WARTIME TAXATION

Manawatu Standard, Volume LX, Issue 135, 8 May 1940, Page 8

WARTIME TAXATION

BAD RESULTS OF INFLATION. ADDRESS TO ROTARY CLUB. The various possibilities and difficulties of wartime finance and taxation were discussed by Mr H. C. Jenkins, of Wanganui, who gave an address on “Taxation in Wartime” to the Palmerston North Rotary Club on Monday. The speaker condemned inflation when carried out excessively and said that the post-war inflation in Germany was one of the main causes which led to the present war. “When we contemplate the problem of financing the war wc at once see that there are four channels open to the Dominion,” said Mr Jenkins. These channels were taxation of the citizens, borrowing both internally and externally, commandeering ex-ternally-owned property, such as English, American and Australian securities, and lastly inflation. The prospect was that the Dominion would tax and borrow, and also permit a measure of inflation, while if conditions became more difficult the commandeering of external resources might be resorted to.

“My own opinion is that our financial policy should be fashioned with a view to avoiding inflation as much as possible,” said Mr Jenkins. “Inflation destroys the title to accumulated wealth which is placed upon loan. The fixed interest bond, the mortgage and the bank deposit are destroyed to the same extent as inflation is indulged in. That is perhaps its worst feature, but there is another which is almost as bad—that is, when inflation gets well and truly under way there appears to be little hope of checking it. Economic disturbances caused by inflation lead to a widespread sense of having been wronged, and it is this sense of having been wronged, which arose out of the German inflation of 1922-2 J, which called forth such national atavism in Germany that Hitler’s rise to power became possible. This same sense of having been wronged raised up Nazis in Austria, Poland and Czechoslovakia. It is no exaggeration to-day to say that we are at war as a result of inflation and its consequences. .This war is going to test our civilisation to the foundations in any case, but it has been shown already that inflation is nothing but an undermining of those very foundations themselves. TESTIMONY OF HISTORY.

“Do not think that what has happened in European countries could not happen here, because it could, and it will do so if the same course is pursued,” asserted the speaker. “Like measures will induce like results. This is not merely my opinion, but is the testimony of the history of the last quarter of a century.” The commandeering of external property by the Government should not be engaged in lightly, for the prudent investor who spread his capital over a wide geographical area was obejing one of the main principles of investment, proceeded the- speaker. Seeing that in New Zealand the channels for new investment were almost non existent, external investment should not be discouraged. External borrowing would be engaged in, Mr Jenkins continued, because the United Kingdom Government would provide war equipment and munitions to the New Zealand forces and would debit the Dominion Government with the cost. Whether the United Kingdom Government would be as accommodating as it was in 1914-1918 was a matter for conjecture, but as long as the income which New Zealand received was spent on expanding the production of foodstuffs there would be considerable advantages to the United Kingdom and to the Dominion in these loans being made freely by the Imperial Government. Internal borrowing was just as legitimate as external borrowing while it was used either in furthering production and in prosecuting the war. Dealing with the possibility of meeting all war expenditure out of taxation, Mr Jenkins said that the aggregate of private incomes recently averaged £122.000,001) a year. The Minister for Finance had said, “It is reasonable to estimate that the expenses to be financed for the war in or from New Zealand will amount to £13,000,000.” This was in addition to the amounts now drawn from the public for current taxation for other purposes. The taxation budgeted for last year totalled £32,320,000; the social security fund would probably collect £10,000,000; and so with the £13,000,000 additional the sum of £55,320,000 would require to be provided in New Zealand. This total sum represented nearly 60 per cent, of the aggregate of private incomes. It seemed to be logical that the Government would borrow money for the prosecution of the war, thereby saving the citizens from the maximum taxation burden. This policy aided production, for high taxation tended to kill business. EFFECT.OF BORROWING. If the whole of the war cost were provided by loan money what would be the position? the speaker asked. It would mean a tremeudous increase in 7 the money being spent, a great demand for labour of all kinds, including the skill of management, which would enjoy an enlarged monetary income. War, however, involved a tremendous wastage of men and materials. If this enlarged public demand for goods was allowed to be satisfied then such a demand would get in the way of production for war purposes. it therefore would become necessary to restrict civilian consumption. To accomplish this was the essential problem of war taxation. The first consideration of a nation at war was to sustain the health of the people, and so taxation must be so fashioned as to leave with each individual a certain minimum of income. The next consideration was to encourage everyone to make the best contribution. “Soaking the rich” had definitely a strong appeal about it, but would not in New Zealand provide an adequate yield to carry on the war effort, while the discouraging of initiative would have to bo offset against whatever was secured. Clearly then the basis of war taxes must be broadened to almost all sections of society, out of necessity. Income tax, in its origin a war tax, would be increased. The-excess profits tax was more easily applicable to industry than it was to farming. Lower bracket incomes could not easily be subjected to income tax, and the Customs and sales taxes made deductions from those in the lower income brackets. These brat, kets could be so arranged as casting too heavy on families, and it was here that the wages tax ’ was deficient. It levied on income without regard to the taxpayer’s responsibilities :to families or his payments of indirect taxes. The speaker concluded By referring to the plan’, dejvised by Mr J. JM. Keynes, the.teepnoniist, to make deferred payments;, -to workers who enjoyed an increase of income during the war. This would not allow of luxury

spending during jtlie lvar, and would give workers resources to draw upon to meet unemployment in any postwar depression. He believed that this plan was being adopted in Canada, and he would like to see it adopted in New Zealand. On the motion of Mr A. Grigor, a vote of thanks to the speaker wa;i carried, by acclamation. Mr J. A. Grant presided at tlie luncheon. Visitors were Messrs A. C. Steel (Gore) and D. Thompson (Marton). Mr J. B. Gerrand was welcomed on his return to the club after having been absent through illness, ■