed to investigate the whole position and report to the Government. The Prime Minister's frank acceptance of the principle of “Equality of Sacrifice” is a good augury for the institution of far reaching reforms, and for tho adoption, of a system that will place upon the shoulders of each individual the share of the country’s burdens he is entitled to hear.