FREE OF INCOME TAX.

Manawatu Herald, Volume XL, Issue 1909, 30 November 1918, Page 4

FREE OF INCOME TAX.

WAR LOAN CONTROVERSY. In - ins Dndgel the .Minister of finance (Sir Joseph Ward) replies lo various criticisms of the income lax exemption of war loan interest (W per cent.). The Minister slat-

“Objection lias been raised tu Uie present practice on the ground that persons wiiu now pay the highest rate of income tax —7s (id in the pound—provide for themselves an investment which produces a rate of interest amounting to 7! per cent, by investing in the war Joan, ■i his position, however, applies only to 261 inves ! ors, as that is the number of individuals who pay the highest rale of income tax. A considerable number of these taxpayers are the largest employers of labour. 1 leave out from these calculations the public companies, ns it is impossible to estimate the individual interests of the shareholders.

‘•'file average rate of income tax amounts to 3s Id in the pound, and, to a person paying the average rate of tax, an investment free of income tax in a If per cent, loan would be to ini valent to an investment at the rale of i's 7s per cent, subject to income lax. There are 35,000 taxpayers who pay 'the average income tdx or less, not including public companies, and there are only 0-11 persons who pay income tax in cxc C-.-5 of the average, of whom 26-1 pay the highest rate. “if v.e issued a loan at, say, 51 per cent, subject to income tax, c\ cry person -who subscribed,

whether liable to income tax or not, would bo entitled to the higher rate. If a person who is subject to income lax at the average rate of Hs Id in the pound l were to invest .CIO') in a war loan at. 5 per cent, subject to income tax, he would pay tax amounting to -17 s in respect of bis investment. The Government would, ho\vever, pay him 2Us per cent, interest in excess of present rate of If per cent. The country would thus lo.se 3s per cent., which would mean a total loss of flit),000 annually upon the amount of war loan borrowed in the Dominion up to the present time. This, however, is hy no means the full measure of the loss that would result, as many miliious of the war loans have been subscribed by persons who are not subject to income tax at all, and the Treasury would therefore have no means of recovering any portion of the additional 1 per cent, from them. Sir Joseph also says that there is a very strong depart menial difficulty in regard to the taxation of loan interest in eases where the subscribers purhase hearer bonds. The Minister agabi (pmles the precedent of Great Hrilain. Ausiraiia, the Lniled Stales, and Canada.

’■There can he no (pic'lion,'’ lie deflares, “iliaf the Tree-of-ineomo-tax condition proved a. very great incentive to investors, and has greatly contributed to the success of omWill’ loams.’-’ He also repeats his argument- that the exemption Jms “kept down the rale of interest for money throughout the war period.”