INCOME TAX

Hokitika Guardian, 16 September 1927, Page 4

INCOME TAX

GROWTH AND REDUCTION

MR W. D. HUNT’S VIEWS.

(Special to “ Guardian, j WELLINGTON, Sept. 13.

in the coarse oi : an interview today Mr W. D. Hunt, the head of the well-known firm of Wriyi.t Stephenson and C<>. Ltd., supplied some very interesting information in regard to the, laud and income taxation and its., operation over a series of years. -Mr Hunt was chairman of the. committee appointed by the Government in lt«2; to inquire into the taxation or the, Dominion, and also a member oi the commission, under the presidency of. Mr .Justice Sim, set up under warrant; from His Excellency the Governor-Gen-eral in 1924 to inquire into the present system of land and income taxation in all its aspects. These experiences. added to his wide and intimate acquaintance with rural, commercial and financial affairs, gives some exceptional advantage in discussing intricate'problems that are concerning Parliament and the public at the present

«] do not wish to add unnecessarilyto the Hood of criticism that lias been directed against the Government’s proposals in connection with the income tax.” Mr Hunt emphasised when reminded that the public expected him. to say something about this matter., ‘‘But it is true, as my friends have: put it to mo before, that as a member, of the committee of 1922, and of the; commission of 192-1, I enjoyed opportunities—at the expense of the eoun-; try, by the way—to obtain informa-i tion concerning the Dominion’s taxation svstem which is not available to the community at large If I may give as much as I can of this information to tho public, without burdening it with technicalities or betraying necessary confidence, I shall be glad to d-o so.” The compact was scaled and the authority needed no further prompt-

THEi WAR AND AFTER. “At the outbreak of war in 1914,’” Mr Hunt recalled, the income tax commenced at Gd in the pound for individ-t unis and Is in the pound for companies on the first £4OO of taxable income: —ihe exception then being £3OO as it j s now-—and it- gradually increased until the maximum rate was reached at £2,409 when the tax stood at Is 4d in the pound for both individuals and companies in order 1 o carry Ihc “war burden” successive increases were made partly by an all-round increase in the rate, but chiefly by an increase of the graduated rate beyond -£2,400 for both individuals and companies. The highest point was reached in io2o when the rate stood at 1/2 2-oths in the pound on taxable incomes liclow £4OO, and gradually increased until the maximum was reached of B'OiJ in the pound on incomes of £10,0(10 and upwards. Compared with the 1914 rate, the increases amounted to 8 2-51 hs pence in the pound, or 140 per cent, on the smaller incomes, and gradually increased to an' addition of 7/0 8-sthsj or 560 pec cent, on ,ifhe larger incomes. After 1920 successive reductions in the income tax rate were made, but these reductions were not determined in the same way as the increases had boon. They merely took the form of an all-rouml per cent age reduction, the same rate applying to incomes that had been paving 560 per cent, extra. Certain alterations were made in exemptions, some being increased and some being decreased, the deciding factors living the individual’s circumstances in regard to dependents, life insurance, whether his income was earned or unearned and so forth. Speaking broadly, it can be said that as a result of these adjustments, incomes below £2,000 a year are to-day paying on the average not more than they did in 1914, and therefore are carrying none of the war burden. Large incomes, on the other hand, still are paying 3/2 in the pound more, or 237 per cent more than they were in 1911.’-' SOME ANOMALIES,

A peculiar feature of the New Zealand income tax systems, one in which it differs front all other countries, is that it requires the incomes of companies to ho taxed in the same way .as are the incomes of individuals. The tax is paid by a company on the graduated rate that applies to its whole incomo, and its dividends are distributed on. the tax paid basis. All its shareholders, large or ssmall, receive their dividends at the same net rate. The great bulk of the large incomes returned in this country come from companies, not from individuals, and it is through companies that the hulk of war 'burden, is being carried. Of the incomes returned to the Income Tax Department, more than 80 per rent .of the total are from individuals and less than 20 per cent, from Companies, but of the amount of tax col- 1 looted more than 00 per cent, comes, from companies and under 40 per cent from individuals. In other words, less than 20 per cent of the income is paying more than GO per cent, of the; tax, while over 80 per cent, of fbo income is paying less than 40 per cent of the tax. It is important then to ascertain who is paying the company: income tax. Companies are not in-, dividuals, they are generally owned by a. multitude of small investors. An analysis of the share lists of almost all the large companies and banks will - show that the great hulk of their capital is supplied bv small people, the large shareholder being quit© an exception. A company has only two sources from which to get money to pay its income tax. It either deducts the tax from its profit, and pays; the shareholders a correspondingly, smaller dividend, or else it ndds the; amount of the increased tax to its working costs and collects it in higher charges to its customers." Most of' the* economists who'have written on this subject state that income tax cannot be passed on to customers, but must be paid out of the resources of the in-! dividual upon who it is levied. These economists for the most part, however, found their theories upon their .rnservations in countries where income tax is paid by individuals and not by companies, and write from that point of view. 'Where a special tax is levied on capital invested in companies, as is '■ the case in New Zealand, it is obvious that the whole, or at all events a verylarge part- of it. must in the end be passed on to the companies’ eus-, tomers.” DISTRIBUTING THE BURDEN. “Of the total volume of individual income, apart from that of companies, returned by the Income Tax Department. approximately 90 per cent is returned by individuals with incomes of 62.000 a year and less, and only 1 per cent by individuals with incomes over £2.000 a year. This being the case, is it right that all this mass of incomo and all these people should be free from contributing to the burden imposed by the war. Has an individual with £I.OOO a year, with £1,500 a year, with £2,000 a year the right to say that he is not weli' enough off to pay anything towards the cost of the war. Tlie Government’s proposals would put a very small proportion of the war load on such people. It is suggested that a man with £SOO a year should pay on the average about 10s a year more than he did in 1914, that a man with £I,OOO a year should pay

on the average £ls a. year more, and •that a man with £2,000 a year on the average pay roughly £25 a year more. These increases represent the total direct contribution of people with these incomes to the burden of the war. Can

anyone conscientiously say they are asked for more than their share. Tho proposals of the Government will bring in an increased revenue from income tax. It must be an increase, because there nro no deductions from theii schedule. All tho alterations are increases. There may he no reason why there should ho an increase in taxation, but there is every reason why there should bo a readjustment in the scale of taxation. In my opinion the Government is right in attempting to re-arrange the scale, hut it has not gone far enough. Its .proposals stop very much short of tho recommendations of the Taxation Committee. Where the Government has gone wrong is in using the re-arrangement of the scale to bring in an increase of revenue. The Income Tax Department has the data to calculate almost ex-

actly what increase in revenue the proposed now scale will bring. The whole schedule should now be reduced on a pier centago basis in order that the revenue should he approximately the same as last year. ft would be better if a reduction could he made. But if this is not possibVe, the country will not stand for an increase. Every piound taken by taxation is n pound withdrawn from industry and enterprise, and to this extent reduces the capacity of the community to increase production and employment.” In a half hour’s chat Mr ’Hunt mentioned a dozen other features of the Government’s finance, handling them all with understanding and precision, but for the moment passing events must take precedence.